Go For Smart Future, Grow With China Telecom Cloud Annual Report 2022 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 leading large- scale integrated intelligent information services operator in the world whose principal business is the provision of fundamental telecommunications businesses including wireline and mobile communications services, value-added telecommunications businesses such as Internet access services, information services and other related businesses. As at the end of 2022, the Company had mobile subscribers of about 391 million and wireline broadband subscribers of about 181 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. CONTENTS 2 3 8 Important Notice Section I Defi nitions Section II Company Profi le 13 Section III Management’s Discussion and Analysis 68 70 (Report of the Directors) Recognition and Awards Section IV Corporate Governance Report 78 Biographical Details of Current Directors, Senior Management and Supervisors 127 Section V Environmental and Social Responsibilities 130 Section VI Signifi cant Events 165 Section VII Changes in Shares and Information on Shareholders 174 Section VIII Relevant Information on Bonds 179 Section IX Financial Reports 179 Independent Auditor’s Report 185 Consolidated Statement of Financial Position 187 Consolidated Statement of Comprehensive Income 189 Consolidated Statement of Changes in Equity 190 Consolidated Statement of Cash Flows 193 Notes to the Consolidated Financial Statements 288 Financial Summary 291 Shareholder Information Corporate Culture IMPORTANT NOTICE 1. The financial statements of the Company for The profit distribution plan shall be submitted to the the year of 2022 prepared in accordance 2022 Annual General Meeting of the Company for with the International Financial Reporting consideration. Standards (“IFRSs”) have been audited by PricewaterhouseCoopers, who has issued a 3. Risk Statement of Forward-Looking Statements standard unqualified audit report. Forward-looking statements, such as development 2. The profit distribution proposal or proposal for strategies, future business plans and prospects, conversion of capital reserve into share capital for contained in the 2022 annual report of the Company do the Reporting Period approved by the Board not constitute a commitment of the Company to investors. These forward-looking statements are subject to known Pursuant to the previous decision of the Board, within and unknown risks, uncertainties and other factors three years after the A Share Offering and Listing, the which may cause the Company’s actual performance, profit to be distributed by the Company in cash for each financial condition or results of operations to be materially year will gradually increase to 70% or above of the profit different from any future performance, financial condition attributable to equity holders of the Company for that or results of operations implied by such forward-looking year. After fully considering the Company’s cash flow statements. In addition, the Company will not update level, the cash return to shareholders, etc., the Board these forward-looking statements. Investors should be of Directors proposed a final dividend of RMB0.076 per aware of the investment risks. share (pre-tax) in an aggregate amount of RMB6,955 million calculated based on 91,507 million shares, being 4. Significant Risk Warning the total number of issued share capital of the Company as at the end of 2022. The dividend distribution is The Company has described in detail the economic and derived from net profit realised in the current period. policy environment adaptation risks, business operation Together with the 2022 interim dividend of RMB0.120 risks, network and information security risks and per share (pre-tax) which has been distributed, the full- international operation risks in this report. Please refer to year dividend of 2022 amounts to RMB0.196 per share the “Management’s Discussion and Analysis (Report of (pre-tax) in an aggregate amount of RMB17,935 million the Directors)” in this report. which represents 65% of the profit attributable to equity holders of the Company for the year 2022. 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 accordingly. 002 China Telecom Corporation Limited Annual Report 2022 SECTION I DEFINITIONS DEFINITIONS In this report, unless the context otherwise requires, the following terms and expressions have the following meanings: 2B 2C 2H 5G To Business, communication and informatisation services for government and enterprises To Customer, communication and informatisation services for individuals To Home, communication and informatisation services for households 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 AR ARPU 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 Telecom Corporation Limited Annual Report 2022 003 SECTION I DEFINITIONS China Comservice/CCS China Communications Services Corporation Limited (中國通信服務股份 有限公司) China Telecom Digital Intelligence China Telecom Digital Intelligence Technology Co., Ltd. (中電信數智科技 Technology 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) China Telecom Global China Telecom Global Limited (中國電信國際有限公司) 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/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) 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 Company China Telecom Cloud Technology Co., Ltd (天翼雲科技有限公司) Cloud Computing An Internet technology that provides flexible and on-demand services to external users through the Internet with pooled cluster computing capabilities Company Law The Company Law of the PRC CSRC China Securities Regulatory Commission 004 China Telecom Corporation Limited Annual Report 2022 China Telecom Corporation Limited Annual Report 2022 SECTION I DEFINITIONS DDoS Attack Distributed Denial of Service Attack, which means multiple attackers in different locations attacking one or several targets at the same time, or an attacker controls multiple machines in different locations and uses these machines to attack the victim at the same time 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 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 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 IDC Internet Datacentre China Telecom Corporation Limited Annual Report 2022 China Telecom Corporation Limited Annual Report 2022 005 SECTION I DEFINITIONS 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 IoT Company Tianyi IoT Technology Co., Ltd. (天翼物聯科技有限公司) 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 MIIT PCT Hong Kong Limited Ministry of Industry and Information Technology 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 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 006 China Telecom Corporation Limited Annual Report 2022 China Telecom Corporation Limited Annual Report 2022 SECTION I DEFINITIONS Reporting Period Period from 1 January 2022 to 31 December 2022 SASAC State-owned Assets Supervision and Administration Commission of the State Council Securities Law The Securities Law of the PRC Security Company Tianyi Safety Technology Co., Ltd. (天翼安全科技有限公司) 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 in 2021 Dual 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 2022 China Telecom Corporation Limited Annual Report 2022 007 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 Securities Affairs the Board Li Yinghui Representative Company Secretary 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 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 the Company 100033 Principal place of business in Hong Kong 28th Floor, Everbright Centre, 108 Gloucester Road, Company website E-mail Wanchai, Hong Kong www.chinatelecom-h.com ir@chinatelecom-h.com 008 China Telecom Corporation Limited Annual Report 2022 SECTION II COMPANY PROFILE 4. 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 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, Liang Jingjing 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 China Telecom Corporation Limited Annual Report 2022 009 PERSONAL CLOUD TO ENABLE INFINITE POSSIBILITIES 2022 Highlights Fully implemented Cloudification and Digital Transformation taking high-quality development to a new level Fundamental Businesses and Industrial Digitalisation serve as dual engines and China Telecom Cloud revenue doubled again Insist on the leading role of sci-tech innovation with substantial progress in capability deployment Expedite promotion of cloud-network integration to solidify the foundation of digital infrastructure Fully deepen corporate reform and further enhance corporate vitality and impetus Develop world-class enterprise and fulfill the responsibility in building Digital China SECTION III MANAGEMENT’S DISCUSSION AND ANALYSIS (REPORT OF THE DIRECTORS) Mobile Communications Service Revenues Wireline and Smart Family Service Revenues Industrial Digitalisation Revenues 3.7% 4.4% 19.7%1 Expedite digitalised, scene-based and converged product and service upgrade Cloud- integrated % of China Telecom Cloud to service revenues Security- integrated Network security service revenue AI- integrated AI revenue Platform- integrated Project revenue driven by proprietary digital platforms 6.4p.p. 23.5% 51.8% >RMB6Bil 1 The Industrial Digitalisation revenue growth is on comparable basis by excluding the Internet Finance revenue for 2021 of E-surfing Pay Co., Ltd. (which was disposed in April 2021). China Telecom Corporation Limited Annual Report 2022 013 SECTION III MANAGEMENT’S DISCUSSION AND ANALYSIS (REPORT OF THE DIRECTORS) Ke Ruiwen Chairman and Chief Executive Officer 1. DISCUSSION AND ANALYSIS OF OPERATIONS In 2022, the further advancement in the building of Cloudification and Digital Transformation strategy. The Digital China as well as the thriving development of Company further advanced the deployment of capabilities digital economy brought new development opportunities led by sci-tech innovation and leveraged deepened to the industry. The Company implemented the new reforms to propel the unleashing of development development principles completely, accurately and momentum continuously. The Company’s corporate comprehensively based on the new development stage, governance system has been further optimised. The while taking the initiative to serve and integrate into the Company spared no effort in developing a service- new development pattern. The Company resolutely oriented, technology-oriented and secured enterprise, fulfilled its responsibilities in building Cyberpower while sharing the new achievements of its high-quality and Digital China as well as safeguarding network development with shareholders, customers and society. and information security and fully implemented its 014 China Telecom Corporation Limited Annual Report 2022 SECTION III MANAGEMENT’S DISCUSSION AND ANALYSIS (REPORT OF THE DIRECTORS) 1. OVERALL RESULTS In 2022, the Company’s operating revenues amounted to RMB481.4 billion, representing an increase of 9.5% year-on-year. Service revenues2 amounted to RMB434.9 billion, representing an increase of 8.0% year-on- year. Excluding the revenue impact from the disposals of its subsidiaries in 20213, the year-on-year growth rate reached 8.1%. EBITDA4 amounted to RMB130.4 billion, representing an increase of 5.2% year-on-year. Net profit5 amounted to RMB27.6 billion, representing an increase of 6.3% year-on-year. Excluding the one- off after-tax gain from the disposals of its subsidiaries in 20216, the year-on-year growth rate reached 12.5%. The basic earnings per share were RMB0.30. Capital expenditure was RMB92.5 billion and free cash flow7 reached RMB13.2 billion. The Company attaches great importance to shareholder returns and strives to enhance its profitability and cash flow generation capabilities, while effectively controlling capital expenditure. Taking the Company’s profitability into full consideration, alongside cash flow levels and capital needs for its future development, the Board of Directors has decided to recommend at the Annual General Meeting that a final dividend of 2022 of RMB0.076 per share (pre-tax) shall be declared. Together with the 2022 interim dividend of RMB0.120 per share (pre-tax) which has been distributed, the full year dividend of 2022 amounts to RMB0.196 per share (pre-tax), and the aggregate amount of the full year dividend represents 65% of the profit attributable to equity holders of the Company for the year. Within the three years following the Company’s A Share Offering and Listing, the profit to be distributed 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, continuously creating more value to all shareholders. 2 3 4 5 6 7 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 RMB206.9 billion, representing an increase of 6.0% year-on-year; wireline service revenues amounted to RMB228.0 billion, representing an increase of 9.8% year-on-year. Service revenues for 2021 excluded Internet Finance revenue prior to the disposal of E-surfing Pay Co., Ltd. which was completed in April 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 Co., Ltd. and China Telecom Leasing Corporation Limited was approximately RMB1,416 million. 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. Strong Revenue Growth Remained, Profitability Further Enhanced 9.5% Operating revenues 8.0% Service revenues 10th consecutive year of growth 12.5% Comparable net profit Maintained double-digit growth Surpassed revenue growth China Telecom Corporation Limitedt China Telecom Corporation Limited Annual Report 2022 Annu 015 SECTION III MANAGEMENT’S DISCUSSION AND ANALYSIS (REPORT OF THE DIRECTORS) Increase Dividend to Reward Shareholders Dividend per share RMB 0.170 60% 0.196 65% Full-year dividend per share RMB0.196 Payout ratio 65% 2021 2022 Payout ratio 2. FULLY IMPLEMENTING CLOUDIFICATION AND DIGITAL TRANSFORMATION STRATEGY, WHILE TAKING HIGH-QUALITY CORPORATE DEVELOPMENT TO A NEW LEVEL 2.1 Further upgrade of integrated intelligent information products and services, with adherence to the customer- oriented approach The Company further accelerated the transformation of In 2022, the Company comprehensively implemented its its fundamental businesses, strengthened the promotion Cloudification and Digital Transformation strategy, and of digital products supply, and proactively expanded fully completed its deployment in the fields of businesses, the new path featuring integrated development of Smart capabilities, sci-tech innovation, cloud-network Family, Digital Village and Smart Community, enabling the and reforms. The Company built new development whole society to enjoy a better digital life while promoting momentum through cloud-, AI-, security- and platform- the steady growth of its fundamental businesses. The integrated initiatives and further enhanced its digital Company continued to strengthen its 5G network supply capabilities. The Company strived to develop coverage, optimise network quality and enhance 5G an enterprise with “three orientations”8 while further user experience to promote mobile subscribers growth advancing its high-quality development. and value stabilisation. Leveraging the convergence of 8 Enterprise with “three orientations”: service-oriented, technology-oriented and secured enterprise. 016 China Telecom Corporation Limited Annual Report 2022 SECTION III MANAGEMENT’S DISCUSSION AND ANALYSIS (REPORT OF THE DIRECTORS) “5G + Gigabit broadband + Gigabit WiFi”, as well as the rate of 5G package subscribers reached 68.5%. The incorporation of digital elements such as AI, security, value contributions from mobile value-added services cloud, the Company promoted the application expansion and applications continued to grow, with mobile ARPU9 and service upgrade of broadband subscribers. With the reaching RMB45.2, representing an increase of 0.4% creation of an open and integrated digital life platform, year-on-year. Wireline and Smart Family service revenues the Company provided communities and villages amounted to RMB118.5 billion, representing an increase with leading capabilities in connecting households, of 4.4% year-on-year. The penetration rate of Gigabit communities and government, as well as abundant broadband reached 16.8%. The number of Whole-home solutions for grassroots governance. The Company also WiFi and e-Surfing Webcam subscribers increased by provided integrated scene-based applications such as 45.8% and 52.7% respectively. The value contributions Video Door Access Control, Community Management from Smart Family service continued to grow. Broadband and Village Governance. In 2022, the Company’s blended ARPU10 reached RMB46.3, representing an mobile communications service revenues amounted to increase of 0.9% year-on-year. The Company’s overall RMB191.0 billion, representing an increase of 3.7% year- customer satisfaction maintained an industry-leading on-year, maintaining favourable growth. The penetration position. 9 10 Mobile ARPU = monthly average revenues from mobile services/the average number of mobile subscribers. Broadband blended ARPU = monthly average revenues from broadband access, e-Surfing HD and Smart Family applications and services/the average number of broadband subscribers. User Structure Optimised Gradually 5G package subs penetration 68.5% 18.1p.p. Gbps penetration 16.8% 9.1p.p. China Telecom Corporation Limited Annual Report 2022 017 SECTION III MANAGEMENT’S DISCUSSION AND ANALYSIS (REPORT OF THE DIRECTORS) Expedite Integrated Development of Smart Family, Communities and Digital Villages e-Surfing HD, Whole-home WiFi, e-Surfing Webcam... Launch whole-home intelligent integrated solutions Develop Smart Communities Develop Digital Villages Revenue contribution ARPU contribution Mobile value-added and applications RMB22.91Bil 17.0% Smart Family RMB16.80Bil 21.0% Mobile value-added and applications contributed RMB5 to mobile ARPU 11.1% Smart Family contributed RMB8 to broadband blended ARPU 14.3% T h e C o m p a n y p r o a c t i v e l y s e i z e d t h e c u r r e n t economy and society, achieving remarkable results in opportunities brought by the demands from various scale expansion in key areas of national economy and industries in the economy and society for network- people’s livelihood. Focusing on 5G industry use cases, based, digitalised, and smart integrated information the cumulative number of 5G 2B commercial projects services and created a model for Industrial Digitalisation developed by the Company reached approximately development that deeply integrates “cloud-network 15,000, of which the number of newly added projects capability foundation + industry application platforms”, in 2022 exceeded 8,000. This fully unleashed new providing digital integrated solutions for numerous walks momentum of transformation for vertical industries. of life. China Telecom Cloud has entered into a stage of Meanwhile, emerging businesses, such as network 4.0 with full commercialisation after more than ten years security, Big Data, AI and digitalised platform, have of development. The market share of China Telecom gradually become new drivers for Industrial Digitalisation Cloud continued to increase, becoming the world’s development. In 2022, revenue from Industrial largest carrier cloud and China’s largest hybrid cloud. It Digitalisation of the Company amounted to RMB117.8 has grown to rank among the top-three in China’s public billion, representing a year-on-year growth of 19.7% on a cloud IaaS market and public cloud IaaS+PaaS market, comparable basis11. Revenue from China Telecom Cloud while maintaining its No.1 position in the dedicated reached RMB57.9 billion, representing an increase of cloud market in terms of market share. The Company 107.5% year-on-year. Revenue from network security supported the digital transformation of the national services amounted to RMB4.7 billion, representing an increase of 23.5% year-on-year. 11 Revenue for Industrial Digitalisation in 2021 has excluded the Internet Finance revenue before the disposal of E-surfing Pay Co., Ltd.. 018 China Telecom Corporation Limited Annual Report 2022 SECTION III MANAGEMENT’S DISCUSSION AND ANALYSIS (REPORT OF THE DIRECTORS) Chairman Ke Ruiwen presented at World 5G Convention 2.2 Seizing opportunities arising from the development of digital economy and bolstering the momentum of the second growth curve The Company further deepened the forward-looking chip architectures in one cloud. The Company strengthened proprietary research and development (R&D) of AI core capabilities, built the industry’s first billion-parameter large-scale model for urban governance and promoted the expansion of large-scale models deployment of digital technologies to lay a solid towards model hubs at the industry level. The Company foundation for the innovation and development of digital strengthened the end-to-end supply of security products economy. The Company also built new development and services, completed the construction of “Cloud momentum through cloud-, AI-, security- and platform- Dam” platform with full network coverage as well as integrated initiatives, and further advanced capability a processing capacity of 10Tbps. The Company built deployment of various emerging businesses. The an integrated security infrastructure platform, “Security Company promoted the rapid development of the second Brain”, for industry customers. The Company accelerated growth curve to empower the high-quality development the building of proprietary digital platform capabilities, and of digital economy. The Company completed the upgrade built the unified industry digitalised platform foundation. to China Telecom Cloud 4.0 which is a distributed cloud The Company enhanced the efficiency and quality of with wide-area coverage, featuring the integration of proprietary platform development, and promoted the “cloud, network, edge, terminal, data, intelligence and development of Industry Digitalisation business. The security” as a whole. A number of its proprietary core number of Internet of Things (IoT) subscribers exceeded technologies in fundamental software and hardware 400 million, achieving “IoT connections exceeding of cloud computing, such as TeleCloudOS4.0 cloud human connections”. e-Surfing Internet of Video Things operating system, CTyunOS server operating system, (IoVT) achieved rapid development, with its number of TeleDB database and Zijin DPU were fully launched subscribers exceeding 46 million. Use cases such as and achieved scale commercialisation of products. This Kitchen Monitoring, Security Smart Eye, Smart Enterprise further consolidated the independent and controllable and e-Surfing Emergency Response achieved scale cloud foundation featuring polymorphism and multiple commercialisation. China Telecom Corporation Limited Annual Report 2022 019 SECTION III MANAGEMENT’S DISCUSSION AND ANALYSIS (REPORT OF THE DIRECTORS) China Telecom Cloud Revenue Doubled RMB Mil 57,903 27,903 13,819 108% 102% 2020 2021 2022 IaaS, IaaS + PaaS market shares industry top 312 Multiple competitive edges >5,000 partners Serves tens of millions 2B/2G customers Empowers thousands of industries 31 provincial cloud branches 4 strategic investors Cloud computing Initiator of original technologies Cloud-network integration Digital information infrastructure Proprietary distributed cloud featuring polymorphism and multiple chip architectures in one cloud Resource pools ≈70 awarded Grade 3 or above in Network Security Protection Grading Assessment 66 awarded top rating with 5 star+ 2.3 Insisting on the leading role of sci-tech innovation while further advancing the industrialisation upgrade of technological capabilities deployment of its R&D system for sci-tech innovation, RDO13, and proactively explored a development path featuring productisation of technological capabilities and industrialisation of innovative achievements. Adhering to “science and technology constitute a The Company built a platform for high-level sci-tech primary productive force”, the Company strove to innovation, strengthened the fundamental support develop a technology-oriented enterprise. The Company for R&D, and proactively forged the source of original was credited with the honorary title of “Enterprise with cloud computing technologies while undertaking the Outstanding Contribution to Sci-tech Innovation” by the construction of innovation platforms such as cloud- State-owned Assets Supervision and Administration network infrastructure. The Company established joint Commission (SASAC). The Company fully completed the sci-tech research institutions with key laboratories, 12 13 Source of market share data: IDC Quarterly Public Cloud Services Tracker, 2022Q3. RDO: fundamental research (R), applied technological research and development (D) and operational development (O). 020 China Telecom Corporation Limited Annual Report 2022 SECTION III MANAGEMENT’S DISCUSSION AND ANALYSIS (REPORT OF THE DIRECTORS) renowned universities and sci-tech research institutes application achievements, realising the application of AI for cutting-edge technologies such as 6G and next- large-scale models under a number of scenes such as generation network. The Company further strove for digital life and smart manufacturing. The Company also core technologies breakthroughs, with significant rolled out scale commercialisation of products such as enhancement of capabilities in R&D of cloud-network Security Brain, Cloud Computer and CDN. Domestic technologies. The Company’s achieved breakthroughs invention patents and PCT patent applications were 1.4 in key technologies of cloud computing such as software times and 2 times, respectively, of the same period of last and hardware integration, operating system as well as year. The Company achieved scale expansion and quality database. The Company’s computing power channelling enhancement of its tech talents, with the introduction of of cloud storage and etc. has reached an advanced level leading talents in areas of cloud computing, AI and Big within the industry. The computing power distribution Data, among others. The number of chief experts being network platform of China Telecom Cloud 4.0, “XiRang”, newly recruited or renewed exceeded 10. The Company was successfully selected as one of the “2022 Top 10 also innovated its talent development mechanism Super Projects of Central Enterprises”. The Company and introduced a chief technician system, along with also built China’s largest quantum metropolitan network, honouring awards for tech talents and the promotion the “Hefei Quantum Metropolitan Network”. The of special talent pool systems, altogether creating a Company further strengthened the industrialisation of conducive ecology for innovation. Revenue14 RMB Mil 98,362 117,756 19.7% 24.4% 27.1% 2021 2022 % to service revenues Industrial Digitalisation Grew Robustly 14 The Industrial Digitalisation revenue and % to service revenues in 2021 as well as growth rate in 2022 are on comparable basis by excluding the Internet Finance revenue for 2021 of E-surfing Pay Co., Ltd. (which was disposed in April 2021). China Telecom Corporation Limited Annual Report 2022 021 SECTION III MANAGEMENT’S DISCUSSION AND ANALYSIS (REPORT OF THE DIRECTORS) 2.4 Expediting the promotion of cloud- network integration to consolidate the foundation of digital information infrastructure The Company comprehensively advanced the overall planning and coordinated deployment of various digital elements such as “cloud, network, data, intelligence and security”. The Company also accelerated the transformation and upgrades of networks as well as the construction of 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, as well as secure and controllable. The Company further optimised the “2 + 4 + 31 + X + O” layout of its computing power and built proprietary multiple availability zones (AZs) capabilities of China Telecom Cloud 4.0 in central nodes of regions of Beijing-Tianjin-Hebei, Yangtze River Delta, Guangdong- Chairman Ke Ruiwen introduced China Telecom’s measures in promoting cloud-network integration and co-building the age of computing power The Second Growth Curve Develops Rapidly AI Built the industry’s first billion-parameter large-scale model for urban governance Security “Cloud Dam” platform processing capability reaches 10Tbps Digitalised platform Facilitates Industrial Digitalisation development IoT Subs >400Mil, loT connections exceeded human connections IoVT Subs >46Mil 022 China Telecom Corporation Limited Annual Report 2022 SECTION III MANAGEMENT’S DISCUSSION AND ANALYSIS (REPORT OF THE DIRECTORS) Hong Kong-Macau Greater Bay Area and Chengdu- built interconnection networks for datacentres with large Chongqing. The number of cities covered by “One-City- bandwidth, high reliability, wide coverage and multiple One-Pool” exceeded 240, while the number of edge layers. The latency between AZs was below 1ms. The computing power nodes surpassing 800, providing Company built the largest Gigabit fibre network in customers with highly-efficient and efficiently-centralised scale, with the number of 10G PON ports exceeding distributed cloud service with ultra-low latency. In 2022, 6.30 million, covering over 250 million family users in the newly added computing power of China Telecom the Company’s service region. The Company achieved Cloud was 1.7 EFLOPS, with its total computing power interconnection between the mobile network and the reaching 3.8 EFLOPS, representing an increase of satellite network and realised multiple functions for one 81% year-on-year. The Company built the four-level AI single card. The Company continued to give full play to computing power comprising of “entire network-region- its role in safeguarding network and information security, edge-terminal” with nationwide coverage. The Company formed security infrastructure capabilities covering also built an efficiently-centralised core platform for AI cloud, network, edge and terminal, and completed the capabilities, achieving unified channelling of AI computing construction of “Cloud Dam” platform with full network power, algorithms and data while aggregating more than coverage. The Company’s security capability pools 5,000 algorithms and over 100 scene-based solutions. covered more than 150 cities. The Company’s new- The Company proactively responded to the national generation cloud-network operating system was fully strategy of “East-to-West Computing Resource Transfer” launched, realising the integrated management of and stepped up deployment with a focus on 8 hub cloud, network and security as well as the automatic nodes. The Company currently owns more than 700 activation of the whole business process for cloud- IDC sites and over 3,000 edge DC, and the number of network integration. The Company fully promoted IDC cabinets amounted to 513,000 with a utilisation rate the green and low-carbon transformation of cloud- of over 70%. The Company has the greatest number network infrastructure, and adopted measures such and the most extensive distribution of IDC resources in as customised high-performance servers to enhance China. Surrounding national datacentres, the Company computing efficiency. The Company also applied various Customers experiencing VR game application Customers shopping for Smart Family products China Telecom Corporation Limited Annual Report 2022 023 SECTION III MANAGEMENT’S DISCUSSION AND ANALYSIS (REPORT OF THE DIRECTORS) Further Advancing the Industrialisation Upgrade of Technological Capabilities Proactively forge the source of original cloud computing technologies Strive for core technologies breakthroughs Strengthen the industrialisation of application achievements Scale expansion and quality enhancement of tech talents new energy-saving technologies to enhance the energy efficiency of datacentres and telecommunications equipment rooms, and sped up the energy-saving 2.5. Continuing to unlock reform momentum to significantly bolster corporate development vitality application of AI technologies to mobile base stations and With the satisfaction of customers’ digitalisation old equipment rooms, with a power saving of over 600 demands as the core and the enhancement of corporate million kWh per year. The Company and China Unicom core competitiveness as the target, the Company further promoted 4G/5G co-building and co-sharing. The comprehensively promoted the reform of corporate cumulative number of 5G base stations co-built and co- organisations, processes, and market-oriented operation shared by the two parties exceeded one million while the mechanisms. The Company continued to deepen number of co-shared 4G stations exceeding 1.1 million. its enterprise service reform, solidly advanced the The co-building and co-sharing achieved remarkable development of industrial research institute, cloud core results. The cumulative investment savings in network platform, as well as local integration teams to establish construction for both parties amounted to over RMB270 a cloud-centric main business process and a highly billion, while the annualised savings of operating costs exceeded RMB30 billion, contributing key technologies in co-building and co-sharing as well as operation and management experiences to the global communications industry. 024 China Telecom Corporation Limited Annual Report 2022 SECTION III MANAGEMENT’S DISCUSSION AND ANALYSIS (REPORT OF THE DIRECTORS) depth implementation of market-oriented operation mechanisms, the Company fully implemented a tenure system and contractual management at the managerial level. It also launched the “Talent Nurturing Programme” for the first time, while vigorously implementing incentive measures for talents such as special talent pools, expert incentives, equity and bonus sharing based on job positions. This continued to enhance employee vitality. The Company established a 4-in-1 integration system of “market insight, budget, assessment and incentive”, with steady enhancement of the development as well as the value creation capability of various business units. Adhering to the cooperation philosophy of “Broadest Scope, Best Service, Best Value, Farthest Growth”, the Company carried out greater, broader and Management introduced the strong development momentum of China Telecom Cloud efficient operating system. The Company stepped up deeper ecological cooperation with its partners. The its efforts and accelerated the reform of professional Company signed strategic cooperation agreements companies, making substantial progress in diversifying with governments of various provinces and cities to the equity ownership of its cloud company. It also comprehensively support governments’ informatisation achieved corporate operation of Big Data and AI centre, construction. The Company expanded the informatisation rapidly enhancing its level of market-orientation. The service for the government affairs market, strengthened Company’s cloud, security and IoT companies were ecological cooperation with industry leaders, and opened shortlisted by SASAC in its list of “Sci-tech Reform up the digital platform of fundamental capabilities. The Demonstration Enterprises”, with its core competitiveness Company aggregated proprietary capabilities as well in sci-tech innovation continuing to strengthen. The Company fully leveraged its massive data resources to build a distributed Big Data lake and develop a Big Data storage and processing model with cloud-edge coordination. While empowering the digital transformation of its customers, the Company also accelerated its internal digital transformation of products, sales, service, operation and management to continuously promote costs reduction and efficiency enhancement, while further uplifting its operating efficiency. With in- China Telecom Corporation Limited Annual Report 2022 025 SECTION III MANAGEMENT’S DISCUSSION AND ANALYSIS (REPORT OF THE DIRECTORS) as capabilities from ecological cooperation to provide customers with integrated “cloud-network + data- intelligence” solutions. The Company continuously expanded 5G Industry Innovation Alliance to explore 5G innovative applications and build 5G industry ecology. The number of member units exceeded 400. The Company commenced extensive cooperation with partners from four areas including technology, application, channel and service. The Company created a cloud computing community and fully opened up to co-build the national cloud ecology. The Company also carried out in-depth cooperation with leading vendors to push forward the construction of a security capability pool that effectively aggregates capabilities of various parties, while creating an open security ecology. By vigorous promotion of industry and research cooperation in the field of AI with domestically well-known universities and sci-tech research institutions, the Company spared no effort to jointly build an innovation ecology of AI industry. The Company conducted deployment in the capital ecology with a focus on key areas, and promoted coordinated development with companies within the capital ecology to give full play to the multiplier effect of capital investment and bring new momentum for the Company’s value growth. Management introduced the Company’s achievements of innovations in cloud-network core capabilities 026 026 China Telecom Corporation L China Telecom Corporation Limited Annual Report 2022 SECTION III MANAGEMENT’S DISCUSSION AND ANALYSIS (REPORT OF THE DIRECTORS) Successfully completed various major communications assurance tasks 3. UNDERTOOK SOCIAL RESPONSIBILITIES WHILE OPTIMISING CORPORATE GOVERNANCE The Company proactively fulfilled its social responsibilities, successfully completed communications assurance tasks for important scenes and spared no effort to establish network “lifelines” during times of natural disasters. The Company also proactively promoted green cloud-network construction and operation. In 2022, through co-building and co-sharing and various energy saving measures, the Company reduced its greenhouse gas emissions by more than 13 million tons, while greenhouse gas emissions per unit of information flow decreased by 20.6% year-on-year. It built the country’s first “zero-carbon datacentre” in Qinghai. The Company served rural revitalisation, promoted universal service and bridged the digital divide. The Company also proactively participated in social welfare, and provided informatised products for Covid-19 Epidemic (“Epidemic”) prevention such as e-Surfing Cloud Broadcasting, Cloud Conference, Cloud Computer, Cloud SaaS applications and Display of Caller Name Card, among others. The Company leveraged digital means to support sci- tech based Epidemic prevention and assisted small and medium-sized enterprises (SMEs) to overcome challenges. The Company strengthened employee care and promoted the mutual development of both employees and the Company. Insisting on high-standard corporate governance while adhering to excellent, prudent and effective corporate governance principles, the Company continued to optimise its corporate governance system, standardise its corporate operations, strengthen its internal control system and implement refined governance and disclosure measures. In addition to the compliance and efficient operation of its Shareholders Meeting, Board of Directors and Supervisory Committee, the Company fully achieved the establishment of Board of Directors on various levels of its subsidiaries where appropriate. The Company further realised lean management and stable operation. The Company continued to optimise its rol and comprehensive risk management to internal control and comprehensive risk management to nsure stable operation of the Company. The effectively ensure stable operation of the Company. The orporate governanccee cocontntininuedd toto sstrtrene gthen level of its corporate governance continued to strengthen nd loonng termm interests s of y protect the bbesest and loongng-t-terermm intereststss of to effectively protect the best and long-term interests of ders. its shareholders. poration Limitedted Annualallual ReReReR porporporp t 2t 2t 202022022022 China Telecom Corporation Limited Annual Report 2022 02027 027 SECTION III MANAGEMENT’S DISCUSSION AND ANALYSIS (REPORT OF THE DIRECTORS) In 2022, the Company received high affirmation and recognition from domestic and international capital 4. OUTLOOK The building of Digital China is an important driver for markets and industry organisations. Of which, the the advancement of Chinese modernisation in the Company was voted as the “Most Honoured Companies digital era. The Company will firmly seize the valuable in Asia” for the 12th consecutive year by Institutional strategic development opportunities, proactively fulfill Investor. The Company also ranked No.1 in categories its responsibility in building Digital China and insist on such as “Best Investor Relations”, “Best IR Team” and seeking progress while maintaining stability. With high- “Best Overall ESG”. In addition, the Company received quality development as the theme, digital transformation a number of awarded such as “Asia’s Best Corporate as the main line, reform, opening and innovation as Social Responsibility”, “Best Corporate Communications”, the driving force, the Company will comprehensively “Best Environmental Responsibility” and “Best Investor and deeply implement the Cloudification and Digital Relations Company” in the “Asian Excellence Award Transformation strategy while further striving for 2022” organised by Corporate Governance Asia, breakthroughs in key core technologies of digitalisation. a renowned journal on corporate governance in The Company will create the supply of digital products Asia. Moreover, the Company was voted as “Most with a focus on customer demands, and strive to build Outstanding Company in China – Telecommunication a digital service platform that is open and co-shared. Services Sector” in Asiamoney’s “Asia’s Outstanding The Company will also speed up the construction of the Companies Poll 2022”. The Company was further digital information infrastructure, stimulate the potential awarded with the “Overall Most Outstanding Company in of data elements and proactively promote reforms of China” among all winners from different sectors in China. organisations and mechanisms that are adaptable to At the same time, the Company was also awarded with digital transformation. The Company will tangibly enhance “Best Practice of Office of Board of Directors for Public its core competitiveness and accelerate the building of a Companies in 2022” as well as “Best Practice Award of world-class enterprise. 2021 Annual Results Briefing for Public Companies” by China Association for Public Companies. Ke Ruiwen Chairman and Chief Executive Officer Beijing, China 22 March 2023 028 China Telecom Corporation Limited Annual Report 2022 SECTION III MANAGEMENT’S DISCUSSION AND ANALYSIS (REPORT OF THE DIRECTORS) 2. OVERVIEW OF THE COMPANY’S INDUSTRY DURING THE REPORTING PERIOD 1. INDUSTRY OVERVIEW In 2022, the communications industry comprehensively promoted the implementation of the “14th Five-Year Plan”. The revenue of telecommunications business maintained its relatively rapid growth momentum, showing the development characteristics of positive trends, optimised structure and enhanced momentum. The Company appropriately advanced the deployment of 5G, Gigabit and other new infrastructure construction and continuously enhanced the supporting role of digital development. The quality enhancement and upgrade of information service supply continued to inject new digital momentum into the economic development. In 2022, China’s telecommunications service revenue accumulated to RMB1.58 trillion, representing an increase of 8.0% over the previous year. The business structure was further optimised, and the role of emerging businesses in driving revenue growth continued to strengthen. Emerging digital services, which mainly include datacentres, cloud computing, Big Data, IoT, etc., developed rapidly, contributing 64.2% to the revenue growth of telecommunications services. The traditional businesses, which mainly include mobile data traffic, broadband access, voice and SMS, still played the stabiliser role, accounting for 66.8% of the revenue from telecommunications services. In 2022, the investment in the industry maintained growth. The total investment in fixed assets in the telecommunications industry amounted to RMB419.3 billion, and the investment in 5G exceeded RMB180.3 billion. The wireline network has gradually leaped from 100Mbps to Gigabit, and the number of 10G PON ports with Gigabit service capabilities exceeded 15 million. Mobile network maintained a global leading position in terms of 5G construction. China has built and activated 2,312,000 5G base stations. The fundamental telecommunications enterprises stepped up their efforts in the construction of their own computing power. The net addition of cabinets in self-used datacentres was 160,000 for the year. They also strove to build service capabilities with the integration of network, connectivity, computing power, data and security, laying the foundation for providing high-quality new digital services. In 2022, there were continuous achievements of integrated applications from fields such as smart manufacturing, smart healthcare, smart education, digital government administration and others. The number of “5G + Industrial Internet” projects invested and constructed nationwide exceeded 4,000, creating a batch of full 5G-connected factories and providing over 14,000 5G virtual private networks. The whole industry successfully completed major communications service assurance tasks such as the Beijing Winter Olympics, carried out special actions in the Internet industry and strengthened app governance, continuously enhanced the support capability of Big Data in communications, and further uplifted the service level. Note: The above data are from MIIT’s Statistical Communique of the Communications Industry in 2022. China Telecom Corporation Limited Annual Report 2022 029 SECTION III MANAGEMENT’S DISCUSSION AND ANALYSIS (REPORT OF THE DIRECTORS) 2. SIGNIFICANT IMPACT OF NEW LAWS, ADMINISTRATIVE REGULATIONS, DEPARTMENTAL RULES AND INDUSTRY POLICIES ON THE INDUSTRY During the Reporting Period, a number of laws and departmental rules were promulgated and implemented, introducing new requirements for the development and compliance operation of the industry. On 24 June 2022, the Standing Committee of the National People’s Congress considered and approved the Decision to Amend the Anti-monopoly Law of the People’s Republic of China, which came into effect on 1 August 2022. According to the amended Anti- monopoly Law of the People’s Republic of China (the “Anti-monopoly Law”), operators shall not use data and algorithms, technologies, capital advantages and platform rules to engage in monopolistic activities prohibited by the Anti-monopoly Law; they shall not organise other operators to enter into monopoly agreements or provide substantive assistance for other operators to enter into monopoly agreements; operators with dominant market positions shall not engage in actions that abuse their dominant market positions through the use of data and algorithm, technologies and platform rules. On 7 July 2022, the Cyberspace Administration of China published the Measures for the Security Assessment of Outbound Data Transfer, which came into effect on 1 September 2022. The Measures for the Security Assessment of Outbound Data Transfer specify: the circumstances under which data processors shall report the security assessment of outbound data transfer and the procedures for the security assessment of outbound data transfer; data processors shall conduct self-assessment of outbound data transfer risks before reporting the security assessment of outbound data transfer; and the legal documents entered into with overseas receivers shall clearly stipulate the responsibilities for data security protection. On 2 September 2022, the Standing Committee of the National People’s Congress considered and approved the Law of the People’s Republic of China on Anti- Telecom and Online Fraud (the “Anti-Telecom and Online Fraud Law”), which came into effect on 1 December 2022. According to the Anti-Telecom and Online Fraud Law, telecommunications business operators shall fully implement the real identity information registration system for telephone users in accordance with the law, standardise the transmission of real call numbers and the lease of telecommunications lines, and block, intercept and trace phone calls made with changed numbers; no excessive telephone cards shall be processed; no support or assistance shall be provided to others for the execution of telecom and online fraud activities; technical measures shall be taken to timely identify and block illegal equipment and software access to the network, and report to the public security authorities and relevant industry authorities. On 8 December 2022, the Ministry of Industry and Information Technology issued the Administrative Measures for Data Security in the Field of Industry and Information Technology (for Trial Implementation) (the “Administrative Measures for Data Security (Trial)”), which came into effect on 1 January 2023. According to the Administrative Measures for Data Security (Trial), data processors in the industry and information technology field shall regularly sort out the data and file the catalogues of important data and core data of their units with the regional industry regulatory authorities; a lifecycle data security management system should be established; data security risk monitoring should be carried out, potential safety hazards should be identified in a timely manner, and necessary measures should be taken to prevent data security risks. 030 China Telecom Corporation Limited Annual Report 2022 SECTION III MANAGEMENT’S DISCUSSION AND ANALYSIS (REPORT OF THE DIRECTORS) Management presented at Cloud Ecology Conference The Company will conscientiously implement the relevant newly issued and revised laws, administrative regulations, departmental rules and industry policies, and proactively follow and study the relevant upcoming laws, administrative regulations, departmental rules and industry policies to ensure that the relevant business operations are in compliance with laws and regulations and that the Company operates in compliance with laws and regulations. 3. BUSINESS OF THE COMPANY DURING THE REPORTING PERIOD In 2022, the Company proactively integrated into the overall situation of digital economy construction, fully implemented the development strategy of “Cloudification and Digital Transformation”, and focused on building a service-oriented, technology-oriented and secured enterprise, elevating its high-quality development to a new level. The Company seized opportunities arising from the development of digital economy, continued to accelerate the transformation of fundamental businesses, strengthened the supply of digital products, and promoted the steady growth of fundamental businesses. The Company continuously enhanced 5G network coverage and network quality, upgraded 5G-featured applications, strengthened the incorporation of new differentiated elements such as AI, security and cloud, to promote subscriber growth and value stabilisation. Leveraging the convergence of “5G + Gigabit Broadband + Gigabit WiFi”, the Company continued to accelerate the upgrade of broadband speed, enriched the supply of scene-based applications for households, and proactively expanded the new development path featuring integrated development of Smart Family, Digital Village and Smart Community. In 2022, the Company’s mobile subscribers reached 391 million, representing a net increase of 18.75 million. 5G package subscribers reached 268 million, with its penetration rate reaching 68.5%, representing a year-on-year increase of 18.1 percentage points. Mobile ARPU reached RMB45.2, representing a year-on-year increase of 0.4%. Broadband subscribers reached 181 million, representing a net increase of 11.19 million. The penetration rate of Gigabit subscribers reached 16.8%, representing a year-on-year increase of 9.1 percentage points. Broadband blended ARPU reached RMB46.3, representing a year-on-year increase of 0.9%. China Telecom Corporation Limited Annual Report 2022 031 SECTION III MANAGEMENT’S DISCUSSION AND ANALYSIS (REPORT OF THE DIRECTORS) The Company firmly grasped the demand for network- based, digitalised, and smart integrated information services in the era of digital economy, created a model for Industrial Digitalisation development that deeply integrates “cloud-network capability foundation + industry application platforms”, providing digital integrated solutions for numerous walks of life. Insisting on the driving force from cloud-, AI-, security- and platform- integrated initiatives, the Company further advanced the capability deployment of emerging businesses, boosted the rapid development of the second growth curve, and empowered the high-quality development of digital economy. China Telecom Cloud has entered into a stage of 4.0 with full commercialisation, with continuous increase in market share. The number of 5G 2B commercial projects increased rapidly, fully unleashing 4. ANALYSIS OF CORE COMPETITIVENESS DURING THE REPORTING PERIOD I n 2 0 2 2 , C h i n a T e l e c o m f u l l y i m p l e m e n t e d i t s “Cloudification and Digital Transformation” strategy, and achieved new results in high-quality development. CONTINUOUS OPTIMISATION OF BUSINESS DEPLOYMENT, WITH INDUSTRIAL DIGITALISATION AND CHINA TELECOM CLOUD BECOMING IMPORTANT DRIVERS FOR REVENUE GROWTH The Company continued to optimise its business new momentum of transformation for vertical industries. deployment, and Industrial Digitalisation and China Emerging businesses, such as network security, Big Telecom Cloud have become important drivers for Data, AI and digitalised platform, have gradually become revenue growth. By creating a model for Industrial new drivers for Industrial Digitalisation development. Digitalisation development that deeply integrates In 2022, revenue from Industrial Digitalisation of the “cloud-network capability foundation + industry Company amounted to RMB117.8 billion, representing application platforms”, the Company provided digital a year-on-year growth of 19.7% on a comparable basis. integrated solutions for numerous walks of life. China Revenue from China Telecom Cloud reached RMB57.9 Telecom Cloud has entered into a stage of 4.0 with billion, representing an increase of 107.5% year-on-year. full commercialisation after more than ten years of Revenue from network security services amounted to development. The market share of China Telecom Cloud RMB4.7 billion, representing an increase of 23.5% year- continued to increase, becoming the world’s largest on-year. carrier cloud and China’s largest hybrid cloud. It has grown to rank among the top-three in China’s public For detailed business analysis of the Company, cloud IaaS market and public cloud IaaS+PaaS market, please refer to “5. MAJOR OPERATION DURING THE while maintaining its No.1 position in the dedicated REPORTING PERIOD” in this section. cloud market in terms of market share. Focusing on 5G industry use cases, the cumulative number of 5G 2B commercial projects developed by the Company reached approximately 15,000, of which the number of newly added projects in 2022 exceeded 8,000. This fully unleashed new momentum of transformation for vertical industries. Meanwhile, emerging businesses, such as network security, Big Data, AI and digitalised platform, have gradually become new drivers for Industrial Digitalisation development. 032 China Telecom Corporation Limited Annual Report 2022 SECTION III MANAGEMENT’S DISCUSSION AND ANALYSIS (REPORT OF THE DIRECTORS) FURTHER ADVANCEMENT OF CAPABILITY DEPLOYMENT AND RAPID GROWTH OF NEW MOMENTUM FOR MARKET DEVELOPMENT The Company’s further advanced its capability deployment, built new development momentum through cloud-, AI-, security- and platform-integrated initiatives, and boosted the rapid development of the second growth curve. The Company completed the upgrade to China Telecom Cloud 4.0 which is a distributed cloud with wide-area coverage, featuring the integration of “cloud, network, edge, terminal, data, intelligence and security” as a whole. A number of its proprietary core technologies in fundamental software and hardware of cloud computing, such as TeleCloudOS4.0 cloud operating system, CTyunOS server operating system, TeleDB database and Zijin DPU were fully launched and achieved scale commercialisation of products. This further consolidated the independent and controllable cloud foundation featuring polymorphism and multiple chip architectures in one cloud. The Company strengthened proprietary R&D of AI core capabilities, built the industry’s first billion-parameter large-scale model for urban governance and promoted the expansion of large-scale models towards model hubs at the industry level. The Company strengthened the end-to-end supply of security products and services, completed the construction of “Cloud Dam” platform with full network coverage as well as a processing capacity of 10Tbps. The Company built an integrated security infrastructure platform, “Security Brain”, for industry customers. The Company accelerated the building of proprietary digital platform capabilities, and built the unified industry digitalised platform foundation. The Company enhanced the efficiency and quality of proprietary platform development, and promoted the development of Industry Digitalisation business. The number of IoT subscribers exceeded 400 million, achieving “IoT connections exceeding human connections”. e-Surfing IoVT achieved rapid development, with its number of subscribers exceeding 46 million. Use cases such as ing, Security Smart Eye, Smart Enterprise Kitchen Monitoring, Security Smart Eye, Smart Enterprise Emergency Response achieved scale and e-Surfing Emergency Response achieved scale on. commercialisation. Rapid replication of 5G smart agriculture projects China Telecom Corporation Limited Annual Report 2022 033 SECTION III MANAGEMENT’S DISCUSSION AND ANALYSIS (REPORT OF THE DIRECTORS) CONSTANT DEEPENING OF THE REFORM DEPLOYMENT AND SIGNIFICANT ENHANCEMENT OF EMPLOYEES’ VITALITY With the satisfaction of customers’ digitalisation SOLID PROMOTION OF CLOUD- NETWORK DEPLOYMENT AND CONTINUOUS ENHANCEMENT OF OPERATION CAPABILITY The Company accelerated the construction of digital demands as the core and the enhancement of corporate information infrastructure with cloud-network integration core competitiveness as the target, the Company as the core feature. The Company further optimised comprehensively promoted the reform of corporate the “2 + 4 + 31 + X + O” layout of its computing power organisations, processes, and market-oriented operation and built proprietary multiple AZs capabilities of China mechanisms. The Company continued to deepen Telecom Cloud 4.0. The number of cities covered by its enterprise service reform, solidly advanced the “One-City-One-Pool” exceeded 240. In 2022, the total development of industrial research institute, cloud core computing power of China Telecom Cloud reached 3.8 platform, as well as local integration teams to establish EFLOPS. The Company built the four-level AI computing a cloud-centric main business process and a highly power comprising of “entire network-region-edge- efficient operating system. The Company stepped up terminal” with nationwide coverage. The Company its efforts and accelerated the reform of professional also built an efficiently-centralised core platform for AI companies, making substantial progress in diversifying capabilities. The Company proactively responded to the the equity ownership of its cloud company. It also national strategy of “East-to-West Computing Resource achieved corporate operation of Big Data and AI centre, Transfer”. The Company has the greatest number and rapidly enhancing its level of market-orientation. The the most extensive distribution of IDC resources in Company’s three subsidiaries were shortlisted by SASAC China. Surrounding national datacentres, the Company in its list of “Sci-tech Reform Demonstration Enterprises”, built interconnection networks for datacentres with with its core competitiveness in sci-tech innovation large bandwidth, high reliability, wide coverage and continuing to strengthen. The Company also accelerated multiple layers. The Company built the largest Gigabit its internal digital transformation of products, sales, fibre network in scale, with the number of 10G PON service, operation and management to continuously ports exceeding 6.30 million. The Company achieved promote costs reduction and efficiency enhancement, interconnection between the mobile network and while further uplifting its operating efficiency. With in- the satellite network. The Company completed the depth implementation of market-oriented operation construction of “Cloud Dam” platform with full network mechanisms, the Company fully implemented a tenure coverage. The Company’s security capability pools system and contractual management at the managerial covered more than 150 cities. The Company’s new- level. It also launched the “Talent Nurturing Programme” generation cloud-network operating system was fully for the first time, while vigorously implementing incentive launched, realising the integrated management of measures for talents such as special talent pools, expert cloud, network and security as well as the automatic incentives, equity and bonus sharing based on job activation of the whole business process for cloud- positions. This continued to enhance employee vitality. network integration. The Company fully promoted the The Company established a 4-in-1 integration system of green and low-carbon transformation of cloud-network “market insight, budget, assessment and incentive”, with infrastructure. The Company sped up the energy-saving steady enhancement of the development as well as the value creation capability of various business units. 034 China Telecom Corporation Limited Annual Report 2022 SECTION III MANAGEMENT’S DISCUSSION AND ANALYSIS (REPORT OF THE DIRECTORS) application of AI technologies to mobile base stations and old equipment rooms, with a power saving of over 600 million kWh per year. The Company and China Unicom further promoted 4G/5G co-building and co- sharing. The cumulative number of 5G base stations co-built and co-shared by the two parties exceeded one million while the number of co-shared 4G stations exceeding 1.1 million. The cumulative investment savings in network construction for both parties amounted to over RMB270 billion. ADHERING TO THE PEOPLE-ORIENTED DEVELOPMENT PHILOSOPHY AND CONTINUOUSLY STRENGTHENING SERVICE CAPABILITIES The Company adhered to the people-oriented and problem-oriented principles, regarded customer perception as the starting point and foothold of all work, and comprehensively enhanced service quality. The Company strengthened the new supply of digital products, proactively promoted the digitalisation of production methods, lifestyle and social governance, and strove to meet the new digital needs of customers. The Company deepened the service mechanism of “customers have the final say”, promoted the construction of a “customer-centric” production and operation organisation, established long-term mechanisms such as service review, service red flags, supervision and accountability, and quickly resolved the difficult and hot issues that customers were concerned about. Customer satisfaction has reached the best level in recent years, while the service quality of networks, products and channels continuing to strengthen and customer reputation continuing to become more positive. China Telecom Corporation Limited Annual Report 2022 035 SECTION III MANAGEMENT’S DISCUSSION AND ANALYSIS (REPORT OF THE DIRECTORS) INSISTING ON SELF-RELIANCE AND SELF-IMPROVEMENT OF HIGH-LEVEL TECHNOLOGIES, WHILE ACHIEVING BREAKTHROUGHS IN SCI-TECH INNOVATION Adhering to “science and technology constitute a primary productive force”, the Company strove to develop as a technology-oriented enterprise and was credited with the honorary title of “Enterprise with Outstanding Contribution to Sci-tech Innovation”. The Company fully completed the deployment of its R&D system for sci- tech innovation, RDO. The Company built a platform for high-level sci-tech innovation, strengthened the fundamental support for R&D, and proactively forged the source of original cloud computing technologies while undertaking the construction of innovation platforms such as cloud-network infrastructure. The Company established joint sci-tech research institutions with key laboratories, renowned universities and sci-tech research institutes for cutting-edge technologies. The Company further strove for core technologies breakthroughs, achieving breakthroughs in key technologies of cloud computing such as software and hardware integration. The Company’s computing power channelling of cloud storage and etc. has reached an advanced level within the industry. The computing power distribution network platform of China Telecom Cloud 4.0, “XiRang”, was successfully selected as one of the “2022 Top 10 Super Projects of Central Enterprises”. The Company also built China’s largest quantum metropolitan network, the “Hefei Quantum Metropolitan Network”. The Company further strengthened the industrialisation of application achievements, realising the application of AI large-scale models under a number of scenes such as digital life and smart manufacturing. The Company also rolled out scale commercialisation of products such as Security Brain, Cloud Computer and CDN. Domestic invention patents and PCT patent applications were 1.4 times and 2 times, respectively, of the same period of last year. The Company achieved scale expansion and quality enhancement of its tech talents. The Company also innovated its talent development mechanism, altogether creating a conducive ecology for innovation. 036 China Telecom Corporation Limited Annual Report 2022 SECTION III MANAGEMENT’S DISCUSSION AND ANALYSIS (REPORT OF THE DIRECTORS) ADHERING TO THE OVERALL NATIONAL SECURITY CONCEPT AND STEADILY ENHANCING SECURITY CAPABILITIES The Company gave play to its role as the fundamental 5. MAJOR OPERATION DURING THE REPORTING PERIOD The Company proactively integrated into the overall assurance in the field of network and information situation of digital economy construction, deeply security, and accelerated the improvement in supply of implemented the customer-centric operation principles, security products and services supply. Focusing on the and continued to enhance digital products and services industrial chain, innovation chain and supply chain, the supply capabilities for various customer groups such as Company stepped up its expansion efforts, aggregated individuals, households, governments and enterprises. open and integrated core capabilities, and gradually The Company strove to build a service-oriented, optimised its security-oriented corporate strategy. technology-oriented and secured enterprise, elevating The Company established a security technologies its high-quality development to a new level. In 2022, the system, enhanced the security operation system and Company’s operating revenues amounted to RMB481.4 accountability system with strengthened security talents, billion, representing an increase of 9.5% year-on-year. Of and continuously optimised the deployment of security which, service revenues amounted to RMB434.9 billion, work. The Company established a big security products representing an increase of 8.0% year-on-year. Excluding system to continuously enhance the capabilities of the revenue impact from the disposals of its subsidiaries network security, cloud security, data security and public in 2021, the year-on-year growth rate reached 8.1%, security products. The Company continued to enhance maintaining favourable growth. the effectiveness of security governance, with its AI + anti-fraud technology capabilities becoming significantly strengthened. China Telecom Corporation Limited Annual Report 2022 037 SECTION III MANAGEMENT’S DISCUSSION AND ANALYSIS (REPORT OF THE DIRECTORS) FURTHER ACCELERATING THE UPGRADE OF 5G NETWORK AND APPLICATIONS, AND ENRICHING DIGITAL PRODUCTS SUPPLY, ACHIEVING STEADY GROWTH AS WELL AS SCALE AND QUALITY ENHANCEMENT OF MOBILE BUSINESS The Company deeply explored customer needs and application scenes in the digital era, continued to upgrade integrated intelligent information products and services by leveraging the further strengthened 5G cloud-network capabilities, and continuously promoted the steady development of its mobile business. The Company continued to strengthen 5G network coverage and network quality to provide users with a “more secure, more reliable and more intelligent” mobile communications experience. The Company continued to upgrade 5G-featured applications, constantly optimised large bandwidth applications such as 5G Ultra HD, 5G Cloud VR/AR and 5G Cloud Games, and accelerated the promotion of new applications such as 5G Messaging and 5G New Calls to meet the diversified application demands of customers. The Company continued to strengthen the incorporation of new differentiated elements such as AI, security and cloud, and launched AI-integrated products such as AI Communications Assistant and AI Colour Ringback Tone with Video for individual customers. The Company also rolled out security-integrated products such as Quantum- encrypted Calls and e-Surfing Anti-Harassment, as well as cloud-integrated products such as China Telecom Cloud Mobile Phone and Cloud Drive, so as to further enhance the high-quality supply capabilities in the field of information consumption. The Company continued to build the digitalised platforms, constantly responded to changes in customer consumption habits and the needs for quality upgrade in the digital era. Focusing on various consumption scenes such as people’s livelihood payment, catering and travel, the Company enriched the new model of mobile digital consumption, and drove the continuous enhancement of both scale and value of mobile subscribers. In 2022, the Company’s mobile communications service revenues amounted to RMB191.0 billion, representing an increase of 3.7% year-on-year, maintaining favourable growth. Mobile subscribers reached 391 million, representing a net addition of 18.75 million. 5G package subscribers reached 268 million, representing a penetration rate of 68.5% and a year-on-year increase of 18.1 percentage points. Mobile ARPU reached RMB45.2, representing a year-on-year increase of 0.4%. Continuous enhancement of 5G network coverage and quality 038 China Telecom Corporation Limited Annual Report 2022 SECTION III MANAGEMENT’S DISCUSSION AND ANALYSIS (REPORT OF THE DIRECTORS) subscriber value. The Company continued to enrich the supply of applications under family scenes, accelerated the construction of a smart, secure, convenient and comfortable digital home information service system, and constantly enhanced the “terminal + application + service” whole-home intelligent solutions to promote the evolution from Smart Home to Whole- home Intelligence. The Company continued to promote the platform integration and connected development of Smart Family, Smart Community and Digital Village. The Company accelerated the construction of a digitalised application platform integrating all scenes of “family-community-village- city”, providing communities and villages with leading capabilities in connecting households, communities and government, as well as abundant solutions for grassroots governance. The Company also provided integrated scene-based applications such as Video Door Access Control, Community Management and Village Governance, to establish a new scene featuring CHBG connection. Leveraging its digital capabilities and intelligent applications, the Company empowered and enhanced the quality of the modernised transformation of grassroots social governance, while supporting the digital Management introduced new measures to enhance customer service FURTHER ACCELERATING THE SERVICE UPGRADE AND INTEGRATED DEVELOPMENT OF SMART FAMILY, SMART COMMUNITY AND DIGITAL VILLAGE, WITH STEADY GROWTH OF BROADBAND BLENDED ARPU AND CONSTANT ENHANCEMENT OF THE VALUE OF SMART FAMILY BUSINESS The Company seized opportunities arising from the transformation of lifestyle and social governance. development of the digital economy, and continued to meet the needs of the whole society to enjoy a In 2022, the Company’s Wireline and Smart Family service better digital life by leveraging the comprehensive revenues amounted to RMB118.5 billion, representing advantages of continuously upgraded and optimised an increase of 4.4% year-on-year. The number of networks, applications, services and platforms. The broadband subscribers reached 181 million, representing Company continued to accelerate the upgrade a net addition of 11.19 million. The penetration rate of broadband speed, strengthened the integrated of Gigabit broadband subscribers reached 16.8%, development of “5G + Gigabit Broadband + Gigabit representing a year-on-year increase of 9.1 percentage WiFi”, built a solid foundation for high-speed access points. Broadband blended ARPU reached RMB46.3, for Smart Family, and further promote the uplifting of representing a year-on-year increase of 0.9%. the penetration rate of Gigabit subscribers as well as China Telecom Corporation Limited Annual Report 2022 039 SECTION III MANAGEMENT’S DISCUSSION AND ANALYSIS (REPORT OF THE DIRECTORS) CONTINUOUSLY ACCELERATING THE DEVELOPMENT OF THE SECOND GROWTH CURVE DRIVEN BY THE “FOUR- INTEGRATED” STRATEGY, ENABLING THE INDUSTRIAL DIGITALISATION BUSINESS TO GROW RAPIDLY AND CHINA TELECOM CLOUD TO DOUBLE ITS REVENUE The Company firmly grasped the demand for network- Continuously expanding deployment in emerging fields such as AI and security. In terms of AI, the Company built the industry’s first billion-parameter large-scale model for urban governance, with core algorithm capabilities covering image, voice, semantics and other fields, and launched more than 5,000 AI algorithms. In terms of security, the Company further strengthened product and service capabilities, and built a “Cloud Dam” platform with full network coverage based, digitalised, and smart integrated information and an integrated-security infrastructure platform, services in the era of digital economy, and accelerated “Security Brain”. The Company continued to optimise the building of the “second growth curve” driven by cloud-, AI-, security- and platform-integrated initiatives. its proprietary quantum security service platform and launched the first quantum security phone product in the Continuously maintaining the rapid development of China Telecom Cloud. The Company strove to forge the source of original cloud computing technologies, and achieved breakthroughs in more than 50 key core technologies such as distributed database and cloud operating system. China Telecom Cloud 4.0 has entered the stage of full commercialisation, and its market share has continued to rise, becoming the world’s largest carrier cloud and China’s largest hybrid cloud. It has grown to rank among the top-three in China’s public cloud IaaS market and public cloud IaaS+PaaS market, while maintaining its No.1 position in the dedicated cloud market in terms of market share. industry – Quantum-encrypted Calls. Continuously building new advantages in 5G industry applications and digital platforms. Leveraging its proprietary core capabilities such as 5G, cloud, IoT and Internet of Videos, the Company further upgraded 5G 2B businesses, accelerated the construction of a self-service operation platform for 5G customised network customers, and pushed forward the building of proprietary digital platforms capabilities. The Company also built a unified industry digital platform foundation, continued to accumulate fundamental capabilities, and further advanced the business capabilities and service level of 5G industry applications Thriving development of Industrial Digitalisation, supporting “the cloud migration, the use of data and intelligence injection” for numerous walks of life 040 China Telecom Corporation Limited Annual Report 2022 SECTION III MANAGEMENT’S DISCUSSION AND ANALYSIS (REPORT OF THE DIRECTORS) and digital platforms. The cumulative number of 5G The Company continued to enhance its loading of 2B commercial projects developed by the Company products in digitalised forms, while optimising its reached approximately 15,000, of which the number of online activation and digital operating capabilities, to newly added projects in 2022 exceeded 8,000. This fully empower various online and offline contact points. unleashed new momentum of transformation for vertical It continued to deepen the online product supply, industries. In 2022, revenue from Industrial Digitalisation of the Company amounted to RMB117.8 billion, representing a year-on-year growth of 19.7% on a comparable basis. Revenue from China Telecom Cloud reached RMB57.9 billion, representing an increase of 107.5% year-on- year. Revenue from network security services amounted to RMB4.7 billion, representing an increase of 23.5% year-on-year. CONTINUOUSLY ACCELERATING THE DIGITAL TRANSFORMATION OF PRODUCTS, CHANNELS, SALES AND MARKETING AND SERVICES, WHILE SIGNIFICANTLY ENHANCING THE DIGITAL OPERATION AND SERVICE CAPABILITIES Adhering to the service principles of “Customer First and Service Foremost”, the Company accelerated the enhancement of key capabilities such as digitalisation of products, channels, sales and marketing and services, with a focus on changes in customer demands in the digital era. The Company also further promoted business innovation and service transformation, and strove to build a service-oriented enterprise. business processing and online and offline integrated delivery capabilities, optimised the digital management system of sales expenses such as channels, and increased the operation efficiency and effectiveness of channels. The Company further enhanced precision marketing and service capabilities based on AI and Big Data technologies. By strengthening the application of data labels, the Company generated accurate user profiles, and optimised its full-chain digital management of customer value insight, operation and retention as well as expansion and upgrade. The Company further stepped up the application of new technologies based on data and intelligence, introduced AI digital employees, and accelerated the enhancement of service efficiency of 10000 service hotline. This created a 24/7 and all- round new intelligent service experience, facilitated the combination of traditional services with smart innovation, and promoted the continuous upgrade of service efficiency and customer perceptions. In 2022, the service quality of the Company’s networks, products and channels further strengthened, and customer reputation continued to become more positive, while its overall customer satisfaction maintained an industry-leading position. China Telecom Corporation Limited Annual Report 2022 041 SECTION III MANAGEMENT’S DISCUSSION AND ANALYSIS (REPORT OF THE DIRECTORS) CONTINUOUSLY ACCELERATING THE CONSTRUCTION AND UPGRADE OF DIGITAL INFORMATION INFRASTRUCTURE, WHILE FURTHER ENHANCING CLOUD-NETWORK INTEGRATION CAPABILITIES The Company resolutely fulfilled its responsibilities as the major force in building Cyberpower and Digital China, as well as in safeguarding network and information security. With the full implementation of its Cloudification and Digital Transformation strategy, the Company accelerated the construction of 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, and secure and controllable. In the field of computing power, the Company further optimised the “2 + 4 + 31 + X + O” layout of its computing power and built proprietary multiple AZs capabilities of China Telecom Cloud 4.0 in central nodes of regions of Beijing-Tianjin-Hebei, Yangtze River Delta, Guangdong-Hong Kong-Macau Greater Bay Area and Chengdu-Chongqing. The number of cities covered by “One-City-One-Pool” exceeded 240, while the number of edge computing power nodes surpassing 800. The Company built the four-level AI computing power comprising of “entire network-region-edge-terminal” with nationwide coverage. The Company aggregated more than 5,000 algorithms and over 100 scene-based solutions. The Company proactively responded to the national strategy of “East-to-West Computing Resource Transfer” and stepped up deployment with a focus on 8 hub nodes. The Company has the greatest number and the most extensive distribution of IDC resources in China. 042 China Telecom Corporation Limited Annual Report 2022 SECTION III MANAGEMENT’S DISCUSSION AND ANALYSIS (REPORT OF THE DIRECTORS) In the field of Gigabit fibre network, the Company In the field of security, the Company continued to give full continued to accelerate the construction of Gigabit play to its role in safeguarding network and information network and built the largest Gigabit fibre network in security, formed security infrastructure capabilities scale, with the number of 10G PON ports exceeding covering cloud, network, edge and terminal, and 6.30 million, covering over 250 million family users in the completed the construction of “Cloud Dam” platform with Company’s service region. full network coverage. The Company’s security capability pools covered more than 150 cities. In the field of 4G/5G network, the Company and China Unicom comprehensively deepened co-building and co- In the field of green and low-carbon, the Company fully sharing. The cumulative number of 5G base stations promoted the green and low-carbon transformation of co-built and co-shared by the two parties exceeded cloud-network infrastructure, and adopted measures one million while the number of co-shared 4G stations such as customised high-performance servers to exceeding 1.1 million, contributing key technologies in enhance computing efficiency. The Company also co-building and co-sharing as well as operation and applied various new energy-saving technologies to management experiences to the global communications enhance the energy efficiency of datacentres and industry. telecommunications equipment rooms, and sped up the energy-saving application of AI technologies to mobile In the field of satellite communications, the Company base stations and old equipment rooms, with a power continued to promote breakthroughs in key core saving of over 600 million kWh per year, contributing to technologies of the information network featuring aerial- the green and low-carbon transformation of the economy ground in one. The Company achieved interconnection and society. between the mobile network and the satellite network and realised multiple functions for one single card. China Telecom Corporation Limited Annual Report 2022 043 SECTION III MANAGEMENT’S DISCUSSION AND ANALYSIS (REPORT OF THE DIRECTORS) RMB481,448 million, representing an increase of 9.5% from year 202115. Service revenues16 were RMB434,928 million, representing an increase of 8.0% from year 2021. Excluding the revenue impact from the disposals of its subsidiaries in 202117, the year-on-year growth rate reached 8.1%, maintaining continuous growth for ten consecutive years. Operating expenses were RMB448,021 million, representing an increase of 9.6% from year 2021. The Company continued to enhance its profitability. Profit attributable to equity holders of the Company was RMB27,593 million, representing an increase of 6.3% from year 2021. Excluding the one- off after-tax gain from the disposals of its subsidiaries in 202118, the year-on-year growth rate reached 12.5%. Basic earnings per share were RMB0.30. EBITDA19 amounted to RMB130,359 million, representing an increase of 5.2% from year 2021. EBITDA margin20 was 30.0%. Management introduced the Company’s market-oriented talent incentive mechanism 6. FINANCIAL OVERVIEW In 2022, adhering to the new development principles, the Company seized opportunities arising from the OPERATING REVENUES development of digital economy and comprehensively In 2022, the Company leveraged its edges in cloud- i m p l e m e n t e d t h e “ C l o u d i f i c a t i o n a n d D i g i t a l network servicing capabilities, accelerated the Transformation” strategy. The Company increased development of Industrial Digitalisation service, further investment in key areas such as sci-tech innovation and upgraded its integrated intelligent information products Industrial Digitalisation. At the same time, the Company and services, and strengthened the new supply of strengthened digital operation to reduce costs and digital products. As a result, its revenues continuously enhance efficiency, further increased resource efficiency, maintained favourable growth while its revenue structure and supported the long-term value creation of the further optimised. In 2022, operating revenues were Company. The Company achieved new results in high- RMB481,448 million, representing an increase of 9.5% quality development. In 2022, operating revenues were from year 2021. Service revenues were RMB434,928 million, representing an increase of 8.0% from year 2021. 15 16 17 18 19 20 In 2022, the Group acquired Beeya (Shanghai) Technology Co., Ltd.. As a business combination under common control, comparative figures of the prior year have been restated. Service revenues are calculated based on operating revenues minus sales of mobile terminals, sales of wireline equipment, and other non-service revenues. Service revenues for 2021 excluded Internet Finance revenue prior to the disposal of E-surfing Pay Co., Ltd. which was completed in April 2021. The one-off after-tax gain from the disposals of E-surfing Pay Co., Ltd. and China Telecom Leasing Corporation Limited in 2021 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. 044 China Telecom Corporation Limited Annual Report 2022 SECTION III MANAGEMENT’S DISCUSSION AND ANALYSIS (REPORT OF THE DIRECTORS) The following table sets forth a breakdown of the operating revenues for year 2022 and 2021, together with their respective rates of change: (RMB million, except percentage data) 2022 2021 Rates of change For the year ended 31 December Service revenues 434,928 Of which: Mobile communications (Restated) 402,828 service revenues Wireline and Smart Family service revenues Industrial Digitalisation service revenues Other service revenues Revenues from sales of goods and others Total operating revenues 191,026 184,158 118,534 113,522 117,756 7,612 46,520 481,448 98,945 6,203 36,725 439,553 8.0% 3.7% 4.4% 19.0% 22.7% 26.7% 9.5% Mobile communications service revenues Wireline and Smart Family service revenues In 2022, the Company continued to strengthen its 5G In 2022, leveraging the convergence of “5G + Gigabit network coverage, optimise network quality and enhance broadband + Gigabit WiFi”, the Company promoted 5G user experience to promote mobile subscribers the speed upgrade of broadband subscribers as well growth and value stabilisation as well as the stable as the upgrade from Whole-home Intelligence to family growth of fundamental businesses. In 2022, revenues DICT. The value contribution from Smart Family services from mobile communications services were RMB191,026 continued to grow, with broadband blended ARPU million, representing an increase of 3.7% over the same maintaining favourable growth. In 2022, the Company’s period of last year and accounting for 39.7% of operating Wireline and Smart Family service revenues were revenues. RMB118,534 million, representing an increase of 4.4% over the same period of last year and accounting for 24.6% of operating revenues. China Telecom Corporation Limited Annual Report 2022 045 SECTION III MANAGEMENT’S DISCUSSION AND ANALYSIS (REPORT OF THE DIRECTORS) Industrial Digitalisation service revenues Revenues from sales of goods and others In 2022, the Company proactively seized the current In 2022, revenues from sales of goods and others opportunities brought by the demands from various amounted to RMB46,520 million, representing an industries in the economy and society for network- increase of 26.7% from year 2021, mainly due to the based, digitalised, and smart integrated information rapid growth in the sales volume of mobile terminals, services. Leveraging its own resources in the whole such as 5G mobile phones. process and whole network, the Company empowered the digital transformation of numerous walks of life and OPERATING EXPENSES promoted “the cloud migration, the use of data and Seizing the opportunities arising from the development intelligence injection” for more enterprises. In 2022, the of digital economy, the Company increased investment Company’s Industrial Digitalisation service revenues were in key areas such as sci-tech innovation and Industrial RMB117,756 million, representing an increase of 19.0% D i g i t a l i s a t i o n . A t t h e s a m e t i m e , t h e C o m p a n y over last year and accounting for 24.5% of operating strengthened digital operation to reduce costs and revenues. Other service revenues enhance efficiency, further increased resource efficiency, and supported the high-quality development and long- term value creation of the Company. In 2022, operating In 2022, revenues from other services amounted to expenses were RMB448,021 million, representing an RMB7,612 million, representing an increase of 22.7% increase of 9.6% from year 2021. Operating expenses from year 2021, mainly due to the increase in revenues accounted for 93.1% of operating revenues. from property rental. 046 China Telecom Corporation Limited Annual Report 2022 SECTION III MANAGEMENT’S DISCUSSION AND ANALYSIS (REPORT OF THE DIRECTORS) The following table sets forth a breakdown of the operating expenses in 2022 and 2021 and their respective rates of change: (RMB million, except percentage data) 2022 2021 Rates of change For the year ended 31 December Depreciation and amortisation Network operations and support Selling, general and administrative Personnel expenses Other operating expenses Total operating expenses 96,932 147,589 64,277 84,772 54,451 (Restated) 92,966 133,340 61,154 76,057 45,088 448,021 408,605 4.3% 10.7% 5.1% 11.5% 20.8% 9.6% Depreciation and amortisation Network operations and support In 2022, the Company further promoted 5G co-building In 2022, the Company proactively supported the rapid and co-sharing as well as 4G network co-sharing. At development of 5G, Industrial Digitalisation business the same time, in order to support the construction and Smart Family business, and appropriately increased of 5G network at scale and expand the deployment investment in the build-up of capabilities. At the same of new infrastructure such as datacentres and cloud, time, with the continuous expansion of the Company’s the Company continued its capital expenditure input. network, operating costs such as electricity charge Depreciation and amortisation amounted to RMB96,932 and tower rental fees increased accordingly. Network million, representing an increase of 4.3% from year 2021 operations and support expenses amounted to and accounting for 20.1% of operating revenues. RMB147,589 million, representing an increase of 10.7% from year 2021 and accounting for 30.7% of operating revenues. Network operations and support 3232.9.9%% 1414.3.3%% Depreciation and amortisation ammortisation 21.6% Selling, general and administrative Personnel expenses 1818.9.9%% Other operating expenses 12.3% Breakdown of Operating Expenses China Telecom Corporation Limited Annual Report 2022 047 SECTION III MANAGEMENT’S DISCUSSION AND ANALYSIS (REPORT OF THE DIRECTORS) Selling, general and administrative In 2022, selling, general and administrative expenses Other operating expenses In 2022, other operating expenses amounted to amounted to RMB64,277 million, representing an RMB54,451 million, representing an increase of 20.8% increase of 5.1% from year 2021 and accounting for from year 2021 and accounting for 11.3% of operating 13.4% of operating revenues. The Company firmly seized revenues. The increase was mainly due to the increase in the development opportunities of 5G and maintained the sales volume of mobile terminals, such as 5G mobile the necessary input in marketing resources. At the same phones. time, the Company deepened channel transformation and upgrades, accelerated the construction of a new digital marketing service channel system, and Net finance costs In 2022, net finance costs amounted to RMB7 million, strengthened online and offline coordination. The representing a decrease of 99.4% from year 2021, mainly Company also stepped up precision marketing and enhanced the efficiency of selling expenses. In 2022, because the Company maintained sound operating cash flows, while A Share Offering effectively covered the selling expenses were RMB50,486 million, representing capital needs of key investment projects, and the scale an increase of 3.9% from year 2021. The Company of interest-bearing debt was effectively reduced. proactively promoted sci-tech innovation to accelerate its transformation towards a technology-oriented enterprise, with appropriate increase in R&D initiatives. In 2022, general and administrative expenses amounted PROFITABILITY LEVEL Income taxes The Company’s statutory income tax rate is 25%. In to RMB13,791 million, representing an increase of 9.8% 2022, income tax expenses were RMB8,038 million from year 2021. Personnel expenses The Company firmly seized the opportunities arising while the effective tax rate was 22.5%, representing a decrease of 0.3 percentage point from last year. The reasons for the effective tax rate being lower than the statutory tax rate were because income from investment from the development of the digital economy, boosted in the associate company, China Tower was not subject sci-tech innovation, strengthened the recruitment of to tax during the period of the investment held, the high-tech talents and increased incentives for frontline application of preferential policies such as additional tax employees and high-performance team. Inputs in deduction from research and development expenses, personnel expenses were aligned with the development and some subsidiaries and some branches located in the direction of the Company to transform itself to be a western region of China enjoyed low tax rates. technology-oriented enterprise in the future. In 2022, personnel expenses amounted to RMB84,772 million, representing an increase of 11.5% from year 2021 and accounting for 17.6% of operating revenues. For details Profit attributable to equity holders of the Company The Company firmly seized the strategic opportunities regarding the number of employees, remuneration policy arising from the booming digital economy, deepened and training programs, please refer to Corporate Social reform and innovation and strived to enhance quality Responsibility Report 2022 (“CSR Report 2022”). and efficiency, resulting in a significant increase in profit attributable to equity holders. In 2022, the profit attributable to equity holders of the Company was RMB27,593 million, representing an increase of 6.3% from year 2021. Excluding the one-off after-tax gain of disposals of its subsidiaries in 202121, the year-on-year growth rate was 12.5%. 21 The one-off after-tax gain from the disposals of E-surfing Pay Co., Ltd. and China Telecom Leasing Corporation Limited in 2021 was approximately RMB1,416 million. 048 China Telecom Corporation Limited Annual Report 2022 SECTION III MANAGEMENT’S DISCUSSION AND ANALYSIS (REPORT OF THE DIRECTORS) CAPITAL EXPENDITURE AND CASH FLOWS Capital expenditure information infrastructure, and expedited the construction of cloud-network foundation in the computing power era. At the same time, the Company further promoted In 2022, in order to support the construction of 5G 5G network co-building and co-sharing as well as network at scale and strengthen its network competitive 4G network co-sharing with China Unicom. Capital advantages, the Company proactively expanded the expenditure for the year was RMB92,528 million, deployments of new infrastructure such as datacentres representing an increase of 6.7% from year 2021. and cloud, built the intelligent integrated digital Mobile network 3434.6.6%% Broadband network 2020.1.1%% Industrial Digitalisation 2929.3.3%% Operating systems & infrastructure 16.0% Capital Expenditure RMB92,528 Mil Cash flows The net decrease in cash and cash equivalents for year 2022 was RMB1,270 million. The following table sets forth the cash flow position in 2022 and 2021: (RMB million) Net cash flow from operating activities Net cash used in investing activities Net cash used in financing activities Net (decrease)/increase in cash and cash equivalents For the year ended 31 December 2022 136,432 (96,796) (40,906) (1,270) 2021 (Restated) 137,533 (80,288) (7,518) 49,727 China Telecom Corporation Limited Annual Report 2022 049 SECTION III MANAGEMENT’S DISCUSSION AND ANALYSIS (REPORT OF THE DIRECTORS) In 2022, the net cash inflow from operating activities was WORKING CAPITAL RMB136,432 million, representing a decrease of 0.8% The Company consistently upheld stable and prudent from year 2021, mainly due to the increase in accounts financial principles and stringent fund management receivable and the decrease in user prepaid service policies. At the end of 2022, the working capital (total fees for the year as a result of the change in business current assets minus total current liabilities) deficit was structure. RMB140,665 million, representing an increase in deficit of RMB2,957 million compared to the end of 2021. As In 2022, the net cash outflow used in investing activities at 31 December 2022, the unutilised credit facilities was RMB96,796 million, representing an increase of were RMB233,639 million (2021: RMB276,483 million). 20.6% from year 2021, mainly due to the increase in Given the stable net cash inflow from operating activities capital expenditure of the Company, as well as the and sound credit record, the Company has sufficient increase in loans granted by its finance company. working capital to satisfy operational needs. As at the In 2022, the net cash outflow used in financing activities to RMB72,465 million, among which cash and cash was RMB40,906 million, representing an increase of equivalents denominated in Renminbi accounted for end of 2022, cash and cash equivalents amounted 444.1% from year 2021, mainly due to the impact of the 94.3% (2021: 89.6%). proceeds from the Company’s A Share Offering last year. 050 China Telecom Corporation Limited Annual Report 2022 SECTION III MANAGEMENT’S DISCUSSION AND ANALYSIS (REPORT OF THE DIRECTORS) ASSETS AND LIABILITIES end of 2021 to RMB807,698 million. Total indebtedness22 In 2022, the Company continued to maintain a solid decreased to RMB10,484 million from RMB16,496 financial position. At the end of 2022, the total assets million as at the end of 2021. Debt to asset ratio as at increased by 6.0% from RMB762,239 million as at the the end of 2022 was 46.0%. Indebtedness The indebtedness analysis as at the end of 2022 and 2021 is as follows: (RMB million) Short-term debts Current portion of long-term debts Long-term debts Total indebtedness For the year ended 31 December 2022 2,840 3,160 4,484 2021 2,821 6,280 7,395 10,484 16,496 As at the end of 2022, the total indebtedness was As at 31 December 2022, neither the Company nor any RMB10,484 million, representing a decrease of of its subsidiaries pledged any assets as collateral for RMB6,012 million from the end of 2021, which was debt (2021: Nil). mainly due to the impact of the Company’s listing in the A-share market, as the proceeds satisfied the capital Most of the revenues received and expenses paid in the requirements of key projects, leading to decreased course of the Company’s business were denominated external financing needs. Of the total indebtedness, in Renminbi, therefore there were no significant risk loans denominated in Renminbi, US Dollars and Euro exposures arising from foreign exchange fluctuations. accounted for 97.4% (2021: 98.2%), 1.7% (2021: 1.1%) and 0.9% (2021: 0.7%), respectively. 95.8% (2021: 95.9%) of the indebtedness were loans with fixed interest rates while the remaining portion of the indebtedness represented loans with floating interest rates. 22 Total indebtedness refers to interest-bearing debts excluding lease liabilities. China Telecom Corporation Limited Annual Report 2022 051 SECTION III MANAGEMENT’S DISCUSSION AND ANALYSIS (REPORT OF THE DIRECTORS) Significant investment in other comprehensive income, with book values of As at 31 December 2022, the Company’s external RMB42,220 million and RMB885 million, respectively. investments mainly included interests in associates The Company’s investment in China Tower, an associate and joint ventures, and equity instruments measured of the Company, constituted its significant investment. at fair value with the change in the fair value included 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 Book value (RMB million) Fair value (RMB million) As at 31 December 2022 Size of fair value relative to total assets of the Group China Tower 0788.HK Principally engaged in the construction, The PRC 36,087 36,087,147,592 20.5% 39,271 27,078 3.4% maintenance and operation of base station ancillary facilities such as telecommunications towers, public network coverage in high-speed railways and subways, and large-scale indoor Distributed Antenna Systems (DAS), and to provide energy application services such as information application and intelligent battery exchange and power backup to the society As at 31 December 2022, the book value of the dividends received amounted to RMB947 million. In Group’s interests in China Tower, an associate of the the future, the Company can enjoy more fundamental Company, was RMB39,271 million, accounting for network resources through China Tower. As one of the 4.9% of the Group’s total assets. In 2022, share of shareholders of China Tower, it is expected that the unrealised attributable profits of China Tower recognised Company can benefit from the enhancement of profits by the Company amounted to RMB1,954 million, and and values from China Tower in the future. Contractual obligations Contractual obligations as at 31 December 2022 are as follows: (RMB million) Short-term debts Long-term debts Lease liabilities Capital commitments Total contractual obligations 101,120 Total Within 1 year 1 to 2 years 2 to 5 years Thereafter Between Between 2,884 8,595 73,034 16,607 2,884 3,226 16,163 16,607 38,880 – 1,187 14,685 – – 2,509 38,195 – 15,872 40,704 – 1,673 3,991 – 5,664 Note: Amounts of short-term debts, long-term debts and lease liabilities include recognised and unrecognised interest payable, and the amounts shown above were not discounted. 052 China Telecom Corporation Limited Annual Report 2022 SECTION III MANAGEMENT’S DISCUSSION AND ANALYSIS (REPORT OF THE DIRECTORS) 7. DISCUSSION AND ANALYSIS ON THE FUTURE DEVELOPMENT OF THE COMPANY 1. INDUSTRY LANDSCAPE AND TREND At present, there are new strategic opportunities for the development of the information communications industry. The information communications industry should make proactive and accurate analysis and judgment, proactively respond to changes, cultivate opportunities, and start a new situation. Firstly, the world is living through accelerating changes life and new demands for service quality. Currently, users are shifting from physical to online contactless services, with rapid growth of the number of various online users, while the all-round digital lifestyle is becoming a reality. User demand has been upgraded from standardised products to typical scenes, and then to customised services. Large-scale and rapid satisfaction of personalised customisation demands has become a new trend and new requirement for products and services. 2B, 2C and 2H have opened up multiple identities of customers, with continuously deepened integration of multi equipment and multi screens. This promoted the integrated development of information services and unseen in a century, bringing new strategic opportunities products. for China’s development. As the Chinese economy has strong resilience, great potential and full vitality, the key conditions for building a new development pattern are relatively sufficient. The momentum of effective demand recovery is becoming increasingly obvious, and the effects of various policies continue to become apparent. The overall economic operation is expected to rebound in 2023, and the long-term positive fundamentals of China’s economy remain unchanged. Secondly, digital economy has become an important support and key engine to promote the high-quality development of the economy and society. The digital transformation of the economy and society has become a general trend. The new thinking, new technologies and Fourthly, science and technology constitute a primary productive force, while the scale commercialisation of the new generation digital technologies is accelerating. At present, the human society has entered the digital era after the agricultural era, the industrial era and the information era. The scale commercialisation of the new generation digital technologies such as cloud computing, Big Data and AI is accelerating. Cloud computing and AI have unlimited potential, and are accelerating the transformation of various industries from the bottom. Cloud computing has grown rapidly in terms of market size. AI is at a key turning point for the transition from small-scale verification to large-scale application, and is about to enter a stage of spurt and large-scale new models brought by digitalisation will reconstruct implementation. the technology systems, business models and industrial formats of human society. The digital development momentum in key areas such as industrial Internet, smart city, smart healthcare and smart commerce is strong. As the main force of the digital economy, the information communications industry not only maintains its own high growth, but also provides strong support for the stable economic growth. Thirdly, the continuous expansion of information Fifthly, the challenges of security risks have increased, and security demands have become more urgent. The cloud-network security operation is under severe situation, with the number of global DDoS attacks increasing rapidly, and major network failures occurring frequently. The cost of security incidents continued to rise, and the security market expenditure continued to grow rapidly. All kinds of security incidents in the world became alarm bells for the information communications consumption scenes has created a new trend of digital industry. China Telecom Corporation Limited Annual Report 2022 053 SECTION III MANAGEMENT’S DISCUSSION AND ANALYSIS (REPORT OF THE DIRECTORS) Sixthly, green and low-carbon development has become its corporate core competitiveness and accelerates a general consensus and are integrated into the products the construction of a world-class enterprise leveraging and services of enterprises at all fronts. Promoting accelerated development with higher quality, higher green and low-carbon development of the economy level of sci-tech innovation, more comprehensive and and society is key to achieve high-quality development. deepened reforms, greater efforts in opening up and Green development puts forward new requirements cooperation, more emphasis on risk prevention, as well as for the information communications industry. At the more pragmatic work style and unity in hard work. same time, the digital technology empowers the green and low-carbon development, creating a huge market while bringing huge opportunities to the information 3. BUSINESS PLAN In 2023, the Company will firmly seize the strategic communications industry. opportunities arising from the building of Digital China and the development of digital economy. Insisting on high- The changes in the world, times and history are quality development as the theme, digital transformation unfolding in an unprecedented manner. Facing new as the main line, and reform, opening and innovation changes of situation and new requirements of tasks, the as the driving force, the Company will comprehensively Company will accurately grasp its historical orientation, and deeply implement the Cloudification and Digital firmly seize the new strategic opportunities for its Transformation strategy, and continue to increase the corporate development, fully and deeply implement its supply of high-quality digital products such as cloud, “Cloudification and Digital Transformation” strategy, AI, security and digitalised platforms. The Company will accelerate the construction of a world-class enterprise, accelerate the quality and scale enhancement of 5G and continuously create greater value for shareholders. and Gigabit subscribers, and speed up the integrated 2. DEVELOPMENT STRATEGY OF THE COMPANY China Telecom resolutely fulfils its missions and development of businesses such as Smart Family, Smart Community, Digital Village and e-Surfing IoVT. The Company will build the full-stack solution capabilities for various industries, strengthen ecological cooperation, responsibilities in building a Cyberpower and Digital promote the acceleration and upgrade of Industrial China, as well as in safeguarding network and Digitalisation, and empower and inject intelligence into information security. Adhering to the customer-centric the digital transformation of numerous walks of life. The approach, the Company strengthens the core capabilities Company will continue to build the digital information in sci-tech innovation, accelerates the construction of infrastructure with cloud-network integration as the new information infrastructure featuring cloud-network core feature, strengthen data integration and sharing, integration, greenness and security, and consolidates promote the deep integration of digital economy and real the foundation for green development and network and economy, and strive to achieve high-quality development information security. The Company builds a digitalised that is more efficient, more sustainable and more secure. platform hub, creates a win-win cooperation ecology, and deepens the reform of systems and mechanisms. The Company also provides customers with integrated intelligent services that are flexible and diversified, integrated and convenient, of quality experience, green 4. POTENTIAL RISKS Risks of adapting to economic and policy environment At present, the recovery of the world economy is weak, and secure. The Company meets people’s demands for with frequent regional conflicts and turmoil, and the a better information life and continues to advance the global problem is intensifying. The foundation for China’s building of a service-oriented, technology-oriented and economic recovery is not yet solid, and the “triple secured enterprise. The Company effectively enhances pressure” of shrinking demand, supply shocks and 054 China Telecom Corporation Limited Annual Report 2022 SECTION III MANAGEMENT’S DISCUSSION AND ANALYSIS (REPORT OF THE DIRECTORS) weakening expectations remain high. The increasingly stringent regulatory environment may bring risks and 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 challenges to the Company’s business development communications networks and the growing number and revenue growth. The Company will strengthen the of cyber-attacks for different purposes have brought analysis and judgment of the external environment, new challenges to network security operations. With proactively prevent and respond to the risks brought by the implementation of the Cybersecurity Law of the environmental changes, comprehensively deepen reform, People’s Republic of China, the Data Security Law of promote the Cloudification and Digital Transformation the People’s Republic of China, the Personal Information strategy, innovate business models, accelerate Protection Law of the People’s Republic of China, the technological innovation, optimise the compliance Anti-Telecom and Online Fraud Law and other relevant management system, and solidly promote the high- laws and regulations, the Nation continues to strengthen quality development of the Company. Business operation risks The Nation puts forward requirements to give full play the supervision over relevant fields. Illegal and criminal acts on the Internet become concerns to the wider society, thus putting forward higher requirements for the data security and personal information protection to the supporting role of sci-tech innovation strategy, for the Company. The Company will further consolidate which will bring new opportunities as well as challenges the security foundation of new information infrastructure, to the sci-tech innovation of enterprises. With the rapid strengthen the independent and self-controlled development of the digital economy, the upgrading and capabilities in core network technologies, enhance iteration of products and services have accelerated, the supply chain security management system, and while customer demands become more diversified strengthen the emergency response and sourcing and personalised. There is a certain gap between the capabilities. Meanwhile, the Company will deepen Company’s products and services and customer’s data security and user personal information protection, demands in terms of varieties, performance and accelerate the use of data and intelligence injection experience, as well as between the level of industrial for the security core platform, continue to carry out digitalisation and the requirements of digital economy network security risks screening, effectively ensure development. Market competition further intensified, with reliable operation of network security as well as data and the growth rate of subscribers in the telecommunications personal information security. industry facing a downward pressure and corresponding in technological and innovative development having deficiencies. The Company will further strengthen sci- International operation risks The complex and volatile international situation has tech innovation and R&D as well as the transformation brought greater challenges to overseas operations. of achievements, increase the dual driving forces of Factors such as changes in the policy environment in fundamental businesses and Industrial Digitalisation the countries/regions where the Company operates business, and step up efforts in R&D and promotion of have brought risks to overseas business expansion. supply-side products. The Company will promote the There is still a gap between products and services optimisation of 5G business model and industry chain, and demands of customers. The Company will further accelerate the scale development of 5G, and step up strengthen market analysis and study the policies and efforts in capital deployment intensity to expand the “circle laws of relevant countries/regions, strengthen overseas of friends” in the ecology. This will further enhance the compliance management, enhance risk response market competitiveness of product supply and meet the capabilities and continue to optimise the overseas risk diversified and personalised customer demands. prevention responsibility system. China Telecom Corporation Limited Annual Report 2022 055 SECTION III MANAGEMENT’S DISCUSSION AND ANALYSIS (REPORT OF THE DIRECTORS) 8. OTHER DISCLOSURES 3. DIVIDENDS 1. PRINCIPAL BUSINESS The Board of Directors proposed a final dividend of RMB0.076 per share (pre-tax) in an aggregate amount The principal business of the Company and the Group of RMB6,955 million calculated based on 91,507 million is the provision of fundamental telecommunications shares, being the total number of issued share capital businesses including wireline and mobile communications of the Company as at the end of 2022. Together with services, value-added telecommunications businesses the 2022 interim dividend of RMB0.120 per share (pre- such as Internet access services, information services tax) which has been distributed, the full-year dividend and other related businesses. 2. DIVIDEND POLICY of the year 2022 amounts to RMB0.196 per share (pre- tax) in an aggregate amount of RMB17,935 million which represents 65% of the profit attributable to equity The basic principles of the Company’s profit distribution holders of the Company for the year 2022.The dividend policy are: proposal will be submitted for consideration at the Annual General Meeting to be held on Tuesday, 23 May (1) The Company attaches great importance to 2023 (the “2022 AGM”). Dividends will be denominated reasonable investment returns to investors, and declared in Renminbi. Details of the profit distribution and the Company’s profit distribution policy of the Company for 2022 are set out in the “Corporate will take into account the overall interests of all Governance Report” of this annual report. shareholders, the Company’s long-term interests and the Company’s sustainable development; Dividends for holders of A Shares and the investors of the Shanghai Stock Exchange and Shenzhen Stock (2) Under the premise that the Company’s profit Exchange (including enterprises and individuals) investing distribution does not exceed the cumulative in the H shares of the Company listed on the Hong distributable profit and that the Company takes Kong Stock Exchange (the “Southbound Trading Link”) into account the continuous profits, meets (the “Southbound Investors”) will be paid in Renminbi, regulatory requirements, operates regularly and whereas dividends for H share shareholders other than develops in the long term, the Company will give Southbound Investors will be paid in Hong Kong dollars. priority to cash distribution of dividends. The relevant exchange rate will be the average median rate of Renminbi to Hong Kong dollars as announced The Board is responsible for formulating the dividend by the People’s Bank of China for the week prior to the distribution plan and will execute the relevant approval date of declaration of dividends at the 2022 AGM. The procedures in accordance with relevant laws, rules, proposed final dividends are expected to be paid on or regulations and articles of association of the Company before 21 July 2023 upon approval at the 2022 AGM. (the “Articles of Association”) before proceeding with the distribution. In the future, the Company will strive for Pursuant to the “Enterprise Income Tax Law of the profitability enhancement and at the same time continue People’s Republic of China”, the “Implementation to deliver favourable dividend return for the shareholders. Rules of the Enterprise Income Tax Law of the People’s Details of the dividend policy of the Company are set out in Republic of China” and the “Circular of the State Taxation the “Corporate Governance Report” of this annual report. Administration on Issues Relating to the Withholding of Enterprise Income Tax by PRC Resident Enterprises on Dividends Paid to Overseas Non-PRC Resident 056 China Telecom Corporation Limited Annual Report 2022 SECTION III MANAGEMENT’S DISCUSSION AND ANALYSIS (REPORT OF THE DIRECTORS) Enterprise Shareholders of H Shares” (Guo Shui Han with the relevant requirements of the “Announcement of [2008] No. 897), the Company shall be obliged to the State Taxation Administration on Promulgating the withhold and pay 10% enterprise income tax when it Administrative Measures for Non-resident Taxpayers distributes the proposed 2022 final dividends to non- for Treatments under Tax Treaties” (Announcement resident enterprise shareholders of overseas H shares [2019] No. 35 of the State Taxation Administration), (including HKSCC Nominees Limited, other corporate they shall submit the “Information Report on Non- nominees or trustees, and other entities or organisations) resident Taxpayers for Treatments under Tax Treaties” whose names appear on the Company’s H share register (Announcement [2019] No. 35 of the State Taxation of members on Thursday, 8 June 2023. Administration), and collect and file such information. 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 The Company will determine the country of domicile Administration on Issues Concerning Taxation and of the individual H share shareholders based on the Administration of Individual Income Tax After the Repeal registered address as recorded in the H share register of Guo Shui Fa [1993] No. 045 (Guo Shui Han [2011] of members of the Company on Thursday, 8 June 2023 No. 348)”, if the individual H share shareholders who are (the “Registered Address”). If the country of domicile Hong Kong or Macau residents and those whose country of an individual H share shareholder is not the same of domicile is a country which has entered into a tax as the Registered Address or if the individual H share treaty with PRC stipulating a dividend tax rate of 10%, the shareholder would like to apply for a refund of the Company will finally withhold and pay individual income additional amount of tax finally withheld and paid, the tax at the rate of 10% on behalf of the individual H share individual H share shareholder shall notify and provide shareholders. If the individual H share shareholders relevant supporting documents to the Company on or whose country of domicile is a country which has entered before Thursday, 1 June 2023. Upon examination of the into a tax treaty with PRC stipulating a dividend tax rate supporting documents by the relevant tax authorities, of less than 10%, the Company will finally withhold and the Company will follow the guidance given by the tax pay individual income tax at the rate of 10% on behalf authorities to implement relevant tax withholding and of the individual H share shareholders. If the individual payment provisions and arrangements. Individual H share H share shareholders whose country of domicile is a shareholders may either personally attend or appoint a country which has entered into a tax treaty with PRC representative to attend to the procedures in accordance stipulating a dividend tax rate of more than 10% but less with the requirements under the tax treaties notice if they than 20%, the Company will withhold and pay individual do not provide the relevant supporting documents to the income tax at the actual tax rate stipulated in the relevant Company within the time period stated above. tax treaty. If the individual H share shareholders whose country of domicile is a country which has entered into For Southbound Investors (including enterprises and a tax treaty with PRC stipulating a dividend tax rate of individuals), the Shanghai branch of China Securities 20%, or a country which has not entered into any tax Depository and Clearing Corporation Limited and the treaties with PRC, or under any other circumstances, Shenzhen branch of China Securities Depository and the Company will withhold and pay individual income Clearing Corporation Limited, as the nominees of the tax at the rate of 20% on behalf of the individual H share investors of the Southbound Trading Link, will receive shareholders. If those shareholders need to request a all dividends distributed by the Company and will refund of tax overpaid from the PRC tax authorities on his distribute the dividends to the relevant investors under own or through an agent or the Company in accordance the Southbound Trading Link through its depositary and China Telecom Corporation Limited Annual Report 2022 057 SECTION III MANAGEMENT’S DISCUSSION AND ANALYSIS (REPORT OF THE DIRECTORS) clearing system. According to the relevant provisions Southbound Trading Link, and such enterprises shall under the “Notice on Taxation Policies for Shanghai-Hong report the income and make tax payment by themselves. Kong Stock Connect Pilot Programme (Cai Shui [2014] The record date for entitlement to the shareholders’ No. 81)” and “Notice on Taxation Policies for Shenzhen- rights and the relevant arrangements of dividend Hong Kong Stock Connect Pilot Programme (Cai Shui distribution for the Southbound Investors are the same as [2016] No. 127)”, the Company shall withhold and pay those for the Company’s H share shareholders. individual income tax at the rate of 20% with respect to dividends received by the Mainland individual investors The Company assumes no responsibility and disclaims for investing in the H shares of the Company listed on the all liabilities whatsoever in relation to the tax status or Hong Kong Stock Exchange through the Southbound tax treatment of the individual H share shareholders and Trading Link. In respect of the dividends received by for any claims arising from any delay in or inaccurate Mainland securities investment funds investing in the determination of the tax status or tax treatment of the H shares of the Company listed on Hong Kong Stock individual H share shareholders or any disputes relating Exchange through the Southbound Trading Link, the to the tax withholding and payment mechanism or tax levied shall be ascertained by reference to the rules arrangements. 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 4. DIRECTORS AND SENIOR MANAGEMENT OF THE COMPANY The following table sets out certain information of the Directors and senior management of the Company: 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 and Executive Vice President 19 August 2019 Executive Director and Executive Vice President 22 March 2022 Executive Director and Executive Vice President 6 January 2023 Executive Director, Executive Vice President, 6 January 2023 Chief Financial Officer and Secretary of the Board Name Ke Ruiwen Shao Guanglu Liu Guiqing Tang Ke Xia Bing Li Yinghui Chen Shengguang Ng, Kar Ling Johnny Wang Hsuehming 59 59 56 48 49 52 59 62 73 Non-Executive Director Independent Non-Executive Director Independent Non-Executive Director Yeung Chi Wai, Jason 68 Independent Non-Executive Director Chen Dongqi 66 Independent Non-Executive Director * Date of appointment as Director 058 China Telecom Corporation Limited Annual Report 2022 23 May 2017 6 January 2023 29 May 2014 26 October 2018 6 January 2023 SECTION III MANAGEMENT’S DISCUSSION AND ANALYSIS (REPORT OF THE DIRECTORS) References are made to the announcements in relation On 5 September 2022, Mr. Li Yinghui, an Executive Vice to the changes of Directors and senior management President and the Chief Financial Officer of the Company, published by the Company on the following dates: has been appointed as the Secretary of the Board of the Mr. Tang Ke, an Executive Vice President of the from 5 September 2022 until the Annual General Meeting Company, was appointed as an Executive Director of of the Company for the year 2022 to be held in year Company. The relevant appointment became effective the Company at the Extraordinary General Meeting of 2023. the Company held on 22 March 2022. The relevant appointment became effective from 22 March 2022 until Reference is made to the announcement of the the Annual General Meeting of the Company for the year Company dated 16 August 2022 and the circular of of 2022 to be held in the year of 2023. the Company dated 13 December 2022. Pursuant to the relevant requirement issued by China Securities On 26 April 2022, Mr. Xia Bing has been appointed as Regulatory Commission that the term of independent an Executive Vice President of the Company. Meanwhile, directors should not exceed six years, as Mr. Tse Hau Mr. Li Yinghui has been appointed as an Executive Vice Yin, Aloysius (“Mr. Tse”), Mr. Xu Erming (“Mr. Xu”) President and the Chief Financial Officer of the Company. and Madam Wang Hsuehming (“Madam Wang”) have The above proposed appointments became effective served as Independent Non-Executive Directors for from 26 April 2022 until the Annual General Meeting of more than 6 years, Mr. Tse, Mr. Xu and Madam Wang the Company for the year 2022 to be held in year 2023. resigned from their positions as Independent Non- Executive Directors and in the special committees of the Due to his age, Mr. Li Zhengmao has retired from his Board. Meanwhile, the Board sought approval for the positions as an Executive Director, the President and proposed appointments of Mr. Ng, Kar Ling Johnny, Mr. Chief Operating Officer of the Company with effect from Chen Dongqi and Madam Chen Lihua as Independent 12 July 2022. On 16 August 2022, Mr. Shao Guanglu, an Non-Executive Directors of the Company from the Executive Director of the Company, has been appointed shareholders of the Company. As Madam Chen Lihua as the President and Chief Operating Officer of the did not seek appointment as an Independent Non- Company. The relevant appointments became effective Executive Director of the Company for personal reasons, from 16 August 2022 until the Annual General Meeting of Madam Wang Hsuehming will continue to carry out her the Company for the year 2022 to be held in year 2023. duties as an Independent Non-Executive Director till the date of election of a new Independent Non-Executive Director at a shareholders’ meeting to be convened. China Telecom Corporation Limited Annual Report 2022 059 SECTION III MANAGEMENT’S DISCUSSION AND ANALYSIS (REPORT OF THE DIRECTORS) The appointments of Mr. Xia Bing and Mr. Li Yinghui appointments became effective from 6 January 2023 as Executive Directors of the Company and the until the Annual General Meeting of the Company for appointments of Mr. Ng, Kar Ling Johnny and Mr. Chen the year 2022 to be held in year 2023. The resignation Dongqi as Independent Non-Executive Directors of the of Mr. Tse and Mr. Xu took effect on 6 January 2023. Company have been approved at the Extraordinary Meanwhile, the below changes to the members of General Meeting held on 6 January 2023. The relevant special committees of the Board became effective on 6 January 2023: Audit Committee Mr. Ng, Kar Ling Johnny, Madam Wang Hsuehming, Mr. Yeung Chi Wai, Jason and Mr. Chen Dongqi serve as members, and Mr. Ng, Kar Ling Johnny serves as the Chairman. Remuneration Committee Mr. Yeung Chi Wai, Jason, Mr. Ng, Kar Ling Johnny and Madam Wang Hsuehming serve as members, and Mr. Yeung Chi Wai, Jason serves as the Chairman. Nomination Committee Mr. Chen Dongqi, Mr. Ng, Kar Ling Johnny and Mr. Yeung Chi Wai, Jason serve as members, and Mr. Chen Dongqi serves as the Chairman. 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* 49 Chairlady of the Supervisory Committee and 22 March 2022 Shareholder Representative Supervisor 57 54 43 56 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 Extraordinary General Meeting of the Company held on the changes of Supervisors published by the Company 22 March 2022. The relevant appointments became on the following dates: on 17 December 2021, Mr. Sui effective from the date of approval at the Extraordinary Yixun and Mr. You Minqiang resigned from their positions General Meeting until the Annual General Meeting of as Supervisors due to reason of age and change in work the Company for the year of 2022 to be held in year of arrangement respectively, and their resignations took 2023. Madam Han Fang was elected as the Chairlady of effect on the date of election of the new Supervisors at the seventh session of the Supervisory Committee at a the Extraordinary General Meeting of the Company held meeting of the Supervisory Committee held on 29 March on 22 March 2022. Madam Han Fang and Madam Wang 2022, with a term commencing from 29 March 2022 until Yibing were subsequently appointed as the Shareholder the Annual General Meeting of the Company for the year Representative Supervisors of the seventh session of 2022 to be held in the year of 2023. of the Supervisory Committee of the Company at the 060 China Telecom Corporation Limited Annual Report 2022 SECTION III MANAGEMENT’S DISCUSSION AND ANALYSIS (REPORT OF THE DIRECTORS) 6. SHARE CAPITAL, ISSUE OF SHARES AND USE OF PROCEEDS of A Shares, the final gross proceeds from the issuance amounted to approximately RMB47,904 million, and the As at 31 December 2022, the total share capital of net proceeds after deducting the issuance expenses the Company was approximately RMB91,507 million, amounted to approximately RMB47,516 million and divided into 91,507,138,699 shares at a nominal value the net proceeds per share amounted to approximately of RMB1.00 per share (including 77,629,728,699 A RMB4.49. As disclosed in the Prospectus, the above Shares and 13,877,410,000 H shares). On 20 August proceeds will be used on the three investment projects of 2021, the Company successfully completed the offering the Company, namely 5G Industrial Internet Construction and listing of A Shares on the SSE and initially issued Project, the Cloud-network integration new information 10,396,135,267 A Shares (with a nominal value of infrastructure project and the research and development RMB1.00 each) at an issue price of RMB4.53 per project of sci-tech innovation. During the Reporting share. The subscribers are qualified natural persons and Period, the proceeds were used, or are proposed to be institutional investors (except those prohibited by the used, according to the intentions previously disclosed laws and regulations and other regulatory requirements in the Prospectus, and there was no material change applicable to the Company). The total proceeds from or delay. As of 31 December 2021, the total amount the issuance amounted to approximately RMB47,094 of proceeds invested was approximately RMB14,895 million before the exercise of the over-allotment option. million, and the amount of proceeds not utilised was After deducting the issuance expenses, the net proceeds approximately RMB32,621 million. As of 31 December amounted to approximately RMB46,712 million and 2022, the amount of proceeds invested during the the net proceeds per share amounted to approximately Reporting Period was approximately RMB22,993 million, RMB4.49. The exercise period of the over-allotment and the accumulated total amount of proceeds invested option for the A Share Offering expired on 22 September was approximately RMB37,888 million. The use of 2021. Together with the proceeds from the initial issuance proceeds is as follows: Total accumulated amount invested as of the end of the Reporting Period (RMB million) Amount invested during the Reporting Period (RMB million) Amount not utilised as of the end of the Reporting Period (RMB million) Expected timeline for use of proceeds 7,160 9,030 9,957 18,467 0 2023 or before 5,116 2023 or before Total committed investment of proceeds (RMB million) 9,957 23,583 Projects invested with proceeds 5G Industrial Internet Construction Project Cloud-network integration new information infrastructure project Research and development project of 13,976 6,803 9,464 4,512 2023 or before sci-tech innovation Total 47,516 22,993 37,888 9,628 – China Telecom Corporation Limited Annual Report 2022 061 SECTION III MANAGEMENT’S DISCUSSION AND ANALYSIS (REPORT OF THE DIRECTORS) 7. MATERIAL INTERESTS AND SHORT POSITIONS IN SHARES AND UNDERLYING SHARES OF THE COMPANY 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 As at 31 December 2022, the interests or short position the Securities and Futures Ordinance (the “SFO”) are as of persons who are entitled to exercise or control the follows: exercise of 5% or more of the voting power at the Name of shareholder China Telecommunications Corporation Guangdong Rising Holdings Group Co., Ltd. GIC Private Limited Number of shares* Class of share 58,240,172,066 (Long Position) A Share 5,614,082,653 (Long Position) 2,086,663,702 (Long Position) 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 75.02% 63.65% Beneficial owner 7.25% 6.14% Beneficial owner 15.04% 2.28% Investment manager * The information disclosed above is based on 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 2022 may be different from those as disclosed above. Save as disclosed above, as at 31 December 2022, 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. 062 China Telecom Corporation Limited Annual Report 2022 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 2022, none 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 of the Directors and Supervisors of the Company had Directors of Listed Issuers as set out in Appendix 10 of any interests or short positions in the shares, underlying the Listing Rules. shares or debentures of the Company or its associated Shares held as approximate percentage of the total number of respective class of shares in issue Shares held as approximate percentage of the total number of shares in issue 0.00% 0.00% Capacity Beneficial owner Interest of spouse 0.00% 0.00% Beneficial owner 0.00% 0.00% Number of Shares 1,000 (Long Position) 1,000 (Long Position) 1 (Long Position) Name Position Class of share Chen Shengguang Non-Executive Director A Share Zhang Jianbin Employee Representative A Share Supervisor During the year 2022, the Company has not granted its leasing of telecommunications towers and other related Directors or Supervisors, or their respective spouses or services to the Company. Mr. Liu Guiqing, an Executive any of their respective minor child (natural or adopted) Director and Executive Vice President of the Company, or on their behalf any rights to subscribe for the shares who also serves as a non-executive director of China or debentures of the Company or any of its associated Tower, has therefore abstained from voting on the board corporations and none of them has ever exercised any resolutions in respect of, among others, the Agreements. such right to subscribe for the shares or debentures. 9. DIRECTORS’ AND SUPERVISORS’ INTERESTS IN TRANSACTIONS, ARRANGEMENTS OR CONTRACTS On 13 December 2022, the Board approved the entering Save as disclosed above and the service agreements entered into between the Company and the Directors and Supervisors, for the year ended 31 December 2022, the Directors and Supervisors of the Company or their connected entities did not have any material into of the Commercial Pricing Agreement and the interest, whether directly or indirectly, in any transactions, Service Agreement (the “Agreements”) with China Tower arrangements or contracts which was significant to the by the Company with a term of five years commencing Company’s business and which was entered into by the from 1 January 2023 to 31 December 2027. Pursuant Company, its parent company or any of its subsidiaries to the Commercial Pricing Agreement and the Service or fellow subsidiaries. Agreement, China Tower would continue to provide China Telecom Corporation Limited Annual Report 2022 063 SECTION III MANAGEMENT’S DISCUSSION AND ANALYSIS (REPORT OF THE DIRECTORS) 10. SERVICE CONTRACTS None of the Directors or Supervisors of the Company has entered into any service contract which is not 15. THE LEASE OF TELECOMMUNICATIONS TOWERS AND RELATED ASSETS FROM CHINA TOWER determinable by the Company within one year without After mutual negotiations and discussions on an arm’s payment of compensation (other than statutory length basis, on 13 December 2022, the Board approved compensation). the entering into of the Commercial Pricing Agreement and the Service Agreement with China Tower by the 11. EMOLUMENTS OF THE DIRECTORS AND SUPERVISORS Company with a term of five years commencing from 1 January 2023 to 31 December 2027. Pursuant to Please refer to note 34 of the audited consolidated the Commercial Pricing Agreement and the Service financial statements for details of the emoluments of all Agreement, China Tower would continue to provide Directors and Supervisors of the Company in 2022. leasing of telecommunications towers and other related 12. EMPLOYEES AND EMOLUMENT POLICY services to the Company. In accordance with International Financial Reporting Standards 16 “Leases”, the Group would recognise right-of-use assets in connection with The details of the Group’s emolument policy are set out the lease transactions under the Commercial Pricing in the “Corporate Governance Report” in this annual Agreement and the Service Agreement, and accordingly report. The details of share appreciation rights are set the Group would be regarded as acquiring right-of- out in the “Corporate Governance Report” in this annual use assets for the purposes of the Rules Governing report and note 46 of the audited consolidated financial the Listing of Securities on The Stock Exchange of statements. 13. PURCHASE, SALE OR REDEMPTION OF LISTED SECURITIES OF THE COMPANY Hong Kong Limited. The Company expected that the total value of right-of-use assets to be recognised in connection with transactions under the Commercial Pricing Agreement and the Service Agreement would be no more than RMB52 billion (unaudited), which In 2022, neither the Company nor any of its subsidiaries included telecommunications tower assets that were has purchased, sold or redeemed any of the Company’s then currently leased and expected to continue to be listed securities. 14. MATERIAL ACQUISITIONS AND DISPOSALS leased under the Commercial Pricing Agreement and the Service Agreement (from 1 January 2023 to 31 December 2027), as well as telecommunications tower assets that were expected to be newly leased in 2023. For the year ended 31 December 2022, the Company For details of the final amount of right-of-use assets to h a d n o m a t e r i a l a c q u i s i t i o n s a n d d i s p o s a l s o f be recognised by the Group, please refer to notes 6 and subsidiaries, associates or joint ventures. 43(b) of the audited consolidated financial statements. 064 China Telecom Corporation Limited Annual Report 2022 SECTION III MANAGEMENT’S DISCUSSION AND ANALYSIS (REPORT OF THE DIRECTORS) 16. PUBLIC FLOAT Please refer to note 26 of the audited consolidated As at the date of this Report of the Directors, based on financial statements for details of the movements in the the information that is publicly available to the Company reserves of the Company and the Group for the year and within the knowledge of the Directors, the Company ended 31 December 2022. has maintained the public float required under the Listing Rules and as agreed with the Hong Kong Stock Exchange. 17. SUMMARY OF FINANCIAL INFORMATION Please refer to pages 288 to 290 of this annual report for a summary of the operating results, assets and liabilities of the Group for each of the years in the five-year period ended 31 December 2022. 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. 19. CHARGE ON ASSETS As at 31 December 2022, no fixed assets was pledged to banks as loan security (31 December 2021: Nil). 20. CAPITALISED INTEREST Please refer to note 32 of the audited consolidated financial statements for details of the Group’s capitalised interest for the year ended 31 December 2022. 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 2022. 22. RESERVES Distributable reserves of the Company as at 31 December 2022 before deducting the proposed final dividends for 2022 amounted to RMB155,806 million. 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 2022. 24. DONATIONS For the year ended 31 December 2022, the Group made charitable and other donations with a total amount of RMB5.63 million. 25. SUBSIDIARIES AND ASSOCIATES Please refer to note 9 and note 10 of the audited consolidated financial statements for details of the Company’s subsidiaries and the Group’s associates as at 31 December 2022. 26. PERMITTED INDEMNITY For the year ended 31 December 2022 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. China Telecom Corporation Limited Annual Report 2022 065 SECTION III MANAGEMENT’S DISCUSSION AND ANALYSIS (REPORT OF THE DIRECTORS) 29. PRE-EMPTIVE RIGHTS There are no provisions for pre-emptive rights in the 34. BUSINESS REVIEW The details of the material development of the Group Articles of Association requiring the Company to offer in 2022, a fair review of the business and a discussion new shares to the existing shareholders in proportion to and analysis of the Group’s performance during the their shareholdings. 30. MAJOR CUSTOMERS AND SUPPLIERS year and the material factors underlying its results and financial position, description of the principal risks and uncertainties faced by the Group and the outlook of the Group’s business can be found throughout this annual For the year ended 31 December 2022, revenue report, particularly in this section. Particulars of important generated from the five largest customers of the Group events affecting the Group that have occurred after 31 accounted for an amount of less than 30% of the total December 2022, if any, can also be found in the Notes operating revenues of the Group. to the consolidated financial statements. For the year ended 31 December 2022, purchases from Description of the Group’s key relationships with its the five largest suppliers of the Group accounted for an employees, customers, suppliers and others that have amount of less than 30% of the total annual purchases of a significant impact on the Company and on which the the Group. 31. COMPETING BUSINESS Company’s success depends can be found throughout different parts of the annual report (including this section, “Corporate Governance Report”, etc.), and None of the Directors of the Company had any interest are particularly detailed in the CSR Report 2022 of the in any business which competes or may compete, either Company published on the websites of the Hong Kong directly or indirectly, with the business of the Group. Stock Exchange and the Company. In addition, more 32. MANAGEMENT CONTRACTS details regarding the financial key performance indicators and environmental policies, as well as compliance with During the Reporting Period, the Company had not relevant laws and regulations which have a significant entered into any management contracts with respect to impact on the Group, are also disclosed throughout this the entire or principal business of the Company. 33. RELATED PARTY TRANSACTIONS annual report (including this section, “Environmental and Social Responsibilities”, “Corporate Governance Report”, etc.) and the CSR Report 2022 of the Company. Each of Details of the related party transactions of the Group the above-mentioned relevant contents form an integral (“Related Party Transactions”) are set out in note 43 part of this Report of the Directors. of the consolidated financial statements. Only the Related Party Transactions set out in note 43(a) of the consolidated financial statements constitute continuing connected transactions under Chapter 14A of the Listing Rules, the details of which (except for fully exempt continuing connected transactions) have been disclosed in “Significant Events” in this annual report. Other Related Party Transactions do not constitute connected transactions or continuing connected transactions under Chapter 14A of the Listing Rules. 066 China Telecom Corporation Limited Annual Report 2022 SECTION III MANAGEMENT’S DISCUSSION AND ANALYSIS (REPORT OF THE DIRECTORS) 35. COMPLIANCE WITH THE CORPORATE GOVERNANCE CODE 37. AUDITORS PricewaterhouseCoopers and PricewaterhouseCoopers Please refer to the “Corporate Governance Report” for Zhong Tian LLP were appointed as the external auditors details of our compliance with the Corporate Governance of the Company for the year ended 31 December 2022. Code. 36. DEREGISTRATION OF AMERICAN DEPOSITARY SHARES AND TERMINATION OF REPORTING OBLIGATIONS 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 The delisting of the Company’s American Depositary of Finance of the People’s Republic of China and the Shares (“ADS”) became effective on 18 May 2021 SASAC, the service term of Deloitte Touche Tohmatsu and the Company’s ADS program was terminated and Deloitte Touche Tohmatsu Certified Public on 8 December 2021 (US eastern standard time). Accountants LLP, the international and domestic auditors The Company filed a Form 15F with the Securities of the Company for the year of 2020 expired on the date and Exchange Commission on 25 February 2022 of the Annual General Meeting for the year of 2020 (7 May to deregister the ADSs and terminate its reporting 2021). The appointments of PricewaterhouseCoopers obligations under the U.S. Securities Exchange Act of and PricewaterhouseCoopers Zhong Tian LLP as the 1934, as amended. Such deregistration and termination external auditors of the Company for the year of 2021 of reporting obligations became effective 90 days after and the external auditors of the Company for the year the filing of the Form 15F. of 2022 were approved at the Annual General Meeting For details, please refer to the announcements of the for the year of 2021 respectively. The Audit Committee Company dated 4 January 2021, 5 January 2021, 7 and the Board of the Company had agreed on the January 2021, 21 January 2021, 28 January 2021, 7 re-appointment of PricewaterhouseCoopers and May 2021, 10 September 2021 and 25 February 2022. PricewaterhouseCoopers Zhong Tian LLP as the external for the year of 2020 and the Annual General Meeting auditors of the Company for the year of 2023 and would propose the re-appointment of PricewaterhouseCoopers and PricewaterhouseCoopers Zhong Tian LLP at the Annual General Meeting for the year of 2022 of the Company for consideration. By Order of the Board Ke Ruiwen Chairman and Chief Executive Officer Beijing, China 22 March 2023 China Telecom Corporation Limited Annual Report 2022 067 RECOGNITION AND AWARDS RECOGNITION AND AWARDS OUR ACHIEVEMENTS Soar to new height 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 2022, 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 2022, in accordance with the latest regulatory requirements from the CSRC and the SSE on corporate governance and standardised operation, and taking into account the actual situation of the Company, the Company revised the relevant provisions of 12 sets of rules such as the Rules of Procedures of Audit Committee of China Telecom Corporation Limited, the Administrative Measures for Shareholding and Change in Shareholding by Directors, Supervisors and Senior Management of Management of Information Disclosure of China Telecom Corporation Limited, the Administrative Measures for Investor Relations of China Telecom Corporation Limited, the Management System for Registration of Insiders of China Telecom Corporation Limited and the Administrative Measures for Proceeds of China Telecom Corporation Limited, and formulated the Management System of Board Authorisation of China Telecom Corporation Limited 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 2022, the Company convened a total of 2 general meetings, 11 Board meetings and 6 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 China Telecom Corporation Limited, the Rules for the Association. 070 China Telecom Corporation Limited Annual Report 2022 SECTION IV CORPORATE GOVERNANCE REPORT For the year ended 31 December 2022, the roles of information through the Registration and Management Chairman and Chief Executive Officer of the Company System for Insiders of China Telecom Corporation were performed by the same individual. In the Limited, ensure the fairness and justice of information Company’s opinion, through the supervision by the disclosure, and protect the legitimate rights and interests Board and the Independent Non-Executive Directors of of investors and relevant parties. the Company, with effective control of the Company’s internal check and balance mechanism, the same The Company established an Investor Relations individual performing the roles of Chairman and Chief 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 Executive Officer can enhance the Company’s efficiency shareholders and investors with the necessary in decision-making and execution and enable the information, data and services in a timely manner. It also Company to effectively capture business opportunities. maintains proactive communications with shareholders, Many leading international corporations around the investors and other capital market participants. The world also have similar arrangements. Save as stated Company’s senior management presents the annual above, the Company was in compliance with all the code results and interim results every year. Through various provisions under the Corporate Governance Code as set activities such as analyst meetings, press conferences, out in Appendix 14 of the Listing Rules (the “Corporate global investor telephone conferences and investors Governance Code”) in the year 2022. road shows, the senior management provides the capital market and media with important information The Company has always attached great importance and responds to key questions which are of prime to information disclosure, strictly complied with the concerns to the investors. This has helped reinforce requirements of the relevant regulatory rules of the their understanding of the Company’s business and places where the Company’s shares are listed, and the overall development of the industry. In 2022, the stringently implemented the Rules for the Management Company conducted the annual, interim and third of Information Disclosure of China Telecom Corporation quarter results announcement briefings effectively Limited to standardise the procedures for the Company through online means for the first time and proactively to collect, organise, summarise and report important innovated the communication modes including the information internally and prepare external disclosure introduction of innovative elements such as virtual documents, clarify the responsibilities and code of data-based intelligence host “Xiao Yi” in the interim conduct of relevant departments and branches, and results announcement briefing for the first time to ensure the truthfulness, accuracy, completeness and demonstrate the achievements of the Company’s timeliness of the Company’s information disclosure. digital transformation. In daily operation, the Company In addition, the Company actively discloses data such participated in a number of investor conferences held as the numbers of mobile subscribers, 5G package by major international investment banks and domestic subscribers and wireline broadband users, etc. on securities firms worldwide through on-site and online a monthly basis to strengthen communication with integrated means to promote communication with the capital market and improve the transparency of institutional investors. At the same time, the Company set information disclosure. Meanwhile, the Company up a dedicated investor relations enquiry line to facilitate attaches great importance to the handling of inside communications between investors and the Company information and standardised management of inside and better serve shareholders and investors. China Telecom Corporation Limited Annual Report 2022 071 SECTION IV CORPORATE GOVERNANCE REPORT In 2022, 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” in the 2022 “All-Asia- Executive-Team” poll organised by Institutional Investor, a prestigious international financial magazine, for twelve consecutive years. The Company also received “Best Overall ESG”, “Best Investor Relations” and other honours. In addition, the Company was awarded “Asia’s Best CSR”, “Best Corporate Communications”, “Best Environmental Responsibility” and “Best Investor Relations Company” in “Asian Excellence Award 2022” organised by Corporate Governance Asia, a renowned Asia’s journal on corporate governance. The Company was voted as the “Most Outstanding Company in China – Telecommunication Services Sector” in Asiamoney’s “Asia’s Outstanding Companies Poll 2022”. The Company was further awarded with the “Overall Most Outstanding Company in China” among all winners from different sectors in China, and was accredited with the “Most Outstanding IPO in China”. In addition, the Company was awarded “Best Practice of Office of Board of Directors for Public Companies in 2022” as well as “Best Practice Award of 2021 Annual Results Briefing for Public Companies” by China Association for Public Companies. 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 shareholders. 072 China Telecom Corporation Limited Annual Report 2022 SECTION IV CORPORATE GOVERNANCE REPORT 3. GENERAL MEETINGS Designated websites for publishing resolutions Resolutions of the Meeting www.hkexnews.hk www.chinatelecom-h.com 1. Session Date The First 2022-03-22 Extraordinary General Meeting in 2022 2. 3. 1. 2. 3. 4. 5. 6. 7. Annual General 2022-05-19 Meeting for the year 2021 www.hkexnews.hk www.chinatelecom-h.com THAT the election of Mr. Tang Ke as a Director of the Company be and is hereby considered and approved, and shall take effect from the date of passing this resolution until the Annual General Meeting of the Company for the year 2022 to be held in year 2023; THAT any Director of the Company be and is hereby authorised to sign on behalf of the Company the Director’s service contract with Mr. Tang Ke; and THAT the Board be and is hereby authorised to determine his remuneration; THAT the purchase of liabilities insurance for the Company and its Directors, Supervisors and senior management be considered and approved; To consider and approve the resolutions in relation to the election of Shareholder Representative Supervisors: THAT the election of Madam Han Fang as a Shareholder Representative Supervisor of the Company be and is hereby considered and approved, and shall take effect from the date of passing this resolution until the Annual General Meeting of the Company for the year 2022 to be held in year 2023; THAT any Director of the Company be and is hereby authorised to sign on behalf of the Company the Supervisor’s service contract with Madam Han Fang; and THAT the Supervisory Committee be and is hereby authorised to determine her remuneration; THAT the election of Madam Wang Yibing as a Shareholder Representative Supervisor of the Company be and is hereby considered and approved, and shall take effect from the date of passing this resolution until the Annual General Meeting of the Company for the year 2022 to be held in year 2023; THAT any Director of the Company be and is hereby authorised to sign on behalf of the Company the Supervisor’s service contract with Madam Wang Yibing; and THAT the Supervisory Committee be and is hereby authorised to determine her remuneration. THAT the financial reports of the Company for the year of 2021 audited by PricewaterhouseCoopers Zhong Tian LLP and PricewaterhouseCoopers be considered and approved; THAT the Annual Reports for the year of 2021 be considered and approved; THAT the work report of the Board for the year of 2021 be considered and approved; THAT the work report of the Supervisory Committee for the year of 2021 be considered and approved; THAT the profit distribution and dividend declaration plan of the Company for the year of 2021 be considered and approved; THAT the authorisation to the Board to decide on the interim profit distribution plan of the Company for year 2022 be considered and approved; THAT the re-appointment of PricewaterhouseCoopers and PricewaterhouseCoopers Zhong Tian LLP as the external auditors of the Company for the year ending 31 December 2022 and the authorisation to the Board to fix the remuneration of the auditors be considered and approved. AGM was held in Beijing and Hong Kong with video conference connection. Management presented in the Beijing venue and communicated with shareholders China Telecom Corporation Limited Annual Report 2022 073 SECTION IV CORPORATE GOVERNANCE REPORT During the Reporting Period, the Company held 2 general the Articles of Association of the Company, the Rules meetings, with all resolutions approved. For details, of Procedures of the Shareholders’ General Meeting please refer to the relevant announcements published and other relevant requirements to ensure that all by the Company on the websites of the Stock Exchange shareholders, especially minority shareholders, enjoy and the Company. equal status and fully exercise their rights. The convening, holding, voting and other relevant procedures of the general meetings of the Company were in compliance with the laws and regulations, 4. DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT (1) Changes in shareholding and remuneration of current and resigned 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 thousand) 69.62 33.73 65.66 0 0 0 / / / 0 / 62.94 Ke Ruiwen Executive Director, Male 59 2012-05-30 Annual General Chairman and Chief Executive Officer Meeting for the year 2022 Executive Director, Male 60 2020-05-26 2022-07-12 President and Chief Operating Officer Li Zhengmao (Resigned) Shao Guanglu Executive Director Male 59 2020-05-26 Annual General President and Chief Operating Officer Meeting for the year 2022 2022-08-16 Annual General Meeting for the year 2022 Liu Guiqing Executive Director Male 56 2019-08-19 Annual General and Executive Vice President Meeting for the year 2022 0 0 0 0 0 0 0 0 074 China Telecom Corporation Limited Annual Report 2022 SECTION IV CORPORATE GOVERNANCE REPORT 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 thousand) 62.56 0 / 0 0 0 0 0 0 0 / 49.79 0 / 48.05 Name Position Gender Age Commencement date of term End date of term Tang Ke Executive Vice President Male 48 2021-11-29 Annual General Meeting for the year 2022 Executive Director 2022-03-22 Annual General Meeting for the year 2022 Xia Bing Executive Vice President Male 49 2022-04-26 Annual General Meeting for the year 2022 Executive Director 2023-01-06 Annual General Meeting for the year 2022 Li Yinghui Executive Vice President, Chief Financial Officer Male 52 2022-04-26 Annual General Meeting for the year 2022 Secretary of the Board 2022-09-05 Annual General Meeting for the year 2022 Executive Director 2023-01-06 Annual General Meeting for the year 2022 Chen Shengguang Non-Executive Director Male 59 2017-05-23 Annual General 1,000 1,000 Meeting for the year 2022 Tse Hau Yin, Aloysius (resigned) Xu Erming (resigned) Independent Non- Male 75 2005-09-09 2023-01-06 Executive Director Independent Non- Male 73 2005-09-09 2023-01-06 Executive Director 0 0 0 0 0 0 0 / / / 0.00 49.13 25.00 China Telecom Corporation Limited Annual Report 2022 075 SECTION IV CORPORATE GOVERNANCE REPORT 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 thousand) 0 0 0 0 0 0 1 0 0 0 0 0 0 0 0 1 0 0 0 0 0 0 0 / / / / / 26.80 26.80 0.00 0.00 32.01 0 / 75.75 0 0 0 / / / 108.31 105.23 92.89 Name Position Gender Age Commencement date of term End date of term Wang Hsuehming Independent Non- Female 73 2014-05-29 Annual General Executive Director Meeting for the year 2022 Yeung Chi Wai, Independent Non- Male 68 2018-10-26 Annual General Jason Executive Director Meeting for the year 2022 Ng, Kar Ling Johnny Independent Non- Male 62 2023-01-06 Annual General Executive Director Meeting for the year 2022 Chen Dongqi Independent Non- Male 66 2023-01-06 Annual General Meeting for the year 2022 Male 59 2015-05-27 2022-03-22 Female 49 2022-03-22 Annual General Meeting for the year 2022 Sui Yixun (resigned) Han Fang Executive Director Chairman of the Supervisory Committee and Shareholder Representative Supervisor Chairlady of the Supervisory Committee and Shareholder Representative Supervisor Zhang Jianbin Employee Male 57 2012-10-16 Annual General Representative Supervisor Meeting for the year 2022 Dai Bin Employee Male 54 2020-05-26 Annual General Representative Supervisor Meeting for the year 2022 Xu Shiguang Shareholder Male 43 2018-10-26 Annual General Representative Supervisor Meeting for the year 2022 076 China Telecom Corporation Limited Annual Report 2022 SECTION IV CORPORATE GOVERNANCE REPORT 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 You Minqiang (resigned) Shareholder Male 49 2020-05-26 2022-03-22 Representative Supervisor Wang Yibing Shareholder Female 56 2022-03-22 Annual General Representative Supervisor Meeting for the year 2022 0 0 0 0 Total / / / / / 1,001 1,001 0 0 0 / / / Total remuneration before tax received from the Company during the Reporting Period (RMB in ten thousand) 0.00 0.00 934.27 Notes: 1. 2. 3. 4. 5. During the Reporting Period, the Company also settled the bonus for the year 2021, including RMB1,080,400 for Mr. Ke Ruiwen, RMB727,300 for Mr. Shao Guanglu, RMB970,000 for Mr. Liu Guiqing, RMB254,200 for Mr. Tang Ke and RMB84,800 for Mr. Xia Bing. Mr. Tse Hau Yin, Aloysius resigned from his position as an Independent Non-Executive Director of the Company on 16 August 2022 and his resignation took effect on the date of election of a new Independent Non-Executive Director at the shareholders’ meeting on 6 January 2023. Mr. Xu Erming resigned from his position as an Independent Non-Executive Director of the Company on 16 August 2022 and his resignation took effect on the date of election of a new Independent Non-Executive Director at the shareholders’ meeting on 6 January 2023. Mr. Sui Yixun resigned from his position as a Supervisor of the Company on 17 December 2021 and his resignation took effect on the date of election of a new Supervisor at the shareholders’ meeting on 22 March 2022. Mr. You Minqiang resigned from his position as a Supervisor of the Company on 17 December 2021 and his resignation took effect on the date of election of a new Supervisor at the shareholders’ meeting on 22 March 2022. China Telecom Corporation Limited Annual Report 2022 077 SECTION IV CORPORATE GOVERNANCE REPORT (2) Biographical Details of Current Directors, Senior Management and Supervisors Age 59, is an Executive Director, the Chairman of the Board of Directors and Chief Executive Officer of the Company. He o joined the Board of Directors of the Company in May 2012. j Mr. Ke is a senior engineer with a doctorate degree in business M administration. Mr. Ke served as Deputy Director General of Jiangxi a Posts and Telecommunications Administration, Deputy General P Manager of Jiangxi Telecom, Managing Director of the Marketing M Department of the Company and China Telecommunications D Corporation*, General Manager of Jiangxi Telecom, Managing C Director of the Human Resources Department of the Company D and China Telecommunications Corporation, Executive Vice a President, President and Chief Operating Officer of the Company, P Vice President and President of China Telecommunications V Corporation and the Chairman of Supervisory Committee of China C Tower Corporation Limited. Mr. Ke is also the Chairman of China T Telecommunications Corporation. Mr. Ke has extensive experience in management and the telecommunications industry. 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. 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 and the President 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. KE RUIWEN SHAO GUANGLU * 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 63.78% of the issued share capital of the Company at the end of the Reporting Period. 078 China Telecom Corporation Limited Annual Report 2022 SECTION IV CORPORATE GOVERNANCE REPORT Age 56, 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, General Manager of China Unicom Jiangsu provincial branch and a Vice President and General Counsel of China Telecommunications Corporation. Mr. Liu is currently a Director of China Telecommunications Corporation, a Non-Executive Director of China Tower Corporation Limited which is listed on the Main Board of the HKSE, the Chairman and an Executive Director of China Communications Services 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. Age 48, 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, a Deputy Director General of Internet Society of China, a Deputy Executive Director General of Zhongguancun Digital Economic Industry Alliance, and a Vice President of China Netcasting Services Association. Mr. Tang has extensive experience in finance, management and the telecommunications industry. China Telecom Corporation Limited Annual Report 2022 079 LIU GUIQING TANG KE SECTION IV CORPORATE GOVERNANCE REPORT Age 49, is an Executive Director and Executive Vice President of the Company. He joined the Board of Directors of the Company in January 2023. Mr. Xia is a senior engineer with a doctor degree in economics. Mr. Xia previously served as Chairman and General Manager of China Mobile Group Qinghai Co., Ltd., General Manager of Marketing Department of China Mobile Communications Group Co., Ltd., Chairman and General Manager of China Mobile Group Beijing Co., Ltd., a Non-executive Director of Phoenix Media Investment (Holdings) Limited which is listed on the Main Board of the HKSE (formerly known as “Phoenix Satellite Television Holdings Limited”), a Non-executive Director of Shanghai Pudong Development Bank Co., Ltd. which is listed on the Shanghai Stock Exchange and a Director of True Corporation Public Company Limited which is listed on the Stock Exchange of Thailand. He is currently a Vice President of China Telecommunications Corporation and a Vice President of China Association of Communication Enterprises. Mr. Xia has extensive experience in management and the telecommunications industry. Age 52, is an Executive Director, Executive Vice President, Chief Financial Officer and Secretary of the Board of the Company. He joined the Board of Directors of the Company in January 2023. Mr. Li is a senior accountant, a member of the Chinese Institute of Certified Public Accountants and the Hong Kong Institute of Certified Public Accountants with a master degree in accountancy. Mr. Li previously served as a Deputy Director of Financial Department of China Huaneng Group Co., Ltd. (formerly known as “China Huaneng Group”), a Director of Financial and Budget Department of Huaneng Power International, Inc. which is listed on the Main Board of Shanghai Stock Exchange and the Main Board of the HKSE respectively and a Director of Financial and Asset Management Department of China Huaneng Group Co., Ltd.. He is currently the Chief Accountant of China Telecommunications Corporation and a Vice President of China Association for Public Companies. Mr. Li has extensive experience in finance, management and the fundamental industry. XIA BING LI YINGHUI 080 China Telecom Corporation Limited Annual Report 2022 SECTION IV CORPORATE GOVERNANCE REPORT Age 59, 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 an executive master degree in business administration (EMBA) from Lingnan College of Sun Yat-sen University. He is a senior economist. 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. Age 62, is an Independent Non-Executive Director of the Company. He joined the Board of Directors of the Company in January 2023. Mr. Ng is currently a practising Certified Public Accountant in Hong Kong, a practising auditor and accountant in Macau, a Fellow of the Hong Kong Institute of Certified Public Accountants (FCPA), a Fellow of the Association of Chartered Certified Accountant (FCCA), and a Fellow of the Institute of Chartered Accountants in England and Wales (FCA). Mr. Ng obtained a bachelor’s degree and a master’s degree in business administration from the Chinese University of Hong Kong in 1984 and 1999, respectively. Mr. Ng joined KPMG (Hong Kong) in 1984 and became a Partner in 1996. He acted as a Managing Partner from June 2000 to September 2015 and a Vice Chairman of KPMG China from October 2015 to March 2016. Mr. Ng currently serves as an independent non-executive director of China Petroleum & Chemical Corporation which is listed on the HKSE and Shanghai Stock Exchange, an independent non-executive director of China Vanke Co., Ltd. which is listed on the HKSE and Shenzhen Stock Exchange and an independent non-executive director of Metallurgical Corporation of China Ltd. which is listed on the HKSE and Shanghai Stock Exchange. He previously served as an independent director of Fangdd Network Group Ltd. which is listed on Nasdaq. CHEN SHENGGUANG NG, KAR LING JOHNNY * A substantial shareholder of the Company within the meaning of Part XV of the Securities and Futures Ordinance. China Telecom Corporation Limited Annual Report 2022 081 SECTION IV CORPORATE GOVERNANCE REPORT Age 73, 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. Age 68, 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. 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 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, 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. WANG HSUEHMING YEUNG CHI WAI, JASON 082 China Telecom Corporation Limited Annual Report 2022 SECTION IV CORPORATE GOVERNANCE REPORT Age 66, is an Independent Non-Executive Director of the Company. He joined the Board of Directors of the Company in January 2023. Mr. Chen is an economist, a young-to-middle-aged expert with outstanding contributions at Chinese Academy of Social Sciences (1997) and a member of Chinese Economists 50 Forum since 1998. Mr. Chen served as the director of Economics Research Institute of the State Planning Commission, an Executive Vice President of the Academy of Macroeconomics Research of the National Development and Reform Commission, an economics advisor for Beijing, Guangdong province and Shanxi province. Mr. Chen is currently a professor and Ph.D. tutor of the Graduate School at Chinese Academy of Social Sciences, a member of the Expert Team for Yangtze River Delta Integration and the Expert Committee of Sichuan Provincial Government, and an executive council member of Sun Yefang Foundation. Mr. Chen mainly focuses on the research of macroeconomics theory and policy. CHEN DONGQI China Telecom Corporation Limited Annual Report 2022 083 SECTION IV CORPORATE GOVERNANCE REPORT SUPERVISORS HAN FANG Age 49, 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. Madam Han is an international internal auditor, a qualified accountant in PRC and a senior accountant with a master’s degree in business administration. Madam Han served as a Supervisor of the third session of the Supervisory Committee 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. She currently serves as the Managing Director of Audit Department of both China Telecommunications Corporation and the Company, the Managing Director of Capital Operation Department of China Telecommunications Corporation and the Company, the Chairlady of the board of China Telecom Group Investment Co., Ltd. and a Supervisor of China Tower Corporation Limited which is listed on the Main Board of the HKSE. She has extensive experience in operation management and financial management in the telecommunications industry. ZHANG JIANBIN Age 57, 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 Deputy General Counsel of China Telecommunications Corporation, the Managing Director of the Legal Department (Compliance Management Department) of China Telecommunications Corporation and the Company. Mr. Zhang has extensive experience in corporate legal affairs. DAI BIN Age 54, 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, the Deputy Managing Director of the General Affairs Office (Office of the board of directors and Security Department) of China Telecommunications Corporation and the Vice Chairman of the Labour Union of China Telecommunications Corporation. Mr. Dai serves as the Director of the Party Community Work Department of China Telecommunications Corporation. Mr. Dai has extensive experience in operational management in the telecommunications industry. 084 China Telecom Corporation Limited Annual Report 2022 SECTION IV CORPORATE GOVERNANCE REPORT XU SHIGUANG Age 43, 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 operation management, auditing and internal control. WANG YIBING Age 56, is a Shareholder Representative Supervisor of the Company. She joined the Supervisory Committee of the Company in March 2022. Madam Wang is a senior accountant with a bachelor’s degree in economics. She 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, a Director of 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.. She currently serves as the Deputy General Manager of Zhejiang Provincial Financial Development Co., Ltd. (one of the shareholders of the Company), a Supervisor of Zhejiang Provincial Financial Holdings Co., Ltd and a Vice President of Council of Zhejiang Financial Holding Enterprises Alliance. Madam Wang has extensive experience in operation management of state-owned enterprises. China Telecom Corporation Limited Annual Report 2022 085 SECTION IV CORPORATE GOVERNANCE REPORT (3) Positions of current and resigned Directors, Supervisors and senior management during the Reporting Period 1. Positions held in shareholder entities Name Name of shareholders Positions held in shareholders Commencement date of term End date of term Ke Ruiwen China Telecommunications Chairman 2019-04-15 Present Corporation Li Zhengmao (resigned) China Telecommunications Corporation Shao Guanglu China Telecommunications Corporation Director President Director President Liu Guiqing China Telecommunications Corporation Director Vice President General Counsel 2020-01-27 2020-02-17 2020-01-27 2022-07-25 2022-10-01 2017-12-26 2021-11-26 2022-07-25 2022-07-25 Present Present Present 2022-10-01 2023-01-28 Tang Ke China Telecommunications Vice President 2021-06-23 Present Corporation Xia Bing China Telecommunications Vice President 2021-11-09 Present Corporation Li Yinghui China Telecommunications Chief Accountant 2022-02-22 Present Corporation Chen Shengguang Guangdong Rising Holdings Director and 2016-11 Present Group Co., Ltd. General Manager Han Fang China Telecommunications Managing Director of Audit 2020-07-25 Present Corporation Department Zhang Jianbin China Telecommunications Corporation Managing Director of Capital Operation Department 2022-12-29 Present Deputy General Counsel Managing Director of 2015-02-06 2021-09-15 Present Present Dai Bin China Telecommunications Corporation You Minqiang (resigned) Zhejiang Provincial Financial Development Co., Ltd. the Legal Department (Compliance Management Department) Director of the Party Community Work Department 2022-09-30 Present Vice Chairman of the 2017-11-27 2022-09-30 Labour Union Deputy Director of the 2019-12-13 Present Organisation Department (Human Resources Department) Wang Yibing Zhejiang Provincial Financial Development Co., Ltd. Vice General Manager 2021-01-30 Present 086 China Telecom Corporation Limited Annual Report 2022 SECTION IV CORPORATE GOVERNANCE REPORT 2. Positions held in other entities Name Name of other entities in other entities date of term of term Shao Guanglu Communications Science Deputy Director 2017-12 Present Positions held Commencement End date and Technology Committee of the Ministry of Industry and Information Technology Liu Guiqing China Institute of Deputy Director General 2018-06 Present Communications Global System for Mobile Director 2018-09 Present communications Association China Tower Non-Executive Director 2022-01-14 China Comservice Chairman of the board of 2022-06-17 directors and Executive Director Tang Ke Internet Society of China Deputy Director General 2021-11 Zhongguancun Digital Deputy Executive Director 2021-11 Present Present Present Present Economic Industry General Alliance China Netcasting Services Vice President 2022-01 Present Association Xia Bing China Association of Vice President 2022-07 Present Communication Enterprises Li Yinghui China Association for Public Vice President 2022-07 Present Companies Chen Shengguang Guangdong Rising Holdings Director and General 2016-11 Present Co., Ltd. Manager China Nonferrous Metals Vice President of 2019-04 Present Industry Association the Council Guangdong Nonferrous President 2017-07 Present Metals Industry Association China Telecom Corporation Limited Annual Report 2022 087 SECTION IV CORPORATE GOVERNANCE REPORT Name Name of other entities in other entities date of term of term Tse Hau Yin, CNOOC Limited Independent Non-Executive 2005-06-08 Present Positions held Commencement End date Aloysius (resigned) 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 Chairman of the Supervisory 2014-12 Present Desenvolvimento Unido Committee de Macau S.A.R.L. Pier 16 Property Chairman of the Supervisory 2014-12 Present Development Limited. Committee Cotai Magnific View Property Chairman of the Supervisory 2014-12 Present Development Company Committee Limited China Huarong Asset Independent Non-Executive 2015-03-23 Present Management Co., Ltd. Director CCB International (Holdings) Independent Non-Executive 2013-03-14 2022-12-31 Limited Director Bacchus Fine Wines (Hubei) Chairman 2010-11-16 Present Company Limited Xu Erming (resigned) China Enterprise Vice Chairman 2004-09 Present Management Research Association Yeung Chi Wai, Fung Holdings (1937) Group Chief Compliance 2015-07-01 Present Jason Limited and its listed and Risk Management companies in Hong Kong Officer Bank of Communications Independent Non-Executive 2016-10-17 2022-06-28 Co., Ltd. Director Enchanted Hills Limited Director 1997-05-14 Present 088 China Telecom Corporation Limited Annual Report 2022 SECTION IV CORPORATE GOVERNANCE REPORT Name Name of other entities in other entities date of term of term Ng, Kar Ling Johnny China Petroleum & Chemical Independent Non-Executive 2018-05-15 Present Positions held Commencement End date Corporation Director China Vanke Co., Ltd. Independent Non-Executive 2017-06-30 Present Director Metallurgical Corporation of Independent Non-Executive 2020-04-29 Present China Ltd. Director Fangdd Network Group Ltd. Independent Director 2018-11-01 2022-07-18 Chen Dongqi Chinese Academy of Social Professor and Ph.D. tutor 1994-12 Present Sciences Sun Yefang Foundation Executive council member 2021-12 Present Sui Yixun (resigned) China Tower Han Fang China Tower Supervisor Supervisor 2018-05-03 2022-01-14 2022-01-14 Present Present China Telecom Group Chairlady of the board 2022-12-29 Investment Co., Ltd. Wang Yibing Zhejiang Provincial Financial Supervisor 2012-08-27 Present Holdings Co., Ltd Zhejiang Financial Holding Vice President of Council 2022-03-07 Present Enterprises Alliance 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 other entities after the commencement of term of office of a new independent non-executive director. China Telecom Corporation Limited Annual Report 2022 089 SECTION IV CORPORATE GOVERNANCE REPORT (4) Remuneration of Directors, Supervisors and senior management Decision-making procedures Decision-making procedures for remuneration of Directors and senior for remuneration of Directors, management: The Remuneration Committee makes recommendations to Supervisors and senior management 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; The Board of Directors determines the remuneration plan for senior management and the remuneration plan for Directors is approved at shareholders’ general meetings. Decision-making procedures for remuneration of Supervisors: Supervisors of the Company do not receive remuneration as Supervisors. Basis for determining the In accordance with the administrative requirements of the SASAC, the remuneration of Directors, remuneration is determined based on the Remuneration Plan for Senior Supervisors and senior management 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 For details, please refer to “(1) Changes in shareholding and remuneration of Directors, Supervisors and senior current and resigned Directors, Supervisors and senior management during management the Reporting Period” in this section. Total remuneration actually received For details, please refer to “(1) Changes in shareholding and remuneration of by all Directors, Supervisors and current and resigned Directors, Supervisors and senior management during senior management as at the end of the Reporting Period” in this section. the Reporting Period (5) Changes in Directors, Supervisors and Senior Management of the Company Name Tang Ke Sui Yixun Han Fang Position held Executive Director Supervisor Supervisor You Minqiang Supervisor Wang Yibing Supervisor Han Fang Xia Bing Li Yinghui Chairlady of the Supervisory Committee Elected Executive Vice President Executive Vice President and Chief Financial Officer Appointed Appointed 090 China Telecom Corporation Limited Annual Report 2022 Type of changes Reason for change Elected Resigned Elected Resigned Elected Work needs Reason of age Work needs Work adjustment Work needs Work needs Work needs Work needs SECTION IV CORPORATE GOVERNANCE REPORT Name Position held Type of changes Reason for change Li Zhengmao Executive Director, President and Retired Reason of age Chief Operating Officer Shao Guanglu President and Chief Operating Officer Appointed Li Yinghui Xia Bing Li Yinghui Secretary of the Board Executive Director Executive Director Appointed Elected Elected Work needs Work needs Work needs Work needs Tse Hau Yin, Independent Non-Executive Director Resigned Served as an Independent Aloysius Non-Executive Director for more than 6 years Xu Erming Independent Non-Executive Director Resigned Served as an Independent Non-Executive Director for more than 6 years Ng, Kar Ling Johnny Independent Non-Executive Director Chen Dongqi Independent Non-Executive Director Elected Elected Work needs Work needs Notes: 1. 2. 3. 4. 5. 6. 7. 8. 9. Mr. Tang Ke was elected as an Executive Director of the Company at the first Extraordinary General Meeting in 2022 held on 22 March 2022. Madam Han Fang and Madam Wang Yibing were elected as Shareholder Representative Supervisors of the Company at the first Extraordinary General Meeting in 2022 held on 22 March 2022. Mr. Sui Yixun and Mr. You Minqiang no longer served as Supervisors of the Company with effect from 22 March 2022. Madam Han Fang was elected as the Chairlady of the Supervisory Committee of the Company at the 12th meeting of the seventh session of the Supervisory Committee held on 29 March 2022. Mr. Xia Bing was appointed as an Executive Vice President of the Company and Mr. Li Yinghui was appointed as an Executive Vice President and the Chief Financial Officer of the Company at the 18th meeting of the seventh session of the Board held on 26 April 2022. Due to his age, Mr. Li Zhengmao has retired from his positions as an Executive Director, the President and Chief Operating Officer of the Company with effect from 12 July 2022. Mr. Shao Guanglu was appointed as the President and Chief Operating Officer of the Company at the 19th meeting of the seventh session of the Board held on 16 August 2022. Mr. Li Yinghui was appointed as the Secretary of the Board of the Company at the 20th meeting of the seventh session of the Board held on 5 September 2022. Mr. Xia Bing and Mr. Li Yinghui were elected as Executive Directors of the Company at the second Extraordinary General Meeting in 2022 held on 6 January 2023. Mr. Ng, Kar Ling Johnny and Mr. Chen Dongqi were elected as Independent Non-Executive Directors of the Company at the second Extraordinary General Meeting in 2022 held on 6 January 2023. Mr. Tse Hau Yin, Aloysius and Mr. Xu Erming no longer served as Independent Non-Executive Directors of the Company with effect from 6 January 2023. China Telecom Corporation Limited Annual Report 2022 091 SECTION IV CORPORATE GOVERNANCE REPORT (6) Composition of Board of Directors and Board Diversity Policy key element for accomplishing its strategic goals and sustainable development. In determining the composition As at 31 December 2022, the Board consisted of 9 of the Board, the Company takes into account diversity Directors with 4 Executive Directors, 1 Non-Executive of the Board from a number of perspectives, including Director and 4 Independent Non-Executive Directors. but not limited to gender, age, educational background, There is no relationship (including financial, business, professional experience, skills, knowledge, duration of family or other material or relevant relationship) service and time commitment, etc. All appointments among the Board members. The Audit Committee, made or to be made by the Board are merit-based, Remuneration Committee and Nomination Committee and candidates are selected based on objective criteria under the Board consist solely of Independent Non- taking full consideration of board diversity. Final decisions Executive Directors, which ensures that the Committees are comprehensively made based on each candidate’s are able to provide sufficient checks and balances and attributes and the consideration for his/her valuable make independent judgements to protect the interests contributions that can be made to the Board. The of the shareholders and the Company as a whole. Nomination Committee oversees the implementation The number of Independent Non-Executive Directors of Board Diversity Policy, reviews the existing policy as exceeds one-third of the members of the Board. Mr. and when appropriate, and recommends proposals for Tse Hau Yin, Aloysius who served as the Chairman of revisions for the Board’s approval. the Audit Committee during the Reporting Period, is an internationally renowned financial expert with extensive There is currently one female Director on the Board. The expertise in accounting and financial management. Company will continue to be committed to maintaining The Board currently comprises 11 Directors, including gender diversity in the composition of the Board. The 6 Executive Directors, 1 Non-Executive Director and 4 Board currently comprises experts from diversified Independent Non-Executive Directors. The term of office professions such as telecommunications, accounting, for the seventh session of the Board (including the Non- f i n a n c e , l a w , b a n k i n g , r e g u l a t o r y , c o m p l i a n c e , Executive Directors) lasts for 3 years, starting from 26 management and economics with diversification in terms May 2020 until the day of the Company’s Annual General of gender, age, duration of service, etc., advancing the Meeting for the year 2022 to be held in 2023, upon enhancement of management standard and the further which the eighth session of the Board will be elected. standardisation of corporate governance practices, which results in a more comprehensive and balanced In August 2013, the Company implemented the Board Board structure and decision-making process. Each Diversity Policy. The Company strongly believes Director brings to the Board different views and that board diversity will contribute significantly to perspectives. Both the Nomination Committee and the enhancement of the overall performance of the the Board believe that the gender, age, educational Company. The Company views board diversity as the background, professional experience, skills, knowledge and the duration of service of the Board members are in alignment with the Board Diversity Policy. 092 China Telecom Corporation Limited Annual Report 2022 SECTION IV CORPORATE GOVERNANCE REPORT The below chart sets out the analysis of the current Board composition: 21 Female 810 Male 56 11 44 Executive Directors 44 61-75 Years Old Non-Executive Directors 67 45-60 Years Old Independent Non-Executive Directors 21 22 68 10 Years or Above 5 Years to 10 Years 5 Years or Below Gender Position Age Group Duration of Service 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 2022, 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 Board formulates and reviews the Company’s The Articles of Association clearly defines the respective policies and practices on corporate governance; reviews duties of the Board and the management. The Board and monitors the training and continuous professional is accountable to the shareholders’ meetings, and development of Directors and senior management; its duties mainly include the execution of resolutions, reviews and monitors the Company’s policies and formulation of major operational decisions, financial practices on compliance with legal and regulatory proposals and policies, formulation of the Company’s requirements; formulates, reviews and monitors the code basic management system and the appointment of 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 2022 093 SECTION IV CORPORATE GOVERNANCE REPORT (7) Directors’ training and continuous professional development In addition, the Company reminds the Directors of their functions and duties by continuously providing them The Company provides guidelines including on directors’ with information regarding the latest development of duties, continuing obligations, relevant laws and the Dual Listing Rules and other applicable regulations, regulations, operation and business of the Company and arranging internal training on topics related to the to newly appointed Directors so that they are provided latest development of the industry and operational focus with tailored induction relating to their appointment. To of the Company for mutual exchange of ideas and ensure that the Directors are familiar with the Company’s discussion. The Directors actively participate in training latest operations for decision-making, the Company and continuous professional development to develop and arranges for key financial data and operational data refresh their knowledge and skills in order to contribute to be provided to the Directors on a monthly basis. to the Company. Meanwhile, through regular Board meetings and reports from management, the Directors are able to have clearer During the year, the Directors have participated in training understanding of the operations, business strategy, and and continuous professional development activities, and the latest development of the Company and the industry. the summary is as follows: Directors Executive Directors Ke Ruiwen Li Zhengmao* Shao Guanglu Liu Guiqing Tang Ke 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: * 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 Due to his age, Mr. Li Zhengmao has retired from his positions as an Executive Director, the President and Chief Operating Officer of the Company with effect from 12 July 2022. Mr. Tse Hau Yin, Aloysius and Mr. Xu Erming resigned from their position as Independent Non-Executive Directors of the Company on 16 August 2022 and their resignation took effect on the date of election of new Independent Non-Executive Directors at the shareholders’ meeting on 6 January 2023. 094 China Telecom Corporation Limited Annual Report 2022 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 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 The Company has adopted the Model Code for 2022. Meanwhile, the Company has received annual Securities Transactions by Directors of Listed Issuers independence confirmation from each of the Independent as set out in Appendix 10 of the Listing Rules to govern Non-Executive Directors and considered them to be securities transactions by the Directors and Supervisors. independent. Based on the written confirmation from the Directors and 5. BOARD MEETINGS HELD DURING THE REPORTING PERIOD Session Date Resolutions of the Meeting 15th meeting of the seventh 2022-02-23 THAT the proposal on the purchase of liabilities insurance for the session of the Board Company and its Directors, Supervisors and senior management be considered 16th meeting of the seventh 2022-03-17 1. THAT the proposal on the financial reports of the Company for session of the Board the year of 2021 prepared in accordance with IFRSs/Chinese Accounting Standard be considered 2. THAT the proposal on the profit distribution and dividend declaration plan of the Company for the year of 2021 be considered 3. THAT the proposal on the risk management and internal control report of the Company for the year of 2021 be considered 4. THAT the proposal on the annual report of the Company for the year of 2021 be considered 5. THAT the proposal on the work report of the general manager of the Company for the year of 2021 be considered 6. THAT the proposal on the Corporate Social Responsibility Report of the Company for the year of 2021 be considered 7. THAT the proposal on the special report on the deposit and actual use of the proceeds raised of the Company for the year of 2021 be considered 8. THAT the proposal on the budget of the Company for the year of 2022 be considered 9. THAT the proposal on the routine related party transactions and annual caps between the Company and China Tower Corporation Limited for the year of 2022 be considered China Telecom Corporation Limited Annual Report 2022 095 SECTION IV CORPORATE GOVERNANCE REPORT Session Date Resolutions of the Meeting 10. THAT the Risk Disposal Plan on the related party transactions and 2021 Annual Risk Assessment Report of China Telecom Group Finance Co., Ltd. be considered 11. THAT the proposal on the evaluation of external auditor’s audit performance in year 2021 and engagement of external auditor for the year of 2022 be considered 12. THAT the proposal on the structure and operation review of the Board for the year of 2021 be considered 13. THAT the proposal on the convening of 2021 Annual General Meeting be considered 14. THAT the proposal on the authorisation of the Board to determine the interim profit distribution of the Company for the year of 2022 be considered 17th meeting of the seventh 2022-04-20 THAT the proposal on the 2022 First Quarterly Report be session of the Board considered 18th meeting of the seventh 2022-04-26 THAT the proposal on the appointment of Executive Vice session of the Board Presidents, Chief Financial Officer and the proposed appointment of Directors of the Company be considered 19th meeting of the seventh 2022-08-16 1. THAT the proposal on the interim report of the Company for the session of the Board year of 2022 be considered 2. THAT the proposal on the interim profit distribution and dividend declaration plan of the Company for the year of 2022 be considered 3. THAT the proposal on the special half-yearly report on the deposit and actual use of the proceeds raised of the Company for the year of 2022 be considered 4. THAT the proposal on the 2022 half-yearly continuous risk assessment report on the related party transactions of China Telecom Group Finance Co., Ltd. be considered 5. THAT the report on the progress of the Company’s social responsibility work in 2022 be considered 6. THAT the proposal on the proposed appointment of Independent Directors of the Company be considered 7. THAT the proposal on the appointment of President and Chief Operating Officer of the Company be considered 20th meeting of the seventh 2022-09-05 THAT the proposal on the appointment of the Secretary of the session of the Board Board of the Company be considered 096 China Telecom Corporation Limited Annual Report 2022 SECTION IV CORPORATE GOVERNANCE REPORT Session Date Resolutions of the Meeting 21st meeting of the seventh 2022-10-20 1. THAT the proposal on the 2022 Third Quarterly Report be session of the Board considered 2. THAT the proposal on the proposed cash management of the use of partial temporary idle proceeds from fund raising be considered 3. THAT the proposal on the composition arrangement of special committees of the Board of the Company be considered 4. THAT the proposal on the remuneration package of the directors of the Company be considered 22nd meeting of the seventh 2022-12-08 THAT the proposal on convening the second extraordinary general session of the Board meeting in year 2022 be considered 23rd meeting of the seventh 2022-12-12 THAT the proposal on external auditor’s audit fees for the year of session of the Board 2022 be considered 24th meeting of the seventh 2022-12-13 THAT the proposal on entering into agreements in relation to session of the Board related party transactions with China Tower Corporation Limited and expected annual caps for the year of 2023 in respect of such related party transactions be considered 25th meeting of the seventh 2022-12-16 1. THAT the proposal on postponing convening the second session of the Board extraordinary general meeting in year 2022 be considered 2. THAT the proposal on the formulation and revision of the Company’s basic management system be considered In 2022, the Company convened 11 Board meetings in total (including on-site meetings and meetings held by communication); 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. China Telecom Corporation Limited Annual Report 2022 097 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 Attendance at general meetings Failure to attend two Number of Whether as an attendance Attendance consecutive Independent during Attendance by way of Attendance Absent meetings Name of Director Director the year in person communication by proxy* Times in person Ke Ruiwen Li Zhengmao (resigned) Shao Guanglu Liu Guiqing Tang Ke Chen Shengguang Tse Hau Yin, Aloysius (resigned) Xu Erming (resigned) Wang Hsuehming Yeung Chi Wai, Jason No No No No No No Yes Yes Yes Yes 11 4 11 11 9 11 11 11 11 11 11 4 11 11 8 10 11 11 11 11 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 0 0 0 0 1 1 0 0 0 0 0 No 0 No 0 No 0 No 0 No 0 No 0 No 0 No 0 No 0 No 7 2 7 7 6 7 7 7 7 7 11 4 7 0 general meetings attended 1 2 2 2 1 2 2 2 2 2 * 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. 098 China Telecom Corporation Limited Annual Report 2022 SECTION IV CORPORATE GOVERNANCE REPORT 7. SPECIAL COMMITTEES UNDER THE BOARD (1) Members of the special committees under the Board as at the end of the Reporting Period Category of special committees Name of Members Audit Committee Tse Hau Yin, Aloysius (Chairman), Xu Erming, Wang Hsuehming, Yeung Chi Wai, Jason Remuneration Committee Xu Erming (Chairman), Tse Hau Yin, Aloysius, Wang Hsuehming Nomination Committee Wang Hsuehming (Chairlady), Tse Hau Yin, Aloysius, Xu Erming (2) Audit Committee risk management and internal control system including As at 31 December 2022, the Audit Committee the adequacy of resources, qualifications and experience comprised 4 Independent Non-Executive Directors, of staff fulfilling the accounting, internal control and Mr. Tse Hau Yin, Aloysius as the Chairman and Mr. financial reporting functions of the Company together Xu Erming, Madam Wang Hsuehming and Mr. Yeung with the adequacy of the staff’s training programmes and Chi Wai, Jason as the members. The Audit Committee the related budget. The Audit Committee also has the currently comprises 4 Independent Non-Executive authority to set up a reporting system on whistleblowing Directors, Mr. Ng, Kar Ling Johnny as the Chairman to receive and handle cases of complaints or complaints and Madam Wang Hsuehming, Mr. Yeung Chi Wai, made on an anonymous basis regarding the Company’s Jason and Mr. Chen Dongqi as the members. The Audit accounting, internal control and audit matters. Committee is responsible to the Board. The Rules of Procedures of the Audit Committee clearly defines the In 2022, pursuant to the requirements of the governing status, structure and qualifications, work procedures, laws and regulations of the places of listing and the duties and responsibilities, funding and remuneration, etc. Rules of Procedures of the Audit Committee, the of the Audit Committee. The Audit Committee’s principal Audit Committee fully assumed its responsibilities duties include the supervision of the truthfulness and within the scope of the clear mandate from the Board completeness of the Company’s financial statements, and communicated independently with the external the effectiveness and completeness of the Company’s auditors twice a year. The Audit Committee proposed a internal control and risk management systems as well as number of practical and professional recommendations the work of the Company’s Internal Audit Department. It for improvement based on the Company’s actual is also responsible for the supervision and review of the circumstances in order to promote the continuous qualifications, selection and appointment, independence improvement and perfection of corporate management. and services of external independent auditors. The The Audit Committee has provided important support to Audit Committee ensures that the management has the Board and played a significant role in protecting the discharged its duty to establish and maintain an effective interests of the independent shareholders. China Telecom Corporation Limited Annual Report 2022 099 SECTION IV CORPORATE GOVERNANCE REPORT The Audit Committee convened 7 meetings during the Reporting Period Date Agenda of meeting Important Other comments and Performance suggestions of Duties 2022-03-16 1. To consider the proposal on the financial reports Nil Nil of the Company for the year of 2021 prepared in accordance with IFRSs/Chinese Accounting Standard 2. To consider the proposal on the routine related party transactions and annual caps for the year of 2022 between the Company and China Tower Corporation Limited 3. To consider the report on the implementation of related party (connected) transactions of the Company for the year of 2021 4. To consider the proposal on the risk management and internal control report of the Company for the year of 2021 5. To consider the proposal on the annual report of the Company for the year of 2021 6. To consider the proposal on the Corporate Social Responsibility Report of the Company for the year of 2021 7. To consider the report on the internal audit of the Company in 2021 and the work plan for year 2022 8. To consider the proposal on the evaluation of external auditor’s audit performance in year 2021 and engagement of external auditor in for the year of 2022 9. To consider the duty report of the Audit Committee for the year of 2021 2022-04-20 To consider the proposal on the 2022 First Quarterly Nil Nil Report 100 China Telecom Corporation Limited Annual Report 2022 SECTION IV CORPORATE GOVERNANCE REPORT Date Agenda of meeting Important Other comments and Performance suggestions of Duties 2022-06-21 1. To consider the report on the implementation Nil Nil of related party (connected) transactions of the Company for the first quarter in 2022 2. To consider the internal audit report of the Company for the first quarter of 2022 3. To consider the review plan of external auditor on the 2022 interim results of the Company 2022-08-15 1. To consider the proposal on the interim report of the Nil Nil Company for the year of 2022 2. To consider the report on the implementation of related party (connected) transactions of the Company for the first half in year 2022 3. To consider the internal audit report of the Company for the second quarter of year 2022 4. To consider the report on the progress of the Company’s social responsibility work in 2022 2022-10-20 To consider the proposal on the 2022 Third Quarterly Nil Nil Report China Telecom Corporation Limited Annual Report 2022 101 SECTION IV CORPORATE GOVERNANCE REPORT Date Agenda of meeting Important Other comments and Performance suggestions of Duties 2022-12-12 1. To consider the proposal on report of external Nil Nil auditor’s audit work plan for the year of 2022 2. To consider the proposal on report of external auditor’s preliminary results on internal control assessment for the year of 2022 3. To consider the proposal on external auditor’s audit fees for the year of 2022 4. To consider the proposal on the report of the implementation of related party (connected) transactions for the third quarter in year 2022 5. To consider the proposal on the internal audit report for the third quarter of 2022 and the internal audit plan for the year of 2023 6. To consider the proposal on the meeting plan of the Audit Committee for the year 2023 2022-12-13 To consider the proposal on entering into agreements in Nil Nil relation to related party transactions with China Tower Corporation Limited and expected annual caps for the year of 2023 in respect of such related party transactions 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 7/7 7/7 7/7 7/7 102 China Telecom Corporation Limited Annual Report 2022 SECTION IV CORPORATE GOVERNANCE REPORT (3) Remuneration Committee the Company’s Directors and senior management, and As at 31 December 2022, the Remuneration Committee to establish related procedures that are standardised and comprised 3 Independent Non-Executive Directors, transparent. The Remuneration Committee’s principal Mr. Xu Erming as the Chairman and Mr. Tse Hau Yin, duties include giving recommendations to the Board in Aloysius and Madam Wang Hsuehming as the members. respect of the overall remuneration policy and structure The Remuneration Committee currently comprises 3 for the Company’s Directors and senior management and Independent Non-Executive Directors, Mr. Yeung Chi the establishment of a formal and transparent procedure Wai, Jason as the Chairman and Mr. Ng, Kar Ling Johnny for developing remuneration policy, and determining, with and Madam Wang Hsuehming as the members. The delegated responsibility by the Board, the remuneration Remuneration Committee is responsible to the Board. packages of individual Executive Directors and senior The Rules of Procedures of the Remuneration Committee management including benefits in kind, pension clearly defines the status, structure and qualifications, rights and compensation payments (including any work procedures, duties and responsibilities, funding compensation payable for loss or termination of their and remuneration, etc. of the Remuneration Committee. office or appointment). Its responsibilities comply with the The Remuneration Committee assists the Board to requirements of the Corporate Governance Code. formulate overall remuneration policy and structure for The Remuneration Committee convened 1 meeting during the Reporting Period Date Agenda of meeting Important Other comments and Performance suggestions of Duties 2022-10-20 THAT the resolution in relation to Directors’ remuneration Nil Nil proposal be considered. 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 2022 103 SECTION IV CORPORATE GOVERNANCE REPORT (4) Nomination Committee Company, and comply with the regulatory requirements As at 31 December 2022, the Nomination Committee related to “independence”. The Nomination Committee comprised 3 Independent Non-Executive Directors, assists the Board to formulate standardised, prudent Madam Wang Hsuehming as the Chairlady and Mr. Tse and transparent procedures for the appointment and Hau Yin, Aloysius and Mr. Xu Erming as the members. succession plans of Directors, and to further optimise The Nomination Committee currently comprises 3 the composition of the Board. The principal duties of the Independent Non-Executive Directors, Mr. Chen Dongqi Nomination Committee include regularly reviewing the as the Chairman and Mr. Ng, Kar Ling Johnny and Mr. structure, number of members, composition and diversity Yeung Chi Wai, Jason as the members. The Nomination of the Board; identifying candidates with the appropriate Committee is responsible to the Board. The Rules qualifications for the position of Directors and senior of Procedures of the Nomination Committee clearly management and advising the Board on the same; defines the status, structure and qualifications, work reviewing the Board Diversity Policy as appropriate to procedures, duties and responsibilities, funding and ensure its effectiveness; evaluating the independence of remuneration, etc. of the Nomination Committee, and Independent Non-Executive Directors; advising the Board it specifically requires that the Nomination Committee on matters regarding the appointment or re-appointment members shall have no significant connection with the of Directors and succession plans for the Directors. 104 China Telecom Corporation Limited Annual Report 2022 SECTION IV CORPORATE GOVERNANCE REPORT The Nomination Committee convened 3 meetings during the Reporting Period Date Agenda of meeting Important Other comments and Performance suggestions of Duties 2022-03-16 THAT the proposal on the structure and operation review Nil of the Board for the year of 2021 be considered 2022-04-26 THAT the proposal on the appointment of Executive Vice Nil Presidents, Chief Financial Officer and the proposed appointment of Directors of the Company be considered 2022-08-16 1. THAT the proposed appointment of Independent Nil Directors of the Company be considered 2. THAT the proposal on the appointment of the President and Chief Operating Officer be considered Nil Nil Nil The attendance of each member is as follows: Name of Members Wang Hsuehming Tse Hau Yin, Aloysius Xu Erming Actual attendance/Required attendance 3/3 3/3 3/3 China Telecom Corporation Limited Annual Report 2022 105 SECTION IV CORPORATE GOVERNANCE REPORT 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 (1) Employees Total number of employees Composition of professions Categories of professions Management, Finance and Administration Sales and Marketing Operations and Maintenance Sci-tech Research and Product Development Total Education level Categories of education level Doctoral degree Master’s degree Bachelor’s degree Vocational school High school and below Total 280,683 Number of professionals 49,650 134,426 74,265 22,342 280,683 Number (person) 493 30,207 162,695 67,958 19,330 280,683 As at the end of the Reporting Period, the percentages of equal pay for equal work, and provides employees with female employees, female managers and female among promotion in their positions. For details, please refer new employees are 31.68%, 21.30% and 34.77%, to the CSR Report 2022 of the Company published respectively. The Company offers equal opportunities to by the Company on the websites of the Hong Kong all the applicants in its recruitments without discrimination Stock Exchange (www.hkexnews.hk) and the Company against ethnicity, race, gender, age, region, marital (www.chinatelecom-h.com). status or physical condition, adheres to principles of 106 China Telecom Corporation Limited Annual Report 2022 SECTION IV CORPORATE GOVERNANCE REPORT (2) Emolument policy In accordance with the income distribution principle of enhancing efficiency and promoting fairness, while improving the market-oriented remuneration distribution 10. PROPOSAL FOR PROFIT DISTRIBUTION OR CONVERSION OF CAPITAL RESERVE mechanism with efficiency as the priority, the Company emphasises on protecting and improving the salary (1) Formulation, implementation or adjustment of cash dividend policy income of grassroots front-line employees and ensures Pursuant to the Articles of Association, under the that employees can share the benefits of the Company’s premise that the Company’s profit distribution does not reform and growth. The Company actively implemented exceed the cumulative distributable profit and that the medium and long-term incentives such as equity Company takes into account the continuous profits, incentives for listed companies and equity and dividend meeting regulatory requirements, operating normally incentives for state-owned technology enterprises to and development in the long term, the Company will further stimulate the enthusiasm and creativity of core give priority to cash distribution of dividends. If the talents at all levels. (3) Training program Company has no events such as major investment plans or significant cash expenditures, and the Company’s risk control indicators can meet regulatory requirements In 2022, the Company attached importance to the and the normal operating capital requirements of the development of cadres and professional talent team. Company can be satisfied after the distribution of According to the high quality and professionalised cash dividends, within any three consecutive years, requirements, the Company organised various special the cumulative profit distributed by the Company in education training courses for leaders and cadres; cash shall be no less than 30% of the annual average Serving the transformation of the workforce, the distributable profit realised in such three years. Company organised a series of trainings for high-level professionals in key areas; In reliance on the online Pursuant to the previous decision of the Board, within university learning platform, the Company held the three years after the A Share Offering and Listing, the “Cloudification and Digital Transformation” lectures, talk profit to be distributed by the Company in cash for each series on the road to transformation and online training year will gradually increase to 70% or above of the profit courses for various professions; Focusing on cloud attributable to equity holders of the Company for that business and Industrial Digitalisation development, the year. After fully considering the Company’s cash flow Company adopted the methods of theory+practice and level, the cash return to shareholders, etc., the Board training+certification to launch the Overall Cloud team of Directors proposed a final dividend of RMB0.076 per empowerment, thus facilitating high quality development share (pre-tax) in an aggregate amount of RMB6,955 of the Company. million calculated based on 91,507 million shares, being China Telecom Corporation Limited Annual Report 2022 107 SECTION IV CORPORATE GOVERNANCE REPORT the total number of issued share capital of the Company change in the total number of issued share capital of the as at the end of 2022. The dividend distribution is derived Company before the record date for the implementation from net profit realised in the current period. Together of the dividend distribution, the total distribution amount with the 2022 interim dividend of RMB0.120 per share will remain unchanged, and the distribution amount per (pre-tax) which has been distributed, the full-year share will be adjusted accordingly. dividend of 2022 amounts to RMB0.196 per share (pre- tax) in an aggregate amount of RMB17,935 million The profit distribution plan will be submitted to the Annual which represents 65% of the profit attributable to equity General Meeting of the Company for the year 2022 for holders of the Company for the year 2022. In case of any consideration and approval. (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 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 (3) Profit distribution and conversion of capital reserve into share capital during the Reporting Period Unit: Yuan Currency: RMB Number of bonus shares for every 10 shares (share) Dividend per 10 shares (RMB) (pre-tax) Number of shares converted for every 10 shares (share) Amount of cash dividend (pre-tax) Profit attributable to shareholders of the Company in the consolidated financial statements for the year of dividend distribution Percentage of profit attributable to shareholders of the Company in the consolidated financial statements (%) Amount of shares repurchased in cash included in cash dividend Total amount of dividend (pre-tax) Percentage of total dividend to profit attributable to shareholders of the Company in the consolidated financial statements (%) 0 1.96 0 17,935,399,185 27,593,420,934 65% 0 17,935,399,185 65% 108 China Telecom Corporation Limited Annual Report 2022 SECTION IV CORPORATE GOVERNANCE REPORT 11. EQUITY INCENTIVE PLAN, EMPLOYEE STOCK OWNERSHIP PLAN OR OTHER EMPLOYEE INCENTIVE MEASURES OF THE COMPANY AND THEIR IMPLICATIONS 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 performance targets. (1) Share appreciation rights 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 The scheme does not involve the grant of shares or other securities of the Company or any of its principal subsidiaries (including the grant of options for the purchase of any of such shares or securities) and therefore, it does not fall within the scope of, and is not subject to, the requirements under Chapter 17 of the Listing Rules. Further details of the share appreciation scheme are set out in note 46 of the audited Rights Proposal, the Company granted a total of consolidated financial statements. 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 development. Secondly, share appreciation rights are distributed based on potential, which adheres to the development orientation and tilts to the key areas of “Cloudification and Digital Transformation” and high-end and high-quality talents. Thirdly, share appreciation rights (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 and market performance, compliance and risk control, completion of annual key tasks and cadre training in their areas of responsibilities. China Telecom Corporation Limited Annual Report 2022 109 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 Company’s overall operation. The Company has formulated a code of conduct for the senior management and employees which ensures their ethical value and competency. The Company attaches great importance to the prevention of fraud and has formulated its internal 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 against material misstatements or losses. The Board effective internal control system. oversees management in the design, implementation and monitoring of the risk management and internal control systems. The Board takes effective approaches to supervise the implementation of related control measures, whilst enhancing operation efficiency 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, and continuing analysis and supervision of operational performance, etc. which plays a pivotal role in the The Company views 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 of risk identification, risk assessment, key risk analysis, risk response and tracking and monitoring of risk management based on risk management theory. In continuously strengthening the risk process control and management and focusing on significant risk which may be encountered, the Company follows, monitors 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. 110 China Telecom Corporation Limited Annual Report 2022 SECTION IV CORPORATE GOVERNANCE REPORT In 2022, pursuant to the requirement of code provision Since 2003, the Company has formulated manuals, D2 of the Corporate Governance Code promulgated implementation rules and related rules in relation to by the Stock Exchange, the Company concentrated internal control, and has developed the Policies on resources on the prevention of significant potential risks, Internal Control Management and Internal Control and strived to reduce negative effect from significant Accountability Management to ensure the effective risks. The Company was not confronted by any major implementation of the above systems. The Company risk event throughout the whole year. has all along continuously revised and improved the manuals and implementation rules in view of the ever The Company has identified, assessed and analysed changing internal and external operation environment potential major risks faced by the Company in 2023, as well as the requirements of business development including areas of economic and policy environment over the years. While continuing to improve the internal adaptation, business operation, network and information control related policies, the Company has also been security and international operation etc., determined strengthening its IT internal control capabilities, which major risk points and put forward detailed response has improved the efficiency and effectiveness of internal plans. For details of the major risks that the Company control and enhanced the safety of the Company’s may face and the response measures thereof, please information system so that the integrity, timeliness and refer to the section headed “Management’s Discussion reliability of data and information are maintained. At the and Analysis (Report of the Directors)” in this annual same time, the Company attaches great importance to report. Through strict and appropriate risk management the control and monitoring of network information safety. procedures, the Company will ensure the potential The Company persistently optimises the relevant rules impact from the above risks on the Company is limited and guidances, further defines the responsible entities and within an expected range. and regularly commences the inspection of network safety and information safety in order to promote the The Company highly values the compliance with the laws enhancement of the awareness of network information and regulations of the PRC as well as the places of listing safety and relevant skills and knowledge. of the Company and where the Company’s business operations are located, strictly complies with all laws The Company attaches great importance to the and regulations and timely and proactively incorporates construction of internal control system. In 2022, in the laws and regulations into the Company’s rules and consideration of the needs from various aspects including regulations to protect the Company’s legitimate business external regulatory environment, internal regulatory management, maintain the Company’s legitimate rights requirements and business development, the Company and interests and support the Company to achieve long- revised the internal control evaluation method, internal term healthy development target. Please refer to the control manual, authority list and implementation details section headed “Management’s Discussion and Analysis during the year. The Company added the DICT business (Report of the Directors)” of this annual report for the management process to optimise the government- newly published policies, laws and regulations relating to the industry in which the Company operated during the Reporting Period. China Telecom Corporation Limited Annual Report 2022 111 SECTION IV CORPORATE GOVERNANCE REPORT enterprise business process, procurement management the effectiveness of the internal control system and process, reward point business process, budget rectify any deficiencies found during the assessment, management and financial analysis business process, the Company mainly adopts the following 4 major steps etc. The Company has built an enhanced comprehensive of assessment: (1) analyse and identify areas which internal control system. require assessment, (2) assess the effectiveness of the design of internal control, (3) assess the operating The Internal Audit Department plays a vital role in effectiveness of internal control, (4) analyse the impact of supporting the Board, the management and the risk deficiencies in internal control. By formulating “Measures management and internal control systems. The functions for the Internal Control Assessment”, “Manual for the of the Internal Audit Department are independent of Self Assessment of Internal Control”, “Manual for the the Company’s business operations, complementary Independent Assessment of Internal Control” and other with the functions of the external auditors and plays systems, the Company has ensured the assessment an important role in the monitoring of the Company’s procedures are standardised. In 2022, the Company’s internal management. The Internal Audit Department Internal Audit Department initiated and coordinated the is responsible for internal control assessment of the assessment of internal control all over the Company, Company, and provides reasonable assurance to and reported the results to the Audit Committee and the the Audit Committee and the Board that the risk Board. In response to the problems identified in the audit management and internal control systems are maintained and evaluation, the Company carried out the rectification and operated by the management in compliance with responsibility one by one, which effectively controlled and agreed processes and standards. The Internal Audit prevented risk and provided a strong guarantee for the Department regularly reports the internal audit results to healthy development of the Company. the Audit Committee on a quarterly basis, and reports the internal audit results to the Board through the Audit In 2022, in terms of internal control self-assessment, Committee. Annual evaluation of risk management and internal control systems the Company continued to insist on 100% coverage of all units (including the newly incorporated professional companies). Through internal control self-assessment, the Company continued to encourage management The Company has been continuously improving the at all levels to consolidate the responsibility of self- risk management and internal control systems to meet assessment, and incorporated the internal control the regulatory requirements of the places where the self-assessment into the examination, reward and Company’s shares are listed and strengthening its punishment system of each unit, further increasing the internal control while guarding against operational risk. quality of internal control self-assessment; By optimising the self-assessment programme, the Company pivoted With Specific Standards for Internal Audit No. 2201 issued on the major decisions and deployments of the state by the China Institute of Internal Audit as guidance, and the “Cloudification and Digital Transformation” the Company’s internal control assessment system is strategy of the Company, with focuses on the major composed of the self-assessment conducted by the risks, key areas, important processes and management persons responsible for internal control together with weaknesses, further highlighting the essence and the independent assessment conducted by the Internal focuses of the self-assessment; The Company innovated Audit Department. In order to evaluate the nature of the self-assessment methods and launched a company- internal control deficiencies, reach a conclusion as to wide internal control self-assessment labour competition 112 China Telecom Corporation Limited Annual Report 2022 SECTION IV CORPORATE GOVERNANCE REPORT to stimulate employees’ enthusiasm and creativity the Company focused on joint defence and control. By in self-assessment as well as promote departmental means of special audit and internal control investigation, synergy and business-finance linkage; The Company the Company strengthened audit supervision on key strengthened the application of information technology, units and key areas such as emerging businesses and and enhanced its ability to assess and detect significant financial-related businesses in order to prevent and risks by means of systematic modeling and risk profiling, resolve major risks; Fourthly, the Company attached thus improving the efficiency and effectiveness of self- great importance to the rectification of problems and assessment; In order to strengthen the rectification of analyzed their causes in depth, implemented rectification problems, the Company carried out self-assessment on by analogy and addressed both the symptoms and root the problems found in the rectification and “looked back” causes of the problems, so as to enhance corporate’s to establish a mechanism for checking and cleaning up self-examination and self-recovery abilities and support problems, thus further strengthening the closed-loop high-quality development of the Company. management and consolidating the achievements of self- assessment. 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 management and internal control assessment team In 2022, the Company carried out independent and other relevant departments to closely coordinate assessment of internal control for its 5 subordinate units with the external auditors’ audit of internal control over and achieved three-year full coverage of independent financial reporting. The internal control audit performed assessment of internal control for all subordinate by the external auditor covered the Company and all of units. During the year, the independent assessment of its subsidiaries as well as the key processes and control internal control continued to strengthen the tracking, points in relation to material financial statements items. analysis and judgment of changes in the internal and The external auditors regularly communicated with the external environment of the enterprise development, management in respect of the audit results. and focused on the selection of evaluation units and contents. Firstly, the Company carried out an audit The Company attaches great importance to rectifying combining responsibility and internal control. On the internal control deficiencies. In response to the defects basis of identifying the problems, the causes of problems and problems found in the internal and external were analyzed in depth from the perspective of internal audit, the Company consolidated its rectification control, which helped the auditees to strengthen responsibilities, strengthened governance at the sources governance at the sources, so that multiple outcomes and implemented long-term rectification by analogy. By from first audit and multiple functions from a single supervising and inspecting the rectification in a timely outcome could be achieved, which in turn improved manner, the Company ensured the effectiveness of the audit effectiveness; Secondly, the Company rectification through various means and strengthened strengthened the guidance, supervision and inspection c l o s e d - l o o p m a n a g e m e n t . T h e i n t e r n a l c o n t r o l of independent assessment on self-assessment, so as deficiencies and issues identified by the Company during to conduct independent assessment on self-assessment the year have been basically rectified and passed the and prevent self-assessment from “going through over year-end attestation undertaken by the external auditors. leniency”, thus improving the overall efficiency and effectiveness of internal control assessment; Thirdly, China Telecom Corporation Limited Annual Report 2022 113 SECTION IV CORPORATE GOVERNANCE REPORT The Board oversees the Company’s risk management and other aspects, leading to the better transformation and internal control systems on an on-going basis and and integration of system construction and governance the Board, through the Audit Committee, conducted an efficiency. Secondly, the Company strengthened the annual review of the risk management and internal control establishment of the board of directors of subsidiaries systems of the Company and its subsidiaries for the year with terms of reference to promote the fulfillment of the ended 31 December 2022, which covered all material requirements to strengthen the construction of the board areas including financial controls, operational controls of directors, standardise the operation of the board of and compliance controls, as well as its risk management directors, reasonably determine the size of the board functions. After receiving the reports from the Internal of directors, scientifically allocate directors, achieve the Audit Department and other relevant department and the majority of external directors and implement the terms of confirmation from the management to the Board on the reference of the board of directors. Thirdly, the Company effectiveness of the Company’s risk management and strengthened the delegation of authority, streamlined internal control systems (including Environmental, Social decision-making procedures and improved the quality and Governance risk management and internal control of decision-making. The Company encouraged the systems), the Board is of the view that these systems subsidiaries to improve the working system of each are solid, well established, effective and sufficient. The governance body, established a management system annual review also confirms the adequacy of resources authorised by the board of directors to the management relating to the Company’s accounting, internal control in accordance with practices and strengthened the and financial reporting functions and Environmental, management before, during and after the events, so Social and Governance performance and reporting, as to promote each subsidiary to become a more the sufficiency of the qualifications and experience of independent market operation entity. staff, together with the adequacy of the staff’s training programmes and the relevant budget. 13. MANAGEMENT CONTROL OVER SUBSIDIARIES DURING THE REPORTING PERIOD 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 In order to make every effort to build a more mature financial reporting and issued the Internal Control and established modern enterprise system with Chinese Audit Report, and is of the view that the Company characteristics and promote the modernisation of has maintained effective internal control over financial governance system and capability, China Telecom issued reporting in all material aspects in accordance with the a series of system documents related to the promotion Basic Standards for Enterprise Internal Control and and improvement of modern enterprise system with relevant regulations as at 31 December 2022. There Chinese characteristics to guide subsidiaries at all levels was no disagreement between the 2022 Internal Control to standardise and strengthen corporate governance. Assessment Report of China Telecom Corporation Firstly, the Company strengthened the construction Limited disclosed by the Company and the Internal of the corporate fundamental system of the Articles Control Audit Report. of Association of the subsidiaries, improved the basic internal regulations, enhanced the internal system, and For details of the above reports, please refer to the promoted all governance bodies to perform their duties relevant documents disclosed by the Company on in accordance with their Articles of Association and the websites of the SSE (www.sse.com.cn) and the systems in decision-making, implementation, supervision Company (www.chinatelecom-h.com). 114 China Telecom Corporation Limited Annual Report 2022 SECTION IV CORPORATE GOVERNANCE REPORT 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 Dual 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 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 shareholders, individually or jointly, holding 3% or more proxies) present at the meeting. 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 China Telecom Corporation Limited Annual Report 2022 115 SECTION IV CORPORATE GOVERNANCE REPORT 16. SUPERVISORY COMMITTEE As at 31 December 2022, 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 6 meetings in 2022. 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/Required Attendance in 2022 Supervisors Han Fang (Chairlady of the Supervisory Committee and Shareholder Representative Supervisor) Zhang Jianbin (Employee Representative Supervisor) Dai Bin (Employee Representative Supervisor) Xu Shiguang (Shareholder Representative Supervisor) Wang Yibing (Shareholder Representative Supervisor) Sui Yixun (Chairman of the Supervisory Committee and Shareholder Representative Supervisor)* You Minqiang (Shareholder Representative Supervisor)* Number of Meetings Attended/Required Attendance 5/5 6/6 6/6 6/6 5/5 1/1 1/1 * On 17 December 2021, Mr. Sui Yixun and Mr. You Minqiang resigned from their position as a Supervisor due to reason of age and change in work arrangement, respectively, and their resignation took effect on the date of election of the new Supervisors at the extraordinary general meeting of the Company held on 22 March 2022. 116 China Telecom Corporation Limited Annual Report 2022 SECTION IV CORPORATE GOVERNANCE REPORT 17. EXTERNAL AUDITORS The Company’s external auditors are PricewaterhouseCoopers and PricewaterhouseCoopers Zhong Tian LLP. 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 2022 is as follows: Service item Audit services Non-audit services (mainly tax and other advisory services) Total Fee (excluding value-added tax) (RMB million) 59 6 65 The Directors of the Company are responsible for The term of appointment of Deloitte Touche Tohmatsu the preparation of consolidated financial statements and Deloitte Touche Tohmatsu Certified Public that give a true and fair view in accordance with the Accountants LLP, the international and domestic International Financial Reporting Standards as issued by auditors for the year 2020, expired on the date of the International Accounting Standards Board and the the Annual General Meeting for the year 2020 (7 May disclosure requirements of the Hong Kong Companies 2021). The appointments of PricewaterhouseCoopers Ordinance, and for such internal control as the Directors and PricewaterhouseCoopers Zhong Tian LLP as determine is necessary to enable the preparation of the external auditors of the Company for the year of consolidated financial statements that are free from 2021 and the external auditors of the Company for material misstatement, whether due to fraud or error. The the year of 2022 were respectively approved at the Directors were not aware of any material uncertainties Annual General Meeting for the year of 2020 and the relating to any events or conditions which may cast a Annual General Meeting for the year of 2021. The Audit serious impact upon the Group’s ability to continue as a Committee and the Board of the Company had agreed going concern. The statements by the external auditors on the re-appointment of PricewaterhouseCoopers and of the Company, PricewaterhouseCoopers, regarding PricewaterhouseCoopers Zhong Tian LLP as the external their reporting responsibilities on the consolidated auditors of the Company for the year of 2023 and would financial statements of the Company is set out in the propose the re-appointment of PricewaterhouseCoopers Independent Auditor’s Report on pages 179 to 184 of and PricewaterhouseCoopers Zhong Tian LLP at the this annual report. Annual General Meeting for the year of 2022 of the Company for consideration. China Telecom Corporation Limited Annual Report 2022 117 SECTION IV CORPORATE GOVERNANCE REPORT 18. INVESTOR RELATIONS AND TRANSPARENT INFORMATION DISCLOSURE MECHANISM The Company established an Investor Relations 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 shareholders and investors with the necessary information, data and services. It also maintains proactive communications with shareholders, investors and other capital market participants so as to allow them to timely and fully understand the operation and development of the Company. In 2022, the Company formulated and published rules and measures such as the Administrative Measures of Investor Relations of China Telecom Corporation Limited to further strengthen relevant work. The Company’s 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, management provides the capital market and media with important information and responds to key Company’s business and the overall development of the telecommunications industry in China. Since 2004, the Company has been holding the Annual General Meeting in Hong Kong. After the completion of A-share listing in 2021, Annual General Meeting was held in both Beijing and Hong Kong physically starting from 2022, with the two venues being connected through video conferencing system. This provided convenience and encouraged its shareholders from both the mainland and Hong Kong, especially the retail shareholders, to actively participate in the Annual General Meeting and promote direct and two-way communications between the Board and shareholders. Due to the COVID-19 Epidemic and relevant travel restrictions in 2022, management attended the results announcement briefings and communicated with investors and the media through online and video conferencing. To strengthen communications with investors and shareholders, the Company set up a dedicated investor relations enquiry line, for the purpose of providing a direct channel to address enquiries from investors. This allows the Company to better serve its questions which are of prime concerns to the investors. shareholders and investors. This has helped to reinforce the understanding of the Management held results announcement meetings and communicated with investors and media through conference call in Beijing due to the Epidemic 118 China Telecom Corporation Limited Annual Report 2022 SECTION IV CORPORATE GOVERNANCE REPORT In addition, the Investor Relations Department of the “results-at-a-glance” for the first time during its results Company closely follows the development of the announcements, to allow investors to learn about results capital market and timely reflects the latest information highlights in one single picture. The Company also of the capital market as well as investors’ views, provided live webcast of results briefing for the first time, suggestions and feedback to management through and answered to investors’ questions in real time on regular and ad-hoc reports, with an aim to promote the “e-Interaction” section of SSE. The above measures two-way communications between the Company and strengthened the Company’s information disclosure the capital market. In 2022, apart from regular reports from different channels and with different means, such as “China Telecom Weekly Analysis Report of the which effectively promoted investors’ understanding of Capital Market” and the capital market commentaries the Company and the communications between the on the Company’s results announcements, Investor Company and the capital market. Relations Department also prepared thematic reports on a variety of topics such as “corporate governance With an aim of strengthening communications with the disclosure”, “investor relations” and etc., which helped capital market and enhancing transparency of information the management to have a better understanding of the disclosure, the Company has provided quarterly expectations and suggestions from the capital market disclosure of revenue, operating expenses, EBITDA, and enhance interaction with the capital market. net profit figures and other key operational data, and monthly announcements of the number of access lines After the successful completion of A-share listing in 2021, in service, mobile and wireline broadband subscribers. the Company further strengthened communications The Company attaches great importance to maintaining with the capital market, especially domestic investors, daily communication with shareholders, investors and through various channels and means. In 2022, the analysts. In 2022, in view of the travel restriction brought Company launched “China Telecom Investor Relations” by the COVID-19 Epidemic, the Company proactively official WeChat account. Through this platform, investors participated in a number of investor conferences held can browse important information about the Company by a number of major international investment banks such as announcements and press releases more timely and domestic securities firms around the globe both in and conveniently. In addition, the Company released person and through online meetings, which facilitated communications with institutional investors. China Telecom Corporation Limited Annual Report 2022 119 SECTION IV CORPORATE GOVERNANCE REPORT In 2022, the Company attended the following investor conferences held by major international investment banks and domestic securities firms: Date January 2022 January 2022 January 2022 March 2022 May 2022 May 2022 May 2022 May 2022 May 2022 June 2022 June 2022 June 2022 June 2022 June 2022 August 2022 August 2022 Name of Conference ICBCI Corporate Pre-blackout NDR 2022 UBS Greater China Conference 2022 Guosheng Securities Capital Market Summit 2022 25th Credit Suisse Asian Investment Conference Nomura Virtual Greater China TMT Corporate Day 2022 9th Credit Suisse China A-shares Conference HSBC 9th Annual China Conference CICC Digital Economy Online Strategy Conference CITIC Securities Technology Theme Online Strategy Conference CITIC Securities Capital Market Forum 2022 Haitong Securities Mid-year Investment Strategy Conference 2022 Guotai Junan Mid-year Strategy Conference 2022 China Securities Mid-year Capital Market Summit 2022 Nomura Investment Forum Asia 2022 Nomura Virtual China Investor Forum 2022 UBS Tech Week: TMI and Digital Assets Conference 2022 September 2022 Jefferies Asia Forum 2022 September 2022 23rd Credit Suisse Asian Technology Conference September 2022 CLSA 29th Investors’ Forum November 2022 13th Credit Suisse China Investment Conference November 2022 Citi China Investor Conference 2022 November 2022 Daiwa Investment Conference Hong Kong 2022 November 2022 2022 CICC Investment Forum December 2022 Everbright Securities Annual Online Investment Strategy Conference 2023 120 China Telecom Corporation Limited Annual Report 2022 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 The Company also strives to enhance the disclosure (www.chinatelecom-h.com) not only serves as an quality and format of annual report. The Company important channel for the Company to disseminate press further enhanced the transparency of disclosure in releases and corporate information to investors, media environmental, social and governance areas, by following and the capital market, but also plays a significant role the guidelines of Environmental, Social and Governance in the Company’s valuation and its compliance with Reporting Guide, Appendix 27 of the Listing Rules as well regulatory requirements for information disclosure. The as other relevant regulatory requirements of its places Company launched a responsive website with the latest of listing, to report the Company’s achievements and technology, which allows automatic adjustment to fit for key performance indicators on environmental protection. different screen resolution and user interface, assuring For details, please refer to the CSR Report 2022 which the best browsing experience of website content with is published on HKEx website (www.hkexnews.hk) and desktop computers, laptops or mobile devices. This the Company’s website (www.chinatelecom-h.com). allows investors, shareholders, reporters and the general Relevant indicators and data were analysed and assessed public to browse the latest information on the Company’s by independent third party to ensure compliance with website with any device more easily and promptly relevant requirements. anytime anywhere. The Company’s website is equipped with a number of useful functions including interactive The Company also actively seeks recommendations stock quote, interactive KPI, interactive FAQs, auto on how to improve the Company’s annual report email alerts of investors activities, downloading to excel, from shareholders through survey, and prepared and RSS Feeds, self-selected items in investors briefcase, distributed the annual report in a more environmentally- html version annual report, financial highlights, investor friendly and cost-saving manner according to the toolbar, historical stock quote, adding investor events r e c o m m e n d a t i o n s r e c e i v e d . S h a r e h o l d e r s c a n to calendars, content sharing to social media, etc. The ascertain their choice of receiving the annual reports Company’s website has recently introduced the push and communications by electronic means, or receiving notification function, which pushes important content printed version in English and/or Chinese. The Company update to terminals including desktop computers, laptops clearly and precisely delivered the messages about its and mobile devices through browsers, timely informing strategies and goals in its 2021 Annual Report “A New website users of the Company’s latest news. In addition Milestone”, so that shareholders and investors can easily to setting up a dedicated investor relations enquiry line, a understand the Company’s development directions and specialised appointment function to schedule a meeting focus. The print and online versions of the 2021 Annual with investor relations professionals was also launched Report won a number of top accolades in international on the Company’s website, to promote direct and close competitions, including receiving 3 gold awards in communication between the Company and investors, as total in this year’s “Galaxy Awards”, while the online well as to increase transparency. annual report further claimed a grand award, achieving China Telecom Corporation Limited Annual Report 2022 121 SECTION IV CORPORATE GOVERNANCE REPORT outstanding award-wining results. In addition, the 2021 The Company formulated “Shareholders Communication annual report received two gold awards in this year’s Policy of China Telecom Corporation Limited” which “International ARC Awards” while also won in total four i s a v a i l a b l e o n t h e C o m p a n y ’ s w e b s i t e ( w w w . platinum and six gold awards, and ranked No.10 of “Top chinatelecom-h.com). The Company conducted review of 100 Reports Worldwide” in “LACP Vision Awards”. The the implementation of such shareholders communication 2021 annual report also won two gold awards in this policy during the Reporting Period and confirmed its year’s “W3 Awards”. The above prestigious accolades effectiveness. won by China Telecom reflect the market’s recognition and commendation of the Company’s tireless pursuit of excellence and globally leading outstanding performance in areas such as corporate governance, as well as disclosure of important information and development strategy of the Company through both conventional and digital channels. 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. 19. SHAREHOLDERS’ RIGHTS 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. 122 China Telecom Corporation Limited Annual Report 2022 SECTION IV CORPORATE GOVERNANCE REPORT (3) If the board of directors decides not to convene and the Company shall place such proposed motions an extraordinary general meeting or a class on the agenda for such Annual General Meeting if they meeting or does not reply within ten days are matters falling within the functions and powers of upon receipt of such request, the Requesting shareholders’ meetings. Shareholders have the right to propose to the Supervisory Committee to convene an extraordinary general meeting or a class meeting by way of written request(s). (4) If the Supervisory Committee agrees to convene an extraordinary general meeting or a class 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, meeting, a notice to convene such meeting shall requests, proposals and concerns to the Board in be issued within five days upon receipt of such writing through the Company Secretary and the Investor request. Any changes to the original proposal in Relations Department. the notice require the consent of the Requesting Shareholders. The contact details of the Company Secretary are as (5) If the Supervisory Committee does not issue follows: the notice of the shareholders’ general meeting The Company Secretary within the required period, it will be deemed as China Telecom Corporation Limited having failed to convene and preside over the 28th Floor, Everbright Centre, shareholders’ general meeting, and shareholders 108 Gloucester Road, Wanchai, individually or jointly holding 10% or more of the Hong Kong shares of the Company for 90 consecutive days Email: ir@chinatelecom-h.com or more (the “Convening Shareholders”) have the Tel No.: (852) 2877 9777 right to convene and preside over the meeting on IR Enquiry: (852) 2582 0388 their own. Fax No.: (852) 2877 0988 (6) In the event where shareholders convene a A dedicated “Investor” section is available on the shareholders’ general meeting on their own Company’s website (www.chinatelecom-h.com). There initiative, the Convening Shareholders must hold is a FAQ function in the “Investor” section designated to no lower than 10% of shares in the Company enable timely, effective and interactive communication immediately before the resolution of such meeting between the Company, shareholders and investors. is announced. Procedures for proposing resolutions at the Annual General Meeting When the Company convenes an Annual General Company Secretary and the Investor Relations Department of the Company handle both telephone and written enquiries from shareholders of the Company from time to time. Shareholders’ enquiries and concerns will be forwarded to the Board and/or the relevant Board Meeting, shareholders who individually or jointly hold Committees of the Company, where appropriate, which 3% or more of the total voting shares of the Company will answer the shareholders’ questions. Information on shall have the right to propose new motions in writing, the Company’s website is updated regularly. China Telecom Corporation Limited Annual Report 2022 123 FAMILY CLOUD TO ENRICH DIGITAL LIFE SECTION V ENVIRONMENTAL AND SOCIAL RESPONSIBILITIES 1. ENVIRONMENTAL INFORMATION Republic of China, the Law on Prevention and Control (1) Description of environmental protection of the Company other than key pollutant discharging units 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 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 of Water Pollution of the People’s Republic of China, the Law on the Prevention and Control of Atmospheric Pollution of the People’s Republic of China 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. For details, please refer to the CSR Report 2022 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). (2) Measures taken to reduce carbon emissions during the Reporting Period and their effects Any carbon reduction measures taken Reduction on CO2 equivalent emissions (unit: tonnes) Types of carbon reduction measures (e.g. use of clean energy for power generation, use of carbon reduction technologies in the production process, R&D and production of new products that contribute to carbon reduction, etc.) Yes 13 million Co-building and co-sharing of telecommunication infrastructures, self-developed AI energy saving, renovation of old facility rooms, withdrawal of old equipment, encouraging the use of renewable energy, etc. For details, please refer to the CSR Report 2022 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). Proactive implementation of “energy saving and carbon emissions reduction as well as green development” China Telecom Corporation Limited Annual Report 2022 127 SECTION V ENVIRONMENTAL AND SOCIAL RESPONSIBILITIES 2. SOCIAL RESPONSIBILITIES External donation, public welfare projects Total investment (RMB0’000) Quantity/content 23,109.69 For details, please refer to the CSR Report 2022 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). 3. CONSOLIDATION AND EXPANSION OF ACHIEVEMENTS IN POVERTY ALLEVIATION AND PROSPERITY OF RURAL VILLAGES Poverty Alleviation and Rural Revitalisation Projects Total investment (RMB0’000) Forms of support (e.g. industrial poverty alleviation, employment poverty alleviation, education poverty alleviation, etc.) Quantity/Content 21,324.19 Industrial support: In the 4 targeted poverty alleviation counties, in accordance with the industrial development goal of “one county, one product”, the Company implemented 19 industrial projects and extension and expansion projects in previous years and developed a large number of featured industrial projects such as the apple industrial park in Yanyuan County and the Chinese herbal medicine processing plant in Muli County, Sichuan, the industrial park in Shufu County, Xinjiang, and the chestnut processing plant in Tianlin County, Guangxi, taking digital village construction as a focus to accelerate the modernisation of agriculture and rural villages with digital empowerment. The featured industry support model was selected as the 2022 Rural Revitalisation Innovation Case of people.cn. Consumption support: The Company adhered to the radiation magnification effect of the consumption and purchase of agricultural and sideline products on the development of featured industries. The Group completed direct purchase of alleviation products of over RMB184 million and contributed sales of over RMB61 million in total, continuously injecting inexhaustible power for the development and growth of featured industries in rural villages. The “Tianhu Cloud Commerce” e-commerce platform was selected as an outstanding typical case of national consumption support and rural revitalisation recommended by the National Development and Reform Commission in 2022. Employment support: By sourcing tenants and attracting investment of RMB65 million in 4 targeted poverty alleviation counties, the Company assisted 16 locally leading enterprises and 15 rural cooperatives, helped in establishing 8 support workshops and aided 992 poverty-stricken people in employment transfer. Support in education, medical care, etc.: In targeted poverty alleviation counties, the Company invested over RMB65.08 million to provide education and living subsidies and improve education hardware and facilities for local students in difficulties; the Company improved the capability and level of primary healthcare services; New housing and supporting facilities were built to ensure housing safety. 128 China Telecom Corporation Limited Annual Report 2022 SECTION V ENVIRONMENTAL AND SOCIAL RESPONSIBILITIES 2022 was a year to consolidate and expand the achievements of poverty alleviation and rural revitalisation and to deepen the connection between them. The Company has maintained its efforts in poverty alleviation and given full play to the advantages of the enterprise, and has steadily and orderly promoted key work such as targeted poverty alleviation and industry poverty alleviation. For the whole year, 4 targeted alleviation counties and 2 counterpart support counties (hereinafter “4 + 2” poverty alleviation counties) were set up to fully cover the supervision, inspection and investigation aspects. In the “4 + 2” poverty alleviation counties, the Company has introduced free assistance funds of RMB18.99 million, provided training for 53,441 technical experts, rural revitalisation leaders, etc., and actively carried out poverty alleviation through consumption, helping the “4 + 2” poverty alleviation counties and more than 1,400 poverty alleviation sites and featured industries from enterprises at all levels to develop and expand, effectively consolidating and expanding the achievements of poverty alleviation and facilitating full range of rural revitalisation. China Telecom has vigorously promoted the construction of digital villages as an important measure to deepen its penetration into industry poverty alleviation and targeted poverty alleviation. Across the country, the Company has built 198,000 digital villages in total, created a telecommunication model for digital empowerment to facilitate “five revitalisations” in rural areas, continuously promoted in-depth integration and application of modern information technology with each field and each part in agriculture and rural villages, thereby boosting a new progress of rural revitalisation in full swing and advancing a new step for modernisation of agriculture and rural villages. Note: This section contains the environmental and social responsibilities work of China Telecommunications Corporation, the Company’s controlling shareholder, in 2022. Promoting poverty reduction through network, supporting rural revitalisation China Telecom Corporation Limited Annual Report 2022 129 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 undertaking Type of undertakings Undertaking party Content of undertakings undertakings performance strictly undertaking undertakings Undertakings related Restricted tradable Controlling shareholder Restrictions on the circulation 36 months from the Yes Yes N/A N/A to the initial public shares offering of the shares and the date of A Share shareholders’ commitment listing of the to voluntary lock-up their Company shares Undertakings related Restricted tradable Guangdong Rising, Zhejiang Financial Restrictions on the circulation 12 months from the Yes Yes N/A N/A to the initial public shares Development, Fujian Investment of the shares and the date of A Share offering Group, Jiangsu Guoxin shareholders’ commitment listing of the to voluntary lock-up their Company shares Undertakings related Restricted tradable Controlling shareholder, Undertakings on intention to Long-term Yes Yes N/A N/A to the initial public shares Guangdong Rising hold shares and intention offering to sell shares Undertakings related Resolving peer Controlling shareholder Non-competition undertaking Long-term Yes Yes N/A N/A to the initial public competition offering Undertakings related Resolving related party Controlling shareholder, Guangdong Undertakings to regulate Long-term Yes Yes N/A N/A to the initial public transactions Rising offering and reduce related party transactions Undertakings related Resolution of defects Controlling shareholder Loss-bearing commitment for Long-term Yes Yes N/A N/A to the initial public in property rights of offering land defects in property rights of land Undertakings related Others Controlling shareholder Commitment to long-term use Long-term Yes Yes N/A N/A to the initial public offering of trademark license 130 China Telecom Corporation Limited Annual Report 2022 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 undertaking Type of undertakings Undertaking party Content of undertakings undertakings performance strictly undertaking undertakings Undertakings related Others Controlling shareholder, the Undertakings to stabilise the Within three years Yes Yes N/A N/A to the initial public offering Company, directors and share 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 Undertakings related Others The Company, controlling Undertaking to adopt remedial Long-term Yes Yes N/A N/A to the initial public offering shareholder, directors and measures for dilution of the senior management immediate returns by the issuance of share Undertakings related Others The Company, controlling Undertaking that there is no Long-term Yes Yes N/A N/A to the initial public offering shareholder, directors, supervisors and senior management false record, misleading statement, or material omission in the Prospectus Undertakings related Others The Company, controlling Undertaking on binding Long-term Yes Yes N/A N/A to the initial public offering shareholder, directors, supervisors and senior management measures for the failure to perform the commitment Undertakings related Others The Company Undertaking on disclosure of Long-term Yes Yes N/A N/A to the initial public offering Others shareholders’ information Dividend The Company Undertaking on the profit Long-term Yes Yes N/A N/A distribution policy and the arrangement in relation to the accumulated profits China Telecom Corporation Limited Annual Report 2022 131 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 Duration of audit of the domestic accounting firm Names of certified public accountants of the domestic accounting firm 6,280 2 years Song Shuang, Liu Yuanbo Duration of audit services provided by certified public accountants Song Shuang (2 years), Liu Yuanbo (2 years) of the domestic accounting firm Name of overseas accounting firm PricewaterhouseCoopers Duration of audit of the overseas accounting firm 2 years Accounting firm for internal control PricewaterhouseCoopers Zhong Tian LLP 1,430 auditing Name Remuneration Note: The remuneration for internal control auditing is included in the remuneration of domestic and overseas accounting firms. 132 China Telecom Corporation Limited Annual Report 2022 SECTION VI SIGNIFICANT EVENTS 3. MATERIAL CONNECTED TRANSACTIONS (1) CONTINUING CONNECTED TRANSACTIONS The following table sets out the amounts of the Group’s continuing connected transactions for the year ended 31 December 2022: Annual monetary cap for continuing connected Transaction amounts transactions (RMB million) (RMB million) TRANSACTIONS (1) CONTINUING CONNECTED TRANSACTIONS ENTERED INTO BETWEEN THE GROUP AND CHINA TELECOMMUNICATIONS1 AND/OR ITS ASSOCIATES (EXCLUDING THE GROUP) Engineering Framework Agreement Provision of engineering services by China Telecommunications and/or its associates 16,993 19,000 Ancillary Telecommunications Services Framework Agreement Provision of ancillary telecommunications services by China Telecommunications and/or its associates 22,309 26,500 Community Services Framework Agreement Provision of community services by China Telecommunications and/or its associates 4,340 5,200 Centralised Services Agreement Provision of centralised services by China Telecommunications and/or its associates Provision of centralised services by the Group 870 3,572 1,800 3,700 China Telecom Corporation Limited Annual Report 2022 133 SECTION VI SIGNIFICANT EVENTS Annual monetary cap for continuing connected Transaction amounts transactions (RMB million) (RMB million) 484 715 51 4,834 1,944 4,249 4,692 520 760 100 5,300 2,100 5,000 7,200 TRANSACTIONS Property and Land Use Right Leasing Framework Agreement Total value of right-of-use assets (for those leases of which the lease term exceeds 12 months) and interest of lease liabilities involved in the properties leased by the Group Total value of other payments (including rent for those leases of which the lease term is no more than 12 months) involved in the properties leased by the Group Amount payable for properties leased by China Telecommunications and/or its associates IT Services Framework Agreement Provision of IT services by China Telecommunications and/or its associates Provision of IT services by the Group Supplies Procurement Services Framework Agreement Provision of supplies procurement services by China Telecommunications and/or its associates Provision of supplies procurement services by the Group Internet Applications Channel Services Framework Agreement Provision of Internet applications channel services by the Group 57 600 Lease Financing Framework Agreement Provision of lease financing services by China Telecommunications and/or its associates 2,212 7,300 Telecommunications Resources Leasing Agreement Provision of telecommunications resources leasing services by China Telecommunications and/or its associates 442 750 134 China Telecom Corporation Limited Annual Report 2022 SECTION VI SIGNIFICANT EVENTS Annual monetary cap for continuing connected Transaction amounts transactions (RMB million) (RMB million) TRANSACTIONS (2) CONTINUING CONNECTED TRANSACTIONS ENTERED INTO BETWEEN CHINA TELECOM FINANCE AND THE GROUP, THE PARENT GROUP2, THE CCS GROUP3, NEW GUOMAI GROUP4 AND SAFETY TECHNOLOGY GROUP5 RESPECTIVELY Maximum daily balance of deposits (including accrued interest) deposited by the Group with China Telecom Finance 35,201 60,000 Maximum daily loan and bill discounting balance (including accrued interest) provided by China Telecom Finance to the Parent Group Maximum daily loan and bill discounting balance (including accrued interest) provided by China Telecom Finance to the CCS Group Maximum daily loan and bill discounting balance (including accrued interest) provided by China Telecom Finance to New Guomai Group Maximum daily loan and bill discounting balance (including accrued interest) provided by 8,047 14,000 – – 1,000 1,500 China Telecom Finance to Safety Technology Group 81 500 (3) CONTINUING CONNECTED TRANSACTIONS ENTERED INTO BETWEEN THE GROUP AND E-SURFING PAY AND ITS SUBSIDIARIES Payment and digital finance related services 1,068 1,450 Notes: 1. 2. 3. 4. 5. China Telecommunications refers to China Telecommunications Corporation, the Company’s controlling shareholder which held approximately 63.78% of the issued share capital of the Company as at 31 December 2022. The Parent Group refers to China Telecommunications Corporation, its associates and its commonly held entity held with the Group, excluding the Group, the CCS Group, New Guomai Group and Safety Technology Group. The CCS Group refers to China Communications Services Corporation Limited and its subsidiaries. New Guomai Group refers to New Guomai Digital Culture Co.,Ltd (“New Guomai”) and its subsidiaries. Safety Technology Group refers to Beijing Global Safety Technology Co., Ltd (“Safety Technology”) and its subsidiaries. China Telecom Corporation Limited Annual Report 2022 135 SECTION VI SIGNIFICANT EVENTS Continuing connected transactions entered into among the Group and China Telecommunications and/or its associates (excluding the Group) On 22 October 2021, the Company and China As certain applicable percentage ratios (excluding the profits ratio) of the annual caps for the transactions contemplated under the Community Services Framework Agreement, the Centralised Services Agreement, the Property and Land Use Right Leasing Framework Telecommunications have entered into the Engineering Agreement, the IT Services Framework Agreement, the Framework Agreement, the Ancillary Telecommunications Supplies Procurement Services Framework Agreement, Services Framework Agreement, the Community Services the Internet Applications Channel Services Framework Framework Agreement, the Interconnection Settlement Agreement, the Lease Financing Framework Agreement Agreement, the Centralised Services Agreement, the and the Telecommunications Resources Leasing Property and Land Use Right Leasing Framework Agreement for each of the years ended 31 December Agreement, the IT Services Framework Agreement, the 2022, 2023 and 2024 exceeds 0.1% but is less than 5%, Supplies Procurement Services Framework Agreement, such continuing connected transactions are only subject the Internet Applications Channel Services Framework to the reporting, announcement and annual review Agreement, the Lease Financing Framework Agreement, requirements and are exempt from the independent the Telecommunications Resources Leasing Agreement, shareholders’ approval requirement under Chapter 14A the Trademark License Agreement and the Intellectual of the Listing Rules. Property License Framework Agreement with a term from 1 January 2022 to 31 December 2024. China As each of the applicable percentage ratios (excluding Telecommunications is the controlling shareholder of the profits ratio) of the annual caps for the transactions the Company. Accordingly, pursuant to Chapter 14A contemplated under the Interconnection Settlement of the Listing Rules, China Telecommunications is a Agreement, the Trademark License Agreement and the connected person of the Company and the transactions Intellectual Property License Framework Agreement contemplated under each of the agreements constitute for each of the years ended 31 December 2022, continuing connected transactions of the Company. 2023 and 2024 is less than 0.1%, such continuing connected transactions are exempt from the reporting, As certain applicable percentage ratios (excluding the announcement, annual review and independent profits ratio) of the annual caps for the transactions shareholders’ approval requirements under Chapter 14A contemplated under the Engineering Framework of the Listing Rules. Agreement and the Ancillary Telecommunications Services Framework Agreement for each of the years Details of the respective agreements are shown below: ended 31 December 2022, 2023 and 2024 exceeds 5%, such continuing connected transactions are subject to the reporting, announcement, annual review and independent shareholders’ approval requirements under Chapter 14A of the Listing Rules. The independent shareholders of the Company considered and approved the Engineering Framework Agreement and the Ancillary Telecommunications Services Framework Agreement and the annual caps applicable thereto at the extraordinary general meeting of the Company held on 30 November 2021. 136 China Telecom Corporation Limited Annual Report 2022 SECTION VI SIGNIFICANT EVENTS Engineering Framework Agreement In terms of the same service provided under the On 22 October 2021, the Company and China Engineering Framework Agreement, the Group shall Telecommunications have entered into the Engineering have the priority to use the services provided by China Framework Agreement with a term from 1 January Telecommunications and/or its associates, if the terms 2022 to 31 December 2024. Prior to the expiry of the and conditions offered by an independent third party agreement, the parties are entitled to negotiate the to the Group are no better than those offered by China signing of a new Engineering Framework Agreement or a Telecommunications and/or its associates. China supplemental agreement to ensure the normal operation Telecommunications and/or its associates undertake of the production and businesses of both parties after to the Group that China Telecommunications and/ the expiry of the agreement. or its associates will not provide services to the Group which are less favourable than the terms offered by Pursuant to the Engineering Framework Agreement, China Telecommunications and/or its associates to China Telecommunications and/or its associates a third party. China Telecommunications and/or its provide to the Group services such as engineering associates are entitled to provide relevant services to design, engineering construction and/or engineering a third party only if the services provided to the Group supervision services. The charges payable for such under the agreement are not affected. However, if China engineering services shall be determined by reference Telecommunications and/or its associates fail to meet the to market rates. Market rates shall mean the rates at Group’s demand under the agreement or terms offered which the same or similar type of products or services by an independent third party are more favourable than are provided by independent third parties in the ordinary those offered by China Telecommunications and/or its course of business and on normal commercial terms. associates, the Group is entitled to obtain such service When determining whether the transaction price for any from an independent third party. transaction under the Engineering Framework Agreement represents market rates, to the extent practicable, Ancillary Telecommunications Services Framework management of the Company shall take into account the Agreement rates of at least two similar and comparable transactions On 22 October 2021, the Company and China entered into with or carried out by independent third Telecommunications have entered into the Ancillary parties in the ordinary course of business over the Telecommunications Services Framework Agreement corresponding period for reference. According to with a term from 1 January 2022 to 31 December applicable laws, the charges payable for the design or 2024. Prior to the expiry of the agreement, the parties supervision of engineering projects with a value of over are entitled to negotiate the signing of a new Ancillary RMB1,000,000 or engineering construction projects Telecommunications Services Framework Agreement with a value of over RMB4,000,000 shall be the tender or a supplemental agreement to ensure the normal award price, which is determined in accordance with the operation of the production and businesses of both “Bidding Law of the PRC” and the “Regulations on the parties after the expiry of the agreement. However, if the Implementation of the Bidding Law of the PRC” or the Group has to obtain the same type of services from a final confirmed price in the relevant tender process. In the third party at a greater cost, China Telecommunications circumstances there are amended rules or regulations and/or its associates cannot terminate the provision of in respect of tender scope and scale of the engineering such services to the Group. construction projects promulgated by PRC laws and regulations during the term of agreement, both parties agreed to apply such amended rules and regulations. China Telecom Corporation Limited Annual Report 2022 137 SECTION VI SIGNIFICANT EVENTS Pursuant to the Ancillary Telecommunications Services management of the Company shall take into Framework Agreement, China Telecommunications account the profit margin of at least two similar and/or its associates provide the Group with ancillary and comparable transactions entered into with telecommunications services such as installation of independent third parties in the corresponding telephones and residential telephone lines, repair period or the relevant industry profit margin for of residential telephone lines, customer services, reference. telecommunications terminal equipment, air conditioners and telephone booths, maintenance of fire equipment, In terms of the same service provided under the Ancillary production and consignment of sim cards and Telecommunications Services Framework Agreement, collection of telephone tariff on the Group’s behalf. The the Group is entitled to accord priority to China charges payable for the services under the Ancillary Telecommunications and/or its associates to provide Telecommunications Services Framework Agreement are such service, if the terms and conditions offered by calculated on the following basis: an independent third party to the Group are no better (1) market prices, which shall mean the prices at or its associates. China Telecommunications and/ than those offered by China Telecommunications and/ which the same or similar type of products or or its associates undertake to the Group that China services are provided by independent third Telecommunications and/or its associates will not provide parties in the ordinary course of business and services to the Group which are less favourable than the on normal commercial terms. When determining terms offered by China Telecommunications and/or its whether the transaction price for any transaction associates to a third party. China Telecommunications under the Ancillary Telecommunications Services and/or its associates are entitled to provide relevant Framework Agreement represents market prices, services to a third party only if the services provided to the extent practicable, management of the to the Group under the agreement are not affected. Company shall take into account the prices of However, if China Telecommunications and/or its at least two similar and comparable transactions associates fail to meet the Group’s demand under the entered into with or carried out by independent agreement or terms offered by an independent third third parties in the ordinary course of business party are more favourable than those offered by China over the corresponding period for reference; Telecommunications and/or its associates, the Group is entitled to obtain such service from an independent third (2) where there is no or it is not possible to determine party. the market prices, the prices are to be agreed between the parties based on the reasonable Interconnection Settlement Agreement costs incurred in providing the services plus the On 22 October 2021, the Company and China amount of the relevant taxes and reasonable Telecommunications Corporation have entered into the profit margin. For this purpose, “reasonable profit Interconnection Settlement Agreement with a term from margin” is to be fairly determined by negotiations 1 January 2022 to 31 December 2024. Prior to the expiry between the parties in accordance with the of the agreement, the parties are entitled to negotiate the internal policies of the Group. When determining signing of a new Interconnection Settlement Agreement the “reasonable profit margin” for any transaction or a supplemental agreement to ensure the normal under the Ancillary Telecommunications Services operation of the production and businesses of both Framework Agreement, to the extent practicable, parties after the expiry of the agreement. 138 China Telecom Corporation Limited Annual Report 2022 SECTION VI SIGNIFICANT EVENTS Pursuant to the Interconnection Settlement Agreement, Pursuant to the Community Services Framework both parties agree to achieve the interconnection Agreement, China Telecommunications and/or its between various types of telecommunications networks. associates provide the Group with community services The interconnection settlement charges will be calculated such as culture, education, property management, according to the “Notice Concerning the Issue of the vehicle service, medical care, hotel and conference Measures on Interconnection Settlement between Public service, community and sanitary service. The community Telecommunications Networks and Sharing of Relaying services under the Community Services Framework Fees” (Xin Bu Dian [2003] No. 454) promulgated by Agreement are provided at: the Ministry of Information Industry of the PRC. The Ministry of Industry and Information Technology of the (1) the prices and/or the fees standards under the PRC may, from time to time, take into account the agreement shall refer to market prices, which relevant regulatory rules and market conditions, amend shall mean the prices at which the same or similar or promulgate new rules or regulations in respect of type of products or services are provided by interconnection settlement which will be announced on independent third parties in the ordinary course of its official website at www.miit.gov.cn. If the Ministry of business and on normal commercial terms. When Industry and Information Technology of the PRC amends determining whether the transaction price for the existing, or promulgates new rules or regulations in any transaction under the Community Services respect of interconnection settlement, the parties shall Framework Agreement represents market prices, apply such amended or new rules and regulations as to the extent practicable, management of the acknowledged by both parties. The settlement regions Company shall take into account the prices of include Tianjin Municipality, Hebei Province, Heilongjiang at least two similar and comparable transactions Province, Jilin Province, Liaoning Province, Shanxi entered into with or carried out by independent Province, Henan Province, Shandong Province, Inner third parties in the ordinary course of business Mongolia Autonomous Region and Xizang Autonomous over the corresponding period for reference; Region. (2) where there is no or it is not possible to determine Community Services Framework Agreement the market prices, the prices are to be agreed On 22 October 2021, the Company and China between the parties based on the reasonable Telecommunications have entered into the Community costs incurred in providing the services plus the Services Framework Agreement with a term from 1 amount of the relevant taxes and reasonable January 2022 to 31 December 2024. Prior to the expiry profit margin. For this purpose, “reasonable of the agreement, the parties are entitled to negotiate profit margin” is to be fairly determined by the signing of a new Community Services Framework negotiations between the parties in accordance Agreement or a supplemental agreement to ensure the with the internal policies of the Group. When normal operation of the production and businesses of determining the “reasonable profit margin” for both parties after the expiry of the agreement. However, any transaction under the Community Services if the Group has to obtain the same type of services from Framework Agreement, to the extent practicable, a third party at a greater cost, China Telecommunications management of the Company shall take into and/or its associates cannot terminate the provision of account the profit margin of at least two similar such services to the Group. and comparable transactions entered into with independent third parties in the corresponding period or the relevant industry profit margin for reference. China Telecom Corporation Limited Annual Report 2022 139 SECTION VI SIGNIFICANT EVENTS In terms of the same service under the Community In accordance with the Centralised Services Agreement, Services Framework Agreement, the Group is entitled the aggregate costs incurred by the Group and China to accord priority to China Telecommunications and/ Telecommunications and/or its associates for the or its associates to provide such service, if the terms provision of management and operation services such and conditions offered by an independent third party as services in relation to key corporate customers, to the Group are no better than those offered by China network management and business support services Telecommunications and/or its associates. China will be apportioned between the Group and China Telecommunications and/or its associates undertake Telecommunications on a pro rata basis according to the Group that China Telecommunications and/ to the revenues generated by each party. Associated or its associates will not provide services to the Group costs, such as restoration maintenance costs when both which are less favourable than the terms offered by parties use international facilities provided by third parties China Telecommunications and/or its associates to and accept services by such third parties and usage a third party. China Telecommunications and/or its costs when both parties use the international facilities associates are entitled to provide relevant services to of China Telecommunications and/or its associates, a third party only if the services provided to the Group shall be shared on a pro rata basis according to volume under the agreement are not affected. However, if China of the inbound and outbound voice calls to and from Telecommunications and/or its associates fail to meet the international regions, Hong Kong, Macau and Taiwan Group’s demand under the agreement or terms offered originating from each party divided by the proportion by an independent third party are more favourable than of the aggregate volume of the inbound and outbound those offered by China Telecommunications and/or its voice calls to and from international regions, Hong Kong, associates, the Group is entitled to obtain such service Macau and Taiwan originating from both parties. When from an independent third party. the two parties use international facilities provided by a third party and accept restoration maintenance costs, Centralised Services Agreement such fees shall be determined according to the actual On 22 October 2021, the Company and China utilisation fee of each year. The utilisation fee associated Telecommunications have entered into the Centralised with the shared use of the international facilities provided Services Agreement with a term from 1 January 2022 to by China Telecommunications and/or its associates 31 December 2024. Prior to the expiry of the agreement, shall be determined through negotiation between the the parties are entitled to negotiate the signing of a two parties based on market rates. Market rates shall new Centralised Services Agreement or a supplemental mean the rates at which the same or similar type of agreement to ensure the normal operation of the products or services are provided by independent production and businesses of both parties after the third parties in the ordinary course of business and on expiry of the agreement. normal commercial terms. When determining whether the transaction price for any transaction under the Pursuant to Centralised Services Agreement, centralised Centralised Services Agreement represents market rates, services include services provided by the Group to China to the extent practicable, management of the Company Telecommunications and/or its associates in relation to shall take into account the rates of at least two similar key corporate customers, management and operational and comparable transactions entered into with or carried services such as network management and business support services, and the common use of international out by independent third parties in the ordinary course of business in the corresponding period for reference. facilities by both parties. 140 China Telecom Corporation Limited Annual Report 2022 SECTION VI SIGNIFICANT EVENTS Property and Land Use Right Leasing Framework IT Services Framework Agreement Agreement On 22 October 2021, the Company and China On 22 October 2021, the Company and China Telecommunications have entered into the IT Services Telecommunications have entered into the Property and Framework Agreement with a term from 1 January Land Use Right Leasing Framework Agreement with a 2022 to 31 December 2024. Prior to the expiry of the term from 1 January 2022 to 31 December 2024. Prior agreement, the parties are entitled to negotiate the to the expiry of the agreement, the parties are entitled to signing of a new IT Services Framework Agreement or a negotiate the signing of a new Property and Land Use supplemental agreement to ensure the normal operation Right Leasing Framework Agreement or a supplemental of the production and businesses of both parties after agreement to ensure the normal operation of the the expiry of the agreement. production and businesses of both parties after the expiry of the agreement. Pursuant to the IT Services Framework Agreement, China Telecommunications and/or its associates and Pursuant to the Property and Land Use Right Leasing the Group can provide the other party with IT services, F r a m e w o r k A g r e e m e n t , t h e G r o u p a n d C h i n a such as office automation, software testing, network Telecommunications and/or its associates can lease upgrade, research and development on new businesses properties and/or land use right (the “Leased Properties”) and development and upgrade of support systems. Each from the other party for conducting business activities of the Group and China Telecommunications and/or its according to the laws. The rental charges for the Leased associates is entitled to provide services to the other Properties under the Property and Land Use Right party in accordance with the IT Services Framework Leasing Framework Agreement shall be agreed by both Agreement. The charges payable for such services shall parties according to comparable market rates. Market be determined by reference to market rates. Market rates rates shall mean the rental charges at which the same or shall mean the rates at which the same or similar type similar type of the Leased Properties or adjacent Leased of products or services are provided by independent Properties are leased by independent third parties in the third parties in the ordinary course of business and on ordinary course of business and on normal commercial normal commercial terms. When determining whether terms. When determining whether the rental charges the transaction price for any transaction under the IT for any Leased Property under the Property and Land Services Framework Agreement represents market rates, Use Right Leasing Framework Agreement represents to the extent practicable, management of the Company market rates, to the extent practicable, management of shall take into account the rates of at least two similar the Company shall take into account at least two similar and comparable transactions entered into with or carried and comparable transactions entered into with or carried out by independent third parties in the ordinary course of out by independent third parties in the ordinary course of business over the corresponding period for reference. In business in the corresponding period for reference. the circumstances where the relevant laws or regulations in the PRC specify that the prices and/or the fee standards for particular services to be provided pursuant to such agreement are to be determined by a tender process, the charges payable for such services shall be finally determined in accordance with the “Bidding Law of the PRC” and the “Regulations on the Implementation of the Bidding Law of the PRC” or the relevant tender procedures. China Telecom Corporation Limited Annual Report 2022 141 SECTION VI SIGNIFICANT EVENTS In terms of the same service under the IT Services Pursuant to the Supplies Procurement Services Framework Agreement, the Group is entitled to Framework Agreement, China Telecommunications and/ accord priority to China Telecommunications and/ or its associates and the Group provide each other with or its associates to provide such service, if the terms supplies procurement services, including procurement and conditions offered by an independent third party services for imported telecommunications supplies, to the Group are no better than those offered by China domestic telecommunications supplies and domestic Telecommunications and/or its associates. China non-telecommunications supplies, the sale of proprietary Telecommunications and/or its associates undertake telecommunications equipment, resale of third-party to the Group that China Telecommunications and/or its equipment, management of tenders, verification of associates will not provide services to the Group which technical specifications, storage and transportation and are less favourable than the terms offered by China installation services. Telecommunications and/or its associates to a third party. China Telecommunications and/or its associates Where the procurement services are provided on an are entitled to provide relevant services to a third party agency basis, the fees shall be paid in commission which only if the services provided to the Group under the shall be calculated at: agreement are not affected. If China Telecommunications and/or its associates fail to meet the Group’s demand (1) not more than 1% of the contract value for the under the agreement or terms offered by an independent procurement of imported telecommunications third party are more favourable than those offered supplies; or by China Telecommunications and/or its associates, the Group is entitled to obtain such service from an (2) not more than 3% of the contract value for the independent third party. Where the above tender process procurement of domestic telecommunications is applicable, the Group does not accord any priority supplies and domestic non-telecommunications to China Telecommunications and/or its associates to supplies. provide such services, and the tender may be awarded to an independent third party. However, if the terms The services for the provision of supplies procurement of an offer from China Telecommunications and/or its other than on an agency basis under the Supplies associates are at least as favourable as those offered by Procurement Services Framework Agreement are other tenderers, the Group is entitled to award the tender provided at: to China Telecommunications and/or its associates. (1) market prices, which shall mean the prices at Supplies Procurement Services Framework which the same or similar type of products or Agreement services are provided by independent third parties On 22 October 2021, the Company and China in the ordinary course of business and on normal Telecommunications have entered into the Supplies commercial terms. When determining whether Procurement Services Framework Agreement with a the transaction price for any transaction under term from 1 January 2022 to 31 December 2024. Prior the Supplies Procurement Services Framework to the expiry of the agreement, the parties are entitled Agreement represents market prices, to the to negotiate the signing of a new Supplies Procurement extent practicable, management of the Company Services Framework Agreement or a supplemental shall take into account the prices of at least two agreement to ensure the normal operation of the similar and comparable transactions entered production and businesses of both parties after the into with or carried out by independent third expiry of the agreement. parties in the ordinary course of business in the corresponding period for reference; 142 China Telecom Corporation Limited Annual Report 2022 SECTION VI SIGNIFICANT EVENTS (2) where there is no or it is not possible to determine Internet Applications Channel Services Framework the market prices, the prices are to be agreed Agreement between the parties based on the reasonable On 22 October 2021, the Company and China costs incurred in providing the services plus the Telecommunications have entered into the Internet amount of the relevant taxes and reasonable Applications Channel Services Framework Agreement profit margin. For this purpose, “reasonable profit with a term from 1 January 2022 to 31 December margin” is to be fairly determined by negotiations 2024. Prior to the expiry of the agreement, the parties between the parties in accordance with the are entitled to negotiate the signing of a new Internet internal policies of the Group. When determining Applications Channel Services Framework Agreement the “reasonable profit margin” for any transaction or a supplemental agreement to ensure the normal under the Supplies Procurement Services operation of the production and businesses of both Framework Agreement, to the extent practicable, parties after the expiry of the agreement. management of the Company shall take into account the profit margin of at least two similar P u r s u a n t t o t h e I n t e r n e t A p p l i c a t i o n s C h a n n e l and comparable transactions entered into with Services Framework Agreement, the Group provides independent third parties in the corresponding Internet applications channel services to China period or the relevant industry profit margin for Telecommunications and/or its associates. The reference. channel services mainly include the provision of telecommunications channel and applications support In terms of the same service under the Supplies platform, provision of billing and deduction services, Procurement Services Framework Agreement, the Group coordination of sales promotion and development of is entitled to accord priority to China Telecommunications customers services, etc. and/or its associates to provide such service, if the terms and conditions of services offered by China The charges payable for the services under the Internet Telecommunications and/or its associates are at least Applications Channel Services Framework Agreement as favourable as those offered by an independent third are calculated on the following basis: party to the Group. China Telecommunications and/ or its associates undertake to the Group that China (1) the prices and/or the fees standards under the Telecommunications and/or its associates will not provide agreement shall refer to market prices, which services to the Group which are less favourable than the shall mean the prices at which the same or similar terms offered by China Telecommunications and/or its type of products or services are provided by associates to a third party. China Telecommunications independent third parties in the ordinary course and/or its associates are entitled to provide relevant of business and on normal commercial terms. services to a third party only if the services provided to When determining whether the transaction price the Group under the agreement are not affected. If China for any transaction under the Internet Applications Telecommunications and/or its associates fail to meet the C h a n n e l S e r v i c e s F r a m e w o r k A g r e e m e n t Group’s demand under the agreement or terms offered r e p r e s e n t s m a r k e t p r i c e s , t o t h e e x t e n t by an independent third party are more favourable than practicable, management of the Company shall those offered by China Telecommunications and/or its take into account the prices of at least two similar associates, the Group is entitled to obtain such service and comparable transactions entered into with from an independent third party. or carried out by independent third parties in the ordinary course of business in the corresponding period for reference; China Telecom Corporation Limited Annual Report 2022 143 SECTION VI SIGNIFICANT EVENTS (2) where there is no or it is not possible to determine Lease Financing Framework Agreement the market prices, the prices are to be agreed On 22 October 2021, the Company and China between the parties based on the reasonable Telecommunications have entered into the Lease costs incurred in providing the services plus the Financing Framework Agreement with a term from 1 amount of the relevant taxes and reasonable January 2022 to 31 December 2024. Prior to the expiry profit margin. For this purpose, “reasonable profit of the agreement, the parties are entitled to negotiate the margin” is to be fairly determined by negotiations signing of a new Lease Financing Framework Agreement between the parties in accordance with the or a supplemental agreement to ensure the normal internal policies of the Group. When determining operation of the production and businesses of both the “reasonable profit margin” for any transaction parties after the expiry of the agreement. under the Internet Applications Channel Services Framework Agreement, to the extent practicable, Pursuant to the Lease Financing Framework Agreement, management of the Company shall take into China Telecommunications and/or its associates provides account the profit margin of at least two similar the Group with lease financing services including sale and comparable transactions entered into with and leaseback, direct lease, etc. and the associated independent third parties in the corresponding lease financing consulting services. period or the relevant industry profit margin for reference. The pricing policies of the lease financing services under the Lease Financing Framework Agreement are set out In terms of the same service under the Internet below: Applications Channel Services Framework Agreement, China Telecommunications and/or its associates is The fees charged by China Telecommunications and/or entitled to accord priority to the Group to provide its associates shall comply with the relevant standards such service, if the terms and conditions offered by an promulgated by the People’s Bank of China or China independent third party to China Telecommunications Banking and Insurance Regulatory Commission are no better than those offered by the Group. The (“CBIRC”) (if applicable) with reference to the standards Group undertake to China Telecommunications and/or of fees charged by major lease financing companies in its associates that the Group will not provide services to cooperation with the Group for the same type of services China Telecommunications and/or its associates which provided to the Group on normal commercial terms or are less favourable than the terms offered by the Group better. Such fees shall be equal to or lower than those to a third party. The Group is entitled to provide relevant of other major lease financing companies in cooperation services to a third party only if the services provided to with the Group. China Telecommunications and/or its associates under the agreement are not affected. However, if the Group In terms of the same service under the Lease Financing fails to meet the demand of China Telecommunications Framework Agreement, the Group is entitled to and/or its associates under the agreement or terms accord priority to China Telecommunications and/ offered by an independent third party are more or its associates to provide such service, if the favourable than those offered by the Group, China terms and conditions of services offered by China Telecommunications and/or its associates is entitled to Telecommunications and/or its associates are at least obtain such service from an independent third party. as favourable as those offered by an independent third party to the Group. China Telecommunications and/ 144 China Telecom Corporation Limited Annual Report 2022 SECTION VI SIGNIFICANT EVENTS or its associates undertake to the Group that China standard or reasonable profit margin, to the extent Telecommunications and/or its associates will not provide practicable, management of the Company shall take services to the Group which are less favourable than the into account the profit margin of at least two similar and terms offered by China Telecommunications and/or its comparable transactions entered into with independent associates to a third party. China Telecommunications third parties in the corresponding period or the relevant and/or its associates are entitled to provide relevant industry profit margin for reference. The Group carries services to a third party only if the services provided out maintenance of the leased telecommunications to the Group under the agreement are not affected. resources in accordance with the relevant procedures However, if China Telecommunications and/or its and standards as confirmed by both parties. Such associates fail to meet the Group’s demand under the maintenance fees shall be borne by the Group. agreement or terms offered by an independent third party are more favourable than those offered by China Trademark License Agreement Telecommunications and/or its associates, the Group is On 22 October 2021, the Company and China entitled to obtain such service from an independent third Telecommunications Corporation have entered into party. the Trademark License Agreement with a term from 1 January 2022 to 31 December 2024. Prior to the expiry Telecommunications Resources Leasing Agreement of the agreement, the parties are entitled to negotiate On 22 October 2021, the Company and China the signing of a new Trademark License Agreement or a T e l e c o m m u n i c a t i o n s h a v e e n t e r e d i n t o t h e supplemental agreement to ensure the normal operation Telecommunications Resources Leasing Agreement with of the production and businesses of both parties after a term from 1 January 2022 to 31 December 2024. Prior the expiry of the agreement. to the expiry of the agreement, the parties are entitled to negotiate the signing of a new Telecommunications Pursuant to the Trademark License Agreement, China Resources Leasing Agreement or a supplemental Telecommunications Corporation and/or its associates agreement to ensure the normal operation of the grants the Group the license for the use of the production and businesses of both parties after the trademarks with trademark registration certificates as expiry of the agreement. registered by China Telecommunications Corporation and/or its associates at China National Intellectual Pursuant to the Telecommunications Resources Leasing Property Administration of the State Administration Agreement, the Group leases telecommunications for Market Supervision and the trademarks for which r e s o u r c e s i n c l u d i n g t r a n s m i s s i o n n e t w o r k China Telecommunications Corporation and/or its telecommunications resources, wireless network associates is applying to China National Intellectual telecommunications resources, wireline access network Property Administration of the State Administration for telecommunications resources, etc. from China Market Supervision for registration and has not obtained Telecommunications and/or its associates. trademark registration certificates yet. During the term of The rental charges for the leasing of telecommunications and/or its associates will not charge the Group any resources from China Telecommunications and/or royalty fee for the grant of trademark license. the agreement, China Telecommunications Corporation its associates are based on the annual depreciation charges and determined with reference to market prices as agreed by both parties. When determining the fee China Telecom Corporation Limited Annual Report 2022 145 SECTION VI SIGNIFICANT EVENTS Intellectual Property License Framework Agreement any transaction under the agreement, to the extent On 22 October 2021, the Company and China practicable, management of the Company shall take Telecommunications Corporation have entered into the into account the profit margin of at least two similar and Intellectual Property License Framework Agreement with comparable transactions entered into with Independent a term from 1 January 2022 to 31 December 2024. Prior Third Parties in the corresponding period or the relevant to the expiry of the agreement, the parties are entitled industry profit margin for reference. to negotiate the signing of a new Intellectual Property License Framework Agreement or a supplemental agreement to ensure the normal operation of the production and businesses of both parties after the expiry of the agreement. P u r s u a n t t o t h e I n t e l l e c t u a l P r o p e r t y L i c e n s e Continuing connected transactions entered into between China Telecom Finance and the Group, the Parent Group, the CCS Group, New Guomai Group and Safety Technology Group respectively On 22 October 2021, China Telecom Finance entered Framework Agreement, each of the Group or China into the financial services framework agreement with Telecommunications Corporation and/or its associates is each of the Company, China Telecommunications entitled to grant to the other party the license for the use (together with its associates and its commonly held of intellectual property (excluding trademarks). Royalty entity held with the Group, excluding the Group, the fee for such license shall be determined by both parties CCS Group, New Guomai Group and Safety Technology based on market prices, which shall mean the prices Group, the “Parent Group”), CCS (together with its to be determined on normal commercial terms and by subsidiaries, “CCS Group”), New Guomai (together the following mechanism: the royalty fee at which the with its subsidiaries, “New Guomai Group”) and Safety same or similar type of intellectual property licenses are Technology (together with its subsidiaries, “Safety provided by Independent Third Parties in the ordinary Technology Group”). As China Telecommunications is course of business and on normal commercial terms. the Company’s controlling shareholder, and CCS, New When determining whether the transaction price for Guomai and Safety Technology are subsidiaries of China any transaction under the Intellectual Property License Telecommunications, pursuant to Chapter 14A of the Framework Agreement represents market prices, to the Listing Rules, China Telecommunications, CCS, New extent practicable, management of the Company shall Guomai and Safety Technology and/or their associates take into account the prices of at least two similar and are connected persons of the Company. As the comparable transactions entered into with or carried Company holds 70% of the issued share capital of China out by Independent Third Parties in the ordinary course Telecom Finance, China Telecom Finance is a subsidiary of business in the corresponding period for reference. of the Company. Meanwhile, China Telecommunications Where there is no or it is not possible to determine and CCS each respectively holds 15% of the issued the market prices according to the pricing and/or share capital of China Telecom Finance. Pursuant fee standards under the agreement in the course of to Chapter 14A of the Listing Rules, China Telecom performing the agreement, the prices are to be agreed Finance is a connected subsidiary of the Company between the parties based on the reasonable costs and an associate of China Telecommunications, CCS, incurred in providing the services plus the amount of New Guomai and Safety Technology, which is also a the relevant taxes and reasonable profit margin. For connected person of the Company. Accordingly, the this purpose, “reasonable profit margin” is to be fairly transactions under the respective Financial Services determined by negotiations between the parties in Framework Agreements constitute continuing connected accordance with the internal policies of the Group. transactions of the Company pursuant to Chapter 14A of When determining the “reasonable profit margin” for the Listing Rules. 146 China Telecom Corporation Limited Annual Report 2022 SECTION VI SIGNIFICANT EVENTS China Telecom Financial Services Framework As each of the applicable percentage ratios of the Agreement entered into between the Company and annual caps for the service fees of other financial China Telecom Finance services provided by China Telecom Finance to the On 22 October 2021, the Company and China Telecom Group under the China Telecom Financial Services Finance entered into the financial services framework Framework Agreement for each of the years ended 31 a g r e e m e n t ( “ C h i n a T e l e c o m F i n a n c i a l S e r v i c e s December 2022, 2023 and 2024 is less than 0.1%, such Framework Agreement”). Pursuant to the agreement, other financial services are exempt from all reporting, China Telecom Finance agreed to provide financial announcement, annual review and independent services to the Group, including deposit services, loan shareholders’ approval requirements under Chapter 14A and bill discounting services and other financial services. of the Listing Rules. As each of the applicable percentage ratios of the annual Pricing Policy caps for the deposit services provided by China Telecom Finance to the Group under the China Telecom Financial (i) Deposit Services Services Framework Agreement for each of the years ended 31 December 2022, 2023 and 2024 exceeds The deposit interest rates offered by China Telecom 5% but is less than 25%, such continuing connected Finance to the Group shall comply with the relevant transaction is subject to the reporting, announcement, requirements of the People’s Bank of China and be annual review and independent shareholders’ approval with reference to the deposit benchmark interest rates requirements under Chapters 14A of the Listing promulgated by the People’s Bank of China from time Rules. The independent shareholders of the Company to time (if any) and the deposit interest rates of the same considered and approved the deposit services and type of deposit services for the same period offered the applicable annual caps under the China Telecom by the major cooperative commercial banks of the Financial Services Framework Agreement at the Group and are conducted on normal commercial terms extraordinary general meeting of the Company held on or better. The deposit interest rates offered shall be 30 November 2021. equivalent to or higher than those offered by the major cooperative commercial banks of the Group. Under As the loan and bill discounting services provided by the same conditions, the interest rates and terms for China Telecom Finance to the Group under the China the deposit services offered by China Telecom Finance Telecom Financial Services Framework Agreement are to the Group shall be the same as those interest rates conducted on normal commercial terms or better and and terms of the same type of deposit services for the the relevant loan and bill discounting services will not same period offered by China Telecom Finance to other be secured by the assets of the Group, such loan and member units. bill discounting services are exempt from all reporting, announcement, annual review and independent shareholders’ approval requirements pursuant to Rule 14A.90 of the Listing Rules. China Telecom Corporation Limited Annual Report 2022 147 SECTION VI SIGNIFICANT EVENTS (ii) Loan and Bill Discounting Services The fees charged for other financial services provided by China Telecom Finance to the Group mentioned above The loan interest rates and the bill discounting interest shall comply with the fees standard promulgated by rates offered by China Telecom Finance to the Group regulatory departments including the People’s Bank of shall comply with the relevant requirements of the China or the CBIRC (if applicable), and be with reference People’s Bank of China and be with reference to the to the handling fees standard for the same type of other loan benchmark interest rates promulgated by the financial services charged by the major cooperative People’s Bank of China from time to time (if any) and the commercial banks of the Group and are conducted on interest rates of the same type of loan services and bill normal commercial terms or better. The handling fees discounting services for the same period offered by the standard shall be equivalent to or lower than those major cooperative commercial banks of the Group and charged by the major cooperative commercial banks of are conducted on normal commercial terms or better. the Group. Under the same conditions, the fees standard The loan interest rates and the bill discounting interest charged to the Group by China Telecom Finance shall rates offered shall be equivalent to or lower than those be the same as those fees standard for the same type offered by the major cooperative commercial banks of other financial services charged by China Telecom of the Group. Under the same conditions, the interest Finance to other member units. rates and terms for the loan and bill discounting services offered by China Telecom Finance to the Group shall be For the respective specific transactions under the China the same as those interest rates and terms of the same Telecom Financial Services Framework Agreement type of loan services and bill discounting services for the entered into between the Company and China Telecom same period offered by China Telecom Finance to other Finance, under the same conditions, the Group should, member units. in principle, choose the services provided by China Telecom Finance. If the Group considers it is appropriate The above loan and bill discounting services provided and beneficial to the Group, the Group has the discretion by China Telecom Finance to the Group do not require to engage one or more major cooperative commercial the Group to pledge any security over its assets or make banks of the Group as its financial services providers. other arrangements for the loan and bill discounting services as guarantee. The China Telecom Financial Services Framework Agreement became effective from 1 January 2022 (iii) Other Financial Services and will expire on 31 December 2024. Subject to the China Telecom Finance provides other financial regulatory requirements, both parties would negotiate services (other than deposit, loan and bill discounting and agree on the renewal arrangement. compliance of relevant laws and regulations and relevant services) including financial and financing advice, credit authentication, guarantees, acceptance of bills, internal fund transfer and settlement and designs of relevant settlement and clearance arrangement proposals to the Group under the China Telecom Financial Services Framework Agreement. 148 China Telecom Corporation Limited Annual Report 2022 SECTION VI SIGNIFICANT EVENTS China Telecommunications Corporation Financial As each of the applicable percentage ratios of the annual Services Framework Agreement entered into caps for the service fees of other financial services between China Telecom Finance and China provided by China Telecom Finance to the Parent Group Telecommunications under the China Telecommunications Corporation On 22 October 2021, China Telecom Finance and Financial Services Framework Agreement for each of China Telecommunications have entered into the the years ended 31 December 2022, 2023 and 2024 is financial services framework agreement (“China less than 0.1%, such other financial services are exempt Telecommunications Corporation Financial Services from all reporting, announcement, annual review and Framework Agreement”). Pursuant to the agreement, independent shareholders’ approval requirements under China Telecom Finance agreed to provide financial Chapter 14A of the Listing Rules. services to the Parent Group, including deposit services, loan and bill discounting services and other financial Pricing Policy services. As the deposit services provided by China Telecom (i) Deposit Services F i n a n c e t o t h e P a r e n t G r o u p u n d e r t h e C h i n a The deposit interest rates offered by China Telecom Telecommunications Corporation Financial Services Finance to the Parent Group shall comply with the Framework Agreement are conducted on normal relevant requirements of the People’s Bank of China and commercial terms or better and the relevant deposit be with reference to the deposit benchmark interest rates services will not be secured by the assets of the Group, promulgated by the People’s Bank of China from time such deposit services are exempt from all reporting, to time (if any) and the deposit interest rates of the same announcement, annual review and independent type of deposit services for the same period offered by shareholders’ approval requirements pursuant to Rule the major cooperative commercial banks of the Parent 14A.90 of the Listing Rules. Group and are conducted on normal commercial terms or better. The deposit interest rates offered shall be As each of the applicable percentage ratios of the annual equivalent to or higher than those offered by the major caps for the loan and bill discounting services provided cooperative commercial banks of the Parent Group. by China Telecom Finance to the Parent Group under Under the same conditions, the interest rates and terms the China Telecommunications Corporation Financial for the deposit services offered by China Telecom Services Framework Agreement for each of the years Finance to the Parent Group shall be the same as those ended 31 December 2022, 2023 and 2024 exceeds interest rates and terms of the same type of deposit 0.1% but is less than 5%, such loan and bill discounting services for the same period offered by China Telecom services are only subject to the reporting, announcement Finance to other member units. and annual review requirements but are exempt from the independent shareholders’ approval requirement under Chapter 14A of the Listing Rules. China Telecom Corporation Limited Annual Report 2022 149 SECTION VI SIGNIFICANT EVENTS (ii) Loan and Bill Discounting Services The fees charged for other financial services provided by China Telecom Finance to the Parent Group mentioned The loan interest rates and the bill discounting interest above shall comply with the fees standard promulgated rates offered by China Telecom Finance to the Parent by regulatory departments including the People’s Group shall comply with the relevant requirements of Bank of China or the CBIRC (if applicable), and be with the People’s Bank of China and be with reference to reference to the handling fees standard for the same the loan benchmark interest rates promulgated by the type of other financial services charged by the major People’s Bank of China from time to time (if any) and cooperative commercial banks of the Parent Group and the interest rates of the same type of loan services and are conducted on normal commercial terms or better. bill discounting services for the same period offered by The handling fees standard shall be equivalent to or the major cooperative commercial banks of the Parent lower than those charged by the major cooperative Group and are conducted on normal commercial terms commercial banks of the Parent Group. Under the same or better. The loan interest rates and the bill discounting conditions, the fees standard charged to the Parent interest rates offered shall be equivalent to or lower Group by China Telecom Finance shall be the same as than those offered by the major cooperative commercial those fees standard for the same type of other financial banks of the Parent Group. Under the same conditions, services charged by China Telecom Finance to other the interest rates and terms for the loan and bill member units. discounting services offered by China Telecom Finance to the Parent Group shall be the same as those interest For the respective specific transactions under the China rates and terms of the same type of loan services and Telecommunications Corporation Financial Services bill discounting services for the same period offered by Framework Agreement entered into between China China Telecom Finance to other member units. Telecommunications and China Telecom Finance, under the same conditions, the Parent Group should, in The above loan and bill discounting services provided principle, choose the services provided by China Telecom by China Telecom Finance to the Parent Group do not Finance. If the Parent Group considers it is appropriate require the Parent Group to pledge any security over its and beneficial to the Parent Group, the Parent Group has assets or make other arrangements for the loan and bill the discretion to engage one or more major cooperative discounting services as guarantee. commercial banks of the Parent Group as its financial (iii) Other Financial Services services providers. The China Telecommunications Corporation Financial China Telecom Finance provides other financial Services Framework Agreement became effective services (other than deposit, loan and bill discounting from 1 January 2022 and will expire on 31 December services) including financial and financing advice, credit 2024. Subject to the compliance of relevant laws and authentication, acceptance of bills, internal fund transfer regulations and relevant regulatory requirements, both and settlement and designs of relevant settlement and parties would negotiate and agree on the renewal clearance arrangement proposals to the Parent Group arrangement. under the China Telecommunications Corporation Financial Services Framework Agreement. 150 China Telecom Corporation Limited Annual Report 2022 SECTION VI SIGNIFICANT EVENTS CCS Financial Services Framework Agreement Pricing Policy entered into between China Telecom Finance and CCS (i) Deposit Services On 22 October 2021, China Telecom Finance and CCS have entered into the financial services framework The deposit interest rates offered by China Telecom agreement (“CCS Financial Services Framework Finance to the CCS Group shall comply with the relevant Agreement”). Pursuant to the agreement, China Telecom requirements of the People’s Bank of China and be Finance agreed to provide financial services to the with reference to the deposit benchmark interest rates CCS Group, including deposit services, loan and bill promulgated by the People’s Bank of China from time discounting services and other financial services. to time (if any) and the deposit interest rates of the same type of deposit services for the same period offered by As the deposit services provided by China Telecom the major cooperative commercial banks of the CCS Finance to the CCS Group under the CCS Financial Group and are conducted on normal commercial terms Services Framework Agreement are conducted on or better. The deposit interest rates offered shall be normal commercial terms or better and the relevant equivalent to or higher than those offered by the major deposit services will not be secured by the assets of cooperative commercial banks of the CCS Group. Under the Group, such deposit services are exempt from all the same conditions, the interest rates and terms for the reporting, announcement, annual review and independent deposit services offered by China Telecom Finance to shareholders’ approval requirements pursuant to Rule the CCS Group shall be the same as those interest rates 14A.90 of the Listing Rules. and terms of the same type of deposit services for the same period offered by China Telecom Finance to other As each of the applicable percentage ratios of the annual member units. caps for loan and bill discounting services provided by China Telecom Finance to the CCS Group under the (ii) Loan and Bill Discounting Services CCS Financial Services Framework Agreement for each of the years ended 31 December 2022, 2023 and 2024 The loan interest rates and the bill discounting interest exceeds 0.1% but is less than 5%, such loan and bill rates offered by China Telecom Finance to the CCS discounting services are only subject to the reporting, Group shall comply with the relevant requirements of announcement and annual review requirements but are the People’s Bank of China and be with reference to exempt from the independent shareholders’ approval the loan benchmark interest rates promulgated by the requirement under Chapter 14A of the Listing Rules. People’s Bank of China from time to time (if any) and the interest rates of the same type of loan services and As each of the applicable percentage ratios of the annual bill discounting services for the same period offered by caps for the service fees of other financial services the major cooperative commercial banks of the CCS provided by China Telecom Finance to the CCS Group Group and are conducted on normal commercial terms under the CCS Financial Services Framework Agreement or better. The loan interest rates and the bill discounting for each of the years ended 31 December 2022, interest rates offered shall be equivalent to or lower 2023 and 2024 is less than 0.1%, such other financial than those offered by the major cooperative commercial services are exempt from all reporting, announcement, banks of the CCS Group. Under the same conditions, annual review and independent shareholders’ approval the interest rates and terms for the loan and bill requirements under Chapter 14A of the Listing Rules. discounting services offered by China Telecom Finance to the CCS Group shall be the same as those interest rates and terms of the same type of loan services and bill discounting services for the same period offered by China Telecom Finance to other member units. China Telecom Corporation Limited Annual Report 2022 151 SECTION VI SIGNIFICANT EVENTS The above loan and bill discounting services provided Telecom Finance in respect of respective transactions by China Telecom Finance to the CCS Group do not under the CCS Financial Services Framework Agreement, require the CCS Group to pledge any security over its the CCS Group will compare the interest rates and terms assets or make other arrangements for the loan and bill or fees charged and other relevant transactions terms discounting services as guarantee. offered by China Telecom Finance with those interest rates and terms of the same type of deposit or loan (iii) 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 offered by the major cooperative commercial services (other than deposit, loan or bill discounting banks of the CCS Group. Only when the interest rates services) including financial and financing advice, credit and terms or fees charged or other relevant transactions authentication, acceptance of bills, internal fund transfer terms offered by China Telecom Finance are equivalent and settlement and designs of relevant settlement and to or better than those interest rates and terms offered clearance arrangement proposals to the CCS Group or fees charged or other relevant transactions terms (e.g. under the CCS Financial Services Framework Agreement. transaction approval terms, procedures or time limit, etc) offered by the major cooperative commercial banks The fees charged for other financial services provided by of the CCS Group, the CCS Group has the discretion China Telecom Finance to the CCS Group mentioned to enter into the transactions with China Telecom above shall comply with the fees standard promulgated Finance. Under the circumstances which the CCS Group by regulatory departments including the People’s Bank of considers appropriate, the CCS Group may engage China or the CBIRC (if applicable), and be with reference additional or other financial institutions other than China to the handling fees standard for the same type of other Telecom Finance to provide financial services. financial services charged by the major cooperative commercial banks of the CCS Group and are conducted The CCS Financial Services Framework Agreement on normal commercial terms or better. The handling became effective from 1 January 2022 and will expire fees standard shall be equivalent to or lower than those on 31 December 2024. Subject to the compliance of charged by the major cooperative commercial banks of relevant laws and regulations and relevant regulatory the CCS Group. Under the same conditions, the fees requirements, both parties would negotiate and agree on standard charged to the CCS Group by China Telecom the renewal arrangement. Finance shall be the same as those fees standard for the same type of other financial services charged by China New Guomai Financial Services Framework Telecom Finance to other member units. Agreement entered into between China Telecom For the respective specific transactions under the CCS Financial Services Framework Agreement entered into between CCS and China Telecom Finance, provided that it is in compliance with the terms and conditions of the CCS Financial Services Framework Agreement, China Telecom Finance will be appointed as one of the financial institutions providing financial services to the CCS Group. Prior to the signing of any specific agreement with China Finance and New Guomai On 22 October 2021, China Telecom Finance and New Guomai have entered into the financial services framework agreement (“New Guomai Financial Services Framework Agreement”). Pursuant to the agreement, China Telecom Finance agreed to provide financial services to New Guomai Group, including deposit services, loan and bill discounting services and other financial services. 152 China Telecom Corporation Limited Annual Report 2022 SECTION VI SIGNIFICANT EVENTS As the deposit services provided by China Telecom the same type of deposit services for the same period Finance to New Guomai Group under the New Guomai offered by the major cooperative commercial banks of Financial Services Framework Agreement are conducted the New Guomai Group and are conducted on normal on normal commercial terms or better and the relevant commercial terms or better. The deposit interest rates deposit services will not be secured by the assets of offered shall be equivalent to or higher than those offered the Group, such deposit services are exempt from all by the major cooperative commercial banks of the New reporting, announcement, annual review and independent Guomai Group. Under the same conditions, the interest shareholders’ approval requirements pursuant to Rule rates and terms for the deposit services offered by China 14A.90 of the Listing Rules. Telecom Finance to the New Guomai Group shall be the same as those interest rates and terms of the same type As each of the applicable percentage ratios of the annual of deposit services for the same period offered by China caps for the loan and bill discounting services provided Telecom Finance to other member units. by China Telecom Finance to New Guomai Group under the New Guomai Financial Services Framework (ii) Loan and Bill Discounting Services Agreement for each of the years ended 31 December 2022, 2023 and 2024 exceeds 0.1% but is less than 5%, The loan interest rates and the bill discounting interest such loan and bill discounting services are only subject rates offered by China Telecom Finance to the to the reporting, announcement and annual review New Guomai 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 interest rates of the same type of As each of the applicable percentage ratios of the annual loan services and bill discounting services for the same caps for the service fees of other financial services period offered by the major cooperative commercial provided by China Telecom Finance to New Guomai banks of the New Guomai Group and are conducted Group under the New Guomai Financial Services on normal commercial terms or better. The loan interest Framework Agreement for each of the years ended 31 rates and the bill discounting interest rates offered shall December 2022, 2023 and 2024 is less than 0.1%, such be equivalent to or lower than those offered by the major other financial services are exempt from all reporting, cooperative commercial banks of the New Guomai announcement, annual review and independent Group. Under the same conditions, the interest rates and shareholders’ approval requirements under Chapter 14A terms for the loan and bill discounting services offered by of the Listing Rules. Pricing Policy China Telecom Finance to the New Guomai Group shall be the same as those interest rates and terms of the same type of loan services and bill discounting services for the same period offered by China Telecom Finance to (i) Deposit Services other member units. The deposit interest rates offered by China Telecom The above loan and bill discounting services provided Finance to the New Guomai Group shall comply with by China Telecom Finance to the New Guomai Group the relevant requirements of the People’s Bank of China do not require the New Guomai Group to pledge any and be with reference to the deposit benchmark interest security over its assets or make other arrangements for rates promulgated by the People’s Bank of China from the loan and bill discounting services as guarantee. time to time (if any) and the deposit interest rates of China Telecom Corporation Limited Annual Report 2022 153 SECTION VI SIGNIFICANT EVENTS (iii) Other Financial Services The New Guomai Financial Services Framework Agreement became effective from 1 January 2022 China Telecom Finance provides other financial and will expire on 31 December 2024. Subject to the services (other than deposit, loan or bill discounting compliance of relevant laws and regulations and relevant services) including financial and financing advice, credit regulatory requirements, both parties would negotiate authentication, acceptance of bills, internal fund transfer and agree on the renewal arrangement. and settlement and designs of relevant settlement and clearance arrangement proposals to the New Guomai Safety Technology Financial Services Framework Group under the New Guomai Financial Services Agreement entered into between China Telecom Framework Agreement. Finance and Safety Technology On 22 October 2021, China Telecom Finance and Safety The fees charged for other financial services provided Technology have entered into the financial services by China Telecom Finance to the New Guomai Group framework agreement (“Safety Technology Financial mentioned above shall comply with the fees standard Services Framework Agreement”). Pursuant to the promulgated by regulatory departments including the agreement, China Telecom Finance agreed to provide People’s Bank of China or the CBIRC (if applicable), financial services to Safety Technology Group, including and be with reference to the handling fees standard for deposit services, loan and bill discounting services and the same type of other financial services charged by the other financial services. major cooperative commercial banks of the New Guomai Group and are conducted on normal commercial terms As the deposit services provided by China Telecom or better. The handling fees standard shall be equivalent Finance to Safety Technology Group under the Safety to or lower than those charged by the major cooperative Technology Financial Services Framework Agreement commercial banks of the New Guomai Group. Under the are conducted on normal commercial terms or better same conditions, the fees standard charged to the New and the relevant deposit services will not be secured Guomai Group by China Telecom Finance shall be the by the assets of the Group, such deposit services are same as those fees standard for the same type of other exempt from all reporting, announcement, annual review financial services charged by China Telecom Finance to and independent shareholders’ approval requirements other member units. pursuant to Rule 14A.90 of the Listing Rules. The New Guomai has the discretion to choose other As each of the applicable percentage ratios of the annual financial institutions to provide financial services. For the caps for the loan and bill discounting services provided respective specific transactions under the New Guomai by China Telecom Finance to Safety Technology Financial Services Framework Agreement entered into Group under the Safety Technology Financial Services between New Guomai and China Telecom Finance and Framework Agreement for each of the years ended 31 under the same conditions, the New Guomai Group shall, December 2022, 2023 and 2024 exceeds 0.1% but is in principle, take the financial services provided by China less than 5%, such loan and bill discounting services Telecom Finance as priority. Under the circumstances are only subject to the reporting, announcement and which the New Guomai Group considers appropriate and annual review requirements but are exempt from the beneficial to the New Guomai Group, the New Guomai independent shareholders’ approval requirement under Group may engage one or more financial institutions Chapter 14A of the Listing Rules. which are the major cooperative commercial banks of the New Guomai Group to provide financial services. 154 China Telecom Corporation Limited Annual Report 2022 SECTION VI SIGNIFICANT EVENTS As each of the applicable percentage ratios of the annual caps for the service fees of other financial services provided by China Telecom Finance to Safety Technology Group under the Safety Technology Financial Services Framework Agreement for each of the years ended 31 December 2022, 2023 and 2024 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 (i) Deposit Services The deposit interest rates offered by China Telecom Finance to the Safety Technology Group shall comply with the relevant requirements of the People’s Bank of China and be with reference to the deposit benchmark interest rates 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 Safety Technology 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 Safety Technology Group. During the term of the agreement, the maximum daily balance of deposits (including accrued interest) to be deposited by Safety Technology Group with China Telecom Finance shall not exceed the maximum caps (including accrued interest) reviewed by the shareholders’ meeting of Safety Technology. In the event that Safety Technology Group’s deposits with China Telecom Finance exceeds the maximum caps due to settlement and other reasons, Safety Technology Group shall confirm the remittance of funds on deposits that exceed the maximum caps to the designated bank account by issuing a legally valid written notice to China Telecom Finance within three working days. China Telecom Finance shall complete the remittance of the due amount in accordance with the confirmation on such written notice by the Safety Technology Group within three working days. (ii) Loan and Bill Discounting Services The loan interest rates and the bill discounting interest rates offered by China Telecom Finance to the Safety Technology Group shall comply with the relevant requirements of the People’s Bank of China and be with reference to the loan benchmark interest rates promulgated by the People’s Bank of China from time to time (if any) and the interest rates of the same type of loan services for the same period and bill discounting services for the same period offered by the major cooperative commercial banks of the Safety Technology Group, and are conducted on normal commercial terms or better. During the term of the agreement, the maximum daily balance of loan and bill discounting (including accrued interest) provided by China Telecom Finance to Safety Technology shall not exceed the maximum caps reviewed by the shareholders’ meeting of Safety Technology. The terms for loan and bill discounting services offered by China Telecom Finance to the Safety Technology Group shall be equivalent to or better than those offered on normal commercial terms or better. (iii) Other Financial Services China Telecom Finance provides other financial services (other than deposit, loan and bill discounting services) including financial and financing advice, credit authentication, acceptance of bills, internal fund transfer and settlement and designs of relevant settlement and clearance arrangement proposals to the Safety Technology Group under the Safety Technology Financial Services Framework Agreement. The fees charged for other financial services provided by China Telecom Finance to the Safety Technology Group mentioned above shall comply with the fees standard promulgated by regulatory departments including the People’s 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 cooperative commercial banks of the Safety Technology Group and are conducted on normal commercial terms or better. The handling fees standard shall be equivalent to or lower than those charged by the major cooperative commercial banks of the Safety Technology Group. China Telecom Corporation Limited Annual Report 2022 155 SECTION VI SIGNIFICANT EVENTS The Safety Technology has the discretion to choose Pursuant to the Payment and Digital Finance Related financial services provided by other financial institutions. Services Framework Agreement, E-surfing Pay and its For the respective specific transactions under the Safety subsidiaries provides payment and digital finance related Technology Financial Services Framework Agreement services to the Group. The service scope includes the entered into between Safety Technology Group and recharged payment services as well as the issuance China Telecom Finance and under the same conditions, the Safety Technology Group shall, in principle, take the financial services provided by China Telecom Finance as priority. Under the circumstances which the Safety Technology Group considers appropriate and beneficial to the Safety Technology Group, the Safety Technology Group may engage one or more financial institutions which are the major cooperative commercial banks of the Safety Technology Group to provide financial services. The Safety Technology Financial Services Framework Agreement became effective from 1 January 2022 and will expire on 31 December 2024. Subject to the compliance of relevant laws and regulations and relevant regulatory requirements, both parties would negotiate and agree on the renewal arrangement. Continuing connected transactions entered into between the Group and E-surfing Pay and its subsidiaries Payment and Digital Finance Related Services Framework Agreement On 22 October 2021, the Company and E-surfing Pay have entered into the Payment and Digital Finance Related Services Framework Agreement with a term from 1 January 2022 to 31 December 2024. Prior to the expiry of the agreement, the parties are entitled to negotiate the signing of a new Payment and Digital Finance Related Services Framework Agreement or a supplemental agreement to ensure the normal operation of the production and businesses of both parties after the expiry of the agreement. However, if the Group has to obtain the same type of services from a third party at a greater cost, E-surfing Pay and its subsidiaries cannot terminate the provision of such services to the Group. and operation and settlement services for rechargeable payment cards such as 11888 card; internet payment services and mobile phone payment services; bank card payment and barcode payment services; issuance and handling services for prepaid cards; bill payment and other integrated payment enabled services; establishment and maintenance services of the payment system of the Group’s subscribers; other related payment and digital finance services within the scope of businesses permitted by or as filed with the relevant regulatory authorities; and the establishment, operation, expansion and maintenance services for fundamental capabilities and systems in fulfilment of the aforesaid services. In term of the same service provided under the Payment and Digital Finance Related Services Framework Agreement, if the terms and conditions offered by an independent third party to the Group are no better than those offered by the E-surfing Pay and its subsidiaries, E-surfing Pay and its subsidiaries shall have the priority to provide such services to the Group under the same conditions. E-surfing Pay and its subsidiaries undertake to the Group that E-surfing Pay and its subsidiaries will not provide services to the Group which are less favourable than the terms offered by E-surfing Pay and its subsidiaries to a third party. E-surfing Pay and its subsidiaries are entitled to provide relevant services to a third party only if the services provided to the Group under the agreement are not affected. If E-surfing Pay and its subsidiaries fail to meet the Group’s demand under the agreement, or if an independent third party offers more favourable terms than E-surfing Pay and its subsidiaries do, the Group may obtain such services from an independent third party. 156 China Telecom Corporation Limited Annual Report 2022 SECTION VI SIGNIFICANT EVENTS Pursuant to Chapter 14A of the Listing Rules, as China (2) where there is no or it is not possible to determine Telecommunications is the Company’s controlling the market prices, the prices are to be agreed shareholder, holding approximately 64.53% of the issued between the parties based on the reasonable share capital of E-surfing Pay as of the date on which the costs incurred in providing the services plus the Payment and Digital Finance Related Services Framework amount of the relevant taxes and reasonable Agreement was entered into, China Telecommunications profit margin. For this purpose, “reasonable profit and E-surfing Pay are connected persons of the margin” is to be fairly determined by negotiations Company and the transactions contemplated under between the parties in accordance with the the Payment and Digital Finance Related Services internal policies of the Group. When determining Framework Agreement constitute continuing connected the “reasonable profit margin” for any transaction transactions of the Company. under the Payment and Digital Finance Related Services Framework Agreement, to the extent As each of the applicable percentage ratios (except practicable, management of the Company for the profit ratio) of the annual cap for each of the shall take into account the profit margin of at years ended 31 December 2022, 2023 and 2024 for least two similar and comparable transactions the transactions contemplated under the Payment and entered into with independent third parties in the Digital Finance Related Services Framework Agreement corresponding period or the relevant industry is expected to exceed 0.1% but is less than 5%, the profit margin for reference; continuing connected transactions of the payment and digital finance related services are only subject (3) where there are government-prescribed prices, to the reporting, announcement and annual review the prices and/or pricing standards shall be requirements but are exempt from the independent determined in accordance with the government- shareholders’ approval requirement under Chapter 14A of the Listing Rules. The services fees under the Payment and Digital Finance Related Services Framework Agreement shall be calculated on the following basis: (1) market price, which shall mean the prices at which the same or similar type of products or services are provided by independent third parties in the ordinary course of business and on normal commercial terms. When determining whether the transaction price for any transaction under the Payment and Digital Finance Related Services Framework Agreement represents market prices, to the extent practicable, management of the Company shall take into account the prices of at least two similar and comparable transactions entered into with or carried out by independent third parties in the ordinary course of business over the corresponding period for reference; prescribed prices; where there are government- g u i d e d p r i c e s , t h e p r i c e s a n d / o r p r i c i n g standards shall be determined with reference to the government-guided prices. Government- prescribed prices means the prices prescribed by the government department in charge of pricing or other relevant departments within the pricing authority and scope in accordance with the Price Law of the PRC. Government-guided prices means the prices determined by the operators as guided by the government department in charge of pricing or other relevant departments which regulate the base price and floating range within the pricing authority and scope in accordance with the Price Law of the PRC. China Telecom Corporation Limited Annual Report 2022 157 SECTION VI SIGNIFICANT EVENTS (2) REVIEW OF CONTINUING CONNECTED TRANSACTIONS A copy of the auditors’ letter in relation to the continuing connected transactions has been provided by the The Company confirms that it has complied with the Company to the Hong Kong Stock Exchange. disclosure requirements in accordance with Chapter 14A of the Listing Rules in respect of the connected transactions the Company conducted in the year 2022. (4) CONFIRMATION FROM INDEPENDENT NON-EXECUTIVE DIRECTORS The Independent Non-Executive Directors of the The Company’s external auditor was engaged to report Company have confirmed that all continuing connected on the Group’s continuing connected transactions for the transactions for the year ended 31 December 2022 to year ended 31 December 2022 in accordance with the which the Group was a party: Hong Kong Standard on Assurance Engagements 3000 “Assurance Engagements Other Than Audits or Reviews (1) had been entered into, and the agreements of Historical Financial Information” and with reference governing those transactions were entered into, to Practice Note 740 “Auditor’s Letter on Continuing by the Group in the ordinary and usual course of Connected Transactions under the Hong Kong Listing business; Rules” issued by the Hong Kong Institute of Certified Public Accountants. (2) had been entered into either: ( 3 ) C O N F I R M A T I O N F R O M T H E AUDITORS (i) on normal commercial terms or better; or The auditors of the Group have reviewed the continuing (ii) if there are not sufficient comparable connected transactions of the Group for the year ended 31 December 2022 and have confirmed to the Board that nothing has come to their attention that causes them to believe that the relevant continuing connected transactions: transactions to judge whether they are on normal commercial terms, on terms no less favourable to the Company than those available to or (if applicable) from independent third parties; and (1) have not been approved by the Board; (3) had been entered into in accordance with the relevant agreements governing those transactions (2) (for transactions involving the provision of goods on terms that are fair and reasonable and in the or services by the Group) were not entered into, interests of the shareholders of the Company as a in all material respects, in accordance with the whole. pricing policies of the Group; (3) were not entered into, in all material respects, in confirmed that: the continuing connected transactions for accordance with the terms of the agreements the year ended 31 December 2022 entered into between governing such transactions; and the Group and its connected persons which are subject to annual caps have not exceeded their respective The Independent Non-Executive Directors have further (4) have exceeded the annual caps as set by the annual caps. Company. 158 China Telecom Corporation Limited Annual Report 2022 SECTION VI SIGNIFICANT EVENTS 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 subsidiaries) 0 0 Guarantees provided by the Company and its subsidiaries to its subsidiaries Total amount of guarantees provided to subsidiaries 28,741,687.00 incurred during the Reporting Period Total balance of guarantees provided to subsidiaries 31,789,684.37 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) 31,789,684.37 Percentage of total aggregate amount of guarantee 0.0073 to net assets of the Company (%) Representing: Amount of guarantees provided for shareholders, ultimate controller and their related parties (C) 0 Amount of debt guarantees directly or indirectly provided to guaranteed parties with gearing ratio over 70% (D) 7,322,165.37 Amount of total guarantee exceeding 50% of 0 net assets (E) Aggregate amount of the above three guarantees 7,322,165.37 (C + D + E) Explanation on the potential joint and several liability Nil 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 and China Telecom Global, 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 30 December 2022. China Telecom Corporation Limited Annual Report 2022 159 SECTION VI SIGNIFICANT EVENTS (1) Description of guarantees in 2022 The Company held the 12th meeting of the seventh For details, please refer to the “Announcement on the Plan for External Guarantee for 2022 of China Telecom session of the Board on 10 November 2021, at which Corporation Limited” disclosed by the Company on 30 the Proposal on the Plan for External Guarantee was March 2022. considered and approved, pursuant to which the provision of guarantee in an aggregate amount of not exceeding RMB182.85 million by the Company’s subsidiaries (hereinafter referred to the Company’s wholly-owned and holding companies), including China Telecom Finance, China Telecom Global and China Telecom (Europe) Limited, a wholly-owned subsidiary of China Telecom Global, to the Company’s wholly-owned subsidiaries was approved. The limits of the guarantee shall be valid from the date of consideration and approval by the Board of the Company to 31 March 2022. For details, please refer to the “Announcement of China (2) The progress of guarantees during the fourth quarter of 2022 Within the scope of the above guarantee limits, China Telecom Finance, a subsidiary of the Company, entered into an agreement of guarantee with China Telecom Digital Intelligence Technology on 29 December 2022, pursuant to which China Telecom Finance agreed to provide guarantee to China Telecom Digital Intelligence Technology with a limit of not more than RMB150 million. During the fourth quarter of 2022, China Telecom Finance and China Telecom Global did not provide Telecom Corporation Limited on the Plan for External Guarantee” disclosed by the Company on 10 November guarantees. 2021. Within the scope of the above guarantee limits, China Telecom Finance, a subsidiary of the Company, entered into an agreement of guarantee with China (3) The progress of guarantees during the first to the third quarters of 2022 For details of guarantee progress in 2022, please refer Telecom Digital Intelligence Technology on 14 December to the “Announcement on the Progress of Guarantees 2021, pursuant to which China Telecom Finance agreed Provided by Subsidiaries to Wholly-Owned Subsidiaries to provide guarantee to China Telecom Digital Intelligence of China Telecom Corporation Limited”, the 2022 Interim Technology with a limit of not more than RMB100 million. Report of China Telecom Corporation Limited and the In the fourth quarter of 2022, within the guarantee limits 2022 Third Quarter Report of China Telecom Corporation in the above agreement of guarantee China Telecom Limited published on 22 April 2022, 16 August 2022 and Finance did not provide guarantees to China Telecom 20 October 2022, respectively. Digital Intelligence Technology. Such agreement of guarantee expired on 13 December 2022. According to the needs of daily production and operation, China Telecom Finance and China Telecom Global, both being subsidiaries of the Company, contemplated to provide guarantees to wholly-owned subsidiaries of the Company in 2022, in an aggregate amount of not exceeding RMB205.80 million (or equivalent foreign currency). The guarantee limit is valid until 31 March 2023. The guaranteed entities are all wholly-owned subsidiaries of the Company with asset-liability ratio not exceeding 70%. In accordance with relevant laws and regulations, China Telecom Finance and China Telecom Global have separately performed relevant internal decision-making procedures for the above guarantees. (4) The cumulative amount of guarantees and the amount of overdue guarantees As at the end of the Reporting Period, the balance of external guarantees provided by the Company and its subsidiaries was RMB31.7897 million, accounting for 0.0073% of the Company’s latest audited net assets (as of 31 December 2022), all of which were guarantees provided by subsidiaries of the Company to other wholly- owned subsidiaries of the Company. The Company did not provide guarantees to its subsidiaries or third parties, and there was no overdue guarantee. Any amount of the above-mentioned external guarantees involving foreign currency is converted at the median rate of the exchange rate of RMB announced by the People’s Bank of China on 30 December 2022. 160 China Telecom Corporation Limited Annual Report 2022 SECTION VI SIGNIFICANT EVENTS 5. OTHER SIGNIFICANT EVENTS THAT HAVE A SIGNIFICANT IMPACT ON INVESTORS IN MAKING VALUE JUDGMENTS AND INVESTMENT DECISIONS 1. On 21 September 2021, the Company published the “Announcement on the Plan to Increase Shareholding by the Controlling Shareholder of China Telecom Corporation Limited”, pursuant to which, China 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 s e p a r a t e l y f r o m t h e p l a n f o r s h a r e p r i c e stabilisation within three years after the A Share listing of the Company. On 18 September 2022, the Company published the “Announcement on the Implementation Results of the Plan to Increase Shareholding by the Controlling Shareholder of China Telecom Corporation Limited”. As of 16 September 2022, the implementation of the plan to increase shareholding has been completed. From 22 September 2021 to 16 September 2022, China Telecommunications increased its shareholding in the Company by 985,150,057 A Shares in aggregate through the trading system of the SSE by way of block trading. The cumulative amount of the shareholding increase was RMB4,000,151,129.32, which has reached the lower limit of the amount of the shareholding increase plan. The implementation of the above plan to increase shareholding has been completed. 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. On 19 January 2023, the Company published the “Announcement on Completion of Implementation of the Share Price Stabilisation Measures of China Telecom Corporation Limited”. As of 18 January 2023, the implementation of the share price stabilisation measures has been completed. From 28 January 2022 to 18 January 2023, China Telecommunications increased its shareholding in the Company by 114,315,800 A Shares in aggregate through the trading system of the SSE by way of block trading. The cumulative amount of the shareholding increase was RMB500,634,553.94, which has reached the lower limit of the amount of the shareholding increase plan. The implementation of the above share price stabilisation measures has been completed. As of 18 January 2023, China Telecommunications held 58,476,519,174 A Shares of the Company, representing 63.90% of the total issued shares of the Company. China Telecom Corporation Limited Annual Report 2022 161 INDUSTRY CLOUD TO UPLIFT QUALITY AND EFFICIENCY 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 Before the change Changes (+, –) After the change Quantity Percentage Issue of new shares Bonus issue Transferred from reserves Others Subtotal Quantity Percentage Unit: shares (1) Shares with lock-up restrictions 73,224,400,408 1. State-owned shares 2. Shares held by state-owned legal persons 70,017,326,112 3. Shares held by other domestic shareholders 3,206,896,963 Of which: Shares held by domestic non-state-owned 3,196,714,289 legal persons Shares held by domestic natural persons 4. Shares held by foreign shareholders Of which: Shares held by overseas legal persons Shares held by overseas natural persons (2) Shares without lock-up restrictions 1. RMB ordinary shares 2. Domestic-Listed Foreign-Invested Shares 10,182,674 177,333 177,333 18,282,738,291 4,405,328,291 (%) 80.02 76.52 3.50 3.49 0.01 0.0002 0.0002 19.98 4.81 3. Overseas-Listed Foreign-Invested Shares 13,877,410,000 15.17 4. Others (3) Total number of shares 91,507,138,699 100 –15,185,097,091 –15,185,097,091 58,039,303,317 –12,529,897,795 –12,529,897,795 57,487,428,317 –2,655,021,963 –2,655,021,963 551,875,000 –2,644,839,289 –2,644,839,289 551,875,000 –10,182,674 –10,182,674 –177,333 –177,333 –177,333 –177,333 0 0 0 15,185,097,091 15,185,097,091 33,467,835,382 15,185,097,091 15,185,097,091 19,590,425,382 (%) 63.42 62.82 0.60 0.60 36.58 21.41 13,877,410,000 15.17 91,507,138,699 100 2. Explanation on changes in shares On 15 February 2022, the Company published the On 16 August 2022, the Company published the “Announcement on the Release for Trading of Partial “Announcement on the Release for Trading of Offline Lock-up Shares of the Initial Public Offering of China Allotted Shares of the Initial Public Offering of China Telecom Corporation Limited”, pursuant to which Telecom Corporation Limited”, pursuant to which 14,198,869,004 lock-up shares allotted during the initial 986,228,087 lock-up shares allotted offline during the public offering of the Company were released for trading initial public offering of the Company were released for as the lock-up period expired on 22 August 2022 (as 20 trading as the lock-up period expired on 21 February August 2022 was a non-trading day, the date of release 2022 (as 20 February 2022 was a non-trading day, the for trading was postponed to 22 August 2022). date of release for trading was postponed to 21 February 2022). China Telecom Corporation Limited Annual Report 2022 165 SECTION VII CHANGES IN SHARES AND INFORMATION ON SHAREHOLDERS (2) Changes in shares with lock-up restrictions Unit: shares Number of Number of Increase in Number of lock-up shares shares released lock-up shares lock-up shares Name of shareholder of the period Reporting Period Reporting Period Reporting Period lock-up restrictions unlocking at the beginning during the during the at the end of the Reason for Date of China Telecommunications 57,377,053,317 0 Corporation Guangdong Rising Holdings Group 5,614,082,653 5,614,082,653 Co., Ltd. Zhejiang Provincial Financial 2,137,473,626 2,137,473,626 Development Co., Ltd. Fujian Investment & Development 969,317,182 969,317,182 Group Co., Ltd. Jiangsu Guoxin Group Limited 957,031,543 957,031,543 Strategic allotment 662,250,000 0 Strategic allotment 4,520,964,000 4,520,964,000 Offline allotment with restrictions 986,228,087 986,228,087 Total 73,224,400,408 15,185,097,091 0 0 0 0 0 0 0 0 0 57,377,053,317 Initial public offering 2024-08-20 0 Initial public offering 2022-08-22 0 Initial public offering 2022-08-22 0 Initial public offering 2022-08-22 0 Initial public offering 2022-08-22 662,250,000 Lock-up for strategic 2024-08-20 allotment of the initial public offering 0 Lock-up for strategic 2022-08-22 allotment of the initial public offering 0 Lock-up for offline 2022-02-21 allotment of the initial public offering 58,039,303,317 / / 166 China Telecom Corporation Limited Annual Report 2022 SECTION VII CHANGES IN SHARES AND INFORMATION ON SHAREHOLDERS 2. 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 2023 457,299 386,557 (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 Shareholdings of the top ten shareholders Number of shares held Changes during at the end of the Reporting the Reporting Percentage Name of shareholder (Full name) Period Period China Telecommunications Corporation 527,891,013 58,364,586,774 (%) 63.78 HKSCC Nominees Limited –1,311,285 13,846,825,338 15.13 Guangdong Rising Holdings Group Co., Ltd. Zhejiang Provincial Financial Development Co., Ltd. 0 0 5,614,082,653 2,137,473,626 Fujian Investment & Development Group Co., Ltd. –1,023,000 968,294,182 Jiangsu Guoxin Group Limited Chengdu Vanguard Capital Management Limited – Chengdu Major Industrialisation Project Phase I Equity Investment Fund Limited China State-owned Enterprises Structural Adjustment Fund Co., Ltd State Grid Yingda International Holdings Group Co., Ltd. 0 0 0 0 957,031,543 662,251,000 551,876,000 441,501,000 Suzhou High Speed Rail New Town Economic –388,861,598 273,389,402 Development Co., Ltd 6.14 2.34 1.06 1.05 0.72 0.60 0.48 0.30 Unit: shares Number of shares held with lock-up restrictions Pledge, marking or freezing conditions Status of Nature of shares Quantity shareholder 57,377,053,317 Nil – State-owned legal person Unknown – Foreign legal person – State-owned legal person – State-owned legal person – State-owned legal person – State-owned legal person – Unknown – State-owned legal person – State-owned legal person – Unknown Nil Nil Nil Nil Nil Nil Nil Nil 0 0 0 0 0 0 0 0 0 China Telecom Corporation Limited Annual Report 2022 167 SECTION VII CHANGES IN SHARES AND INFORMATION ON SHAREHOLDERS Name of shareholder HKSCC Nominees Limited Shareholdings of the top ten shareholders without lock-up restriction Number of tradable shares held without Class and number of shares lock-up restriction Class Quantity 13,846,825,338 Overseas-listed foreign- 13,846,825,338 invested shares Guangdong Rising Holdings Group Co., Ltd. 5,614,082,653 RMB ordinary shares Zhejiang Provincial Financial Development Co., Ltd. 2,137,473,626 RMB ordinary shares China Telecommunications Corporation 987,533,457 RMB ordinary shares Fujian Investment & Development Group Co., Ltd. 968,294,182 RMB ordinary shares Jiangsu Guoxin Group Limited 957,031,543 RMB ordinary shares Chengdu Vanguard Capital Management Limited 662,251,000 RMB ordinary shares 5,614,082,653 2,137,473,626 987,533,457 968,294,182 957,031,543 662,251,000 – Chengdu Major Industrialisation Project Phase I Equity Investment Fund Limited China State-owned Enterprises Structural Adjustment 551,876,000 RMB ordinary shares 551,876,000 Fund Co., Ltd State Grid Yingda International Holdings Group Co., Ltd. 441,501,000 RMB ordinary shares Suzhou High Speed Rail New Town Economic 273,389,402 RMB ordinary shares 441,501,000 273,389,402 Development Co., Ltd Explanation on the securities account designated for share N/A repurchase 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 168 China Telecom Corporation Limited Annual Report 2022 SECTION VII CHANGES IN SHARES AND INFORMATION ON SHAREHOLDERS Unit: shares Shareholdings of the top ten shareholders with lock-up restrictions 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 China Telecommunications Corporation 57,377,053,317 2024-08-20 Huawei Technologies Co., Ltd 220,750,000 2024-08-20 Oriental Pearl Group Co., Ltd. 110,375,000 2024-08-20 Sangfor Technologies Inc. 110,375,000 2024-08-20 Shanghai Bilibili Technology Co., Ltd. 110,375,000 2024-08-20 DBAPP Security Co., Ltd. 110,375,000 2024-08-20 0 0 0 0 0 0 Lock-up for 36 months from the date of listing Lock-up for 36 months from the date of listing Lock-up for 36 months from the date of listing Lock-up for 36 months from the date of listing Lock-up for 36 months from the date of listing Lock-up for 36 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 the aforementioned shareholders aforementioned shareholders or whether they act in concert. (3) Strategic investors or other legal persons who became top ten shareholders due to allotment of new shares Names of strategic investors or other legal persons Agreed shareholding Agreed shareholding start date end date Suzhou High Speed Rail New Town Economic Development Co., Ltd 20 August 2021 Chengdu Vanguard Capital Management Limited – 20 August 2021 Chengdu Major Industrialisation Project Phase I Equity Investment Fund Limited China State-owned Enterprises Structural 20 August 2021 Adjustment Fund Co., Ltd 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 from the date of listing, and the and general legal persons’ participation in placing of new shares lock-up was released during the Reporting Period China Telecom Corporation Limited Annual Report 2022 169 SECTION VII CHANGES IN SHARES AND INFORMATION ON SHAREHOLDERS 3. INFORMATION ON CONTROLLING SHAREHOLDER AND ULTIMATE CONTROLLER (1) Information on controlling shareholder 1. Legal person Name China Telecommunications Corporation Person in charge or legal Ke Ruiwen 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 directly holds 51.16% equity interest in New and overseas listed companies Guomai Digital Culture Co., Ltd. and indirectly holds 18.23% equity interest in controlled or invested during the New Guomai Digital Culture Co., Ltd. through China Telecom Group Sideline Reporting Period Industrial Asset Management Co., Ltd and China Telecom Corporation Limited; It also directly holds 48.99% equity interest in CCS, directly holds 22.50% equity interest in China Broadcasting and Television Guangzhou Network Co., Ltd., and directly holds shares in Postal Savings Bank of China Co., Ltd., Western Securities Co., Ltd., Southwest Securities Co., Ltd., People.cn Co., Ltd., Xinhuanet Co., Ltd., China Publishing & Media Corporation Limited, Jiangsu Expressway Company Limited and Fiberhome Telecommunication Technologies Other information Co., Ltd.. N/A 170 China Telecom Corporation Limited Annual Report 2022 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% 63.78% 1.06% 1.05% 10.46% A Shares 84.83% H Shares 15.17% China Telecom Corporation Limited Note: Data as at 31 December 2022. (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% 63.78% 1.06% 1.05% 10.46% A Shares 84.83% H Shares 15.17% China Telecom Corporation Limited Note: Data as at 31 December 2022. China Telecom Corporation Limited Annual Report 2022 171 SECTION VII CHANGES IN SHARES AND INFORMATION ON SHAREHOLDERS 4. 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. E a c h o f G u a n g d o n g R i s i n g , Z h e j i a n g F i n a n c i a l Development, Fujian Investment Group and Jiangsu Guoxin, being the shareholders of the Company, Within 36 months from the date on which the A Shares undertakes that: of the Company are listed and traded on the SSE, it shall not transfer or entrust others to manage the shares held by China Telecommunications prior to the initial public offering of A Shares of the Company, nor shall the Company repurchase such shares. China Telecommunications undertakes to strictly comply with the Company Law, the Securities Law, the SSE Listing Rules and other laws and regulations, policy requirements and the relevant requirements of the CSRC for prudent supervision, and to determine the lock-up period by adopting a longer applicable period; In the 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 Within 12 months from the date on which the A Shares of the Company are listed and traded on a stock exchange, it shall not transfer or entrust others to manage the shares it held before the initial public offering of A Shares of the Company, nor shall the Company repurchase such shares; The lock-up period will be determined in strict compliance with the Company Law, the Securities Law, the SSE Listing Rules and other laws, regulations and policies as well as the relevant requirements of the CSRC for prudent supervision, and to determine the lock-up period by adopting a longer applicable period; 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 is lower than the issue price for 20 consecutive trading regulatory authorities. 172 China Telecom Corporation Limited Annual Report 2022 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 initial public offering of A shares 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 disclosure obligations in accordance with the Each of China Telecommunications, being the controlling relevant laws and regulations and regulatory rules. shareholder of the Company, and Guangdong Rising, the It may implement the reduction after three trading shareholder holding more than 5% of the shares of the days from the date on which the Company Company, undertakes that: discloses its intention to reduce its shareholding. 1. After the initial public offering and listing of A 4. Reduction of shareholding in the Company will be Shares of the Company, it will strictly comply implemented in accordance with the requirements with its undertakings on the lock-up period of of laws, administrative regulations, the Several its shares. After the expiration of the committed Provisions on Reduction of Shareholding by lock-up period, in compliance with the relevant Shareholders, Directors, Supervisors and laws and regulations, regulatory documents and Senior Management of Listed Companies the business rules of the stock exchange, it will and the Implementation Rules for Reduction determine whether to reduce its shareholding of Shareholding by Shareholders, Directors, in the Company based on factors such as the Supervisors and Senior Management of Listed overall conditions of the securities market, the Companies of the Shanghai Stock Exchange. Company’s operating results and stock trends, If there are changes in the relevant laws and and its business development needs. regulations, regulatory documents and the business rules of the stock exchange, the then 2. After the initial public offering and listing of A effective provisions shall prevail. Shares of the Company and the expiration of the committed lock-up period, if it decides to 5. Reduction of shares of the Company acquired reduce its shareholding in the Company, it will through the secondary market after the initial be processed through the block trading system public offering and listing of A Shares of the of the stock exchange, the centralised bidding Company shall not be subject to the above trading system or by agreement as permitted by undertakings. laws and regulations. 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 2022 173 SECTION VIII RELEVANT INFORMATION ON BONDS CORPORATE BONDS, COMPANY BONDS AND DEBT FINANCING INSTRUMENTS OF NON-FINANCIAL ENTERPRISES 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. 174 China Telecom Corporation Limited Annual Report 2022 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 custodian bank 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 specified use of proceeds. China Telecom Corporation Limited Annual Report 2022 175 CLOUDIFICATION AND DIGITAL TRANSFORMATION TO EMPOWER DIGITAL ECONOMY 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 185 to 287, comprise: • • • • • the consolidated statement of financial position as at 31 December 2022; 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 2022, 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. China Telecom Corporation Limited Annual Report 2022 179 SECTION IX FINANCIAL REPORTS INDEPENDENT AUDITOR’S REPORT 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. Revenue recognition is subject to an inherent risk. 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 o f i n t e r n a l c o n t r o l s o v e r t h e c a p t u r e a n d 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. 180 China Telecom Corporation Limited Annual Report 2022 INDEPENDENT AUDITOR’S REPORT SECTION IX FINANCIAL REPORTS 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 high 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; 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 of our industry knowledge and independent research performed by us 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. China Telecom Corporation Limited Annual Report 2022 181 SECTION IX FINANCIAL REPORTS INDEPENDENT AUDITOR’S REPORT 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. 182 China Telecom Corporation Limited Annual Report 2022 INDEPENDENT AUDITOR’S REPORT SECTION IX FINANCIAL REPORTS 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. • 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. China Telecom Corporation Limited Annual Report 2022 183 SECTION IX FINANCIAL REPORTS INDEPENDENT AUDITOR’S REPORT AUDITOR’S RESPONSIBILITIES FOR THE AUDIT OF THE CONSOLIDATED FINANCIAL STATEMENTS (continued) • 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, 22 March 2023 184 China Telecom Corporation Limited Annual Report 2022 SECTION IX FINANCIAL REPORTS CONSOLIDATED STATEMENT OF FINANCIAL POSITION at 31 December 2022 (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 Notes 31 December 2022 RMB 31 December 2021 RMB (restated) 4 5 6 7 8 10 11 12 13 15 16 17 18 19 413,963 415,981 58,443 87,055 29,922 20,780 42,220 402 885 3,821 9,135 51,457 61,187 29,919 19,753 41,166 248 1,216 6,688 7,261 666,626 634,876 3,513 154 24,312 3,042 33,751 3,835 72,465 141,072 807,698 3,827 437 22,389 912 24,585 1,929 73,284 127,363 762,239 China Telecom Corporation Limited Annual Report 2022 185 SECTION IX FINANCIAL REPORTS CONSOLIDATED STATEMENT OF FINANCIAL POSITION at 31 December 2022 (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 31 December 2022 RMB 31 December 2021 RMB (restated) 20 20 21 22 23 24 20 24 12 25 26 2,840 3,160 2,821 6,280 127,260 114,893 65,229 67,841 919 14,488 281,737 55,765 70,914 588 13,810 265,071 (140,665) (137,708) 525,961 497,168 4,484 52,408 27,945 4,697 89,534 7,395 28,594 26,677 3,329 65,995 371,271 331,066 91,507 340,582 91,507 337,171 432,089 428,678 4,338 436,427 807,698 2,495 431,173 762,239 Approved and authorised for issue by the Board of Directors on 22 March 2023 and are signed on its behalf by: Ke Ruiwen Executive Director, Chairman and Chief Executive Officer Li Yinghui Executive Director, Executive Vice President, Chief Financial Officer and Secretary of the Board The notes on pages 193 to 287 form part of these consolidated financial statements. 186 China Telecom Corporation Limited Annual Report 2022 SECTION IX FINANCIAL REPORTS CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME for the year ended 31 December 2022 (Amounts in million except for per share data) Notes 27 28 31 29 30 32 33 2022 RMB 2021 RMB (restated) 481,448 439,553 (96,932) (92,966) (147,589) (133,340) (64,277) (84,772) (54,451) (61,154) (76,057) (45,088) (448,021) (408,605) 33,427 (7) 243 2,051 35,714 (8,038) 27,676 30,948 (1,293) 2,244 1,966 33,865 (7,716) 26,149 Operating revenues Operating expenses Depreciation and amortisation Network operations and support Selling, general and administrative Personnel expenses Other operating expenses 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 at fair value through other comprehensive income (222) 20 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 Other comprehensive income for the year, net of tax 50 (172) 712 712 540 (15) 5 (233) (233) (228) Total comprehensive income for the year 28,216 25,921 China Telecom Corporation Limited Annual Report 2022 187 SECTION IX FINANCIAL REPORTS CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME for the year ended 31 December 2022 (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 2022 RMB 27,593 83 27,676 28,133 83 28,216 0.30 0.30 2021 RMB (restated) 25,949 200 26,149 25,721 200 25,921 0.31 0.31 91,507 91,507 The notes on pages 193 to 287 form part of these consolidated financial statements. 188 China Telecom Corporation Limited Annual Report 2022 SECTION IX FINANCIAL REPORTS CONSOLIDATED STATEMENT OF CHANGES IN EQUITY for the year ended 31 December 2022 (Amounts in million) Attributable to equity holders of the Company General risk reserve RMB Other reserves RMB Surplus reserves RMB Exchange reserve RMB Capital reserve RMB Share premium RMB Retained earnings RMB Non- Controlling interests RMB Total RMB Total equity RMB 17,468 10,746 79,854 56 321 (937) 175,016 363,456 2,719 366,175 Notes Share capital RMB 80,932 Balance as at 1 January 2021 Profit for the year (restated) Other comprehensive income for the year Total comprehensive income for the year (restated) Adjusted for entity combination under common control 3(a) Issuance of shares upon A Shares Offering, net of issuing expenses 10,575 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 Balance as at 31 December 2021, as restated Profit for the year Other comprehensive income for the year Total comprehensive income for the year 37 26 26 Consideration for entity combination under common control 3(a) Acquisition of non-controlling interests Contribution from 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 37 26 26 – – – – – – – – – – – – – – 3 – 463 – – (42) – – – – – – – 36,941 – – – – – – – – – – – – – – – – – 2,423 – 91,507 17,892 47,687 82,277 – – – – – – – – – – – – – – (3) (1) 1,824 – (2) – – – – – – – – – – – – – – – – – – – – – – – 2,624 – – – – – – – – – 5 5 – – – – (3) (28) – – – – 298 – (172) (172) – – – – – – – – – – – 44 97 – – – – – – – – – – 86 183 – 25,949 25,949 (233) – (228) 200 – 26,149 (228) (233) 25,949 25,721 200 25,921 –– 3 1 – – – – – – – – – – – 31 – (8,439) (2,423) (44) 47,516 463 – – (42) (8,439) – – 4 – 613 (116) (922) – – – – 47,516 1,076 (116) (922) (42) (8,439) – – (1,170) 190,090 428,678 2,495 431,173 – 712 712 27,593 27,593 – 540 27,593 28,133 – – – – – – – – – – – – (3) (3) (1) – (5) (26,537) (26,537) (2,624) (86) – – 83 – 83 – – 27,676 540 28,216 (3) (1) (89) (2) – – – (89) (7) (26,537) – – 1,824 1,851 3,675 Balance as at 31 December 2022 91,507 19,710 47,687 84,901 126 (458) 188,433 432,089 4,338 436,427 The notes on pages 193 to 287 form part of these consolidated financial statements. China Telecom Corporation Limited Annual Report 2022 189 SECTION IX FINANCIAL REPORTS CONSOLIDATED STATEMENT OF CASH FLOWS for the year ended 31 December 2022 (Amounts in million) Notes (a) 2022 RMB 136,432 2021 RMB (restated) 137,533 (89,705) (84,848) (175) (1,807) 1,422 142 200 – (15) (2,537) 1,750 (206) (327) 1,637 82 52 3,764 (211) (9,251) 11,020 (8,105) (2,000) 2,034 (96,796) – (15,897) 3,692 (9,615) (26,537) (90) (1) 3,675 4,411 (541) (3) (40,906) (1,270) 73,284 451 72,465 – (80,288) 47,516 (14,035) 38,922 (74,486) (8,439) (112) – 100 3,190 (177) 3 (7,518) 49,727 23,684 (127) 73,284 (b) (b) (b) (b) 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 Telecom Group by Finance Company China Telecom Group’s repayments of short-term loans granted by Finance Company 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 Net deposits with Finance Company Increase in statutory deposit reserves placed by Finance Company (Consideration paid)/Contribution from shareholders for entity combination under common control Net cash used in financing activities Net (decrease)/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 190 China Telecom Corporation Limited Annual Report 2022 SECTION IX FINANCIAL REPORTS CONSOLIDATED STATEMENT OF CASH FLOWS for the year ended 31 December 2022 (Amounts in million) (a) RECONCILIATION OF PROFIT BEFORE TAXATION TO NET CASH FROM OPERATING ACTIVITIES Profit before taxation Adjustment for: Depreciation and amortisation Impairment losses for financial assets, net of reversal Write-down of inventories, net of reversal Investment income and others Share of profits of associates and joint ventures Interest income Net interest expense Net foreign exchange gain and others Net loss on retirement and disposal of long-lived assets and others Increase in accounts receivable Increase in contract assets Decrease/(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 (Decrease)/Increase in contract liabilities 2022 RMB 35,714 96,932 2,340 (61) (243) (2,051) (1,808) 1,881 (66) 6,158 2021 RMB (restated) 33,865 92,966 1,819 69 (2,244) (1,966) (1,104) 2,404 (7) 6,095 138,796 131,897 (3,842) (2,185) 370 (4,302) (496) (449) 9,683 4,293 (3,165) (3,327) (318) (595) (2,031) (85) (2,047) 4,225 7,009 7,140 Cash generated from operations 138,703 141,868 Interest received Interest paid Investment income received Income tax paid 1,754 (1,993) 1,208 (3,240) 1,045 (2,522) 860 (3,718) Net cash from operating activities 136,432 137,533 China Telecom Corporation Limited Annual Report 2022 191 SECTION IX FINANCIAL REPORTS CONSOLIDATED STATEMENT OF CASH FLOWS for the year ended 31 December 2022 (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, the parent and ultimate holding company of the Company. These transactions are conducted on normal commercial terms or better. (c) SIGNIFICANT NON-CASH TRANSACTIONS For the year ended 31 December 2022 and 2021, the Group did not have significant non-cash investing and financing activities, except for the additions of right-of-use assets and lease liabilities (including increases in right-of-use assets and lease liabilities arising from the Company’s entering into Commercial Pricing Agreement and Service Agreement with China Tower Corporation Limited (“China Tower”) this year, which was accounted for as lease modification, further information is set out in Note 43(b)). The notes on pages 193 to 287 form part of these consolidated financial statements. 192 China Telecom Corporation Limited Annual Report 2022 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2022 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. The Company filed a Form 15F with the U.S. Securities and Exchange Commission (the “SEC”) on 25 February 2022 to deregister the American Depositary Shares (the “ADSs”) and terminate its reporting obligation under the U.S. Securities Exchange Act of 1934, as amended (the “U.S. Exchange Act”). The deregistration and termination of reporting obligation therefore became effective 90 days after the filing as the application was neither withdrawn by the Company nor objected to by the SEC. 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 IAS 16, IFRS 3, IAS 37 and “Annual Improvements to IFRS Standards 2018-2020” The application of the above amendments to IFRSs in the current year has had no material effect on the Group’s consolidated financial statements. China Telecom Corporation Limited Annual Report 2022 193 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2022 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 2022, the total current liabilities of the Group had exceeded the total current assets by RMB140,665 million (31 December 2021: RMB137,708 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 RMB233,639 million (31 December 2021: RMB276,483 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 2022 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)). 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 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 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. 194 China Telecom Corporation Limited Annual Report 2022 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2022 3. SIGNIFICANT ACCOUNTING POLICIES (continued) (a) Basis of preparation (continued) 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. In December 2022, China Telecom Intelligent Network Technology Co., Ltd., a subsidiary of the Company, acquired equity interest in Beeya (Shanghai) Technology Co., Ltd. (the “Acquired Company”) from Tianyi Technology Venture Capital Co., Ltd., a wholly-owned subsidiary of China Telecommunications Corporation, and Shanghai Yizhiying Intelligent Technology Partnership (Limited Partnership), a wholly-owned subsidiary of Shanghai Yizhichuang Management Consulting Co., Ltd., a holding subsidiary of Tianyi Technology Venture Capital Co., Ltd., at total purchase prices of RMB2 million and RMB1 million respectively. Since the Group and the Acquired Company are under common control of China Telecommunications Corporation, the Group’s acquisition of the Acquired Company has been accounted for as a combination of entities under common control. Accordingly, the Acquired Company is stated at predecessor values, and were included in the consolidated financial statements from the beginning of the earliest period presented as if the Acquired Company acquired had always been part of the Group. As a result, the Group has restated the 2021 comparative amounts of the consolidated statement of comprehensive income by including the operating results of the Acquired Company and eliminating its transactions with the Acquired Company. The consolidated statement of financial position of the Group as at 31 December 2021 was restated to include the assets and liabilities of the Acquired Company. For the years presented, all significant transactions and balances between the Group and the Acquired Company have been eliminated on combination. (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. China Telecom Corporation Limited Annual Report 2022 195 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2022 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. 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. 196 China Telecom Corporation Limited Annual Report 2022 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2022 3. SIGNIFICANT ACCOUNTING POLICIES (continued) (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 the exchange rates approximating the foreign exchange rate ruling at the dates of transactions. 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. (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. China Telecom Corporation Limited Annual Report 2022 197 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2022 3. SIGNIFICANT ACCOUNTING POLICIES (continued) (d) Property, plant and equipment (continued) 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 and any change will be accounted for as change in accounting estimate. (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. 198 China Telecom Corporation Limited Annual Report 2022 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2022 3. SIGNIFICANT ACCOUNTING POLICIES (continued) (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. 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. China Telecom Corporation Limited Annual Report 2022 199 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2022 3. SIGNIFICANT ACCOUNTING POLICIES (continued) (h) Impairment of goodwill and long-lived assets (continued) 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. (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. 200 China Telecom Corporation Limited Annual Report 2022 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2022 3. SIGNIFICANT ACCOUNTING POLICIES (continued) (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. 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. China Telecom Corporation Limited Annual Report 2022 201 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2022 3. SIGNIFICANT ACCOUNTING POLICIES (continued) (k) Financial instruments (continued) 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. (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. 202 China Telecom Corporation Limited Annual Report 2022 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2022 3. SIGNIFICANT ACCOUNTING POLICIES (continued) (k) Financial instruments (continued) Financial assets (continued) Classification and subsequent measurement of financial assets (continued) (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 in profit or loss. 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(excluding long- term receivables arising from instalment sale). 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, including 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 2022 203 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2022 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. At the balance sheet date, if the Group considers that the financial instruments has only lower credit risk, the Group will assume that the credit risk of the financial instruments has not been significantly increased since initial recognition. The credit risk on a financial instrument is considered low if the financial instrument has a low risk of default, the debtor has a strong capacity to meet its contractual cash flow obligations in the near term and adverse changes in economic and business conditions in the longer term may, but will not necessarily, reduce the ability of the debtor to fulfil its contractual cash flow obligations. 204 China Telecom Corporation Limited Annual Report 2022 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2022 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) (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). (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 2022 205 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2022 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 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. 206 China Telecom Corporation Limited Annual Report 2022 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2022 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 2022 207 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2022 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. 208 China Telecom Corporation Limited Annual Report 2022 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2022 3. SIGNIFICANT ACCOUNTING POLICIES (continued) (m) Revenue from contract with customers (continued) Where the contract contains a significant financing component, the Group recognises the transaction price at an amount that reflects the price that a customer would have paid for the promised goods or services if the customer had paid cash for those goods or services when (or as) they transfer to the customer. The difference between the amount of promised consideration and the cash selling price is amortised using an effective interest method over the contract term. 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 goods or services of points redemption are delivered or the points are expired. A contract asset and a contract liability relating to the same contract are accounted for and presented on a net basis. China Telecom Corporation Limited Annual Report 2022 209 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2022 3. SIGNIFICANT ACCOUNTING POLICIES (continued) (m) Revenue from contract with customers (continued) 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. 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. 210 China Telecom Corporation Limited Annual Report 2022 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2022 3. SIGNIFICANT ACCOUNTING POLICIES (continued) (m) Revenue from contract with customers (continued) 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. 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. China Telecom Corporation Limited Annual Report 2022 211 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2022 3. SIGNIFICANT ACCOUNTING POLICIES (continued) (m) Revenue from contract with customers (continued) 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. (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. 212 China Telecom Corporation Limited Annual Report 2022 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2022 3. SIGNIFICANT ACCOUNTING POLICIES (continued) (n) Leases (continued) The Group as a lessee (continued) 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. 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 2022 213 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2022 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. 214 China Telecom Corporation Limited Annual Report 2022 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2022 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 2022; and • there is no substantive change to other terms and conditions of the lease. China Telecom Corporation Limited Annual Report 2022 215 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2022 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. 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. 216 China Telecom Corporation Limited Annual Report 2022 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2022 3. SIGNIFICANT ACCOUNTING POLICIES (continued) (n) Leases (continued) The Group as a lessor (continued) 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 2022 217 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2022 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 2022, research and development expense, other than those related personnel expenses and depreciation was RMB4,199 million (2021: RMB3,379 million). Research and development related personnel expenses and depreciation for the year ended 31 December 2022 amounted to RMB6,237 million (2021: RMB3,432 million) and RMB124 million (2021: RMB122 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. 218 China Telecom Corporation Limited Annual Report 2022 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2022 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 2022 219 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2022 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. (v) Dividends Dividends are recognised as a liability in the period in which they are declared. 220 China Telecom Corporation Limited Annual Report 2022 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2022 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 2022 221 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2022 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 105,594 284 2,466 (1,146) 107,198 1,054 2,303 (1,541) 109,014 (64,649) (3,997) – 1,022 (67,624) (3,777) – 1,392 (70,009) 39,005 39,574 896,411 175 72,260 (74,532) 894,314 528 72,836 (85,846) 881,832 (526,740) (65,113) (119) 66,735 (525,237) (66,975) (68) 77,958 (514,322) 367,510 369,077 31,162 325 1,625 (2,960) 30,152 365 1,890 (2,688) 29,719 (23,173) (2,396) (2) 2,749 (22,822) (1,978) (2) 2,531 (22,271) 7,448 7,330 1,033,167 784 76,351 (78,638) 1,031,664 1,947 77,029 (90,075) 1,020,565 (614,562) (71,506) (121) 70,506 (615,683) (72,730) (70) 81,881 (606,602) 413,963 415,981 Cost/Deemed cost: Balance as at 1 January 2021 Additions Transferred from construction in progress Retirement and disposal Balance as at 31 December 2021 Additions Transferred from construction in progress Retirement and disposal Balance as at 31 December 2022 Accumulated depreciation and impairment: Balance as at 1 January 2021 Depreciation charge for the year Provision for impairment loss Written back on retirement and disposal Balance as at 31 December 2021 Depreciation charge for the year Provision for impairment loss Written back on retirement and disposal Balance as at 31 December 2022 Net book value as at 31 December 2022 Net book value as at 31 December 2021 222 China Telecom Corporation Limited Annual Report 2022 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2022 5. CONSTRUCTION IN PROGRESS Balance as at 1 January 2021 Additions Transferred to property, plant and equipment Transferred to intangible assets Balance as at 31 December 2021 (restated) Additions Transferred to property, plant and equipment Transferred to intangible assets Balance as at 31 December 2022 6. RIGHT-OF-USE ASSETS RMB million 48,425 85,583 (76,351) (6,200) 51,457 89,736 (77,029) (5,721) 58,443 Leasehold Communications towers and land Buildings related assets Equipment Others Total RMB million RMB million RMB million RMB million RMB million RMB million 21,499 15,895 40,013 9,302 20,207 16,678 13,034 10,927 346 341 87,055 61,187 As at 31 December 2022 Carrying amount As at 31 December 2021 Carrying amount (restated) For the year ended 31 December 2022 Depreciation charge (769) (5,309) (8,237) (2,879) (119) (17,313) For the year ended 31 December 2021 Depreciation charge (restated) (762) (3,645) (8,078) (2,513) (99) (15,097) China Telecom Corporation Limited Annual Report 2022 223 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2022 6. RIGHT-OF-USE ASSETS (continued) The Group leases communications 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 additions of right-of-use assets this year include the increases in right-of-use assets arising from the Company’s entering into Commercial Pricing Agreement and Service Agreement with China Tower this year, which was accounted for as lease modification, further information is set out in Note 43(b). The Group regularly entered into short-term leases for buildings and other assets. As at 31 December 2022 and 2021, the portfolio of short-term leases is similar to the portfolio of short-term leases to which the short-term lease expenses disclosed in this note. For the year ended 31 December 2022, expenses relating to short-term leases amounting to RMB863 million (2021: RMB1,006 million), expenses relating to leases of low value assets (excluding short-term leases of low value assets) amounting to RMB112 million (2021: RMB34 million) and variable lease payments not included in the measurement of lease liabilities amounting to RMB4,950 million (2021: RMB5,151 million), are recognised in profit or loss. For the year ended 31 December 2022, total cash outflow for leases was RMB24,748 million (2021: RMB21,952 million), and additions to right-of-use assets were RMB47,154 million (2021: RMB18,083 million). 224 China Telecom Corporation Limited Annual Report 2022 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS SECTION IX FINANCIAL REPORTS for the year ended 31 December 2022 7. GOODWILL 31 December 2022 2021 RMB million RMB million Cost: Goodwill arising from acquisition of mobile communications business 29,922 29,919 On 1 October 2008, the Group acquired the mobile communications business and related assets and liabilities (collectively “mobile communications business”), 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 3.6% to 4.5% (2021: 3.7% to 4.6%) and a pre-tax discount rate of 9.8% (2021: 9.8%). Cash flows beyond the five-year period are extrapolated using a steady 1.5% growth rate (2021: 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 2022 225 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Software RMB million 50,854 2,038 6,200 (3,352) 55,740 2,462 5,721 (3,144) 60,779 (32,346) (6,363) 2,722 (35,987) (6,889) 2,877 (39,999) 20,780 19,753 for the year ended 31 December 2022 8. INTANGIBLE ASSETS Cost: Balance as at 1 January 2021 Additions Transferred from construction in progress Retirement and disposal Balance as at 31 December 2021 Additions Transferred from construction in progress Retirement and disposal Balance as at 31 December 2022 Accumulated amortisation and impairment: Balance as at 1 January 2021 Amortisation charge for the year Written back on retirement and disposal Balance as at 31 December 2021 Amortisation charge for the year Written back on retirement and disposal Balance as at 31 December 2022 Net book value as at 31 December 2022 Net book value as at 31 December 2021 226 China Telecom Corporation Limited Annual Report 2022 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2022 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 2022 are as follows: Name of company Type of legal entity Place of Date of incorporation and Registered/issued capital (in RMB million unless incorporation operation otherwise stated) Principal activity China Telecom Digital Intelligence Limited Company 13 September 2001 PRC 3,000 Provision of system Technology Co., Ltd. (formerly known as “China Telecom System Integration Co., Ltd.”) integration and consulting services China Telecom Global Limited Limited Company 25 February 2000 Hong Kong Special HK$168 million Provision of Administrative Region of the PRC China Telecom Best Tone Limited Company 15 August 2007 PRC Information Service Co., Limited Tianyi Telecom Terminals Limited Company 1 July 2005 Company Limited iMUSIC Culture & Technology Limited Company 9 June 2013 PRC PRC Co., Ltd. telecommunications services 350 Provision of Best Tone information services 500 Sales of telecommunications terminals 250 Provision of music production and related information services Tianyi Capital Holding Co., Ltd. Limited Company 30 November 2017 PRC 5,000 Capital investment and provision of consulting services China Telecom Group Finance Limited Company 8 January 2019 PRC 5,000 Provision of capital and Co., Ltd. financial management services China Telecom Corporation Limited Annual Report 2022 227 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2022 9. INVESTMENTS IN SUBSIDIARIES (continued) Name of company Type of legal entity Place of Date of incorporation and Registered/issued capital (in RMB million unless incorporation operation otherwise stated) Principal activity China Telecom Cloud Limited Company 1 July 2021 Technology Co., Ltd. E-surfing Digital Life Technology Limited Company 6 July 2021 PRC PRC Co., Ltd. Lingang Suanli (Shanghai) Limited Company 29 April 2021 PRC Technology Co., Ltd. 4,514 Provision of cloud products and services 900 Provision of comprehensive solutions related to the digital life 900 Provision of computing power services Shanghai Information Industry Limited Company 14 December 1994 PRC 297 Provision of communication (Group) Co., Ltd. Tianyi IoT Technology Co., Ltd. Limited Company 2 February 2019 China Telecom Intelligent Limited Company 26 January 2022 PRC PRC Network Technology Co., Ltd. Tianyi Safety Technology Limited Company 9 September 2021 PRC Co., Ltd. engineering design and system terminal development services 1000 Provision of IoT services 900 Provision of operation and support technical services 500 Provision of network information security services Except Finance Company which is 70% owned by the Company, and China Telecom Cloud Technology Co., Ltd. which is 89% 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. 228 China Telecom Corporation Limited Annual Report 2022 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2022 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 2022 2021 RMB million RMB million 36,964 5,256 42,220 36,983 4,183 41,166 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% Information technology consulting services Incorporation (Note (ii)) Notes: (i) (ii) 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 2022 229 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2022 10. INTERESTS IN ASSOCIATES AND JOINT VENTURES (continued) Summarised financial information of the Group’s principal associates and reconciliation 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 31 December 2022 2021 RMB million RMB million 49,706 255,854 65,158 46,811 48,344 274,915 76,182 57,723 2022 2021 RMB million RMB million 92,170 8,787 – 8,787 947 86,585 7,328 (1) 7,327 807 31 December 2022 2021 RMB million RMB million 193,591 189,354 – 20.5% 39,686 – 20.5% 38,818 Adjustment for the remaining balance of the deferred gain from the Tower Assets Disposal (415) (568) 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 39,271 27,078 38,250 25,374 230 China Telecom Corporation Limited Annual Report 2022 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2022 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 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 the 31 December 2022 2021 RMB million RMB million 5,769 6,556 1,857 2,559 6,783 4,272 1,712 1,814 2022 2021 RMB million RMB million 1,403 1,470 739 (2) 737 18 663 – 663 18 31 December 2022 2021 RMB million RMB million 7,909 (17) 24.0% 1,894 7,529 (258) 24.0% 1,745 consolidated financial statements of the Group 1,894 1,745 China Telecom Corporation Limited Annual Report 2022 231 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2022 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 2022 2021 RMB million RMB million (86) (86) 122 122 31 December 2022 2021 RMB million RMB million Aggregate carrying amount of interests in these associates and joint ventures in the consolidated financial statements of the Group 1,055 1,171 11. EQUITY INSTRUMENTS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME Equity securities of listed companies Unlisted equity securities 31 December 2022 2021 Notes RMB million RMB million (i) (ii) 759 126 885 942 274 1,216 Notes: (i) The above listed equity instruments represent ordinary shares of listed entities. 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. 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. 232 China Telecom Corporation Limited Annual Report 2022 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2022 12. DEFERRED TAX ASSETS AND LIABILITIES The components of deferred tax assets and deferred tax liabilities before offsetting are as follows: Deferred tax assets Deferred tax liabilities 31 December 31 December 31 December 31 December 2022 2021 2022 2021 RMB million RMB million RMB million RMB million Accrued salaries, wages and other benefits 2,115 1,416 Temporary receipts of demolition and modification and deferred revenues 2,627 2,286 – – – – 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 other comprehensive income Others 2,536 1,404 1,064 731 9 979 2,675 1,140 1,058 845 – 944 (35,479) (30,202) – – – (110) – – – – (151) – Deferred tax assets/(liabilities) 11,465 10,364 (35,589) (30,353) As at 31 December 2022, the offsetting amount of deferred tax assets and deferred tax liabilities was RMB7,644 million (31 December 2021: RMB3,676 million). As at 31 December 2022, net deferred tax assets and deferred tax liabilities after offsetting were RMB3,821 million (31 December 2021: RMB6,688 million) and RMB27,945 million (31 December 2021: RMB26,677 million), respectively. China Telecom Corporation Limited Annual Report 2022 233 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2022 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 31 December 2022 income 2022 RMB million RMB million RMB million 1,416 2,286 2,675 1,140 1,058 845 – 944 699 341 (139) 264 6 (114) 9 35 2,115 2,627 2,536 1,404 1,064 731 9 979 10,364 1,101 11,465 Accrued salaries, wages and other benefits Temporary receipts of demolition and modification and deferred revenues 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 other comprehensive income Others Deferred tax assets Depreciation, write-off and impairment of property, plant and equipment, etc. (30,202) (5,277) (35,479) Equity instruments at fair value through other comprehensive income (151) 41 (110) Deferred tax liabilities (30,353) (5,236) (35,589) 234 China Telecom Corporation Limited Annual Report 2022 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2022 12. DEFERRED TAX ASSETS AND LIABILITIES (continued) Recognised in consolidated statement of Balance as at Balance as at comprehensive Disposal of 31 December 1 January 2021 income RMB million RMB million subsidiaries RMB million 2021 RMB million Accrued salaries, wages and other benefits Temporary receipts of demolition and modification and deferred revenues 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 Others Deferred tax assets 930 1,991 2,724 1,039 863 791 964 9,302 487 295 (49) 121 195 54 9 1,112 Depreciation, write-off and impairment of property, 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) – – (20) – – (29) (50) 14 1 15 1,416 2,286 2,675 1,140 1,058 845 944 10,364 (30,202) (151) (30,353) Deferred tax assets are recognized for deductible temporary differences and tax losses carry-forwards only to the extent that the realization of the related tax benefit through future taxable profits is probable. Certain subsidiaries of the Group did not recognize deferred tax assets of RMB826 million (31 December 2021: RMB542 million) in respect of deductible temporary differences and tax losses amounting to RMB5,130 million (31 December 2021: RMB2,571 million) that can be carried forward against future taxable profits as at 31 December 2022. The deductible tax losses are allowed to be carried forward within next five years against future taxable profits, while those of high-tech enterprises are allowed to be within next ten years. China Telecom Corporation Limited Annual Report 2022 235 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2022 13. OTHER ASSETS Contract costs Other long-term prepaid expenses and receivables 31 December 2022 2021 Notes RMB million RMB million (i) (ii) 1,503 7,632 9,135 1,436 5,825 7,261 Notes: (i) Contract costs capitalised as at 31 December 2022 and 2021 mainly relate to the direct cost of the provision of wireline terminals to subscribers for the provision of Wireline and Smart Family services of the Group. The amount of capitalised costs recognised in profit or loss for the year ended 31 December 2022 was RMB1,752 million (2021: RMB1,584 million). There was no impairment in relation to the opening balance of capitalised costs or the costs capitalised during this year. (ii) Other long-term prepaid expenses and receivables mainly include prepayments of construction and materials, etc. 236 China Telecom Corporation Limited Annual Report 2022 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS SECTION IX FINANCIAL REPORTS for the year ended 31 December 2022 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. China Telecom Corporation Limited Annual Report 2022 237 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2022 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 2022 2021 RMB million RMB million 433 3,080 3,513 410 3,417 3,827 31 December 2022 2021 Note RMB million RMB million (i) 27,714 2,073 23 619 30,429 (6,117) 24,312 25,067 1,889 9 475 27,440 (5,051) 22,389 (i) China Telecommunications Corporation together with its subsidiaries other than the Group are referred to as “China Telecom Group”. 238 China Telecom Corporation Limited Annual Report 2022 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2022 16. ACCOUNTS RECEIVABLE, NET (continued) As at 31 December 2022 and 2021, the gross carrying amounts of accounts receivable from contracts with customers amounted to RMB30,350 million, and RMB27,339 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 6 months 7 to 12 months Over 12 months Less: Allowance for credit losses 31 December 2022 RMB million 2021 RMB million 6,405 2,040 807 1,234 1,317 11,803 (3,335) 8,468 7,164 1,683 692 928 1,079 11,546 (2,690) 8,856 Ageing analysis of accounts receivable from other telecommunications operators and enterprise customers based on dates of rendering of services is as follows: 1 to 6 months 7 to 12 months 1 to 2 years 2 to 3 years Over 3 years Less: Allowance for credit losses 31 December 2022 RMB million 2021 RMB million 11,817 3,537 1,709 677 886 18,626 (2,782) 15,844 10,581 1,909 2,012 563 829 15,894 (2,361) 13,533 As at 31 December 2022 and 2021, included in the net balance of the Group’s accounts receivable are debtors with an aggregate carrying amount of RMB2,142 million and RMB1,790 million, respectively, which are past due as at the reporting date. Details of impairment assessment of accounts receivable for the year ended 31 December 2022 and 2021 are set out in Note 40. China Telecom Corporation Limited Annual Report 2022 239 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2022 17. CONTRACT ASSETS Third parties China Telecom Group Less: Provision for impairment loss 31 December 2022 2021 RMB million RMB million 2,937 180 3,117 (75) 3,042 792 139 931 (19) 912 Contract assets mainly arise from contracts for the provision of industrial digitalisation and wireline and smart family 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: Allowance for credit losses Prepayments in connection with terminal equipment purchases Prepaid expenses and deposits Value-added tax recoverable Note (i) 31 December 2022 2021 RMB million RMB million 8,846 43 199 5,582 (722) 6,296 3,657 9,850 2,756 63 207 4,404 (508) 4,843 3,184 9,636 33,751 24,585 240 China Telecom Corporation Limited Annual Report 2022 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2022 18. PREPAYMENTS AND OTHER CURRENT ASSETS (continued) Note: (i) As at 31 December 2022, amounts due from China Telecom Group included short-term loans of RMB8,071 million granted to China Telecom Group and its subsidiaries by Finance Company, and an impairment allowance recognised at RMB161 million, including: (a) (b) (c) (d) Amount of RMB2,000 million with issue date of 26 January 2022, expiry date of 25 January 2023, interest rate of 3.3%; Amount of RMB4,000 million with issue date of 25 May 2022, expiry date of 24 May 2023, interest rate of 3.3%; Amount of RMB80 million with issue date of 4 July 2022, expiry date of 3 July 2023, interest rate of 4.3%; the principal of RMB24 million has been repaid in 2022; Amount of RMB25 million with issue date of 18 August 2022, expiry date of 17 August 2023, interest rate of 3.9%; the principal of RMB10 million has been repaid in 2022; (e) Amount of RMB2,000 million with issue date of 23 December 2022, expiry date of 22 December 2023, interest rate of 3.3%. 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 Total short-term debts 31 December 2022 2021 RMB million RMB million 65,234 7,231 72,465 (restated) 71,760 1,524 73,284 31 December 2022 2021 RMB million RMB million 2,840 2,840 2,821 2,821 The weighted average interest rate of the Group’s total short-term debts as at 31 December 2022 was 3.3% (31 December 2021: 3.7%) per annum. As at 31 December 2022, the Group’s loans from banks bear interests at rates ranging from 3.0% to 4.1% (31 December 2021: 3.3% to 4.4%) per annum, and are repayable within one year. China Telecom Corporation Limited Annual Report 2022 241 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2022 20. SHORT-TERM AND LONG-TERM DEBTS (continued) Long-term debts comprise: Interest rates and final maturity 2022 2021 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 5,321 6,179 US Dollars denominated Interest rates ranging from 1.25% to 2.00% per annum with maturities through 2028 178 185 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)) Total long-term debts Less: Current portion Non-current portion 97 5,596 1 – 2,047 7,644 (3,160) 4,484 114 6,478 1 5,150 2,046 13,675 (6,280) 7,395 242 China Telecom Corporation Limited Annual Report 2022 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2022 20. SHORT-TERM AND LONG-TERM DEBTS (continued) Long-term debts comprise (continued): Notes: (i) The loans from banks include long-term RMB denominated government loans with below-market interest rates ranging from 1.08% to 1.20% per annum obtained by the Group 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 has been fully repaid 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 has been fully repaid on 18 March 2022. (iii) 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. The aggregate maturities of the Group’s long-term debts subsequent to 31 December 2022 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 2022 2021 RMB million RMB million 3,160 1,079 1,045 743 328 1,289 7,644 6,280 3,103 1,028 995 647 1,622 13,675 The Group’s short-term and long-term debts do not contain any financial covenants. As at 31 December 2022, the Group had unutilised credit facilities amounting to RMB233,639 million (31 December 2021: RMB276,483 million). China Telecom Corporation Limited Annual Report 2022 243 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2022 21. ACCOUNTS PAYABLE Accounts payable are analysed as follows: Third parties China Telecom Group China Tower Other telecommunications operators in the PRC 31 December 2022 2021 RMB million RMB million 98,076 23,971 4,340 873 (restated) 89,299 21,013 3,914 667 127,260 114,893 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 2022 2021 RMB million RMB million 22,078 28,308 33,280 43,594 (restated) 20,291 23,965 36,338 34,299 127,260 114,893 244 China Telecom Corporation Limited Annual Report 2022 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2022 22. ACCRUED EXPENSES AND OTHER PAYABLES Amounts due to China Telecom Group Amounts due to China Tower Amounts due to other telecommunications operators in the PRC Accrued expenses Value-added tax payable Deposits and rental receipt in advance Accrued salaries, wages and other benefits 23. CONTRACT LIABILITIES Third parties China Telecom Group China Tower 31 December 2022 2021 RMB million RMB million 19,841 1,590 19 25,404 952 5,844 11,579 65,229 15,249 1,596 22 24,041 1,029 5,777 8,051 55,765 31 December 2022 2021 RMB million RMB million 67,570 70,713 271 – 198 3 67,841 70,914 Majority of contract liabilities as at 31 December 2021 was recognised as operating revenues for the year ended 31 December 2022. China Telecom Corporation Limited Annual Report 2022 245 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2022 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 of RMB1.00 each 13,877,410,000 H shares of RMB1.00 each 31 December 2022 2021 RMB million RMB million 14,488 13,225 35,655 3,528 66,896 (14,488) 52,408 (restated) 13,810 8,780 14,447 5,367 42,404 (13,810) 28,594 31 December 2022 2021 RMB million RMB million 77,630 13,877 91,507 77,630 13,877 91,507 246 China Telecom Corporation Limited Annual Report 2022 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS SECTION IX FINANCIAL REPORTS for the year ended 31 December 2022 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 2021 17,468 10,746 79,854 56 321 (937) 175,016 282,524 Total comprehensive income for the year (restated) Adjusted for entity combination under common control 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)) – 3 – 463 – (42) – – – – – 36,941 – – – – – – – – – – – – – 2,423 – Balance as at 31 December 2021, as restated 17,892 47,687 82,277 Total comprehensive income for the year Consideration for entity combination under common control Acquisition of non-controlling interests – (3) (1) Contribution from non-controlling interests 1,824 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)) (2) – – – – – – – – – – – – – – – – – 2,624 – Balance as at 31 December 2022 19,710 47,687 84,901 – – – – 5 – – – (3) (28) – – – – 298 (172) – – – – – – – – – – 44 97 – – – – – – – 86 183 (233) 25,949 25,721 – – – – – – – – – – – 31 – (8,439) (2,423) (44) 3 36,941 463 – (42) (8,439) – – (1,170) 190,090 337,171 712 27,593 28,133 – – – – – – – – – – (3) (3) (1) 1,824 (5) (26,537) (26,537) (2,624) (86) – – 126 (458) 188,433 340,582 China Telecom Corporation Limited Annual Report 2022 247 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2022 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 2021 28,803 10,746 79,854 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 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)) – (2) – – – – – – Balance as at 31 December 2022 28,759 47,687 – – – – 2,423 82,277 – – – 2,624 84,901 132 45 145,351 24,234 264,886 24,279 – – – – 177 (123) – – – – – (8,439) (2,423) 158,723 26,244 36,941 (42) (8,439) – 317,625 26,121 – (2) (26,537) (26,537) (2,624) – 54 155,806 317,207 248 China Telecom Corporation Limited Annual Report 2022 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS SECTION IX FINANCIAL REPORTS for the year ended 31 December 2022 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 companies acquired, from China Telecom Group which were accounted for as equity transactions, and the historical carrying amount of the net assets of these acquired companies; 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 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 China 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 2022 and 2021, the net profit of the Company determined in accordance with China Accounting Standards for Business Enterprises and IFRSs are the same. For the year ended 31 December 2022, the Company transferred RMB2,624 million (2021: RMB2,423 million), being 10% of the year’s net profit, to this reserve. As at 31 December 2022, the amount of statutory surplus reserve was RMB38,822 million (31 December 2021: RMB36,198 million). The Company did not transfer any discretionary surplus reserve for the years ended 31 December 2022 and 2021. As at 31 December 2022 and 2021, 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 China Accounting Standards for Business Enterprises and the amount determined in accordance with IFRSs. As at 31 December 2022, the amount of retained earnings available for distribution was RMB155,806 million (31 December 2021: RMB158,723 million), being the amount determined in accordance with IFRSs. Final dividend of approximately RMB6,955 million in respect of the financial year 2022 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. China Telecom Corporation Limited Annual Report 2022 249 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2022 27. OPERATING REVENUES 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 2022 2021 Notes RMB million RMB million (i) (ii) (iii) (iv) (v) (restated) 402,828 184,158 113,522 98,945 6,203 36,725 439,553 431,911 7,642 434,928 191,026 118,534 117,756 7,612 46,520 481,448 472,952 8,496 481,448 439,553 40,039 441,409 481,448 31,332 408,221 439,553 Notes: (i) (ii) (iii) Represent primarily the aggregate amount of mobile communications service fees, mobile Internet access service fees, caller ID service fees, and 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, etc., 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 grants. As at 31 December 2022 and 2021, 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 services are provided over the contract terms over the next 1 to 3 years. 250 China Telecom Corporation Limited Annual Report 2022 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2022 28. NETWORK OPERATIONS AND SUPPORT 2022 2021 Note RMB million RMB million Operating and maintenance Utility Network resources usage and related fees (i) 88,682 18,055 28,173 12,679 (restated) 79,377 16,209 25,318 12,436 147,589 133,340 Others Note: (i) Network resources usage and related fees include fees 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 fees for non-lease components in respect of communications towers and related assets lease and the usage of network resources provided by third parties. 29. PERSONNEL EXPENSES Personnel expenses are attributable to the following functions: Network operations and support Selling, general and administrative 2022 2021 RMB million RMB million 53,347 31,425 84,772 (restated) 48,576 27,481 76,057 China Telecom Corporation Limited Annual Report 2022 251 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2022 30. OTHER OPERATING EXPENSES Interconnection charges Cost of goods sold Donations Others 2022 2021 Notes RMB million RMB million (i) (ii) (iii) 13,052 39,592 6 1,801 54,451 12,858 30,415 12 1,803 45,088 Notes: (i) (ii) (iii) 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. Cost of goods sold primarily represents cost of communications equipment sold. Others mainly include tax and surcharges other than value-added tax and income tax. 31. SELLING, GENERAL AND ADMINISTRATIVE 2022 2021 Note RMB million RMB million Channel commission and customer services expenses Advertising and promotion expenses Property and transportation related expenses Research and development expenses (i) Auditors’ remuneration – Audit services – Non-audit services Others 47,290 2,804 2,982 4,199 59 6 6,937 64,277 (restated) 45,157 2,904 2,865 3,379 57 7 6,785 61,154 (i) The item does not include depreciation and amortization and personnel expenses related to research and development. 252 China Telecom Corporation Limited Annual Report 2022 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS SECTION IX FINANCIAL REPORTS for the year ended 31 December 2022 32. NET FINANCE COSTS Interest expense on lease liabilities Interest expense on short-term and long-term debts Less: Interest expense capitalised* Net interest expense Interest income Net foreign exchange gain or loss and others 2022 2021 RMB million RMB million 1,425 556 (100) 1,881 (1,808) (66) 7 1,399 1,110 (105) 2,404 (1,104) (7) 1,293 * Interest expense was capitalised in construction in progress at the following rates per annum 3.4%-3.6% 3.0%-4.5% 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 2022 2021 RMB million RMB million 3,676 177 4,185 8,038 3,606 215 3,895 7,716 China Telecom Corporation Limited Annual Report 2022 253 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2022 33. INCOME TAX (continued) A reconciliation of the expected tax expense with the actual tax expense is as follows: 2022 2021 Notes RMB million RMB million Profit before taxation Expected income tax expense at statutory tax rate of 25% (i) Impact of tax incentives and reduction including additional 35,714 8,929 (restated) 33,865 8,466 deduction for qualified research and development costs, etc. (1,061) (738) Differential tax rate on mainland China subsidiaries’ and branches’ income Differential tax rate on other subsidiaries’ income Non-deductible expenses Non-taxable income Tax effect of deductible temporary difference and deductible tax loss for which no deferred tax asset was recognized Others Income tax expense (i) (ii) (iii) (iv) (v) (764) (54) 821 (568) 803 (68) 8,038 (495) (70) 1,036 (522) 245 (206) 7,716 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 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) Amounts primarily represent settlement of tax filing differences of prior year annual tax return, etc. 254 China Telecom Corporation Limited Annual Report 2022 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2022 34. DIRECTORS’ AND SUPERVISORS’ REMUNERATION The following table sets out the remuneration of the Company’s directors and supervisors: 2022 Executive directors Ke Ruiwen Li Zhengmao1 Shao Guanglu Liu Guiqing Tang Ke2 Non-executive director Chen Shengguang Independent non-executive directors3 Tse Hau Yin, Aloysius4 Xu Erming4 Wang Hsuehming Yeung Chi Wai, Jason Supervisors Sui Yixun5 You Minqiang5 Zhang Jianbin Dai Bin Xu Shiguang Han Fang6 Wang Yibing6 Salaries, Directors’/ allowances Retirement supervisors’ and benefits Discretionary scheme Share-based fees RMB in kind RMB bonuses7 contributions payments RMB RMB RMB Total RMB thousand thousand thousand thousand thousand thousand – – – – – – 491 250 268 268 – – – – – – – 234 137 221 209 209 – – – – – 66 – 253 226 115 158 – 352 141 331 316 313 – – – – – 229 – 720 720 729 511 – 1,277 1,828 4,362 110 59 105 104 104 – – – – – 25 – 110 106 85 89 – 897 – – – – – – – – – – – – – – – – – – 696 337 657 629 626 – 491 250 268 268 320 – 1,083 1,052 929 758 – 8,364 China Telecom Corporation Limited Annual Report 2022 255 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2022 34. DIRECTORS’ AND SUPERVISORS’ REMUNERATION (continued) 1 2 3 4 5 6 7 8 9 Mr. Li Zhengmao resigned as an executive director of the Company on 12 July 2022. Mr. Tang Ke was appointed as an executive director of the Company on 22 March 2022. The independent non-executive directors’ remunerations were for their services as directors of the Company. Mr. Tse Hau Yin, Aloysius (“Mr. Tse”) and Mr. Xu Erming (“Mr. Xu”) resigned from position as independent non-executive directors of the Company on 16 August 2022. The resignation of Mr. Tse and Mr. Xu took effect on the date of election of the proposed independent non-executive directors at the extraordinary general meeting of the Company convened on 6 January 2023. Prior to that, Mr. Tse and Mr. Xu continued to carry out their duties as independent non-executive directors. Mr. Sui Yixun and Mr. You Minqiang resigned as supervisors of the Company on 22 March 2022. Madam Han Fang and Madam Wang Yibing were appointed as supervisors of the Company on 22 March 2022. The discretionary bonuses of the executive directors and supervisors were determined based on the Group’s performance. During year 2022, the Company also settled the bonus for year 2021, including RMB1,080 thousand for Ke Ruiwen, RMB727 thousand for Shao Guanglu, RMB970 thousand for Liu Guiqing, RMB254 thousand for Tang Ke. 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. 256 China Telecom Corporation Limited Annual Report 2022 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2022 34. DIRECTORS’ AND SUPERVISORS’ REMUNERATION (continued) 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 China Telecom Corporation Limited Annual Report 2022 257 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2022 34. DIRECTORS’ AND SUPERVISORS’ REMUNERATION (continued) 1 2 3 4 5 6 7 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 took effect on the date of election of the proposed supervisors at the extraordinary general meeting of the Company convened on 22 March 2022. Prior to that, Mr. Sui and Mr. You continued 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 year 2021, the Company also settled the bonus for year 2020, including RMB416 thousand for Ke Ruiwen, RMB381 thousand for Li Zhengmao, RMB343 thousand for Shao Guanglu, 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. 258 China Telecom Corporation Limited Annual Report 2022 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2022 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 2022 and 2021 were directors of the Company. The aggregate of the emoluments in respect of the five (2021: five) individuals (non-directors) with the highest emoluments are as follows: Salaries, allowances and benefits in kind Discretionary bonuses Retirement scheme contributions 2022 2021 RMB thousand RMB thousand 7,218 5,599 777 13,594 5,321 4,977 479 10,777 The emoluments of the five (2021: 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 2022 Number of individuals 2021 Number of individuals – – – 5 – – 1 4 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. China Telecom Corporation Limited Annual Report 2022 259 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2022 35. INDIVIDUALS WITH HIGHEST EMOLUMENTS AND SENIOR MANAGEMENT REMUNERATION (continued) (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 2022 2021 Number of Number of individuals individuals 17 2 – 18 – – 36. PROFIT ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY For the year ended 31 December 2022, the consolidated profit attributable to equity holders of the Company includes a profit of RMB26,244 million which has been dealt with in the stand-alone financial statements 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. 37. DIVIDENDS Pursuant to a resolution passed at the Board of Directors’ meeting on 22 March 2023, a final dividend of RMB0.076 per share (pre-tax) totalling approximately RMB6,955 million for the year ended 31 December 2022 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 2022. 260 China Telecom Corporation Limited Annual Report 2022 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS SECTION IX FINANCIAL REPORTS for the year ended 31 December 2022 37. DIVIDENDS (continued) Pursuant to a resolution at the Board of Directors’ meeting on 16 August 2022, an interim dividend of RMB0.120 (equivalent to HK$0.139523) per share (pre-tax) totalling approximately RMB10,981 million in respect of the six-month period ended 30 June 2022 was declared. The dividend of RMB9,316 million for A shares was paid on 8 September 2022, and the dividend of RMB1,665 million for H shares was paid on 14 October 2022. Pursuant to the shareholders’ approval at the Annual General Meeting held on 19 May 2022, a final dividend of RMB0.170 (equivalent to HK$0.197211) per share (pre-tax) totalling approximately RMB15,556 million in respect of the year ended 31 December 2021 was declared. The dividend of RMB13,197 million for A shares was paid on 8 June 2022, and the dividend of RMB2,359 million for H shares was paid on 18 July 2022. 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. 38. EARNINGS PER SHARE The calculation of basic earnings per share for the years ended 31 December 2022 and 2021 is based on the profit attributable to equity holders of the Company of RMB27,593 million and RMB25,949 million, respectively, divided by the weighted average number of 91,507,138,699 shares and 84,442,405,521 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 2022 261 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2022 39. COMMITMENTS AND CONTINGENCIES Capital commitments As at 31 December 2022 and 2021, the Group had capital commitments as follows: Contracted for but not provided Property Telecommunications network plant and equipment Contingent liabilities 31 December 2022 2021 RMB million RMB million 1,584 15,023 16,607 1,831 18,942 20,773 (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 2022 and 2021, 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 2022 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS SECTION IX FINANCIAL REPORTS for the year ended 31 December 2022 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. China Telecom Corporation Limited Annual Report 2022 263 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2022 40. FINANCIAL INSTRUMENTS (continued) (a) Fair Value Measurements (continued) The listed equity securities investments included in the Group’s equity instruments at fair value through other comprehensive income and financial assets at fair value through profit or loss are categorised as level 1 financial instruments. As at 31 December 2022, the fair value of the Group’s listed equity securities investments is RMB762 million (31 December 2021: RMB942 million), based on quoted market price on PRC stock exchanges. The Group’s investments in unlisted equity securities, included in financial assets at fair value through profit or loss and equity instruments at fair value through other comprehensive income, are classified as financial instruments categorised as level 3. As at 31 December 2022, the fair value of the Group’s financial instruments categorised as level 3 is RMB525 million (31 December 2021: RMB522 million). For the financial instruments which are not traded in active markets, the Group establishes fair value by using valuation techniques. The valuation methods or models used primarily include net asset value method and market comparable company model, etc. The input values of valuation models mainly include net asset value and expected yield rates, etc. 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 2021: 2.9% to 4.9%). As at 31 December 2022 and 2021, the carrying amounts and fair values of the Group’s long-term debts were as follows: 31 December 2022 31 December 2021 Carrying amount Fair value Carrying amount Fair value RMB million RMB million RMB million RMB million Long-term debts 7,644 7,613 13,675 13,444 During the year, there were no transfers among instruments in level 1, level 2 or level 3. 264 China Telecom Corporation Limited Annual Report 2022 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2022 40. FINANCIAL INSTRUMENTS (continued) (b) Risks The Group’s financial instruments are exposed to three main types of risks, namely, credit risk, liquidity risk and market risk (which 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, etc. 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. 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. China Telecom Corporation Limited Annual Report 2022 265 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2022 40. FINANCIAL INSTRUMENTS (continued) (b) Risks (continued) (i) Credit risk (continued) Accounts receivable and contract assets arising from contracts with customers (continued) 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 2022 and 2021: 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 31 December 2022 Expected Gross carrying Loss loss rate amount allowance % 2 20 60 80 100 RMB million RMB million 6,164 1,975 781 1,213 1,317 11,450 123 389 468 970 1,317 3,267 266 China Telecom Corporation Limited Annual Report 2022 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2022 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 (continued): 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 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 31 December 2022 Expected Gross carrying Loss loss rate amount allowance % 2 23 68 100 100 RMB million RMB million 8,253 2,405 869 379 608 189 548 595 379 608 12,514 2,319 China Telecom Corporation Limited Annual Report 2022 267 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2022 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 (continued): 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 As at 31 December 2022, the loss allowance for accounts receivable and contract assets was RMB6,117 million and RMB75 million (2021: RMB5,051 million and RMB19 million), respectively. Loss allowance of RMB466 million as at 31 December 2022 (2021: RMB517 million), which was not calculated collectively in the above tables, was made individually on debtors with significant balances or credit-impaired debtors. Expected loss rates are based on actual loss experience over the past 1 to 3 years. These rates are adjusted to reflect differences among 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. 268 China Telecom Corporation Limited Annual Report 2022 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2022 40. FINANCIAL INSTRUMENTS (continued) (b) Risks (continued) (i) Credit risk (continued) Accounts receivable and contract assets arising from contracts with customers (continued) 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 2022 2021 RMB million RMB million 5,051 2,027 (961) 6,117 4,434 1,689 (1,072) 5,051 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. China Telecom Corporation Limited Annual Report 2022 269 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2022 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 variable, based on prevailing rates at the end of the reporting period) and the earliest date the Group would be required to repay: Short-term debts Long-term debts Accounts payable Accrued expenses and other payables Lease liabilities Other non-current liabilities 31 December 2022 Total contractual undiscounted cash flow RMB million Within 1 year or on demand RMB million More than 1 year but less than 2 years RMB million More than 2 years but less than 5 years RMB million Carrying amount RMB million More than 5 years RMB million 2,840 7,644 2,884 8,595 2,884 3,226 127,260 127,260 127,260 42,056 66,896 143 42,201 73,034 152 42,201 16,163 – 246,839 254,126 191,734 – 1,187 – – 14,685 152 16,024 – 2,509 – – 38,195 – 40,704 – 1,673 – – 3,991 – 5,664 31 December 2021 Total contractual undiscounted cash flow RMB million 2,870 15,038 Carrying amount RMB million 2,821 13,675 Within 1 year or on demand RMB million 2,870 6,415 Short-term debts Long-term debts Accounts payable (restated) 114,893 114,893 114,893 Accrued expenses and other payables Lease liabilities (restated) Other non-current liabilities 35,111 42,404 34 35,241 46,070 34 35,241 15,194 12 208,938 214,146 174,625 More than 1 year but less than 2 years RMB million More than 2 years but less than 5 years RMB million More than 5 years RMB million – 3,218 – – 9,557 22 12,797 – 3,201 – – 15,560 – 18,761 – 2,204 – – 5,759 – 7,963 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 payables when they become due. 270 China Telecom Corporation Limited Annual Report 2022 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2022 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 2022 31 December 2021 Effective interest Effective interest rate % RMB million rate % RMB million 3.3 1.4 3.5 2,403 7,644 10,047 437 437 10,484 95.8% 3.6 2.1 3.7 2,146 13,675 15,821 675 675 16,496 95.9% 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 95.8% (31 December 2021: 95.9%) of the Group’s short-term and long-term debts as at 31 December 2022 are fixed as set out above. China Telecom Corporation Limited Annual Report 2022 271 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2022 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 94.3% (31 December 2021: 89.6%) of the Group’s cash and cash equivalents and 97.4% (31 December 2021: 98.2%) of the Group’s short-term and long-term debts as at 31 December 2022 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 RMB17,427 million and lease liabilities amounting to RMB66,896 million as at 31 December 2022 (31 December 2021: RMB13,016 million and RMB42,404 million). As at 31 December 2022, the Group’s total debt-to-total assets ratio was 1.3% (31 December 2021: 2.2%), 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. 272 China Telecom Corporation Limited Annual Report 2022 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2022 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. Payables in respect of instalment purchase of equipment 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 – (8,551) 9,826 3,190 – – – – – – – – – – 40,647 (14,035) (8) 17,082 (42) – – – (1,240) 42,404 – – – – 116 8,439 – 4 173 (15,897) (26,627) – – – – 1,356 1,529 94 44,961 – – (4,666) 66,896 – – 89 26,537 – 3 – – – – – – – 13,016 4,411 – – – – – 17,427 978 104,793 – – – – (978) – – – – – – – – – – – (54,960) (26) 17,082 (1,742) (978) 116 8,439 (804) 71,920 (44,036) 112 44,961 89 26,537 (3,244) 96,339 Short-term debts RMB million Long-term debts RMB million 27,994 25,348 (23,473) (12,091) – – (1,700) – – – – 2,821 19 – – – – – (18) – – – – – 436 13,675 (6,115) 18 – – – 66 7,644 Balance as at 1 January 2021 Financing cash flows Foreign exchange gain or loss New leases (restated) Disposal of subsidiaries Acquisition of non-controlling interests Distribution to non-controlling interests Dividends declared Others Balance as at 31 December 2021 (restated) Financing cash flows Foreign exchange gain or loss New leases Distribution to non-controlling interests Dividends declared Others Balance as at 31 December 2022 2,840 Notes: (i) (ii) As at 31 December 2022, the balance of deposits with Finance Company amounting to RMB17,427 million (31 December 2021: RMB13,016 million) were included in amounts due to China Telecom Group in accrued expenses and other payables (Note 22). For the year ended 31 December 2022, other than the net financing cash outflows totalling RMB44,036 million (2021: RMB54,960 million) as presented above, other primary financing activities include Finance Company’s placing statutory deposit reserves amounting to RMB541 million (2021: RMB177 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 2022. China Telecom Corporation Limited Annual Report 2022 273 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2022 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 which were carried out in the ordinary course of business 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”. 2022 2021 Notes RMB million RMB million Construction engineering and design services Receiving ancillary services Interconnection revenues Interconnection charges Receiving community services Centralised services transaction revenues Centralised services transaction expenses Property and land use right lease income Property and land use right 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* (i) (ii) (iii) (iii) (iv) (v) (v) (vi) (vii) (vii) (vii) (viii) (viii) (ix) (ix) (x) (xi) 16,993 22,309 48* 102* 4,340 3,572 870 51 715 463 21 1,944 4,834 15,869 22,613 52 131 3,899 3,242 2,280 50 638 240 17 1,186 3,548 4,249 4,105 4,692 57 – 3,901 60 356 274 China Telecom Corporation Limited Annual Report 2022 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2022 43. RELATED PARTY TRANSACTIONS (continued) (a) Transactions with China Telecom Group (continued) 2022 2021 Notes RMB million RMB million Consideration received from disposal of subsidiaries Payment and digital finance related services Communications resources lease 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 China Telecom Group’s repayments of short-term loans granted by Finance Company Interest income from loans granted by Finance Company to China Telecom Group Receiving finance lease services (xii) (xiii) (xiv) (xv) (xv) (xv) (xv) (xv) (xvi) – 1,068 442 4,072 802 216 4,411 3,190 238 182 8,105 2,000 2,034 201 2,212 – 1 – * 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) 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. (v) Represent related revenues and expenses shared between the Company and China Telecom Group for centralised services. (vi) Represent amounts of property lease fees received and receivable from China Telecom Group for leasing of properties and land use rights. China Telecom Corporation Limited Annual Report 2022 275 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2022 43. RELATED PARTY TRANSACTIONS (continued) (a) Transactions with China Telecom Group (continued) Notes (continued): (vii) Represent amounts in respect of the leasing of properties and land use rights from China Telecom Group, which include the fees for short-term leases, leases of low-value assets, variable lease payments not depending on an index or a rate, fees for non-lease components and interest expenses of right-of-use assets and lease liabilities recognized for leases. (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) (xv) (xvi) Represent amounts in respect of the leasing of related communications resources from China Telecom group, including transmission network communications resources, wireless network communications resources and wireline access network communications resources, etc. Represent amounts related to financial services provided by Finance Company to China Telecom Group, including lending service, deposit service and other financial services. Represent amounts related to finance lease services provided by China Telecom group, including finance lease services such as sale and leaseback, direct lease, etc., and related finance lease consulting services. 276 China Telecom Corporation Limited Annual Report 2022 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2022 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 Other assets Accounts payable Accrued expenses and other payables Contract liabilities Other current liabilities Lease liabilities 31 December 2022 2021 RMB million RMB million (restated) 2,073 180 8,846 92 23,971 19,841 271 1,529 652 1,889 139 2,716 45 21,013 15,249 198 – 501 Amounts due from/to China Telecom Group, other than short-term loans granted by Finance Company included in prepayments and other current assets (Note 18(i)) and deposit with Finance Company included in accrued expenses and other payables (Note 42(i)), bear no interest, are unsecured and are receivable or repayable in accordance with contractual terms which are similar to those terms offered by third parties. China Telecom Corporation Limited Annual Report 2022 277 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2022 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. Notes RMB million RMB million 2022 2021 Tower assets lease related expenses Addition to right-of-use assets Interest expenses on lease liabilities Provision of IT services Addition to right-of-use assets due to (i) (i) (i) (ii) 12,193 2,239 387 30 lease modification (i)(iii) 33,518 11,438 2,829 630 31 – Notes: (i) (ii) (iii) 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 fees for non-lease components. Represent IT and other ancillary services provided to China Tower. The original commercial pricing agreement and the service agreement of the Company’s leasing of telecommunications towers and related assets from China Tower was due to expire on 31 December 2022. The Board of Directors and the Board of Supervisors considered and approved the Company to enter into the commercial pricing agreement and the service agreement with China Tower for a term of five years commencing from 1 January 2023 to 31 December 2027. This is considered as lease modifications to terms including lease considerations and lease terms that were set in the original commercial pricing agreement and its service agreement. Therefore, on the date of lease modifications, the Group reallocated the considerations in the agreements, determined the lease terms, remeasured the lease liabilities using the present value calculated with revised lease payments and discount rates, and adjusted related right-of-use assets accordingly. 278 China Telecom Corporation Limited Annual Report 2022 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2022 43. RELATED PARTY TRANSACTIONS (continued) (b) Transactions with China Tower (continued) Amounts due from/to China Tower are summarised as follows: Accounts receivable Prepayments and other current assets Accounts payable Accrued expenses and other payables Contract liabilities Lease liabilities 31 December 2022 2021 RMB million RMB million 23 43 4,340 1,590 – 9 45 3,914 1,596 3 40,339 13,806 Amounts due from/to China Tower bear no interest, are unsecured and are receivable or repayable in accordance with contractual terms which are similar to those terms offered by third parties. (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 has been reflected in personnel expenses. 2022 2021 RMB thousand RMB thousand 11,400 1,059 12,459 10,289 1,032 11,321 China Telecom Corporation Limited Annual Report 2022 279 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2022 43. RELATED PARTY TRANSACTIONS (continued) (d) Transactions with other government-related entities 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 the 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 deposits and borrowings 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. 280 China Telecom Corporation Limited Annual Report 2022 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2022 44. INFORMATION ABOUT THE STATEMENT OF FINANCIAL POSITION OF THE COMPANY 31 December 2022 2021 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 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 393,043 404,882 49,966 83,693 29,877 18,992 33,086 41,878 3 757 3,272 8,586 44,018 60,288 29,877 18,093 30,716 40,901 – 921 6,196 6,832 663,153 642,724 1,460 37 20,491 2,054 16,887 534 47,733 89,196 1,391 419 19,178 600 16,598 14 50,812 89,012 752,349 731,736 China Telecom Corporation Limited Annual Report 2022 281 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2022 44. INFORMATION ABOUT THE STATEMENT OF FINANCIAL POSITION OF THE COMPANY (continued) 31 December 2022 2021 Note RMB million RMB 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 Total liabilities and equity 26,964 3,160 28,421 6,280 108,354 105,447 43,052 59,639 526 14,039 255,734 41,921 63,439 196 13,555 259,259 (166,538) (170,247) 496,615 472,477 4,484 51,131 27,608 4,678 87,901 7,395 28,168 26,400 1,382 63,345 343,635 322,604 91,507 317,207 408,714 752,349 91,507 317,625 409,132 731,736 26 282 China Telecom Corporation Limited Annual Report 2022 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2022 45. POST-EMPLOYMENT BENEFITS PLANS As stipulated by the regulations of the PRC, the Group participates in various defined contribution retirement plans organised by provincial, autonomous regional and municipal 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 employees. 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 2022, no forfeited contributions may be used by the Group to reduce the existing level of contributions (2021: nil). The Group’s contributions to the above plans for the year ended 31 December 2022 were RMB9,915 million (31 December 2021: RMB9,043 million). The amount payable for contributions to the above defined contribution retirement plans as at 31 December 2022 was RMB923 million (31 December 2021: RMB737 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, exercise price will be adjusted in accordance with the established rules of the plan. 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 2022 283 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2022 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 As at 31 December 2022 2021 4,716,560,000 2,317,800,000 – 2,401,745,000 (1,320,000) (2,985,000) 4,715,240,000 4,716,560,000 For the years ended 31 December 2022 and 2021, no share appreciation right units were exercised. For the year ended 31 December 2022, compensation expense of RMB1,009 million (2021: RMB505 million) was recognised by the Group in respect of share appreciation rights. As at 31 December 2022, the carrying amount of the liability arising from share appreciation rights was RMB1,579 million (31 December 2021: RMB571 million). 284 China Telecom Corporation Limited Annual Report 2022 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2022 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, Consumer Price Index (“CPI”), 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 2022 285 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2022 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 estimates and judgments relating to level of revenue, amount of operating costs and applicable discount rate, etc. Management uses all readily available information in determining an amount that is a reasonable approximation of recoverable amount. For the years ended 31 December 2022 and 2021, no significant provision for impairment loss was made against the carrying value of long-lived assets. In determining the recoverable amount of the assets within the cash-generating unit, significant estimates and judgments were required in estimating future cash flows, revenues, operating costs and applicable discount rate, etc. 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, revenue growth rate, terminal growth rate and pre-tax discount rate are subject to greater uncertainties in the current year due to uncertainty on 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 is adjusted on a prospective basis if there are significant changes from previous estimates. 286 China Telecom Corporation Limited Annual Report 2022 SECTION IX FINANCIAL REPORTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2022 48. POSSIBLE IMPACT OF NEW AND AMENDMENTS TO STANDARDS ISSUED BUT NOT YET EFFECTIVE FOR THE ANNUAL ACCOUNTING PERIOD ENDED 31 DECEMBER 2022 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 2022: IFRS 17 “Insurance Contracts” Effective for accounting periods beginning on or after 1 January 2023 Amendments to IAS 1 “Presentation of Financial Statement” – Classification of Liabilities as Current or Non-current 1 January 2023 Amendments to IAS 1 “Presentation of Financial Statement” and IFRS Practice 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” – Sale or contribution of assets 1 January 2023 1 January 2023 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 2022. 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. 49. PARENT AND ULTIMATE HOLDING COMPANY The parent and ultimate holding company of the Company as at 31 December 2022 is China Telecommunications Corporation, a state-owned enterprise established in PRC. China Telecom Corporation Limited Annual Report 2022 287 SECTION IX FINANCIAL REPORTS FINANCIAL SUMMARY (Amounts in million except for per share data) Results of operation Operating revenues Year ended 31 December 2022 RMB 2021 RMB (restated) 2020 RMB 2019 RMB 2018 RMB 481,448 439,553 393,561 375,734 377,124 Depreciation and amortisation (96,932) (92,966) (90,240) (88,145) (75,493) Network operations and support (147,589) (133,340) (119,517) (109,799) (116,062) Selling, general and administrative (64,277) (61,154) (55,059) (57,361) (59,422) Personnel expenses (84,772) (76,057) (65,989) (63,567) (59,736) Other operating expenses (54,451) (45,088) (29,074) (27,792) (37,697) Impairment loss on property, plant and equipment Operating expenses Operating profit Net finance costs Investment income and others – – (5,042) – – (448,021) (408,605) (364,921) (346,664) (348,410) 33,427 30,948 28,640 29,070 28,714 (7) 243 (1,293) (3,014) (3,639) (2,708) 2,244 1,966 60 30 38 1,701 1,573 2,104 Share of profits of associates and joint ventures 2,051 Profit before taxation 35,714 33,865 27,387 27,034 28,148 Income tax Profit for the year (8,038) (7,716) (6,307) (6,322) (6,810) 27,676 26,149 21,080 20,712 21,338 288 China Telecom Corporation Limited Annual Report 2022 SECTION IX FINANCIAL REPORTS Year ended 31 December 2022 RMB 2021 RMB (restated) 2020 RMB 2019 RMB 2018 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 (222) 20 (385) 604 (324) Deferred tax on change in fair value of investments in equity instruments at fair value through other comprehensive income 50 (15) 97 (147) 82 Items that may be reclassified subsequently to profit or loss: Exchange difference on translation of financial statements of subsidiaries outside mainland China 712 (233) (312) 102 154 Share of other comprehensive income of associates and joint ventures – – (4) (2) (7) Other comprehensive income for the year, net of tax 540 (228) (604) 557 (95) Total comprehensive income for the year 28,216 25,921 20,476 21,269 21,243 Profit attributable to Equity holders of the Company 27,593 25,949 20,850 20,517 21,210 Non-controlling interests Profit for the year 83 200 230 195 128 27,676 26,149 21,080 20,712 21,338 Total comprehensive income attributable to Equity shareholders of the Company 28,133 25,721 20,244 21,074 21,115 Non-controlling interests 83 200 232 195 128 Total comprehensive income for the year 28,216 25,921 20,476 21,269 21,243 Basic earnings per share (RMB) Diluted earnings per share (RMB) 0.30 0.30 0.31 0.31 0.26 0.26 0.25 0.25 0.26 0.26 China Telecom Corporation Limited Annual Report 2022 289 SECTION IX FINANCIAL REPORTS FINANCIAL SUMMARY (Amounts in million except for per share data) As at 31 December of the year 2022 RMB 2021 RMB (restated) 2020 RMB 2019 RMB 2018 RMB Financial condition Property, plant and equipment, net 413,963 415,981 418,605 410,008 407,795 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 58,443 51,457 48,425 59,206 66,644 194,220 167,438 164,050 160,735 115,938 76,300 64,772 75,213 33,092 24,419 23,480 52,150 50,924 48,763 49,525 807,698 762,239 715,096 703,131 663,382 281,737 265,071 271,142 264,661 258,920 89,534 65,995 77,779 83,430 60,363 371,271 331,066 348,921 348,091 319,283 holders of the Company 432,089 428,678 363,456 352,510 343,069 Non-controlling interests 4,338 2,495 2,719 2,530 1,030 Total equity 436,427 431,173 366,175 355,040 344,099 Total liabilities and equity 807,698 762,239 715,096 703,131 663,382 290 China Telecom Corporation Limited Annual Report 2022 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 2022 Share Price HK$ per H Share RMB per A Share High 3.36 Low 2.57 Close 3.07 High 4.66 Low 3.65 Close 4.19 Number of issued shares: (as at 31 December 2022) Market capitalisation: (as at 31 December 2022) 91,507,138,699 HK$410.5 billion China Telecom Corporation Limited Annual Report 2022 291 SHAREHOLDER INFORMATION Distribution of Shares and Shareholdings The share capital of the Company as at 31 December 2022 was RMB91,507,138,699, divided into 91,507,138,699 shares of RMB1.00 each. As at 31 December 2022, the share capital of the Company comprised: Percentage of the Total Number of Shares (%) 84.83 63.78 6.14 2.34 1.06 1.05 10.46 15.17 100.00 Number of Shares 77,629,728,699 58,364,586,774 5,614,082,653 2,137,473,626 968,294,182 957,031,543 9,588,259,921 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 2022: Name of Shareholder GIC Private Limited Number of Shares 2,086,663,702 Percentage of the Total Number of H Shares in Issue (%) 15.04 292 China Telecom Corporation Limited Annual Report 2022 SHAREHOLDER INFORMATION Dividend History A-share Dividend Financial Year Ex-Dividend Date Payment Date 2021 Final 2022 Interim 8 June 2022 8 June 2022 8 September 2022 8 September 2022 H-share Dividend Financial Year Ex-Dividend Date Payment Date 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 1 April 2004 21 April 2005 20 April 2006 26 April 2007 28 April 2008 23 April 2009 22 April 2010 18 April 2011 5 June 2012 4 June 2013 4 June 2014 1 June 2015 30 May 2016 26 May 2017 31 May 2018 3 June 2019 1 June 2020 11 May 2021 31 May 2022 10 July 2003 20 May 2004 23 June 2005 15 June 2006 15 June 2007 16 June 2008 30 June 2009 30 June 2010 30 June 2011 20 July 2012 19 July 2013 18 July 2014 17 July 2015 15 July 2016 21 July 2017 27 July 2018 26 July 2019 31 July 2020 1 June 2021 18 July 2022 2022 Interim 2022 Final 31 August 2022 14 October 2022 31 May 2023 21 July 2023 Dividend per Share (pre-tax) RMB0.170 RMB0.120 Dividend per Share (pre-tax) HKD0.00837* 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 RMB0.170 RMB0.120 RMB0.076** * ** 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 23 May 2023. China Telecom Corporation Limited Annual Report 2022 293 SHAREHOLDER INFORMATION ANNUAL REPORTS Our annual reports in both English and Chinese are now available through the Internet at https://www.chinatelecom-h.com. 2022 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 2021”. 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 2022. 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 2022”, 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. 294 China Telecom Corporation Limited Annual Report 2022 SHAREHOLDER INFORMATION Registered office Address: 31 Jinrong Street Xicheng District Beijing PRC 100033 Tel: Fax: (8610) 5850 1800 (8610) 6601 0728 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 2022 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 Pudong New Area Shanghai (86) 4008-058-058 http://www.chinaclear.cn/zdjs/shfgs/branch_BSH.shtml Tel: Website: 296 China Telecom Corporation Limited Annual Report 2022 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