China Unicom (Hong Kong) Ltd
Annual Report 2020

Plain-text annual report

W I T H I N N O V A T I V E M I N D S E T >240,000 staff members collaboration with 14 strategic investors (Tencent, Baidu, JD.com, Alibaba, Suning…) >1,000 members in “5G Application Innovation Alliance” Human to human, human to thing, thing to thing connections 3 gigabit-networks: 5Gn, Wifi6, Fibre-to-the-home E M P O W E R I N N O V A T I V E C O N N E C T I V I T Y 5Gn-intelligent network • Super fast speed: >1Gbps • Massive connectivity: 1 million connected devices per km2 by one 5G base station • Ultra low latency highly reliable: milli-second The world’s first and largest 5G co-build co-share network (>380,000 5G base stations) effectively sharpens the edges & return with win-win Smart city Smart home Autonomous driving IoT AI Smart healthcare Industrial Internet Big Data loV Smart education Edge computing Cloud computing 5G B R I N G I N N O V A T I V E C O M P E L L I N G E X P E R I E N C E >70 million 5G package subscribers >250 5G lighthouse customers Smart culture & tourism TO ADD VALUE FOR CUSTOMERS & SHAREHOLDERS to innovate and share a good smart living to empower business clients to grow and thrive to leverage unrivalled edges to increase revenue and profit Company Profile 2 Shareholding Structure 3 Performance Highlights 4 Major Events 6 Forward-looking statements Certain statements contained in this report may be viewed as “forward-looking statements” within the meaning of Section 27A of the U.S. Securities Act of 1933 (as amended) and Section 21E of the U.S. Securities Exchange Act of 1934 (as amended). Such forward-looking statements are subject to known and unknown risks, uncertainties and other factors, which may cause the actual performance, financial condition or results of operations of the Company to be materially different from any future performance, financial condition or results of operations implied by such forward- looking statements. In addition, we do not intend to update these forward-looking statements. Further information regarding these risks, uncertainties and other factors is included in the Company's most recent Annual Report on Form 20-F and other filings with the U.S. Securities and Exchange Commission. t Con en Chairman's Statement 8 Human Resources Development 80 Business Overview 4 Social Responsibility 82 Financial Overview 8 88 93 94 95 98 99 Independent Auditor's Report Consolidated Statement of Income Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows 102 Notes to the Consolidated Financial Statements 186 188 Financial Summary Corporate Information Directors and Senior Management 24 Recognition and Awards 36 Corporate Governance Report 38 Report of the Directors t s 62 ompanyC P R O F I China Unicom (Hong Kong) Limited (the “Company”) was incorporated L E The Company is committed to being a creator of smart living trusted by in Hong Kong in February 2000 and was listed on the New York Stock customers, connecting the world to innovate and share a good smart Exchange (“NYSE”)# and The Stock Exchange of Hong Kong Limited living, improving the quality of products and services continuously to on 21 June 2000 and 22 June 2000 respectively. On 1 June 2001, the fulfill customer needs. Future products and services will be developed Company was included as a constituent stock of the Hang Seng Index. in a “smart” way. Internet of Things, cloud computing, Big Data and The Company merged with China Netcom Group Corporation (Hong other technologies will be used for the smart processing on data Kong) Limited on 15 October 2008. and information. The Company’s telecommunication network covers China and connects to the world. It operates a wide range of services, The Company was one of the “Fortune Global 500” companies for including mobile broadband, fixed-line broadband, mobile voice, consecutive years, and ranked 290th in “Fortune Global 500” for the fixed-line voice, ICT, data communications and other related value- year 2020. It was also voted as “Asia’s No.1 Most Honored Telecom added services. As at the end of 2020, the Company had mobile billing Company” for the fifth consecutive year by Institutional Investor. subscribers of about 306 million, of which 4G and 5G subscribers CHINA UN ITE D N ETWO R K COM MUN ICATIO N S GRO UP CO MPAN Y L IMITE D 17.9% 36.8% 100% China Unicom Group Corporation (BVI) Limited 26.4%*** 2 of about 270 million, fixed-line broadband subscribers of about 86 interest of 27.8% of the shares in the Company through A Share million, and fixed-line local access subscribers of about 47 million. Company’s shareholding in China Unicom (BVI) Limited. The remaining 20.1% of the shares in the Company were beneficially owned by public As at 31 December 2020, the ultimate parent company of the Company, shareholders. China United Network Communications Group Company Limited had an effective interest of 52.1% of the shares in the Company through # China United Network Communications Limited (“A Share Company”), China Unicom (BVI) Limited and China Unicom Group Corporation (BVI) Limited; the strategic investors, employee restrictive incentive shares and the public shareholders of A Share Company had an effective Based on the Executive Order 13959 issued on 12 November 2020 by the former President of the United States and the guidance by the US Department of Treasury’s Office of Foreign Assets Control, NYSE staff determined to commence proceedings to delist the Company’s ADSs and suspended trading in the Company’s ADSs from 11 January 2021. In order to protect the interests of the Company and its shareholders, on 20 January 2021, the Company filed with the NYSE a written request for a review of the determination by a Committee of the Board of Directors of the NYSE. Please refer to the Company’s announcement dated 21 January 2021 for details. S S T R U C T U R E hareholding Strategic investors*, employee restrictive incentive shares** and other public shareholders 63.2% CHINA UNITED NETWORK COM MUNICATIONS LIMITED (Issued shares: approximately 31.0 billion shares) 82.1% China Unicom (BVI) Limited Public Shareholders 53.5% 20.1% CHINA UNICOM (HONG KONG) LIMITED (Issued shares: approximately 30.6 billion shares) * In 2017, approximately 10.9 billion shares of China United Network Communications Limited were acquired by the strategic investors introduced by the mixed- ownership reform through non public share issuance and transfer of existing shares. These shares were no longer restricted from sale in November 2020. ** Pursuant to the initial grant of restrictive share incentive scheme, China United Network Communications Limited granted approximately 800 million restricted shares to the core employees, of which, approximately 300 million shares were unlocked in April 2020. *** Excluded the interest regarding the pre-emptive right owned by China Unicom Group Corporation (BVI) Limited in 225,722,791 shares of the Company. As at 31 December 2020 3 CHINA UNICOM (HONG KONG) LIMITEDANNUAL REPORT 2020H I G H L I G H T S erformance PService revenue mix Free cash flow > RMB100 Bil over the past years CUMULATIVE FREE CASH FLOW3,4 (RMB BIL) INDUSTRY INTERNET REVENUE AS PERCENTAGE OF SERVICE REVENUE further optimised Change YoY 4.6% 4.3% –0.2% –1.6pp 10.3% 10.3% –0.8% 2019 290.51 264.39 94.36 35.7% 11.33 0.370 26.4 2020 303.84 275.81 94.14 34.1% 12.49 0.408 26.2 KEY FINANCIAL DATA Operating Revenue (RMB billions) Of which: Service Revenue (RMB billions) EBITDA1 (RMB billions) As % of Service Revenue Net Profit2 (RMB billions) Basic EPS (RMB) Free Cash Flow3 (RMB billions) Note 1: EBITDA represents profit for the year before finance costs, interest income, share of net profit of associates, share of net profit of joint ventures, other income-net, income tax expenses, depreciation and amortisation. As the telecommunications business is a capital intensive industry, capital expenditure and finance costs may have a significant impact on the net profit of the companies with similar operating results. Therefore, the Company believes that EBITDA may be helpful in analysing the operating results of a telecommunications service operator like the Company. However, it is a non-GAAP financial measure which does not have a standardised meaning and therefore may not be comparable to similar measures Note 3: Excluded the impact of adoption of IFRS/HKFRS 16 on free cash flow in 2019 and 2020 (i.e. free cash flow = Note 2: Net profit represented profit attributable to equity shareholders of the Company. presented by other companies. operating cash flow — CAPEX — capital element of lease rentals paid.) Note 4: Calculated the cumulative free cash flow generated since 2017. Sustained profit growth NET PROFIT2 (RMB BIL) 2018 8.7% 2019 2020 2017 2018 2019 12.4% 15.5% 42.9 90.4 116.8 2020 143.0 2018 2019 10.20 11.33 2020 12.49 4 5 CHINA UNICOM (HONG KONG) LIMITEDANNUAL REPORT 2020 January 2020 China Unicom achieved full coverage of 3G/4G/5G networks in Huoshenshan Hospital in a 36-hour uninterrupted construction to support pandemic prevention and control February 2020 China Unicom provided 5G+ thermal imaging human body temperature screening solutions across the country to firmly build the first line of defense for pandemic prevention and control December 2020 China Unicom fully completed the 100% high-quality migration of cBSS, becoming the first operator in the industry to realise the centralised carrying of all services and all users nationwide September 2020 China Unicom launched its new corporate brand image in an all-round way and advocated “Innovation walks with Intelligence” April 2020 China Unicom officially released its first MEC (Multi-access Edge Computing) large-scale edge cloud commercial network China Unicom, China Mobile and China Telecom jointly released 5G Messaging White Paper, expounding the core concept of 5G Messaging and specifying related business functions and technical requirements ajorM E V E N T S June 2020 China Unicom built the first in-pit 5G commercial network in the country, enabling 5G+ smart mining solutions to enter a new stage of large-scale promotion May 2020 China Unicom and its partners established an education joint venture “iCloud Wisdom” China Unicom Guangxi Branch launched operational reform by socialised cooperation China Unicom announced entering the “Three-Gigabit” era and provided customers with the ultimate experience of a new generation of high-speed Internet access in all scenarios 6 7 CHINA UNICOM (HONG KONG) LIMITEDANNUAL REPORT 2020Chairman’s Statement WANG XIAOCHU Chairman and Chief Executive Officer Dear Shareholders, In 2020, in the face of the challenges from the complicated internal and external environment, the Company actively supported the pandemic prevention and control, firmly implemented the strategy of focus, innovation and cooperation, and accelerated the comprehensive digital transformation. It endeavored to optimise the ecology of the industry, and achieved remarkable results in the network “co-build and co-share”, achieving growing momentum in operation and development. It further unleashed the power of the mixed-ownership reform and continued to make solid strides on high- quality development. 8 CHINA UNICOM (HONG KONG) LIMITEDStatement OVERALL RESULTS In 2020, the Company registered service revenue of RMB275.8 billion, representing a n i n c r e a s e o f 4 . 3 % y e a r - o n - y e a r , outperforming the industry average of 3.6% while the speed of development continued to lead the industry. The Company’s profitability was steadily improved while quality and efficiency were remarkably enhanced. Profit before income tax amounted to RMB16.0 billion and profit attributable to equity shareholders of the Company amounted to RMB12.5 billion, representing a year-on-year increase of 10.3%. EBITDA1 amounted to RMB94.1 billion. The Company deeply implemented the new development philosophy and adhered to win-win cooperation. It fully implemented “co-build and co-share” of 5G network, further improving the cost efficiency. During the year, with effective control of t h e i n v e s t m e n t p a c e , t h e c a p i t a l The Company attached great importance to shareholders’ returns. With due regard to the Company’s profitability, debt and cash flow level and capital requirements for future development, etc., the Board of Directors recommended the payment of a final dividend of RMB0.164 per share, as compared to a dividend of RMB0.148 per share for 2019. Going forward, the Company will continue to strive Our value-oriented operation delivered to enhance its profitability and shareholders’ returns. fruitful results, as the growth momentum of mobile business further emerged. The mobile service revenue and the billing subscriber ARPU grew sequentially for three consecutive quarters. In 2020, the C o m p a n y ’ s m o b i l e s e r v i c e r e v e n u e rebounded and reached RMB156.7 billion. The mobile billing subscribers ARPU reached RMB42.1, up by 4.1% year-on- year. Mobile handset data traffic volume grew by 16.5% year-on-year, while the m o n t h l y a v e r a g e D O U p e r h a n d s e t subscriber reached approximately 9.7 GB. Selling and marketing expenses further decreased, achieving steady pace in quality improvement transformation and the continuous improvement of profitability. BUSINESS DEVELOPMENT During the year, the pandemic repeatedly brought challenges to the Company’s operations. However, the prevention of pandemic had accelerated the development of the digital economy. The Company seized the opportunities of development, turned adversity into opportunities, achieving effective pandemic prevention and control with orderly production and operation. The Company actively drove rational and disciplined competition in the market to promote healthy development of the industry. It restored growth in fundamental businesses and continuously enhanced the revenue generation capability in innovative businesses. The customer perception and service levels continued to improve, achieving initial success in high-quality development of the Company. Persistent in value-oriented operation to further improve the development quality of mobile business The Company actively participated in creating positive industry dynamics, advocating rational competition and sustainable development, and shifting focus from subscriber scale development to subscriber quality and value enhancement. The Company continued its effort in building a digital operating system of m a r k e t i n g a n d s e r v i c i n g w h i l e s t r e n g t h e n i n g B i g D a t a empowerment to drive smart and targeted scenario marketing. By accelerating the offer of innovative products for consumer market and focusing on medical and hygiene, infotainment, sports and healthcare and other key areas, the Company provided customers with rich and diversified terminal experience. The Company provided customers with simplified self-service to improve its service support system. By optimising resource allocation, “cross- region integrated services” was launched to meet the mobility needs of customers, enabling customer satisfaction to continuously expenditure amounted to RMB67.6 billion. improve. Free cash flow2 remained strong, reaching RMB37.9 billion. The Company’s financial position was further strengthened and solidified. 9 ANNUAL REPORT 2020Seizing the window of opportunity to achieve scale integrated operations, achieving steady breakthrough in 5G business growth in the fixed-line broadband 2020 was the first year for scale development of 5G. The Company services. In Northern China, the Company seized the opportunities and carried through value-oriented highlighted its broadband quality and operation and service experience excellence to promote the scale service leadership to maintain its business development of 5G business. In consumer market, the Company scale. In Southern China, the Company deployed Big Data analytics for customer segmentation with precise c o n t i n u e d t o s t e p u p c o o p e r a t i o n , strategy. It promoted online and offline integrated and multi- activated broadband port resources and dimensional scenario target marketing for 5G business. The improved its operating system. Focusing on Company deeply advanced industry cooperation and created a 5G home market, the Company strengthened pan-smart terminal ecosystem integrating “terminal + content + value-oriented operation for home users application”, empowering the consumer Internet market through bundling of smart home products, development. The Company actively prepared commercial trial of video and privileges. With Big Data 5G Messaging and developed lightweight portal to improve product a n a l y t i c s , p r e c i s i o n m a r k e t i n g a n d competitiveness by adhering to industry collaboration and co-built retention management were powered up eco-system. In the government and enterprise market, focusing on and the Company was able to carry out areas such as industrial Internet, smart city, medical healthcare and target marketing in key areas, continuously others, the Company successfully built a number of 5G lighthouse improving operational efficiency. projects, garnering over 250 high-quality lighthouse customers, and achieved 5G commercialisation in 2B (To Business) setting. The Company officially released three 5G private network products and built a centralised 5G private network/MEC self-service platform, elevating 5G innovative products and applications to a new level. In addition, leveraging the first-mover advantages in 5G and industry verticals, the Company led in establishing a 5G fund of funds to accelerate the formation of proprietary core competency system. With more than 1,000 members in 5G Application Innovation Alliance, the Company made phased progress in the industry eco- system construction. I n 2 0 2 0 , t h e C o m p a n y ’ s f i x e d - l i n e broadband access revenue amounted to RMB42.6 billion, representing an increase of 2.4% year-on-year. Fixed-line broadband subscribers registered a net addition of 2.62 million, reaching a total of 86.10 million subscribers. The penetration rate of the integrated service among fixed-line broadband subscribers reached 64%, representing a year-on-year increase of 5 percentage points. During the year, the Company’s 5G package subscribers reached 70.83 million, and the penetration rate of 5G package subscribers reached 23%, which was above industry average of 20%. As 5G network coverage further improves, applications featured by VR/AR Steadily enhancing proprietary capabilities to consolidate the foundation for innovative business games and high-definition 4K/8K video continue to enrich and the development terminal penetration continues to increase, the Company will strive to promote the continuous rapid grow of 5G subscribers and effectively drive the sustainable and healthy development of mobile business. T h e C o m p a n y f i r m l y s e i z e d t h e development opportunities of digital industrialisation and industrial digitisation. It actively supported the pandemic prevention and control as well as the Adopting customised strategy based on the geographical resumption of work, production and features to maintain steady growth of broadband schooling, with its innovative cloud service business models and digital pandemic prevention During the year, leveraging the differentiated advantages of effort being widely recognised. Focusing on broadband quality and content, the Company firmly grasped the key areas such as smart city, digital valuable opportunities of rising demand in remote office, online government and industrial Internet, the education among others during the pandemic and strengthened C o m p a n y p r o m o t e d t h e i n t e g r a t e d 10 CHAIRMAN’S STATEMENTCHINA UNICOM (HONG KONG) LIMITEDmarketing model of “cloud + smart n e t w o r k s + s m a r t a p p l i c a t i o n s ” t o NETWORK CONSTRUCTION Comprehensive promotion of “co-build and co-share” of c o n t i n u e d t o i m p r o v e , a c h i e v i n g remarkable results in high-quality network thoroughly develop application products in 5G network continuously improved return development. key industries. Based on cloud network capabilities, the Company built a “6+N+1” innovative business capability system and proudly released new WO Cloud 6.0, which integrated the capabilities of cloud, Big Data, IoT, artificial intelligence, security and blockchain. The initial establishment of WO Cloud PaaS had been applied in scale in key areas such as smart city and digital government, showing that the research and development, promotion and operation capabilities of the Company’s proprietary products steadily improved. The Company strengthened acquisition of leading and top talents such as CTOs and architects on market-oriented basis, enhancing its proprietary research and development capabilities continuously. The Company executed the new development philosophy, implemented the new infrastructure requirements and built the world’s first and largest “co-build and co-share” 5G network with China Telecom, with the total scale of 5G base stations of 380,000, achieving the coverage scale basically equivalent to that of the leading operator for the first time in history. The “co-build and co- share” initiative resulted in a cumulative saving of network investment of over RMB76.0 billion for both parties. It also significantly reduced network operating costs and greatly shortened the network deployment cycle. At present, the Company realised the world’s first scale commercialisation of Stand-alone network and achieved 100% Network Function Virtualisation (NFV) in 5G core network. During the year, the Company achieved a scale breakthrough in 4G networks “co-build and co-share” with China Telecom by adding 170,000 “co-build and co-share” 4G base stations and saved a total of RMB9.0 billion for both parties in network investment. The Company actively promoted the co-build of optical cables and the co-share of fiber core and cloud infrastructure, significantly improving the network utilisation and During the year, the Company’s revenue from industry Internet business increased efficiency. MIXED-OWNERSHIP REFORM Achievements and benefits of mixed- ownership reform further emerged and consolidated The Company continued to explore new governance based on mixed-ownership reform and its own resources and edges. It a c c e l e r a t e d t h e p r o m o t i o n o f comprehensive digital transformation, i n t r o d u c e d t h e s u p e r i o r r e s o u r c e s advantages of strategic investors and partners in the course of its development, consolidating the foundation for mixed- ownership reform and transformation. During the year, the cooperation of the Company with the eco-system progressed steadily. The joint ventures such as Yunlizhihui, Yunjingwenlv, Yundi, Yundun and Smart Steps continued to promote by 30.0% year-on-year to RMB42.7 billion, Precise investment enhanced quality, return and product research and development and as a percentage of the overall service differentiated network edges revenue increased to 15.5%. Among which, revenue from ICT business grew 33.4% year-on-year to RMB13.4 billion; revenue from IDC and cloud computing reached RMB23.4 billion with a year-on-year increase of 26.1%; revenue from the Internet of Things (IoT) and Big Data services reached RMB4.2 billion and RMB1.7 billion respectively, representing a year-on-year growth of 39.0% and 39.8% respectively. Driven by the sound growth of i n n o v a t i v e b u s i n e s s a n d f i x e d - l i n e broadband business, the Company’s fixed- line service revenue reached RMB116.9 The Company insisted on focused, precise and value-oriented deployment with iterative investment flexibility, which significantly improved network quality and enhanced network service support capabilities. In mobile network, the Company adhered to the Focus Strategy and “co-build and co-share”. It strived to achieve 4/5G network integration and unified voice carrying by IMS. In fixed-line broadband, the Company continued to maintain its leading position in coverage, speed, user experience and services in Northern China, while focusing on tackling shortcomings and improving capabilities in Southern China. The Company also continued to improve the premium network for government and enterprises customers, deepened the cloud infrastructure and data centers layout, enhancing network competitiveness. The Company stepped up efforts in digital transformation and innovation of network and i t e r a t i o n u p g r a d e t o b o o s t m a r k e t expansion, significantly increasing the Company’s product capabilities and market shares in areas such as smart city, tourism, industrial Internet, network security and demographic Big Data. The Company also a c t i v e l y d e p l o y e d n e w t r a c k s b y establishing several strategic cooperation centers and joint laboratories with Baidu, Alibaba and JD to explore 5G application scenarios with artificial intelligence, edge computing and network slicing, etc., creating differentiated competitive advantages brought by resources edges of strategic investors of mixed-ownership billion, up by 10.6% year-on-year. In the continued to promote the evolution of network cloudification, reform. f u t u r e , t h e C o m p a n y w i l l s p e e d u p addressing the shortcomings of key core c a p a b i l i t i e s , p r o m o t e p r o p r i e t a r y technological innovation and continue to carry out in-depth cooperation to achieve win-win with partners. further optimising the infrastructure of cloud and network integration. Aligning with the trend of network evolution, the Company systematically promoted the operation system reform of network function, continuously improving the efficiency and effectiveness of network operations. During the year, the Company’s mobile network NPS and fixed-line broadband NPS 11 ANNUAL REPORT 2020Improved quality and expanded scope in operational The Company continued to excel its reform had opened a new chapter in comprehensive c o r p o r a t e g o v e r n a n c e m e c h a n i s m , digital transformation enhance execution and strengthen risk The Company synergistically advanced reform and comprehensive management and internal control, in a bid digital transformation. The reform of the operating systems of six t o p r o v i d i n g s o l i d s u p p o r t f o r t h e professional functions was fully implemented with workflow sustainable and healthy development of redesigned and rationalised, empowering digital and innovative the Company. In 2020, the Company operation. During the year, the number of management attained a number of accolades, including departments was optimised continuously in the headquarters. The being awarded “Asia’s Best Corporate structure of provincial branches was further streamlined and Governance Company” by FinanceAsia and flattened with increasing features of matrix. The Company voted “Asia’s No. 1 Most Honored Telecom accelerated the construction of the “five major middle platforms” Company” by Institutional Investor for the and historically completed 100% migration to the centralised fifth consecutive year and ranked 286th in Business Support System (cBSS), further expanding its leadership “The Forbes Global 2000”. brought by the centralised IT system. The Company’s supply chain system pioneered in digital transformation among central State- owned enterprises, and achieved Internet-based transactions of over 80%, remarkably growing operational efficiency and development efficacy. The scope of market-oriented reform of sub- ordinate companies was further expanded and the transformation of operating mechanisms accelerated, continuously releasing the intrinsic energy and vitality of the Company. SOCIAL RESPONSIBILITY AND CORPORATE GOVERNANCE T h e f o r m e r U S P r e s i d e n t i s s u e d a n executive order 13959 (the “Executive Order”) on 12 November 2020, and subsequently the US Department of Treasury’s Office of Foreign Assets Control issued the guidance. The Executive Order and the guidance prohibit any transaction by any US person in publicly traded securities (including, among others, derivatives thereof) of certain Chinese The Company actively leveraged information communication to companies, including the Company. The drive and facilitate the value chain as well as the economic and New York Stock Exchange (“NYSE”) staff social development. It also set a positive example in fulfilling determined that, based on the Executive economic, environmental and social responsibilities. During the Order and the guidance, it commenced the year, facing the sudden pandemic, the Company vigorously process to delist the Company’s American delivered communication assurance and smooth network traffic. Depositary Shares (the “ADSs”) and Leveraging the advantages of new digital technology, the Company suspended trading in the Company’s ADSs supported precise pandemic prevention and control and orderly from 11 January 2021. Since its listing on resumption of work, production and schooling. Unicom Big Data The Stock Exchange of Hong Kong Limited Co., Ltd. was awarded the honorary title of “National Advanced and the NYSE in 2000, the Company has Group in Fighting Against COVID-19”. Capitalising on its network complied strictly with the laws and and technological advantages, the Company supported targeted regulations, market rules as well as poverty alleviation and accelerated the infrastructure construction regulatory requirements of its listing such as broadband and 4/5G network, striving to narrow the digital v e n u e s , a n d h a s b e e n o p e r a t i n g i n divide in poverty-stricken areas. In addition, the Company adhered accordance with laws and regulations. The to the harmonious symbiosis of human and nature, vigorously C o m p a n y w a s d i s a p p o i n t e d b y t h e promoted green and low-carbon technology, strengthened Executive Order and NYSE decisions, which electromagnetic radiation management and build a green supply led to a negative impact on the trading chain so as to guard the safety boundary of the natural ecological prices of its ordinary shares and ADSs and environment. harmed the interests of the Company and its shareholders. In order to protect the i n t e r e s t s o f t h e C o m p a n y a n d i t s 12 CHAIRMAN’S STATEMENTCHINA UNICOM (HONG KONG) LIMITEDshareholders, on 20 January 2021, the innovation, ignite organisational vibrancy and continuously Note 1: EBITDA represents profit for the Company filed with the NYSE a written promote development transformation and upgrade. It will year before finance costs, interest request for a review of the determination comprehensively improve quality of growth and operational income, share of net profit of by a Committee of the Board of Directors of efficiency, in order to create greater value for shareholders, associates, share of net profit of the NYSE. Please refer to the Company’s customers and society. Lastly, on behalf of the Board of Directors, I would like to express our sincere gratitude to all shareholders, customers and fellows across society for their support and to all employees for their continuous dedication and contribution along the way! announcement dated 21 January 2021 for details. The Company will continue to pay close attention to the development of related matters and also seek professional advice and reserve all rights to protect lawful rights of the Company. OUTLOOK Currently, with the rapid development of information technology, we are entering a rapidly changing information era. It is foreseeable that in the near future, u b i q u i t o u s c o n n e c t i o n s a n d r a p i d t r a n s f o r m a t i o n a r i s i n g f r o m intelligentisation and digitisation will profoundly impact the form of social and e c o n o m i c o p e r a t i o n s . T h e d i g i t a l industrialisation and industrial digitisation Wang Xiaochu will give birth to a huge emerging market. Chairman and Chief Executive Officer joint ventures, other income-net, income tax expenses, depreciation a n d a m o r t i s a t i o n . A s t h e telecommunications business is a capital intensive industry, capital expenditure and finance costs may have a significant impact on the net profit of the companies with s i m i l a r o p e r a t i n g r e s u l t s . Therefore, the Company believes that EBITDA may be helpful in analysing the operating results of a t e l e c o m m u n i c a t i o n s s e r v i c e o p e r a t o r l i k e t h e C o m p a n y . However, it is a non-GAAP financial measure which does not have a s t a n d a r d i s e d m e a n i n g a n d therefore may not be comparable to similar measures presented by other companies. Hong Kong, 11 March 2021 Note 2: F r e e c a s h f l o w r e p r e s e n t s operating cash flow less capital expenditure. However, it is a non- GAAP financial measure which does not have a standardised meaning and therefore may not be comparable to similar measures presented by other companies. At the same time, the risks resulting from the rapid changes in domestic and overseas m a c r o e c o n o m i c e n v i r o n m e n t , t h e emergence of new industry competitive dynamic and the transformation of new and old growth drivers will bring new challenges to the corporate development in the future. In 2021, facing the complicated changes in the internal and external environment, the C o m p a n y w i l l f i r m l y g r a s p t h e k e y opportunities for the scale development of 5G, continue to deeply implement the s t r a t e g y o f f o c u s , i n n o v a t i o n a n d cooperation, accelerate the comprehensive digital transformation and focus on shaping the “Five-high” new development edges with high-quality service, high-quality development, highly effective governance, h i g h - t e c h e n g i n e a n d h i g h - v i t a l i t y operation. The Company will also adhere to win-win cooperation, actively drive 13 ANNUAL REPORT 2020usiness B O V E R V I E W Facing the complex internal and external environment, COVID-19, and other challenges in 2020, China Unicom adhered to its Focus Strategy, actively promoted comprehensive digital transformation, and remained committed to the differentiated operation. The Company strengthened integrated operation led by 5G services to enhance user acquisition capability, thereby actively pushing forward on high-quality and sustainable growth. CHEN ZHONGYUE Executive Director and President MOBILE SERVICE In 2020, China Unicom deepened its Centered on 5G n, the Company also stepped up 5G collaborated”, achieving the scale promotion and brand communication and strengthened development strategy of WO Cloud. strategy of “Focus, Innovation and selling points of products with “Three-Gigabit”, promoting Cooperation”. Led by 5G to drive service upgrade with innovative communications. As at the mobile service growth, China Unicom end of 2020, the number of mobile billing subscribers persisted in the strategy to “promote reached 306 million with a gradual increase in 5G market 5G package nationwide, with focus on share and the mobile billing subscribers ARPU stood at 5G terminal penetration and network RMB42.1. Mobile handset data traffic volume grew by access rate in key cities”, while 16.5% year-on-year. s e e k i n g f o r u s e r u p g r a d e f r o m existing customers and expanding the s c a l e i n n e w u s e r m a r k e t . T h e Company strived to maintain the FIXED-LINE BROADBAND In 2020, by adhering to the comprehensive coordination of “network + business + operation + service + information” in 62.7%. competitiveness of its tariff and the development of fixed-line service, led by “Three- products and enhanced flexibility on Gigabit” and combined with 5G hotspots based on business tariff and contract design at provincial needs, China Unicom established a market-driven level, aiming to drive 5G customers mechanism with network, business and service interaction, with contracts and bundled services thereby comprehensively improved broadband access while promoting full coverage of 5G capabilities and the ability on resource management, packages on all existing customers. achieving the coordinated development of broadband sale The Company also reinforced 5G core and marketing and network deployment. The Company applications to create differentiation. also accelerated the construction of gigabit networks and China Unicom carried out scale formulated “Gigabit Broadband Development Plan”, p r o m o t i o n i n O m n i - c h a n n e l b y pushing forward the deployment and transformation of implementing “‘6+X’+1+1” initiative, gigabit communities focusing high-value regions. which centered on 5G differentiated Meanwhile, relying on the unconditional acceptance of scenarios online and enabled 5G to broadband application, the Company built a digital actively drive traffic. The Company operation system of “two networks and one middle also conducted 5G experience and platform” for home users, thereby optimised resource closed-door terminal sales events on allocation and promoted highly-efficient governance. In physical channels. On enterprise and 2020, fixed-line broadband access revenue reached government customer front, the RMB42.56 billion, representing a year-on-year growth of Company actively built 5G benchmark 2.4%. During the year, the number of broadband d e m o n s t r a t i o n . T h e C o m p a n y subscribers increased by 2.617 million to 86.095 million accelerated concerted development and the broadband access ARPU was RMB41.5. FTTH a m o n g t e r m i n a l , n e t w o r k a n d subscribers penetration reached 86%. The Company also built its proprietary core competence of new WO Cloud, focusing on resources, networks, platforms, products and ecology, optimising the layout of its cloud resource pool across the network and well positioning the brand of WO Cloud. In 2020, cloud computing revenue reached RMB3.84 billion, representing a year-on-year growth of In Big Data, the Company formed a p r o d u c t m a t r i x i n c l u d i n g d a t a application services, data technology services, AI and blockchain, focusing o n t h e k e y i n d u s t r i e s s u c h a s government affairs, finance, cultural and tourism and transportation. It developed proprietary products such as government big data platform, digital + intelligence + industry + finance platform, smart travel-cultural tourism big data platform and smart factory AI application platform. The Company released “Unicom Chain”, an unified blockchain products and capabilities platform. “Unicom Chain” was connected to the new national blockchain infrastructure “Xinghuo Space”. The Company fulfilled the role as a SOE to support the pandemic prevention and control and assisted in the resumption of work, production and schooling. Our Unicom Big Data business, building the interactive drive between service and terminal. The innovative installment credit INDUSTRY INTERNET In cloud computing, the Company focused on cloud C o . L t d . w a s n a m e d “ N a t i o n a l Advanced Group in Fighting Against 14 15 services on terminals also boosted the leadership while integrating research and development business development. In addition, resources and riding on the organic growth of the the Company was able to implement innovative business as core driving forces. The Company refined customer segmentation and created new WO Cloud base, new PaaS, and new cloud offer fit and suitable products based management product capabilities to build its differentiated COVID-19”. In 2020, Big Data revenue r e a c h e d R M B 1 . 7 2 b i l l i o n , representing a year-on-year growth of 39.8% and achieving a market share of 59.4%, ranked first among telecom on precise Big Data analytics and deep edges of being “cloud-network integrated, secure and operators. insight from various scenarios. reliable, private and customised and multi-cloud CHINA UNICOM (HONG KONG) LIMITEDANNUAL REPORT 2020In Internet of Things (IoT), the Company optimised the IoT business system with the drive by 5G, 4G as main force and precise development of NB and achieved the number of connections reaching approximately 240 million. Based on the concept of “network softwarisation, software hardwarisation and hardware as a chip”, the Company strengthened proprietary capability building. The number of connections carried by the Yanfei Zhilian CMP platform exceeded 80 million and the Yanfei Gewu DMP platform had begun its commercial use. In 2020, IoT revenue reached RMB4.22 billion, representing a year- on-year growth of 39.0%. In IT services, the Company grasped the development opportunities of “ N e w i n f r a s t r u c t u r e ” , p u b l i c g o v e r n a n c e a n d i n d u s t r i a l digitalisation, focusing on customers such as government units, public service units and large industrial enterprises, and key areas such as smart city, digital government, Big data + IT + Innovation, ITO and 5G innovation, further promoting digital transformation empowerment. The Company also created a “platform + application” product system covering digital infrastructure, cloud-network integration, digital platforms, digital applications, and digital solutions by aggregating its proprietary innovation and core capabilities. The Company’s qualification level further improved smooth operation of communication network systems in The Company continued to optimise the government, provided a number of digital services such its international network deployment. as 5G-based live broadcast and remote meetings for A s a t t h e e n d o f 2 0 2 0 , t h e important national conferences and successfully completed i n t e r n a t i o n a l s u b m a r i n e c a b l e with high quality of more than 260 assurance tasks in three resource capacity, international major categories. China Unicom System Integration Internet outbound capacity and Company Limited ranked 21st in “100 Most Competitive homebound bandwidth reached Software & IT Service Company” in China. In 2020, IT 52.6T, 4.12T and 3.30T, respectively. services revenue reached RMB13.36 billion, representing a The Company’s international roaming year-on-year growth of 33.4%. services covered 627 operators in 259 NETWORK CAPABILITIES In 2020, the Company deepened the implementation of its strategy of focus, innovation, and cooperation, actively countries and regions. MARKETING Branding promoted the digital transformation of network and the In 2020, the Company carried out reform of network operating mechanism. The Company high-quality development and acted achieved strategic results in the high-quality collaborative out its brand planning by affirming development in the industry and network “co-build and co- the brand positioning of a warmth share”, and continued to strengthen in network service smart living along with the slogan support capabilities to facilitate the Company’s high- “Innovation walks with Intelligence”, quality development. and it is the only one among the three As at the end of 2020, the number of the Company’s 4G operators which obtained the first- base stations reached 1.503 million with 4G population level qualification for electrification coverage reaching 94% and administrative village coverage and intelligentisation. The Company reaching 86%. In the fixed-line network, the Company also newly added 7 IT industry continued to expand network coverage in new regions and qualifications including CS4, ITSS stepped up the network upgrade in areas with PON+LAN. (Level I) and others. During the The total number of broadband access ports reached 225 pandemic, the Company assured the million, of which FTTH ports accounted for 88%. 16 which fully renovated the internal and external branding of China Unicom and enhanced the brand value of China Unicom. In promoting 5G, the Company gave full play to the leading role of 5G, continued the effort to communicate the brand philosophy and build and accumulate the 5Gn b r a n d v i s u a l a s s e t s . W h i l e t h e Company focused on key businesses BUSINESS OVERVIEWCHINA UNICOM (HONG KONG) LIMITEDand scenarios on publicity campaigns, improvements and two controls” and carried out value- Score (NPS) measuring the reputation it also rode promotions on trends, oriented operation for all customers. The Company also of mobile and broadband services hotspots, events and key festivals. innovated the platform-based product portfolio and built improved by 5.5 points and 7.6 T h e C o m p a n y t o o k t h e l e a d i n an ecosystem for channels by giving full play to the points, respectively. As at the end of launching “Three-Gigabit” products, advantages of the business and IT collaboration, consumer December, valid complaint rate focusing on the home network service m a r k e t a n d g o v e r n m e n t a n d e n t e r p r i s e m a r k e t published by Ministry of Industry and demand, and carried out promotion collaboration, sought development in segment markets by I n f o r m a t i o n T e c h n o l o g y ( M I I T ) featuring product benefits and customer slicing and precise policy implementation. At the decreased by 35.2% year-on-year. catering regional differences. In the same time, the Company strived to improve six key y o u t h m a r k e t , t h e C o m p a n y operational capabilities namely, “brand, customers, rejuvenated WO Pi brand, deepened products, channels, terminals and services” to achieve the WO Pi’s brand proposition, “Do what I improvement of marketing efficiency and facilitating the like”, and conveyed the connotation high-quality development of the consumer market. PRECISE PANDEMIC CONTROL Since the beginning of 2020, facing the outbreak of COVID- 19, t he C o m p a n y h a s b e e n p r o a c t i v e l y undertaking social responsibility, of diversified vitality. By continuously optimising the promotion content and diversifying communication means, the Company received good overall brand development momentum and improved in reputation and brand awareness. Meanwhile, by virtue of t h e s p o n s o r s h i p o f t h e W i n t e r Olympics, consumers’ perception of the brand further improved. Marketing Channels I n 2 0 2 0 , t h e C o m p a n y a c t i v e l y i m p l e m e n t e d assuring the effective communication comprehensive digital transformation strategy, leveraged services delivery and making use of the efficient support of middle platforms, strengthened new technologies such as big data, AI Omni-channel collaboration and focused on the and 5G to support a precise pandemic implementation of “‘6+X’+1+1” project. The Company also control and resumption of work, accelerated the online to offline integration, building a p r o d u c t i o n a n d s c h o o l i n g . T h e digital OMO channel operation system which integrate new outbreak posed short-term challenges and existing customer management, service and to the Company, including customer marketing. In addition, the Company stepped up channel acquisition, business development, Marketing strategies innovation and transformation, vigorously developed network deployment and risk of bad In 2020, the Company continued to online, light touch-point micro-ecology, live broadcast and debt. However, it also accelerated push forward comprehensive digital other new touchpoints, new marketing models and demand by economy and society for transformation and carried out segment markets, thus customer acquisition capability had transformation on digitisation, “1+3+3” work deployment. Focusing continuously improved on digital channels. Through fully cyberisation and intelligence, thereby on the development of the four major promoting “100%” satisfaction and actively building a high- creating new opportunities to the markets and adhering to the core traffic APP portal ecosystem, as well as boosting the multi- Company. Striving to turn adversity strategy of “1+4+X” and leading by dimensional smart push capability, the service capability of into opportunities, the Company “ T h r e e - G i g a b i t ” p r o d u c t s , t h e digital channels was gradually enhanced. Riding on the accelerated the transformation of C o m p a n y f o c u s e d o n f o u r middle platforms serving consumer market and the high- Internet-oriented operation, provided fundamental products and realised traffic APP portal, the Company achieved online and offline innovative communications service scale development of smart home resource sharing, the online powered up offline and built o f f e r i n g s , s t r e n g t h e n e d O 2 O products. The Company promoted the an unified delivery tools which pushed forward network integrated operation and actively full coverage of 5G packages for all and business collaboration, continuously accelerating the p r o m o t e d n e w i n f o r m a t i s a t i o n customers and strengthened 5G core digitalisation of channels. applications to create differentiation. Segmenting customers based on customer value distribution and spending pattern, the Company refined customer lists and accurately matched customers with appropriate tariffs, products and touchpoints. The Company solidly promoted the “two Customer Care In 2020, the Company dedicated in promoting service assurance during the pandemic and accelerated digital transformation, achieving continuous improvement in customer experience and service quality. As at the end of the fourth quarter, end-to-end real-time customer experience score improved by 1.52 points. Net Promoter applications, thereby providing c u s t o m e r s w i t h a c c e s s i b l e , convenient and highly efficient smart living services. 17 ANNUAL REPORT 2020inancial F O V E R V I E W OVERVIEW In 2020, the Company continuously deepened the REVENUE In 2020, the Company’s revenue was implementation of “Focus Strategy”, total revenue was RMB303.84 billion, up by 4.6% year- RMB303.84 billion in 2020, up by 4.6% year-on-year. on-year, of which, service revenue Service revenue reached RMB275.81 billion, up by 4.3% was RMB275.81 billion, up by 4.3% year-on-year. Net profit1 was RMB12.49 billion, up by year-on-year due to continuous RMB1.16 billion year-on-year. optimisation of the revenue mix. In 2020, the Company’s net cash flow from operating The table below sets forth the activities was RMB105.55 billion. Capital expenditure was composition of service revenue, and RMB67.65 billion. Liabilities-to-assets ratio was 43.6% as at the percentage contribution of each 31 December 2020. service to total service revenue for the years of 2020 and 2019: 18 CHINA UNICOM (HONG KONG) LIMITED(RMB BIL) SERVICE REVENUE 275.81 (RMB BIL) EBITDA 2 94.14 (RMB BIL) NON-VOICE SERVICE REVENUE 240.32 2020 2019 As a percentage As a percentage Total of service Total of service (RMB in billions) amount revenue amount revenue Service revenue Include: Voice service Non-voice service Voice Service 275.81 35.49 240.32 100.00% 12.87% 87.13% 264.39 39.48 224.91 100.00% 14.93% 85.07% In 2020, service revenue from the voice service was RMB35.49 billion, down by 10.1% year-on-year. Non-Voice Service In 2020, service revenue from the non-voice service was RMB240.32 billion, up by 6.9% year-on-year. 19 ANNUAL REPORT 2020 COSTS AND EXPENSES In 2020, total costs and expenses amounted to RMB287.81 billion, up by 4.1% year-on-year. The table below sets forth the items of the costs and expenses and their respective percentage of the revenue for the years of 2020 and 2019: 2020 2019 As a As a Total percentage Total percentage (RMB in billions) amount of revenue amount of revenue Total costs and expenses Operating costs Include: Interconnection charges De preciation and amortisation Ne twork, operation and support expenses Em ployee benefit expenses Co sts of telecommunications products sold Se lling and marketing expenses Ge neral, administrative and other operating expenses Finance costs, net of interest income Share of net profit of associates Share of net profit of joint ventures Other income-net 287.81 292.72 10.57 83.02 46.29 55.74 26.86 30.46 39.78 0.38 –1.59 –0.79 –2.91 94.73% 96.34% 3.48% 27.32% 15.23% 18.35% 8.84% 10.03% 13.09% 0.13% –0.52% –0.26% –0.96% 276.35 279.25 11.51 83.08 43.24 50.52 26.41 33.54 30.95 0.85 –1.36 –0.65 –1.74 95.12% 96.12% 3.96% 28.60% 14.88% 17.39% 9.09% 11.55% 10.65% 0.29% –0.47% –0.22% –0.60% 20 FINANCIAL OVERVIEWCHINA UNICOM (HONG KONG) LIMITED Interconnection charges Selling and marketing expenses The Company was affected by the decline in voice service, T h e C o m p a n y p r o m o t e d the interconnection charges were RMB10.57 billion in transformation on digitisation and 2020, down by 8.2% year-on-year and, as a percentage of s t r e n g t h e n e d O 2 O i n t e g r a t e d revenue, decreased from 3.96% in 2019 to 3.48% in 2020. operation, selling and marketing Depreciation and amortisation expenses were RMB30.46 billion in 2020, down by 9.2% year-on-year Depreciation and amortisation charges were RMB83.02 and, as a percentage of revenue, billion in 2020, down by 0.1% year-on-year and, as a decreased from 11.55% in 2019 to percentage of revenue, decreased from 28.60% in 2019 to 10.03% in 2020. 27.32% in 2020. General, administrative and other Network, operation and support expenses operating expenses Network, operation and support expenses were RMB46.29 General, administrative and other billion in 2020, up by 7.1% year-on-year and, as a operating expenses were RMB39.78 percentage of revenue, increased from 14.88% in 2019 to billion in 2020, up by 28.6% year-on- 15.23% in 2020 mainly due to increase in the tower usage year, mainly due to the rapid growth fee, energy consumption cost and rental expenses of of ICT services leading to increased premises and equipment. related service costs and increased investment in technical support for Employee benefit expenses innovative businesses. As a result of the improved operating results and increased the introduction of talent pipeline in the meantime, Finance costs, net of interest income employee benefit expenses were to RMB55.74 billion in Finance costs, net of interest income 2020, up by 10.3% year-on-year and, as a percentage of w a s R M B 0 . 3 8 b i l l i o n i n 2 0 2 0 , revenue, increased from 17.39% in 2019 to 18.35% in decreased by RMB0.47 billion year- 2020. on-year mainly due to fall in interest- bearing debts. Cost of telecommunications products sold Costs of telecommunications products sold were RMB26.86 Other income-net billion and revenue from sales of telecommunications Other income-net was RMB2.91 products were RMB28.02 billion in 2020. Gross profits on billion in 2020, increased by RMB1.18 sales of telecommunications products was RMB1.16 billion. billion year-on-year. 21 ANNUAL REPORT 2020EARNINGS Profit before income tax EBITDA2 In 2020, the Company’s EBITDA was In 2020, the Company benefited from continuous RMB94.14 billion, down by 0.2% year- enhancement in growth quality and profitability, profit on-year. EBITDA as a percentage of before income tax was RMB16.03 billion, up by 13.1% year- service revenue was 34.1%, down by on-year. Income tax In 2020, the Company’s income tax was RMB3.45 billion and the effective tax rate was 21.5%. Profit for the year 1.6 percentage points year-on-year. CAPITAL EXPENDITURE AND CASH FLOW In 2020, capital expenditure of the Company totaled RMB67.65 billion, w h i c h m a i n l y c o n s i s t e d o f In 2020, the Company’s net profit1 was RMB12.49 billion, investments in mobile network, increased by RMB1.16 billion year-on-year. Basic earnings b r o a d b a n d a n d d a t a , a n d per share was RMB0.408, up by 10.3% year-on-year. infrastructure and transmission network etc. In 2020, the Company’s net cash flow from operating activities was RMB105.55 billion. Free cash flow3 was RMB37.90 billion after the deduction of the capital expenditure. T O E L E V A T E S H A R E H O L D E R V A L U E T H R O U G H Q U A L I T Y & E F F I C I E N C Y E N H A N C E M E N T • Strengthen cash flow management and promote transformation of resources allocation & utilisation to enhance productivity of all essential factors • Accelerate operating model transformation, to foster pan-marketing coordinated operation & high quality development • Deepen network & business integration with precise investment to enhance the edges of cloud-network integration 22 FINANCIAL OVERVIEWCHINA UNICOM (HONG KONG) LIMITEDThe table below sets forth the major items of the capital expenditure in 2020: RMB (in billions) Total amount As percentage 2020 Total Include: Mobile network Broadband and data Infrastructure and transmission network Others 67.65 38.17 10.15 11.04 8.29 100.00% 56.42% 15.01% 16.32% 12.25% BALANCE SHEET The Company’s total assets changed from RMB562.50 billion as at 31 December 2019 to RMB580.62 billion as at 31 December 2020. Total liabilities changed from RMB241.74 billion as at 31 December 2019 to RMB253.10 billion as at 31 December 2020. The liabilities-to-assets ratio changed from 43.0% as at 31 December 2019 to 43.6% as at 31 December 2020. The debt-to-capitalisation ratio decreased from 15.2% as at 31 December 2019 to 12.2% as at 31 December 2020. The net debt-to-capitalisation ratio was 6.0% as at 31 December 2020. Note 1: Net profit represented profit attribute to equity shareholders of the Company. Note 2: EBITDA represents profit for the year before finance costs, interest income, shares of net profit of associates, share of net profit of joint ventures, other income-net, income tax expenses, depreciation and amortisation. As the telecommunications business is a capital intensive industry, capital expenditure and finance costs may have a significant impact on the net profit of the companies with similar operating results. Therefore, the Company believes that EBITDA may be helpful in analysing the operating results of a telecommunications service operator like the Company. However, it is a non-GAAP financial measure which does not have a standardised meaning and therefore may not be comparable to similar measures presented by other companies. Note 3: Free cash flow represents operating cash flow less capital expenditure. However, it is a non-GAAP financial measure which does not have a standardised meaning and therefore may not be comparable to similar measures presented by other companies. • Strengthen centralised IT operation & data governance to boost overall IT efficiency • Continue to promote value management leveraging innovative revitalisation of operating assets & enhancement of talent performance 23 ANNUAL REPORT 2020 irectors D A N D S E N I O R M A N A G E M E N T WANG XIAOCHU Chairman and Chief Executive Officer Aged 62, was appointed in September 2015 as an Executive Director, Chairman and Chief Executive Officer of the Company. Mr. Wang, a professor level senior engineer, graduated from Beijing Institute of Posts and Telecommunications in 1989 and received a doctorate degree in business administration from the Hong Kong Polytechnic University in 2005. Mr. Wang served as Deputy Director General and Director General of the Hangzhou Telecommunications Bureau in Zhejiang province, Director General of the Tianjin Posts and Telecommunications Administration, Chairman and Chief Executive Officer of China Mobile (Hong Kong) Limited, Vice President of China Mobile Communications Corporation, an Executive Director, Chairman and Chief Executive Officer of China Telecom Corporation Limited, Chairman and President of China Telecommunications Corporation, Chairman and a Non-Executive Director of China Communications Services Corporation Limited and a Director of Telefónica S.A.. In addition, Mr. Wang also serves as the Chairman of China United Network Communications Group Company Limited (“Unicom Group”), China United Network Communications Limited (“A Share Company”) and China United Network Communications Corporation Limited (“CUCL”), respectively. Mr. Wang has extensive experience in management and telecommunications industry. 24 CHINA UNICOM (HONG KONG) LIMITEDA N D S E N I O R M A N A G E M E N T CHEN ZHONGYUE Executive Director and President Aged 49, was appointed in February 2021 as an Executive Director and President of the Company. Mr. Chen, a senior engineer, graduated from Shanghai Posts and Telecommunications College in 1990 and received a master degree in economics from Zhejiang University in 1998. Mr. Chen served as Deputy General Manager of China Telecom Zhejiang branch, Managing Director of the Public Customers Department of China Telecom, General Manager of China Telecom Shanxi branch, Vice President of China Telecommunications Corporation, Executive Director and Executive Vice President of China Telecom Corporation Limited. Mr. Chen also serves as a Director and General Manager of Unicom Group, a Director and President of A Share Company as well as a Director and President of CUCL. Mr. Chen has extensive experience in management and the telecommunications industry. 25 ANNUAL REPORT 2020LI FUSHEN Executive Director Aged 58, was appointed in March 2011 as an Executive Director of the Company. Mr. Li graduated from the Jilin Engineering Institute in 1988 and received a master’s degree in management from the Australian National University in 2004. Mr. Li served as Deputy General Manager of the former Jilin Provincial Telecommunications Company and Jilin Communications Company, General Manager of the Finance Department and the Chief Accountant of China Network Communications Group Corporation, Chief Financial Officer, Executive Director and Joint Company Secretary of China Netcom Group Corporation (Hong Kong) Limited, Vice General Manager and Chief Accountant of Unicom Group and Senior Vice President and Chief Financial Officer of the Company. In addition, Mr. Li also serves as a Non-Executive Director and the Deputy Chairman of the Board of PCCW Limited (listed on the Hong Kong Stock Exchange with an American Depositary Receipts trading on OTC Markets Group Inc.), a Non-Executive Director of HKT Limited (HKT Trust and HKT Limited are listed on the Hong Kong Stock Exchange) and HKT Management Limited (the trustee manager of the HKT Trust), a Director of Unicom Group, a Director of A Share Company, as well as a Director of CUCL. Mr. Li has worked in the telecommunications industry for a long period of time and has extensive management experience. 26 CHINA UNICOM (HONG KONG) LIMITEDDIRECTORS AND SENIOR MANAGEMENTMAI YANZHOU Senior Vice President Aged 52, was appointed in February 2018 as a Senior Vice President of the Company. Mr. Mai, a professor level senior engineer, graduated from Zhengzhou University in 1991 and received a master’s degree in Electronics and Information Engineering from Beijing University of Posts and Telecommunications in 2002. Mr. Mai served as Deputy General Manager of Guangdong Branch of China Network Communications Group Corporation, Deputy General Manager of Guangdong Branch, General Manager of Fujian Branch, as well as General Manager of Liaoning Branch of China Unicom. Mr. Mai served as a Delegate to the 12th National People’s Congress. Mr. Mai also serves as a Non-Executive Director of PCCW Limited (listed on the Hong Kong Stock Exchange with an American Depositary Receipts trading on OTC Markets Group Inc.), a Non-Executive Director of China Tower Corporation Limited (listed on the Hong Kong Stock Exchange), a Non-Executive Director of China Communications Services Corporation Limited (listed on the Hong Kong Stock Exchange), Vice General Manager of Unicom Group, Senior Vice President of A Share Company as well as Director and Senior Vice President of CUCL. Mr. Mai has extensive experience in management and telecommunications industry. 27 ANNUAL REPORT 2020LIANG BAOJUN Senior Vice President Aged 51, was appointed in February 2018 as a Senior Vice President of the Company. Mr. Liang, a professor level senior engineer, graduated from Changchun Institute of Posts and Telecommunications in 1991, received a master’s degree in Engineering from Beijing University of Posts and Telecommunications in 1998 and an executive master’s degree of Business Administration from Tsinghua University in 2006. Mr. Liang served as Deputy General Manager of Beijing Branch of China Telecom Corporation Limited, as well as General Manager of Henan Branch of China Telecommunications Corporation, General Manager of Corporate Informatisation Department, General Manager of Government and Enterprise Customers Department of China Telecommunications Corporation. Mr. Liang also serves as Vice General Manager of Unicom Group, Senior Vice President of A Share Company, Director and Senior Vice President of CUCL, as well as Director of certain member of the Group. Mr. Liang has extensive experience in management and telecommunications industry. 28 CHINA UNICOM (HONG KONG) LIMITEDDIRECTORS AND SENIOR MANAGEMENTZHU KEBING Executive Director & Chief Financial Officer Aged 46, was appointed in August 2018 as Executive Director and Chief Financial Officer of the Company. Mr. Zhu is a Senior Accountant, graduated from Northeastern University in 1997 and received a Professional Accountancy master’s degree from Chinese University of Hong Kong in 2011. Mr. Zhu previously worked as Deputy Head of the Financial Department, General Manager, Budgeting Controller and Asset Management Controller of the Operation and Financial Department of Baosteel Group Co., Ltd., the Chief Financial Officer, Board Secretary and Supervisor of Baoshan Iron and Steel Co., Ltd., a General Manager of the Industry Finance Development Center of China Baowu Steel Group Corporation Limited, a Director of Shanghai Baosight Software Co., Ltd., General Manager of Hwabao Investment Co., Ltd., a Non-Executive director of China Pacific Insurance (Group) Co., Ltd., Director of Sailing Capital International Investment Fund (Shanghai), Director of Sailing Capital Management Co., Ltd., Director of Siyuanhe Equity Investment Management Co., Ltd. and the Vice President of PE Association of Shanghai etc. Meanwhile, he also serves as a Non-Executive Director of PCCW Limited (listed on the Hong Kong Stock Exchange with an American Depositary Receipts trading on OTC Markets Group Inc.), a Non-Executive Director of HKT Limited (HKT Trust and HKT Limited are listed on the Hong Kong Stock Exchange) and HKT Management Limited (the trustee-manager of the HKT Trust), the Chief Accountant of Unicom Group, the Chief Financial Officer and Board Secretary of A Share Company, the Director and the Chief Financial Officer of CUCL, as well as the Directors of certain members of the Group. Mr. Zhu has extensive experience in board secretary, corporate finance and investment management. 29 ANNUAL REPORT 2020FAN YUNJUN Executive Director and Senior Vice President Aged 48, was appointed in February 2020 as an Executive Director of the Company. Mr. Fan was appointed in January 2019 as a Senior Vice President of the Company. Mr. Fan, a senior engineer, received a doctorate degree of Engineering in Signal and Information Processing from Beijing University of Posts and Telecommunications in 1998. Mr. Fan served as a Director and Vice General Manager of China Mobile Group Beijing Company Limited, the Chairman and Chief Executive Officer of CMPak Limited, the Chairman of China Mobile Hong Kong Company Limited, the Chairman and Chief Executive Officer of China Mobile International Limited, the Chairman and General Manager of China Mobile Group Beijing Company Limited. Mr. Fan also serves as a Vice General Manager and General Counsel of Unicom Group, a Senior Vice President and General Counsel of A Share Company as well as a Director and Senior Vice President of CUCL. Mr. Fan has extensive experience in management and telecommunications industry. 30 CHINA UNICOM (HONG KONG) LIMITEDDIRECTORS AND SENIOR MANAGEMENTHE BIAO Senior Vice President Aged 49, was appointed in June 2020 as a Senior Vice President of the Company. Mr. He graduated from Xiangtan University in 1993 and received a doctorate degree of Business Administration in 2016. Mr. He served as Deputy General Manager and General Manager of Guangdong Branch of China Unicom as well as Chairman of China Unicom (Guangdong) Industrial Internet Co., Ltd.. Mr. He also serves as a Vice General Manager of Unicom Group, a Senior Vice President of A Share Company as well as a Director and Senior Vice President of CUCL. Mr. He has extensive experience in management and telecommunications industry. 31 ANNUAL REPORT 2020CHEUNG WING LAM LINUS Independent Non-Executive Director Aged 72, was appointed in May 2004 as an Independent Non-Executive Director of the Company. Mr. Cheung is an Independent Non-Executive Director of HKR International Limited (listed on the Hong Kong Stock Exchange). Mr. Cheung was a member of the University of Hong Kong Council, Chairman of the Council of Centennial College, a member of the Board of Governors of Centennial College, Chairman of the University of Hong Kong School of Professional and Continuing Education, Chairman of Asia Television Limited, Deputy Chairman of PCCW Limited, an Independent Non-Executive Director of Taikang Life Insurance Company Limited and Sotheby’s, as well as President of the Chartered Institute of Marketing (Hong Kong Region). Prior to the merger of Pacific Century Cyberworks Limited and Hong Kong Telecom Limited, Mr. Cheung was the Chief Executive of Hong Kong Telecom Limited and an Executive Director of Cable & Wireless plc in the United Kingdom. Mr. Cheung worked at Cathay Pacific Airways for 23 years, leaving as Deputy Managing Director. He was appointed an Official Justice of the Peace in 1990 and a Non- official Justice of the Peace in 1992. Mr. Cheung received a bachelor’s degree in social sciences and a diploma in management studies from the University of Hong Kong. He is also an Honorary Fellow of the University of Hong Kong and of The Chartered Institute of Marketing in the United Kingdom. 32 CHINA UNICOM (HONG KONG) LIMITEDDIRECTORS AND SENIOR MANAGEMENTWONG WAI MING Independent Non-Executive Director Aged 63, was appointed in January 2006 as an Independent Non-Executive Director of the Company. Mr. Wong is Executive Vice President and Chief Financial Officer of Lenovo Group Limited (listed on the Hong Kong Stock Exchange). Mr. Wong was previously an investment banker with over 15 years of experience in investment banking business in Greater China and was a member of the Listing Committee of The Stock Exchange of Hong Kong Limited. Mr. Wong is a chartered accountant and holds a bachelor’s degree (with Honors) in management science from the Victoria University of Manchester in the United Kingdom. 33 ANNUAL REPORT 2020CHUNG SHUI MING TIMPSON Independent Non-Executive Director Aged 69, was appointed in October 2008 as an Independent Non-Executive Director of the Company. Mr. Chung is a member of the National Committee of the 13th Chinese People’s Political Consultative Conference. He is also the Pro-Chancellor of the City University of Hong Kong. Besides, Mr. Chung is an Independent Non-Executive Director of Glorious Sun Enterprises Limited, The Miramar Hotel and Investment Company, Limited, China Overseas Grand Oceans Group Limited, China Everbright Limited, China Railway Group Limited, Orient Overseas (International) Limited and Postal Savings Bank of China Co., Limited (all listed on the Hong Kong Stock Exchange). From October 2004 to October 2008, Mr. Chung served as an Independent Non-Executive Director of China Netcom Group Corporation (Hong Kong) Limited. Formerly, he was the Chairman of China Business of Jardine Fleming Holdings Limited and the Deputy Chief Executive Officer of BOC International Limited. He was also the Director-General of Democratic Alliance for the Betterment and Progress of Hong Kong, the Chairman of the Advisory Committee on Arts Development, the Chairman of the Council of the City University of Hong Kong, the Chairman of the Hong Kong Housing Society, a member of the Executive Council of the Hong Kong Special Administrative Region, the Vice Chairman of the Land Fund Advisory Committee of Hong Kong Special Administrative Region Government, a member of the Managing Board of the Kowloon-Canton Railway Corporation, a member of the Hong Kong Housing Authority, a member of the Disaster Relief Fund Advisory Committee, an Independent Non-Executive Director of Henderson Land Development Company Limited, Nine Dragons Paper (Holdings) Limited, China Construction Bank Corporation and Jinmao Hotel and Jinmao (China) Hotel Investments and Management Limited, an Independent Director of China Everbright Bank Company Limited and China State Construction Eng. Corp. Ltd. and an Outside Director of China Mobile Communications Corporation. Mr. Chung holds a bachelor of science degree from the University of Hong Kong and a master’s degree in business administration from the Chinese University of Hong Kong. Mr. Chung also received an honorary doctoral degree in Social Science from the City University of Hong Kong in 2010. Mr. Chung is a fellow member of the Hong Kong Institute of Certified Public Accountants. 34 CHINA UNICOM (HONG KONG) LIMITEDDIRECTORS AND SENIOR MANAGEMENTLAW FAN CHIU FUN FANNY Independent Non-Executive Director Aged 68, was appointed in November 2012 as an Independent Non-Executive Director of the Company. Mrs. Law is currently a Member of the Executive Council of the Government of the Hong Kong Special Administrative Region (“HKSAR”), a Director of the Fan Family Trust Fund and the Honorary Principal of Ningbo Huizhen Academy. Besides, Mrs. Law is an Independent Non-Executive Director of CLP Holdings Limited, Nameson Holdings Limited, Minmetals Land Limited and China Taiping Insurance Holdings Company Limited (all listed on the Hong Kong Stock Exchange), as well as External Director of China Resources (Holdings) Co., Limited. Mrs. Law served as a Deputy of HKSAR to the National People’s Congress of the People’s Republic of China, Chairman of the Board of Directors of Hong Kong Science and Technology Parks Corporation and an Independent Non-Executive Director of DTXS Silk Road Investment Holdings Company Limited. Prior to her retirement from the civil service in 2007, Mrs. Law was the Commissioner of the Hong Kong Independent Commission Against Corruption. During her 30 years as an Administrative Officer, Mrs. Law has worked in many fields, including medical and health, economic services, housing, land and planning, home affairs, social welfare, civil service, transport and education. Mrs. Law graduated from the University of Hong Kong with an Honours degree in Science, and in 2009 was named an outstanding alumnus of the Science Faculty of the University of Hong Kong. She received a Master degree in Public Administration from Harvard University and was named a Littauer Fellow of Harvard University. She also holds a Master degree in Education from the Chinese University of Hong Kong and is a Fellow of The Hong Kong Institute of Directors. 35 ANNUAL REPORT 2020R ecognition A N D A W A R D S 36 For more information, please visit the Company’s website at www.chinaunicom.com.hk 37 CHINA UNICOM (HONG KONG) LIMITEDANNUAL REPORT 2020C orporate GR E P O R T overnance 38 CHINA UNICOM (HONG KONG) LIMITEDovernanceThe Board is committed to high and recognises that good governance standards of corporate governance is vital for the long-term success and sustainability of the Company’s business. As a company incorporated in Hong Kong, the Company adopts the Companies Ordinance (Chapter 622 of the Laws of Hong Kong), the Securities and Futures Ordinance of Hong Kong and other related laws and regulations as the basic guidelines for the Company’s corporate governance. As a company dual-listed in Hong Kong and the United States, the current articles of association are in compliance with the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited and the regulatory requirements for non-U.S. companies listed in the United States. These rules serve as guidance for the Company to improve the foundation of its corporate g o v e r n a n c e , a n d t h e C o m p a n y strives to comply with the relevant requirements of international and local corporate governance best practices. The Company has regularly published statements relating to its internal control in accordance with the U.S. Sarbanes-Oxley Act and the regulatory requirements of the United States Securities and Exchange Commission and the New York Stock Exchange to confirm its compliance with related financial reporting, by Corporate Governance Asia. The information disclosure, corporate internal control Company was voted as “Best Overall requirements and other regulatory requirements. The Board Investor Relations (Large Cap)”, “Best is responsible for performing overall corporate governance in Communications Sector” and “Best duties. The Company has adopted a Corporate Governance in Hong Kong” at “IR Magazine Awards Practice which sets out the key terms of reference of — Greater China 2020”. The Company the Board on corporate governance functions, including, was accredited with “Gold Award — amongst others, developing and reviewing the Corporate Excellence in Environmental, Social, Governance Policy and corporate governance practices and Governance” in “The Asset ESG of the Company; reviewing and monitoring the training Corporate Awards 2020”. and continuous professional development of Directors and senior management; reviewing and monitoring the The Corporate Governance Code (the Company’s policies and practices on compliance with legal “Code”) as set out in Appendix 14 and regulatory requirements; developing, reviewing and of the Rules Governing the Listing of monitoring the code of conduct and compliance manual Securities on The Stock Exchange of applicable to employees and Directors; and reviewing the Hong Kong Limited (the “Listing Rules”) Company’s compliance with the Code. provides for code provisions (the “Code Provisions”) and recommended In 2020, the Company’s continuous efforts in corporate best practices with respect to (i) governance gained wide recognition from the capital D i r e c t o r s , ( i i ) r e m u n e r a t i o n o f markets and the Company was accredited with a number Directors and senior management and of awards. The Company was voted as “Asia’s No.1 Most evaluation of the Board of Directors Honored Telecom Company” for five years in a row in (the “Board”), (iii) accountability and “2020 All-Asia Executive Team” ranking organised by the audit, (iv) delegation by the Board, (v) authoritative financial magazine, Institutional Investor. communication with shareholders and Meanwhile, the Company was also honored with “Asia’s Best (vi) company secretary. Other than CEO (Telecoms)”, “Asia’s Best CFO (Telecoms)”, “Asia’s Best the disclosures made in the section ESG (Telecom)” and “Asia’s Best IR Team”. The Company headed “Board of Directors” below, was voted by professional investors as “Best Corporate the Company confirms that for the year Governance in Asia” and “Best Managed Company in ended 31 December 2020, it complied China” in “Asia’s Best Managed Companies Poll 2020” by with all the Code Provisions. FinanceAsia. The Company was award “Most Outstanding Company in Asia - Telecommunication Services Sector” and “Overall Most Outstanding Company in Hong Kong” in the “Asia’s Outstanding Companies Poll 2020” organised by Asiamoney. The Company was awarded “Asia’s Best CSR” 39 ANNUAL REPORT 2020BOARD OF DIRECTORS To serve the best interests of the Company and its shareholders, the Board is responsible for reviewing and approving major corporate matters, including, amongst others, business strategies and budgets, major investments, capital market operations, as well as mergers and acquisitions. The Board is also responsible for monitoring risk management and internal control, reviewing environmental, social and governance strategies, reviewing and approving the announcements periodically published by the Company regarding its business results and operating activities. In order to achieve a sustainable and balanced development, the Company views Board diversity as a key element for supporting its strategic goals and maintaining sustainable development. The Board membership maintains wide representation. Members of the Board consist of outstanding individuals from different professions. Currently, the Board comprises nine Directors, including five executive Directors and four independent non-executive Directors. Particulars of the Directors are set out on pages 24 to 35 of this annual report. The Company believes that the Board currently comprises experts from diversified professions such as telecommunications, technology, banking, finance, investment and management, and is diversified in terms of gender, age, duration of service, educational background, professional experience, etc., which contributes to the enhanced management standard and more regulated operation of corporate governance of the Company, and results in a more comprehensive and balanced Board structure and decision-making process. The below sets out the analysis of the current composition of the Board: DESIGNATION 5 Executive Directors 4 Independent Non-Executive Directors GENDER 8 male 1 female AGE GROUP 3 45-54 3 55-64 DURATION OF SERVICE (YEARS) 3 6-10 3 <5 3 >65 3 >10 40 CORPORATE GOVERNANCE REPORTCHINA UNICOM (HONG KONG) LIMITEDThe roles and responsibilities of the All independent non-executive Directors of the Company Every newly appointed Director is Chairman and the Chief Executive possess good knowledge and experience in different provided with a comprehensive, O f f i c e r o f t h e C o m p a n y w e r e areas. They have been making positive contributions to f o r m a l a n d t a i l o r e d i n d u c t i o n performed by the same individual for the development of the Company’s strategies and policies o n a p p o i n t m e n t , i n c l u d i n g b u t the year ended 31 December 2020. through independent, constructive and informed advices. not limited to the “Guidelines on The Company considers that, as all They have maintained close contact with the management Directors’ Duties” published by the major decisions are made by the Board and actively express constructive opinions on matters Hong Kong Companies Registry and relevant Board Committees after relating to the shareholders and the capital market at board and the “Guidelines for Directors” discussion, through supervision by meetings. These views and opinions facilitate the Board in published by the Hong Kong Institute the Board and the independent non- making their decisions in the shareholders’ best interests. of Directors. Directors have fiduciary executive Directors together with All independent non-executive Directors, except for their responsibilities to the company. They effective internal control mechanism, equity interests and remuneration disclosed in this annual must not exercise their powers for the Company has achieved a balance of report, do not have any business with or financial interests improper purposes. They must not use power and authority. In addition, the in the Company, its holding company or subsidiaries, and the company’s opportunities to serve same individual performing the roles of have confirmed their independence to the Company. The their own interests. Their personal the Chairman and the Chief Executive functions of non-executive Directors include, amongst other interests are not allowed to conflict Officer can enhance the Company’s things, attending board meetings, exercising independent with the company’s interests, and they efficiency in decision-making and judgements at meetings, playing a leading role in resolving must not abuse the company’s assets. execution, effectively capturing any potential conflicts of interest, serving on committees by The Director would subsequently business opportunities. invitation and carefully examining whether the performance receive all briefing and professional of the Company has reached the planned corporate targets development necessary to ensure and objectives, and monitoring and reporting on matters that he/she has proper understanding relating to the performance of the Company. With respect of the Company’s operations and to the nomination and appointment of new directors and businesses, full understanding of senior management members, the Nomination Committee his/her responsibilities under the would, after considering the Company’s need for new statutes, the common law, the Listing directors and/or senior management members, identify a Rules, applicable legal and regulatory wide range of candidates from within the Company and the requirements, and the Company’s human resources market and make recommendations to the business and corporate governance Board. The Nomination Committee will consider candidates policies. Furthermore, formal letters on merit against objective criteria and with due regard to of appointment setting out the key the benefits of diversity on the Board. After having obtained terms and conditions of the Directors’ the consent from candidates in relation to the relevant appointment will be duly prepared. nomination and based on the Company’s actual needs, the Board would convene a meeting, attendees of which include non-executive Directors, to consider the qualifications of the candidates. The Directors of the Company (including non- executive Directors) are not appointed for a specific term but are subject to retirement by rotation at general meetings pursuant to the Company’s articles of association and at least once every three years. 41 ANNUAL REPORT 2020Directors’ training is an ongoing process. The Company regularly invites various professionals to provide trainings on the latest changes and development of the legal and regulatory requirements as well as the market and/or industrial environment to Directors. In 2020, the Directors as at 31 December 2020 have participated in various training and continuous professional development activities and the summary of which is as follows: Executive Director Wang Xiaochu (Chairman) Li Fushen Zhu Kebing Fan Yunjun Independent Non-Executive Director Cheung Wing Lam Linus Wong Wai Ming Chung Shui Ming Timpson Law Fan Chiu Fun Fanny Types of training A, B A, B A, B A, B A, B A, B A, B A, B A: attending relevant seminars and/or conferences and/or forums; delivering speeches at relevant seminars and/or conferences and/or forums B: reading or writing relevant newspapers, journals and articles relating to general economy, general business, telecommunications, corporate governance or directors’ duties The remuneration package for executive Directors includes salary and performance-linked annual bonuses. The remuneration of executive Directors is determined by reference to their respective duties and responsibilities in the Company, their respective experience, prevailing market conditions and applicable regulatory requirements while the award of the performance-linked annual bonuses is tied to the attainment of key performance indicators or targets set by the Company. The remuneration of non-executive Directors is determined by reference to prevailing market conditions and their respective responsibilities and workload from serving as non-executive Directors and members of the board committees of the Company. The Company also adopted share option scheme for the purpose of providing long term incentives to eligible participants, including Directors (details of such share option scheme are set out in the paragraph headed “Share Option Scheme of the Company” on pages 64 to 65 of this annual report). The remuneration for each Director and the remuneration of senior management by band are disclosed on pages 135 to 136 of this annual report. In addition to the remuneration, the Company has arranged appropriate insurance coverage in respect of legal action against the Directors. 42 CORPORATE GOVERNANCE REPORTCHINA UNICOM (HONG KONG) LIMITED T h e B o a r d h a s p r o v i d e d c l e a r The Company Secretary, being an employee of the Company, information regarding those matters guidelines for delegation of powers has day-to-day knowledge of the Company’s affairs and is provided in advance and in a timely and responsibilities to management. reports to the Chairman of the Board. He keeps close manner, and all Directors have the However, certain important matters contact with all Directors and ensures that the operation right to inspect documents and must be decided only by the Board, of the Board and all board committees is in compliance information in relation to matters including, but not limited to, long- with the procedures as set forth in the Company’s articles to be decided by the Board. The term objectives and strategies, annual of association and the charters of the board committees. Directors have frequently visited budget, initial announcements on Additionally, the Company Secretary is responsible for various branches in Mainland China quarterly, interim and final results, compiling and regularly submitting draft minutes of board to gain better understanding of dividends, major investments, equity- meetings and committee meetings to the Directors and the Company’s daily operations. In related capital market operations, committee members for their comment, and final versions addition, the Company has arranged mergers and acquisitions, major of minutes for their records, within a reasonable time after relevant trainings for the Directors connected transactions and annual the relevant meetings. Each Director may obtain advice from (which include training sessions internal control evaluation. The and the services of the Company Secretary to ensure that conducted by professional advisers, arrangements on delegation of powers board procedures, and all applicable rules and regulations, such as lawyers and accountants, from and responsibilities to management are followed. Physical board meetings will be held for time to time) in order to broaden are reviewed by the Board periodically the selection, appointment or dismissal of the Company their knowledge in the relevant areas to ensure that they remain appropriate Secretary. To ensure the possession of up-to-date knowledge and to improve their understanding to the needs of the Company. and market information to perform his duties, the Company of the Company’s business, legal and Secretary attended sufficient professional training in 2020. regulatory requirements and the latest The Board convenes meetings regularly operational technologies. The Board and all Directors have adequate The Directors may, upon request, obtain independent also conducts annual evaluation of opportunity to be present at the professional advice at the expense of the Company. In its performance. Such efforts have meetings and to include matters for addition, if any substantial shareholder of the Company or improved the corporate governance of discussion in the meeting agenda. any Directors has significant conflicts of interest in a matter the Company. Notices of regular board meetings are to be resolved, the Board will convene a board meeting delivered to the Directors at least 14 in respect of such matter and those Directors who have In 2020, the Board held four board days in advance of the meetings. The conflicts of interest must abstain from voting and will not be meetings and passed two written Company delivers, on a best endeavor counted in the quorum of the meeting. basis, all documents for regular resolutions for, amongst other things, discussion and approval of important board meetings to the Directors at All Directors are required to devote sufficient time and matters such as the 2019 annual least one week prior to the meetings attention to the affairs of the Company. A culture of results, the 2019 Form 20-F, the 2020 (and ensures that all documents are openness and debate are promoted in the Board and annual budget, the 2020 interim delivered to the Directors no less the Directors are encouraged to express their views and results, the first and the first three than three days prior to the regular concerns. The Company provides monthly operating update quarters results for 2020, corporate meetings as required by the Code to the Directors, so as to ensure the Directors are familiar social responsibility report, reports Provisions). with the Company’s latest operations. In addition, through on risk management and internal regular board meetings and reports from management, control as well as the appointment the Directors are able to clearly understand the operations, of executive Director and senior vice business strategy and latest development of the Company president. and the industry. Besides formal board meetings, the Chairman also meets annually with independent non- executive Directors, without the presence of other Directors, which further promotes the exchange of diversified views and opinions. In order to ensure that all Directors have appropriate knowledge of the matters discussed at the meetings, adequate, accurate, clear, complete and reliable 43 ANNUAL REPORT 2020Set forth below is an overview of the attendance during the year of 2020 by the Board members at various meetings: Meetings Attended/Held Audit Remuneration Nomination Board Committee Committee Committee Shareholders Meeting Meeting Meeting Meeting Meeting 4/4 N/A 4/4 N/A 4/4 4/4 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 1/1 N/A N/A N/A N/A N/A 1/1 N/A 1/1 N/A 1/1 1/1 0/2 N/A N/A N/A N/A 4/4 4/4 4/4 4/4 4/4 4/4 4/4 4/4 1/1 1/1 1/1 N/A N/A N/A 1/1 1/1 1/1 1/1 1/1 1/1 Executive Directors Wang Xiaochu (Chairman) Li Guohua1 Li Fushen Shao Guanglu2 Zhu Kebing Fan Yunjun3 Non-Executive Director Cesareo Alierta Izuel4 Independent Non-Executive  Directors Cheung Wing Lam Linus Wong Wai Ming Chung Shui Ming Timpson Law Fan Chiu Fun Fanny Note 1: On 11 March 2020, Mr. Li Guohua has resigned as executive Director of the Company. Note 2: On 16 January 2020, Mr. Shao Guanglu has resigned as executive Director of the Company. Note 3: On 17 February 2020, Mr. Fan Yujun was appointed as executive Director of the Company. Note 4: On 25 May 2020, Mr. Cesareo Alierta Izuel has retired as non-executive Director of the Company. Note 5: Non-executive Director did not attend the meetings of the Board due to other business commitments or being overseas. In 2020, the Board performed their fiduciary duties and devoted sufficient time and attention to the affairs of the Company. The Board works effectively and performs its responsibilities efficiently with all key and appropriate issues being discussed and approved in a timely manner. 44 CORPORATE GOVERNANCE REPORTCHINA UNICOM (HONG KONG) LIMITED The Company has adopted the “Model which is available on the websites of the Company and with the management as well as Code for Securities Transactions by The Stock Exchange of Hong Kong Limited (the “Hong reviewing the reports on the risk Directors of Listed Issuers”, as set out Kong Stock Exchange”). From time to time as required by management and internal control in Appendix 10 to the Listing Rules (the the Listing Rules, the Board also establishes independent procedures of the Company. The Audit “Model Code”) to govern securities board committee for the purpose of advising and providing Committee also has the authority to transactions by directors. Further to voting recommendations to independent shareholders set up a reporting system to receive the specific enquiries made by the on connected transactions and transactions subject to and handle cases of complaints or Company to the Directors, all Directors independent shareholders’ approval entered into by the complaints made on an anonymous have confirmed their compliance with Company and/or its subsidiaries. The committees are basis regarding the Company’s the Model Code for the year ended 31 provided with sufficient resources, including, amongst accounting, internal control and December 2020. others, obtaining independent professional advice at audit matters. Any complaints on the The Directors acknowledge their committees report their decisions or recommendations to be submitted by post (No. 21 Financial the expense of the Company, to perform its duties. The aforementioned subject matters can responsibilities for preparing the the Board after meetings. financial statements for the year ended 31 December 2020, which give Audit Committee a true and fair view of the financial Composition Street, Xicheng District, Beijing, 100033, China) or by phone (86-(010) 88091674). The Audit Committee is responsible to and regularly reports its position of the Company as at the Currently the Audit Committee comprised Mr. Wong work to the Board. statement of financial position date Wai Ming, Mr. Cheung Wing Lam Linus, Mr. Chung Shui and financial performance and cash Ming Timpson and Mrs. Law Fan Chiu Fun Fanny, all being Work Completed in 2020 flows of the Company for the year independent non-executive Directors of the Company. The Audit Committee meets at least ended the statement of financial The Chairman of the Audit Committee is Mr. Wong Wai four times each year, and assists the position date, are properly prepared Ming. All members of the Audit Committee have satisfied Board in its review of the financial o n t h e g o i n g c o n c e r n b a s i s i n the “independence” requirements in relation to an Audit statements to ensure effective risk accordance with relevant statutory Committee member under applicable laws, regulations and management and internal control as requirements and applicable financial rules. The Chairman of the Audit Committee is an accountant well as efficient audit. reporting standards. A statement of with expertise and experience in accounting and financial the independent auditors about their management. Another member of the Audit Committee is The Audit Committee held four reporting responsibilities related to the also an accountant with extensive accounting professional meetings in 2020 for, amongst other financial statements is set out in the experience. independent auditor’s report on pages 88 to 92 of this annual report. Major Responsibilities things, discussion and approval of the 2019 annual results, the 2019 Form 20-F, the 2020 interim results, and The primary responsibilities of the Audit Committee include: the first and the first three quarters COMMITTEES UNDER THE BOARD The Company has established three as the key representative body, overseeing the Company’s results for 2020. In addition, the Audit relationship with the independent auditor, considering Committee approved in the meetings and approving the appointment, resignation and removal the report on risk management, the committees of the Board under of the independent auditor; pre-approval of services and report on internal audit and internal the Board, the Audit Committee, fees to be provided by the independent auditor based on control, the report on continuing the Remuneration Committee and the established pre-approval framework; supervising the connected transaction, t he re- the Nomination Committee. Each independent auditor and determining the potential impact appointment, the audit fees and the committee has a written charter, of non-audit services on such auditor’s independence; audit plans of the independent auditor reviewing quarterly and interim financial information as well as well as the non-audit services as annual financial statements; coordinating and discussing provided by the independent auditor in with the independent auditor with respect to any issues 2020. identified and recommendations made during the audits; reviewing correspondences from the independent auditor to the management and responses of the management; discussing the risk management and internal control system 45 ANNUAL REPORT 2020The Audit Committee has performed its duties effectively, with contractual terms; and ensuring and enabled the Board to better monitor the financial that no Director or any of his/her condition of the Company, supervise the risk management associates is involved in deciding his/ and internal control of the Company, ensure the integrity her own remuneration. and reliability of the financial statements of the Company, prevent significant errors in the financial statements Work Completed in 2020 and ensure the Company’s compliance with the relevant The Remuneration Committee meets requirements of the Listing Rules, the U.S. federal securities at least once a year. The Remuneration laws and the New York Stock Exchange listing standards with Committee held one meeting in respect to audit committee. Remuneration Committee Composition 2020 for, amongst other things, discussion and approval of proposal for appraisal and remuneration of senior management. Currently the Remuneration Committee comprised Mr. Cheung Wing Lam Linus, Mr. Wong Wai Ming and Mr. The Remuneration Committee has Chung Shui Ming Timpson, all being independent non- performed its duties effectively on executive Directors of the Company. The Chairman of the reviewing and approving the proposal Remuneration Committee is Mr. Cheung Wing Lam Linus. of appraisal of senior management, Major Responsibilities as well as making recommendations to the Board with regards to the The primary responsibilities of the Remuneration remuneration packages for senior Committee include: making recommendations to the management. Board on the policies and structure for all Directors’ and senior management’s remuneration and on the Nomination Committee establishment of a formal and transparent procedure Composition for developing remuneration policy; reviewing and Currently the Nomination Committee approving the management’s remuneration proposals comprised Mr. Chung Shui Ming with reference to the corporate goals and objectives set by Timpson, Mr. Wang Xiaochu and Mrs. the Board; making recommendations to the Board on the Law Fan Chiu Fun Fanny. Except for Mr. remuneration packages of individual executive Directors Wang Xiaochu, who is the Chairman and senior management (including benefits in kind, and CEO of the Company, Mr. Chung pension right and compensation payments, including any Shui Ming Timpson and Mrs. Law Fan compensation payable for loss or termination of their office Chiu Fun Fanny are independent non- or appointment); making recommendations to the Board executive Directors of the Company. on the remuneration of non-executive Directors; consulting The Chairman of the Nomination the Chairman about the remuneration proposals for other Committee is Mr. Chung Shui Ming executive Directors; considering salaries paid by comparable Timpson. companies, time commitment and responsibilities and employment conditions elsewhere in the Group; considering Major Responsibilities any concrete plan proposed by the management of the The primary responsibilities of the Company for the grant of option which has not been granted, Nomination Committee include: and any plan to amend any existing option scheme of the reviewing the structure, size and Company; reviewing and approving compensation payable composition (including the skills, to executive Directors and senior management for any loss k n o w l e d g e a n d e x p e r i e n c e ) o f or termination of office or appointment to ensure that it is the Board at least annually and consistent with contractual terms; reviewing and approving making recommendations on any compensation arrangements relating to dismissal or removal proposed changes to the Board to of Directors for misconduct to ensure that they are consistent complement the corporate strategy 46 CORPORATE GOVERNANCE REPORTCHINA UNICOM (HONG KONG) LIMITEDof the Company; identifying individuals suitably qualified The Company has also adopted a to become Board members and making recommendations policy concerning diversity of board to the Board; formulating, reviewing and implementing members. The Company recognises the board diversity policy; assessing the independence and embraces the benefits of having of independent non-executive Directors; making a diverse Board, and notes increasing recommendations to the Board on the appointment or diversity at Board level as an essential re-appointment of Directors and succession planning for element in maintaining a competitive Directors; providing advice to the Board on candidates of the advantage. All Board appointments senior management nominated by the CEO and on changes are made on merit, in the context of to the senior management of the Company. the skills and experience the Board Work Completed in 2020 as a whole requires to be effective. In reviewing Board composition, the The Nomination Committee meets at least once a year. Nomination Committee will consider The Nomination Committee held one meeting and passed their professional knowledge, skills, two written resolutions in 2020 for, amongst other things, experience and the balance of diversity reviewing the structure, size and composition of the Board, of perspectives which are appropriate assessment of the independence of independent non- to the Company’s business model and executive Directors, making recommendations to the Board specific needs. In identifying suitable on the proposed re-election of Directors, the appointment of candidates for appointment to the executive Director and senior vice president. Board, the Nomination Committee will with due regard to the benefits The Company has adopted nomination policy. With respect of diversity on the Board and base to the nomination and appointment of new directors and on a range of diversity perspectives senior management members, the Nomination Committee including but not limited to gender, would, after considering the Company’s need for new a g e , c u l t u r a l a n d e d u c a t i o n a l directors and/or senior management members, identify a background, professional experience, wide range of candidates from within the Company and the skills, knowledge and duration of human resources market and make recommendations to the service. The ultimate decision will be Board. The Nomination Committee will consider candidates based on merit and contribution that on merit against objective criteria and with due regard to the selected candidates will bring to the benefits of diversity on the Board. After having obtained the Board. the consent from candidates in relation to the relevant nomination and based on the Company’s actual needs, the In addition, pursuant to the Company’s Board would convene a meeting, attendees of which include articles of association, shareholder non-executive Directors, to consider the qualifications of the may propose other person for election candidates. The Directors of the Company (including non- as a director at general meeting. executive Directors) are not appointed for a specific term The proposal will be considered and but are subject to retirement by rotation at general meetings approved in the general meeting. pursuant to the Company’s articles of association and at least With regard to the procedure for once every three years. shareholder to propose a person for election as a director, please visit the Company’s website at https://www. chinaunicom.com.hk/en/about/cg_ report.php. 47 ANNUAL REPORT 2020INDEPENDENT AUDITOR KPMG is the independent auditor of the Company. Apart from audit services, it also provides other assurance and non-audit services. The other assurance and non-audit services provided by the independent auditors did not contravene the requirements of the U.S. Sarbanes-Oxley Act and therefore enabling them to maintain the independence. The remuneration paid/payable to the independent auditor for provision of services in 2020 is as follows: Items Audit services Other assurance services Non-audit services Note (in RMB thousands) 2020 (i) (ii) (iii) 76,440 681 136 Notes: (i) (ii) Audit services in 2020 mainly included audit work in connection with the audit of the Company’s consolidated financial statements and internal control over financial reporting, pursuant to Section 404 of the U.S. Sarbanes-Oxley Act of 2002. Other assurance services included other assurance and related services that can be reasonably provided by the independent auditor. In 2020, the provisions of other assurance and related services mainly included performing the limited procedures on the XBRL-tagged data related to Form 20-F for the year ended 31 December 2020. (iii) Non-audit services included other services that can be reasonably provided by the independent auditor. In 2020, the provisions of non-audit services mainly included tax compliance services. RISK MANAGEMENT AND INTERNAL CONTROL 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, promotes the sustainable and healthy development of the Company, and enhances the Company’s operation management level and risk prevention ability. The Board should oversee management in the design, implementation and monitoring of the risk management and internal control systems, and management should provide a confirmation to the Board on the effectiveness of these systems. The Board acknowledges that it is its responsibility for the risk management and internal control systems and reviewing their effectiveness. 48 CORPORATE GOVERNANCE REPORTCHINA UNICOM (HONG KONG) LIMITED Risk management and internal control systems have been designed to monitor and facilitate the accomplishment of the Company’s business objectives, safeguard the Company’s assets against loss and misappropriation, ensure maintenance of proper accounting records for the provision of reliable financial information, ensure the Company’s compliance with applicable laws, rules and regulations. Such systems are designed to manage rather than eliminate the risk of failure to achieve business objectives, and can only provide reasonable and not absolute assurance against material misstatement or loss. Organisation systems The Company set up a group-wide risk management and internal control systems consisting of the Board, the Internal Control and Risk Management Committee, the Integrated Management Department and each relevant professional functional departments. THE BOARD Highest decision making body AUDIT COMMITTEE Supervision body INTERNAL CONTROL AND RISK MANAGEMENT COMMITTEE Highest coordination and deliberation body at company management level COMMITTEES IN RELATED PROFESSIONAL The cross departmental body of risk management in professional fields FINANCIAL RISK COMMITTEE The cross departmental body in financial risk management INTERNAL CONTROL AND RISK MANAGEMENT OFFICE Daily working departments PROFESSIONAL FUNCTIONAL DEPARTMENTS Professional internal control management and execution departments INTERNAL AUDIT DEPARTMENT Integrated risk management and internal control department and supervision and evaluation department INVESTMENT DECISION COMMITTEE The cross departmental body in risk management of investment decision WORKING STEERING GROUP OF INTERNET AND CYBERSECURITY The cross departmental body in risk management of internet and cybersecurity ...... The cross departmental bodies in risk management Branches and Subsidiaries INTERNAL CONTROL AND RISK MANAGEMENT COMMITTEE Coordination and deliberation body at company management level INTERNAL CONTROL AND RISK MANAGEMENT OFFICE Daily working departments COMMITTEES IN RELATED PROFESSIONAL With reference to the needs of CUCL and the Company, the cross departmental bodies of risk management in professional fields have been established PROFESSIONAL FUNCTIONAL DEPARTMENTS Professional internal control management and execution departments INTERNAL AUDIT DEPARTMENT Integrated risk management and internal control department and supervision and evaluation department INDEPENDENT EXTERNAL AUDITOR External Independent Internal Control evaluation body 49 ANNUAL REPORT 2020The Company has an internal audit department with 3. Control Activities: Deploys 612 staff members, with officers stationed at various appropriate policies and control provincial branches. The internal audit department reports procedures over the Company’s directly to the Audit Committee at least twice annually business activities, identifies and is independent of the Company’s daily operation key control procedures and and accounting functions. The internal audit department policies of significant control responsible for overall risk evaluation, special risk evaluation activities through evaluation and internal control self-testing etc. It has also formulated targeted risk prevention and control measures, conducted 4. I n f o r m a t i o n a n d risk follow-up inspections and has enhanced the risk Communication: Identifies awareness of the employees, all of which have played an relevant information and active role in the Company’s effective support and safeguard co mmu n i cati o n meth o d s, of its operation management and business development. establishes information and Furthermore, with an emphasis on the effectiveness of communication mechanisms to internal control with respect to the efficiency of operations, aggregate and delivers relevant accuracy of financial information, and compliance with rules information and regulations, the internal audit department conducts, amongst others, internal control assessment and internal 5. M o n i t o r i n g A c t i v i t i e s : audit on economic accountability. In addition, the internal Establishes the internal control audit department also contributes to strengthening the m o n i t o r i n g m e c h a n i s m , operation and management, improving internal control implements the monitoring systems, mitigating operational risks and increasing the procedures and adopted the economic efficiency of the Company. before, during and extensive m o n i t o r i n g p r i n c i p l e s , Using the risk evaluation as fundamental with the adoption and carries on the proper of Internal Control Integrated Framework issued by the monitoring to the internal Committee of Sponsoring Organisations of the Treadway control Commission (the “COSO”), the Company established internal control systems based on the following five fundamental Risk evaluation and management components: The Company has established and gradually improved its comprehensive 1. Control Environment: Establishes the control closed-loop risk management system environment which fulfill COSO requirements to for the purpose of “integrating provide the appropriate operating environment for management of day-to-day general the effective implementation of internal control risks and spontaneous critical risks”, 2. Risk Evaluation: Establishes the Policy on Risk by risk evaluation, early warning Evaluation Management and evaluation mechanism, and follow-up inspections to ensure evaluates the risks to the achievement of its t h e e f f e c t i v e n e s s o f o p e r a t i o n objectives across the Company and identifies to the management. The Company evaluated achieved the closed-loop management new risk due to the changes the adequacy and appropriateness on risk and control measures according to the new business model, management requirement, change of system, adjustment of duties and findings from internal and external inspections. 50 CORPORATE GOVERNANCE REPORTCHINA UNICOM (HONG KONG) LIMITED2020 Risk evaluation result standardisation organisations and The followings were the major significant risks which the conducted in-depth research and Company might encounter and its countermeasures in 2020: testing on new technologies and new Continuous market competition Risk businesses, so as to continuously improve its technological innovation From the perspective of the current industry environment, capabilities and reasonably plan and the traditional communication business market is construct networks. The Company becoming increasingly saturated, and the domestic has also insisted on promoting the telecommunications industry has serious homogeneity in co-build and co-share of 5G network, networks, products and services, and lack of differentiation. continued to build a technologically Market competition in the industry will continue in the long leading 5G premium network with run. The Company will deeply carry out the strategy of Focus, “wide coverage, fast speed, and Innovation and Cooperation, promote in-depth the high- good experience”, and increased the quality development and thoroughly implement the new application new technologies and development concept based on its own endowment, so as to promotion of new services, so as to achieve differentiated breakthroughs in advantageous areas. maintain its competitive strength. At the same time, the Company will insist on competition and cooperation, maintain orderly and healthy competition, Interest rates and exchange rates risk continue to promote industry collaboration and value The Company holds assets and enhancement, to gradually form a win-win ecosystem and liabilities denominated in foreign support the healthy and sustainable development of the currencies. Changes in the RMB industry. exchange rate may have a certain impact on the Company’s profits, and Risk from the changes of regulatory policies in the industry the rise in interest rates may increase The Chinese government will continue to promote the the Company’s interest payments on policies such as the opening of telecommunications industry interest-bearing debts. The Company to foreign and private capital, “Speed Upgrade and Tariff will continue to monitor the changes Reduction” and adjustments to interconnection settlement in the exchange rate and interest rate in domestic telecommunication services. These regulatory markets, and reduce the exchange rate policies will bring new development opportunities to the and interest rate risks by reasonable Company while also bringing challenges. The Company adjustments to the debt structure and will pay close attention to changes in regulatory policies strengthening fund management. and respond to the relevant impacts of regulatory policy adjustments in a timely manner. Technology upgrade risk Foreign oversea risk The New York Stock Exchange (“NYSE”) staff determined that, based on Currently, global telecom operators are accelerating the the Executive Order 13959 and the network upgrades and advancing the application of 5G guidance, it commenced the process technology, and the new information and communication to delist the Company’s American technologies are accelerating upgrades and iterations. Depositary Shares (the “ADSs”) and Based on its extensive experience in mobile network suspended trading in the Company’s construction and operation, the Company has actively ADSs from 11 January 2021., On 20 participated in the work of world’s mainstream international January 2021, the Company filed with the NYSE a written request for a 51 ANNUAL REPORT 2020review of the determination by a Committee of the Board Our Internal Audit Department has of Directors of the NYSE. The Company will continue to pay continued to organise our branches close attention to the development of related matters and and subsidiaries to conduct annual also seek professional advice and reserve all rights to protect internal control self-assessment lawful rights of the Company. based on the actual conditions of each unit and improve the quality The scope of the 2020 overall risk evaluation covered the of such self-assessment tasks, so as whole Group, which included headquarter, 31 provincial to gradually develop a quantitative companies and its cities-level branch offices and subsidiaries. internal assessment regime governed Through both the quantitative and qualitative analysis, by uniform standards. Through the Company fully considered the changes in operating the effective rectification of issues environment, business and policies, identified the potential identified during the audit, assessment risk to the Company’s operation, and planned for the risk of the internal control system and according to the quantitative result. After reporting to its implementation, improvements each professional departments and the management, the made to the system and process significant risks and the risk level of the year were finally optimisation, a long-term mechanism determined. The annual risk management instructions from for closed-loop management in the management were implemented according to the Policy internal control has been put in on Risk Management and the Company’s risk management place. According to the internal requirement. This included the formulation of relevant control self-assessment reports risk management strategies, solution and corresponding from the branches and subsidiaries, departments carried out interim follow-up inspection self-assessment reports from each works. The negative impacts arising from the risks and risk professional department, current year events were controlled as planned and were within an exceptional issues in internal control acceptable range. There were no significant control failings or discovered during internal audit and weaknesses that have been identified during the year. the Company annual risk management Monitoring and Optimisation report, the Group’s Internal Control and Risk Management Office at its To ensure the effectiveness of risk management and internal headquarter formed the Company’s control designs, the Company carried out risk evaluation internal control self-assessment timely and compared the risk points, formulated or enhanced report, which acted as supporting corresponding internal control measures according to the document for the management to change in business and management. At the same time, issue a statement of the effectiveness the internal control manual will be updated timely through of internal control. Based on different the assessment and review on applications on internal disclosure requirements on Company’s control workflow modification submitted by professional internal control assessment report departments, risk evaluation reports and exceptional from different listing regulatory body, issues from internal control assessment etc., so as to the Company prepared internal control provide the effective support for the development of the assessment report respectively. sustainable growth of the Company. Internal Control and Risk External auditor issued and disclosed Management Office conducted inspections on effectiveness independence opinions on financial on risk management and internal control implementation in statement as at 31 December on that regular or irregular time interval, improved and enhanced year and effectiveness on internal risk management and internal control designs continuously. control over financial reporting. 52 CORPORATE GOVERNANCE REPORTCHINA UNICOM (HONG KONG) LIMITEDAs a telecommunications operator, the Company is subject efforts through enhanced sharing of to the regulations, eg, the Cybersecurity Law of the People’s relevant knowledge internally and Republic of China, designed to protect critical information externally. The Company is required to infrastructure. Personal privacy, information security, and perform a security assessment when data protection are increasingly significant issues in China transferring personal information and other jurisdictions in which the Company operate. For and important data overseas if such example, Cybersecurity Law of the People’s Republic of China personal information and important which sets forth the general framework regulating network data are collected from the operation products, equipment and services, as well as the operation in China. and maintenance of information networks, the protection of personal data, and the supervision and administration Annual review of cybersecurity in China. Information Security Technology The Board oversees the Company’s - Personal Information Security Specification published risk management and internal control in 2018 set forth detailed guidelines on the collection, systems on an ongoing basis and the utilisation and retention of personal information and privacy Board conducted an annual review protection, and Identification Methods for Illegal Collection of the risk management and internal and Use of Personal Information by Apps published in control systems of the Company and 2019, stipulating standards for determining illegal acts of its subsidiaries for the financial year collecting and using personal information through mobile ended 31 December 2020, which applications. The Cyber Security Review Measures published covered all material controls including in 2020 require that the procurement of network products financial, operational and compliance and services that affect or may affect national security controls. After receiving the reports should conduct a network security review. The Company from the Internal Audit Department, also devotes significant resources to network security, data as well as the confirmation from security and other security measures to protect its systems the management to the Board on and data and in response to the evolving cybersecurity the effectiveness of these systems, laws and regulations. The Company also employs risk the Board is of the view that the management and internal control systems. including, among Company’s risk management and other things, (i)continuously strengthening data security internal control systems is effective capabilities, such as improving data encryption, protection and adequate. The review also ensure, of critical information infrastructure and security of supply with respect to the Company’s chain of the information technology products and services; accounting, internal audit and financial (ii)establishing data protection compliance policies and reporting function, the adequacy of guidelines, including training on crisis management and resources, staff qualifications and compliance of cybersecurity laws and regulations; (iii)self- experience, and training programs and examining potential risks and weakness of data system budget. and updating private policy; (iv)enhancing the real-time monitoring and alarm reporting system and implementing an emergency action plan to allow the Company to act responsively and minimise losses in the event of an emergency; and (v)continuously improving compliance 53 ANNUAL REPORT 2020REQUIREMENTS UNDER SECTION 404 OF THE U.S. SARBANES-OXLEY ACT Compliance with the requirements under Section 404 of the Information Disclosure Controls and Procedural Standards In order to further enhance the U.S. Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”) Company’s system of information has been an area of emphasis for the Company. The relevant d i s c l o s u r e , a n d t o e n s u r e t h e sections of the Sarbanes-Oxley Act require the management truthfulness, accuracy, completeness of non-U.S. issuers with equity securities listed on U.S. stock and timeliness of its public disclosures exchanges to issue reports and make representations as to ( i n c l u d i n g i n s i d e i n f o r m a t i o n ) , internal control over financial reporting. t h e C o m p a n y h a s a d o p t e d a n d i m p l e m e n t e d t h e I n f o r m a t i o n The relevant internal control report needs to stress Disclosure Control Policy. In an the management’s responsibility for establishing and effort to standardise the principles maintaining adequate and effective internal control over for information disclosures, the financial reporting. Management is required to assess the Company established the Information effectiveness of the Company’s internal control over financial Disclosure Review Committee under reporting as at year end. Under Section 404 of the Sarbanes- the management and formulated Oxley Act, the Company’s management is required to the procedures in connection with conduct an assessment of the effectiveness of the Company’s the compilation and reporting of the internal control over financial reporting as at 31 December Company’s financial and operational 2020. Management is currently in the process of finalising statistics and other information, as the management’s report on internal control over financial well as the procedures in connection reporting, which will be included in the Company’s annual with the preparation and review report on Form 20-F for the year ended 31 December 2020 of the periodic reports. Moreover, to be filed with the United States Securities and Exchange the Company established detailed Commission by 30 April 2021. implementation rules with respect to the contents and requirements of financial data verification, in particular, the upward undertakings by the individual responsible officers at the major departments. 54 CORPORATE GOVERNANCE REPORTCHINA UNICOM (HONG KONG) LIMITEDPOLICY ON PAYMENT OF DIVIDEND The objective of the dividend policy is to achieve a long- U p o n t h e a n n o u n c e m e n t o f interim and annual results or major term, sustainable and steadily increasing dividend, with a transactions, the Company will view to maximising the shareholders’ value. The declaration generally hold analyst briefings, press and payment of future dividends will depend upon, among conferences, and global conference other things, financial condition, business prospects, future calls with investors. During such earnings, cash flow, liquidity level and cost of capital. The conferences, the management of the Company believes such policy will provide the shareholders Company would interact directly with with a stable return in the long term along with the growth analysts, fund managers, investors of the Company. Pursuant to the Companies Ordinance and journalists to provide them (Chapter 622 of the Laws of Hong Kong) and the Company’s with relevant information and data articles of association, the Company may only pay dividends of the Company. The Company’s out of profits available for distribution. management would accurately and thoroughly respond to questions raised Taking into consideration the Company’s profitability, debt by analysts, fund managers, investors and cash flow level, capital requirements for its future and journalists. Archived webcast development etc., the Board recommended the payment of of the investor presentation is also a final dividend of RMB0.164 per share for the year ended 31 available on the Company’s website December 2020. Going forward, the Company will continue to ensure wide dissemination of to strive for enhancing its profitability and shareholders’ information and data. return. CORPORATE TRANSPARENCY AND INVESTOR RELATIONS In addition to publishing annual reports and interim The Company’s investor relations d e p a r t m e n t i s r e s p o n s i b l e f o r providing information and services requested by investors, maintaining reports, the Company discloses major unaudited financial timely communications with investors information (including revenue, operating expenses, a n d f u n d m a n a g e r s , i n c l u d i n g EBITDA, net profit) and other key performance indicators responding to investors’ inquiries on a quarterly basis and announces operational statistics and meeting with company-visit on a monthly basis in order to enhance the Company’s investors, as well as gathering market transparency and improve investors’ understanding of information and passing views from the business operations of the Company. In addition, the shareholders to the Directors and Company submits annual reports and regular reports to the management to ensure such views United States Securities and Exchange Commission pursuant are properly communicated. The to the requirements under the U.S. federal securities laws. Company also arranges from time to time road shows and actively attends investor conferences arranged by investment banks, through which the Company’s management meets and communicates with investors to provide them with opportunities to understand more accurately the Company’s latest development and performance in various aspects, including business operations and management. 55 ANNUAL REPORT 2020In 2020, the Company participated in the following investor conferences: Date Conferences January 2020 March 2020 April 2020 May 2020 May 2020 May 2020 June 2020 August 2020 August 2020 September 2020 September 2020 September 2020 September 2020 September 2020 November 2020 November 2020 November 2020 November 2020 November 2020 November 2020 November 2020 November 2020 November 2020 December 2020 December 2020 Morgan Stanley China New Economy Summit Morgan Stanley Virtual Access Summit 2020 Bernstein 6th Annual China Telecommunications Symposium Nomura Virtual Greater China TMT Corporate Day 2020 Citi Pan-Asia Regional Investor Conference 2020 Goldman Sachs TechNet Conference Asia Pacific 2020 BofA 2020 Innovative China Virtual Conference Citi Hong Kong China TMT Corporate Day Nomura China Investor Forum 2020 Morgan Stanley Virtual Asia TMT Conference UBS China TMI Virtual Conference 2020 27th Annual CITIC CLSA Investors’ Forum Jefferies Asia Forum Morgan Stanley Virtual Asia Pacific Conference Goldman Sachs China Conference 2020 11th Credit Suisse China Investment Conference Citi China Investor Conference 2020 BofA 2020 China Conference CICC Investment Forum 2020 JPMorgan Global TMT Conference 2020 Morgan Stanley Virtual Asia Pacific Summit Morgan Stanley Virtual European Technology, Media & Telecoms Conference Nomura Virtual 5G/Tech Corporate Day 2020 Daiwa Investment Conference Hong Kong 2020 The 16th BOCI Investors Conference 56 CORPORATE GOVERNANCE REPORTCHINA UNICOM (HONG KONG) LIMITED In addition, through announcements, press releases and China 2020”. It was also voted as the Company website (www.chinaunicom.com.hk), the “Asia’s Best IR Team (Telecoms)” in Company disseminates the latest information regarding any “2020 All-Asia Executive Team” ranking significant business development in a timely and accurate organised by Institutional Investor. manner. In the perspective of investor relations, the Company’s website not only serves as an important channel for the Company to disseminate press releases and corporate SHAREHOLDERS’ RIGHTS Annual General Meeting information to investors and the capital market, but also The Board endeavors to maintain an plays a significant role in the Company’s valuation and our on-going dialogue with shareholders, compliance with regulatory requirements for information and in particular, to communicate disclosure. In 2020, the Company updated the content with shareholders through annual of its website on an ongoing basis to further enhance the g e n e r a l m e e t i n g s . N o t i c e s o f functions of website and level of transparency in information annual general meeting are sent disclosure, striving for achieving international best practices. to shareholders at least 20 clear Our website was honored with the Grand Awards by various business days before the meeting. international institutions, including “iNova Awards” and The Directors and representatives “Astrid Awards” this year. of the Board committees usually attend the meetings and treasure Furthermore, the Company has adopted a Shareholders’ the opportunities to communicate Communication Policy to ensure that the shareholders of with shareholders at such meetings. the Company are provided with readily, equal and timely At general meetings, the chairman access to balanced and understandable information about of the meeting proposes individual the Company, to enable shareholders to exercise their rights r e s o l u t i o n s i n r e s p e c t o f e a c h in an informed manner, and to enhance the shareholders’ substantially separate matter. All and the investment community’s communication with the matters at the Company’s general Company. meetings are resolved by poll and the relevant procedures are explained The Company’s effort in investor relations is well recognised at the meeting. The Company also by the capital market, and accredited with a number of appoints external scrutineers to ensure awards. The Company was voted as “Best Overall Investor that all votes are counted and recorded Relations (Large Cap)”, “Best in Communications Sector” appropriately, and publishes the poll and “Best in Hong Kong” at “IR Magazine Awards — Greater results in a timely manner. 57 ANNUAL REPORT 2020The last annual general meeting of the Company was held on Putting Forward Resolutions at 25 May 2020, at which the following resolutions were passed Annual General Meetings and percentage of votes cast in favor of the resolutions are Pursuant to Section 615 of the set out as follows: Companies Ordinance (Chapter 622 of the Laws of Hong Kong), the following • to receive and consider the financial statements and persons may put forward a resolution the Reports of the Directors and of the Independent at the next annual general meeting Auditor for the year ended 31 December 2019 (over of the Company: (a) any number of 99%) shareholders, together holding not less than 2.5% of the total voting rights of • to declare a final dividend for the year ended 31 all shareholders which have, as at the December 2019 (over 99%) date of the requisition, a right to vote at the next annual general meeting, or • to re-elect Mr. Li Fushen, Mr. Fan Yunjun and Mrs. (b) not less than 50 shareholders who Law Fan Chiu Fun Fanny as Directors, and to authorise have a right to vote on the resolution the Board to fix remuneration of the Directors (over at the annual general meeting to which 99%) the requests relate. • to re-appoint auditor and authorise the Board to fix The resolution must be one which may their remuneration for the year ending 31 December be properly moved and is intended to 2020 (over 99%) be moved at the next annual general meeting. The requisition must be • to grant a general mandate for share buy-back (over signed by the requisitionists and 99%) deposited at the registered office of the Company at least six weeks or • to grant a general mandate to issue new shares (over if later, the time at which notice is 89%) given of the annual general meeting before the annual general meeting, • to extend the general mandate to issue new shares the Company has a duty to give (over 89%) notice of such proposed resolution to all shareholders who are entitled The next annual general meeting will be held on 13 May to receive notice of the next annual 2021. Please refer to the circular, which sets out the details, general meeting. that has been sent together with this Annual Report. 58 CORPORATE GOVERNANCE REPORTCHINA UNICOM (HONG KONG) LIMITEDIn addition, requisitionists may require the Company to any of them representing more than circulate to shareholders entitled to receive notice of the half of their total voting rights, may annual general meeting a statement of not more than themselves convene a meeting to be 1,000 words with respect to the resolution to be proposed. held within three months of such date. However, the Company is not required to circulate any statement if the court is satisfied that this right is being M e e t i n g s c o n v e n e d b y t h e abused to secure needless publicity for defamatory matters. requisitionists must be convened In such event, the requisitionists may be ordered to pay for in the same manner, as nearly as the Company’s expenses for application to the court. possible, as meetings to be convened by Directors of the Company. Any If the requisition signed by the requisitionists does not reasonable expenses incurred by the require the Company to give shareholders notice of a requisitionists will be reimbursed by resolution, such requisition may be deposited at the the Company due to the failure of the registered office of the Company not less than one week Directors duly to convene a meeting. before the next annual general meeting. Putting Forward Resolutions at Convening Extraordinary General Meetings Extraordinary General Meetings Pursuant to Section 566 of the Companies Ordinance, Shareholders may not put forward shareholder(s) holding not less than 5% of the total voting resolutions to be considered at rights of all shareholders having a right to vote at general any general meetings other than meetings of the Company as at the date of deposit of the annual general meetings. However, requisition, may request the Directors of the Company to s h a r e h o l d e r s m a y r e q u e s t a n convene an extraordinary general meeting. The requisition extraordinary general meeting to must state the objects of the meeting and must be signed by consider any such resolution as the requisitionists and deposited at the registered office of described in “Convening Extraordinary the Company. General Meetings” above. If the Directors do not, within 21 days from the date of deposit of the requisition, proceed duly to convene a meeting to be held not more than 28 days after the notice of the meeting, shareholder(s) requisitioning the meeting, or 59 ANNUAL REPORT 2020Any queries relating to shareholders’ rights on putting In accordance with the requirements forward resolutions at general meetings and convening of Section 303A.11 of the New York extraordinary general meetings should be directed to the Stock Exchange Listed Company Company Secretary of the Company. Requisitions should be Manual, the Company has posted on its deposited at the Company’s registered office and marked for website (www.chinaunicom.com.hk) a the attention of the Company Secretary. SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN THE CORPORATE GOVERNANCE PRACTICES OF THE COMPANY AND THE C O R P O R A T E G O V E R N A N C E P R A C T I C E S R E Q U I R E D T O B E F O L L O W E D B Y U . S . COMPANIES UNDER THE LISTING STANDARDS OF THE NEW YORK STOCK EXCHANGE As a company listed on both the Hong Kong Stock Exchange summary of the significant differences between corporate governance practices of the Company and those required to be followed by U.S. companies under the listing standards of the New York Stock Exchange. CONTINUOUS EVOLUTION OF CORPORATE GOVERNANCE T h e C o m p a n y c o n t i n u o u s l y and the New York Stock Exchange, the Company is subject analyses the corporate governance to applicable Hong Kong laws and regulations, including d e v e l o p m e n t o f i n t e r n a t i o n a l the Listing Rules and the Companies Ordinance, as well as a d v a n c e d e n t e r p r i s e s a n d t h e applicable U.S. federal securities laws, including the U.S. investors’ desires, review and enhance Securities Exchange Act of 1934, as amended, and the corporate governance procedures and Sarbanes-Oxley Act. In addition, the Company is subject practices from time to time so as to to the listing standards of the New York Stock Exchange meet our shareholders’ expectations, to the extent applicable to non-U.S. issuers. As a non-U.S. c o m m i t s t o h i g h s t a n d a r d s o f issuer, the Company is not required to comply with all of the corporate governance and recognises corporate governance listing standards of the New York Stock that good governance is vital for the Exchange. long-term success and sustainability of the Company’s business. CHINA UNICOM’S ANNUAL REPORTS ATTAINED INTERNATIONAL TOP ACCOLADES FOR YEARS 60 CHINA UNICOM (HONG KONG) LIMITEDCORPORATE GOVERNANCE REPORTENQUIRY ON THE COMPANY Shareholders may raise any enquiry on the Company at any time through the following channels: China Unicom (Hong Kong) Limited Address: 75th Floor, The Center, 99 Queen’s Road Central, Hong Kong Tel Fax : : (852) 2126 2018 (852) 2126 2016 Website : www.chinaunicom.com.hk Email : ir@chinaunicom.com.hk These contact details are also available in the “Contact Us” section on the Company’s website (www.chinaunicom.com.hk) designated to enable shareholders to send enquiries to the Company on a timely and effective manner. https://www.chinaunicom.com.hk 61 ANNUAL REPORT 2020eportR O F T H E D I R E C T O R S The board of directors (the “Board”) of China Unicom the forthcoming Annual General Meeting, the 2020 Final (Hong Kong) Limited (the “Company”) is pleased to Dividend is expected to be paid in Hong Kong dollars on present its report together with the audited financial or about 16 June 2021 to those members registered in statements of the Company and its subsidiaries (the the Company’s register of members as at 24 May 2021 “Group”) for the year ended 31 December 2020. (the “Dividend Record Date”). PRINCIPAL ACTIVITIES The principal activity of the Company is investment FINANCIAL INFORMATION Please refer to the Financial Summary on pages 186 to holding. The principal activities of Company’s 187 for the summary of the operating results, assets and subsidiaries are the provision of cellular and fixed-line liabilities of the Group for the five years ended 31 voice and related value-added services, broadband and December 2020. o t h e r I n t e r n e t - r e l a t e d s e r v i c e s , i n f o r m a t i o n communications technology services, and business and Please refer to the financial statements on pages 93 to data communications services in the PRC. 185 for the operating results of the Group for the year RESULTS AND APPROPRIATION The results of the Group for the year ended 31 December 2020 are set out on pages 93 to 94 of this annual report. ended 31 December 2020 and the respective financial positions of the Group and the Company as at that date. BUSINESS REVIEW The business review of the Group for the year ended 31 December 2020 is set out in the sections headed Taking into consideration the Company’s profitability, “Chairman’s Statement” on pages 8 to 13, “Business debt and cash flow level, capital requirements for its Overview” on pages 14 to 17, “Financial Overview” on future development etc., the Board has resolved to pages 18 to 23, “Financial Statements” on pages 93 to recommend at the forthcoming shareholders’ general 185, “Human Resources Development” on pages 80 to meeting that the payment of a final dividend of 81, “Social Responsibility” on pages 82 to 87, “Corporate RMB0.164 per ordinary share (“2020 Final Dividend”), Governance Report” on pages 38 to 61 and “Report of totaling approximately RMB5,018 million for the year the Directors” on pages 62 to 79 respectively of this ended 31 December 2020. Going forward, the Company annual report. All references herein to other sections or will continue to strive for enhancing its profitability and reports in this annual report form part of this Report of shareholders’ returns. If approved by Shareholders at the Directors. 62 CHINA UNICOM (HONG KONG) LIMITEDLOANS Please refer to Notes 33, 39 and 45.3 to the CHARGE ON ASSETS As at 31 December 2020, no property, plant and consolidated financial statements for details of the equipment was pledged to banks as loan security (31 borrowings of the Group. December 2019: Nil). PROMISSORY NOTES Please refer to Note 34 to the consolidated financial SHARE CAPITAL Please refer to Note 30 to the consolidated financial statements for details of the promissory notes of the statements for details of the share capital. Group. CORPORATE BONDS Please refer to Note 35 to the consolidated financial RESERVES Please refer to page 98 and page 167 of this annual report for the movements in the reserves of the Group statements for details of the corporate bonds of the and the Company during the year ended 31 December Group. COMMERCIAL PAPERS Please refer to Note 40 to the consolidated financial statements for details of the commercial papers of the Group. CAPITALISED INTEREST Please refer to Note 15 to the consolidated financial 2020 respectively. As at 31 December 2020, the distributable reserve of the Company amounted to approximately RMB13,679 million (2019: approximately RMB14,560 million). SUBSIDIARIES, ASSOCIATES AND JOINT VENTURES Please refer to Notes 18, 19 and 20 to the consolidated financial statements for details of the Company’s statements for details of the interest capitalised by the subsidiaries, the Group’s associates and joint ventures. Group for the year. EQUITY-LINKED AGREEMENTS Other than the share option scheme as disclosed in this CHANGES IN SHAREHOLDERS’ EQUITY Please refer to page 98 of this annual report for the Consolidated Statement of Changes in Equity and page Report of Directors, as at 31 December 2020, no equity- 167 for the Statement of Changes in Equity. linked agreements were entered into by the Group during the year or subsisted. PROPERTY, PLANT AND EQUIPMENT Please refer to Note 15 to the consolidated financial statements for movements in the property, plant and equipment of the Group for the year. EMPLOYEE BENEFIT EXPENSES Please refer to Note 8 to the consolidated financial statements for details of the employee benefit expenses provided to employees of the Group. 63 ANNUAL REPORT 2020PRE-EMPTIVE RIGHTS There are no provisions for pre-emptive rights in the Scheme, no further share option can be granted under the 2014 Share Option Scheme, but the provisions of articles of association of the Company requiring the the 2014 Share Option Scheme will remain in full force Company to offer new shares to the existing and effect to the extent necessary to give effect to the shareholders in proportion to their shareholdings. exercise of any share options granted prior thereto or MAJOR CUSTOMERS AND SUPPLIERS The Group’s sales to its five largest customers for the year ended 31 December 2020 did not exceed 30% of otherwise as may be required in accordance with the provisions of the 2014 Share Option Scheme. Under the 2014 Share Option Scheme: the Group’s total turnover for the year. (1) share options may be granted to employees including all Directors; The Group’s purchases from its largest supplier for the y e a r e n d e d 3 1 D e c e m b e r 2 0 2 0 r e p r e s e n t e d (2) any grant of share options to a Connected Person approximately 17.2% of the Group’s total purchases for the year. The total purchases attributable to the five largest suppliers of the Group for the year ended 31 December 2020 accounted for approximately 42% of the total purchases of the Group for the year. None of the Directors nor their respective close associates (as defined in the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong (as defined in the Listing Rules) of the Company must be approved by the independent non- executive Directors of the Company (excluding any independent non- executive Director of the Company in the case such Director is a grantee of the options) and all grants to connected persons shall be subject to compliance with the requirements of the Listing Rules, including where necessary the prior approval of the Limited (the “Listing Rules”)) nor any shareholder of the shareholders; Company (which to the knowledge of the Directors owns more than 5% of the Company’s share capital) had (3) the maximum aggregate number of shares in any interests in the five largest suppliers of the Group for the year ended 31 December 2020. respect of which share options may be granted shall be calculated in accordance with the SHARE OPTION SCHEME OF THE COMPANY Pursuant to a resolution passed at the annual general meeting held on 16 April 2014, the Company adopted a following formula: N = A – B – C new share option scheme (the “2014 Share Option where: Scheme”). The purpose of the 2014 Share Option Scheme was to recognise the contribution that certain “N” is the maximum aggregate number of individuals have made to the Company, to attract and retain the best available personnel and to promote the success of the Company. The 2014 Share Option Scheme is valid and effective for a period of 10 years commencing on 22 April 2014 and will expire on 22 April 2024. Following the expiry of the 2014 Share Option shares in respect of which share options may be granted pursuant to the 2014 Share Option Scheme; 64 REPORT OF THE DIRECTORSCHINA UNICOM (HONG KONG) LIMITED“A” is the maximum aggregate number of (5) the subscription price shall not be less than the shares in respect of which shares options higher of: may be granted pursuant to the 2014 Share Option Scheme and any other share (a) the closing price of the shares on the Hong option schemes of the Company, being Kong Stock Exchange on the offer date in 10% of the aggregate of the number of respect of the share options; and shares in issue as at the date of adoption of the 2014 Share Option Scheme; (b) the average closing price of the shares on the Hong Kong Stock Exchange for the five “B” is the maximum aggregate number of trading days immediately preceding the shares underlying the share options offer date; already granted pursuant to the 2014 Share Option Scheme; and (6) the total number of shares in the Company issued and to be issued upon exercise of the share “C” is the maximum aggregate number of options granted to a participant of the 2014 shares underlying the options already Share Option Scheme (including both exercised granted pursuant to any other share and outstanding share options) in any 12-month option schemes of the Company. period must not exceed 1% of the issued share Shares in respect of share options which have lapsed in accordance with the terms of the 2014 (7) the consideration payable for each grant is capital of the Company; and Share Option Scheme and any other share option HKD1.00. schemes of the Company will not be counted for the purpose of determining the maximum No share options had been granted since adoption of aggregate number of shares in respect of which the 2014 Share Option Scheme. options may be granted pursuant to the 2014 Share Option Scheme; As at 31 December 2020, 1,777,437,107 options were available for issue under the 2014 Share Option Scheme, (4) the option period commences on any day after representing approximately 5.81% of issued share the date on which such share option is offered, capital of the Company as at the date of this annual but may not exceed 10 years from the offer date; report. DIRECTORS’, CHIEF EXECUTIVES’ AND EMPLOYEES’ INTERESTS UNDER THE SHARE OPTION SCHEME OF THE COMPANY For the year ended 31 December 2020 and as at 31 December 2020, none of the Directors of the Company or chief executives or employees of the Company had any interests under any share option scheme of the Company. 65 ANNUAL REPORT 2020 DIRECTORS’ AND CHIEF EXECUTIVES’ INTERESTS AND SHORT POSITIONS IN SHARES, UNDERLYING SHARES AND DEBENTURES As at 31 December 2020, the interests and short positions of Directors and chief executives of the Company in any shares, underlying shares and debentures of the Company or any of its associated corporations (as defined in Part XV of the Hong Kong Securities and Futures Ordinance (the “SFO”)) as recorded in the register required to be kept under Section 352 of the SFO or as otherwise notified to the Company and the Stock Exchange of Hong Kong Limited pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers (the “Model Code”) as set out in Appendix 10 of the Rules Governing the Listing of Securities on the Hong Kong Stock Exchange (the “Listing Rules”), were as follows: Name of Director Capacity Ordinary Percentage of Shares Held Issued Shares Chung Shui Ming Timpson Beneficial owner (Personal) 6,000 0.00% Save as disclosed in the foregoing, as at 31 December 2020, none of the Directors or chief executives of the Company had any interests or short positions in any shares, underlying shares, or debentures of the Company or any of its associated corporations (as defined in Part XV of the SFO) as recorded in the register required to be kept pursuant to Section 352 of the SFO or as otherwise notified to the Company and the Hong Kong Stock Exchange pursuant to the Model Code. Furthermore, save as disclosed in the foregoing, during the year ended 31 December 2020, none of the Directors or chief executives (including their spouses and children under the age of 18) of the Company had any interests in or was granted any right to subscribe in any shares, underlying shares, or debentures of the Company or any of its associated corporations, or had exercised any such rights. 66 REPORT OF THE DIRECTORSCHINA UNICOM (HONG KONG) LIMITED MATERIAL INTERESTS AND SHORT POSITIONS OF SUBSTANTIAL SHAREHOLDERS IN SHARES AND UNDERLYING SHARES OF THE COMPANY As at 31 December 2020, the following persons (other than disclosed under the section headed “Directors’ and Chief Executives’ Interests and Short Positions in Shares, Underlying Shares and Debentures”) had the following interests and short positions in the shares or underlying shares of the Company as recorded in the register required to be kept pursuant to Section 336 of Part XV of the SFO: Name of Shareholders Ordinary Shares Held Percentage of Directly Indirectly Issued Shares (i) China United Network Communications Group Company Limited (“Unicom Group”)1,2 (ii) China United Network Communications Limited (“Unicom A Share Company”)1 (iii) China Unicom (BVI) Limited (“Unicom BVI”)1 (iv) China Unicom Group Corporation — 24,683,896,309 80.67% — 16,376,043,282 53.52% 16,376,043,282 — 53.52% (BVI) Limited (“Unicom Group BVI”)2,3 8,082,130,236 225,722,791 27.15% Notes: (1) Unicom Group and Unicom A Share Company directly or indirectly control one-third or more of the voting rights in the shareholders’ meetings of Unicom BVI, and in accordance with the SFO, the interests of Unicom BVI are deemed to be, and have therefore been included in, the respective interests of Unicom Group and Unicom A Share Company. (2) Unicom Group BVI is a wholly-owned subsidiary of Unicom Group. In accordance with the SFO, the interests of Unicom Group BVI are deemed to be, and have therefore been included in, the interests of Unicom Group. (3) Unicom Group BVI holds 8,082,130,236 shares (representing 26.41% of the total issued shares) of the Company directly. In addition, Unicom Group BVI is also interested in 225,722,791 shares (representing 0.74% of the total issued shares) of the Company under the SFO, in which Unicom Group BVI had a pre-emptive right. Apart from the foregoing, as at 31 December 2020, no person had any interest or short position in the shares or underlying shares in the Company as recorded in the register required to be kept under Section 336 of the SFO. Please also refer to Note 30 to the consolidated financial statements for details of the share capital of the Company. REPURCHASE, SALE OR REDEMPTION OF LISTED SHARES OF THE COMPANY For the year ended 31 December 2020, neither the Company nor any of its subsidiaries had repurchased, sold or redeemed any of the Company’s listed shares. 67 ANNUAL REPORT 2020 COMPOSITION OF THE BOARD The following is the list of Directors during the year and DIRECTORS’ INTEREST IN CONTRACTS Save for the service agreements between the Company up to date of this report. Executive Directors: and the executive Directors, as at 31 December 2020, the Directors did not have any material interest, whether directly or indirectly, in any significant Wang Xiaochu (Chairman and Chief Executive Officer) contracts entered into by the Company. Chen Zhongyue (appointed on 19 February 2021) Li Guohua (resigned on 11 March 2020) None of the Directors for re-election at the forthcoming Li Fushen annual general meeting has an unexpired service Shao Guanglu (resigned on 16 January 2020) agreement which is not terminable by the Company Zhu Kebing within one year without payment of compensation Fan Yunjun (appointed on 17 February 2020) (other than statutory compensation). Non-Executive Director: Cesareo Alierta Izuel (retired on 25 May 2020) DIRECTORS’ INTEREST IN COMPETING BUSINESSES Unicom Group and the A Share Company are engaged in Independent Non-Executive Directors: telecommunications business and other related Cheung Wing Lam Linus Wong Wai Ming Chung Shui Ming Timpson Law Fan Chiu Fun Fanny businesses in China that are similar to and/or compete with those of the Company. Executive directors of the Company also hold executive positions with Unicom Group and the A Share Company. Please refer to the section headed “Directors and Senior Management” on Pursuant to the articles of association, Mr. Chen pages 24 to 35 of this annual report for further details. Zhongyue, Mr. Zhu Kebing, Mr. Wong Wai Ming and Mr. Chung Shui Ming Timpson will retire at the forthcoming Mr. Li Fushen, an executive Director of the Company, annual general meeting of the Company and, being serves as a non-executive director and the deputy eligible, offer themselves for re-election. chairman of the board of directors of PCCW Limited. Mr. Li Fushen also serves as a non-executive director of HKT Please refer to Note 8 to the consolidated financial Limited and HKT Management Limited (the trustee- statements for details of the emoluments of the manager of the HKT Trust). Mr. Zhu Kebing, an executive Directors. INDEPENDENCE OF INDEPENDENT NON- EXECUTIVE DIRECTORS The Company has received from each of its independent Director and Chief Financial Officer of the Company, serves as a non-executive director of PCCW Limited, HKT Limited and HKT Management Limited. Mr. Shao Guanglu (resigned from his position as an executive Director and Senior Vice President of the Company with non-executive Directors the annual confirmation of his effect from 16 January 2020) was served as a non- independence pursuant to Rule 3.13 of the Listing Rules executive director of PCCW Limited. and the Company considers that all independent non- executive Directors are currently independent. 68 REPORT OF THE DIRECTORSCHINA UNICOM (HONG KONG) LIMITEDMr. Cesareo Alierta Izuel (retired from his position as a Non-executive Director of the Company with effect from EMPLOYEE AND REMUNERATION POLICY As at 31 December 2020, the Group had approximately 25 May 2020) is an Executive Chairman of Telefónica 241,245 employees, 603 employees and 273 employees Foundation, which is an affiliate of Telefónica, S.A.. in Mainland China, Hong Kong and other countries, Each of PCCW Limited, HKT Limited, HKT Management approximately 12,581 temporary staff in Mainland Limited and Telefónica S.A. is engaged in the China. For the year ended 31 December 2020, employee telecommunications business and other related benefit expenses were approximately RMB55.740 billion businesses that may compete with those of the (for the year ended 31 December 2019: RMB50.516 r e s p e c t i v e l y . F u r t h e r m o r e , t h e G r o u p h a d Company. billion). The Group endeavors to maintain its employees’ remuneration in line with the market trend Apart from the above, there are no competing interests and to remain competitive. Employees’ remuneration is of directors which are disclosable under Rule 8.10(2)(b) d e t e r m i n e d i n a c c o r d a n c e w i t h t h e G r o u p ’ s of the Listing Rules at any time during the year of 2020 remuneration and bonus policies based on their up to and including the date of this annual report. performance. The Group also provides comprehensive DIRECTORS OF SUBSIDIARIES The names of all directors who have served on the benefit packages and career development opportunities for its employees, including retirement benefits, housing benefits and internal and external training programmes, boards of the subsidiaries of the Company during the which are tailored in accordance with individual needs. year ended 31 December 2020 and up to the date of this report of directors are available on the Company’s The Company has adopted share option schemes, under website (http://www.chinaunicom.com.hk). which the Company may grant share options to eligible PERMITTED INDEMNITY Pursuant to the Company’s articles of association, subject to the applicable laws and regulations, every Director shall be indemnified out of the assets of the employees for subscribing for the Company’s shares. USE OF PROCEEDS FROM ISSUE OF NEW SHARES As part of the mixed ownership reform plan, on 22 Company against all costs, charges, expenses, losses and August 2017, the Company and Unicom BVI entered into liabilities which he/she may sustain or incur in the a share subscription agreement. The completion of execution of his/her office or otherwise in relation allotment and issuance of the subscription shares took thereto. The Company has taken out insurance against place on 28 November 2017. 6,651,043,262 new the liability and costs associated with defending any ordinary shares of the Company have been issued for a proceedings which may be brought against directors of cash consideration of HKD13.24 per share to Unicom BVI the Group. and the gross proceeds amounted to HKD88,059.81 million (equivalent to approximately RMB74,953.87 million) and the net issue price amounted to HKD13.24 each. The closing price was HKD12.04 per share as quoted on the Hong Kong Stock Exchange as at the date of the share subscription agreement. Details of such issue have been disclosed in the circular dated 28 August 2017. 69 ANNUAL REPORT 2020As disclosed in the circular in relation to the subscription of new shares by Unicom BVI issued by the Company on 28 August 2017, the use of proceed was intended to be utilised for the following purposes: (a) approximately HKD46,777.96 million (equivalent to approximately RMB39,816 million) for upgrading the 4G network capabilities of the Company, which involves the upgrading of the transmission capacity of existing nationwide 4G network, construction of new 4G stations, improving the interoperation with 5G network and construction of transmission network in connection with the interoperation; (b) approximately HKD23,011.85 million (equivalent to approximately RMB19,587 million) for technology validation and enablement and launch of trial programs in relation to the 5G network, which involve research, development and validation of 5G network related technologies, construction of 5G trial stations and establishment of basic 5G network capability; (c) approximately HKD2,728.01 million (equivalent to approximately RMB2,322 million) for developing innovative businesses, which involves the establishment of specialised teams and business platforms to back up the development of cloud computing, big data, the Internet of Things, industrial Internet, payment finance, video and other businesses; and (d) approximately HKD15,538.98 million (equivalent to approximately RMB13,226 million) for the repayment of the outstanding principal amount of loans obtained from the banks. The proceeds have been utilised for the following purposes: (Unit: RMB, million) Intended amounts to be utilised as set out in the circular Amounts not yet utilised as at 31 December 2019 Actual amounts utilised for the period of 1 January to 31 December 2020 Actual amounts utilised up to 31 December 2020 Amounts not yet utilised as at 31 December 2020 (Note) Intended use of proceeds Upgrading the 4G network capabilities 39,816 — — 39,816 — Technology validation and enablement and launch of trial programs in relation to the 5G network Developing innovative businesses Repayment of the principal amount of loans 19,587 2,322 13,226 16,950 16,950 672 — 297 — 19,587 1,947 13,226 — 375 — Note: The Company plans to change the use of the remaining proceeds of RMB375 million from “Developing innovative businesses” to “Technology validation and enablement and launch of trial programs in relation to the 5G network” in the coming year. The above optimization adjustment was made based on various factors, such as the changes in the market environment of the industry, the use of proceeds in the investment projects, the actual operating conditions of the Company and the priority of the development of investment projects funded by the proceeds, in order to better satisfy the needs for future development of the Company. 70 REPORT OF THE DIRECTORSCHINA UNICOM (HONG KONG) LIMITED CONNECTED TRANSACTION- ACQUISITION O F 5 1 % E Q U I T Y I N T E R E S T I N F A W C O M M U N I C A T I O N S C I E N C E A N D TECHNOLOGY FROM UNICOM GROUP On 6 November 2020, China United Network CONTINUING CONNECTED TRANSACTIONS On 21 October 2019, CUCL, a wholly-owned subsidiary of the Company, and Unicom Group entered into a comprehensive services agreement (the “2020-2022 Comprehensive Services Agreement”) to renew certain Communications Corporation Limited (“CUCL”), a continuing connected transactions including (i) wholly-owned subsidiary of the Company, entered into telecommunications resources leasing; (ii) property the FAW Communication Science and Technology leasing; (iii) value-added telecommunications services; Acquisition Agreement with Unicom Group, pursuant to (iv) materials procurement services; (v) engineering which CUCL agreed to acquire 51% equity interest in design and construction services; (vi) ancillary Communication Science and Technology Co., Ltd. of telecommunications services; (vii) comprehensive Changchun FAW (“FAW Communication Science and support services; (viii) shared services; and (ix) financial Technology”) from Unicom Group, for a purchase price services, including deposit services, lending and other of RMB131,227,590 (approximately HK$150,732,357). credit services, and other financial services. Pursuant to the 2020-2022 Comprehensive Services Agreement, Unicom Group is the ultimate parent company of the CUCL and Unicom Group shall provide certain services Company. Accordingly, Unicom Group is a connected and facilities to each other and the receiving party shall person of the Company and the transaction under the pay the corresponding service fees in a timely manner. FAW Communication Science and Technology The 2020-2022 Comprehensive Services Agreement is Acquisition Agreement constitutes a connected valid for a term of three years starting from 1 January transaction of the Company under Chapter 14A of the 2020 and expiring on 31 December 2022. Listing Rules. The purchase price was determined after arm’s length the Company and is therefore a connected person of the Unicom Group is the ultimate controlling shareholder of negotiations between CUCL and Unicom Group, are on Company under the Listing Rules. normal commercial terms, and with reference to various factors including, but not limited to, the financial and Details of the continuing connected transactions under operating performance, development prospect of FAW the 2020-2022 Comprehensive Services Agreement are Communication Science and Technology, the appraised as follows: v a l u e o f t o t a l s h a r e h o l d e r s ’ e q u i t y o f F A W Communication Science and Technology as at 31 (1) Telecommunications Resources Leasing December 2019 of approximately RMB260 million Unicom Group agrees to lease to CUCL: (approximately HK$300 million) as set out in the valuation report prepared by an independent appraisal (a) certain international telecommunications company. The acquisition of the 51% equity interest in resources (including international FAW Communication Science and Technology will telecommunications channel gateways, strengthen the cooperation between the Group and international telecommunications service China FAW Group Co., Ltd., creating strong alliance so as gateways, international submarine cable to complement each other’s advantages, and leverage capacity, international land cables and synergistic benefits, which in turn could help promote international satellite facilities); and the development and improve competitiveness and operation efficiency of FAW Communication Science (b) certain other telecommunications and Technology, thus further drive the growth of facilities required by CUCL for its revenue and profit of the Group in future. operations. 71 ANNUAL REPORT 2020The rental charges for the leasing of CUCL or Unicom Group (including their international telecommunications respective branch companies and subsidiaries). resources and other telecommunications facilities are based on the annual The rental charges for the leasing of each other depreciation charges of such resources properties and ancillary facilities are based on and telecommunications facilities market rates. Where there is no market rate or it provided that such charges would not be is not possible to determine the market rate, the higher than market rates. CUCL shall be rate shall be negotiated and agreed between the responsible for the on-going maintenance two parties. Market rates refer to the rates at of such international telecommunications which the same or similar type of products or resources. CUCL and Unicom Group shall services are provided by Independent Third determine and agree which party is to Parties in the ordinary course of business and provide maintenance service to the under normal commercial terms. Negotiated telecommunications facilities referred to rates refer to the rates based on the reasonable in (b). Unless otherwise agreed by CUCL costs plus the amount of the relevant taxes and and Unicom Group, such maintenance reasonable profit margin. When determining the service charges would be borne by CUCL. pricing standard or reasonable profit margin, to If Unicom Group is responsible for the extent practicable, management of the maintaining any telecommunications Company shall take into account the rates of at facilities referred to in (b), CUCL shall pay least two similar and comparable transactions t o U n i c o m G r o u p t h e r e l e v a n t entered with or carried out by Independent Third maintenance service charges which shall Parties in the corresponding period of reference. be determined with reference to market The rental charges are payable quarterly in rate, or where there is no market rate, arrears. shall be agreed between the parties and determined on a cost-plus basis. When For the year ended 31 December 2020, the rental determining the pricing standard or charges paid by CUCL to Unicom Group reasonable profit margin, to the extent amounted to approximately RMB999 million, and practicable, management of the Company the rental charges paid by Unicom Group to shall take into account the rates of at least CUCL was negligible. two similar and comparable transactions e n t e r e d w i t h o r c a r r i e d o u t b y (3) Value-added Telecommunications Services Independent Third Parties or relevant Unicom Group (or its subsidiaries) agrees to i n d u s t r y p r o f i t m a r g i n s i n t h e provide the customers of CUCL with various corresponding period of reference. CUCL types of value-added telecommunications and Unicom Group agree to settle the net services. rental charges and service charges due to Unicom Group on a quarterly basis. CUCL shall settle the revenue generated from the For the year ended 31 December 2020, t h e b r a n c h e s o f U n i c o m G r o u p ( o r i t s the total charges paid by CUCL to Unicom subsidiaries) on the condition that such Group amounted to approximately settlement will be based on the average revenue value-added telecommunications services with RMB283 million. (2) Property Leasing f o r i n d e p e n d e n t v a l u e - a d d e d telecommunications content providers who provide value-added telecommunications CUCL and Unicom Group agree to lease to each content to CUCL in the same region. The revenue other properties and ancillary facilities owned by shall be settled on a monthly basis. 72 REPORT OF THE DIRECTORSCHINA UNICOM (HONG KONG) LIMITED For the year ended 31 December 2020, the total relevant taxes and reasonable profit margin. revenue allocated to Unicom Group in relation to When determining the pricing standard or value-added telecommunications services reasonable profit margin, to the extent amounted to approximately RMB188 million. practicable, management of the Company shall take into account the rates of at least two similar (4) Materials Procurement Services and comparable transactions entered into with Unicom Group agrees to provide comprehensive Independent Third Parties in the corresponding procurement services for imported and domestic period or the relevant industry profit margin for telecommunications materials and other reference. The service charges due to Unicom domestic non- telecommunications materials to Group will be settled on a monthly basis. CUCL. Unicom Group also agrees to provide services on management of tenders, verification For the year ended 31 December 2020 the total of technical specifications, installation, consulting charges paid by CUCL to Unicom Group and agency services. In addition, Unicom Group amounted to approximately RMB47 million. will sell cable, modem and other materials operated by itself to CUCL and will also provide (5) Engineering Design and Construction Services storage and logistics services in relation to the Unicom Group agrees to provide engineering above materials procurement. design, construction and supervision services and IT services to CUCL. Engineering design services C h a r g e s f o r t h e p r o v i s i o n o f m a t e r i a l s include planning and design, engineering procurement services are calculated at the rate inspection, telecommunications electronic of: engineering, telecommunications equipment engineering and corporate telecommunications (a) up to 3% of the contract value of those engineering. Construction services include procurement contracts in the case of services relating to telecommunications domestic materials procurement; and equipment, telecommunications routing, power supplies, telecommunications conduit, and (b) up to 1% of the contract value of those technical support systems. IT services include procurement contracts in the case of services relating to office automation, software imported materials procurement. testing, network upgrading, research and development of new business, and development The charges for the provision of materials of support systems. operated by Unicom Group, and the pricing and/ or charging standard of various materials The charges for the provision of engineering procurement services, and storage and logistics design and construction services are based on services commission relevant to the direct market rates. Market rates refer to the rates at material procurement are based on the market which the same or similar type of products or rates. Where there is no market rate or it is not services are provided by Independent Third possible to determine the market rate, the rate Parties in the ordinary course of business and will be negotiated and agreed between the two under normal commercial terms. When parties. Market rates refer to the rates at which determining the pricing standard, to the extent the same or similar type of assets or services is practicable, management of the Company shall provided by Independent Third Parties in the take into account the rates of at least two similar ordinary course of business and under normal and comparable transactions entered with or commercial terms. Negotiated rates refer to the carried out by Independent Third Parties in the rates based on the reasonable costs incurred in corresponding period of reference. In the event providing the services plus the amount of the the recipient will determine the specific provider 73 ANNUAL REPORT 2020 of engineering design and construction services profit margin for reference. The service charges through tender, the provider will be no less will be settled between CUCL and Unicom Group qualified and equipped than the Independent as and when the relevant services are provided. Third Parties, and will participate in the tender p r o c e d u r e i n a s i m i l a r m a n n e r a s t h e For the year ended 31 December 2020, the total Independent Third Parties. Under such services charges paid by CUCL to Unicom Group circumstances, the pricing will be determined by amounted to approximately RMB2,735 million. the final rate according to the tender procedure. (7) Comprehensive Support Services The service charges will be settled between CUCL Unicom Group and CUCL agree to provide and Unicom Group as and when the relevant comprehensive support services to each other, services are provided. including dining services, facilities leasing services (excluding those facilities which are provided For the year ended 31 December 2020, the total under the Telecommunications Resources charges paid by CUCL to Unicom Group Leasing above), vehicle services, health and amounted to approximately RMB2,034 million. medical services, labour services, security services, hotel and conference services, (6) Ancillary Telecommunications Services gardening services, decoration and renovation Unicom Group agrees to provide to CUCL ancillary services, sales services, construction agency, telecommunications services, including certain equipment maintenance services, market telecommunications pre-sale, on-sale and after- development, technical support services, sale services such as assembling and repairing of research and development services, sanitary certain client telecommunications equipment, services, parking services, staff trainings, storage sales agency services, printing and invoice services, advertising services, marketing, delivery services, maintenance of telephone property management services, information and booths, customers’ acquisitions and servicing and communications technology services (including other customers’ services. construction and installation services, system integration services, software development, The charges payable for the provision of ancillary product sales and agent services, operation and telecommunications services are determined by maintenance services, and consultation the market rates between the two parties. services). Where there is no market rate or it is not possible to determine the market rates, the rate The service charges are determined by the will be negotiated and agreed between the two market rates between the two parties. Where parties. Market rates refer to the rates at which there is no market rate or it is not possible to the same or similar type of assets or services are determine the market rate, the rate will be provided by Independent Third Parties under negotiated and agreed between the two parties. normal commercial terms. Negotiated rates refer Market rates refer to the rates at which the same to the rates based on the reasonable costs plus or similar type of assets or services are provided the amount of the relevant taxes and reasonable by Independent Third Parties under normal profit margin. When determining the pricing commercial terms. Negotiated rates refer to the standard or reasonable profit margin, to the rates based on the reasonable costs plus the extent practicable, management of the Company amount of the relevant taxes and reasonable shall take into account the rates of at least two profit margin. When determining the pricing similar and comparable transactions entered into standard or reasonable profit margin, to the w i t h I n d e p e n d e n t T h i r d P a r t i e s i n t h e extent practicable, management of the Company corresponding period or the relevant industry shall take into account the rates of at least two 74 REPORT OF THE DIRECTORSCHINA UNICOM (HONG KONG) LIMITED similar and comparable transactions entered into provided to each other, as adjusted in w i t h I n d e p e n d e n t T h i r d P a r t i e s i n t h e accordance with their respective total assets corresponding period or the relevant industry value on an annual basis. profit margin for reference. The service charges will be settled between CUCL and Unicom Group For the year ended 31 December 2020, the total as and when the relevant services are provided. services charges paid by CUCL to Unicom Group For the year ended 31 December 2020, the total the services charges paid by Unicom Group to amounted to approximately RMB77 million, and services charges paid by CUCL to Unicom Group CUCL was negligible. amounted to approximately RMB979 million, and the total services charges paid by Unicom Group (9) Financial Services to CUCL amounted to approximately RMB229 CUCL or its subsidiaries agrees to provide million. (8) Shared Services financial services to Unicom Group, including deposit services, lending and other credit services, and other financial services. Other Unicom Group and CUCL agree to provide shared financial services include settlement services, services to each other, including, but not limited acceptance of bills, entrusted loans, credit to, the following: (a) CUCL will provide verification, financial and financing consultation, headquarter human resources services to consultation, agency business, approved Unicom Group; (b) Unicom Group and CUCL will insurance agent services, and other businesses provide business support centre services to each approved by China Banking Regul at o ry other; (c) CUCL will provide hosting services Commission. related to the services referred to in (a) and (b) above to Unicom Group; and (d) Unicom Group The key pricing policies are follows: will provide premises to CUCL and other shared services requested by its headquarters. In (a) Deposit Services relation to the services referred to in (b) above, The interest rate for Unicom Group’s CUCL will provide support services, such as billing deposit with CUCL or its subsidiaries will and settlement services provided by the business be no more than the maximum interest support centre and operational statistics reports. rate promulgated by the People’s Bank of Unicom Group will provide support services, China for the same type of deposit, the i n c l u d i n g t e l e p h o n e c a r d p r o d u c t i o n , interest rate for the same type of deposit development and related services, maintenance offered to other clients and the applicable and technical support and management services interest rate offered by the general in relation to the telecommunications card commercial banks in PRC for the same operational system. type of deposit. Unicom Group and CUCL share the costs related (b) Lending and other credit services to the shared services proportionately in The lending interest rate will follow the accordance with their respective total assets interest rate standard promulgated by the value, except that the total assets value of the People’s Bank of China, and will be no less overseas subsidiaries and the listed company of than the minimum interest rate offered Unicom Group will be excluded from the total by CUCL and its subsidiaries to other asset value of Unicom Group. The shared costs clients for the same type of loan, and the proportion will be agreed between Unicom applicable interest rate offered to Unicom Group and CUCL in accordance with the total Group by the general commercial banks in assets value set out in the financial statements PRC for the same type of loan. For the 75 ANNUAL REPORT 2020 year ended 31 December 2020, the The legal department is responsible for the review of the maximum daily lending and other credit agreement for connected transactions. The finance services balance (including accrued department takes the lead in the daily management and interests) amounted to approximately supervision of connected transactions, including liaising RMB10,644 million. with the relevant business departments for account reconciliation with connected parties, monitoring the (c) Other financial services implementation of connected transactions together The fees to be charged by CUCL or its with business departments on a routine basis and subsidiaries for the provision of the performing supervisory examination. The finance financial services to Unicom Group will department regularly reports the status of the comply with the relevant prescribed rates implementation of connected transactions to the Audit for such services as determined by the Committee. The audit department includes review on People’s Bank of China or the China connected transactions into the scope of annual internal Banking Regulatory Commission. Where control assessment and reports the results to the no relevant prescribed rate is applicable, management. the fee will be determined with reference to market rates of similar financial Furthermore, the aforesaid continuing connected services charges and agreed between the transactions have been reviewed by independent non- parties. executive directors of the Company. The independent non-executive directors confirmed that the aforesaid The service charges will be settled continuing connected transactions were entered into (a) between CUCL or its subsidiaries and in the ordinary and usual course of business of the Unicom Group as and when the relevant Group; (b) either on normal commercial terms or better services are provided. or, if there are not sufficient comparable transactions to judge whether they are on normal commercial terms, on For the financial year ended 31 December 2020, the terms no less favourable to the Group than terms above continuing connected transactions have not available to or from independent third parties; and (c) in exceeded their respective caps. accordance with the relevant agreements governing The Company has formulated and strictly implemented interests of the shareholders of the Company as a them on terms that are fair and reasonable and in the various systems including the Administrative Measures whole. of Connected Transactions of China Unicom to ensure that connected transactions are properly entered into in The Company’s independent auditor was engaged to accordance with pricing mechanisms and the terms of report on the Group’s continuing connected the transactions are fair and reasonable and are in the transactions in accordance with Hong Kong Standard on interests of the Company and the Shareholders as a Assurance Engagements 3000 “Assurance Engagements whole. Other Than Audits or Reviews of Historical Financial Information” and with reference to Practice Note 740 The staff from the relevant business departments and “Auditor’s Letter on Continuing Connected Transactions the connected persons of the Company will negotiate under the Hong Kong Listing Rules” issued by the Hong the pricing terms of the continuing connected Kong Institute of Certified Public Accountants. The transactions. These pricing terms will be determined in independent auditor has issued an unqualified letter accordance with the pricing policy principles set out in containing his findings and conclusions in respect of the the 2020-2022 comprehensive services agreement, continuing connected transactions disclosed by the which should be fair and reasonable and subject to the Group in pages 71 to 76 of this annual report in review of the finance department. accordance with paragraph 14A.56 of the Listing Rules. The independent auditors’ letter has confirmed that 76 REPORT OF THE DIRECTORSCHINA UNICOM (HONG KONG) LIMITED nothing has come to their attention that cause them to The New York Stock Exchange (“NYSE”) staff determined believe that the continuing connected transactions: that, based on the Executive Order and the guidance, it (A) have not been approved by the Board; American Depositary Shares (the “ADSs”) and commenced the process to delist the Company’s suspended trading in the Company’s ADSs from 11 (B) were not, in all material respects, in accordance January 2021. Since its listing on The Stock Exchange of with the pricing policies of the Group as stated in Hong Kong Limited and the NYSE in 2000, the Company this annual report; has complied strictly with the laws and regulations, market rules as well as regulatory requirements of its (C) were not entered into, in all material respects, in listing venues, and has been operating in accordance accordance with the relevant agreements with laws and regulations. The Company was g o v e r n i n g t h e c o n t i n u i n g c o n n e c t e d disappointed by the Executive Order and NYSE transactions; and decisions, which led to a negative impact on the trading prices of its ordinary shares and ADSs and harmed the (D) have exceeded their respective annual caps for interests of the Company and its shareholders. In order the financial year ended 31 December 2020 set to protect the interests of the Company and its out in the previous announcements of the shareholders, on 20 January 2021, the Company filed Company. with the NYSE a written request for a review of the determination by a Committee of the Board of Directors A copy of the independent auditor’s letter has been o f t h e N Y S E . P l e a s e r e f e r t o t h e C o m p a n y ’ s provided by the Company to the Hong Kong Stock announcement dated 21 January 2021 for details. The Exchange. Company will continue to pay close attention to the development of related matters and also seek The Company confirms that it has complied with the professional advice and reserve all rights to protect requirements of Chapter 14A of the Listing Rules in lawful rights of the Company. relation to all connected transactions and continuing connected transactions to which any Group member was a party during 2020. Please refer to Note 45 to the MATERIAL LEGAL PROCEEDINGS As a company incorporated in Hong Kong and dual-listed consolidated financial statements for a summary of the in Hong Kong and the United States, the Company related party transactions entered into by the members adopts the Companies Ordinance of Hong Kong, the of the Group for the year ended 31 December 2020. Securities and Futures Ordinance of Hong Kong, Rules CORPORATE GOVERNANCE REPORT Report on the Company’s corporate governance is set Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited, the regulatory requirements for non-US companies listed in the United out in “Corporate Governance Report” on pages 38 to States, the Company’s Articles of Association and other 61. related laws and regulations as the basic guidelines for the Company’s corporate governance. NYSE COMMENCED PROCEEDINGS TO DELIST THE ADSs The former US President issued an executive order The principal activities of Company’s subsidiaries are the provision of cellular and fixed-line voice and related 13959 (the “Executive Order”) on 12 November 2020, value-added services, broadband and other Internet- and subsequently the US Department of Treasury’s Office of Foreign Assets Control issued the guidance. The Executive Order and the guidance prohibit any transaction by any US person in publicly traded securities (including, among others, derivatives thereof) of certain Chinese companies, including the Company. related services, information communications t e c h n o l o g y s e r v i c e s , a n d b u s i n e s s a n d d a t a communications services in the PRC. The Company is required to comply with the Telecommunications Regulations of the People’s Republic of China, Administrative Regulations on Telecommunications 77 ANNUAL REPORT 2020Companies with Foreign Investments, Cybersecurity Law of the People’s Republic of China and other related laws and regulations. At the same time, oversea subsidiaries of the Company are also required to comply with the related laws and regulations where their business operations are located. For the year ended 31 December 2020, the Company had not been involved in any material litigation, arbitration or administrative proceedings. So far as the Company is aware of, no such litigation, arbitration or administrative proceedings were pending or threatened as at 31 December 2020. PUBLIC FLOAT Based on publicly available information and so far as Directors are aware, the Company has maintained the specified amount of public float as required by the Hong Kong Stock Exchange during the year ended 31 December 2020 and as at the date of this annual report. DONATIONS For the year ended 31 December 2020, the Group made charitable and other donations in an aggregate amount of approximately RMB6.37 million. CLOSURE OF REGISTER OF MEMBERS For the purpose of ascertaining the shareholders’ rights to attend and vote at the Annual General Meeting (and any adjournment thereof) on 13 May 2021, and entitlement to the 2020 Final Dividend, the register of members of the Company will be closed. Details of such closures are set out below: (1) For ascertaining the shareholders’ rights to attend and vote at the Annual General Meeting: Latest time to lodge transfer documents for registration 4:30 p.m. of 5 May 2021 Closure of register of members Record date From 6 May 2021 to 13 May 2021 6 May 2021 (2) For ascertaining the shareholders’ entitlement to the 2020 Final Dividend: Latest time to lodge transfer documents for registration 4:30 p.m. of 21 May 2021 Closure of register of members Dividend Record date 24 May 2021 24 May 2021 During the above closure periods, no transfer of shares will be registered. To be eligible to attend and vote at the Annual General Meeting, and to qualify for the 2020 Final Dividend, all transfers, accompanied by the relevant certificates, must be lodged with the Company’s Share Registrar, Hong Kong Registrars Limited, at Shops 1712-1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Wan Chai, Hong Kong, by no later than the aforementioned latest times. WITHHOLDING AND PAYMENT OF ENTERPRISE INCOME TAX FOR NON-RESIDENT ENTERPRISES IN RESPECT OF 2020 FINAL DIVIDEND Pursuant to (i) the “Notice Regarding Matters on Determination of Tax Residence Status of Chinese- controlled Offshore Incorporated Enterprises under Rules of Effective Management” (the “Notice”) issued by the State Administration of Taxation of the People’s Republic of China (the “SAT”); (ii) the “Enterprise Income Tax Law of the People’s Republic of China” (the “Enterprise Income Tax Law”) and the “Detailed Rules for the Implementation of the Enterprise Income Tax Law of the People’s Republic of China” (the “Implementation Rules”); and (iii) information obtained from the SAT, the Company is required to withhold and pay enterprise income tax when it pays the 2020 Final Dividend to its non-resident enterprise shareholders. The enterprise income tax is 10% on the amount of dividend paid to non-resident enterprise shareholders (the “Enterprise Income Tax”), and the withholding and payment obligation lies with the Company. 78 REPORT OF THE DIRECTORSCHINA UNICOM (HONG KONG) LIMITED As a result of the foregoing, in respect of any If anyone would like to change the identity of the shareholders whose names appear on the Company’s holders in the register of members, please enquire register of members on the Dividend Record Date and about the relevant procedures with the nominees or who are not individuals (including HKSCC Nominees trustees. The Company will withhold for payment of the Limited, other custodians, corporate nominees and Enterprise Income Tax for its non-resident enterprise trustees such as securities companies and banks, and shareholders strictly in accordance with the relevant other entities or organisations), the Company will laws and requirements of the relevant government distribute the 2020 Final Dividend payable to them after agencies and adhere strictly to the information set out in deducting the amount of Enterprise Income Tax payable the Company’s register of members on the Dividend on such dividend. Investors who invest in the shares in Record Date. The Company assumes no liability the Company listed on the Main Board of The Stock whatsoever in respect of and will not process any Exchange of Hong Kong Limited through the Shanghai claims, arising from any delay in, or inaccurate Stock Exchange or Shenzhen-Hong Kong Stock Exchange determination of, the status of the shareholders, or any (the Shanghai-Hong Kong Stock Connect or Shenzhen- disputes over the mechanism of withholding. Hong Kong Stock Connect investors) are investors who hold shares through HKSCC Nominees Limited, and in accordance with the above requirements, the Company will pay to HKSCC Nominees Limited the amount of the 2020 Final Dividend after deducting the amount of Enterprise Income Tax payable on such dividend. In respect of any shareholders whose names appear on the Company’s register of members on the Dividend Record Date and who are individual shareholders, there will be no deduction of Enterprise Income Tax from the dividend that such shareholder is entitled to. Shareholders who are not individual shareholders listed on the Company’s register of members and who (i) are resident enterprises of the People’s Republic of China (the “PRC”) (as defined in the Enterprise Income Tax Law), or (ii) are enterprises deemed to be resident enterprises of the PRC in accordance with the Notice, and who, in each case, do not desire to have the Company withhold Enterprise Income Tax from their 2020 Final Dividend, should lodge with the Company’s Share Registrar, Hong Kong Registrars Limited, at Shops 1712-1716, 17th Floor, Hopewell Centre, 183 Queen’s INDEPENDENT AUDITOR The Hong Kong financial reporting and U.S. financial reporting for the year ended 31 December 2020 have been audited by KPMG and KPMG Huazhen LLP, respectively, which will retire as auditors of the Group upon expiration of their current term of office at the close of 2021 annual general meeting of the Company. The Board, as recommended by the audit committee of the Company, has resolved to propose to the shareholders of the Company at the AGM to approve the appointment of Deloitte Touche Tohmatsu and Deloitte Touche Tohmatsu Certified Public Accountants LLP as the auditors of the Group for Hong Kong financial reporting and U.S. financial reporting purposes, respectively, for the year ending 31 December 2021. By Order of the Board Wang Xiaochu Road East, Wan Chai, Hong Kong, at or before 4:30 p.m. Chairman and Chief Executive Officer of 21 May 2021, and present the documents from such shareholder’s governing tax authority in the PRC Hong Kong, 11 March 2021 confirming that the Company is not required to withhold and pay Enterprise Income Tax in respect of the dividend that such shareholder is entitled to. 79 ANNUAL REPORT 2020umanHR E S O U R C E S Supply-side reforms in human resources continued to Adhering to the team collaboration improve efficiency and rationalise structure. The Company approach, China Unicom continuously D E V E L O P M E N T The Company adopted performance- based compensation as the principal optimises its system and mechanism, uncovered the master map of manpower deployment, m e c h a n i s m w i t h a d i v e r s i f i e d allowing employees and teams who thereby making the Group’s overall human resource r e m u n e r a t i o n s t r u c t u r e . T h e highly contributing to customer needs allocation more transparent, and improving efficiency Company improved the employee and enhancing corporate value to comprehensively on the organizational structure, compensation distribution and share higher returns, thus achieving professional structure, rank and position and other performance evaluation mechanism the mutual growth of the Company dimensions. China Unicom’s employee productivity to achieve the aligned growth of a n d t h e e m p l o y e e s . I n 2 0 2 0 , continuously increased. The Company continued to employee benefits and the return and u n d e r p i n n e d b y t h e g o a l s o f optimise its employee structure integrating the sub- efficiency of the Company. The promoting “staff in and out”, “post up division of performing unit reform, which redeployed Company optimised its value-based and down” and “compensation up about 6,000 employees at all levels to frontline positions at internal remuneration distribution and down”, China Unicom paid sub-divided units directly contributing to value creation. mechanism, further widening the gap continuous efforts to deepen the China Unicom also strengthened the effort to recruit in remuneration and stimulating the human resources system reform, talents in enhancing the digital transformation of the vibrancy of micro-entities. The providing human resources support Company and the number of high school graduates Company launched an integrated for the Company’s comprehensive recruited increased by 6% year-on-year. incentive reporting system, which is digital transformation and achieving sustainable high-quality development. able to deliver customised annual 80 CHINA UNICOM (HONG KONG) LIMITEDANALYSIS OF STAFF COMPOSITION Secondary school or below 12.53% Postgraduate or above 8.32% Administrative & Support 6.73% Management 11.66% By Education Background Personnel By Profession College 19.11% Marketing 27.95% Bachelor degree 60.04% Others 3.17% Technical 50.49% For further details of Human Resources Development, please refer to the relevant sections of the Company’s detailed Corporate Social Responsibility Report 2020 to be published in June 2021. Please visit the Company’s website at www.chinaunicom.com.hk. r e m u n e r a t i o n r e p o r t t o t h e Company further strengthened the young manager Company conducted innovation e m p l o y e e s , f u r t h e r e n h a n c i n g development, as well as the communication between the capability certification in IT and employees’ sense of achievement. A headquarters and the frontlines, and actively pushed government and enterprise services, long-term incentive system was also forward the implementation of the director accountability and a total of 25,000 employees had established to effectively attract, system. While promoting the withdrawn rate of managers passed the examination in 2020. retain, and appropriately compensate of no less than 1.5% per annum, the Company stepped up talents. effort to withdraw managers, further stimulating their Focusing on the demand for digital Focusing on the top-level design, the vitality. t r a n s f o r m a t i o n , t h e C o m p a n y reshaped its staff education and Company conducted comprehensive The Company strengthened on professional talent pipeline training system to enhance the analysis on the leadership team development. A four-tier professional grade structure t r a i n i n g o n t r a n s f o r m a t i o n structure and the overall planning and namely, practice leaders, experts, core members and new empowerment. To further strengthen coordination with due regard to the talents, comprising of 18,000 members from 14 and cultivate the digital capability of needs of the Company in the course p r o f e s s i o n a l f i e l d s i n c l u d i n g I T , o p e r a t i n g a n d employees, annual key training plans of development. China Unicom maintenance, research and development, government and for management personnel and enhanced the capability on digital enterprise, marketing, etc. was developed. The Company professional talents were formulated, transformation, strengthened the d e e p e n e d t h e i m p l e m e n t a t i o n o f “ 4 1 8 ” t a l e n t while continuously carrying out s u p e r v i s i o n o f m a n a g e r s a n d development initiative in the innovative areas and stepped p r o f e s s i o n a l i m p r o v e m e n t a n d motivating managers at all levels to up on talents recruitment. In 2020, 3 top talents were transformation training for all groups. take new responsibilities and deliver recruited at the headquarters, and nearly 30 top talents new initiatives in the new era. The were recruited at the branch and subsidiary levels. The 81 ANNUAL REPORT 2020ocialSR E S P O N S I B I L I T Y China Unicom is always committed to prevention and business operations to ensure smooth Company deeply reformed systems integrating its own development with network communication, sound service and effective and mechanisms and accelerated the broader social responsibility to support. It fully leveraged its new digital technology edges establishment of new mechanism that achieve the harmony and alignment to support precise epidemic prevention and the stimulates the vitality of micro of corporate interests and social resumption of work, production and schooling, thereby entities to better adapt production goals. In 2020, under the guidance of contributing to the winning of the battle against COVID-19 functions to productivity changes. At the new development philosophies of and fully fulfilling its role as a key pillar of a great nation. t h e s a m e t i m e , t h e C o m p a n y innovation, coordination, green, openness and sharing, the Company continued to practically implement national strategic plans such as Cyber Superpower, Digital China and the “Belt and Road Initiative”, etc. and strived to promote comprehensive d i g i t a l t r a n s f o r m a t i o n , f u l l y supporting the transformation and upgrade of the economy and society. In the face of the sudden COVID-19, the Company quickly responded with respect to epidemic prevention and c o m m u n i c a t i o n a s s u r a n c e . I t e m p h a s i s e d o n b o t h e p i d e m i c DIGITALLY STRENGTHENED THE FOUNDATION OF CYBER SUPERPOWER TO ENHANCE VALUE The Company adheres to people-oriented values and fundamental principles. It accelerated the construction of p r a c t i c e d g r e e n d e v e l o p m e n t philosophies by building green networks and promoting the green transformation of production and operation, leading to significant i m p r o v e m e n t i n o p e r a t i o n a l h i g h - s p e e d , m o b i l e , s e c u r e a n d u b i q u i t o u s n e w efficiency. infrastructure, improved network quality and operational efficiency through digitisation, accelerated network construction in remote areas and insisted on network information security, continuously solidifying the foundation of a digital economy and striving to develop our country into a Cyber Superpower and Digital China. DIGITALLY IMPROVED PEOPLE’S LIVING QUALITY TO SEEK GROWTH Shouldering Cyber Superpower missions, the Company leveraged high-quality information and communication infrastructure to continuously enrich the substance of communication products and services. It vigorously improved network quality and customer experience and committed itself to improving the nation’s overall information technology development. It provided customers with satisfying and high-quality communication services, letting more consumers share the benefits of technological advancement and enjoy better service experience and perception. DIGITALLY IMPROVED GOVERNANCE EFFICIENCY TO FOCUS ON FUNDAMENTALS As a “pioneer” in the mixed-ownership reform of central DIGITALLY IGNITED THE ENGINE OF TECHNOLOGICAL INNOVATION TO STRENGTHEN GROWTH MOMENTUM As the main force in building a technology superpower, the Company c o m m i t t e d t o p r o p r i e t a r y development and improvement of t e c h n o l o g y . I t s e i z e d t h e n e w opportunities for technological innovation brought by the digital e c o n o m y , e n h a n c e d i t s o w n innovation capabilities, and nurtured a f l o u r i s h i n g a n d s y n e r g e t i c innovation ecosystem. It accelerated the transformation of technological innovation achievements into actual p r o d u c t i o n , a n d e n r i c h e d a n d expanded new innovative technology products, assisting the government in efficient social governance and state-owned enterprises, China Unicom undertook serving the digital transformation of comprehensive digital transformation. Guided by the numerous industries. market-oriented allocation of factors of production, the 82 83 CHINA UNICOM (HONG KONG) LIMITEDANNUAL REPORT 2020DIGITALLY PROMOTED TALENT TRANSFORMATION AND DEVELOPMENT TO REINFORCE PASSION The Company attaches great importance to staff development and believes that a company thrives with DIGITALLY BUILT A MUTUALLY BENEFICIAL AND WIN-WIN ECOSYSTEM TO EXPAND COOPERATION U n d e r t h e n e w l a n d s c a p e o f talents. Serving both corporate and staff development accelerated digital transformation purposes, the Company restructured its staff mix through across the world, the Company digital transformation and focused on cultivating a group of c o n t i n u o u s l y s t r e n g t h e n e d professionals with true technological innovation expertise cooperation with fellow operators, and ability to lead in industry competition. Meanwhile, the s t r a t e g i c i n v e s t o r s , I n t e r n e t Company effectively protected the legitimate interests of companies and supply chain partners, its staff, and encouraged them to actively participate in etc. to promote coordinated industry corporate management, letting them share the fruits of development and network “co-build reform and development and grow together with the co-share”. It drove the optimisation Company. and upgrade of the supply chain and n u r t u r e d a f l o u r i s h i n g d i g i t a l innovation ecosystem to jointly p r o m o t e t h e i m p r o v e m e n t o f people’s living quality and the construction of an intelligent society. CHINA UNICOM’S SOCIAL RESPONSIBILITY STRATEGY SYSTEM Create and SOCIAL RESPONSIBILITY MANAGEMENT • Implementing social responsibility strategies • Improving social responsibility organizations • Establishing social responsibility systems • Assessing social responsibility capabilities • Selecting social responsibility participation Innovate on application services to support digital economy Build premium network to support cyber superpower development Support industry development through open and win-win cooperation Practise green development and promote energy conservation in society Enhance Value Share with society to promote social harmony Care about staff growth and enhance sense of reward CUSTOMERS SHAREHOLDERS GOVERNMENT COMMUNITY EMPLOYEES PARTNERS PEERS 84 85 The Company will publish its detailed Corporate Social Responsibility Report 2020 in June 2021. For more details, please visit the Company’s website at https://www.chinaunicom.com.hk. SOCIAL RESPONSIBILITYCHINA UNICOM (HONG KONG) LIMITEDANNUAL REPORT 202086 87 CHINA UNICOM (HONG KONG) LIMITEDANNUAL REPORT 2020SOCIAL RESPONSIBILITYTO THE MEMBERS OF CHINA UNICOM (HONG KONG) LIMITED (incorporated in Hong Kong with limited liability) Opinion We have audited the consolidated financial statements of China Unicom (Hong Kong) Limited (“the Company”) and its subsidiaries (“the Group”) set out on pages 93 to 185, which comprise the consolidated statement of financial position as at 31 December 2020, the consolidated statement of income, the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended and notes to the consolidated financial statements, including a summary of significant accounting policies. 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 2020 and of its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards (“IFRSs”) issued by the International Accounting Standards Board (“IASB”) and Hong Kong Financial Reporting Standards (“HKFRSs”) issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”) and have been properly prepared in compliance with the Hong Kong Companies Ordinance. Basis for opinion We conducted our audit in accordance with Hong Kong Standards on Auditing (“HKSAs”) issued by the HKICPA. 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 are independent of the Group in accordance with the HKICPA’s Code of Ethics for Professional Accountants (“the Code”) and we have fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key audit matters Key audit matters are those matters that, in our professional judgement, 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. 88 table column width 65ptINDEPENDENT AUDITOR’S REPORT CHINA UNICOM (HONG KONG) LIMITEDRevenue recognition Refer to note 6 to the consolidated financial statements on page 133 and the accounting policies on page 118 to 119. The Key Audit Matter How the matter was addressed in our audit The Group’s revenue is primarily generated from the provision of voice usage, broadband and mobile data services, data and internet application services, other value-added services, transmission lines usage and associated services and sales of telecommunications products. The accuracy of revenue recorded in the consolidated financial statements is an inherent industry risk because the billing systems of telecommunications companies are complex and process large volumes of data with a combination of different products sold during the year, through a number of different systems. Significant management judgement can be required in determining the appropriate measurement and timing of recognition of different performance obligations within contracts containing bundled sales packages, which may include services and telecommunication products such as handsets, and complex settings are required in the Group’s information technology (“IT”) systems to achieve the appropriate allocation of transaction prices. Our audit procedures to assess the recognition of revenue included the following: • assessing, with the assistance of our internal IT specialists, the design, implementation and operating effectiveness of management’s key internal controls over the general IT environment in which the business systems operate, including access to program controls, program change controls, program development controls and computer operation controls; • assessing, with the assistance of our internal IT specialists, the design, implementation and operating effectiveness of management’s key internal IT controls over the completeness and accuracy of rating and bill generation and the end-to-end reconciliation controls from the rating and billing systems to the accounting system; • selecting bills issued to customers, on a sample basis, and comparing the details with the corresponding accounts receivable details and cash receipts; We identified revenue recognition as a key audit matter because revenue is one of the key performance indicators of the Group and because it involves complex IT systems and management judgement both of which give rise to an inherent risk that revenue could be recorded in the incorrect period or could be subject to manipulation to meet targets or expectations. • • reconciling the Group’s revenue to the cash collection records on a sample basis; recalculating the balances of accounts receivable and advances from customers with the use of electronic audit tools using data extracted from the business support systems and reconciling the results to the Group’s financial records; • assessing, on a sample basis, the standalone selling prices determined by the Group for services and handsets offered in mobile handset bundled sales packages, by comparison with the observable prices of the service or handset when the Group sells that service or handset separately in similar circumstances and to similar customers; • assessing, on a sample basis, the settings in the IT system for revenue allocation between the services and handsets offered in mobile handset bundled sales packages by comparing the settings with the Group’s allocation basis and recalculating and comparing the allocation results with the system generated results; • evaluating journals entries posted to revenue accounts, on a specific risk-based sample basis, and comparing details of these journals entries with relevant underlying documentation, which included service contracts and progress reports. 89 table column width 65ptANNUAL REPORT 2020 Carrying value of property, plant and equipment (“PP&E”) Refer to note 15 to the consolidated financial statements on pages 144 to 145 and the accounting policies on pages 109 to 110. The Key Audit Matter How the matter was addressed in our audit The Group continues to incur a significant level of capital expenditure in connection with the expansion of its network coverage and improvements to network quality. The carrying value of PP&E as at 31 December 2020 was approximately RMB364,187 million. There are a number of areas where management judgement impacts the carrying value of PP&E, and the related depreciation profiles. These include: • • determining which costs meet the criteria for capitalisation; determining the date on which construction-in-progress is transferred to property, plant and equipment and depreciation commences; • the estimation of economic useful lives and residual values assigned to property, plant and equipment. We identified the carrying value of property, plant and equipment as a key audit matter because of the high level of management judgement involved and because of its significance to the consolidated financial statements. Our audit procedures to assess the carrying value of PP&E included the following: • assessing the design, implementation and operating effectiveness of key internal controls over the completeness, existence and accuracy of property, plant and equipment, including the key internal controls over the estimation of useful economic lives and residual values; • assessing, on a sample basis, costs capitalised during the year by comparing the costs capitalised with the relevant underlying documentation, which included purchase agreements and invoices, and assessing whether the costs capitalised met the relevant criteria for capitalisation; which included comparing interest rates to loan agreements, recalculating the interest capitalisation rate and assessing, on a sample basis, the calculation of interest capitalised in construction-in-progress; • challenging the date of transferring construction-in-progress to PP&E by examining the inspection reports and/or project progress reports, on a sample basis; • evaluating management’s estimation of useful economic lives and residual values by considering our knowledge of the business and practices adopted in the wider telecommunications industry. Information other than the consolidated financial statements and auditor’s report thereon The directors are responsible for the other information. The other information comprises all 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. 90 table column width 65pt CHINA UNICOM (HONG KONG) LIMITEDINDEPENDENT AUDITOR’S REPORT Responsibilities of the directors for the consolidated financial statements The directors are responsible for the preparation of the consolidated financial statements that give a true and fair view in accordance with IFRSs issued by the IASB and HKFRSs issued by the HKICPA and 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. The directors are assisted by the Audit Committee in discharging their responsibilities for overseeing the Group’s financial reporting process. 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. This report is made solely to you, as a body, in accordance with section 405 of the Hong Kong Companies Ordinance, 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 HKSAs 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 HKSAs, we exercise professional judgement 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. 91 table column width 65ptANNUAL REPORT 2020• Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation. • Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. We communicate with the Audit Committee 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 the Audit Committee with a statement that we have complied with relevant ethical requirements regarding independence and 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 the Audit Committee, 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 Chan Kim Tak. KPMG Certified Public Accountants 8th Floor, Prince’s Building 10 Chater Road Central, Hong Kong 11 March 2021 92 table column width 65pt CHINA UNICOM (HONG KONG) LIMITEDINDEPENDENT AUDITOR’S REPORTRevenue Interconnection charges Depreciation and amortisation Network, operation and support expenses Employee benefit expenses Costs of telecommunications products sold Other operating expenses Finance costs Interest income Share of net profit of associates Share of net profit of joint ventures Other income — net Profit before income tax Income tax expenses Profit for the year Profit attributable to: Equity shareholders of the Company Non-controlling interests Earnings per share for profit attributable to equity shareholders of the Company during the year: Basic earnings per share (RMB) Diluted earnings per share (RMB) Year ended 31 December Note 2020 2019 6 7 8 9 10 11 12 13 14 14 303,838 290,515 (10,574) (83,017) (46,286) (55,740) (26,862) (70,237) (1,747) 1,366 1,588 787 2,911 16,027 (3,450) (11,513) (83,080) (43,236) (50,516) (26,412) (64,480) (2,123) 1,272 1,359 646 1,735 14,167 (2,795) 12,577 11,372 12,493 11,330 84 42 0.41 0.41 0.37 0.37 Details of dividends attributable to equity shareholders of the Company for the years ended 31 December 2020 and 2019 are set out in Note 32. The notes on pages 102 to 185 are an integral part of these consolidated financial statements. 93 table column width 65ptCONSOLIDATED STATEMENT OF INCOME(All amounts in Renminbi (“RMB”) millions, except per share data)ANNUAL REPORT 2020 Profit for the year Other comprehensive income Items that will not be reclassified to statement of income: Changes in fair value of financial assets measured at FVOCI (non-recycling) Tax effect on changes in fair value of financial assets measured at FVOCI (non-recycling) Changes in fair value of financial assets measured at FVOCI, net of tax (non-recycling) Others Item that may be reclassified subsequently to statement of income: Changes in fair value of financial assets measured at FVOCI, net of tax (recycling) Currency translation differences Year ended 31 December 2020 2019 12,577 11,372 (1,482) 4 (1,478) (5) (1,483) 34 (257) (223) (583) 2 (581) (1) (582) — 81 81 Other comprehensive income for the year, net of tax (1,706) (501) Total comprehensive income for the year 10,871 10,871 Total comprehensive income attributable to: Equity shareholders of the Company Non-controlling interests 10,787 10,829 84 42 The notes on pages 102 to 185 are an integral part of these consolidated financial statements. 94 table column width 65ptCONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME(All amounts in RMB millions)CHINA UNICOM (HONG KONG) LIMITED ASSETS Non-current assets Property, plant and equipment Right-of-use assets Goodwill Interest in associates Interest in joint ventures Deferred income tax assets Contract assets Contract costs Financial assets measured at fair value Other assets Current assets Inventories and consumables Contract assets Accounts receivable Prepayments and other current assets Amounts due from ultimate holding company Amounts due from related parties Amounts due from domestic carriers Financial assets measured at fair value Short-term bank deposits and restricted deposits Cash and cash equivalents Total assets As at 31 December Note 2020 2019 15 16 17 19 20 13 21 22 23 25 26 21 27 28 45 45 23 24 29 364,187 37,960 2,771 38,802 5,656 745 103 3,672 3,493 14,591 367,401 43,073 2,771 36,445 4,771 1,226 595 4,923 3,891 13,808 471,980 478,904 1,951 823 16,287 15,882 10,570 195 3,665 24,189 11,989 23,085 2,359 1,308 17,233 12,456 7,688 240 3,448 202 3,716 34,945 108,636 83,595 580,616 562,499 95 table column width 65ptCONSOLIDATED STATEMENT OF FINANCIAL POSITION(All amounts in RMB millions)ANNUAL REPORT 2020 EQUITY Equity attributable to equity shareholders of the Company Share capital Reserves Retained profits — Proposed final dividend — Others Non-controlling interests Total equity LIABILITIES Non-current liabilities Long-term bank loans Promissory notes Corporate bonds Lease liabilities Deferred income tax liabilities Deferred revenue Amounts due to related parties Other obligations As at 31 December Note 2020 2019 30 31 32 33 34 35 36 13 37 45 38 254,056 (18,821) 5,018 86,334 254,056 (18,803) 4,529 80,265 326,587 320,047 933 708 327,520 320,755 2,482 998 1,999 16,458 64 5,927 3,042 98 2,869 998 2,998 21,535 87 4,851 3,042 174 31,068 36,554 96 table column width 65pt(All amounts in RMB millions)CHINA UNICOM (HONG KONG) LIMITEDCONSOLIDATED STATEMENT OF FINANCIAL POSITION Current liabilities Short-term bank loans Commercial papers Current portion of long-term bank loans Current portion of corporate bonds Lease liabilities Accounts payable and accrued liabilities Bills payable Taxes payable Amounts due to ultimate holding company Amounts due to related parties Amounts due to domestic carriers Dividend payable Current portion of other obligations Contract liabilities Advances from customers Total liabilities Total equity and liabilities Net current liabilities Total assets less current liabilities As at 31 December Note 2020 2019 39 40 33 35 36 41 45 45 38 21 740 7,000 418 1,000 11,503 134,437 5,482 2,805 1,640 9,183 2,291 — 2,529 42,641 359 5,564 8,995 437 — 10,790 117,525 4,039 1,534 1,779 7,851 2,174 920 2,604 40,648 330 222,028 205,190 253,096 241,744 580,616 562,499 (113,392) (121,595) 358,588 357,309 The notes on pages 102 to 185 are an integral part of these consolidated financial statements. Approved and authorised for issue by the Board of Directors on 11 March 2021 and signed on behalf of the Board by: Wang Xiaochu Director Zhu Kebing Director 97 table column width 65ptANNUAL REPORT 2020 Attributable to equity shareholders of the Company Investment Share General risk revaluation Statutory Other Retained Non- controlling Note capital reserve reserve reserves reserves profits Total interests Total equity Balance at 1 January 2019 Total comprehensive income for the year Capital contribution from non-controlling interests Share of an associate’s other reserves Appropriation to statutory reserves Appropriation to other reserves Dividends relating to 2018 Capital contribution relating to share-based payment borne by A Share Company Balance at 31 December 2019 Balance at 1 January 2020 Total comprehensive income for the year Share of an associate’s other reserves Appropriation to statutory reserves Appropriation to other reserves Dividends relating to 2019 Capital contribution relating to share-based payment borne by A Share Company Others 32 44 32 44 28,912 (42,272) 254,056 — — — — — — — 474 — — — — 216 — — (7,375) (581) — — — — — — — — — 1,273 — — — 79,053 11,330 — — (1,273) (216) (4,100) 312,848 10,829 206 (307) — — (4,100) 80 206 (307) — — — 571 — 571 364 42 302 — — — — — 313,212 10,871 508 (307) — — (4,100) 571 254,056 690 (7,956) 30,185 (41,722) 84,794 320,047 708 320,755 254,056 — — — — — — — 690 — — — 160 — — — (7,956) (1,478) — — — — — — 30,185 (41,722) — — 1,246 — — — — (228) (37) — — — 375 (56) 84,794 12,493 — (1,246) (160) (4,529) — — 320,047 10,787 (37) — — (4,529) 375 (56) 708 84 — — — — — 141 320,755 10,871 (37) — — (4,529) 375 85 Balance at 31 December 2020 254,056 850 (9,434) 31,431 (41,668) 91,352 326,587 933 327,520 The notes on pages 102 to 185 are an integral part of these consolidated financial statements. 98 table column width 65ptCONSOLIDATED STATEMENT OF CHANGES IN EQUITY(All amounts in RMB millions)CHINA UNICOM (HONG KONG) LIMITED Cash flows from operating activities Cash generated from operations Interest received Interest paid Income tax paid Year ended 31 December 2020 2019 107,428 1,309 (1,832) (1,354) 94,952 1,551 (2,521) (304) Net cash inflow from operating activities 105,551 93,678 Cash flows from investing activities Purchase of property, plant and equipment and right-of-use assets Purchase of other assets Proceeds from disposal of property, plant and equipment and other assets Acquisition of financial assets measured at FVPL Proceeds from disposal of financial assets measured at FVPL Acquisition of debt securities measured at FVOCI (recycling) Proceeds from disposal of debt securities measured at FVOCI (recycling) Acquisition of other financial assets measured at amortised cost Proceeds from disposal of other financial assets measured at amortised cost Dividend received from financial assets measured at FVOCI (non-recycling) Acquisition of interest in associates Acquisition of interest in joint ventures Proceeds from disposal of associates and a joint venture Dividends received from associates (Increase)/Decrease in short-term bank deposits and restricted deposits Lending by Unicom Group Finance Company Limited (“Finance Company”) to a related party Repayment of loans from related parties to Finance Company (53,981) (4,675) 1,647 (5,751) 4,268 (42,650) 19,511 (9,050) 9,050 210 (1,349) (117) 19 546 (6,900) (16,500) 13,704 (56,187) (4,355) 1,512 (423) 531 — — — — 205 (15) (137) — 82 34 (11,434) 11,134 Net cash outflow from investing activities (92,018) (59,053) 99 table column width 65ptCONSOLIDATED STATEMENT OF CASH FLOWS(All amounts in RMB millions)ANNUAL REPORT 2020 Year ended 31 December Note 2020 2019 Cash flows from financing activities Capital contributions from non-controlling interests Proceeds from short-term bank loans Proceeds from commercial papers Proceeds from promissory notes Proceeds from corporate bonds Loans from a related party Repayment of short-term bank loans Repayment of long-term bank loans Repayment of commercial papers Repayment of related party loans Repayment of corporate bonds Capital element of lease rentals paid Payment of issuing expense for commercial papers Dividends paid to equity shareholders of the Company Net deposits with Finance Company by related parties Increase in statutory reserve deposits placed by Finance Company 32 66 2,740 8,000 — — — (7,564) (395) (10,000) (50) — (11,696) (7) (5,447) 283 (1,140) 508 28,784 8,995 992 2,000 50 (38,290) (418) — (48) (17,000) (11,123) — (4,100) 236 (351) Net cash outflow from financing activities (25,210) (29,765) Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents, beginning of year Effect of changes in foreign exchange rate (11,677) 34,945 (183) 4,860 30,060 25 Cash and cash equivalents, end of year 29 23,085 34,945 Analysis of the balances of cash and cash equivalents: Cash balances Bank balances 1 23,084 1 34,944 23,085 34,945 The notes on pages 102 to 185 are an integral part of these consolidated financial statements. 100 table column width 65pt(All amounts in RMB millions)CHINA UNICOM (HONG KONG) LIMITEDCONSOLIDATED STATEMENT OF CASH FLOWS (a) The reconciliation of profit before income tax to cash generated from operating activities is as follows: Profit before income tax Adjustments for: Depreciation and amortisation Interest income Finance costs Loss on disposal of property, plant and equipment Credit loss allowance and write-down of inventories Dividend from financial assets measured at FVOCI (non-recycling) Gains on disposal of financial assets measured at FVPL Investment income from debt securities measured at FVOCI (recycling) Fair value gains on financial assets measured at FVPL Share of net profit of associates Share of net profit of joint ventures Expenses for restricted shares of A Share Company granted to the Group’s employees Changes in working capital: Increase in accounts receivable Decrease/(Increase) in contract assets Increase in contract costs Decrease/(Increase) in inventories and consumables (Increase)/Decrease in restricted deposits Increase in other assets Increase in prepayments and other current assets Increase in amounts due from ultimate holding company (Increase)/Decrease in amounts due from related parties (Increase)/Decrease in amounts due from domestic carriers Increase in accounts payable and accrued liabilities Increase in taxes payable Increase in advances from customers Increase/(Decrease) in contract liabilities Increase in deferred revenue Decrease in other obligations (Decrease)/Increase in amounts due to ultimate holding company Increase in amounts due to related parties Increase in amounts due to domestic carriers Year ended 31 December 2020 2019 16,027 14,167 83,017 (1,366) 1,564 2,365 5,584 (210) (87) (174) (154) (1,588) (787) 375 (4,151) 1,125 (1,371) 59 (233) (1,694) (4,178) (36) (5) (217) 8,210 1,271 29 1,993 1,076 (198) (11) 1,076 117 83,080 (1,272) 1,991 2,179 3,663 (205) (24) — (96) (1,359) (646) 571 (5,928) (122) (2,188) (335) 321 (796) (1,876) (7) 745 364 2,386 623 2 (2,002) 1,164 (16) 322 216 30 Cash generated from operations 107,428 94,952 101 table column width 65ptANNUAL REPORT 2020 1. ORGANISATION AND PRINCIPAL ACTIVITIES China Unicom (Hong Kong) Limited (the “Company”) was incorporated as a limited liability company in the Hong Kong Special Administrative Region (“Hong Kong”), the People’s Republic of China (the “PRC”) on 8 February 2000. The principal activity of the Company is investment holding. The principal activities of the Company’s subsidiaries are the provision of voice usage, broadband and mobile data services, data and internet application services, other value-added services, transmission lines usage and associated services and sales of telecommunications products in the PRC. The Company and its subsidiaries are hereinafter referred to as the “Group”. The address of the Company’s registered office is 75th Floor, The Center, 99 Queen’s Road Central, Hong Kong. The shares of the Company were listed on The Stock Exchange of Hong Kong Limited (“SEHK”) on 22 June 2000 and the American Depositary Shares (“ADS”) of the Company were listed on the New York Stock Exchange on 21 June 2000. The substantial shareholders of the Company are China Unicom (BVI) Limited (“Unicom BVI”) and China Unicom Group Corporation (BVI) Limited (“Unicom Group BVI”). The majority of equity interests in Unicom BVI is owned by China United Network Communications Limited (hereinafter referred to as “A Share Company”), a joint stock company incorporated in the PRC on 31 December 2001, with its A shares listed on the Shanghai Stock Exchange on 9 October 2002. The directors of the Company consider Unicom BVI and China United Network Communications Group Company Limited (a state-owned enterprise established in the PRC, hereinafter referred to as “Unicom Group”) as the immediately holding company and ultimate holding company, respectively. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. 2.1 Statement of compliance The financial statements have been prepared in accordance with all applicable International Financial Reporting Standards (“IFRSs”) issued by the International Accounting Standards Board (“IASB”), which collective term includes all applicable individual International Financial Reporting Standards, International Accounting Standards (“IASs”) and Interpretations issued by the IASB. Hong Kong Financial Reporting Standards (“HKFRSs”), which collective term includes all applicable individual Hong Kong Financial Reporting Standards, Hong Kong Accounting Standards (“HKASs”) and Interpretations issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”), are consistent with IFRSs. The financial statements also comply with HKFRSs as well as the applicable disclosure provisions of the Rules Governing the Listing of Securities on the SEHK (“Listing Rules”) and the requirements of the Hong Kong Companies Ordinance. 102 table column width 65ptNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS(All amounts in RMB millions unless otherwise stated)CHINA UNICOM (HONG KONG) LIMITED 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 2.2 Basis of preparation The consolidated financial statements have been prepared under the historical cost convention, except that the following assets are stated at their fair value set out below: • Financial assets measured at fair value The consolidated financial statements prepared by the PRC subsidiaries for PRC statutory reporting purposes are based on the Chinese Accounting Standards for Business Enterprises (“CAS”) issued by the Ministry of Finance (“MOF”) of the PRC, which became effective from 1 January 2007 with certain transitional provisions. There are certain differences between the Group’s IFRS/HKFRS financial statements and PRC financial statements. The principal adjustments made to the PRC financial statements to conform to IFRSs/HKFRSs include the following: • reversal of the revaluation surplus or deficit and related amortisation charges arising from the revaluation of prepayments for the leasehold land performed by independent valuers for the purpose of reporting to relevant PRC government authorities, and adjustment for corresponding deferred taxation; • • recognition of goodwill associated with the acquisition of certain subsidiaries prior to 2005; and recognition of the dilution gain or loss of interest in equity-accounted investee. (a) Going Concern Assumption As at 31 December 2020, current liabilities of the Group exceeded current assets by approximately RMB113.4 billion (2019: approximately RMB121.6 billion). Considering the current economic conditions and taking into account of the Group’s expected capital expenditure in the foreseeable future, management has comprehensively considered the Group’s available sources of funds as follows: • • The Group’s continuous net cash inflows from operating activities; Approximately RMB352.4 billion of revolving banking facilities and registered quota of corporate bonds, of which approximately RMB348.4 billion was unutilised as at 31 December 2020; and • Other available sources of financing from domestic banks and other financial institutions in view of the Group’s good credit history. In addition, the Group believes it has the ability to raise funds from short, medium and long-term perspectives and maintain reasonable financing costs through appropriate financing portfolio. 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 2020 have been prepared on a going concern basis. 103 table column width 65ptANNUAL REPORT 2020 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 2.2 Basis of preparation (Continued) (b) Critical Accounting Estimates and Judgment The preparation of the consolidated financial statements in conformity with IFRSs/HKFRSs requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. Judgments made by management in the application of IFRSs/HKFRSs that have significant effect on the financial statements and major sources of estimation uncertainty are discussed in Note 4. (c) New Accounting Standards and Amendments The IASB and HKICPA have issued a number of amendments to IFRSs/HKFRSs and IASs/HKASs that are first effective for the current accounting period of the Group. Of these, the following amendments are relevant to the Group’s consolidated financial statements: • • • • Amendments to IFRS/HKFRS 3, “Definition of a business” Amendments to IFRS/HKFRS 9, IAS/HKAS 39 and IFRS/HKFRS 7, “Interest Rate Benchmark Reform” Amendments to IAS/HKAS 1 and IAS/HKAS 8, “Definition of Material” Amendments to IFRS/HKFRS 16, “Covid-19-Related Rent Concessions” None of the amendments have had a material effect on how the Group’s results and financial position for the current or prior periods have been prepared or presented in this consolidated financial statements. The Group has not applied any new standard or interpretation that is not yet effective for the current accounting period. In particular, the Group does not take advantage of the practice expedient available under the amendments to IFRS/HKFRS 16, “Covid-19-related Rent Concessions” on lease modifications. 104 table column width 65pt(All amounts in RMB millions unless otherwise stated)CHINA UNICOM (HONG KONG) LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 2.2 Basis of preparation (Continued) (d) Possible impact of amendments, new standards and interpretations issued but not yet effective for the year ended 31 December 2020. The IASB and HKICPA has issued a number of amendments to IFRSs/HKFRSs and IASs/HKASs which are not yet effective for the year ended 31 December 2020 and which have not been adopted in these consolidated financial statements. Of these, the following developments are relevant to the Group’s consolidated financial statements: Amendments to IFRS/HKFRS 9, IAS/HKAS 39, IFRS/HKFRS 7, IFRS/HKFRS 4 and IFRS/ HKFRS 16, “Interest Rate Benchmark Reform — Phase 2” Amendments to IFRS/HKFRS 3, “Reference to the Conceptual Framework” Amendments to IAS/HKAS 16, “Property, Plant and Equipment: Proceeds before Intended Use” Amendments to IAS/HKAS 37, “Onerous Contracts-Cost of Fulfilling a Contract” Annual Improvements to IFRS/HKFRS Standards 2018–2020 Amendments to IAS/HKAS 1, “Classification of Liabilities as Current or Non-current” Effective for accounting periods beginning on or after 1 January, 2021 1 January, 2022 1 January, 2022 1 January, 2022 1 January, 2022 1 January, 2023 The Group is assessing the impact of such amendments to standards and interpretations, and will adopt the relevant amendments to standards and interpretations in the subsequent period as required. So far it has concluded that the adoption of them is unlikely to have a significant impact on the consolidated financial statements. 2.3 Subsidiaries and non-controlling interests Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed, or has rights to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. When assessing whether the Group has power, only substantive rights (held by the Group and other parties) are considered. An investment in a subsidiary is consolidated into the consolidated financial statements from the date that control commences until the date that control ceases. Intra-group balances, transactions and cash flows and any unrealised profits arising from intra- group transactions are eliminated in full in preparing the consolidated financial statements. Unrealised losses resulting from intra-group transactions are eliminated in the same way as unrealised gains but only to the extent that there is no evidence of impairment. The Group adopted the purchase method of accounting to account for business combination of entities and businesses under common control before 2005. Under the purchase method of accounting in force at the date of the acquisition, the cost of an acquisition was measured at the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed were measured initially at their fair values at the acquisition date, irrespective of the extent of any non- controlling interest. The excess of the cost of acquisition over the fair value of the Group’s share of the identifiable net assets acquired was recorded as goodwill. If the cost of acquisition was less than the fair value of the Group’s share of the identifiable net assets of the subsidiary acquired, the difference was recognised directly in the statement of income. 105 table column width 65ptANNUAL REPORT 2020 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 2.3 Subsidiaries and non-controlling interests (Continued) Under HKFRSs, business combination of entity and business under common control of the Group after 2005 was accounted for using merger accounting in accordance with the Accounting Guideline 5 “Merger accounting for common control combinations” (“AG 5”) issued by the HKICPA in 2005. Upon the adoption of IFRSs by the Group in 2008, the Group adopted the accounting policy to account for business combinations of entities and businesses under common control using the predecessor values method, which is consistent with HKFRSs. Non-controlling interests represent the equity in a subsidiary not attributable directly or indirectly to the Company, and in respect of which the Group has not agreed any additional terms with the holders of those interests which would result in the Group as a whole having a contractual obligation in respect of those interests that meets the definition of a financial liability. For each business combination, the Group can elect to measure any non-controlling interests either at fair value or at the non- controlling interests’ proportionate share of the subsidiary’s net identifiable assets. Non-controlling interests are presented in the consolidated statement of financial position within equity, separately from equity attributable to the equity shareholders of the Company. Non-controlling interests in the results of the Group are presented on the face of the consolidated statement of income and the consolidated statement of comprehensive income as an allocation of the total profit or loss and total comprehensive income for the year between non-controlling interests and the equity shareholders of the Company. Loans from holders of non-controlling interests and other contractual obligations towards these holders are presented as financial liabilities in the consolidated statement of financial position in accordance with Note 2.20 depending on the nature of the liability. 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 (see Note 2.12) or, when appropriate, the cost on initial recognition of an investment in an associate or joint venture (see Note 2.4). In the Company’s statement of financial position, an investment in a subsidiary is stated at cost less impairment losses (see Note 2.13), unless the investment is classified as held for sale (or included in a disposal group that is classified as held for sale). 2.4 Associates, joint ventures and joint arrangement An associate is an entity in which the Group has significant influence, but not control or joint control, over its management, including participation in the financial and operating policy decisions. A joint venture is an arrangement whereby the Group and other parties contractually agree to share control of the arrangement, and have rights to the net assets of the arrangement. 106 table column width 65pt(All amounts in RMB millions unless otherwise stated)CHINA UNICOM (HONG KONG) LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 2.4 Associates, joint ventures and joint arrangement (Continued) An investment in an associate or a joint venture is accounted for in the consolidated financial statements under the equity method, unless it is classified as held for sale (or included in a disposal group that is classified as held for sale). Under the equity method, the investment is initially recorded at cost, adjusted for any excess of the Group’s share of the acquisition-date fair values of the investee’s identifiable net assets over the cost of the investment (if any). The cost of the investment includes purchase price, other costs directly attributable to the acquisition of the investment, and any direct investment into the associate or joint venture that forms part of the Group’s equity investment. Thereafter, the investment is adjusted for the post acquisition change in the Group’s share of the investee’s net assets and any impairment loss relating to the investment. The Group’s share of the post-acquisition post-tax results of the investees and any impairment losses for the year are recognised in the consolidated statement of income, whereas the Group’s share of the post-acquisition post-tax items of the investees’ other comprehensive income is recognised as other comprehensive income in the consolidated statement of comprehensive income. When the Group’s share of losses exceeds its interest in the associate or the joint venture, the Group’s interest is reduced to nil and recognition of further losses is discontinued except to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the investee. For this purpose, the Group’s interest is the carrying amount of the investment under the equity method together with the Group’s long-term interests that in substance form part of the Group’s net investment in the associate or the joint venture (after applying the ECL model to such other long-term interests where applicable). Unrealised profits and losses resulting from transactions between the Group and its associates and joint venture are eliminated to the extent of the Group’s interest in the investee, except where unrealised losses provide evidence of an impairment of the asset transferred, in which case they are recognised immediately in profit or loss. If an investment in an associate becomes an investment in a joint venture or vice versa, retained interest is not remeasured. Instead, the investment continues to be accounted for under the equity method. In all other cases, when the Group ceases to have significant influence over an associate or joint control over a joint venture, 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 or joint control is lost is recognised at fair value and this amount is regarded as the fair value on initial recognition of a financial asset. A joint arrangement is an arrangement of which two or more parties have joint control. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control. To better share the risks and rewards associated with the construction, operation and maintenance of the 5G network infrastructure, the Group entered into a framework agreement with China Telecom Corporation Limited (“China Telecom”) to build, maintain and share one nationwide 5G access network infrastructure (the “Cooperation Agreement”). In accordance with the Cooperation Agreement, each of the Group and China Telecom is responsible for the construction and maintenance of 5G network infrastructure in their respective designated regions, and bear the associated construction, maintenance and operating costs. Both parties have established a joint operation mechanism and key decisions including overall network planning, construction project commencement and completion acceptance and a unified standard on construction and maintenance services across all regions are subject to mutual agreement by both parties. The Group has accounted for the arrangement as a joint operation that is not structured through a separate vehicle, and has recognised its share of assets, liabilities, revenues and expenses in accordance with the terms of the arrangement. 107 table column width 65ptANNUAL REPORT 2020 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 2.5 Segment reporting Operating segments are reported in a manner consistent with the internal reporting provided to the Chief Operating Decision- Maker (“CODM”). The CODM, who is responsible for allocating resources and assessing performance of the operating segments regularly, has been identified as the Executive Directors of the Company that makes strategic decisions. 2.6 Foreign currency translation (a) Functional and presentation currency Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entities operate (“the functional currency”). The consolidated financial statements are presented in RMB, which is the Company’s functional and presentation currency. (b) Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or valuation where items are re-measured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the statement of income. (c) Group companies The results and financial position of all the Group entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows: • Assets and liabilities for each statement of financial position presented are translated at the closing rate at the statement of financial position date; • Income and expenses for each statement of income are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); and • All resulting exchange differences are recognised in other comprehensive income and as a separate component of equity into other reserve. On consolidation, exchange differences arising from the translation of the net investment in foreign operations, and of borrowings and other currency instruments designated as hedges of such investments, are taken to shareholders’ equity. When a foreign operation is sold, such exchange differences are recognised in the statement of income as part of the gain or loss on disposal. 108 table column width 65pt(All amounts in RMB millions unless otherwise stated)CHINA UNICOM (HONG KONG) LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 2.7 Property, plant and equipment (a) Construction-in-progress Construction-in-progress (“CIP”) represents buildings, plant and equipment under construction and pending installation, and is stated at cost less accumulated impairment losses. Costs include construction and acquisition costs, and interest charges arising from borrowings used to finance the assets during the construction period. No provision for depreciation is made on CIP until such time as the assets are completed and ready for its intended use. When the asset being constructed becomes available for use, the CIP is transferred to the appropriate category of assets. (b) Property, plant and equipment Property, plant and equipment held by the Group are stated at cost less accumulated depreciation and accumulated impairment losses, and are depreciated over their expected useful lives. Property, plant and equipment comprise buildings, telecommunications equipment, leasehold improvements, office furniture, fixtures, motor vehicles and other equipment. The cost of an asset, except for those acquired in exchange for a non-monetary asset or assets, comprises its purchase price and any directly attributable costs of bringing the asset to its working condition and location for its intended use. If an item of property, plant and equipment is acquired in exchange for another item of property, plant and equipment, the cost of such an item of property, plant and equipment is measured at fair value unless (i) the exchange transactions lacks commercial substance or (ii) the fair value of neither the asset received nor the asset given up is reliably measurable. If the acquired item is not measured at fair value, its cost is measured at the carrying amount of the asset given up. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable at the time the costs are incurred that future economic benefits associated with the item will flow to the Group, and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged to the statement of income during the financial period in which they are incurred. (c) Depreciation Depreciation on property, plant and equipment is calculated using the straight-line method to allocate their costs less their residual values over their estimated useful lives, as follows: Depreciable life Residual rate Buildings Telecommunications equipment Office furniture, fixtures, motor vehicles and other equipment 10–30 years 5–10 years 5–10 years 3–5% 3–5% 3–5% Leasehold improvements are depreciated over the shorter of their estimated useful lives and the lease periods. The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each statement of financial position date. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount (Note 2.13). 109 table column width 65ptANNUAL REPORT 2020 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 2.7 Property, plant and equipment (Continued) (d) Gain or loss on disposal of property, plant or equipment Gains or losses on disposal of property, plant or equipment are determined by comparing the net sales proceeds with the carrying amounts, and are recognised in the statement of income. 2.8 Goodwill Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net identifiable assets of the acquired subsidiaries at the date of acquisition. Goodwill is tested at least annually for impairment and carried at cost less accumulated impairment losses. Impairment losses on goodwill are not reversed. Gain or loss on the disposal of an entity includes the carrying amount of goodwill relating to the entity sold. Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation is made to those cash- generating units or groups of cash-generating units that are expected to benefit from the synergies of business combination in which the goodwill arose. 2.9 Contract costs Contract costs are either the incremental costs of obtaining a contract with a customer or the costs to fulfil a contract with a customer which are not capitalised as inventory (see Note 2.15), property, plant and equipment (see Note 2.7) or intangible assets. 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 e.g. an incremental sales commission. Incremental costs of obtaining a contract are capitalised when incurred if the costs are expected to be recovered, unless the expected amortisation period is one year or less from the date of initial recognition of the asset, in which case the costs are expensed when incurred. Other costs of obtaining a contract are expensed when incurred. Costs to fulfil a contract are capitalised if the costs relate directly to an existing contract or to a specifically identifiable anticipated contract; generate or enhance resources that will be used to provide goods or services in the future; and are expected to be recovered. Costs that relate directly to an existing contract or to a specifically identifiable anticipated contract may include direct labour, direct materials, allocations of costs, costs that are explicitly chargeable to the customer and other costs that are incurred only because the Group entered into the contract. Other costs of fulfilling a contract, which are not capitalised as inventory, property, plant and equipment or intangible assets, are expensed as incurred. Capitalised contract costs are stated at cost less accumulated amortisation and impairment losses. Impairment losses are recognised to the extent that the carrying amount of the contract cost asset exceeds the net of (i) remaining amount of consideration that the Group expects to receive in exchange for the goods or services to which the asset relates, less (ii) any costs that relate directly to providing those goods or services that have not yet been recognised as expenses. Amortisation of capitalised contract costs is charged to profit or loss when the revenue to which the asset relates is recognised. The accounting policy for revenue recognition is set out in Note 2.25. 110 table column width 65pt(All amounts in RMB millions unless otherwise stated)CHINA UNICOM (HONG KONG) LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 2.10 Contract assets and contract liabilities A contract asset is recognised when the Group recognises revenue (see Note 2.25) before being unconditionally entitled to the consideration under the payment terms set out in the contract. Contract assets are assessed for expected credit loss (“ECL”) in accordance with the policy set out in Note 2.14 and are reclassified to receivables when the right to the consideration has become unconditional (see Note 2.16). A contract liability is recognised when the customer pays non-refundable consideration before the Group recognises the related revenue (see Note 2.25). A contract liability would also be recognised if the Group has an unconditional right to receive non- refundable consideration before the Group recognises the related revenue. In such cases, a corresponding receivable would also be recognised (see Note 2.16). The Group provides subscriber points reward program, the transaction price of providing telecommunications services and the subscriber points reward is allocated based on their standalone price. The allocated portion of transaction price for the subscriber points reward is recorded as contract liability when the rewards are granted and recognised as revenue when the points are redeemed or expired. For a single contract with the customer, either a net contract asset or a net contract liability is presented. For multiple contracts, contract assets and contract liabilities of unrelated contracts are not presented on a net basis. When the contract includes a significant financing component, the contract balance includes interest accrued under the effective interest method (see Note 2.25). 2.11 Other assets Other assets mainly represent (i) computer software; (ii) prepaid usage fees for transmission lines and electricity cables. (i) Acquired computer software licences are capitalised on the basis of the costs incurred to acquire and bring to use the specific software. These costs are amortised over their estimated useful lives on a straight-line basis. (ii) Long-term prepaid usage fees for transmission lines and electricity cables are amortised using a straight-line method over service period. 111 table column width 65ptANNUAL REPORT 2020 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 2.12 Financial assets The Group classifies its financial assets into two measurement categories: those measured at amortised cost and those measured at fair value. The determination is made at initial recognition and the classification depends on the entity’s business model for managing its financial instruments and the contractual cash flow characteristics of the instrument. Financial assets measured at amortised cost Financial assets are classified under this category if they satisfy both of the following conditions: • The assets are held within a business model whose objective is to hold assets in order to collect contractual cash flows for managing liquidity and generating income on the financial assets, but not for the purpose of realising fair value gains; and • The contractual terms of the financial assets give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding, with interest being the consideration for the time value of money and for the credit risk associated with the principal amount outstanding during a particular period of time. Cash and cash equivalents, short-term bank deposits and restricted deposits, accounts receivable, prepayments and other current assets, amounts due from ultimate holding company, amounts due from related parties, amounts due from domestic carriers and certain other assets are classified under this category. Financial assets under this category are carried at amortised cost using effective interest method less provision for impairment. Gains and losses arising from disposal, being the differences between the net sales proceeds and the carrying values, are recognised in the statement of income. Interest income is recognised in the statement of income using the effective interest method and disclosed as interest income. Financial assets measured at fair value Investments and other financial assets are classified under this category if they do not meet the conditions to be measured at amortised cost. Financial assets under this category are debt and equity investments carried at fair value. Debt investments are classified as fair value through other comprehensive income (“FVOCI”) (recycling), if the contractual cash flows of the investment comprise solely payments of principal and interest and the investment is held within a business model whose objective is achieved by both the collection of contractual cash flows and sale. Changes in fair value are recognised in other comprehensive income, except for the recognition in profit or loss of ECLs, interest income (calculated using the effective interest method) and foreign exchange gains and losses. When the investment is derecognised, the amount accumulated in other comprehensive income is recycled from equity to profit or loss. An investment in equity securities is classified as fair value through profit and loss (“FVPL”) unless the equity investment is not held for trading purposes and on initial recognition of the investment the Group makes an irrevocable election to designate the investment at FVOCI (non-recycling) such that subsequent changes in fair value are recognised in other comprehensive income. Such irrevocable elections are made on an instrument-by-instrument basis at the time of initial recognition, but may only be made if the investment meets the definition of equity from the issuer’s perspective. Where such an election is made, the amount accumulated in other comprehensive income remains in the fair value reserve (non-recycling) until the investment is disposed of. At the time of disposal, the amount accumulated in the fair value reserve (non-recycling) is transferred to retained profits. It is not recycled through profit or loss. Dividends from an investment in equity securities, irrespective of whether classified as at FVPL or FVOCI, are recognised in profit or loss as other income in accordance with the policy set out in note 2.27. 112 table column width 65pt(All amounts in RMB millions unless otherwise stated)CHINA UNICOM (HONG KONG) LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 2.13 Impairment of non-financial assets Assets that have an indefinite useful life or are not yet available for use are not subject to amortisation and are tested for impairment at each statement of financial position date. Assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of (i) an asset’s fair value less costs to sell and (ii) value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Assets other than goodwill that impairment losses were previously recognised are reviewed for possible reversal of the impairment at each reporting date. 2.14 Credit losses from financial instruments and contract assets The Group recognises a loss allowance for ECLs on the following items: — — financial assets measured at amortised cost (including cash and cash equivalents, short-term bank deposits and restricted deposits, accounts receivable, prepayments and other current assets, amounts due from ultimate holding company, amounts due from related parties, amounts due from domestic carriers and certain other assets); contract assets as defined in IFRS/HKFRS 15, “Revenue from contracts with customers” (“IFRS/HKFRS 15”) (see Note 2.10); and — debt securities measured at FVOCI (recycling). Financial assets measured at fair value, including financial assets measured at FVPL and financial assets measured at FVOCI (non- recycling), are not subject to the ECL assessment. Measurement of ECLs ECLs are a probability-weighted estimate of credit losses. Credit losses are measured as the present value of all expected cash shortfalls (i.e. the difference between the cash flows due to the Group in accordance with the contract and the cash flows that the Group expects to receive). The maximum period considered when estimating ECLs is the maximum contractual period over which the Group is exposed to credit risk. In measuring ECLs, the Group takes into account reasonable and supportable information that is available without undue cost or effort. This includes information about past events, current conditions and forecasts of future economic conditions. ECLs are measured on either of the following bases: — — twelve-month ECLs: these are losses that are expected to result from possible default events within the twelve months after the reporting date; and lifetime ECLs: these are losses that are expected to result from all possible default events over the expected lives of the items to which the ECL model applies. 113 table column width 65ptANNUAL REPORT 2020 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 2.14 Credit losses from financial instruments and contract assets (Continued) Measurement of ECLs (Continued) Loss allowances for accounts receivable and contract assets are always measured at an amount equal to lifetime ECLs. ECLs on these financial assets are estimated using a provision matrix based on the Group’s historical credit loss experience, adjusted for factors that are specific to the debtors and an assessment of both the current and forecast general economic conditions at the reporting date. For all other financial instruments, the Group recognises a loss allowance equal to twelve months ECLs unless there has been a significant increase in credit risk of the financial instrument since initial recognition, in which case the loss allowance is measured at an amount equal to lifetime ECLs. Significant increases in credit risk In assessing whether the credit risk of a financial instrument has increased significantly since initial recognition, the Group compares the risk of default occurring on the financial instrument assessed at the reporting date with that assessed at the date of initial recognition. 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 since initial recognition: — — — — 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. Depending on the nature of the financial instruments, the assessment of a significant increase in credit risk is performed on either an individual basis or a collective basis. When the assessment is performed on a collective basis, the financial instruments are grouped based on shared credit risk characteristics, such as past due status and credit risk ratings. ECLs are remeasured at each reporting date to reflect changes in the financial instrument’s credit risk since initial recognition. Any change in the ECL amount is recognised as an impairment gain or loss in profit or loss. The Group recognises an impairment gain or loss for all financial instruments with a corresponding adjustment to their carrying amount through a loss allowance account. 114 table column width 65pt(All amounts in RMB millions unless otherwise stated)CHINA UNICOM (HONG KONG) LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 2.14 Credit losses from financial instruments and contract assets (Continued) Credit-impaired financial assets At each reporting date, the Group assesses whether a financial asset is credit-impaired. A financial asset is credit-impaired when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred. Evidence that a financial asset is credit-impaired includes the following observable events: — — — — — significant financial difficulties of the debtor; a breach of contract, such as a default or delinquency in interest or principal payments; it becoming probable that the borrower will enter into bankruptcy or other financial reorganisation; significant changes in the technological, market, economic or legal environment that have an adverse effect on the debtor; or the disappearance of an active market for a security because of financial difficulties of the issuer. Write-off policy The gross carrying amount of a financial asset or contract asset is written off (either partially or in full) to the extent that there is no realistic prospect of recovery. This is generally the case when the Group determines that the debtor does not have assets or sources of income that could generate sufficient cash flows to repay the amounts subject to the write-off. Subsequent recoveries of an asset that was previously written off are recognised as a reversal of impairment in profit or loss in the period in which the recovery occurs. 2.15 Inventories and consumables Inventories, which primarily comprise handsets, SIM/USIM cards and accessories, are stated at the lower of cost and net realisable value. Cost is based on the first-in-first-out method and comprises all costs of purchase and other costs incurred in bringing the inventories to their present location and condition. Net realisable value for all the inventories is determined on the basis of anticipated sales proceeds less estimated costs necessary to make the sale. Consumables consist of materials and supplies used in maintaining the Group’s telecommunications networks and are charged to the statement of income when brought into use. Consumables are stated at cost less any provision for obsolescence. 2.16 Accounts receivable A receivable is recognised when the Group has an unconditional right to receive consideration. A right to receive consideration is unconditional if only the passage of time is required before payment of that consideration is due. If revenue has been recognised before the Group has an unconditional right to receive consideration, the amount is presented as a contract asset (see Note 2.10). Receivables are stated at amortised cost using the effective interest method less allowance for credit losses (see Note 2.14). 115 table column width 65ptANNUAL REPORT 2020 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 2.17 Short-term bank deposits and restricted deposits Short-term bank deposits are cash invested in fixed-term deposits with original maturities ranging from more than three months to one year. Restricted deposits mainly included statutory reserve deposits with the People’s Bank of China (“PBOC”) placed by Finance Company. 2.18 Cash and cash equivalents Cash and cash equivalents include cash in hand, deposits held at call with banks and other short-term highly liquid investments with original maturities of three months or less. 2.19 Government grants Government grants are recognised in the statement of financial position initially when there is reasonable assurance that they will be received and that the Group will comply with the conditions attaching to them. Grants that compensate the Group for expenses incurred are recognised as income in profit or loss on a systematic basis in the same period in which the expenses are incurred. Grants that compensate the Group for the cost of an asset are recognised as deferred revenue consequently are effectively recognised in profit or loss over the useful life of the asset as other income. 2.20 Borrowings Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost, any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the statement of income over the period of the borrowings using the effective interest method. Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least twelve months after the statement of financial position date. 2.21 Share capital Ordinary shares are classified as equity. Incremental costs directly attributable to the issuance of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. Where any group company purchases the Company’s equity share capital (treasury shares), the consideration paid, including any directly attributable incremental costs (net of tax) is deducted from equity attributable to equity shareholders of the Company and no gain or loss shall be recognised in the statement of income. 2.22 Employee benefits (a) Retirement benefits The Group participates in defined contribution pension schemes. For defined contribution plans, the Group pays contributions to publicly or privately administered pension insurance plans on a mandatory, contractual or voluntary basis. The contributions are recognised as employee benefit expenses when they are due. Prepaid contributions are recognised as an asset to the extent that a reduction in the future payments is available. 116 table column width 65pt(All amounts in RMB millions unless otherwise stated)CHINA UNICOM (HONG KONG) LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 2.22 Employee benefits (Continued) (b) Medical insurance The Group’s contributions to basic and supplementary medical insurances are expensed as incurred. The Group has no further payment obligations once the contributions have been paid. (c) Housing benefits One-off cash housing subsidies paid to PRC employees are charged to the statement of income in the year in which it is determined that the payment of such subsidies is probable and the amounts can be reasonably estimated. The Group’s contributions to the housing fund, special monetary housing benefits and other housing benefits are expensed as incurred. The Group has no further payment obligations once the contributions have been paid. (d) Supplementary benefits In addition to participating in local governmental defined contribution social insurance, subsidiaries of the Group also provide other post retirement supplementary benefits to their employees, including supplementary pension allowance, reimbursement of medical expenses and supplementary medical insurance. These post retirement supplementary benefits are accounted as defined benefit plan. The present value of the defined benefit obligation is included in non- current other obligations and salary and welfare payables (current portion). The liability is remeasured every three months and the remeasurement is recognised in other comprehensive income, which is not allowed to reverse to profit and loss in subsequent period. As at 31 December 2020, the amount of the liability was RMB75 million (2019: RMB70 million). (e) Share-based compensation costs The Group operates an equity-settled, share-based compensation plan. The fair value of the employee services received in exchange for the grant of the share options is recognised as an expense. The total amount to be expensed over the vesting period is determined by reference to the fair value of the share options granted at the grant date excluding the impact of any non-market vesting conditions (for example, revenue and profit targets) and is not subsequently remeasured. However, non-market vesting conditions are considered in determining the number of options that are expected to vest. At each statement of financial position date, the Group revises its estimates of the number of share options that are expected to vest. The Group recognises the impact of the revision of original estimates, if any, in the statement of income of the period in which the revision occurs, with a corresponding adjustment to equity. The equity amount is recognised in the employee share-based compensation reserve until either the option is exercised (when it is included in the amount recognised in share capital for the shares issued) or the option expires (when it is released directly to retained profits). (f) Restricted A-Share Incentive Scheme Restricted shares granted by A-Share Company to the employees of the Group is treated as a capital contribution. The fair value of the core employee services received in exchange for the grant of the restricted shares is recognised as an expense over the vesting period, with a corresponding credit to equity. The total amount to be expensed is determined by reference to the fair value of the granted shares measured as of the grant date less the subscription price. At the end of each reporting period, the Group revises its estimates of the number of restricted shares that are expected to be vested. The impact of the revision of the original estimates, if any, is recognised in profit or loss, with a corresponding adjustment to equity. 117 table column width 65ptANNUAL REPORT 2020 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 2.23 Accounts payable Accounts payable are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Accounts payable are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle of the business if longer). If not, they are presented as non-current liabilities. Accounts payable are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method. 2.24 Provisions Provisions are recognised when the Group has present legal or constructive obligations as a result of past events, it is probable that an outflow of resources will be required to settle the obligation, and the amount has been reliably estimated. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small. Provisions are measured at the present value of the pre-tax amount of expenditures expected to be required to settle the obligation that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to passage of time is recognised as interest expense. 2.25 Revenue recognition Income is classified by the Group as revenue when it arises from the provision of services and the sale of goods in the ordinary course of the Group’s business. Revenue is recognised when control over a product or service is transferred to the customer at the amount of promised consideration to which the Group is expected to be entitled, excluding those amounts collected on behalf of third parties. Revenue excludes value added tax or other sales taxes and is after deduction of any trade discounts. Where the contract contains a financing component which provides a significant financing benefit to the customer for more than twelve months, revenue is measured at the present value of the amount receivable, discounted using the discount rate that would be reflected in a separate financing transaction with the customer, and interest income is accrued separately under the effective interest method. Where the contract contains a financing component which provides a significant financing benefit to the Group, revenue recognised under that contract includes the interest expense accreted on the contract liability under the effective interest method. The Group takes advantage of the practical expedient in IFRS/HKFRS 15 and does not adjust the consideration for any effects of a significant financing component if the period of financing is twelve months or less. Further details of the Group’s revenue recognition policies are as follows: • • Voice usage and monthly fees are recognised when the services are rendered; Revenue from the provision of broadband and mobile data services are recognised when the services are provided to customers; • Data and internet application service revenue, which mainly represent revenue from the provision of data storage and application, information communications technology and other internet related services, are recognised upon fulfillment of services obligation; 118 table column width 65pt(All amounts in RMB millions unless otherwise stated)CHINA UNICOM (HONG KONG) LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 2.25 Revenue recognition (Continued) • Other value-added services revenue, which mainly represents revenue from the provision of services such as short message, cool ringtone, personalised ring, caller number display and secretarial services to subscribers etc., are recognised when services are rendered; • Interconnection fees, which represent revenue from other domestic and foreign telecommunications operators for the use of the Group’s telecommunications network, are recognised when services are rendered; • Revenue from transmission lines usage and associated services, which mainly represent income from offering transmission lines and customer-end equipment to customers for usage and related services, are recognised upon fulfillment of services obligation over the respective usage and service period; • Standalone sales of telecommunications products, which mainly represent handsets and accessories, and telecommunications equipment, are recognised when title have been passed to the buyers; • The Group offers preferential packages to customers which include bundle sale of mobile handsets and provision of services. The total contract consideration of such preferential packages is allocated to service revenue and sales of handsets based on their standalone selling prices. Revenue relating to the sale of handset is recognised when the title is passed to the customer whereas service revenue is recognised based upon the actual usage of telecommunications services. The cost of the mobile handset is expensed immediately to the statement of income upon revenue recognition. In general, revenue from rendering of telecommunication services are recognised over-time during the period of fulfillment of services obligation, whereas revenue from sales of handsets and other telecommunications equipment, in case they are treated as separate performance obligations, are recognised at a point in time. 2.26 Interest income Interest income from deposits in banks or other financial institutions is recognised on a time proportion basis, using the effective interest method. For financial assets measured at amortised cost that are not credit-impaired, the effective interest rate is applied to the gross carrying amount of the asset. For credit impaired financial assets, the effective interest rate is applied to the amortised cost of the asset. 2.27 Dividend income Dividend income is recognised when the right to receive payment is established. 119 table column width 65ptANNUAL REPORT 2020 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 2.28 Leased assets At inception of a contract, the Group assesses whether the contract is, or contains, 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. Control is conveyed where the customer has both the right to direct the use of the identified asset and to obtain substantially all of the economic benefits from that use. (a) As a lessee At inception or on reassessment of a contract that contains a lease component, the Group allocates the consideration in the contract to each lease and non-lease component on the basis of their relative stand-alone prices. At the lease commencement date, the Group recognises a right-of-use asset and a lease liability, except for short-term leases that have a lease term of 12 months or less and leases of low-value assets which, for the Group are primarily computers and office furniture. When the Group enters into a lease in respect of a low-value asset, the Group decides whether to capitalise the lease on a lease-by-lease basis. The lease payments associated with those leases which are not capitalised are recognised as an expense on a systematic basis over the lease term. Where the lease is capitalised, the lease liability is initially recognised at the present value of the lease payments payable over the lease term, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, using a relevant incremental borrowing rate. After initial recognition, the lease liability is measured at amortised cost and interest expense is calculated using the effective interest method. Variable lease payments that do not depend on an index or rate are not included in the measurement of the lease liability and hence are charged to profit or loss in the accounting period in which they are incurred. The right-of-use asset recognised when a lease is capitalised is initially measured at cost, which comprises the initial amount of the lease liability plus any lease payments made at or before the commencement date, and any initial direct costs incurred. Where applicable, the cost of the right-of-use assets also includes an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, discounted to their present value, less any lease incentives received. The right-of-use asset is subsequently stated at cost less accumulated depreciation and impairment losses (see Note 2.13). Right-of-use assets are subsequently depreciated using the straight- line method from the commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the unexpired term of lease. The estimated useful lives of right-of-use assets are determined on the same basis as those of property and equipment. The lease liability is remeasured when there is a change in future lease payments arising from a change in an index or rate, or there is a change in the Group’s estimate of the amount expected to be payable under a residual value guarantee, or there is a change arising from the reassessment of whether the Group will be reasonably certain to exercise a purchase, extension or termination option. When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset, or is recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero. 120 table column width 65pt(All amounts in RMB millions unless otherwise stated)CHINA UNICOM (HONG KONG) LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 2.28 Leased assets (Continued) (a) As a lessee (Continued) The lease liability is also remeasured when there is a change in the scope of a lease or the consideration for a lease that is not originally provided for in the lease contract (“lease modification”) that is not accounted for as a separate lease. In this case the lease liability is remeasured based on the revised lease payments and lease term using a revised discount rate at the effective date of the modification. In the consolidated statement of financial position, the current portion of long-term lease liabilities is determined as the present value of contractual payments that are due to be settled within twelve months after the reporting period. The Group presents right-of-use assets that do not meet the definition of investment property, and lease liabilities separately in the consolidated statement of financial position. (b) As a lessor When the Group acts as a lessor, it determines at lease inception whether each lease is a finance lease or an operating lease. A lease is classified as a finance lease if it transfers substantially all the risks and rewards incidental to the ownership of an underlying assets to the lessee. If this is not the case, the lease is classified as an operating lease. When a contract contains lease and non-lease components, the Group allocates the consideration in the contract to each component on a relative stand-alone selling price basis. The rental income from operating leases is recognised in profit or loss in equal instalments over the periods covered by the lease term, except where an alternative basis is more representative of the pattern of benefits to be derived from the use of the leased asset. Lease incentives granted are recognised in profit or loss as an integral part of the aggregate net lease payments receivable. Variable lease payments that do not depend on an index or a rate are recognised as income in the accounting period in which they are earned. When the Group is an intermediate lessor, the sub-leases are classified as a finance lease or as an operating lease with reference to the right-of-use asset arising from the head lease. If the head lease is a short-term lease to which the Group applies the exemption described in Note 2.28(a), then the Group classifies the sub-lease as an operating lease. 2.29 Borrowing costs Borrowing costs are expensed as incurred, except for interest directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use, in which case they are capitalised as part of the cost of that asset. Capitalisation of borrowing costs commences when expenditures for the asset and borrowing costs are being incurred and the activities to prepare the asset for its intended use are in progress. Borrowing costs are capitalised up to the date when the project is completed and ready for its intended use. To the extent that funds are borrowed specifically for the purpose of obtaining a qualifying asset, the amount of borrowing costs eligible for capitalisation is determined at the actual borrowing costs incurred on that borrowing during the period less any investment income on the temporary investment of those borrowings. To the extent that funds are borrowed generally and used for the purpose of obtaining a qualifying asset, the amount of borrowing costs eligible for capitalisation is determined by applying a capitalisation rate to the expenditures on that asset. The capitalisation rate is the weighted average of the borrowing costs applicable to the borrowings of the Group that are outstanding during the period, other than borrowings made specifically for the purpose of obtaining a qualifying asset. The amount of borrowing costs capitalised during a period should not exceed the amount of borrowing cost incurred during that period. Other borrowing costs are recognised as expenses when incurred. 121 table column width 65ptANNUAL REPORT 2020 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 2.30 Taxation (a) Current income tax The current income tax charge is calculated on the basis of the tax laws enacted or substantially enacted at the statement of financial position date in the countries where the Company and its subsidiaries operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation and establishes provisions where appropriate on the basis of the amount expected to be paid to the tax authorities. (b) Deferred income tax Deferred tax assets and liabilities arise from deductible and taxable temporary differences respectively, being the differences between the carrying amounts of assets and liabilities for financial reporting purposes and their tax bases. Deferred tax assets also arise from unused tax losses and unused tax credits. Apart from certain limited exceptions, all deferred tax liabilities, and all deferred tax assets to the extent that it is probable that future taxable profits will be available against which the asset can be utilised, are recognised. Future taxable profits that may support the recognition of deferred tax assets arising from deductible temporary differences include those that will arise from the reversal of existing taxable temporary differences, provided those differences relate to the same taxation authority and the same taxable entity, and are expected to reverse either in the same period as the expected reversal of the deductible temporary difference or in periods into which a tax loss arising from the deferred tax asset can be carried back or forward. The same criteria are adopted when determining whether existing taxable temporary differences support the recognition of deferred tax assets arising from unused tax losses and credits, that is, those differences are taken into account if they relate to the same taxation authority and the same taxable entity, and are expected to reverse in a period, or periods, in which the tax loss or credit can be utilised. The limited exceptions to recognition of deferred tax assets and liabilities are those temporary differences arising from goodwill not deductible for tax purposes, the initial recognition of assets or liabilities that affect neither accounting nor taxable profit (provided they are not part of a business combination), and temporary differences relating to investments in subsidiaries to the extent that, in the case of taxable differences, the Group controls the timing of the reversal and it is probable that the differences will not reverse in the foreseeable future, or in the case of deductible differences, unless it is probable that they will reverse in the future. The carrying amount of a deferred tax asset is reviewed at the end of each reporting period and is reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow the related tax benefit to be utilised. Any such reduction is reversed to the extent that it becomes probable that sufficient taxable profits will be available. 2.31 Dividend distribution Dividend distribution to the Company’s shareholders is recognised as a liability in the Company’s financial statements in the period in which the dividends are approved by the Company’s shareholders. 122 table column width 65pt(All amounts in RMB millions unless otherwise stated)CHINA UNICOM (HONG KONG) LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 2.32 Contingent liabilities and contingent assets A contingent liability is a possible obligation that arises from past events and whose existence will only be confirmed by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Group. It can also be a present obligation arising from past events that is not recognised because it is not probable that outflow of economic resources will be required or the amount of obligation cannot be measured reliably. A contingent liability is not recognised but is disclosed in the notes to the financial statements. When a change in the probability of an outflow of economic resources occurs so that outflow is probable, the liability will then be recognised as a provision. A contingent asset is a possible asset that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Group. A contingent asset is not recognised but is disclosed in the notes to the financial statements when an inflow of economic benefits is probable. When an inflow is virtually certain, an asset is recognised. 2.33 Earnings per Share Basic earnings per share is computed by dividing the profit attributable to equity shareholders of the Company by the weighted average number of ordinary shares outstanding during the year. Diluted earnings per share is computed by dividing the profit attributable to equity shareholders of the Company by the weighted average number of ordinary shares outstanding during the year, after adjusting for the effects of the dilutive potential ordinary shares. 2.34 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) 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); (ii) One entity is an associate or joint venture of the other entity (or an associate or joint venture of a member of a group of which the other entity is a member); (iii) Both entities are joint ventures of the same third party; (iv) One entity is a joint venture of a third entity and the other entity is an associate of the third entity; 123 table column width 65ptANNUAL REPORT 2020 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 2.34 Related parties (Continued) (b) An entity is related to the Group if any of the following conditions applies: (Continued) (v) The entity is a post-employment benefit plan for the benefit of employees of either the Group or an entity related to the Group; (vi) The entity is controlled or jointly controlled by a person identified in (a); or (vii) 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. 3. FINANCIAL RISK MANAGEMENT AND FAIR VALUES OF FINANCIAL INSTRUMENTS 3.1 Financial risk factors The Group’s operating activities expose it to a variety of financial risks: market risk (including foreign currency risk, price risk, cash flow and fair value interest rate risk), credit risk and liquidity risk. The Group’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group’s financial performance. Financial risk management is carried out by the Group’s headquarter, following the overall direction determined by the Executive Directors of the Company. The Group’s headquarter identifies and evaluates financial risks in close co-operation with the Group’s operating units. (a) Market risk (i) Foreign exchange risk The Group’s major operational activities are carried out in Mainland China and a majority of the transactions are denominated in RMB. The Group is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to US dollars, HK dollars and Euro. Exchange risk mainly exists with respect to the balances with international carriers, cash and cash equivalents and financial assets denominated in foreign currencies. The Group’s headquarter is responsible for monitoring the amount of monetary assets and liabilities denominated in foreign currencies. From time to time, the Group may consider entering into forward exchange contracts or currency swap contracts to mitigate the foreign exchange risk. During the years of 2020 and 2019, the Group had not entered into any forward exchange contracts or currency swap contracts. 124 table column width 65pt(All amounts in RMB millions unless otherwise stated)CHINA UNICOM (HONG KONG) LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 3. FINANCIAL RISK MANAGEMENT AND FAIR VALUES OF FINANCIAL INSTRUMENTS (Continued) 3.1 Financial risk factors (Continued) (a) Market risk (Continued) (i) Foreign exchange risk (Continued) The following table details the Group’s exposure at the end of the reporting period to currency risk arising from recognised assets or liabilities denominated in a currency other than the functional currency of the entity to which they relate and have been translated to RMB at the applicable rates quoted by the PBOC as at 31 December 2020 and 2019. 2020 2019 Original currency millions RMB Exchange equivalent rate millions Original currency millions RMB Exchange equivalent rate millions 48 353 30 — 1 — 1 219 2 0.84 6.52 8.03 0.06 4.93 5.02 0.84 6.52 8.03 40 2,305 241 — 7 1 2,594 1 1,429 16 1,446 35 166 19 31 1 1 2 231 2 0.90 6.98 7.82 0.06 5.17 4.88 0.90 6.98 7.82 31 1,160 146 2 6 4 1,349 2 1,612 16 1,630 208 8.03 1,672 400 7.82 3,125 5,712 6,104 31 2 36 1 6.52 8.03 6.52 8.03 204 18 222 235 8 243 465 33 5 62 1 6.98 7.82 6.98 7.82 232 42 274 433 8 441 715 Cash and cash equivalents: — denominated in HK dollars — denominated in US dollars — denominated in Euro — denominated in Japanese Yen — denominated in SGD — denominated in AUD Sub-total Accounts receivable: — denominated in HK dollars — denominated in US dollars — denominated in Euro Sub-total Financial assets measured at FVOCI: — denominated in Euro Total Borrowings: — denominated in US dollars — denominated in Euro Sub-total Accounts payable: — denominated in US dollars — denominated in Euro Sub-total Total 125 table column width 65ptANNUAL REPORT 2020 3. FINANCIAL RISK MANAGEMENT AND FAIR VALUES OF FINANCIAL INSTRUMENTS (Continued) 3.1 Financial risk factors (Continued) (a) Market risk (Continued) (i) Foreign exchange risk (Continued) The Group did not have and does not believe it will have any difficulties in exchanging its foreign currency cash into RMB at the exchange rates quoted by the PBOC. As at 31 December 2020, if the RMB had strengthened/weakened by 10% against foreign currencies, primarily with respect to US dollars, HK dollars, Euro, Japanese Yen, SGD and AUD, while all other variables are held constant, the effect on profit after tax would be approximately RMB268 million (2019: approximately RMB170 million) for cash and cash equivalents, borrowings, accounts receivable and accounts payable denominated in foreign currencies, and the effect on other comprehensive income would be approximately RMB167 million (2019: approximately RMB313 million) for financial assets denominated in foreign currency, which were recorded in fair value through other comprehensive income. (ii) Price risk The Group is exposed to equity securities price risk because investments held by the Group are classified in the consolidated statement of financial position as financial assets measured at FVOCI. The financial assets measured at FVOCI comprise primarily equity securities of Telefónica S.A. (“Telefónica”). As at 31 December 2020, if the share price of Telefónica had increased/decreased by 10%, while the exchange rate of RMB against Euro is held constant, the effect on other comprehensive income, would be approximately RMB167 million (2019: approximately RMB313 million). (iii) Cash flow and fair value interest rate risk The Group’s interest-bearing assets are mainly represented by bank deposits and debt securities measured at FVOCI (recycling). Management does not expect the changes in market deposit interest rates will have significant impact on the financial statements as the deposits are all short-term in nature and the interest involved will not be significant. The Group’s interest rate risk mainly arises from interest-bearing borrowings including bank loans, commercial papers, promissory notes, corporate bonds, related parties loans and lease liabilities. Borrowings issued at floating rates expose the Group to cash flow interest rate risk. Borrowings issued at fixed rates expose the Group to fair value interest rate risk upon renewal. The Group determines the amount of its fixed rate or floating rate borrowings depending on the prevailing market conditions. During the years of 2020 and 2019, the Group’s borrowings were mainly at fixed rates and were mainly denominated in RMB. Increases in interest rates will increase the cost of new borrowing and the interest expense with respect to the Group’s outstanding floating rate borrowings, and therefore could have a material adverse effect on the Group’s financial position. Management continuously monitors the interest rate position of the Group and makes decisions with reference to the latest market conditions. From time to time, the Group may enter into interest rate swap agreements to mitigate its exposure to interest rate risks in connection with the floating rate borrowings, although the Group did not consider it was necessary to do so in the years of 2020 and 2019. 126 table column width 65pt(All amounts in RMB millions unless otherwise stated)CHINA UNICOM (HONG KONG) LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 3. FINANCIAL RISK MANAGEMENT AND FAIR VALUES OF FINANCIAL INSTRUMENTS (Continued) 3.1 Financial risk factors (Continued) (a) Market risk (Continued) (iii) Cash flow and fair value interest rate risk (Continued) As at 31 December 2020, the Group had approximately RMB12,910 million (2019: approximately RMB19,496 million) of floating rate borrowings and short-term fixed rate borrowings and approximately RMB37,900 million (2019: approximately RMB42,669 million) of long-term fixed rate borrowings and lease liabilities. For the year ended 31 December 2020, if interest rates on the floating rate borrowings and short-term fixed rate borrowings had increased/decreased 50 basic points while all other variables are held constant, the effect on profit after tax is approximately RMB48 million (2019: approximately RMB73 million). (b) 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. Credit risk is managed on a group basis. Credit risk arises from cash and cash equivalents and short-term bank deposits with banks, as well as credit exposures to major corporate customers, individual subscribers and general corporate customers, related parties and other operators. To limit exposure to credit risk relating to cash and cash equivalents and short-term bank deposits, the Group primarily places cash and cash equivalents and short-term bank deposits only with large state-owned financial institutions in the PRC and other banks with acceptable credit ratings. Therefore, the Group expects that there is no significant credit risk and does not expect that there will be any significant losses from non-performance by these counterparties. In addition, the Group has no significant concentrations of credit risk with respect to individual subscribers and corporate customers. The Group has policies to limit the credit exposure on receivables for services and sales of mobile handsets. The Group assesses the credit quality of all its customers and sets credit limits on them by taking into account their financial position, the availability of guarantee from third parties, their credit history and other factors such as current market conditions. The normal credit period granted by the Group to individual subscribers and general corporate customers is 30 days from the date of billing unless they meet certain specified credit assessment criteria. For major corporate customers, the credit period granted by the Group is based on the service contract terms, normally not exceeding 1 year. The utilisation of credit limits and settlement pattern of customers are regularly monitored by the Group. In respect of other receivables, individual credit evaluations are performed on all counterparties requiring credit over a certain amount. These evaluations focus on the counterparties’ past history of making payments when due and current ability to pay, and take into account information specific to the counterparties as well as the economic environment in which the counterparties operates. Credit risk relating to amounts due from related parties and other telecommunications operators is not considered to be significant as these companies are reputable and their receivables are settled on a regular basis. 127 table column width 65ptANNUAL REPORT 2020 3. FINANCIAL RISK MANAGEMENT AND FAIR VALUES OF FINANCIAL INSTRUMENTS (Continued) 3.1 Financial risk factors (Continued) (c) Liquidity risk Prudent liquidity risk management includes maintaining sufficient cash and availability of funds including the raising of bank loans and issuance of commercial papers, promissory notes and corporate bonds. Due to the dynamic nature of the underlying business, the Group’s headquarter maintains flexibility in funding through having adequate amount of cash and cash equivalents and utilising different sources of financing when necessary. The following tables show the undiscounted balances of the financial liabilities (including interest expense) categorised by time from the end of the period under review to the contractual maturity date: At 31 December 2020 Long-term bank loans Promissory notes Corporate bonds Lease liabilities Other obligations Short-term bank loans Commercial papers Accounts payable and accrued liabilities Bills payable Amounts due to ultimate holding company Amounts due to related parties Amounts due to domestic carriers At 31 December 2019 Long-term bank loans Promissory notes Corporate bonds Lease liabilities Other obligations Short-term bank loans Commercial papers Accounts payable and accrued liabilities Amounts due to ultimate holding company Amounts due to related parties Amounts due to domestic carriers Dividend payable Between Between Less than 1 and 2 2 and 5 Over Carrying 1 year years years 5 years amounts 428 34 1,088 11,757 2,529 751 7,007 134,437 5,482 1,640 9,315 2,291 469 1,030 2,034 10,352 15 — — — — — 132 — 1,215 — — 6,203 27 — — — — — 3,172 — 1,372 — — 1,498 58 — — — — — — — 2,900 998 2,999 27,961 2,627 740 7,000 134,437 5,482 1,640 12,225 2,291 176,759 14,032 10,617 2,928 201,300 448 34 108 11,085 2,657 5,704 9,116 121,564 1,779 7,984 2,174 920 434 34 1,088 10,183 46 — — — — 132 — — 1,344 1,030 2,034 12,112 29 — — — — 3,304 — — 1,710 — — 1,430 49 — — — — — — — 3,306 998 2,998 32,325 2,778 5,564 8,995 121,564 1,779 10,893 2,174 920 163,573 11,917 19,853 3,189 194,294 Regarding the Group’s use of the going concern basis for the preparation of its financial statements, please refer to Note 2.2(a) for details. 128 table column width 65pt(All amounts in RMB millions unless otherwise stated)CHINA UNICOM (HONG KONG) LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 3. FINANCIAL RISK MANAGEMENT AND FAIR VALUES OF FINANCIAL INSTRUMENTS (Continued) 3.2 Capital risk management The Group’s objectives when managing capital are: • To safeguard the Group’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders. To support the Group’s stability and growth. To provide capital for the purpose of strengthening the Group’s risk management capability. • • In order to maintain or adjust the capital structure, the Group reviews and manages its capital structure actively and regularly to ensure optimal capital structure and shareholder returns, taking into account the future capital requirements of the Group and capital efficiency, prevailing and projected profitability, projected operating cash flows, projected capital expenditures and projected strategic investment opportunities. The Group monitors capital on the basis of the debt-to-capitalisation ratio. This ratio is calculated as interest-bearing debts over interest-bearing debts plus total equity. Interest-bearing debts represent commercial papers, short-term bank loans, long-term bank loans, promissory notes, corporate bonds, lease liabilities, and amounts due to related parties, as shown in the consolidated statement of financial position. The interest-bearing debts do not include balance of deposits received by Finance Company from Unicom Group and its subsidiaries and an associate of RMB5,112 million and of RMB58 million, respectively, as at 31 December 2020 (2019: RMB4,879 million and RMB8 million, respectively). The Group’s debt-to-capitalisation ratios are as follows: Interest-bearing debts: — Short-term bank loans — Long-term bank loans — Promissory notes — Corporate bonds — Commercial papers — Lease liabilities (non-current portion) — Amounts due to related parties — Current portion of long-term bank loans — Current portion of corporate bonds — Lease liabilities (current portion) Total equity 31 December 31 December 2020 2019 740 2,482 998 1,999 7,000 16,458 3,042 418 1,000 11,503 5,564 2,869 998 2,998 8,995 21,535 3,092 437 — 10,790 45,640 327,520 57,278 320,755 Interest-bearing debts plus total equity 373,160 378,033 Debt-to-capitalisation ratio 12.2% 15.2% 129 table column width 65ptANNUAL REPORT 2020 3. FINANCIAL RISK MANAGEMENT AND FAIR VALUES OF FINANCIAL INSTRUMENTS (Continued) 3.3 Fair value estimation Financial assets of the Group mainly include cash and cash equivalents, short-term bank deposits and restricted deposits, accounts receivable, prepayments and other current assets, contract assets, amounts due from ultimate holding company, related parties and domestic carriers, financial assets measured at fair value. Financial liabilities of the Group mainly include accounts payable and accrued liabilities, short-term bank loans, commercial papers, corporate bonds, promissory notes, long- term bank loans, other obligations and amounts due to ultimate holding company, related parties and domestic carriers. (a) Financial assets measured at fair value The table below analyses financial instruments carried at fair value, by valuation method. The different levels have been defined as follows: • Level 1 valuation: unadjusted quoted prices in active markets for identical assets or liabilities at the measurement date. • Level 2 valuation: observable inputs which fail to meet Level 1, and not using significant unobservable inputs. Unobservable inputs for which market data are not available. • Level 3 valuation: fair value measured using significant unobservable inputs. The following table presents the Group’s assets that are measured at fair value at 31 December 2020: Recurring fair value measurement: Equity securities measured at FVOCI (non-recycling) Financial assets measured at FVPL Debt securities measured at FVOCI (recycling) Total Level 1 Level 2 Level 3 Total 1,786 1,465 23,350 26,601 — 100 — 100 52 929 — 1,838 2,494 23,350 981 27,682 The following table presents the Group’s assets that are measured at fair value at 31 December 2019: Level 1 Level 2 Level 3 Total Recurring fair value measurement: Equity securities measured at FVOCI (non-recycling) Financial assets measured at FVPL Total 3,268 151 3,419 — 51 51 55 568 3,323 770 623 4,093 130 table column width 65pt(All amounts in RMB millions unless otherwise stated)CHINA UNICOM (HONG KONG) LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 3. FINANCIAL RISK MANAGEMENT AND FAIR VALUES OF FINANCIAL INSTRUMENTS (Continued) 3.3 Fair value estimation (Continued) (a) Financial assets measured at fair value (Continued) The fair value of financial instruments traded in active markets is based on quoted market prices at the statement of financial position date. A market is regarded as active if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service, or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm’s length basis. The quoted market price used for financial assets held by the Group is the current bid price. These instruments are included in level 1 and comprise primarily equity securities of Telefónica, debt securities issued by banks which are classified as financial assets measured at FVOCI and certain equity investments, investments in monetary funds and wealth management products which are classified as financial assets measured at FVPL. During the years ended 31 December 2020 and 2019, there were no transfer between Level 1 and Level 2, or transfer into or out of Level 3. The Group’s policy is to recognise transfers between levels of fair value hierarchy as at the end of the reporting period in which they occur. (b) Fair value of financial liabilities carried at other than fair value As at 31 December 2020 and 2019, the carrying amounts, fair values and the level of fair values of the Group’s financial liabilities carried at amortised cost are disclosed below: Carrying amount Fair value as at as at Carrying Fair value amount as at as at 31 December 31 December Fair value measurement 31 December 31 December 2020 2020 as at 31 December 2020 categorised into 2019 2019 Level 1 Level 2 Level 3 Non-current portion of long-term bank loans Non-current portion of promissory notes Non-current portion of corporate bonds 2,482 998 1,999 2,552 1,005 2,050 — 1,005 2,050 2,552 — — — — — 2,869 998 2,998 2,849 1,010 3,081 The fair value of the non-current portion of long-term bank loans is based on the expected cash flows of principal and interests payment discounted at market rates ranging from 0.57% to 4.35% (2019: 0.70% to 4.41%) per annum. Besides, the carrying amounts of the Group’s other financial assets and liabilities carried at amortised cost approximated their fair values as at 31 December 2020 and 2019 due to the nature or short maturity of those instruments. 131 table column width 65ptANNUAL REPORT 2020 4. CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The Group makes estimates and assumptions concerning the future. The resulting accounting estimates may not be equal to the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below. 4.1 Depreciation on property, plant and equipment Depreciation on the Group’s property, plant and equipment is calculated using the straight-line method to allocate cost up to residual values over the estimated useful lives of the assets. The Group reviews the useful lives and residual values periodically to ensure that the method and rates of depreciation are consistent with the expected pattern of realisation of economic benefits from property, plant and equipment. The Group estimates the useful lives and residual values of property, plant and equipment based on historical experience, taking into account anticipated technological changes. If there are significant changes from previously estimated useful lives, the amount of depreciation expenses may change. 4.2 Impairment of Non-Financial Assets The Group tests whether non-financial assets have suffered from any impairment, in accordance with the accounting policy stated in Note 2.13. The recoverable amount of an asset is the higher of its fair value less costs to sell and its value in use. Management estimates value in use based on estimated discounted pre-tax future cash flows of the cash generating unit at the lowest level to which the asset belongs. If there is any significant change in management’s assumptions, including discount rates or growth rates in the future cash flow projection, the estimated recoverable amounts of the non-financial assets and the Group’s results would be significantly affected. Such impairment losses are recognised in the statement of income. Accordingly, there will be an impact to the future results if there is a significant change in the recoverable amounts of the non-financial assets. No significant impairment loss on property, plant and equipment was recognised for the years ended 31 December 2020 and 2019. 4.3 Allowance for ECLs Management estimates ECL allowance on accounts receivable and contract assets using a provision matrix based on the Group’s historical credit loss experience, and adjusted for factors that are specific to the debtors and an assessment of both the current and forecast general economic conditions at the reporting date. The Group monitored and reviewed the assumptions relating to ECL regularly. For the Group’s detailed assessment of credit risk, please refer to Note 3.1(b). 5. SEGMENT INFORMATION The Executive Directors of the Company have been identified as the CODM. Operating segments are identified on the basis of internal reports that the CODM reviews regularly in allocating resources to segments and in assessing their performances. The CODM make resources allocation decisions based on internal management functions and assess the Group’s business performance as one integrated business instead of by separate business lines or geographical regions. Accordingly, the Group has only one operating segment and therefore, no segment information is presented. The Group primarily operates in Mainland China and accordingly, no geographic information is presented. No single customer accounted for 10 percent or more of the Group’s revenue in all periods presented. 132 table column width 65pt(All amounts in RMB millions unless otherwise stated)CHINA UNICOM (HONG KONG) LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 6. REVENUE Revenue from telecommunications services are subject to Value-added tax (“VAT”) and VAT rates applicable to various telecommunications services. The Ministry of Finance, the State Administration of Taxation (“SAT”) and General Administration of Customs of the PRC jointly issued a notice dated 20 March 2019 which stipulates downward adjustments of VAT rate for basic telecommunications services from 10% to 9% and VAT rate for sales of telecommunications products from 16% to 13% from 1 April 2019. The VAT rate for value-added telecommunications services remains at 6%. Basic telecommunications services include business activities for the provision of voice services, and transmission lines usage and associated services etc. Value-added telecommunications services include business activities for the provision of short message service and multimedia message service, broadband and mobile data services, and data and internet application services etc. VAT is excluded from the revenue. Disaggregation of revenue from customers by major services and products: Voice usage and monthly fees Broadband and mobile data services Data and internet application services Other value-added services Interconnection fees Transmission lines usage and associated services Other services Total service revenue Sales of telecommunications products Total Include: Revenue from contracts with customers within the scope of IFRS/HKFRS 15 Revenue from other sources 2020 2019 23,183 150,730 47,923 21,287 12,307 16,519 3,865 275,814 28,024 26,440 146,534 37,218 21,251 12,893 15,595 4,456 264,387 26,128 303,838 290,515 302,732 1,106 289,332 1,183 The Group’s revenue is primarily generated from the provision of voice usage, broadband and mobile data services, data and internet application services, other value-added services, transmission lines usage and associated services and sale of telecommunication products. The Group bills the majority of its customers based on a fixed rate and service volume each month, and then has a right to consideration from the customers. Transaction prices that were allocated to unsatisfied performance obligations as of the end of the reporting period are expected to be recognised within one to five years when services are rendered. The Group has applied the practical expedient in paragraph 121 of IFRS/HKFRS 15 and therefore the information about remaining performance obligations is not disclosed for contracts that have an original expected duration of one year or less and also for those performance obligations which are regarded as satisfied as invoiced. 133 table column width 65ptANNUAL REPORT 2020 7. NETWORK, OPERATION AND SUPPORT EXPENSES Note 2020 2019 Repairs and maintenance Power and water charges Charges for use of network, premises, equipment and facilities Charges for use of tower assets Others (i), (iii) (ii), (iii) 10,750 12,901 9,180 11,246 2,209 10,303 12,319 8,146 10,492 1,976 46,286 43,236 (i) During the years ended 31 December 2020 and 2019, charges for use of network, premises, equipment and facilities mainly included the non-lease components charges and charges relating to short-term leases, leases of low-value assets and variable lease payments which are recorded in profit or loss as incurred. (ii) During the years ended 31 December 2020 and 2019, charges for use of tower assets included the non-lease components charges (maintenance service, certain ancillary facilities usage and other related support services charges) and variable lease payments which are recorded in profit or loss as incurred. For related party transactions with China Tower Corporation Limited (“Tower Company”), see Note 45.2. (iii) Expense relating to short-term leases, leases of low-value assets and variable lease payments not included in the measurement of lease liabilities: 2020 2019 Expense relating to short-term leases and other leases with remaining lease term ending on or before 31 December 2019, and leases of low value assets Variable lease payments not included in the measurement of lease liabilities* 1,322 5,415 1,971 4,478 * During the years ended 31 December 2020 and 2019, variable lease payments not included in the measurement of lease liabilities mainly included charges for use of tower assets and network, premises, equipment and facilities, which are measured based on revenue or usage and recorded in profit or loss when the event or condition that triggers those payments occurred. 134 table column width 65pt(All amounts in RMB millions unless otherwise stated)CHINA UNICOM (HONG KONG) LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 8. EMPLOYEE BENEFIT EXPENSES Salaries and wages Contributions to defined contribution pension schemes Contributions to medical insurance Contributions to housing fund Other housing benefits Share-based compensation Note 2020 2019 42,534 37,143 5,534 3,794 3,486 17 375 7,080 2,471 3,235 16 571 55,740 50,516 44 8.1 Directors’ emoluments The remuneration of each Director for the year of 2020 is set out below: Name of Director Note (RMB’000) (RMB’000) (RMB’000) (RMB’000) (RMB’000) Salaries Bonuses Contributions and paid and to pension Fees allowance payable schemes Total Wang Xiaochu Li Guohua Li Fushen Shao Guanglu Zhu Kebing Fan Yunjun Cesareo Alierta Izuel Cheung Wing Lam Linus Wong Wai Ming Chung Shui Ming Timpson Law Fan Chiu Fun Fanny (a) (b) (c) (d) — — — — — — 107 427 435 444 409 221 55 199 17 199 199 — — — — — 700 423 630 17 619 566 — — — — — 129 31 129 10 124 129 — — — — — 1,050 509 958 44 942 894 107 427 435 444 409 Total 1,822 890 2,955 552 6,219 135 table column width 65ptANNUAL REPORT 2020 8. EMPLOYEE BENEFIT EXPENSES (Continued) 8.1 Directors’ emoluments (Continued) The remuneration of each Director for the year of 2019 is set out below: Name of Director Wang Xiaochu Li Guohua Li Fushen Shao Guanglu Zhu Kebing Cesareo Alierta Izuel Cheung Wing Lam Linus Wong Wai Ming Chung Shui Ming Timpson Law Fan Chiu Fun Fanny Bonuses Contributions Salaries and paid and to pension Fees allowance payable* schemes Total (RMB’000) (RMB’000) (RMB’000) (RMB’000) (RMB’000) — — — — — 264 422 431 440 405 221 221 199 199 199 — — — — — 492 331 448 477 295 — — — — — 126 126 126 126 114 — — — — — 839 678 773 802 608 264 422 431 440 405 Total 1,962 1,039 2,043 618 5,662 * In addition, according to the “Notice on the Compensation Information Disclosure of the Central Government Controlled Enterprises” (Guozifenpei [2016]No.339) (translated from 《關於做好中央企業負責人薪酬信息披露工作的通知》（國資分配 [2016]339號）), certain Directors were also entitled to deferred bonuses in relation to the years of 2016 to 2018. The deferred bonuses paid to Mr. Wang Xiaochu, Mr. Li Guohua, Mr. Li Fushen, Mr. Shao Guanglu and Mr. Zhu Kebing were RMB542,200, RMB75,300, RMB488,000, RMB477,100 and RMB65,500 respectively. Notes: (a) Mr. Li Guohua resigned as executive director on 11 March 2020. (b) Mr. Shao Guanglu resigned as executive director on 16 January 2020. (c) Mr. Fan Yunjun appointed as executive director on 17 February 2020. (d) Mr. Cesareo Alierta Izuel retired as non-executive director on 25 May 2020. During the years of 2020 and 2019, no share options were granted to the Directors. No directors waived the right to receive emoluments during the years ended 31 December 2020 and 2019. During the years of 2020 and 2019, the Company did not incur any payment to any director for loss of office or as an inducement to any director to join the Company. 8.2 Senior management’s emoluments Of the seven senior management of the Company for the year ended 31 December 2020, four of them are directors of the Company and their remuneration has been disclosed in Note 8.1. For the remuneration of the remaining three senior management, all fall within the band from RMBNil to RMB1,000,000. 136 table column width 65pt(All amounts in RMB millions unless otherwise stated)CHINA UNICOM (HONG KONG) LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 8. EMPLOYEE BENEFIT EXPENSES (Continued) 8.3 Five highest paid individuals Of the five highest paid individuals for the year ended 31 December 2020, five of them are staffs and three fall within the band from RMB2,000,001 to RMB2,500,000, one falls within the band from RMB2,500,001 to RMB3,000,000 and one falls within the band from RMB3,500,001 to RMB4,000,000 (2019: five of them are staffs and two fall within the band from RMB2,500,001 to RMB3,000,000, one falls within the band from RMB3,000,001 to RMB3,500,000 and two fall within the band from RMB3,500,001 to RMB4,000,000). The aggregate of the emoluments in respect of the five (2019: five) individuals are as follows: Salaries and allowances Bonuses paid and payable Contributions to pension schemes 9. COSTS OF TELECOMMUNICATIONS PRODUCTS SOLD Handsets and other telecommunication products Others 10. OTHER OPERATING EXPENSES Credit loss allowance and write-down of inventories Commission and other service expenses Advertising and promotion expenses Internet access terminal maintenance expenses Customer retention costs Auditors’ remuneration Property management fee Office and administrative expenses Transportation expense Miscellaneous taxes and fees Service technical support expenses Repairs and maintenance expenses Loss on disposal of property, plant and equipment 15 Others 2020 2019 (RMB’000) (RMB’000) 5,624 6,696 827 3,378 11,840 912 13,147 16,130 2020 2019 26,619 243 26,220 192 26,862 26,412 Note 2020 2019 5,584 21,041 2,723 2,744 3,007 77 2,490 1,332 1,372 1,353 21,243 911 2,365 3,995 3,663 23,010 2,563 2,937 3,601 78 2,188 1,606 1,471 1,236 13,981 704 2,179 5,263 70,237 64,480 137 table column width 65ptANNUAL REPORT 2020 11. FINANCE COSTS Note 2020 2019 Finance costs: — Interest on bank loans repayable within 5 years — Interest on corporate bonds, promissory notes and commercial papers repayable within 5 years — Interest on lease liabilities — Interest on related party loans repayable within 5 years — Interest on bank loans repayable over 5 years — Less: Amounts capitalised in CIP 15 Total interest expense — Net exchange loss — Others 12. OTHER INCOME — NET Dividend from financial assets measured at FVOCI (non-recycling) Government grants Additional deduction for VAT Investment income from debt securities measured at FVOCI (recycling) Fair value gains on financial assets measured at FVPL Gains on disposal of financial assets measured at FVPL Others 112 519 312 1,234 122 38 (206) 1,612 46 89 359 1,349 133 43 (387) 2,016 39 68 1,747 2,123 2020 2019 210 506 1,456 174 154 87 324 205 385 422 — 96 24 603 2,911 1,735 13. TAXATION Hong Kong profits tax has been provided at the rate of 16.5% (2019: 16.5%) on the estimated assessable profits for the year. Taxation on profits outside Hong Kong has been calculated on the estimated assessable profits for the year at the rates of taxation prevailing in the countries in which the Group operates. The Company’s subsidiaries operate mainly in the PRC and the applicable statutory enterprise income tax rate is 25% (2019: 25%). Taxation for certain subsidiaries in the PRC was calculated at a preferential tax rate of 15% (2019: 15%). 138 table column width 65pt(All amounts in RMB millions unless otherwise stated)CHINA UNICOM (HONG KONG) LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 13. TAXATION (Continued) Provision for income tax on the estimated taxable profits for the year — Hong Kong — Mainland China and other countries Under/(over) provision in respect of prior years Deferred taxation Income tax expenses 2020 2019 99 2,858 40 2,997 453 66 556 (250) 372 2,423 3,450 2,795 Reconciliation between actual income tax expense and accounting profit at PRC statutory tax rate: Note 2020 2019 Profit before taxation Expected income tax expense at PRC statutory tax rate of 25% Impact of different tax rates outside Mainland China Tax effect of preferential tax rate Additional deduction for qualified research and development costs Tax effect of non-deductible expenses Tax effect of non-taxable income from share of net profit of joint ventures Tax effect of non-taxable income from share of net profit of associates Under/(over) provision in respect of prior years Tax effect of unused tax losses not recognised, net of utilisation (i) (i) (ii) Others Actual tax expense 16,027 14,167 4,007 3,542 (39) (140) (268) 447 (197) (332) 40 (68) — (22) (121) (139) 366 (162) (274) (250) (79) (66) 3,450 2,795 (i) According to the PRC enterprise income tax law and its relevant regulations, entities that are qualified as High and New Technology Enterprise under the tax law are entitled to a preferential income tax rate of 15% (2019: 15%). Certain subsidiaries of the Group obtained the approval of High and New Technology Enterprise and were entitled to a preferential income tax rate of 15% (2019: 15%), and certain research and development costs of the Group’s PRC subsidiaries are qualified for 75% (2019: 75%) additional deduction for tax purpose. (ii) As at 31 December 2020, the Group did not recognise deferred tax assets of approximately RMB181 million (2019: approximately RMB249 million) in respect of tax losses amounting to approximately RMB726 million (2019: approximately RMB997 million), since it is not probable that future taxable profits will be available against which the deferred tax asset can be utilised. The tax losses can be carried forward for five years from the year incurred and hence will be expired by the year of 2025. 139 table column width 65ptANNUAL REPORT 2020 13. TAXATION (Continued) As at 31 December 2020, the Group did not recognise deferred tax assets of RMB2,448 million (2019: RMB2,085 million) in respect of changes in fair value on financial assets through other comprehensive income (non-recycling), since it is not probable that the related tax benefit will be realised. The analysis of deferred tax assets and deferred tax liabilities are as follows: Deferred tax assets: — Deferred tax asset to be recovered after 12 months — Deferred tax asset to be recovered within 12 months Deferred tax liabilities: — Deferred tax liabilities to be settled after 12 months — Deferred tax liabilities to be settled within 12 months 2020 2019 8,316 3,542 6,942 2,914 11,858 9,856 (10,360) (753) (8,292) (338) (11,113) (8,630) Net deferred tax assets after offsetting 745 1,226 Deferred tax assets: — Deferred tax asset to be recovered after 12 months — Deferred tax asset to be recovered within 12 months Deferred tax liabilities: — Deferred tax liabilities to be settled after 12 months — Deferred tax liabilities to be settled within 12 months Net deferred tax liabilities after offsetting — 18 18 (82) — (82) (64) — — — (87) — (87) (87) 140 table column width 65pt(All amounts in RMB millions unless otherwise stated)CHINA UNICOM (HONG KONG) LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 13. TAXATION (Continued) The movement of the net deferred tax assets/(liabilities) is as follows: Net deferred tax assets after offsetting: — Balance at 1 January 2020 and 2019 — Deferred tax charged to the statement of income — Deferred tax (charged)/credited to other comprehensive income — End of year Net deferred tax liabilities after offsetting: — Beginning of year — Deferred tax credited to the statement of income — Deferred tax credited to the statement of other comprehensive income — End of year 2020 2019 1,226 (471) (10) 3,672 (2,447) 1 745 1,226 (87) 18 5 (64) (111) 24 — (87) The components of the deferred tax assets/(liabilities) recognised in the consolidated statement of financial position and the movements during the year are as follows: Unrecognised revaluation surplus on prepayments for the leasehold land determined under PRC Accruals of Unrealised expenses profit from Accelerated depreciation not yet the Gain from of property, deductible transactions plant and Tower Assets Depreciation charge of regulations Deductible for tax with Tower equipment Contract right-of-use (Note (i)) tax losses purpose Company Disposal (Note (ii)) costs assets Others Total Deferred tax arising from: At 1 January 2019 Credited/(Charged) to the statement of income Credited to other comprehensive income At 31 December 2019 Credited/(Charged) to the statement of income Charged to other comprehensive income Credit loss allowance 1,714 204 — 1,918 575 — 1,354 (48) — 1,306 (48) — 1,303 (933) — 370 (370) — 3,180 161 — 3,341 842 — At 31 December 2020 2,493 1,258 — 4,183 445 (64) — 381 (64) — 317 (372) 372 — — — — — (5,921) (2,651) — (8,572) (2,527) — (11,099) (229) 190 — (39) 39 — — 271 99 — 370 20 — 1,816 247 1 2,064 1,080 (5) 3,561 (2,423) 1 1,139 (453) (5) 390 3,139 681 141 table column width 65ptANNUAL REPORT 2020 13. TAXATION (Continued) Deferred taxation as at year-end represents the taxation effect of the following temporary differences, taking into consideration the offsetting of balances related to the same tax authority: Note 2020 2019 Net deferred tax assets after offsetting: Deferred tax assets: Credit loss allowance Unrecognised revaluation surplus on prepayments for the leasehold land determined under PRC regulations Deductible tax losses Accruals of expenses not yet deductible for tax purpose Unrealised profit from the transactions with Tower Company Depreciation charge of right-of-use assets Deferred revenue on subscriber points reward program Unrealised profit for the inter-company transactions Government grants relating to assets Intangible assets amortisation difference Others (i) Deferred tax liabilities: Accelerated depreciation of property, plant and equipment (ii) Contract costs Others Net deferred tax liabilities after offsetting: Deferred tax assets: Credit loss allowance Deferred tax liabilities: Accelerated depreciation for tax purpose 142 2,475 1,258 — 4,183 317 390 242 368 794 422 1,409 1,918 1,306 370 3,341 381 370 229 227 695 464 555 11,858 9,856 (11,099) — (14) (8,572) (39) (19) (11,113) (8,630) 745 1,226 18 (82) (64) — (87) (87) table column width 65pt(All amounts in RMB millions unless otherwise stated)CHINA UNICOM (HONG KONG) LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 13. TAXATION (Continued) (i) The prepayments for the leasehold land were revalued for PRC tax purposes as at 31 December 2003 and 2004. However, the resulting revaluations of the prepayments for the leasehold land were not recognised under IFRSs/HKFRSs. Accordingly, deferred tax assets were recorded by the Group under IFRSs/HKFRSs. (ii) According to “Announcement on Enterprise Income Tax Policy for Those Enterprise Involved in the Accelerated Depreciation of Property, Plant and Equipment” (Caishui [2014] No.75) issued by the MOF and the SAT of the PRC, starting from 2014, the Group’s property, plant and equipment that comply with this tax policy are allowed to be depreciated under the accelerated depreciation method, or fully deducted for tax purpose in the year of purchase. Temporary differences arise from the different useful lives under tax basis and accounting basis have been recorded as deferred tax liabilities. 14. EARNINGS PER SHARE Basic earnings per share for the years ended 31 December 2020 and 2019 were computed by dividing the profit attributable to equity shareholders of the Company by the weighted average number of ordinary shares outstanding during the years. Diluted earnings per share for the years ended 31 December 2020 and 2019 were computed by dividing the profit attributable to equity shareholders of the Company by the weighted average number of ordinary shares outstanding during the years, after adjusting for the effects of the dilutive potential ordinary shares. No dilutive potential ordinary shares for the years ended 31 December 2020 and 2019. The following table sets forth the computation of basic and diluted earnings per share: 2020 2019 Numerator (in RMB millions): Profit attributable to equity shareholders of the Company used in computing basic/diluted earnings per share 12,493 11,330 Denominator (in millions): Weighted average number of ordinary shares outstanding used in computing basic/diluted earnings per share 30,598 30,598 Basic/Diluted earnings per share (in RMB) 0.41 0.37 143 table column width 65ptANNUAL REPORT 2020 15. PROPERTY, PLANT AND EQUIPMENT The movements of property, plant and equipment for the years ended 31 December 2020 and 2019 are as follows: 2020 Office furniture, fixtures, motor Tele- vehicles and communications other Leasehold Buildings equipment equipment improvements CIP Total 75,160 34 1,801 — (337) 833,423 767 64,847 — (57,643) 20,092 306 1,142 — (1,285) 3,728 173 214 — (414) 54,261 67,647 (68,004) (5,649) (4) 986,664 68,927 — (5,649) (59,683) Cost: Beginning of year Additions Transfer from CIP Transfer to other assets Disposals End of year 76,658 841,394 20,255 3,701 48,251 990,259 Accumulated depreciation and impairment: Beginning of year Charge for the year Disposals End of year Net book value: End of year (36,840) (2,680) 277 (563,735) (58,319) 53,881 (15,658) (1,222) 1,239 (2,919) (403) 414 (111) — 4 (619,263) (62,624) 55,815 (39,243) (568,173) (15,641) (2,908) (107) (626,072) 37,415 273,221 4,614 793 809 48,144 364,187 54,150 367,401 Beginning of year 38,320 269,688 4,434 144 table column width 65pt(All amounts in RMB millions unless otherwise stated)CHINA UNICOM (HONG KONG) LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 15. PROPERTY, PLANT AND EQUIPMENT (Continued) 2019 Office furniture, Tele- fixtures, motor communications vehicles and Leasehold Buildings equipment other equipment improvements CIP Total 73,876 160 1,279 — (155) 845,924 225 36,871 — (49,597) 20,080 369 839 — (1,196) 3,916 116 194 — (498) 42,306 55,565 (39,183) (4,415) (12) 986,102 56,435 — (4,415) (51,458) Cost: At 1 January 2019 Additions Transfer from CIP Transfer to other assets Disposals End of year 75,160 833,423 20,092 3,728 54,261 986,664 Accumulated depreciation and impairment: At 1 January 2019 Charge for the year Disposals End of year Net book value: End of year (34,222) (2,744) 126 (549,093) (60,598) 45,956 (15,559) (1,226) 1,127 (2,978) (439) 498 (118) (5) 12 (601,970) (65,012) 47,719 (36,840) (563,735) (15,658) (2,919) (111) (619,263) At 1 January 2019 39,654 296,831 4,521 38,320 269,688 4,434 809 938 54,150 367,401 42,188 384,132 For the year ended 31 December 2020, interest expense of approximately RMB206 million (2019: approximately RMB387 million) was capitalised as CIP. The capitalised borrowing rate represents the cost of capital for raising the related borrowings and varied from 2.35% to 3.12% for the year ended 31 December 2020 (2019: 3.07% to 3.49%). Mainly as a result of the Group’s ongoing modification of its telecommunications network and following subscribers’ voluntarily cross- network migration progress, the Group disposed certain property, plant and equipment with carrying amounts of RMB3,868 million for consideration of RMB1,503 million for the year ended 31 December 2020 (2019: RMB3,739 million and RMB1,560 million, respectively), resulting in a net loss of approximately RMB2,365 million for the year ended 31 December 2020 (2019: approximately RMB2,179 million). 145 table column width 65ptANNUAL REPORT 2020 16. RIGHT-OF-USE ASSETS Cost: Beginning of year Additions Disposals End of year Accumulated depreciation and impairment: Beginning of year Charge for the year Disposals End of year Net book value: End of year 2020 Tele- communications Buildings equipment Land use rights Others Total 17,730 2,721 (4,584) 37,984 5,023 (551) 13,682 41 (14) 937 426 (230) 70,333 8,211 (5,379) 15,867 42,456 13,709 1,133 73,165 (8,405) (3,885) 4,093 (14,062) (8,140) 304 (4,509) (298) 5 (284) (254) 230 (27,260) (12,577) 4,632 (8,197) (21,898) (4,802) (308) (35,205) 7,670 20,558 8,907 825 653 37,960 43,073 Beginning of year 9,325 23,922 9,173 146 table column width 65pt(All amounts in RMB millions unless otherwise stated)CHINA UNICOM (HONG KONG) LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 16. RIGHT-OF-USE ASSETS (Continued) Cost: At 1 January 2019 Additions Disposals End of year Accumulated depreciation and impairment: At 1 January 2019 Charge for the year Disposals End of year Net book value: End of year 2019 Tele- communications Buildings equipment Land use rights Others Total 14,110 3,620 — 35,631 2,814 (461) 13,504 178 — 17,730 37,984 13,682 (4,962) (3,443) — (7,215) (7,308) 461 (4,214) (295) — 643 294 — 937 (138) (146) — 63,888 6,906 (461) 70,333 (16,529) (11,192) 461 (8,405) (14,062) (4,509) (284) (27,260) At 1 January 2019 9,148 28,416 9,290 9,325 23,922 9,173 653 505 43,073 47,359 Details of total cash outflow for leases and the maturity analysis of lease liabilities are set out in Notes 29(c) and 36, respectively. 17. GOODWILL Goodwill arising from the acquisitions of Unicom New Century Telecommunications Co., Ltd. and Unicom New World Telecommunications Co., Ltd. by the Group in 2002 and 2003, respectively, represented the excess of the purchase consideration over the Group’s shares of the fair values of the separately identifiable net assets acquired prior to the adoption of HKFRSs and AG 5 in 2005. Goodwill is allocated to the Group’s cash-generating units (“CGU”). The recoverable amount of goodwill is determined based on value in use calculations. These calculations use pre-tax cash flow projections for 5 years based on financial budgets approved by management, including service revenue annual growth rate of 1% (2019: 1%) and the applicable discount rate of 11% (2019: 11%). Management determined expected growth rates and operating results based on past performance and its expectations in relation to market developments. The discount rate used is pre-tax and reflects specific risks relating to the CGU. Based on management’s assessment results, there was no impairment of goodwill as at 31 December 2020 and 2019, any reasonably possible change in the assumptions used in the calculation of recoverable amount would not result in impairment losses. 147 table column width 65ptANNUAL REPORT 2020 18. INVESTMENTS IN SUBSIDIARIES As at 31 December 2020, the details of the Company’s subsidiaries are as follows: Name Place and date of incorporation/ establishment and nature of legal entity Percentage of equity interests held Direct Indirect Particular of issued share capital/ paid up capital Principal activities and place of operation China United Network Communications The PRC, 21 April 2000, 100% — RMB213,044,797,828 Telecommunications operation Corporation Limited (“CUCL”) limited liability company in the PRC China Unicom Global Limited China Unicom (Hong Kong) Operations Limited China Unicom (Americas) Operations Limited Hong Kong, 29 May 2015, limited company Hong Kong, 24 May 2000, limited company USA, 24 May 2002, limited company China Unicom (Europe) Operations Limited The United Kingdom, 8 November 2006, China Unicom (Japan) Operations Corporation limited company Japan, 25 January 2007, limited company China Unicom (Singapore) Operations Pte Limited Singapore, 5 August 2009, limited company China Unicom (South Africa) Operations (Pty) Limited South Africa, 19 November 2012, limited liability company China Unicom (MYA) Operations Company The Republic of the Union of Myanmar Limited (“Myanmar”), 7 June 2013, limited liability company China Unicom (Australia) Operations Pty Limited Australia, 27 May 2014, limited liability company China Unicom (Russia) Operations Limited Liability Company Russia, 28 December 2016, limited liability company 100% — HKD2,625,097,491 Investment holding — — — — — — — — — 100% HKD1,510,100,000 Telecommunications service in Hong Kong 100% 5,000 shares, Telecommunications service in USD100 each the USA 100% 4,861,000 shares, GBP1 each Telecommunications operation in the United Kingdom 100% 1,000 shares, Telecommunications operation JPY366,000 each in Japan 100% 30,000,000 shares, Telecommunications operation RMB1 each in Singapore 100% 100 shares, Telecommunications operation ZAR 1 each in South Africa 100% 2,150,000 shares, USD1 each Communications technology training in Myanmar 100% 7,152,953 shares, Telecommunications operation AUD 1 each in Australia 100% RUB10,000 Telecommunications service in Russia 148 table column width 65pt(All amounts in RMB millions unless otherwise stated)CHINA UNICOM (HONG KONG) LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 18. INVESTMENTS IN SUBSIDIARIES (Continued) Name Place and date of incorporation/ establishment and nature of legal entity Percentage of equity interests held Direct Indirect Particular of issued share capital/ paid up capital Principal activities and place of operation China Unicom (Brazil) Telecommunications Brazil, 23 June 2016, Limited limited liability company China Unicom (Brazil) Holdings Ltda. Brazil, 27 October 2017, China Unicom Operations (Thailand) Limited China Unicom Operations (Malaysia) Sdn. Bhd. China Unicom Operations Korea Co., Ltd limited liability company Thailand, 20 November 2017, limited liability company Malaysia, 10 November 2017, limited liability company Korea, 24 November 2017, limited liability company China Unicom (Vietnam) Operations Company Vietnam, 19 April 2018, Limited limited liability company China Unicom (Cambodia) Operations Co. Ltd Cambodia, 11 May 2018, PT China Unicom Indonesia Operations China Unicom (Philippines) Operations Inc limited liability company Indonesia, 25 October 2019, limited liability company Philippines, 6 November 2019, limited liability company Unicom Vsens Telecommunications Company The PRC, 19 August 2008, Limited limited liability company Unicom Digital Technology Co,.Ltd The PRC, 30 April 2006, limited liability company China Unicom Online Information Technology The PRC, 29 March 2006, Company Limited limited liability company — — — — — — — — — — — — 100% R$21,165,840 Telecommunications service in Brazil 100% R$21,277,298 Investment holding 100% 40,000 shares, Telecommunications service in Baht100 each Thailand 100% 3,200,000 shares, Telecommunications service in MYR1 each Malaysia 100% 60,000 shares, Telecommunications service in KRW5,000 each Korea 100% VND2,276,000,000 Telecommunications service in Vietnam 100% 10,000 shares, Telecommunications service in Riels4,000 each Cambodia 100% 20,000,000,001 shares, Rp1 each Telecommunications service in Indonesia 100% 103,012 shares, Php100 each Telecommunications service in Philippines 100% RMB610,526,500 Sales of handsets, telecommunication equipment and provision of technical services in the PRC 100% RMB6,749,318,313.27 Provision of information communications technology services in the PRC 100% RMB400,000,000 Provision of internet information services and value-added telecommunications services in the PRC 149 table column width 65ptANNUAL REPORT 2020 18. INVESTMENTS IN SUBSIDIARIES (Continued) Name Place and date of incorporation/ establishment and nature of legal entity Percentage of equity interests held Direct Indirect Particular of issued share capital/ paid up capital Principal activities and place of operation Beijing Telecom Planning and Designing Institute The PRC, 25 April 1996, — 100% RMB264,227,115 Provision of Company Limited limited liability company China Information Technology Designing & Consulting Institute Company Limited The PRC, 11 November 1991, limited liability company China Unicom Information Navigation Company Limited The PRC, 17 September 1998, limited liability company Huaxia P&T Project Consultation and Management Company Limited The PRC, 5 March 1998, limited liability company Zhengzhou Kaicheng Industrial Company Limited The PRC, 21 December 2005, limited liability company Unicompay Company Limited The PRC, 11 April 2011, limited liability company Beijing Wo Digital Media Advertising Co., Ltd The PRC, 21 July 2006, limited liability company Guangdong Unicom Communication The PRC, 28 May 2013, Construction Co., Ltd limited liability company telecommunications network construction, planning and technical consulting services in the PRC — 100% RMB430,000,000 Provision of consultancy, survey, design and contract services relating to information projects and construction projects in the telecommunications industry in the PRC — — — — — — 100% RMB6,825,087,800 Provision of customer services in the PRC 100% RMB50,100,000 Provision of project design consultation and monitoring in the PRC 100% RMB2,200,000 Provision of property management services in the PRC 100% RMB250,000,000 Provision of e-payment services 100% RMB20,000,000 in the PRC Provision of advertising design, production, agency and publication in the PRC 100% RMB30,000,000 Provision of telecommunications network construction, maintenance and technical services in the PRC Provision of technical development and consultation in the PRC China Unicom Intelligence Security Technology The PRC, 15 August 2007, — 100% RMB150,000,000 Corporation Limited limited liability company 150 table column width 65pt(All amounts in RMB millions unless otherwise stated)CHINA UNICOM (HONG KONG) LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 18. INVESTMENTS IN SUBSIDIARIES (Continued) Name Place and date of incorporation/ establishment and nature of legal entity Percentage of equity interests held Direct Indirect Particular of issued share capital/ paid up capital Principal activities and place of operation Unicom Cloud Data Company Limited The PRC, 4 June 2013, limited liability company Unicom Innovation Investment Company Limited The PRC, 29 April 2014, Xiaowo Technology Co. Ltd limited liability company The PRC, 24 October 2014, limited liability company China Unicom Smart Connection Technology The PRC, 7 August 2015, Company Limited limited liability company Unicom Intelligent Network Ruixing Technology (Beijing) Co., Ltd. The PRC, 26 September 2018, limited liability company Unicom Intelligent Vehicle Technology (Shanghai) Co., Ltd The PRC, 28 September 2018, limited liability company Finance Company The PRC, 17 June 2016, limited liability company China Unicom Innovation Investment Company (Shenzhen) Limited The PRC, 28 January 2016, limited liability company China Unicom Innovation Investment Company The PRC, 8 October 2016, (Guizhou) Limited limited liability company China Unicom Innovation Investment (Shenzhen) Investment Centre The PRC, 1 February 2016, limited partnership Unicom Big Data Co., Ltd. The PRC, 24 August, 2017, limited liability company — — — — — 100% RMB4,000,000,000 Provision of technology development, transfer and consulting service in the PRC 100% RMB3,040,000,000 Venture capital investment business in the PRC 100% RMB200,000,000 Communications technology development and promotion in the PRC 68.88% RMB246,796,148 Auto informatisation in the PRC 55.10% RMB10,000,000 Provision of technology promotion service of intelligent transportation system’s products in the PRC — 68.88% RMB10,000,000 Provision of technology development, technology consultation and other services in the PRC — — — — — 91% RMB3,000,000,000 Provision of financial services in 100% RMB200,000 60% RMB1,000,000 100% RMB79,300,000 the PRC Venture capital investment business in the PRC Venture capital investment business in the PRC Venture capital investment business in the PRC 100% RMB500,000,000 Provision of data processing service in the PRC 151 table column width 65ptANNUAL REPORT 2020 18. INVESTMENTS IN SUBSIDIARIES (Continued) Name Place and date of incorporation/ establishment and nature of legal entity Percentage of equity interests held Direct Indirect Particular of issued share capital/ paid up capital Principal activities and place of operation Liantong Travel Service (Beijing) Company Limited The PRC, 30 September, 2017, limited liability company China Unicom (Guangdong Branch) Internet The PRC, 5 January, 2017, Industry Limited limited liability company China Unicom (Zhejiang) Industry Internet The PRC, 20 June, 2017, Company Limited limited liability company China Unicom (ShanDong) Industrial Internet The PRC, 3 March, 2017, Company Limited limited liability company China Unicom (Fujian) Industrial Internet Company Limited The PRC, 23 February, 2018, limited liability company China Unicom (Shanxi) Industrial Internet The PRC, 21 March, 2018, Company Limited limited liability company China Unicom Xiongan Industrial Internet The PRC, 25 April, 2018, Company Limited limited liability company China Unicom (Sichuan) Industrial Internet The PRC, 29 March, 2018, Company Limited limited liability company China Unicom (Liaoning) Industrial Internet The PRC, 28 March, 2018, Company Limited limited liability company China Unicom (Shaanxi) Industrial Internet The PRC, 27 March, 2018, Company Limited limited liability company — — — — — — — — — — 100% RMB30,000,000 Provision of tourism and information services in the PRC 100% RMB100,000,000 Provision of information communications technology services in the PRC 100% RMB11,000,000 Provision of information communications technology services in the PRC 100% RMB50,000,000 Provision of information communications technology services in the PRC 100% RMB50,000,000 Provision of information communications technology services in the PRC 100% RMB50,000,000 Provision of information communications technology services in the PRC 100% RMB15,000,000 Provision of information communications technology services in the PRC 100% RMB50,000,000 Provision of information communications technology services in the PRC 100% RMB20,000,000 Provision of information communications technology services in the PRC 100% RMB20,000,000 Provision of information communications technology services in the PRC 152 table column width 65pt(All amounts in RMB millions unless otherwise stated)CHINA UNICOM (HONG KONG) LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 18. INVESTMENTS IN SUBSIDIARIES (Continued) Name Place and date of incorporation/ establishment and nature of legal entity Percentage of equity interests held Direct Indirect Particular of issued share capital/ paid up capital Principal activities and place of operation China Unicom (Jiangsu) Industrial Internet The PRC, 9 May, 2018, Company Limited limited liability company China Unicom (Shanghai) Industrial Internet The PRC, 13 March, 2018, Company Limited limited liability company China Unicom (Heilongjiang) Industrial Internet The PRC, 14 March, 2018, Company Limited limited liability company Henan Industrial Interconnection & Technology The PRC, 30 May 2019, Co, Ltd limited liability company China Unicom Video Technology Co., Ltd. The PRC, 17 January, 2018, limited liability company — — — — — 100% RMB26,200,000 Provision of information communications technology services in the PRC 100% RMB20,000,000 Provision of information communications technology services in the PRC 100% RMB50,000,000 Provision of information communications technology services in the PRC 40% RMB53,000,000 Provision of information communications technology services in the PRC 100% RMB100,000,000 Provision of technology research and development, consultation and services of TV Video and Mobile Video in the PRC China Unicom Internet of Things Corporation The PRC, 16 March, 2018, — 100% RMB207,000,000 Provision of internet of things Limited limited liability company China Unicom High-tech Big Data Artificial The PRC, 29 March, 2018, Intelligence Technology (Chengdu) Co., Ltd. limited liability company China Unicom iRead Science and Culture Co., Ltd. The PRC, 28 April, 2018, limited liability company China Unicom WO Music & Culture Co., Ltd. The PRC, 8 May, 2018, China Unicom Leasing Co., Ltd. limited liability company The PRC, 11 April, 2018, limited liability company technology, system development and technical consultation, sales and maintenance of system and equipment and online data processing and transaction business in the PRC Provision of Big Data Service, cloud computation and infrastructure service in the PRC 51% RMB10,000,000 100% RMB51,000,000 Provision of Online Video, Online Reading Material in the PRC 100% RMB100,000,000 Provision of Network Music Service in the PRC — — — 25% 75% RMB2,500,000,000 Provision of Financing leasing business in the PRC 153 table column width 65ptANNUAL REPORT 2020 18. INVESTMENTS IN SUBSIDIARIES (Continued) Name Place and date of incorporation/ establishment and nature of legal entity Percentage of equity interests held Direct Indirect Particular of issued share capital/ paid up capital Principal activities and place of operation Yunjing Culture And Tourism Technology Co., LTD The PRC, 27 February 2019, limited liability company Yundun Intelligent Security Technology Co., Ltd The PRC, 11 November 2019, limited liability company Wobaifu Information Technology (Tianjin) Co., The PRC, April 17, 2020, LTD limited liability company Changchun FAW Communications Technology Co., Ltd. The PRC, September 27, 2002, limited liability company Yichun Digital Economy Industry Operation Co., Ltd The PRC, December 14, 2020, limited liability company 19. INTEREST IN ASSOCIATES Share of net assets — — — — — 60% RMB20,000,000 Provision of data analysis, processing and application services in the PRC 51% RMB51,000,000 Provision of software 100% RMB10,000,000 development; technology promotion and development in the PRC Provision of software and information technology service in the PRC 51% RMB86,458,600 Telecommunications operation in the PRC 51% Not applicable Provision of technology development, technology consultation and other services in the PRC 2020 2019 38,802 36,445 The following list contains the particulars of a material associate as at 31 December 2020: Name Form of business structure Place of incorporation and business Proportion of ownership interest held by a subsidiary Paid up capital Principal activities Tower Company Incorporated The PRC 20.65% RMB176,008,471,024 Construction, maintenance and operation of communications towers in the PRC (Note 45.2) The above associate is accounted for using the equity method in the consolidated financial statements. 154 table column width 65pt(All amounts in RMB millions unless otherwise stated)CHINA UNICOM (HONG KONG) LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 19. INTEREST IN ASSOCIATES (Continued) Summarised financial information of the material associate, adjusted for any differences in accounting policies, and reconciled to the carrying amount in the consolidated financial statements, are disclosed below: Current assets Non-current assets Current liabilities Non-current liabilities Equity Revenue Profit for the year Total comprehensive income for the year Reconciled to the Group’s interest in the associate: Net assets of the associate The Group’s effective interest Adjustment for the remaining balance of the deferred gain from the Group’s Tower Assets Disposal Tower Company 2020 2019 43,204 294,176 (106,635) (44,499) (186,246) 81,099 6,427 6,427 40,995 297,072 (128,364) (27,142) (182,561) 76,428 5,221 5,221 186,246 20.65% 182,561 20.65% 38,460 37,697 (1,262) (1,521) Carrying amount in the consolidated financial statements 37,198 36,176 The fair values of the interests in Tower Company is based on quoted market prices (level 1: quoted price (unadjusted) in active markets) at the financial position date without any deduction for transaction costs and disclosed as follows: As at 31 December 2020 As at 31 December 2019 Carrying amount Fair value Carrying amount Fair value Interest in listed associate — Tower Company 37,198 34,873 36,176 56,000 As at 31 December 2020, the fair value of investment in Tower Company was RMB34,873 million (2019: RMB56,000 million) based on its quoted market price, which was below its carrying amount. The directors of the Group performed an impairment test and there was no impairment of the investment as at 31 December 2020. 155 table column width 65ptANNUAL REPORT 2020 20. INTEREST IN JOINT VENTURES Share of net assets 2020 2019 5,656 4,771 The following list contains the particulars of a material joint venture, which is unlisted corporate entity which has no available quoted market price as at 31 December 2020: Name Merchants Union Consumer Finance Company Limited (“MUCFC”) Form of business structure Place of incorporation and business Proportion of ownership interest held by a subsidiary Paid up capital Principal activities Incorporated The PRC 50% RMB3,868,960,000 Consumer finance consulting in the PRC Summarised financial information of the material joint venture, adjusted for any differences in accounting policies, and reconciled to the carrying amount in the consolidated financial statements, are disclosed below: Assets Liabilities Equity Revenue Profit for the year Total comprehensive income for the year Included in above income: Interest income Interest expense Income tax expense Reconciled to the Group’s interests in the joint venture: Net assets of the joint venture The Group’s effective interest MUCFC 2020 2019 108,311 (97,283) (11,028) 12,651 1,668 1,668 15,710 (3,059) (728) 11,028 50% 92,697 (83,337) (9,360) 10,740 1,466 1,466 13,055 (3,178) (426) 9,360 50% Carrying amount in the consolidated financial statements 5,514 4,680 156 table column width 65pt(All amounts in RMB millions unless otherwise stated)CHINA UNICOM (HONG KONG) LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 21. CONTRACT ASSETS AND CONTRACT LIABILITIES (a) Contract assets Contract assets from bundle sales of mobile handsets and provision of service, net of allowance Others Sub-total Less: Current portion 2020 2019 832 94 926 (823) 103 1,856 47 1,903 (1,308) 595 The Group offers preferential packages to the customers which include the bundle sales of mobile handsets and provision of service. The total contract consideration of such preferential packages is allocated to service revenue and sales of handsets based on their standalone selling prices. The revenue relating to the sale of the handsets is recognised when the titles are passed to the customers and the consideration allocated to the sales of mobile handsets is gradually received during the contract period when the customers pay the monthly package fee. (b) Contract liabilities Advances received from customers for future services Others Note (i) 2020 2019 41,537 1,104 39,498 1,150 42,641 40,648 (i) Contract liabilities primarily arises from relates to the considerations received from customers before the Group satisfying performance obligations. It would be recognised as revenue upon the rendering of services. Almost all of the contract liability balance as at 31 December 2019 was recognised as revenue for the year ended 31 December 2020. 157 table column width 65ptANNUAL REPORT 2020 22. CONTRACT COSTS Direct incremental costs of broadband and IPTV service Sales commissions (i) (ii) 2,410 1,262 3,079 1,844 Note 2020 2019 3,672 4,923 (i) Direct incremental costs for activating broadband and IPTV subscribers mainly include the costs of installing broadband and IPTV terminals at customer’s homes for the provision of broadband and IPTV services, and are amortised over the expected service period. The amount of capitalised direct incremental costs for activating broadband and IPTV subscribers recognised in profit or loss during the year was RMB2,524 million (2019: RMB2,891 million). The amount of capitalised direct incremental costs for activating broadband and IPTV subscribers that is expected to be recovered after more than one year is RMB719 million (2019: RMB893 million). (ii) Sales commissions are paid to agents whose selling activities resulted in new customers entering into contracts with the Group. The amount of capitalised sales commissions recognised in profit or loss during the year was RMB1,152 million (2019: RMB1,472 million). There was no significant impairment in relation to the opening balance of capitalised costs or the costs capitalised during the year (2019: Nil). The amount of capitalised sales commissions that is expected to be recovered after more than one year is RMB396 million (2019: RMB811 million). 23. FINANCIAL ASSETS MEASURED AT FAIR VALUE Non-current portion: Equity securities measured at FVOCI (non-recycling) Financial assets measured at FVPL Debt securities measured at FVOCI (recycling) Current portion: Financial assets measured at FVPL Debt securities measured at FVOCI (recycling) 158 Note 2020 2019 (i) (ii) (iii) (ii) (iii) 1,838 934 721 3,323 568 — 3,493 3,891 1,560 22,629 24,189 202 — 202 27,682 4,093 table column width 65pt(All amounts in RMB millions unless otherwise stated)CHINA UNICOM (HONG KONG) LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 23. FINANCIAL ASSETS MEASURED AT FAIR VALUE (Continued) (i) Equity securities measured at FVOCI (non-recycling) Listed in the PRC Listed outside the PRC Unlisted Note 2020 2019 42 114 1,672 52 143 3,125 55 1,838 3,323 (ii) Financial assets measured at FVPL represent certain equity investments, investments in monetary funds and wealth management products. (iii) Debt securities measured at FVOCI (recycling) represent certain debt investments issued by banks and the investments are held within a business model whose objective is achieved by both the collection of contractual cash flows and sale. 24. SHORT-TERM BANK DEPOSITS AND RESTRICTED DEPOSITS Short-term bank deposits Restricted deposits 25. OTHER ASSETS Intangible assets Prepaid services charges for transmission lines and electricity cables and other services VAT recoverable Others 2020 6,900 5,089 2019 — 3,716 11,989 3,716 Note 2020 2019 (i) (ii) 10,974 11,324 1,281 442 1,894 995 216 1,273 14,591 13,808 159 table column width 65ptANNUAL REPORT 2020 25. OTHER ASSETS (Continued) (i) Intangible assets Cost: At 1 January 2019 Additions Transfer from CIP Disposals At 31 December 2019 Additions Transfer from CIP Disposals At 31 December 2020 Accumulated amortisation and impairment: At 1 January 2019 Amortisation charge for the year Disposals At 31 December 2019 Amortisation charge for the year Disposals Computer software Others Total 28,956 174 3,956 (1,728) 31,358 145 4,097 (3,596) 3,405 21 205 (53) 3,578 13 399 (103) 32,361 195 4,161 (1,781) 34,936 158 4,496 (3,699) 32,004 3,887 35,891 (19,745) (3,736) 1,708 (21,773) (4,331) 3,447 (1,460) (427) 48 (1,839) (509) 88 (21,205) (4,163) 1,756 (23,612) (4,840) 3,535 At 31 December 2020 (22,657) (2,260) (24,917) Net book value: At 31 December 2020 9,347 1,627 10,974 At 31 December 2019 9,585 1,739 11,324 (ii) VAT recoverable includes input VAT and prepaid VAT which will likely be deducted beyond one year. VAT recoverable which will be deducted within one year are included in “Prepayments and other current assets”. See Note 28(i). 160 table column width 65pt(All amounts in RMB millions unless otherwise stated)CHINA UNICOM (HONG KONG) LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 26. INVENTORIES AND CONSUMABLES Handsets and other telecommunication products Consumables Others 27. ACCOUNTS RECEIVABLE Accounts receivable Less: Credit loss allowance 2020 2019 1,682 1 268 2,027 16 316 1,951 2,359 2020 2019 26,009 (9,722) 24,601 (7,368) 16,287 17,233 The gross carrying amount of accounts receivable from contracts with customers amounted to RMB25,933 million as at 31 December 2020 (2019: RMB24,569 million). The aging analysis of accounts receivable, based on the billing date and net of credit loss allowance, is as follows: Within one month More than one month to three months More than three months to one year More than one year 2020 2019 8,963 2,766 3,914 644 9,472 2,545 3,881 1,335 16,287 17,233 The normal credit period granted by the Group to individual subscribers and general corporate customers is thirty days from the date of billing unless they meet certain specified credit assessment criteria. For major corporate customers, the credit period granted by the Group is based on the service contract terms, normally not exceeding one year. There is no significant concentration of credit risk with respect to customers receivables, as the Group has a large number of customers. The Covid-19 pandemic since early 2020 has brought about additional uncertainties in the operations and financial position of the Group’s customers. The Group considered the impact of Covid-19 when evaluating the forward-looking information used in the ECL model and reassessed expected loss provisions including assessing the risk factors associated with various customer sectors and applying an upward risk weighting to those sectors with a significant increase in credit risk. 161 table column width 65ptANNUAL REPORT 2020 27. ACCOUNTS RECEIVABLE (Continued) The Group measures loss allowances for accounts receivable at an amount equal to lifetime ECLs, which is calculated using a provision matrix. As the Group’s historical credit loss experience indicate that there are different loss patterns for different customer types, the loss allowance based on past due status is distinguished between the Group’s different customer types. The following table provides information about the Group’s exposure to credit risk and ECLs for accounts receivable as at 31 December 2020: For individual subscribers and general corporate customers Expected Gross carrying Loss loss rate amount allowance % 6% 50% 90% 100% 2,696 1,195 711 2,147 (161) (599) (637) (2,147) 6,749 (3,544) Expected Gross carrying Loss loss rate amount allowance % 5% 24% 68% 89% 100% 6,641 7,899 2,020 942 1,758 (332) (1,867) (1,382) (839) (1,758) 19,260 (6,178) Current (not past due) 1–90 days past due 91–180 days past due More than 180 days past due For major corporate customers Current (not past due) Within 1 year past due 1–2 years past due 2–3 years past due More than 3 years past due 162 table column width 65pt(All amounts in RMB millions unless otherwise stated)CHINA UNICOM (HONG KONG) LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 27. ACCOUNTS RECEIVABLE (Continued) The following table provides information about the Group’s exposure to credit risk and ECLs for accounts receivable as at 31 December 2019: For individual subscribers and general corporate customers Current (not past due) 1–90 days past due 91–180 days past due More than 180 days past due For major corporate customers Current (not past due) Within 1 year past due 1–2 years past due 2–3 years past due More than 3 years past due Expected Gross carrying Loss loss rate amount allowance % 6% 50% 90% 100% 2,929 1,363 840 2,250 (175) (683) (755) (2,250) 7,382 (3,863) Expected Gross carrying Loss loss rate amount allowance % 4% 15% 48% 88% 100% 9,602 4,517 1,037 795 1,268 (372) (674) (498) (699) (1,262) 17,219 (3,505) Expected loss rates are based on actual loss experience over past years. These rates are adjusted to reflect differences between economic conditions during the period over which the historic data has been collected, current conditions and the Group’s view of economic conditions over the expected lives of the receivables. 163 table column width 65ptANNUAL REPORT 2020 27. ACCOUNTS RECEIVABLE (Continued) The movement in the credit loss allowance in respect of accounts receivable during the year, is as follows: Balance, beginning of year Allowance for the year Written-off during the year Balance, end of year 2020 2019 7,368 5,097 (2,743) 6,709 3,128 (2,469) 9,722 7,368 The creation and release of allowance for impaired receivables have been recognised in the consolidated statement of income. Amounts charged to the allowance account are generally written-off when there is reliable evidence to indicate no expectation of recovering the receivable. The maximum exposure to credit risk as of the statement of financial position date is the carrying value of accounts receivable mentioned above. 28. PREPAYMENTS AND OTHER CURRENT ASSETS The nature of prepayments and other current assets, net of credit loss allowance, are as follows: Prepaid services charges for transmission lines and electricity cables and other services Prepaid power and water charges Deposits and prepayments VAT recoverable Prepaid enterprise income tax Others Note 2020 2019 (i) 3,549 625 3,607 5,726 12 2,363 2,053 648 2,068 5,286 329 2,072 15,882 12,456 (i) VAT recoverable includes the input VAT and prepaid VAT that can be deducted within one year. Prepayments and other current assets are expected to be recovered or recognised as expenses within one year. As at 31 December 2020, there was no significant impairment for the prepayments and other current assets. 164 table column width 65pt(All amounts in RMB millions unless otherwise stated)CHINA UNICOM (HONG KONG) LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 29. CASH AND CASH EQUIVALENTS AND OTHER CASH FLOW INFORMATION (a) Cash and cash equivalents Cash at bank and in hand 2020 2019 23,085 34,945 Cash and cash equivalents refer to all cash on hand and demand deposits, short-term highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. (b) Reconciliation of liabilities arising from financing activities The table below details changes in the Group’s liabilities from financing activities, including both cash and non-cash changes. Liabilities arising from financing activities are liabilities for which cash flows were, or future cash flows will be, classified in the Group’s consolidated statement of cash flow as cash flows from financing activities. Short-term bank loans (Note 39) Long-term bank loans (Note 33) Commercial papers (Note 40) Promissory notes (Note 34) Corporate bonds (Note 35) Lease liabilities (Note 36) Other borrowings Total At 1 January 2020 5,564 3,306 8,995 998 2,998 32,325 7,979 62,165 Changes from financing cash flows: Proceeds from short-term bank loans Proceeds from commercial papers Repayment of short-term bank loans Repayment of commercial papers Repayment of long-term bank loans Repayment of related parties loan Payment of issuing expense for commercial papers Capital element of lease rentals paid Net deposits with Finance Company by related parties 2,740 — (7,564) — — — — — — — — — — (395) — — — — — 8,000 — (10,000) — — (7) — — Total changes from financing cash flows (4,824) (395) (2,007) Exchange adjustments Other changes: Increase in lease liabilities from entering into new leases during the year Decrease due to termination of lease contracts Others Total other changes — — — — — (88) — — 77 77 — — — 12 12 — — — — — — — — — — — — — — — — — — — — — — — — — — — — 1 1 — — — — — — — (11,696) — — — — — — (50) — — 283 2,740 8,000 (7,564) (10,000) (395) (50) (7) (11,696) 283 (11,696) 233 (18,689) — 8,170 (838) — 7,332 — — — — — (88) 8,170 (838) 90 7,422 At 31 December 2020 740 2,900 7,000 998 2,999 27,961 8,212 50,810 165 table column width 65ptANNUAL REPORT 2020 29. CASH AND CASH EQUIVALENTS AND OTHER CASH FLOW INFORMATION (Continued) (b) Reconciliation of liabilities arising from financing activities (Continued) Short-term bank loans (Note 39) Long-term bank loans (Note 33) Commercial papers (Note 40) Promissory notes (Note 34) Corporate bonds (Note 35) Lease liabilities (Note 36) Other borrowings Total At 1 January 2019 15,085 3,614 — Changes from financing cash flows: Proceeds from short-term bank loans Proceeds from commercial papers Proceeds from promissory notes Proceeds from corporate bonds Loans from related parties Repayment of short-term bank loans Repayment of long-term bank loans Repayment of related parties loan Repayment of corporate bonds Capital element of lease rentals paid Net deposits with Finance Company by related parties 28,784 — — — — (38,290) — — — — — — — — — — — (418) — — — — — 8,995 — — — — — — — — — Total changes from financing cash flows (9,506) (418) 8,995 Exchange adjustments Other changes: Increase in lease liabilities from entering into new leases during the year Others Total other changes (15) — — — 27 — 83 83 — — — — — — — 992 — — — — — — — — 992 — — 6 6 17,993 36,720 7,741 81,153 — — — 2,000 — — — — (17,000) — — — — — — — — — — (11,123) — — (15,000) (11,123) — — 5 5 — 6,728 — 6,728 — — — — 50 — — (48) — — 236 238 — — — — 28,784 8,995 992 2,000 50 (38,290) (418) (48) (17,000) (11,123) 236 (25,822) 12 6,728 94 6,822 At 31 December 2019 5,564 3,306 8,995 998 2,998 32,325 7,979 62,165 (c) Total cash outflow for leases Amounts included in the consolidated statement of cash flows for leases comprise the following: Within operating cash flows Within investing cash flows Within financing cash flows 2020 2019 7,971 41 11,696 7,798 178 11,123 19,708 19,099 166 table column width 65pt(All amounts in RMB millions unless otherwise stated)CHINA UNICOM (HONG KONG) LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 30. SHARE CAPITAL Issued and fully paid: Number of shares millions Share capital At 1 January 2019, at 31 December 2019 and at 31 December 2020 30,598 254,056 31. RESERVES (a) Movement in components of equity The Company Investment Share revaluation Other Retained capital reserve reserve profits Total equity Balance at 1 January 2019 Total comprehensive income for the year Dividends relating to 2018 254,056 — — (7,460) (573) — Balance at 31 December 2019 254,056 (8,033) Balance at 1 January 2020 Total comprehensive income for the year Dividends relating to 2019 254,056 — — (8,033) (1,453) — Balance at 31 December 2020 254,056 (9,486) 572 — — 572 572 — — 572 11,015 15,106 (4,100) 258,183 14,533 (4,100) 22,021 268,616 22,021 5,101 (4,529) 268,616 3,648 (4,529) 22,593 267,735 167 table column width 65ptANNUAL REPORT 2020 31. RESERVES (Continued) (b) Nature and purpose (i) Statutory reserves CUCL is registered as a foreign investment enterprise in the PRC. In accordance with the Articles of Association, it is required to provide for certain statutory reserves, namely, general reserve fund and staff bonus and welfare fund, which are appropriated from profit after tax and non-controlling interests but before dividend distribution. CUCL is required to allocate at least 10% of its profit after tax and non-controlling interests determined under the PRC Company Law to the general reserve fund until the cumulative amounts reach 50% of the registered capital. The statutory reserve can only be used, upon approval obtained from the relevant authority, to offset accumulated losses or increase capital. Accordingly, CUCL appropriated approximately RMB1,246 million (2019: approximately RMB1,273 million) to the general reserve fund for the year ended 31 December 2020. Appropriation to the staff bonus and welfare fund is made at the discretion of the Board of Directors. The staff bonus and welfare fund can only be used for special bonuses or the collective welfare of the employees and cannot be distributed as cash dividends. Under IFRS/HKFRSs, the appropriations to the staff bonus and welfare fund are charged to the statement of income as expenses incurred since any assets acquired through this fund belong to the employees. For the years ended 31 December 2020 and 2019, no appropriation to staff bonus and welfare fund has been made by CUCL. According to the PRC tax approval document issued by the MOF and the SAT of the PRC, the upfront connection fees were not subject to the PRC enterprise income tax and an amount equal to the upfront connection fees recognised in the retained profits had been transferred from retained profits to the statutory reserve. As at 31 December 2011, an accumulated appropriation of approximately RMB12,289 million was made to the statutory reserve and no more upfront connection fees are recognised afterwards. (ii) General risk reserve CUCL and Unicom Group established the Finance Company to provide certain financial services. Pursuant to “Requirements on Impairment Allowance for Financial Institutions” (Caijin [2012] No. 20) issued by the MOF which effective on 1 July 2012 (the “Document”), the Finance Company establishes a general risk reserve within the shareholders’ equity, through appropriation of retained profits, 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 Document. (iii) Investment revaluation reserve The investment revaluation reserve represents the changes in fair value of financial assets through other comprehensive income, net of tax, until the financial assets are derecognised. (iv) Other reserve Other reserve mainly represents the difference between the consideration and the net assets value for business combination of entities and businesses under common control, the effect of CUCL’s capitalisation of retained profits, and capital contribution relating to share-based payment borne by A Share Company. 168 table column width 65pt(All amounts in RMB millions unless otherwise stated)CHINA UNICOM (HONG KONG) LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 32. DIVIDENDS At the annual general meeting held on 25 May 2020, the shareholders of the Company approved the payment of a final dividend of RMB0.148 per ordinary share for the year ended 31 December 2019, totaling approximately RMB4,529 million which has been reflected as a reduction of retained profit for the year ended 31 December 2020. At a meeting held on 11 March 2021, the Board of Directors of the Company proposed the payment of a final dividend of RMB0.164 per ordinary share to the shareholders for the year ended 31 December 2020 totaling approximately RMB5,018 million. This proposed dividend has not been reflected as a dividend payable in the consolidated financial statements as at 31 December 2020, but will be reflected in the consolidated financial statements for the year ending 31 December 2021. 2020 2019 Proposed final dividend: RMB0.164 (2019: RMB0.148) per ordinary share by the Company 5,018 4,529 Pursuant to the PRC enterprise income tax law, a 10% withholding income tax is levied on dividends declared on or after 1 January 2008 by foreign investment enterprises to their foreign enterprise shareholders unless the enterprise investor is deemed as a PRC Tax Resident Enterprise (“TRE”). On 11 November 2010, the Company obtained an approval from the SAT of the PRC, pursuant to which the Company qualifies as a PRC TRE from 1 January 2008. Therefore, as at 31 December 2020, the Company’s subsidiaries in the PRC did not accrue for withholding tax on dividends distributed to the Company and there has been no deferred tax liability accrued in the Group’s consolidated financial statements for the undistributed profits of the Company’s subsidiaries in the PRC. For the Company’s non-PRC TRE shareholders (including HKSCC Nominees Limited), the Company would distribute dividends after deducting the amount of enterprise income tax payable by these non-PRC TRE shareholders thereon and reclassify the related dividend payable to withholding tax payable upon the declaration of such dividends. The requirement to withhold tax does not apply to the Company’s shareholders appearing as individuals in its share register. 169 table column width 65ptANNUAL REPORT 2020 33. LONG-TERM BANK LOANS Interest rates and final maturity 2020 2019 RMB denominated Fixed interest rates ranging from 1.08% to 1.20% (2019: 1.08% to 1.20%) bank loans per annum with maturity through 2036 (2019: maturity through 2036) 2,678 3,032 USD denominated Fixed interest rates ranging from Nil to 1.55% (2019: Nil to 1.55%) per bank loans annum with maturity through 2039 (2019: maturity through 2039) 204 232 Euro denominated Fixed interest rates ranging from 1.10% to 2.50% (2019: 1.10% to 2.50%) bank loans per annum with maturity through 2034 (2019: maturity through 2034) 18 42 Sub-total Less: Current portion 2,900 (418) 3,306 (437) 2,482 2,869 As at 31 December 2020, long-term bank loans of approximately RMB46 million (2019: approximately RMB61 million) were guaranteed by third parties. The repayment schedule of the long-term bank loans is as follows: Balances due: — no later than one year — later than one year and no later than two years — later than two years and no later than five years — later than five years Less: Portion classified as current liabilities 2020 2019 418 444 1,072 966 2,900 (418) 437 413 1,183 1,273 3,306 (437) 2,482 2,869 170 table column width 65pt(All amounts in RMB millions unless otherwise stated)CHINA UNICOM (HONG KONG) LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 34. PROMISSORY NOTES On 18 November 2019, CUCL issued tranche one of 2019 promissory notes in an amount of RMB1 billion, with a maturity period of 3 years from the date of issue and which carries interest at 3.39% per annum. 35. CORPORATE BONDS On 7 June 2016, the Group issued RMB1 billion 5-year corporate bond, bearing interest at 3.43% per annum. On 19 June 2019, the Group issued RMB2 billion 3-year corporate bonds, bearing interest at 3.67% per annum. 36. LEASE LIABILITIES At 31 December 2020 and 2019, the lease liabilities were repayable as follows: 2020 Present value of 2019 Present value of the minimum Total minimum the minimum Total minimum lease payments lease payments lease payments lease payments Within 1 year 11,503 11,757 10,790 11,085 After 1 year but within 2 years After 2 years but within 5 years After 5 years Less: total future interest expenses Present value of lease liabilities 9,770 5,575 1,113 10,352 6,203 1,498 9,602 10,871 1,062 10,183 12,112 1,430 16,458 18,053 21,535 23,725 27,961 29,810 32,325 34,810 (1,849) 27,961 (2,485) 32,325 171 table column width 65ptANNUAL REPORT 2020 37. DEFERRED REVENUE Deferred revenue mainly represents the unamortised portion of government grants. Balance at beginning of the year Additions for the year — government grants — others Sub-total Reductions for the year — recognition of government grants in profit or loss — others Sub-total 2020 2019 4,851 3,687 915 1,204 1,017 985 2,119 2,002 (591) (452) (1,043) (469) (369) (838) Balance at end of the year 5,927 4,851 172 table column width 65pt(All amounts in RMB millions unless otherwise stated)CHINA UNICOM (HONG KONG) LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 38. OTHER OBLIGATIONS One-off cash housing subsidies Others Sub-total Less: Current portion Note (a) 2020 2019 2,496 131 2,627 (2,529) 2,496 282 2,778 (2,604) 98 174 (a) One-off cash housing subsidies Certain staff quarters, prior to 1998, were sold to certain of the Group’s employees at preferential prices, subject to a number of eligibility requirements. In 1998, the State Council issued a circular which stipulated that the sale of quarters to employees at preferential prices should be terminated. In 2000, the State Council issued a further circular stating that cash subsidies should be made to certain eligible employees following the withdrawal of the allocation of staff quarters. However, the specific timetable and procedures for the implementation of these policies were to be determined by individual provincial or municipal governments based on the particular situation of the provinces or municipality. Based on the relevant detailed local government regulations promulgated, certain entities within the Group adopted cash housing subsidy plans. In accordance with these plans, for those eligible employees who had not been allocated with quarters or who had not been allocated with quarters up to the prescribed standards before the discounted sales of quarters were terminated, the Group determined to pay them one-off cash housing subsidies based on their years of service, positions and other criteria. Based on the available information, the Group estimated the required provision for these cash housing subsidies amounted to RMB4,142 million, which was charged to the statement of income for the year ended 31 December 2000 (the year in which the State Council circular in respect of cash subsidies was issued). In January 2009, through the absorption of China Netcom (Group) Company Limited (“CNC China”) by CUCL and the absorption of China Network Communications Group Corporation (“Netcom Group”) by Unicom Group, the rights and obligations formerly undertaken by CNC China and Netcom Group were taken over by CUCL and Unicom Group separately. As at 31 December 2020, the Group’s unpaid one-off cash housing subsides amounted to approximately RMB2,496 million. If the actual payments required for these one-off housing subsidies differ from the amount provided, Unicom Group will bear any additional payments required. If the actual payments are lower than the amount provided, the difference will be paid to Unicom Group. 39. SHORT-TERM BANK LOANS Interest rates and final maturity 2020 2019 RMB denominated Fixed interest rates are 1.85% (2019: 2.15% to 3.92%) per annum with bank loans maturity through 2021 (2019: maturity through 2020) 740 5,564 At 31 December 2020 and 2019, all short-term bank loans were unsecured. 173 table column width 65ptANNUAL REPORT 2020 40. COMMERCIAL PAPERS On 25 October 2019, CUCL issued tranche one of 2019 super short term commercial papers in an amount of RMB5 billion, with a maturity period of 270 days from the date of issue and which carries interest at 2.24% per annum, and was fully repaid in July 2020. On 15 November 2019, CUCL issued tranche two of 2019 super short term commercial papers in an amount of RMB4 billion, with a maturity period of 270 days from the date of issue and which carries interest at 2.20% per annum, and was fully repaid in August 2020. On 15 July 2020, CUCL issued tranche one of 2020 super short term commercial papers in an amount of RMB2 billion, with a maturity period of 180 days from the date of issue and which carries interest at 1.89% per annum. On 15 July 2020, CUCL issued tranche two of 2020 super short term commercial papers in an amount of RMB3 billion, with a maturity period of 180 days from the date of issue and which carries interest at 1.89% per annum. On 6 August 2020, CUCL issued tranche three of 2020 super short term commercial papers in an amount of RMB1 billion, with a maturity period of 90 days from the date of issue and which carries interest at 1.57% per annum, and was fully repaid in November 2020. On 5 November 2020, CUCL issued tranche four of 2020 super short term commercial papers in an amount of RMB2 billion, with a maturity period of 90 days from the date of issue and which carries interest at 2.17% per annum. 41. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES Payables to contractors and equipment suppliers Payables to telecommunications products suppliers Customer/contractor deposits Repair and maintenance expense payables Salary and welfare payables Interest payable Amounts due to technical support services and other service providers/content providers VAT received from customer in advance Accrued expenses Others The aging analysis of accounts payables and accrued liabilities is based on the invoice date as follows: Less than six months Six months to one year More than one year 174 2020 2019 73,046 3,779 5,723 5,261 12,248 115 4,852 2,746 17,186 9,481 63,390 5,096 5,771 5,129 7,249 101 3,988 3,052 16,486 7,263 134,437 117,525 2020 2019 116,553 8,846 9,038 101,324 9,250 6,951 134,437 117,525 table column width 65pt(All amounts in RMB millions unless otherwise stated)CHINA UNICOM (HONG KONG) LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 42. MUTUAL INVESTMENT OF THE COMPANY AND TELEFÓNICA IN EACH OTHER On 6 September 2009, the Company announced that in order to strengthen the cooperation between the Company and Telefónica, the parties entered into a strategic alliance agreement and a subscription agreement, pursuant to which each party conditionally agreed to invest an equivalent of USD1 billion in each other through an acquisition of each other’s shares. On 23 January 2011, the Company entered into an agreement to enhance the strategic alliance with Telefónica that: (a) Telefónica would purchase ordinary shares of the Company for a consideration of USD500 million through acquisition from third parties; and (b) the Company would acquire from Telefónica 21,827,499 ordinary shares of Telefónica held in treasury (“Telefónica Treasury Shares”) for an aggregate purchase price of Euro374,559,882.84. On 25 January 2011, the Company completed the purchase of Telefónica Treasury Shares in accordance with the strategic agreement. During 2011, Telefónica completed its investment of USD500 million in the Company. On 14 May 2012, Telefónica declared a dividend. The Company chose to implement it by means of a scrip dividend and received 1,646,269 ordinary shares of approximately RMB146 million. As at 31 December 2020, the related financial assets measured at FVOCI amounted to approximately RMB1,672 million (2019: approximately RMB3,125 million). For the year ended 31 December 2020, the decrease in fair value of the financial assets through other comprehensive income was approximately RMB1,453 million (2019: decrease of approximately RMB573 million), has been recorded in the consolidated statement of comprehensive income. 43. EQUITY-SETTLED SHARE OPTION SCHEMES On 16 April 2014, the Company adopted a new share option scheme (the “2014 Share Option Scheme”). The 2014 Share Option Scheme is valid and effective for a period of 10 years commencing on 22 April 2014 and will expire on 22 April 2024. Under the 2014 Share Option Scheme, the share options may be granted to employees including all directors; any grant of share options to a Connected Person (as defined in the Listing Rules) of the Company must be approved by the independent non-executive directors of the Company (excluding any independent non-executive director of the Company in the case such director is a grantee of the options) and all grants to connected persons shall be subject to compliance with the requirements of the Listing Rules, including where necessary the prior approval of the shareholders. As at 31 December 2020, 1,777,437,107 options were available for issue under the 2014 Share Option Scheme. Pursuant to the 2014 Share Option Scheme, the consideration payable by a participant for the grant of share options will be HKD1.00. The exercise price payable by a participant upon the exercise of an option will be determined by the Board of Directors at their discretion at the date of grant, except that such price may not be set below a minimum price which is the higher of: (i) The closing price of the shares on the SEHK on the offer date in respect of the share options; and (ii) The average closing price of the shares on the SEHK for the five trading days immediately preceding the offer date; The option period commences on any day after the date on which such share option is offered, but may not exceed 10 years from the offer date. No share options had been granted since adoption of the 2014 Share Option Scheme. No options outstanding as at 31 December 2020 and 2019. 175 table column width 65ptANNUAL REPORT 202044. RESTRICTED A-SHARE INCENTIVE SCHEME Pursuant to the share incentive scheme (Phase I) of A Share Company (“the Restricted A-Share Incentive Scheme”), not more than 848 million restricted shares of A Share Company (“Restricted Shares”) were approved for granting to the core employees of the Group, the first batch granted Restricted Shares of 793,861,000 and second batch granted Restricted Shares of 13,156,000 were subscribed by them (“the Participants”, including certain core employees of the Company’s subsidiaries) on 21 March 2018 and 1 February 2019 (“the Grant Dates”), respectively, with a subscription price of RMB3.79 per share. The fair value of the Restricted Shares granted under the respective Grant Dates is RMB2.34 and RMB1.57 per share, respectively, as determined based on the difference between the market price of A Share Company of RMB6.13 per share and RMB5.36 per share at the respective Grant Dates, and the subscription price of RMB3.79 per share. The Restricted Shares are subject to various lock-up periods (the “Lock-Up Period”) of approximately 2 years, 3 years and 4 years, respectively, immediately from the Grant Dates. During the Lock-Up Period, these shares are not transferrable, nor subject to any guarantee or indemnity. The Restricted Shares shall be unlocked (or repurchased and cancelled by the A Share Company) separately in three tranches in proportion of 40%, 30% and 30% of the total number of the Restricted Shares granted upon the expiry of each of the Lock-Up Period. Subject to fulfilment of all service and performance conditions under the Restricted A-Share Incentive Scheme which include the achievement of certain revenue and profit targets of the A Share Company, the Participants’ individual performance appraisal, etc. (collectively referred to as “vesting conditions”), the restriction over the Restricted Shares will be removed after the expiry of the corresponding Lock-Up Period for each tranche and the Participants will be fully entitled to these incentive shares. If the vesting conditions are not fulfilled and hence the Restricted Shares cannot be unlocked, the A Share Company shall repurchase the Restricted Shares based on the respective subscription price from the Participants. Pursuant to the Restricted A-Share Incentive Scheme, the first Lock-Up Period of approximately 2 years has expired in April 2020. With the fulfilment of the vesting conditions, Restricted Shares of 303,314,400 under the first tranche were approved for unlocking by the Board of Directors of A Share Company. During the year ended 31 December 2020, Restricted Shares of 18,110,200 were forfeited and repurchased (2019: Restricted Shares of 7,262,000). For the year ended 31 December 2020, the Group recognised share-based payment expenses and other reserve of RMB375 million during the year under the Restricted A-Share Incentive Scheme (2019: RMB571 million). 176 table column width 65pt(All amounts in RMB millions unless otherwise stated)CHINA UNICOM (HONG KONG) LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS45. MATERIAL RELATED PARTY TRANSACTIONS Unicom Group is a state-owned enterprise directly controlled by the PRC government. The PRC government is the Company’s ultimate controlling party. Neither Unicom Group nor the PRC government publishes financial statements available for public use. The PRC government controls a significant portion of the productive assets and entities in the PRC. The Group provides telecommunications services as part of its retail transactions, thus, is likely to have extensive transactions with the employees of other state-controlled entities, including their key management personnel and their close family members. These transactions are carried out on commercial terms that are consistently applied to all customers. Management considers certain state-owned enterprises have material transactions with the Group in its ordinary course of business, which include but not limited to 1) rendering and receiving telecommunications services, including interconnection revenue/charges; 2) sharing certain telecommunications network infrastructure; 3) purchasing of goods, including use of public utilities; and 4) placing of bank deposits and borrowing money. The Group’s telecommunications network depends, in large part, on interconnection with the network and on transmission lines service provided by other domestic carriers. These transactions are mainly carried out on terms comparable to those conducted with third parties or standards promulgated by relevant government authorities and have been reflected in the financial statements. Amounts due from domestic carriers are all derived from contracts with customers. Management believes that meaningful information relating to related party transactions has been disclosed below. 45.1 Connected transactions with Unicom Group and its subsidiaries (a) Recurring transactions The following is a summary of significant recurring transactions carried out by the Group with Unicom Group and its subsidiaries. In the directors’ opinion, these transactions were carried out in the ordinary course of business. Note 2020 2019 Transactions with Unicom Group and its subsidiaries: Charges for value-added telecommunications services Rental charges for short-term property leasing and related services charges Charges for short-term lease of telecommunications resources and related services Charges for engineering design and construction services Charges for shared services Charges for materials procurement services Charges for ancillary telecommunications services Charges for comprehensive support services Income from comprehensive support services Lending by Finance Company to Unicom Group and its subsidiary Repayment of loans lending by Finance Company to Unicom Group Interest income from lending services (i), (ii) (i), (iii) (i), (iv) (i), (v) (i), (vi) (i), (vii) (i), (viii) (i), (ix) (i), (ix) (i), (xi) (i), (xi) (i), (xi) 188 999 283 2,034 77 47 2,735 979 229 16,500 13,704 387 69 989 290 1,537 77 20 2,417 1,052 203 11,434 11,134 370 177 table column width 65ptANNUAL REPORT 2020 45. MATERIAL RELATED PARTY TRANSACTIONS (Continued) 45.1 Connected transactions with Unicom Group and its subsidiaries (Continued) (a) Recurring transactions (Continued) (i) On 25 November 2016, CUCL entered into the agreement, “2017–2019 Comprehensive Services Agreement” with Unicom Group to renew certain continuing connected transactions. “2017–2019 Comprehensive Services Agreement” has a term of three years commencing on 1 January 2017 and expired on 31 December 2019. On 21 October 2019, CUCL and Unicom Group entered into the “2020–2022 Comprehensive Services Agreement”. The services are existing continuing connected transactions and their respective terms are substantially the same as those set out in the “2017–2019 Comprehensive Services Agreement”, and the service fees payable shall be calculated on the same basis as under previous agreement. Annual caps for those transactions have not been changed under the new agreement as compared to the year ended 31 December 2019. (ii) UNISK (Beijing) Information Technology Corporation Limited (“UNISK”) agreed to provide the mobile subscribers of CUCL with various types of value-added services through its cellular communications network and data platform. The Group retains a portion of the revenue generated from the value-added services provided to the Group’s subscribers (and actually received by the Group) and allocates a portion of such fees to UNISK for settlement, on the condition that such proportion allocated to UNISK does not exceed the average proportion allocated to independent value-added telecommunications content providers who provide value-added telecommunications content to the Group in the same region. The percentage of revenue to be allocated to UNISK by the Group varies depending on the types of value-added service provided to the Group. (iii) CUCL and Unicom Group agreed to mutually lease properties and ancillary facilities from each other. Rentals are based on the lower of the market rates and the depreciation costs and taxes. (iv) Unicom Group agreed to lease to CUCL certain international telecommunications resources (including international telecommunications channel gateways, international telecommunications service gateways, international submarine cable capacity, international land cables and international satellite facilities) and certain other telecommunications facilities for its operations. The rental charges for the leasing of international telecommunications resources and other telecommunications facilities are based on the annual depreciation charges of such resources and facilities provided that such charges would not be higher than market rates. For maintenance service to the telecommunications facilities aforementioned, unless otherwise agreed by CUCL and Unicom Group, such maintenance service charges would be borne by CUCL and determined with reference to market rates or a cost-plus basis if there are no market rates. (v) Unicom Group agreed to provide engineering design, construction and supervision services and IT services to CUCL. The charges payable by CUCL for the above services are determined with reference to the market price and are settled when the relevant services are provided. (vi) Unicom Group and CUCL agreed to provide shared services to each other and would share the costs related to the shared services proportionately in accordance with their respective total assets value with certain adjustments. For the year ended 31 December 2020, the services charges paid by Unicom Group to CUCL was negligible. 178 table column width 65pt(All amounts in RMB millions unless otherwise stated)CHINA UNICOM (HONG KONG) LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 45. MATERIAL RELATED PARTY TRANSACTIONS (Continued) 45.1 Connected transactions with Unicom Group and its subsidiaries (Continued) (a) Recurring transactions (Continued) (vii) Unicom Group agreed to provide comprehensive procurement services for imported and domestic telecommunications materials and other domestic non-telecommunications materials to CUCL. Unicom Group has also agreed to provide services on management of tenders, verification of technical specifications, installation, consulting and agency services. In addition, Unicom Group will sell cable, modem and other materials operated by itself to CUCL and will also provide storage and logistics services in relation to the above materials procurement. The charges payable by CUCL to Unicom Group are based on contract values, market rates, government guidance price or cost-plus basis where applicable. (viii) Unicom Group agreed to provide ancillary telecommunications services to CUCL. These services include certain telecommunications pre-sale, on-sale and after-sale services such as assembling and repairing of certain telecommunications equipment, sales agency services, printing and invoice delivery services, maintenance of telephone booths, customers acquisitions and servicing and other customers’ service. The charges are based on market rates, government guidance price or cost-plus basis and are settled as and when the relevant services are provided. (ix) Unicom Group and CUCL agreed to provide comprehensive support services to each other, including dining services, facilities leasing services (excluding those facilities mentioned in (iv) above), vehicle services, health and medical services, labour services, security services, hotel and conference services, gardening services, decoration and renovation services, sales services, construction agency, equipment maintenance services, market development, technical support services, research and development services, sanitary services, parking services, staff trainings, storage services, advertising services, marketing, property management services, information and communications technology services (including construction and installation services, system integration services, software development, product sales and agent services, operation and maintenance services, and consultation services). The charges are based on market rates, government guidance price or cost-plus basis and are settled as and when the relevant services are provided. (x) Unicom Group is the registered proprietor of the “Unicom” trademark in English and the trademark bearing the “Unicom” logo, which are registered at the PRC State Trademark Bureau. Pursuant to an exclusive PRC trademark licence agreement between Unicom Group and the Group, the Group has been granted the right to use these trademarks on a royalty free and renewal basis. (xi) Finance Company has agreed to provide financial services to Unicom Group and its subsidiaries, including deposit services, lending and other credit services, and other financial services. For the lending services from Finance Company to Unicom Group and its subsidiaries, the interest rate will follow the interest rate standard promulgated by the PBOC, and will be no less than the minimum interest rate offered to other clients for the same type of loan, and the applicable interest rate offered to Unicom Group by the general commercial banks in PRC for the same type of loan. 179 table column width 65ptANNUAL REPORT 2020 45. MATERIAL RELATED PARTY TRANSACTIONS (Continued) 45.1 Connected transactions with Unicom Group and its subsidiaries (Continued) (b) Amounts due from and to Unicom Group and its subsidiaries Amount due from Unicom Group as at 31 December 2020 included loans from Finance Company to Unicom Group and its subsidiaries of RMB10,500 million in total with respective floating interest rate of Loan Prime Rate (“LPR”) published by the National Interbank Funding Center (NIFC) (2019: RMB7,704 million with respective floating interest rate at 90% to 110% of the benchmark interest rate published by the PBOC). Apart from the above and as disclosed in Note 45.3 below, amounts due from and to Unicom Group and its subsidiaries are unsecured, interest-free, repayable on demand/on contract terms and arise in the ordinary course of business in respect of transactions with Unicom Group and its subsidiaries as described in (a) above. 45.2 Related party transactions with Tower Company (a) Related Party transactions (i) Sale of Tower Assets to Tower Company On 14 October 2015, CUCL and Unicom Horizon Mobile Communications Company Limited (a wholly-owned subsidiary of CUCL and an indirectly wholly-owned subsidiary of the Company) entered into a transfer agreement (the “Transfer Agreement”), amongst China Mobile Communications Company Limited and its related subsidiaries (“China Mobile”), China Telecom, China Reform Holdings Corporation Limited (“CRHC”) and Tower Company. Pursuant to the Transfer Agreement, the Group, China Mobile and China Telecom sold certain of their telecommunications towers and related assets (the “Tower Assets”) to Tower Company in exchange for shares issued by Tower Company and cash consideration. In addition, CRHC made a cash subscription for shares of Tower Company. The Tower Assets Disposal was completed on 31 October 2015 (“Completion Date”). The final consideration amount for the Tower Assets Disposal attributed to the Group was determined as RMB54,658 million. Tower Company issued 33,335,836,822 shares (“Consideration Shares”) to CUCL at an issue price of RMB1.00 per share and the balance of the consideration of approximately RMB21,322 million payable in cash (“Cash Consideration”). The outstanding Cash Consideration and related VAT carries interest at 3.92% per annum. The first tranche Cash Consideration, remaining Cash Consideration and related VAT of RMB3,000 million, RMB18,322 million and RMB382 million payable by Tower Company were settled in February 2016, December 2017 and June 2019, respectively. (ii) Lease of the Tower Assets and other related services On 8 July 2016, CUCL and Tower Company entered into a framework agreement to confirm the pricing and related arrangements in relation to the usage of certain telecommunications towers and related assets (the “Agreement”). The Agreement finalised terms including assets categories, pricing basis for usage charges, and relevant service period etc. Provincial service agreements and detailed lease confirmation for specified towers have been signed subsequently. On 31 January 2018, after further arm-length negotiations and discussions, CUCL and Tower Company agreed on certain supplementary provisions based on the Agreement dated 8 July 2016, which mainly relate to a reduction in cost-plus margin of Tower Company which forms the benchmark for pricing and an increase in co-tenancy discount rates offered to the Group regarding towers under co-sharing arrangements. The new terms apply to the leased tower portfolio as confirmed by both parties are effective from 1 January 2018 for a period of five years. 180 table column width 65pt(All amounts in RMB millions unless otherwise stated)CHINA UNICOM (HONG KONG) LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 45. MATERIAL RELATED PARTY TRANSACTIONS (Continued) 45.2 Related party transactions with Tower Company (Continued) (a) Related Party transactions (Continued) (ii) Lease of the Tower Assets and other related services (Continued) The Group has initially applied IFRS/HKFRS 16 as from 1 January 2019. Based on IFRS/HKFRS 16, the minimum amount of lease payments payable by the Group under the terms of the arrangement in connection with its use of telecommunications towers and related assets had resulted in recognition of a lease liability with the balance of RMB17,837 million (2019: RMB22,076 million), and a right-of-use asset with the balance of RMB17,005 million (2019: RMB21,269 million) as of 31 December 2020. In addition, the Group recorded depreciation of right-of-use asset of RMB7,088 million (2019: RMB6,498 million), interest expense of RMB757 million (2019: RMB894 million), and variable lease payments and other related service charges of RMB11,246 million (2019: RMB10,492 million) in its consolidated statement of income for the year ended 31 December 2020. The total amounts of lease payments and service charges incurred by the Group under the Agreement with Tower Company for the year ended 31 December 2020 were RMB19,023 million (2019: RMB17,652 million). The related payable balance to Tower Company included in the balance of amounts due to related parties as at 31 December 2020 was RMB3,893 million (2019: RMB2,745 million). (iii) Income from engineering design and construction services The Group provide engineering design and construction services, including system integration and engineering design services to Tower Company. Income for the year ended 31 December 2020 was RMB295 million (2019: RMB262 million). Except as mentioned in 45.2(a)(i), amounts due from and to Tower Company are unsecured, interest-free, repayable on demand/on contract terms and arise in the ordinary course of business in respect of transactions with Tower Company as described above. 45.3 Related party transactions with Unicom Group and its subsidiaries (a) Related party transactions Note 2020 2019 Transactions with Unicom Group and its subsidiaries: Interest expenses on unsecured entrusted loan Repayment of loan from a related party Net deposits by Unicom Group and its subsidiaries with Finance Company Interest expenses on the deposits in Finance Company (i) (ii) (iii) (iii) 132 — 233 74 132 48 258 64 (i) On 26 December 2018, the Group borrowed an unsecured entrusted loan from A Share Company of RMB3,042 million with a maturity period of 5 years and interest rate at 4.28% per annum. 181 table column width 65ptANNUAL REPORT 2020 45. MATERIAL RELATED PARTY TRANSACTIONS (Continued) 45.3 Related party transactions with Unicom Group and its subsidiaries (Continued) (a) Related party transactions (Continued) (ii) On 28 December 2018, the Group borrowed a loan from Unicom Group BVI of RMB48 million with a maturity period of 1 year, of which RMB46 million with a maturity period of 1 year and interest rate at 4.77% per annum and HKD2 million with a maturity period of 1 year and floating interest rate at 1 year HIBOR plus 1.11%, and the loan was fully repaid in January 2019. (iii) Finance Company has agreed to provide financial services to Unicom Group and its subsidiaries. For the deposit services, the interest rate for deposits placed by Unicom Group and its subsidiaries will be no more than the maximum interest rate promulgated by the PBOC for the same type of deposit, the interest rate for the same type of deposit offered to other clients and the applicable interest rate offered by the general commercial banks in PRC for the same type of deposit. (b) Amounts due to Unicom Group and its subsidiaries Amount due to Unicom Group and its subsidiaries as at 31 December 2020 included a balance of deposits received by Finance Company from Unicom Group and its subsidiaries of RMB5,112 million with interest rates ranging from 0.42% to 2.75% per annum for saving and deposits of different terms (2019: RMB4,879 million with interest rates ranging from 0.42% to 2.75% per annum). Amount due to Unicom Group and its subsidiaries as at 31 December 2020 and 2019 also included a balance of unsecured entrusted loan from A Share Company of approximately RMB3,042 million with a maturity period of 5 years and interest rate at 4.28% per annum. 46. CONTINGENCIES AND COMMITMENTS 46.1 Capital commitments As at 31 December 2020 and 2019, the Group had capital commitments, mainly in relation to the construction of telecommunications network, as follows: 2020 Land and buildings Equipment Total Authorised and contracted for Authorised but not contracted for 2,582 8,314 23,500 39,487 26,082 47,801 2019 Total 23,874 47,645 46.2 Contingent liabilities As at 31 December 2020, the Group had no material contingent liabilities and no material financial guarantees issued. 10,896 62,987 73,883 71,519 182 table column width 65pt(All amounts in RMB millions unless otherwise stated)CHINA UNICOM (HONG KONG) LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 47. COMPANY-LEVEL STATEMENT OF FINANCIAL POSITION ASSETS Non-current assets Property, plant and equipment Investments in subsidiaries Loan to a subsidiary Right-of-use assets Financial assets measured at fair value Current assets Current portion of loan to a subsidiary Amounts due from subsidiaries Dividend receivable Prepayments and other current assets Cash and cash equivalents Total assets EQUITY Equity attributable to equity shareholders of the Company Share capital Reserves Retained profits — Proposed final dividend — Others Total equity As at 31 December 2020 2019 3 237,426 5,300 10 1,672 3 237,426 12,241 31 3,125 244,411 252,826 6,492 215 15,617 171 989 — 230 15,804 22 796 23,484 16,852 267,895 269,678 254,056 (8,914) 5,018 17,575 254,056 (7,461) 4,529 17,492 267,735 268,616 183 table column width 65ptANNUAL REPORT 2020 47. COMPANY-LEVEL STATEMENT OF FINANCIAL POSITION (Continued) LIABILITIES Non-current liabilities Lease liabilities Current liabilities Lease liabilities Accounts payable and accrued liabilities Loan from a subsidiary Amount due to a subsidiary Taxes payable Dividend payable Total liabilities Total equity and liabilities Net current assets As at 31 December 2020 2019 — — 10 89 60 1 — — 160 160 10 10 21 90 — — 21 920 1,052 1,062 267,895 269,678 23,324 15,800 Total assets less current liabilities 267,735 268,626 Approved and authorised for issue by the Board of Directors on 11 March 2021 and signed on behalf of the Board by: Wang Xiaochu Director Zhu Kebing Director 184 table column width 65pt(All amounts in RMB millions unless otherwise stated)CHINA UNICOM (HONG KONG) LIMITEDNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 48. NON-ADJUSTING EVENTS AFTER THE REPORTING PERIOD Proposed dividend After the statement of financial position date, the Board of Directors proposed a final dividend for 2020. For details, please refer to Note 32. 49. APPROVAL OF FINANCIAL STATEMENTS The financial statements were approved by the Board of Directors on 11 March 2021. 185 table column width 65ptANNUAL REPORT 2020 Selected financial summary for 2016 to 2020, including selected consolidated statement of income data and consolidated statement of financial position data for 2016, 2017, 2018, 2019 and 2020 were prepared in accordance with IFRSs/HKFRSs. RESULTS Selected Statement of Income Data Revenue 303,838 290,515 290,877 274,829 274,197 2020 2019 2018 2017 2016 Interconnection charges Depreciation and amortisation Network, operation and support expenses Employee benefit expenses Costs of telecommunications products sold Other operating expenses Finance costs Interest income Share of net profit of associates Share of net profit of joint ventures Other income — net Profit before income tax Income tax expenses (10,574) (83,017) (46,286) (55,740) (26,862) (70,237) (1,747) 1,366 1,588 787 2,911 16,027 (3,450) (11,513) (83,080) (43,236) (50,516) (26,412) (64,480) (2,123) 1,272 1,359 646 1,735 14,167 (2,795) (12,579) (75,777) (55,077) (48,143) (27,604) (62,561) (1,625) 1,712 2,477 598 783 13,081 (2,824) (12,617) (77,492) (54,507) (42,471) (26,643) (57,166) (5,734) 1,647 893 574 1,280 2,593 (743) (12,739) (76,805) (51,167) (36,907) (39,301) (54,585) (5,017) 1,160 204 153 1,591 784 (154) Profit for the year 12,577 11,372 10,257 1,850 630 Profit attributable to: Equity shareholders of the Company 12,493 11,330 10,197 1,828 Non-controlling interests 84 42 60 22 Earnings per share for profit attributable to equity shareholders of the Company: — basic (RMB) — diluted (RMB) 0.41 0.41 0.37 0.37 0.33 0.33 0.07 0.07 625 5 0.03 0.03 186 table column width 65ptFINANCIAL SUMMARYFor the five-year ended 31 December 2020(All amounts in RMB millions, except per share data)CHINA UNICOM (HONG KONG) LIMITED 2020 2019 2018 2017 2016 367,401 384,475 416,596 451,115 RESULTS (Continued) Selected Statement of Financial Position Data Property, plant and equipment Right-of-use assets Financial assets measured at fair value Current assets Accounts receivable Cash and cash equivalents Total assets Lease liabilities (non-current portion) Current liabilities Accounts payable and accrued liabilities Short-term bank loans Lease liabilities (current portion) Commercial papers Current portion of promissory notes Current portion of corporate bonds Current portion of long-term bank loans Long-term bank loans Promissory notes Corporate bonds Total liabilities Total equity 364,187 37,960 27,682 108,636 16,287 23,085 580,616 16,458 222,028 134,437 740 11,503 7,000 — 1,000 418 2,482 998 1,999 43,073 4,093 83,595 17,233 34,945 562,499 21,535 205,190 117,525 5,564 10,790 8,995 — — 437 2,869 998 2,998 253,096 327,520 241,744 320,755 — 4,673 75,909 14,433 30,060 — 4,446 76,722 13,964 32,836 — 4,449 82,218 13,622 23,633 540,320 571,983 614,154 — 214,910 122,458 15,085 — — — 16,994 441 3,173 — 999 226,034 314,286 — 242,622 125,211 22,500 — 8,991 17,960 — 410 3,473 — 17,981 267,636 304,347 — 342,655 143,156 76,994 — 35,958 18,976 2,000 161 4,495 17,906 17,970 386,472 227,682 187 table column width 65ptANNUAL REPORT 2020 BOARD OF DIRECTORS (As at 11 March 2021) Executive Directors MAJOR SUBSIDIARY China United Network Communications Corporation Limited Wang Xiaochu Executive Director, Chairman and Chief Executive Officer No. 21 Financial Street, Chen Zhongyue Executive Director and President Xicheng District, Beijing 100033, P.R.C. Li Fushen Executive Director Tel: (86) 10 6625 9550 Zhu Kebing Executive Director and Chief Financial Officer Fan Yunjun Executive Director and Senior Vice President Independent Non-Executive Directors Cheung Wing Lam Linus Wong Wai Ming Chung Shui Ming Timpson Law Fan Chiu Fun Fanny Audit Committee Wong Wai Ming (Chairman) Cheung Wing Lam Linus Chung Shui Ming Timpson Law Fan Chiu Fun Fanny Remuneration Committee Cheung Wing Lam Linus (Chairman) Wong Wai Ming Chung Shui Ming Timpson Nomination Committee Chung Shui Ming Timpson (Chairman) Wang Xiaochu Law Fan Chiu Fun Fanny QUALIFIED ACCOUNTANT AND COMPANY SECRETARY Yung Shun Loy Jacky AUDITOR KPMG SHARE REGISTRAR Hong Kong Registrars Limited Shops 1712-1716, 17th Floor, Hopewell Centre 183 Queen’s Road East, Wanchai, Hong Kong Tel: (852) 2862 8555 Fax: (852) 2865 0990 Email: hkinfo@computershare.com.hk AMERICAN DEPOSITARY RECEIPTS DEPOSITARY The Bank of New York Mellon BNY Mellon Shareowner Services P.O. Box 505000, Louisville, KY 40233-5000 Tel: 1-888-269-2377 (toll free in USA) 1-201-680-6825 (international) Email: shrrelations@cpushareownerservices.com PUBLICATIONS Under the United States securities law, the Company is required to file an annual report on Form 20-F with the United States Securities and Exchange Commission by 30 April 2021. Copies of the annual report as well as the U.S. annual report on Form 20-F, once filed, will be available at: Hong Kong China Unicom (Hong Kong) Limited 75th Floor, The Center, 99 Queen’s Road Central, Hong Kong United States The Bank of New York Mellon Public Interest Entity Auditor registered in accordance with the 240 Greenwich Street, Financial Reporting Council Ordinance New York, NY 10286, USA LEGAL ADVISORS Freshfields Bruckhaus Deringer Sullivan & Cromwell LLP REGISTERED OFFICE 75th Floor, The Center, 99 Queen’s Road Central, Hong Kong Tel: (852) 2126 2018 188 STOCK CODE Hong Kong Stock Exchange: 762 New York Stock Exchange: CHU COMPANY WEBSITE www.chinaunicom.com.hk CORPORATEINFORMATIONCHINA UNICOM (HONG KONG) LIMITED C C U L T U R E orporate OUR VISION Be a Creator of Smart Living Trusted by Customers OUR MISSION Connect the World to Innovate and Share a Good Smart Living OUR CORE VALUES Customer-oriented Team Collaboration Open and Innovation Committed to Excellence 

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