China Unicom (Hong Kong) Ltd
Annual Report 2021

Plain-text annual report

CHINA UNICOM (HONG KONG) LIMITED Stock Code : 762 ANNUAL REPORT 2021 I C H N A U N C O M I ( H O N G K O N G ) L I M I T E D A N N U A L R E P O R T 2 0 2 1 T H I N K STRENGTHEN AND SOLIDIFY, PRESERVE AND INNOVATE, INTEGRATE AND OPEN National team in the operation and service of digital information infrastructure Key force in the establishment of Cyber Superpower, Digital China and Smart Society Frontline troop in the integration and innovation of digital technologies D E E P E N B I G CONNECTIVITY TO SOLIDIFY GROWTH FOUNDATION Premium 5G network: first co-built co-shared 5G SA network in the world Premium gigabit broadband network: 10G PON high-speed fibre access network Premium government and enterprise network: SDN OTN intelligent fibre network Ubiquitous smart IoT network: total perception, ubiquitous connectivity, secure and trustworthy S T R E N G T H E N B I GC O M P U T I N G T O F O R G E G R O W T H E N G I N E Green, centralised, secure and reliable computing infrastructure Cutting-edge computing network that is nationally integrated, intelligent and agile Unicom Cloud featuring cloud-network integration, security and reliability, tailored customisation and multi-cloud collaboration I N V I G O R A T E B I G Factorisation of data and digitisation of factors Enhance Big Data, AI and blockchain capabilities Upgrade data product system, and develop data platforms and applications D A T A T O U N L E A S H T H E V A L U E O F D A T A E N H A N C E B I G APPLICATION TO E M P OW E R T R A N S FO R M AT I O N A N D U P G R A D E 5G + industrial Internet, smart transportation, smart logistics, smart agriculture, smart water resources, smart education, smart healthcare, smart tourism, 5G messaging, converged media, digital government, smart city, smart ecology S H A R P E N B I G S E C U R I T Y TO S H A P E R E S I L I E N T N E T W O R K Enhance support capabilities for the secure operation of infrastructure Upgrade information services defence system Strengthen protection of personal information Bolster service capabilities of integrated cloud- network-security products 2 Company Profile 3 Shareholding Structure 4 Performance Highlights 6 Major Events 8 Chairman’s Statement 16 Business Overview 22 Financial Overview 28 Recognition and Awards 30 Directors and Senior Management C O N T E N T S 092 097 098 099 102 103 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 106 Notes to the Consolidated Financial Statements 200 202 203 Financial Summary Corporate Information Corporate Culture F O R W A R D - L O O K I N G S T AT E M E N T S Certain statements contained in this report may be viewed as “forward-looking statements” . 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. Neither the Company nor the directors, employees or agents of the Company assume any liabilities in the event that any of the forward-looking statements does not materialise or turns out to be incorrect. 42 Corporate Governance Report 68 Report of the Directors 86 Human Resources Development 88 Sustainability Report CHINA UNICOM �HONG KONG� LIMITED ANNUAL REPORT 2021 002 003 C O M P A N Y P R O F I L E China Unicom (Hong Kong) Limited (the “Company”) was incorporated in Hong Kong in February 2000 and was listed on the New York Stock Exchange (“NYSE”)# and The Stock Exchange of Hong Kong Limited on 21 June 2000 and 22 June 2000 respectively. On 1 June 2001, the Company was included as a constituent stock of the Hang Seng Index. The Company merged with China Netcom Group Corporation (Hong Kong) Limited on 15 October 2008. The Company has been one of the “Fortune Global 500” companies for consecutive years, and ranked 260th in “Fortune Global 500” for the year 2021. It was also voted as “Asia’s No.1 Most Honored Telecom Company” in 2021 for the sixth consecutive year by Institutional Investor. The Company positions as a national team in the operation and service of digital information infrastructure, a key force in the establishment of Cyber Superpower, Digital China and Smart Society as well as a frontline troop in the integration and innovation of digital technologies. The Company’s corporate strategy is upgraded to “strengthen and solidify, preserve and innovate, integrate and open”. The Company sails along the main channel of digital economy at full strength, and regards “Big Connectivity, Big Computing, Big Data, Big Application and Big Security” as its main responsibilities and businesses, seeking to achieve total upgrade in the momentum, path and means of its development. It strives to tap new growth opportunities, enhance customer value, and better serve and integrate into the new paradigm. The Company is committed to being a creator of smart living trusted by customers, connecting the world to innovate and share a good smart living, improving the quality of products and services continuously to fulfill customer needs. Future products and services will be developed in a “smart” way. Internet of Things, cloud computing, Big Data and other technologies will be used for the smart processing on data and information. The Company’s telecommunication network covers China and connects to the world. It operates a wide range of services, including mobile broadband, fixed-line broadband, mobile voice, fixed-line voice, ICT, data communications and other related value-added services. As at 31 December 2021, the ultimate parent company of the Company, 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 interest of 27.8% of the shares in the Company through A Share Company’s shareholding in China Unicom (BVI) Limited. The remaining 20.1% of the shares in the Company were beneficially owned by public shareholders. # The Company’s ADSs were delisted from the New York Stock Exchange on 18 May 2021. Please refer to the Company’s announcement dated 23 July 2021 for details. S H A R E H O L D I N G S T R U C T U R E 36.8% 63.2% Strategic investors*, employee restrictive incentive shares** and other public shareholders CHINA UNITED NETWORK COMMUNICATIONS LIMITED (Issued shares: approximately 31.0 billion shares) Public Shareholders 82.1% 20.1% CHINA UNITED NETWORK COMMUNICATIONS GROUP COMPANY LIMITED 17.9% 100% China Unicom Group Corporation (BVI) Limited China Unicom (BVI) Limited CHINA UNICOM (HONG KONG) LIMITED (Issued shares: approximately 30.6 billion shares) 53.5% 26.4%*** * 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 500 million shares were unlocked as at April 2021. *** 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 2021 CHINA UNICOM �HONG KONG� LIMITED ANNUAL REPORT 2021 004 005 P E R F O R M A N C E H I G H L I G H T S Strengthening Economy of Scale: Steady Growth in Basic Businesses Stepping up Innovation-driven Development: Rapid Growth in Innovative Businesses KEY FINANCIAL DATA 2021 2020 Change YoY 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) Dividend per share4 (RMB) 327.85 296.15 96.32 32.5% 14.37 0.470 41.68 0.216 303.84 275.81 94.14 34.1% 12.49 0.408 37.90 0.164 7.9% 7.4% 2.3% -1.6pp 15.0% 15.0% 9.9% 31.7% 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 presented by other companies. Note 2: Net profit represented profit attributable to equity shareholders of the Company. Note 3: Free cash flow = operating cash flow — CAPEX. Note 4: The Board proposed a final dividend for the year 2021 of RMB0.096 per share. Together with the 2021 interim dividend of RMB0.120 per share already distributed, the total dividend for the year 2021 amounted to RMB0.216 per share. MOBILE SERVICE REVENUE �RMB BIL� BROADBAND ACCESS REVENUE �RMB BIL� INDUSTRY INTERNET BUSINESS REVENUE �RMB BIL� 2020 156.7 2021 164.1 ^ 4.8% ^ 4.3% 42.1 43.9 2019 156.4 40.4 ^ 0.2% ^ 4.1% 2021 44.8 ^ 5.2% 2020 42.6 2019 41.6 ^ 2.4% 41.6 41.5 41.3 2021 54.8 ^ 28% yoy 2020 42.7 2019 32.9 2018 23.0 Mobile ARPU (RMB) Broadband access ARPU (RMB) CHINA UNICOM �HONG KONG� LIMITED ANNUAL REPORT 2021 006 007 M E V A J E N T O S R Mar 2021 • China Unicom released the CUBE-Net 3.0 network innovation system to create a new generation of digital foundation and empower the intelligent upgrade of the industry Aug 2021 • China Unicom declared interim dividend for the first time Dec 2021 • China Unicom announced a new strategy to position itself as “national team in the operation and service of digital information infrastructure, key force in the establishment of Cyber Superpower, Digital China and Smart Society and frontline troop in the integration and innovation of digital technologies” , in line with its upgraded strategy to “Strengthen and Solidify, Preserve and Innovate, Integrate and Open” , so as to fully develop digital economy as the main path, with “Big Connectivity, Big Computing, Big Data, Big Application and Big Security” as the major responsibility to achieve all-round transformation and upgrade of development momentum, path and mode • • China Unicom launched the new “China Unicom Cloud” brand and the new family service brand “China Unicom Smart Home” As the only official telecommunication service partner of the Beijing 2022 Winter Olympics and the Paralympic Winter Games, China Unicom announced that the construction of telecommunication network was broadly completed in different locations of the Beijing Winter Olympics Feb 2021 • Unicom Digital Technology Co., Ltd. was established to facilitate the high-quality development of digital economy with technological innovation Jun 2021 • China Unicom announced its 14th Five-Year Plan on “Peak Carbon-emission & Carbon- neutrality” with the aim for green, low-carbon, and circular development to comprehensively, systematically and thoroughly push forward energy-saving and carbon-reduction work • China Unicom officially launched the China Unicom’ s Digital Village cloud platform and China Unicom’ s Digital Village brand Nov 2021 • C h i n a U n i c o m k i c k e d o f f t h e commercial trial of 5G Messaging LIU LIEHONG Chairman and Chief Executive Officer Dear Shareholders, In 2021, facing the complicated and tough internal and external environments, the Company rode on the trend of socio-economic digital transformation, grasped new opportunities, embraced new changes and achieved new development. With the upgraded corporate strategy of “Strengthen and Solidify, Preserve and Innovate, Integrate and Open” and its new positioning as “the national team in the operation and service of digital information infrastructure, the key force in the establishment of Cyber Superpower, Digital China and Smart Society, and the frontline troop in the integration and innovation of digital technologies” , the Company focuses on five main responsibilities and main businesses, namely “Big Connectivity, Big Computing, Big Data, Big Application and Big Security” , steering on the main course of digital economy at full strength. Over the past year, the Company’ s business m o m e n t u m s t e a d i l y i m p r o v e d , achieving breakthroughs in economies of scale and steady progress in k e y b u s i n e s s e s . T h e C o m p a n y enhanced its innovation capability, stimulated vitality through reform and significantly improved operational efficiency, reaching a new level of high-quality development. C H A I R M A N ’ S S T A T E M E N T 008 009 OVERALL RESULTS In 2021, the Company’ s operating results grew steadily with profitability improving rapidly. STRENGTHEN AND SOLIDIFY “THE BASICS” The Company always adheres to the basic Total revenue amounted to RMB327.9 billion, orientation of “scale-based value management” representing an increase of 7.9% year-on-year. Service revenue reached RMB296.2 billion, representing an increase of 7.4% year-on-year, up by 3.1 percentage points compared to 2020. Profit before income tax amounted to RMB17.9 billion and profit attributable to equity holders of the Company amounted to RMB14.4 billion, representing a year-on-year increase of 15.0%, up by 4.7 percentage points compared to 2020. EBITDA1 reached RMB96.3 billion, representing a year-on-year increase of 2.3%。 and drives the development of basic businesses in both quantity and quality terms. With a focus on building premium networks, the scale and coverage of the Company’ s 5G network was comparable to peers, while its network operation efficiency continued to improve. Over the past year, the Company’ s basic businesses stabilised and rebounded, with marked improvement in infrastructure capabilities. The foundation f o r h i g h - q u a l i t y d e v e l o p m e n t w a s f u r t h e r consolidated. The Company actively practiced green and low-carbon development and achieved remarkable results in network co-build co-share. In 2021, the capital expenditure was RMB69.0 billion, lower than the initial budget of RMB70.0 billion, reflecting better investment efficiency. Free cash flow2 continued to be strong during the year, reaching Quality-first scale development took mobile business to a new level China Unicom regarded value operation as the top priority of business development. In line with increasingly digital, online and integrated 5G consumption, the Company continued to deepen the 5G-driven growth of mobile business value and scale. It insisted on refined operation, RMB41.7 billion. The Company further consolidated deepened precise customer segmentation and its financial strength. accelerated the 5G upgrade of existing users, especially medium and high-end users. It The Company attaches great importance to enhanced its digital operation system and drove shareholders’ returns. After due consideration centralised and platform-based smart operation of the Company’ s sound business development through innovation. It continuously optimised its and strong free cash flow, the Board proposed a distribution channels leading to a more robust final dividend for the year of RMB0.096 per share. Together with the interim dividend of RMB0.120 per share already distributed, the total dividend for the year amounted to RMB0.216 per share, representing a year-on-year increase of 31.7%. Going forward, the Company will continue to strive to enhance its profitability and shareholders’ returns. new channel system with online and offline integration. China Unicom APP was fully revamped and it pioneered “full-range services with a single click” , with monthly active users exceeding 120 million. A new OMO channel system has been basically established. The Company accelerated the innovation and upgrade of basic business products. It adopted a “platform + network + X” basic innovative product strategy and strengthened cooperation on content and privileges. Video Ringtones and Communication Assistant had over 10 million users. It collaborated with industry peers and the industry chain to carry out pre-commercial trial of 5G messaging to explore the new blue ocean of 5G ecology. CHINA UNICOM �HONG KONG� LIMITEDANNUAL REPORT 2021010 I n 2 0 2 1 , m o b i l e s e r v i c e r e v e n u e r e a c h e d Wi-Fi “Three-Gigabit” upgrade, the Company RMB164.1 billion, representing an increase of seized the technology upgrade window by 4.8% year-on-year. The number of mobile billing adopting “full network integration” strategy subscribers recorded a net addition of 11.30 e n c o m p a s s i n g c o n n e c t i v i t y , p l a t f o r m a n d million, significantly better than the net loss of applications. It consolidated the foundation 12.66 million in 2020. Customer value continued to of broadband and mobile integration to meet be enhanced, with mobile ARPU reaching RMB43.9, scenario-based, intelligent and diversified representing a year-on-year increase of 4.3%. Data consumption demand, systematically promoting traffic promotion achieved remarkable results. the development of broadband and smart home Total mobile handset data traffic volume grew by businesses. In Northern China, the Company 32.2%, with the monthly average DOU per handset continued to strengthen its broadband service to subscriber reaching approximately 12.7 GB. 5G drive mobile growth, accelerate the promotion business growth accelerated, with the number of of fibre-to-the-room (FTTR) service and enrich 5G package subscribers reaching 155 million and core smart home applications, such as videos and the penetration rate of 5G package subscribers surveillance, driving customer value enhancement. reaching 48.9%, outperforming the industry In Southern China, the Company seized new average. opportunities to accelerate scale breakthrough by driving broadband development with mobile “Three-Gigabit” integration led faster fixed-line and strengthening broadband-mobile synergy. broadband growth The engineers of China Unicom Smart Home Leveraging 5G-led “Three-Gigabit” integration, were connected with over 80 million broadband the Company promoted the development of subscribers via a single click in the APP to enable broadband-mobile integration. In the face of swift response, further enhancing the Company’ s the opportunities brought by 5G, broadband and competitiveness with high-quality services. CHINA UNICOM �HONG KONG� LIMITEDANNUAL REPORT 2021CHAIRMAN’S STATEMENT010 011 In 2021, the Company’ s fixed-line broadband a c c e s s r e v e n u e r e a c h e d R M B 4 4 . 8 b i l l i o n , representing a year-on-year increase of 5.2%. PRESERVE AND INNOVATE FOR “MIXED GROWTH” The Company always believes that innovation is Fixed-line broadband subscribers registered a key to corporate growth and promotes high-quality record-high net addition of 8.95 million for the development driven by both market forces year, reaching a total of 95.05 million. Broadband and innovation. In the past year, the Company access ARPU basically remained stable at accelerated the development of innovation RMB41.3. Scale-based value management capabilities, and its Industry Internet revenue achieved remarkable results. The penetration rate continued to grow. The core capabilities of the “Five of integrated service among fixed-line broadband Middle Platforms” were basically established. The subscribers reached 71.5%, representing a Company’ s data governance system was further year-on-year increase of 7.4 percentage points. enhanced, making new strides on the path of digital Consolidated digital foundation by accelerating transformation. the construction of premium networks Strengthened internal R&D capabilities to The Company regarded strengthening the unleash new momentum of innovative business construction of premium networks as a key part T h e C o m p a n y m a d e p e r s i s t e n t e f f o r t s i n of the overall strategy. It strived to build new innovation and laid a solid foundation for the digital information infrastructure capabilities and five main businesses with cloud, Big Data, IoT, technological competitive advantages, deepened AI, blockchain and security. In terms of Industry network innovation and strengthened network Internet, during the year, the Company seized support capabilities. The average latency of its the new opportunities brought by “Eastern Data backbone network remained industry-leading. and Western Computing” and devoted itself to It enhanced its multi-cloud ecosystem, enabling offering integrated computing network service automatic connection of the China Unicom encompassing “connectivity + sensing + computing Industrial Internet with Unicom Cloud and MEC + intelligence” . It built a national “5 + 4 + 31 + X” cloud network. It launched the CUBE-Net 3.0 advanced IDC system which was integrated across network system to actively build next-generation cloud, network and edge, reasonably distributed, digital infrastructure featuring “connectivity + green and centralised. “Unicom Cloud” was fully sensing + computing + intelligence” . Through upgraded to feature cloud native and virtualised multiple measures such as network streamlining, dual engines and offer seven scenario-based cloud insourced operation, network co-build co-share, products including sensing IoT cloud, data storage AI applications and refined management, etc., cloud, smart video cloud, etc. Integrating “Unicom the efficiency of network operation continued to Chain” and AI, the daily processing capacity of the improve. Leveraging edges in cloud-network-data Company’ s Big Data platform exceeded 200TB. integration, the Company offered standardised The number of IoT connections continued to grow products in network situation awareness and as the Company accelerated the transition to security island chain, forming active network security capabilities and “cloud, management, and terminal” information security capabilities. In 2022, the Company will continue to build premium 5G network, gigabit broadband network, government-enterprise network and computing power network, and promote intelligent network operation, further solidifying the cornerstone of its high-quality development. 012 integrated IoT “connectivity + non-connectivity” substitution of high-precision time-frequency applications. The Company’ s IoT market share synchronisation chips, breaking the foreign continued to increase. It actively expanded its monopoly on the technology and providing reliable presence in the security market and its security and low-error time-based precision for 5G products were ready for scale replication. Adhering networks. to innovation-driven development, the Company insisted on prioritising resources allocation to In 2021, the revenue of Industry Internet business innovative talents and increased investment r e a c h e d R M B 5 4 . 8 b i l l i o n , r e p r e s e n t i n g a intensity to consolidate basic capability platform. year-on-year increase of 28.2% and accounting It continued to strengthen the offerings of for 18.5% of the overall service revenue. In self-developed products in digital government, particular, the revenue of Unicom Cloud3 amounted smart city, industrial internet, healthcare and to RMB16.3 billion, representing a year-on-year environment, etc. Its own critical core capabilities increase of 46.3%. Driven by the growth of were greatly improved while breakthroughs were innovative business, the Company’ s fixed-line made in integrated application. In terms of 5G service revenue reached RMB129.6 billion, industry applications, the Company integrated representing a year-on-year increase of 10.9%. In internal and external resources to deeply the future, the Company will continue to accelerate implement the “5G Applications Sailing” Action the development of proprietary innovation platform Plan and launch five special projects ( “Strong capabilities and key products and enhance Foundation Project, Growth Engine Project, Escort competitiveness as well as business value. Project, Co-Innovation Project and Blooming Project” ), facilitating the digital transformation Fully established core capabilities to drive new and intelligent upgrade of thousands of industries breakthroughs in smart operation with new products, new business formats and The Company adhered to innovation-driven new models of 5G applications. It continuously business development and continued to make developed and upgraded standardised solutions progress in digital transformation. During the for 5G industrial Internet, smart city, healthcare, year, the Company launched the “China Unicom education and cultural tourism. It strengthened Intelligence Brain” to achieve 100% consolidation r e s e a r c h a n d d e v e l o p m e n t i n 5 G i n d u s t r y of core business system, customer system, integration standards, expanded the 5G application smart middle platform, Big Data and digital innovation alliance, and optimised the 5G ecology base. The Company adhered to the “platform open platform. It continued to increase investment + application” architecture and established 48 in research and development, and incubated centres, 6 platforms and 9 capabilities with the products in IoT for carbon peaking and carbon core capabilities of the “Five Middle Platforms” neutrality, 5G + cooperative vehicle-infrastructure (public customers, government and enterprise system, 5G + Beidou Navigation Satellite System, customers, data, network and management) smart legal services and smart pension, etc. basically established. 10010 hotlines in 31 In terms of core technology research and provinces were fully integrated and smart development, during the year, the Company customer service was centralised across 31 boosted its investment in technological research, provinces and 2 bases, serving over 400 million w i t h r e s e a r c h a n d d e v e l o p m e n t e x p e n s e s users. It offered personalised services that “knew growing 61.7% year-on-year. The proportion of customers better” with Big Data + AI. Smart service technological innovation personnel reached 22%, ratio reached 80%. The Company continued to while the number of patents granted reached 1,128, strengthen its process governance, resulting in representing a significant year-on-year increase agile empowerment and significant improvement in of 120%. The Company led the first-time domestic support capabilities of all production scenarios. CHINA UNICOM �HONG KONG� LIMITEDANNUAL REPORT 2021CHAIRMAN’S STATEMENT012 013 INTEGRATE AND OPEN FOR “TEAM COMPETITION” The Company insists on factor integration and in CAPEX on a cumulative basis. At the same time, the Company is committed to further expanding the depth and breadth of co-build co-share, promoting market convergence. It actively integrated into c o o p e r a t i o n a n d s h a r i n g i n t e c h n o l o g i c a l the development of digital economy and deepened innovation, cloud-network integration such as integration and open cooperation to build a IDC, and promoting the co-build co-share and high-quality development ecosystem. co-maintenance of infrastructure and key business platforms such as transmission lines, pipes and Industry ecology steadily improved and network fibres, equipment rooms and antennae, DAS, etc. co-build co-share made progress Taking the construction of new digital information Acceleration of factor integration spurred infrastructure such as 5G as an opportunity, the synergetic cooperation to create new value Company continued to deeply promote network The Company took the initiative to actively promote co-build co-share. It continued to work closely strategic cooperation with national ministries and with China Telecom and added 310,000 new 5G commissions, local governments, enterprises and base stations. The total of 5G base stations used by institutions, deepen the breadth and depth of open the two companies reached 690,000, creating the cooperation, and serve the digital transformation world’ s largest co-built and co-shared 5G network. of the economy and society. It actively cooperated The scale of 4G sharing was further expanded, with strategic partners, industry peers, system and the number of 4G base stations shared by vendors, IT companies and the society, and drove the two companies reached 660,000. Through the value creation with the industry. It strengthened co-build co-share of 4G/5G networks, the Company equity investment management and expanded actively supported the goals of “carbon peaking and into new domains through minority investment carbon neutrality” . It is expected that more than or acquisitions with synergies, driving revenue 17.5 billion kWh of electricity can be saved every growth of its main business. Relying on the “direct year while the cumulative carbon dioxide emission investment + fund + incubation” investor platform, savings exceeded 6 million tons. In addition, the two the Company expanded its presence in innovative companies have saved more than RMB210.0 billion domains and promoted an open and cooperative ecosystem. 014 S O C I A L R E S P O N S I B I L I T Y A N D CORPORATE GOVERNANCE The Company actively serves and integrates into modernisation of agriculture and rural areas. It built on the achievements of poverty alleviation and effectively connected with rural revitalisation. the national strategy, resolutely fulfills its missions It actively followed the “Belt and Road” Initiative, and responsibilities, and lets people enjoy greater served national strategic plans such as Xiong’ an sense of reward, happiness and security in digital, New Area, Guangdong-Hong Kong-Macao Greater network-based and intelligent development. Bay Area and Yangtze River Delta Integration, and As the sole official telecommunication service actively drove the mutual promotion of domestic partner of the Beijing 2022 Winter Olympics and and international dual circulation, fostering faster Paralympic Winter Games, the Company adhered development of a new landscape of coordinated to the concepts of “Green Olympic Games, Sharing regional development. It offered application Olympic Games, Open Olympic Games, and Honest services on epidemic prevention, culture and Olympic Games” and earnestly implemented the sports, education, medical care, environmental requirements of “simple, safe and wonderful” protection, charity, etc., for social good. It also competitions. With the “Smart Winter Olympics” cared about the well-being of its employees and strategy, it comprehensively achieved zero fault in helped them grow and develop. network support, zero complaint in event service, zero infection in personnel, and successfully The Company continued to bolster its corporate provided secure communication support for the governance mechanism, enhance execution and Winter Olympics. For the first time, it applied strengthen risk management and internal control, IPv6+ technology to the private network of the in a bid to provide solid support for sustainable Winter Olympics, providing high-quality network and healthy corporate development. During the services for the broadcast of the Beijing Winter year, the Company attained a number of accolades, Olympics leveraging capabilities such as network including the 260th place in “Fortune Global 500 slicing, segment routing and latency optimisation. Companies” , the 276th place in “The Forbes Global The Company pushed forward “carbon peaking 2000” , “Asia’ s No.1 Best Telecommunications and carbon neutrality” by promoting green, low-carbon and circular development and network Company” and “Best Managed Listed Company in China — 1st” by FinanceAsia, and being voted as co-build co-share. It continued to accelerate the “Asia’ s No. 1 Most Honored Telecom Company” by construction of digital villages to facilitate the Institutional Investor for the sixth consecutive year. CHINA UNICOM �HONG KONG� LIMITEDANNUAL REPORT 2021CHAIRMAN’S STATEMENT014 015 OUTLOOK The digital economy is driving profound changes and promote high-quality development. With the goal of establishing “Cyber Superpower, Digital in the way of production, lifestyle and governance, China, and Smart Society” and adhering to the and has become a strong driver for sustainable Company’ s “1 + 8 + 2” strategic planning, the and healthy economic and social development. Company will focus on its five main responsibilities The accelerated integration of digital technology and main businesses, stabilise growth, optimise represented by 5G with the real economy and network, deepen reform, enhance capabilities, the accelerated digital transformation of various strengthen synergy and prevent risks, in order to industries have brought huge opportunities for create greater value for shareholders, customers the development of digital economy. It is expected and society. that the value-added of core industries of digital economy will account for 10% of GDP by 20254. As Lastly, on behalf of the Board of Directors, I the “national team” in the construction, operation would like to express our sincere gratitude to and service of digital information infrastructure, all shareholders, customers and fellows across information communication operators are capable the society for their long-term support and to all and obliged to participate in the wave of digital employees for their continuous dedication and revolution with a more active attitude, so as to contribution along the way! facilitate information flow and build a new digital base for economic and social development, as well as to enhance the development of digital economy, digital life and digital governance to contribute to the national strategy of technological upgrade. The year 2022 marks the commencement of China Unicom’ s full implementation of its new strategic Liu Liehong plan. China Unicom will continue to fully implement Chairman and Chief Executive Officer new development philosophies, contribute to the establishment of a new development landscape Hong Kong, 11 March 2022 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 presented by other companies. Note 2: 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. Note 3: Unicom Cloud revenue includes revenue of cloud resources, cloud platform, cloud service, cloud integration, cloud interconnection, cloud security, etc. generated from integrated innovative solutions. Note 4: Cited from China’ s “14th Five-Year Plan for Digital Economy Development” . B U S I N E S S O V E R V I E W CHEN ZHONGYUE Executive Director and President In 2021, China Unicom upgraded its strategy to “Strengthen and solidify, preserve and innovate, integrate and open” . The Company actively served national strategies and integrated into the new development pattern, with firm progress towards high-quality development. It leveraged its IT centralisation advantages to advance digital transformation and service model innovation in full force. The Company strengthened integrated operation led by 5G services to enhance user acquisition capability. 016 017 MOBILE SERVICE With the objectives of value first, experience first, A s o f t h e e n d o f 2 0 2 1 , t h e C o m p a n y h a d approximately 317.12 million mobile billing and breakthrough in scale, China Unicom made subscribers, representing a cumulative net every effort to implement 5G-led integration increase of 11.30 million subscribers for the year. and cohort-based development, leading quality The number of 5G package subscribers reached and scale development with 5G. The Company 154.93 million, representing a cumulative net promoted the development of new 5G users increase of 84.10 million subscribers for the year. and make breakthroughs in 5G scenarios in key markets and segmented groups. It promoted 5G upgrade of existing users through implementing FIXED-LINE SERVICE I n 2 0 2 1 , C h i n a U n i c o m a d h e r e d t o t h e refined customer segmentation and offering fit comprehensive coordination of “terminal + network and suitable products based on precise Big Data + business + operation + service + information” analytics and deep insight from various scenarios. in the development of fixed-line service. Led It innovated on multi-metric 5G products to ensure by “Three-Gigabit” , the Company established the competitiveness of contracts and products a m a r k e t - d r i v e n m e c h a n i s m i n t e g r a t i n g and full 5G package coverage of all customers, terminal, network, business and service, thereby strengthening the contract-based and integrated comprehensively improving its broadband development of 5G users. It improved pricing and access and resource management capabilities contract flexibility to strengthen the differentiation and achieving the coordinated development of of 5G core applications. It also promoted the broadband sales and network deployment. The innovative development of 5G terminals and Company accelerated the construction of gigabit pan-terminal industries so as to promote 5G networks and strengthened broadband capabilities terminal-network-business synergy. in Southern China. Focusing on high-value regions, it pushed forward the deployment and The Company deepened the comprehensive digital upgrade of gigabit communities. It continued transformation and improved its digital marketing to carry out broadband speed measurement service capabilities. With the transformation and upgrade activities and revitalise resources, into the “platform + network + X” product model, comprehensively improving the efficiency of it strengthened the overall management of all network resources. Leveraging on branding products as well as its integrated development and advantage associated with the Winter Olympics, operation capabilities. It successfully launched platforms such as China Unicom Digital Village, China Unicom Smart Home and China Unicom Cloud Rhino for the 2C, 2H and 2B2C markets. The Company accelerated the enhancement of terminal digital operation and supply chain ecosystem. It opened up the terminal operation system, ensured the stability of terminal supply and upgraded its capability in digital supply chain. Consumer financing instruments were widely employed, with more than 100,000 stores providing such financing services. CHINA UNICOM �HONG KONG� LIMITEDANNUAL REPORT 2021018 the Company strengthened the development of gigabit broadband, laying a foundation for INDUSTRY INTERNET In cloud computing, as the foundation of digital achieving total leadership in Northern China and transformation and integrated innovation, Unicom targeted overtaking in Southern China. With the Cloud provided customers with integrated and optimisation of the entire broadband process chain, innovative solutions including cloud resources, the Company built a digital operation system of cloud platforms, cloud services, cloud integration, “two networks and one middle platform” for home cloud interconnection, cloud security, etc. users, thereby optimising resource allocation Computing efficiency was enhanced through the and promoting highly-efficient governance. The unified technical architecture and the unified PaaS Company incorporated fixed-line local access into platform. The Company made comprehensive family packages to revitalise fixed-line local access deployment in Big Computing with totally revamped resources, and launched innovative applications Unicom Cloud featuring upgraded technology, such as fixed-line video ringtones and business p r o d u c t s , s e r v i c e s a n d e c o s y s t e m . O p e n caller ID. In 2021, fixed-line broadband access architecture, dual-engine base and multi-scenario revenue reached RMB44.8 billion, representing deployment were all supported. PaaS products a year-on-year growth of 5.2%. During the year, such as Big Data, IoT, AI, blockchain and security the number of broadband subscribers increased were deeply integrated with IaaS products. Basic by 8.95 million to 95.05 million and the broadband product offerings continued to be enriched while access ARPU was RMB41.3. FTTH subscribers’ product performance was significantly enhanced. penetration reached 88%. The Company launched seven scenario-based cloud products to drive the digital transformation of thousands of industries. In 2021, the revenue of Unicom Cloud amounted to RMB16.3 billion. CHINA UNICOM �HONG KONG� LIMITEDANNUAL REPORT 2021BUSINESS OVERVIEW018 019 In Big Data, the Company upgraded its capabilities In IT services, the Company strengthened internal in data application services, data technology innovation and achieved platform-based product services, data security services, AI and blockchain capabilities, standardisation of self-developed s e r v i c e s . F o c u s i n g o n i n d u s t r i e s s u c h a s products and R&D centralisation. It promoted the government affairs, finance, cultural and tourism scale development of 5G applications to enhance and transportation, etc., it optimised product gross margins. In Big Application, it developed offerings in government affairs Big Data, financial over 200 proprietary application products, Big Data, cultural and tourism Big Data, industrial including signature products such as smart city AI products and “industry + blockchain” . The base, central management console, industrial Company also continuously supported pandemic Internet platform, government affair Big Data prevention and control and resumption of work platform, smart river chief, etc. in the fields of and production. Eight blockchain pilot projects smart city, industrial Internet, digital government, were successfully selected as national blockchain environment, etc. The Company implemented over innovation application pilot projects. In 2021, Big 8,000 industry application projects with proprietary Data revenue reached RMB2.6 billion, representing capabilities, driving RMB6.0 billion in industry a year-on-year growth of 48.7% with a market application revenue. It has formed differentiated share ranking first among telecom operators for competitive advantages comprising proprietary the third consecutive year. capabilities, self-developed products, proprietary integration and fulfilment and continuous operating In terms of the Internet of Things ( “IoT” ), the services, fully empowering customers’ digital Company accelerated the promotion of a new transformation. pattern of IoT connectivity led by 5G. The number of connections reached over 300 million. The Company accelerated platform-based independent NETWORK CAPABILITIES In 2021, the Company conscientiously implemented i n n o v a t i o n . T h e Y a n f e i Z h i l i a n c o n n e c t i o n the strategic deployment of “Cyber Superpower” management platform (CMP) carried over 160 and “New Infrastructure” . In order to build a million connections, becoming the main carrying differentiated network competitive advantage platform. The Yanfei Gewu device management through digital transformation, the Company platform (DMP) has connected near a million deepened network co-build co-share in the of devices, over 200 object models and over 180 i n d u s t r y , s t r e n g t h e n e d n e t w o r k - b u s i n e s s Open APIs since its commercial launch in April collaboration and service support, and continued 2021, making it the central platform underlying to improve network competitiveness. It took China Unicom’ s transition to integrated IoT multiple measures to effectively alleviate “connectivity + non-connectivity” applications. The the investment cost pressure brought by the Company released the first low-cost lightweight large-scale 5G network construction and rapid Yanfei 5G module in China and cooperated with business development. It deepened the digital, UNISOC to complete the world’ s first R16-based network-based and intelligent reform of the eMBB + uRLLC + IIoT end-to-end verification, operation system and pushed forward the network actively promoting the innovative development of digital transformation. the 5G IoT industry. In 2021, China Unicom’ s IoT revenue reached RMB6.0 billion, representing a year-on-year growth of 43%. 020 As at the end of 2021, the number of 5G base the Company’ s identity as a Winter Olympics stations used reached 690,000. The number partner and demonstrate the brand’ s strength. of 4G base stations reached 1.56 million with In terms of publicity, the Company continuously 4G population coverage reaching 95% and innovated on the means and forms of promotion, administrative village coverage reaching 91%. In created a three-dimensional communication the fixed-line network, the Company continued matrix to effectively convey a good corporate story. to expand network coverage in new regions and It continuously optimised its publicity content stepped up the network upgrade in areas with and diversified communication means, leading PON+LAN. The total number of broadband access to greater user attention and improved brand ports reached 239 million, of which FTTH ports value. The overall brand building was on a good accounted for 91%. The Company continued to momentum with improvement in both reputation optimise its international network deployment. As and awareness. at the end of 2021, the international submarine cable capacity, international Internet outbound Marketing strategies capacity and inbound bandwidth reached 57.8T, In line with the trend of rural digital consumption 5.31T and 3.93T, respectively. The Company’ s upgrade, the Company implemented “Rural international roaming services covered 627 Revitalisation” strategy and continued to leverage operators in 260 countries and regions. 5G to upgrade rural market products and services MARKETING Branding such as Smart Home, Safe Villages and Digital Villages. In the youth market, targeting multimedia entertainment segments, the Company carried out In 2021, focusing on digital transformation, the cooperation with leading touchpoints to achieve Company’ s brand promotion was conducted scale development, grasped the back-to-school around intelligence, guided by 5G and endorsed by opportunities to carry out frontend-loaded the Winter Olympics, with a view to continuously marketing such as college broadband, college advocating the creation of smart experience informatisation, 5G private network and K12 smart and building a smart brand with warmth. The campus, etc. promotion emphasised on key business advantages such as 5G, three-gigabit offerings, innovative The Company implemented programmes to applications, industry applications, gigabit network “promote handset upgrade” and “promote network and high-quality services, etc. and was targeted access” , driving the coordinated development of towards on sub-markets and key industries 5G terminal, network, business and service. With such as households, rural villages, youth and government and corporate customers, etc. The Company’ s promotion took advantage of trending events and key festivals, while closely integrating the differentiated advantages of the Winter Olympics with branding and 5G to strengthen CHINA UNICOM �HONG KONG� LIMITEDANNUAL REPORT 2021BUSINESS OVERVIEW020 021 schemes like “terminal-business alignment” and communities and towns. It strengthened the “network-business alignment” , the Company construction of the “1 + N + n” business alliance c o n t i n u e d t o s t r e n g t h e n t h e a l i g n m e n t o f and actively built a new ecosystem of offline broadband terminals, networks and businesses channels. Second, it accelerated the improvement and improve the capability of gigabit network and of centralised online operation capabilities to user perception. tap into potential traffic, sped up the upgrade of 2I2C products and marketing models, stabilised The Company consolidated its fundamental cooperation with leading companies, and actively capabilities in existing business operation through expanded local innovative lead generation. It integration, value enhancement, loss control and accelerated the differentiation of China Unicom downgrade control, stabilising the scales of both APP, expanded user connections, and enhanced existing revenue and subscribers and driving user activity, building an ecological cooperation steady growth of service revenue. platform. Third, the Company accelerated the Marketing channels online and offline integration, unified the public platform and business operation platform and In 2021, the Company built a “platform-based, connected the whole process and production d i g i t a l , s m a r t a n d e c o l o g y - o r i e n t e d ” scheduling. It deepened the construction of digital customer-centric marketing model based on new business outlets to expand mutual lead generation OMO channels. First, the Company accelerated and improve channel capabilities. the comprehensive transformation of offline channels towards targeted markets, kept close to targeted markets, optimised deployment, and comprehensively improved the coverage across CHINA UNICOM �HONG KONG� LIMITED ANNUAL REPORT 2021 022 022 F I N A N C I A L O V E R V I E W SERVICE REVENUE �RMB BIL� EBITDA2 �RMB BIL� NON-VOICE SERVICE REVENUE �RMB BIL� 296.15 96.32 261.57 CHINA UNICOM �HONG KONG� LIMITEDANNUAL REPORT 2021022 023 022 023 OVERVIEW In 2021, the company’ s operating situation was stable, favourable mementum and efficiency of business scale continually enhance, the comprehensive strength led the company reached to a new level, achieving a good start in the “14th Five-Year Plan” , the total revenue was RMB327.85 billion in 2021, up by 7.9% year-on-year. Service revenue reached RMB296.15 billion, up by 7.4% year-on-year. Net profit1 was RMB14.37 billion, up by RMB1.88 billion year-on-year. In 2021, the Company’ s net cash flow from operating activities was RMB110.64 billion. Capital expenditure was RMB68.96 billion. Liabilities-to-assets ratio was 43.6% as at 31 December 2021. REVENUE In 2021, the Company’ s revenue was RMB327.85 billion, up by 7.9% year-on-year, of which, service revenue was RMB296.15 billion, up by 7.4% year-on-year due to continuous optimisation of the revenue mix. The table below sets forth the composition of service revenue, and the percentage contribution of each service to total service revenue for the years of 2021 and 2020: 2021 2020 As a percentage As a percentage Total of service Total of service amount revenue amount revenue 296.15 100.00% 34.58 261.57 11.68% 88.32% 275.81 35.49 240.32 100.00% 12.87% 87.13% (RMB in billions) Service revenue Include: Voice service Non-voice service Voice Service In 2021, service revenue from the voice service was RMB34.58 billion, down by 2.6% year-on-year. Non-Voice Service In 2021, service revenue from the non-voice service was RMB261.57 billion, up by 8.8% year-on-year. 024 COSTS AND EXPENSES In 2021, total costs and expenses amounted to RMB309.92 billion, up by 7.7% 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 2021 and 2020: (RMB in billions) Total costs and expenses Operating costs Include: Interconnection charges Depreciation and amortisation Network, operation and support expenses Employee benefit expenses Costs of telecommunications products sold Selling and marketing expenses General, 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 2021 2020 As a As a Total percentage Total percentage amount of revenue amount of revenue 309.92 317.18 11.56 85.65 53.09 58.94 30.68 32.21 45.05 0.17 –1.86 –1.45 –4.12 94.53% 96.75% 3.52% 26.13% 16.19% 17.98% 9.36% 9.83% 13.74% 0.05% –0.57% –0.44% –1.26% 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% CHINA UNICOM �HONG KONG� LIMITEDANNUAL REPORT 2021FINANCIAL OVERVIEW 024 025 Interconnection charges Cost of telecommunications products sold The interconnection charges were RMB11.56 Costs of telecommunications products sold billion in 2021, up by 9.3% year-on-year and, as a w e r e R M B 3 0 . 6 8 b i l l i o n a n d r e v e n u e f r o m percentage of revenue, increased from 3.48% in sales of telecommunications products were 2020 to 3.52% in 2021. Depreciation and amortisation RMB31.70 billion in 2021. Gross profits on sales of telecommunications products was RMB1.02 billion. Depreciation and amortisation charges were Selling and marketing expenses RMB85.65 billion in 2021, up by 3.2% year-on-year The Company fully promoted transformation and, as a percentage of revenue, decreased from on digitisation, strengthened O2O integrated 27.32% in 2020 to 26.13% in 2021. operation and exercised stringent control over users development costs, selling and marketing Network, operation and support expenses expenses were RMB32.21 billion in 2021, up by Network, operation and support expenses were 5.7% year-on-year and, as a percentage of revenue, RMB53.09 billion in 2021, up by 14.7% year-on-year decreased from 10.03% in 2020 to 9.83% in 2021. and, as a percentage of revenue, changed from 15.23% in 2020 to 16.19% in 2021 mainly due General, administrative and other operating to increase in rental expenses of premises and expenses equipment, network maintenance and energy General, administrative and other operating consumption cost. expenses were RMB45.05 billion in 2021, up by 13.3% year-on-year, mainly due to the rapid growth Employee benefit expenses of ICT services leading to increased related service A s a r e s u l t o f t h e o n g o i n g e f f o r t i n costs and increased investment in technical incentive mechanism reform to strengthen support for innovative businesses. performance-based compensation and the acquisition of innovative talents in the meantime, employee benefit expenses were to RMB58.94 billion in 2021, up by 5.7% year-on-year and, as a percentage of revenue, changed from 18.35% in 2020 to 17.98% in 2021. 026 FINANCIAL OVERVIEW EARNINGS Profit before income tax EBITDA2 In 2021, the Company’ s EBITDA was RMB96.32 In 2021, the Company benefited from continuous billion, up by 2.3% year-on-year. EBITDA as a enhancement in growth quality and profitability, percentage of service revenue was 32.5%, down by profit before income tax was RMB17.93 billion, up 1.6 percentage points year-on-year. by 11.9% year-on-year. Income tax expenses In 2021, the Company’ s income tax expenses was CAPITAL EXPENDITURE AND CASH FLOW In 2021, capital expenditure of the Company RMB3.42 billion and the effective tax rate was totaled RMB68.96 billion, which mainly consisted 19.1%. Profit for the year of investments in mobile network, broadband and data, and infrastructure and transmission network etc. In 2021, the Company’ s net cash flow from In 2021, the Company’ s net profit1 was RMB14.37 operating activities was RMB110.64 billion. Free billion, increased by RMB1.88 billion year-on-year. cash flow3 was RMB41.68 billion after the deduction Basic earnings per share was RMB0.470, up by of the capital expenditure. 15.0% year-on-year. Value orientation Be value-oriented and dynamically adjust budget and KPIs to incentivise revenue and profit generation F U L L Y I M P L E M E N T N E W S T R A T E G Y , F O R G E H E A D A N D C R E A T E G R E A T E R V A L U E F O R S H A R E H O L D E R S Risk control Establish full-process fullchain risk control system to prevent and resolve various risks Technological innovation Facilitate digital transformation and smart operation upgrade with technological innovation Flexibility and agility Build a platform-based organisational structure which is flat, coordinated, agile and connected with ecosystem Effective incentive Establish differentiated incentive system focusing on strategic deployments CHINA UNICOM �HONG KONG� LIMITEDANNUAL REPORT 2021026 027 The table below sets forth the major items of the capital expenditure in 2021: (RMB in billions) Total Include: Mobile network Broadband and data Infrastructure and transmission network Others 2021 Total amount As percentage 68.96 33.89 12.93 11.08 11.06 100.00% 49.14% 18.75% 16.07% 16.04% FINANCIAL POSITION The Company’ s total assets changed from RMB580.62 billion as at 31 December 2020 to RMB591.08 billion as at 31 December 2021. Total liabilities changed from RMB253.10 billion as at 31 December 2020 to RMB257.64 billion as at 31 December 2021. The liabilities-to-assets ratio as at 31 December 2021 was 43.6%, basically same as the end of the prior year. The debt-to-capitalisation ratio decreased from 12.2% as at 31 December 2020 to 9.7% as at 31 December 2021. The net debt-to-capitalisation ratio was 0.4% as at 31 December 2021. 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. CHINA UNICOM �HONG KONG� LIMITED ANNUAL REPORT 2021 028 029 R E C O G N I T I O N A N D A W A R D S For more information, please visit the Company’s website at www.chinaunicom.com.hk 030 D I R E C T O R S A N D S E N I O R M A N A G E M E N T LIU LIEHONG Chairman and Chief Executive Officer Aged 53, a postgraduate with a doctorate degree in Management, was appointed in September 2021 as Chairman and Chief Executive Officer of the Company. Mr. Liu served as Head of the Electronics Second Research Institute under the Ministry of Information Industry, Deputy General Manager of China Electronics Technology Group Corporation, President of China Electronics and Information Industry Development Research Institute and President of CCID Information Industry Group Corporation, Director and General Manager of China Electronics Corporation, Director and General Manager of China Electronics Technology Group Corporation, Vice Minister of the Office of the Central Cyberspace Affairs Commission, Vice Minister of the Cyberspace Administration of China, Vice Minister of the Ministry of Industry and Information Technology, and a Member of the 12th National Committee of the Chinese People’ s Political Consultative Conference. Mr. Liu is currently 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” ). Mr. Liu has extensive experience in management and information industry. CHINA UNICOM �HONG KONG� LIMITEDANNUAL REPORT 2021030 031 CHEN ZHONGYUE Executive Director and President Aged 50, a university graduate with a master’ s degree in Economics, was appointed in February 2021 as an Executive Director and President of the Company. 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. 032 WANG JUNZHI Executive Director Aged 57, a postgraduate with a master’ s degree in Engineering, was appointed in December 2021 as an Executive Director of the Company. Mr. Wang served as Deputy Director General and Director General of the Department of Labor Protection of All-China Federation of Trade Unions ( “ACFTU” ), Chairman of the National Committee of the Trade Union of the Energy and Chemistry Sector of China, Director General of the Department of Labor and Economic Work of ACFTU, Secretary of the Secretariat of ACFTU, a member of the 15th and 16th Executive Committee of ACFTU as well as a member of the 16th Presidium of ACFTU. Mr. Wang is currently a Director of Unicom Group, a Director of A Share Company as well as a Director of CUCL. Mr. Wang has extensive experience in management. CHINA UNICOM �HONG KONG� LIMITEDANNUAL REPORT 2021DIRECTORS AND SENIOR MANAGEMENT032 033 MAI YANZHOU Executive Director and Senior Vice President Aged 53, a university graduate with a master’ s degree in Electronics and Information Engineering, was appointed in February 2018 as a Senior Vice President of the Company. 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 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 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), 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), 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. 034 LIANG BAOJUN Senior Vice President Aged 52, a university graduate with a master’ s degree in Engineering, was appointed in February 2018 as a Senior Vice President of the Company. 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. CHINA UNICOM �HONG KONG� LIMITEDANNUAL REPORT 2021DIRECTORS AND SENIOR MANAGEMENT034 035 HE BIAO Senior Vice President Aged 50, a university graduate with a doctorate degree of Business Administration, was appointed in June 2020 as a Senior Vice President of the Company. 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. 036 TANG YONGBO Senior Vice President Aged 48, a postgraduate with a master’ s degree in Business Administration, was appointed in December 2021 as a Senior Vice President of the Company. Mr. Tang served as Deputy General Manager and General Manager of Hunan Branch of China Unicom, General Manager of Marketing Department of Unicom Group. He is a Deputy to the 13th National People’ s Congress. Mr. Tang is currently Vice General Manager of Unicom Group, Senior Vice President of A Share Company as well as Director, Senior Vice President and General Counsel of CUCL, as well as Directors of certain members of the Group. Mr. Tang has extensive experience in management and the telecommunications industry. CHINA UNICOM �HONG KONG� LIMITEDANNUAL REPORT 2021DIRECTORS AND SENIOR MANAGEMENT036 037 LI YUZHUO Executive Director and Chief Financial Officer Aged 49, a postgraduate with a master’ s degree in Business Administration. Ms. Li served as Director of the Finance Department of China ENFI Engineering Corporation Limited, Vice President of China ENFI Engineering Corporation, Head of the Capital Department and Secretary of the Board of Directors of China Metallurgical Group Corporation (Metallurgical Corporation of China Limited), and Head of the Capital Operation Department of China Minmetals Corporation. Ms. Li is currently Chief Accountant of Unicom Group, the Chief Financial Officer, Board Secretary and Financial Controller of A Share Company, the Director and the Chief Financial Officer of CUCL. Ms. Li has extensive experience in financial investment and capital operation. 038 CHEUNG WING LAM LINUS Independent Non-Executive Director Aged 73, 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 University of Hong Kong School of Professional and Continuing Education, Chairman of Asia Television Limited, Deputy Chairman of PCCW Limited, Independent Non- Executive Directors 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. CHINA UNICOM �HONG KONG� LIMITEDANNUAL REPORT 2021DIRECTORS AND SENIOR MANAGEMENT038 039 WONG WAI MING Independent Non-Executive Director Aged 64, 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. 040 CHUNG SHUI MING TIMPSON Independent Non-Executive Director Aged 70, 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 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, Jinmao Hotel and Jinmao (China) Hotel Investments and Management Limited and Glorious Sun Enterprises 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. CHINA UNICOM �HONG KONG� LIMITEDANNUAL REPORT 2021DIRECTORS AND SENIOR MANAGEMENT040 041 LAW FAN CHIU FUN FANNY Independent Non-Executive Director Aged 69, 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. CHINA UNICOM �HONG KONG� LIMITED ANNUAL REPORT 2021 043 042 043 042 C O R P O R A T E The Board is committed to high standards of corporate governance and recognises that good 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 listed in Hong Kong, the current articles of association are in compliance with the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited . These rules serve as guidance for the Company to improve the foundation of its corporate governance, and the Company strives to comply with the relevant requirements of international and local corporate governance best practices. The Company has regularly published statements relating to its risk management and internal control in accordance with relevant regulatory requirement to confirm its compliance with related risk management and corporate internal control requirements and other regulatory requirements. The Board is responsible for performing overall corporate governance duties. G O V E R N A N C E T P R R O E The Company has adopted a Corporate Governance “Platinum Award — Excellence in Environmental, Practice which sets out the key terms of reference Social, and Governance” in “The Asset ESG of the Board on corporate governance functions, Corporate Awards 2021” . including, amongst others, developing and reviewing the Corporate Governance Policy and corporate The Corporate Governance Code (the “Code” ) as governance practices of the Company; reviewing and set out in Appendix 14 of the Rules Governing the monitoring the training and continuous professional Listing of Securities on The Stock Exchange of development of Directors and senior management; Hong Kong Limited (the “Listing Rules” ) provides reviewing and monitoring the Company’ s policies for code provisions (the “Code Provisions” ) and and practices on compliance with legal and recommended best practices with respect to regulatory requirements; developing, reviewing and (i) Directors, (ii) remuneration of Directors and monitoring the code of conduct and compliance senior management and evaluation of the Board of manual applicable to employees and Directors; and Directors (the “Board” ), (iii) accountability and audit, reviewing the Company’ s compliance with the Code. (iv) delegation by the Board, (v) communication with In 2021, the Company’ s continuous efforts in corporate governance gained wide recognition from the capital markets and the Company was accredited with a number of awards. The Company was voted as “Asia’ s No.1 Most Honored Telecom Company” for six years in a row in “2021 All- Asia Executive Team” ranking organised by the authoritative financial magazine, Institutional Investor. Meanwhile, the Company was also honored with “Asia’ s Best ESG (Telecoms)” and “Asia’ s Best IR Team (Telecoms)” . The Company was voted by professional investors as “Asia’ s No.1 Best Telecommunications Company” and “Best Managed Listed Company in China - 1st” in “Asia’ s Best Managed Companies Poll 2021” by FinanceAsia. The Company was awarded “The Best of Asia - Icon on ESG” and “ESG Influencer” by Corporate Governance Asia. The Company was accredited with CHINA UNICOM �HONG KONG� LIMITEDANNUAL REPORT 2021044 shareholders and (vi) company secretary. Other than the disclosures made in the section headed “Board of Directors” below, the Company confirms that for the year ended 31 December 2021, it complied with all the Code Provisions. 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 30 to 41 of this annual report. The Company believes that the Board currently comprises experts from diversified professions such as telecommunications, information industry, 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 4 Executive Directors Independent Non-Executive Directors GENDER 2 7 male female AGE GROUP 4 2 45-54 55-64 3 >65 DURATION OF SERVICE �YEARS� 3 1 5 6-10 >10 <5 CHINA UNICOM �HONG KONG� LIMITEDANNUAL REPORT 2021CORPORATE GOVERNANCE REPORT044 045 The roles and responsibilities of the Chairman and and have confirmed their independence to the the Chief Executive Officer of the Company were Company. The functions of non- executive Directors performed by the same individual for the year include, amongst other things, attending board ended 31 December 2021. The Company considers meetings, exercising independent judgements at that, as all major decisions are made by the Board meetings, playing a leading role in resolving any and relevant Board Committees after discussion, potential conflicts of interest, serving on committees through supervision by the Board and the by invitation and carefully examining whether the independent non-executive Directors together with performance of the Company has reached the effective internal control mechanism, the Company planned corporate targets and objectives, and has achieved a balance of power and authority. In monitoring and reporting on matters relating to addition, the same individual performing the roles the performance of the Company. With respect to of the Chairman and the Chief Executive Officer the nomination and appointment of new directors can enhance the Company’ s efficiency in decision- and senior management members, the Nomination making and execution, effectively capturing business Committee would, after considering the Company’ s opportunities. need for new directors and/or senior management members, identify a wide range of candidates from All independent non-executive Directors of the within the Company and the human resources Company possess good knowledge and experience market and make recommendations to the Board. in different areas. They have been making positive The Nomination Committee will consider candidates contributions to the development of the Company’ s on merit against objective criteria and with due strategies and policies through independent, regard to the benefits of diversity on the Board. After constructive and informed advices. They have having obtained the consent from candidates in maintained close contact with the management relation to the relevant nomination and based on the and actively express constructive opinions on Company’ s actual needs, the Board would convene matters relating to corporate governance, operation a meeting, attendees of which include non-executive management, risk prevention and the capital Directors, to consider the qualifications of the market at board meetings. These views and opinions candidates. The Directors of the Company (including facilitate the Board in making their decisions in the non-executive Directors) are not appointed for a shareholders’ best interests. All independent non- specific term. However, pursuant to the Company’ s executive Directors, except for their equity interests articles of association, one-third of the directors and remuneration disclosed in this annual report, do shall retire from office by rotation and shall be not have any business with or financial interests in eligible for re-election at each annual general the Company, its holding company or subsidiaries, meeting. 046 Every newly appointed Director is provided with a comprehensive, formal and tailored induction on appointment, including but not limited to the “Guidelines on Directors’ Duties” published by the Hong Kong Companies Registry and the “Guidelines for Directors” published by the Hong Kong Institute of Directors. Directors have fiduciary responsibilities to the company. They must not exercise their powers for improper purposes. They must not use the company’ s opportunities to serve their own interests. Their personal interests are not allowed to conflict with the company’ s interests, and they must not abuse the company’ s assets. The Director would subsequently receive all briefing and professional development necessary to ensure that he/she has proper understanding of the Company’ s operations and businesses, full understanding of his/her responsibilities under the statutes, the common law, the Listing Rules, applicable legal and regulatory requirements, and the Company’ s business and corporate governance policies. Furthermore, formal letters of appointment setting out the key terms and conditions of the Directors’ appointment will be duly prepared. 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 2021, the Directors as at 31 December 2021 have participated in various training and continuous professional development activities and the summary of which is as follows: Executive Director Liu Liehong (Chairman) Chen Zhongyue Wang Junzhi 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: 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, business ethics or directors’ duties CHINA UNICOM �HONG KONG� LIMITEDANNUAL REPORT 2021CORPORATE GOVERNANCE REPORT 046 047 The remuneration package for executive Directors The Board convenes meetings regularly and all includes salary and performance-linked annual Directors have adequate opportunity to be present at bonuses. The remuneration of executive Directors the meetings and to include matters for discussion is determined by reference to their respective in the meeting agenda. Notices of regular board duties and responsibilities in the Company, their meetings are delivered to the Directors at least respective experience, prevailing market conditions 14 days in advance of the meetings. The Company and applicable regulatory requirements while the delivers, on a best endeavor basis, all documents award of the performance-linked annual bonuses is for regular board meetings to the Directors at least tied to the attainment of key performance indicators one week prior to the meetings (and ensures that or targets set by the Company. The remuneration all documents are delivered to the Directors no less of non-executive Directors is determined by than three days prior to the regular meetings as reference to prevailing market conditions and required by the Code Provisions). their respective responsibilities and workload from serving as non-executive Directors and members The Company Secretary, being an employee of of the board committees of the Company. The the Company, has day-to-day knowledge of the Company also adopted share option scheme for Company’ s affairs and reports to the Chairman the purpose of providing long term incentives to of the Board. He keeps close contact with all eligible participants, including Directors (details Directors and ensures that the operation of the of such share option scheme are set out in the Board and all board committees is in compliance paragraph headed “Share Option Scheme of the with the procedures as set forth in the Company’ s Company” on pages 70 to 71 of this annual report). articles of association and the charters of the board The remuneration for each Director and the committees. Additionally, the Company Secretary is remuneration of senior management by band are responsible for compiling and regularly submitting disclosed on pages 147 to 148 of this annual report. draft minutes of board meetings and committee In addition to the remuneration, the Company has meetings to the Directors and committee members arranged appropriate insurance coverage in respect for their comment, and final versions of minutes of legal action against the Directors. for their records, within a reasonable time after the relevant meetings. Each Director may obtain advice The Board has provided clear guidelines for from and the services of the Company Secretary to delegation of powers and responsibilities to ensure that board procedures, and all applicable management. However, certain important matters rules and regulations, are followed. Physical board must be decided only by the Board, including, meetings will be held for the selection, appointment but not limited to, long- term objectives and or dismissal of the Company Secretary. To ensure strategies, annual budget, initial announcements the possession of up-to-date knowledge and market on quarterly, interim and final results, dividends, information to perform his duties, the Company major investments, equity-related capital market Secretary attended over 15 hours of professional operations, mergers and acquisitions, major training in 2021. connected transactions and annual internal control evaluation. The arrangements on delegation of powers and responsibilities to management are reviewed by the Board periodically to ensure that they remain appropriate to the needs of the Company. 048 T h e D i r e c t o r s m a y , u p o n r e q u e s t , o b t a i n accurate, clear, complete and reliable information independent professional advice at the expense regarding those matters is provided in advance of the Company. In addition, if any substantial and in a timely manner, and all Directors have shareholder of the Company or any Directors has the right to inspect documents and information in significant conflicts of interest in a matter to be relation to matters to be decided by the Board. The resolved, the Board will convene a board meeting in Directors have frequently visited various branches respect of such matter and those Directors who have in Mainland China to gain better understanding conflicts of interest must abstain from voting and of the Company’ s daily operations. In addition, will not be counted in the quorum of the meeting. the Company has arranged relevant trainings for the Directors (which include training sessions All Directors are required to devote sufficient conducted by professional advisers, such as lawyers time and attention to the affairs of the Company. and accountants, from time to time) in order to A culture of openness and debate are promoted broaden their knowledge in the relevant areas and in the Board and the Directors are encouraged to to improve their understanding of the Company’ s express their views and concerns. The Company business, legal and regulatory requirements and provides monthly operating update to the Directors, the latest operational technologies. The Board also so as to ensure the Directors are familiar with conducts annual evaluation of its performance. Such the Company’ s latest operations. In addition, efforts have improved the corporate governance of through regular board meetings and reports from the Company. management, the Directors are able to clearly understand the operations, business strategy and In 2021, the Board held four board meetings and latest development of the Company and the industry. passed five written resolutions for, amongst other Besides formal board meetings, the Chairman things, discussion and approval of important also meets annually with independent non- matters such as the 2020 annual results, the 2020 executive Directors, without the presence of other Form 20-F, the 2021 annual budget, the 2021 interim Directors, which further promotes the exchange of results, the first and the first three quarters results diversified views and opinions. In order to ensure for 2021, corporate social responsibility report, that all Directors have appropriate knowledge of reports on risk management and internal control, the matters discussed at the meetings, adequate, the appointment of executive Directors and Senior Vice President, termination of ADSs program. CHINA UNICOM �HONG KONG� LIMITEDANNUAL REPORT 2021CORPORATE GOVERNANCE REPORT048 049 Set forth below is an overview of the attendance during the year of 2021 by the Board members at various meetings: Meetings Attended/Held During Each Director’s Tenure Audit Remuneration Nomination Board Committee Committee Committee Shareholders Meeting Meeting Meeting Meeting Meeting Executive Directors Liu Liehong (Chairman)1 Wang Xiaochu2 Chen Zhongyue3 Wang Junzhi4 Li Fushen5 Zhu Kebing6 Fan Yunjun7 Independent Non-Executive Directors Cheung Wing Lam Linus Wong Wai Ming Chung Shui Ming Timpson Law Fan Chiu Fun Fanny 1/1 3/3 3/4 N/A 2/2 1/2 1/2 4/4 4/4 4/4 4/4 N/A N/A N/A N/A N/A N/A N/A 4/4 4/4 4/4 4/4 N/A N/A N/A N/A N/A N/A N/A 1/1 1/1 1/1 N/A N/A 1/1 N/A N/A N/A N/A N/A N/A N/A 1/1 1/1 N/A 1/1 1/1 N/A 1/1 0/1 N/A 1/1 1/1 1/1 1/1 Note 1: On 3 September 2021, Mr. Liu Liehong was appointed as executive Director of the Company. Note 2: On 27 August 2021, Mr. Wang Xiaochu has resigned as executive Director of the Company. Note 3: On 19 February 2021, Mr. Chen Zhongyue was appointed as executive Director of the Company. Note 4: On 3 December 2021, Mr. Wang Junzhi was appointed as executive Director of the Company. Note 5: On 11 June 2021, Mr. Li Fushen has resigned as executive Director of the Company. Note 6: On 18 June 2021, Mr. Zhu Kebing has resigned as executive Director of the Company. Note 7: On 28 April 2021, Mr. Fan Yunjun has resigned as executive Director of the Company. In 2021, 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. 050 The Company has adopted the “Model Code for recommendations to independent shareholders on Securities Transactions by Directors of Listed connected transactions and transactions subject Issuers” , as set out in Appendix 10 to the Listing to independent shareholders’ approval entered Rules (the “Model Code” ) to govern securities into by the Company and/or its subsidiaries. The transactions by directors. Further to the specific committees are provided with sufficient resources, enquiries made by the Company to the Directors, all including, amongst others, obtaining independent Directors have confirmed their compliance with the professional advice at the expense of the Company, Model Code for the year ended 31 December 2021. to perform its duties. The committees report their decisions or recommendations to the Board after The Directors acknowledge their responsibilities meetings. for preparing the financial statements for the year ended 31 December 2021, which give a true and fair Audit Committee view of the financial position of the Company as at Composition the statement of financial position date and financial Currently the Audit Committee comprised Mr. performance and cash flows of the Company for the Wong Wai Ming, Mr. Cheung Wing Lam Linus, year ended the statement of financial position date, Mr. Chung Shui Ming Timpson and Mrs. Law are properly prepared on the going concern basis Fan Chiu Fun Fanny, all being independent non- in accordance with relevant statutory requirements executive Directors of the Company. The Chairman and applicable financial reporting standards. A of the Audit Committee is Mr. Wong Wai Ming. All statement of the independent auditors about their members of the Audit Committee have satisfied reporting responsibilities related to the financial the “independence” requirements in relation to statements is set out in the independent auditor’ s an Audit Committee member under applicable report on pages 92 to 96 of this annual report. laws, regulations and rules. The Chairman of the COMMITTEES UNDER THE BOARD The Company has established three committees of Audit Committee is an accountant with expertise and experience in accounting and financial management. Another member of the Audit the Board under the Board, the Audit Committee, Committee is also an accountant with extensive the Remuneration Committee and the Nomination accounting professional experience. Committee. Each committee has a written charter, which is available on the websites of the Company Major Responsibilities and The Stock Exchange of Hong Kong Limited (the “Hong Kong Stock Exchange” ). From time to time as required by the Listing Rules, the Board also establishes independent board committee for the purpose of advising and providing voting The primary responsibilities of the Audit Committee include: as the key representative body, overseeing the Company’ s relationship with the independent auditor, considering and approving the appointment, resignation and removal of the independent auditor; pre-approval of services and fees to be provided by the independent auditor based on the CHINA UNICOM �HONG KONG� LIMITEDANNUAL REPORT 2021CORPORATE GOVERNANCE REPORT050 051 established pre-approval framework; supervising The Audit Committee held four meetings in 2021 the independent auditor and determining the for, amongst other things, discussion and approval potential impact of non-audit services on such of the 2020 annual results, the 2020 Form 20-F, auditor’ s independence; reviewing quarterly and the 2021 interim results, and the first and the first interim financial information as well as annual three quarters results for 2021. In addition, the Audit financial statements; coordinating and discussing Committee approved in the meetings the corporate with the independent auditor with respect to any social responsibility report, the report of the work issues identified and recommendations made of corporate social responsibility, the report on during the audits; reviewing correspondences from risk management, the report on internal audit and the independent auditor to the management and internal control, the report on continuing connected responses of the management; discussing the risk transaction, the appointment, the audit fees and the management and internal control system with the audit plans of the independent auditor as well as management as well as reviewing the reports on the the non-audit services provided by the independent risk management and internal control procedures auditor in 2021. of the Company. The Audit Committee also has the authority to set up a reporting system to receive and The Audit Committee has performed its duties handle cases of complaints or complaints made effectively, and enabled the Board to better monitor on an anonymous basis regarding the Company’ s the financial condition of the Company, supervise accounting, internal control and audit matters. Any the risk management and internal control of the complaints on the aforementioned subject matters Company, ensure the integrity and reliability of can be submitted by post (No. 21 Financial Street, the financial statements of the Company, prevent Xicheng District, Beijing, 100033, China) or by significant errors in the financial statements and phone (86-(010) 88091674). The Audit Committee is ensure the Company’ s compliance with the relevant responsible to and regularly reports its work to the requirements of the Listing Rules with respect to Board. audit committee. Work Completed in 2021 Remuneration Committee The Audit Committee meets the Board and Composition management as well as independent auditor at least Currently the Remuneration Committee comprised four times each year, and assists the Board in its Mr. Cheung Wing Lam Linus, Mr. Wong Wai Ming review of the financial statements to ensure effective and Mr. Chung Shui Ming Timpson, all being risk management and internal control as well as independent non-executive Directors of the efficient audit. Besides, the Audit Committee meets Company. The Chairman of the Remuneration the independent auditor at least two times each Committee is Mr. Cheung Wing Lam Linus. year, without the presence of other Directors and management. 052 Major Responsibilities Work Completed in 2021 The primary responsibilities of the Remuneration The Remuneration Committee meets at least Committee include: making recommendations once a year. The Remuneration Committee held to the Board on the policies and structure for all one meeting in 2021 for, amongst other things, Directors’ and senior management’ s remuneration discussion and approval of proposal for appraisal and on the establishment of a formal and and remuneration of senior management. transparent procedure for developing remuneration policy; reviewing and approving the management’ s The Remuneration Committee has performed its remuneration proposals with reference to the duties effectively on reviewing and approving the corporate goals and objectives set by the Board; proposal of appraisal of senior management, as making recommendations to the Board on the well as making recommendations to the Board with remuneration packages of individual executive regards to the remuneration packages for senior Directors and senior management ( including management. benefits in kind, pension right and compensation payments, including any compensation payable for Nomination Committee loss or termination of their office or appointment); Composition making recommendations to the Board on the Currently the Nomination Committee comprised Mr. remuneration of non-executive Directors; consulting Chung Shui Ming Timpson, Mr. Liu Liehong and Mrs. the Chairman about the remuneration proposals Law Fan Chiu Fun Fanny. Except for Mr. Liu Liehong, for other executive Directors; considering salaries who is the Chairman and CEO of the Company, Mr. paid by comparable companies, time commitment Chung Shui Ming Timpson and Mrs. Law Fan Chiu and responsibilities and employment conditions Fun Fanny are independent non- executive Directors elsewhere in the Group; considering any concrete of the Company. The Chairman of the Nomination plan proposed by the management of the Company Committee is Mr. Chung Shui Ming Timpson. for the grant of option which has not been granted, and any plan to amend any existing option Major Responsibilities scheme of the Company; reviewing and approving compensation payable to executive Directors and senior management for any loss or termination of office or appointment to ensure that it is consistent with contractual terms; reviewing and approving compensation arrangements relating to dismissal or removal of Directors for misconduct to ensure that they are consistent with contractual terms; and ensuring that no Director or any of his/her associates is involved in deciding his/her own remuneration. The primary responsibilities of the Nomination Committee include: reviewing the structure, size and composition (including the skills, knowledge and experience) of the Board at least annually and making recommendations on any proposed changes to the Board to complement the corporate strategy of the Company; identifying individuals suitably qualified to become Board members and making recommendations to the Board; formulating, reviewing and implementing the board diversity policy; assessing the independence of independent non-executive Directors; making recommendations to the Board on the appointment or re-appointment of Directors and succession planning for Directors; providing advice to the Board on candidates of the senior management nominated by the CEO and on changes to the senior management of the Company. CHINA UNICOM �HONG KONG� LIMITEDANNUAL REPORT 2021CORPORATE GOVERNANCE REPORT052 053 Work Completed in 2021 The Nomination Committee meets at least once a year. The Nomination Committee held one meeting and passed four written resolutions in 2021 for, amongst other things, reviewing the structure, size and composition of the Board, assessment of the independence of independent non-executive Directors, making recommendations to the Board on the proposed re-election of Directors, the appointment of executive Director and senior vice president. The Company has adopted nomination policy. With respect to the nomination and appointment of new directors and senior management members, the Nomination Committee would, after considering the Company’ s need for new directors and/or senior management members, identify a wide range of candidates from within the Company and the human resources market and make recommendations to the Board. The Nomination Committee will consider candidates on merit against objective criteria and with due regard to the benefits of diversity on the Board. After having obtained the consent from candidates in relation to the relevant 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. The Company has also adopted a policy concerning diversity of board members. The Company recognises and embraces the benefits of having a diverse Board, and notes increasing diversity at Board level as an essential element in maintaining a competitive advantage. All Board appointments are made on merit, in the context of the skills and experience the Board as a whole requires to be effective. In reviewing Board composition, the Nomination Committee will consider their professional knowledge, skills, experience and the balance of diversity of perspectives which are appropriate to the Company’ s business model and specific needs. In identifying suitable candidates for appointment to the Board, the Nomination Committee will with due regard to the benefits of diversity on the Board and base on a range of diversity perspectives including but not limited to gender, age, cultural and educational background, professional experience, skills, knowledge and duration of service. The ultimate decision will be based on merit and contribution that the selected candidates will bring to the Board. In addition, pursuant to the Company’ s articles of association, shareholder may propose other person for election as a director at general meeting. The proposal will be considered and approved in the general meeting. With regard to the procedure for 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_ Pursuant to the Company’ s articles of association, report.php. one-third of the Directors shall retire from office by rotation and be eligible for re-election at each annual general meeting. 054 INDEPENDENT AUDITOR Deloitte Touche Tohmatsu is the independent auditor of the Company. Apart from audit services, it also provides other assurance and non-audit services. The audit committees supervised the independent auditor and determined the potential impact of non-audit services on such auditor’ s independence, and pre-approved the services and fees to be provided by the independent auditor based on the established pre-approval framework. The remuneration paid/payable to the independent auditor for provision of services in 2021 is as follows: Items Note (in RMB thousands) 2021 Audit and other assurance services Non-audit services (i) (ii) 40,478 8,188 Notes: (i) Audit and other assurance services in 2021 mainly included the provision of audit service for the Company’ s consolidated financial statements, and statutory audit services for the financial statements of its subsidiaries, as well as the provision of other assurance services. (ii) Non-audit services included other services that can be reasonably provided by the independent auditor. In 2021, the provisions of non-audit services mainly included tax compliance services and other advisory 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 (included but not limited to operational, financial, compliance, environmental, social and governance), 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. 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. CHINA UNICOM �HONG KONG� LIMITEDANNUAL REPORT 2021CORPORATE GOVERNANCE REPORT 054 055 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 FINANCIAL RISK COMMITTEE The cross departmental body of risk management in professional fields The cross departmental body in financial risk management INTERNAL CONTROL AND RISK MANAGEMENT OFFICE Daily working departments PROFESSIONAL FUNCTIONAL DEPARTMENTS INTERNAL AUDIT 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 Professional internal control management and execution departments Integrated risk management and internal control department and supervision and evaluation department ...... 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 INTERNAL AUDIT DEPARTMENT Professional internal control management and execution departments Integrated risk management and internal control department and supervision and evaluation department INDEPENDENT EXTERNAL AUDITOR External Independent Internal Control evaluation body 056 Control Environment: Establishes the control environment which fulfill COSO requirements to provide the appropriate operating environment for the effective implementation of internal control The Company has an internal audit department with 1. 623 staff members, with officers stationed at various provincial branches. The internal audit department reports directly to the Audit Committee at least twice annually and is independent of the Company’ s daily operation and accounting functions. The internal audit department responsible for overall risk evaluation, special risk evaluation and internal control self-testing etc. It has also formulated targeted risk prevention and control measures, 2. Risk Evaluation: Establishes the Policy on Risk Evaluation Management and evaluation m e c h a n i s m , e v a l u a t e s t h e r i s k s t o t h e achievement of its objectives across the Company and identifies to the new risk due to the changes conducted risk follow-up inspections and has 3. enhanced the risk awareness of the employees, all of which have played an active role in the Company’ s effective support and safeguard of its operation management and business development. Furthermore, with an emphasis on the effectiveness of internal control with respect to the efficiency of operations, accuracy of financial information, and compliance with rules and regulations, the internal audit department conducts, amongst others, internal control assessment and internal audit on economic accountability. In addition, the internal audit department also contributes to strengthening the operation and management, improving internal control systems, mitigating operational risks and 4. 5. Control Activities: Deploys appropriate policies and control procedures over the Company’ s business activities, identifies key control procedures and policies of significant control activities through evaluation Information and Communication: Identifies relevant information and communication m e t h o d s , e s t a b l i s h e s i n f o r m a t i o n a n d communication mechanisms to aggregate and delivers relevant information Monitoring Activities: Establishes the internal control monitoring mechanism, implements the monitoring procedures and adopted the before, during and extensive monitoring principles, and carries on the proper monitoring to the internal control increasing the economic efficiency of the Company. Risk evaluation and management The Company has established and gradually Using the risk evaluation as fundamental with improved its comprehensive closed-loop risk the adoption of Internal Control Integrated management system for the purpose of “integrating Framework issued by the Committee of Sponsoring management of day-to-day general risks and Organisations of the Treadway Commission (the spontaneous critical risks” , achieved the closed- “COSO” ), the Company established internal control loop management by risk evaluation, early systems based on the following five fundamental warning and follow-up inspections to ensure components: the effectiveness of operation management. The Company evaluated 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. CHINA UNICOM �HONG KONG� LIMITEDANNUAL REPORT 2021CORPORATE GOVERNANCE REPORT056 057 2021 Risk evaluation result Network and information security risk The followings were the major significant With the rapid development of digital economy and risks which the Company encountered and its information communication technologies, the state countermeasures in 2021: and the society have widely attached importance Continuous market competition risk on user information security of telecom operators, with more stringent legal monitoring in the coming In recent years, the revenue growth of the future. The Company has a large number of telecommunications industry have slowed down application systems which contain enormous user with low profitability. The industry has been data. Data security is a major challenge due to the competing through the traditional retention game, size, costs and difficulty in data protection. The with serious homogeneity and lack of product Company attaches great importance to network and differentiation. Price war remains as the main information security, with the aim to strictly comply edge among the highly competitive industry. The with laws and regulations and strengthen the Company will further implement its new positioning, security of communication network operation and new strategies and strategic planning objectives, management of information security in line with the strengthen and enhance its strategic execution, concept of holistic view of national security. promote cooperation with peers, resolutely eliminate price vicious competition, ensure orderly Business transformation and development risk and healthy competition and maintain sustainable The traditional business of the telecommunications development of the industry. industry is becoming increasingly saturated. With growing new demand for digital, network Risk from the regulatory policies in the industry and intelligent transformation and upgrades in T h e C h i n e s e g o v e r n m e n t w i l l c o n t i n u e t o different industries, research and development of promote the policies such as the opening of innovative products will be a long-term challenge for telecommunications industry to foreign and private sustainable development. The Company continues capital, “Speed Upgrade and Tariff Reduction” to strengthen innovation-driven development, and adjustments to interconnection settlement increase investment in innovation, expand the scale in domestic telecommunication services. These of scientific and innovative R&D personnel, adhere to regulatory policies will bring new development the outcome-oriented and value-oriented approach, opportunities to the Company while also bringing deeply understand industry needs and closely challenges. The Company will pay close attention to integrate industry characteristics, so as to enhance changes in regulatory policies and respond to the core competitiveness and sustainable development relevant impacts of regulatory policy adjustments in capabilities. a timely manner. 058 Technology upgrade and development risk As telecom operators around the world accelerate their network upgrade and promoted the application of 5G technology, while new technologies of information and communication accelerate the upgrade of repetitive computing. The Company has also been expanding its 5G network construction scale, which hugely increased its CAPEX and correspondingly the OPEX. The Company actively participated in the work of major international were implemented according to the Policy on Risk Management and the Company’ s risk management requirement. This included the formulation of relevant risk management strategies, solution and corresponding departments carried out interim follow-up inspection works. The negative impacts arising from the risks and risk events were controlled as planned and were within an acceptable range. There were no significant control failings or weaknesses that have been identified during the standards organisations, which carrying out in- year. depth research and testing of new technologies and new businesses, continuously deepening co-build Monitoring and Optimisation co-share among the industry, advancing industrial To ensure the effectiveness of risk management chain collaboration and technological maturity and, and internal control designs, the Company carried on the end-user side, strengthening the driving out risk evaluation timely and compared the risk and guidance of the industry chain for large-scale points, formulated or enhanced corresponding development of 5G applications. internal control measures according to the change in business and management. At the same time, The scope of the 2021 overall risk evaluation the internal control manual will be updated timely c o v e r e d t h e w h o l e G r o u p , w h i c h i n c l u d e d through the assessment and review on applications headquarter, 31 provincial companies and its cities- on internal control workflow modification submitted level branch offices and subsidiaries. Through by professional departments, risk evaluation both the quantitative and qualitative analysis, reports and exceptional issues from internal control the Company fully considered the changes in assessment etc., so as to provide the effective operating environment, business and policies, support for the development of the sustainable identified the potential risk to the Company’ s growth of the Company. Internal Control and Risk operation, and planned for the risk according to Management Office conducted inspections on the quantitative result. After reporting to each effectiveness on risk management and internal professional departments and the management, control implementation in regular or irregular time the significant risks and the risk level of the interval, improved and enhanced risk management year were finally determined. The annual risk and internal control designs continuously. Our management instructions from the management Internal Audit Department has continued to organise our branches and subsidiaries to conduct annual internal control self-assessment based on the actual conditions of each unit and improve the quality of such self-assessment tasks, so as to gradually develop a quantitative internal assessment CHINA UNICOM �HONG KONG� LIMITEDANNUAL REPORT 2021CORPORATE GOVERNANCE REPORT058 059 regime governed by uniform standards. Through general framework regulating network products, the effective rectification of issues identified during equipment and services, as well as the operation the audit, assessment of the internal control system and maintenance of information networks, the and its implementation, improvements made to protection of personal data, and the supervision the system and process optimisation, a long-term and administration of cybersecurity in China. mechanism for closed-loop management in internal Identification Methods for Illegal Collection and control has been put in place. According to the Use of Personal Information by Apps published in internal control self- assessment reports from the 2019, stipulating standards for determining illegal branches and subsidiaries, self-assessment reports acts of collecting and using personal information from each professional department, current year through mobile applications. Information Security exceptional issues in internal control discovered Technology - Personal Information Security during internal audit and the Company annual risk Specification published in 2020 which replaced the management report, the Group’ s Internal Control old version published in 2017. The Cyber Security and Risk Management Office at its headquarter Review Measures published in 2020 require that formed the Company’ s internal control self- the procurement of network products and services assessment report, which acted as supporting that affect or may affect national security should document for the management to issue a statement conduct a network security review. The Data of the effectiveness of internal control. Based on Security Law of the People’ s Republic of China different disclosure requirements on Company’ s and Personal Information Protection Law of the internal control assessment report from different People’ s Republic of China published in 2021 further listing regulatory body, the Company prepared regulate data and personal information processing internal control assessment report respectively. activities, and protect the legitimate rights and External auditor issued and disclosed independence interests of individuals and organisations from being opinions on financial statement as at 31 December infringed. The Company also devotes significant on that year and effectiveness on internal control resources to network security, data security and over financial reporting. other security measures to protect its systems and data and in response to the evolving cybersecurity As a telecommunications operator, the Company is laws and regulations. The Company also employs subject to the regulations, eg, relevant provisions in risk management and internal control systems. the Cybersecurity Law of the People’ s Republic of including, among other things, (i)continuously China, Data Security Law of the People’ s Republic strengthening data security capabilities, such as of China and Personal Information Protection improving data encryption, protection of critical Law of the People’ s Republic of China, designed information infrastructure and security of supply to protect critical information infrastructure. chain of the information technology products and Personal privacy, information security, and data services; (ii) establishing data protection compliance protection are increasingly significant issues in China and other jurisdictions in which the Company operate. For example, Cybersecurity Law of the People’ s Republic of China which sets forth the 060 policies and guidelines, including training on crisis and financial reporting function, the adequacy of management and compliance of cybersecurity laws resources, staff qualifications and experience, and and regulations; (iii) self-examining potential risks training programs and budget. and weakness of data system and updating private policy; (iv) enhancing the real-time monitoring Information Disclosure Controls and Procedural and alarm reporting system and implementing an Standards emergency action plan to allow the Company to In order to further enhance the Company’ s act responsively and minimise losses in the event system of information disclosure, and to ensure of an emergency; and (v) continuously improving the truthfulness, accuracy, completeness and compliance efforts through enhanced sharing timeliness of its public disclosures (including of relevant knowledge internally and externally. inside information), the Company has adopted and The Company is required to perform a security implemented the Information Disclosure Control assessment when transferring personal information Policy. In an effort to standardise the principles for and important data overseas if such personal information disclosures, the Company established information and important data are collected from the Information Disclosure Review Committee under the operation in China. Annual review the management and formulated the procedures in connection with the compilation and reporting of the Company’ s financial and operational statistics T h e B o a r d o v e r s e e s t h e C o m p a n y ’ s r i s k and other information, as well as the procedures management and internal control systems on an in connection with the preparation and review ongoing basis and the Board conducted an annual of the periodic reports. Moreover, the Company review of the risk management and internal control established detailed implementation rules with systems of the Company and its subsidiaries for respect to the contents and requirements of the financial year ended 31 December 2021, which financial data verification, in particular, the upward covered all material controls including financial, undertakings by the individual responsible officers at operational and compliance controls. After receiving the major departments. the reports from the Internal Audit Department, as well as the confirmation from the management to the Board on the effectiveness of these systems, POLICY ON PAYMENT OF DIVIDEND The objective of the dividend policy is to achieve the Board is of the view that the Company’ s risk a long-term, sustainable and steadily increasing management and internal control systems is d i v i d e n d , w i t h a v i e w t o m a x i m i s i n g t h e effective and adequate. The review also ensure, with shareholders’ value. The declaration and payment respect to the Company’ s accounting, internal audit of future dividends will depend upon, among other CHINA UNICOM �HONG KONG� LIMITEDANNUAL REPORT 2021CORPORATE GOVERNANCE REPORT060 061 things, financial condition, business prospects, Upon the announcement of interim and annual future earnings, cash flow, liquidity level and cost results or major transactions, the Company will of capital. The Company believes such policy will generally hold analyst briefings, press conferences, provide the shareholders with a stable return in the and global conference calls with investors. long term along with the growth of the Company. During such conferences, the management of the Pursuant to the Companies Ordinance (Chapter Company would interact directly with analysts, fund 622 of the Laws of Hong Kong) and the Company’ s managers, investors and journalists to provide them articles of association, the Company may only pay with relevant information and data of the Company. dividends out of profits available for distribution. The Company’ s management would accurately and thoroughly respond to questions raised by Taking into consideration the Company’ s sound analysts, fund managers, investors and journalists. business development and strong free cash flow, Archived webcast of the investor presentation is also the Board recommended the payment of a final available on the Company’ s website to ensure wide dividend of RMB0.096 per share for the year ended dissemination of information and data. 31 December 2021, together with an interim dividend of RMB0.120 per share already distributed during The Company’ s investor relations department the year, total dividend for 2021 amounted to is responsible for providing information and RMB0.216 per share. Going forward, the Company services requested by investors, maintaining timely will continue to strive for enhancing its profitability communications with investors and fund managers, and shareholders’ returns. including responding to investors’ inquiries and CORPORATE TRANSPARENCY AND INVESTOR RELATIONS In addition to publishing annual reports and interim meeting with company-visit investors, as well as gathering market information and passing views from shareholders to the Directors and management to ensure such views are properly reports, the Company discloses major unaudited communicated. The Company also arranges from financial information (including revenue, operating time to time road shows and actively attends investor expenses, EBITDA, net profit) and other key conferences arranged by investment banks, through performance indicators on a quarterly basis and which the Company’ s management meets and announces operational statistics on a monthly basis communicates with investors to provide them with in order to enhance the Company’ s transparency opportunities to understand more accurately the and improve investors’ understanding of the Company’ s latest development and performance in business operations of the Company. various aspects, including business operations and management 062 In 2021, the Company participated in the following investor conferences: Date Conferences January 2021 January 2021 March 2021 March 2021 March 2021 June 2021 June 2021 June 2021 June 2021 June 2021 August 2021 September 2021 September 2021 September 2021 November 2021 November 2021 November 2021 November 2021 November 2021 November 2021 December 2021 Morgan Stanley Virtual China New Economy Summit UBS Greater China Conference 2021 BofA 2021 Asia Pacific Telecom, Media & Technology Conference 24th Credit Suisse Asian Investment Conference Morgan Stanley Virtual Hong Kong Summit CITIC Securities Capital Market Forum 2021 Nomura Investment Forum Asia 2021 Citi Pan-Asia Regional Investor Conference 2021 Industrial Securities 2021 Interim Strategy Conference CICC 2H 2021 Investment Strategy Conference UBS China TMI Virtual Conference 2021 Nomura China Investor Forum 2021 Jefferies Asia Forum 28th Annual CITIC CLSA Flagship Investors’ Forum 12th Credit Suisse China Investment Conference Goldman Sachs China Conference 2021 Citi China Investor Conference 2021 CICC Investment Forum 2021 Jefferies 5G, Software & Data Centers Access Days 2021 Huatai Investment Conference 2022 China Securities Capital Market Summit 2022 CHINA UNICOM �HONG KONG� LIMITEDANNUAL REPORT 2021CORPORATE GOVERNANCE REPORT 062 063 In addition, through announcements, press releases SHAREHOLDERS’ RIGHTS and the Company website (www.chinaunicom.com.hk), Annual General Meeting the Company disseminates the latest information regarding any significant business development in a timely and accurate 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 information to investors and the capital market, but also plays a significant role in the Company’ s valuation and our compliance with regulatory requirements for information disclosure. In 2021, the Company updated the content of its website on an ongoing basis to further enhance the functions of website and level of transparency in information disclosure, striving for achieving international best practices. Our website was honored with the Grand Award by an international institution, “iNova Awards” , this year. Furthermore, the Company has adopted a Shareholders’ Communication Policy to ensure that The Board endeavors to maintain an on-going dialogue with shareholders, and in particular, to communicate with shareholders through annual general meetings. Notices of annual general meeting are sent to shareholders at least 21 days before the meeting. The Directors and representatives of the Board committees usually attend the meetings and treasure the opportunities to communicate with shareholders at such meetings. The independent auditor also attends the annual general meeting for the reporting to shareholders every year. At general meetings, the chairman of the meeting proposes individual resolutions in respect of each substantially separate matter. All matters at the Company’ s general meetings are resolved by poll and the relevant procedures are explained at the meeting. The Company also appoints external scrutineers to ensure that all votes are counted and recorded appropriately, and publishes the poll results in a the shareholders of the Company are provided with timely manner. readily, equal and timely access to balanced and understandable information about the Company, to enable shareholders to exercise their rights in an informed manner, and to enhance the shareholders’ and the investment community’ s communication with the Company. The Company’ s effort in investor relations is well recognised by the capital market, and accredited with a number of awards. The Company was voted as “Asia’ s Best IR Team (Telecoms)” in “2021 All-Asia Executive Team” ranking organised by Institutional Investor. 064 The last annual general meeting of the Company The next annual general meeting will be held on 12 was held on 13 May 2021, at which the following May 2022. Please refer to the circular, which sets resolutions were passed and percentage of votes out the details, that has been sent together with this cast in favor of the resolutions are set out as follows: Annual Report. • to receive and consider the financial Putting Forward Resolutions at Annual General statements and the Reports of the Directors Meetings and of the Independent Auditor for the year Pursuant to Section 615 of the Companies Ordinance ended 31 December 2020 (over 99%) (Chapter 622 of the Laws of Hong Kong) , the following persons may put forward a resolution at • to declare a final dividend for the year ended the next annual general meeting of the Company: 31 December 2020 (over 99%) (a) any number of shareholders, together holding not less than 2.5% of the total voting rights of all • to re-elect Mr. Chen Zhongyue, Mr. Zhu shareholders which have, as at the date of the Kebing, Mr. Wong Wai Ming and Mr. Chung requisition, a right to vote at the next annual general Shui Ming Timpson as Directors, and to meeting, or (b) not less than 50 shareholders who authorise the Board to fix remuneration of the have a right to vote on the resolution at the annual Directors (over 99%) general meeting to which the requests relate. • to appoint auditor and authorise the Board to The resolution must be one which may be properly fix their remuneration for the year ending 31 moved and is intended to be moved at the next December 2021 (over 99%) annual general meeting. The requisition must be signed by the requisitionists and deposited at the • to grant a general mandate for share buy- registered office of the Company at least six weeks back (over 99%) or if later, the time at which notice is given of the annual general meeting before the annual general • to grant a general mandate to issue new meeting, the Company has a duty to give notice of shares (over 98%) such proposed resolution to all shareholders who are entitled to receive notice of the next annual • to extend the general mandate to issue new general meeting. shares (over 98%) CHINA UNICOM �HONG KONG� LIMITEDANNUAL REPORT 2021CORPORATE GOVERNANCE REPORT064 065 In addition, requisitionists may require the Company If the Directors do not, within 21 days from the date to circulate to shareholders entitled to receive of deposit of the requisition, proceed duly to convene notice of the annual general meeting a statement a meeting to be held not more than 28 days after the of not more than 1,000 words with respect to the notice of the meeting, shareholder(s) requisitioning resolution to be proposed. However, the Company is the meeting, or any of them representing more than not required to circulate any statement if the court half of their total voting rights, may themselves is satisfied that this right is being abused to secure convene a meeting to be held within three months of needless publicity for defamatory matters. In such such date. event, the requisitionists may be ordered to pay for the Company’ s expenses for application to the court. Meetings convened by the requisitionists must be convened in the same manner, as nearly as possible, If the requisition signed by the requisitionists does as meetings to be convened by Directors of the not require the Company to give shareholders notice Company. Any reasonable expenses incurred by the of a resolution, such requisition may be deposited at requisitionists will be reimbursed by the Company the registered office of the Company not less than due to the failure of the Directors duly to convene a one week before the next annual general meeting. meeting. Convening Extraordinary General Meetings Putting Forward Resolutions at Extraordinary Pursuant to Section 566 of the Companies General Meetings Ordinance, shareholder(s) holding not less than 5% Shareholders may not put forward resolutions to of the total voting rights of all shareholders having be considered at any general meetings other than a right to vote at general meetings of the Company annual general meetings. However, shareholders as at the date of deposit of the requisition, may may request an extraordinary general meeting request the Directors of the Company to convene an to consider any such resolution as described in extraordinary general meeting. The requisition must “Convening Extraordinary General Meetings” above. state the objects of the meeting and must be signed by the requisitionists and deposited at the registered office of the Company. CHINA UNICOM �HONG KONG� LIMITED ANNUAL REPORT 2021 CORPORATE GOVERNANCE REPORT 066066 Any queries relating to shareholders’ rights on putting forward resolutions at general meetings and convening extraordinary general meetings should be directed to the Company Secretary of the Company. Requisitions should be deposited at the Company’ s registered office and marked for the attention of the Company Secretary. CONTINUOUS EVOLUTION OF CORPORATE GOVERNANCE The Company continuously analyses the corporate governance development of international advanced enterprises and the investors’ desires, review and enhance corporate governance procedures and practices from time to time so as to meet our shareholders’ expectations, commits to high standards of corporate governance and recognises that good governance is vital for the long-term success and sustainability of the Company’ s business. CHINA UNICOM �HONG KONG� LIMITEDANNUAL REPORT 2021066 067 066 067 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 068 R E P O R T O F T H E D I R E C T O R S The board of directors (the “Board” ) of China dividend payment of RMB0.120 per share during Unicom (Hong Kong) Limited (the “Company” ) 2021, the total dividend payment for 2021 amounted is pleased to present its report together with the to RMB0.216 per share, totaling approximately audited financial statements of the Company and RMB6,609 million (2020: RMB5,018 million). Going its subsidiaries (the “Group” ) for the year ended 31 forward, the Company will continue to strive for December 2021. enhancing its profitability and shareholders’ returns. If approved by shareholders at the forthcoming PRINCIPAL ACTIVITIES The principal activity of the Company is investment annual general meeting, the 2021 Final Dividend is expected to be paid in Hong Kong dollars on or about holding. The principal activities of Company’ s 15 June 2022 to those members registered in the subsidiaries are the provision of cellular and Company’ s register of members as at 23 May 2022 fixed-line voice and related value-added services, (the “Dividend Record Date” ). broadband and other Internet-related services, information communications technology services, and business and data communications services in the PRC. FINANCIAL INFORMATION Please refer to the Financial Summary on pages 200 to 201 for the summary of the operating results, assets and liabilities of the Group for the five years RESULTS AND APPROPRIATION The results of the Group for the year ended 31 ended 31 December 2021. December 2021 are set out on pages 97 to 98 of this Please refer to the financial statements on pages 97 annual report. to 199 for the operating results of the Group for the year ended 31 December 2021 and the respective Taking into consideration the Company’ s sound financial positions of the Group and the Company as business development and strong free cash flow, at that date. the Board has resolved to recommend at the forthcoming shareholders’ general meeting that the payment of a final dividend of RMB0.096 per BUSINESS REVIEW The business review of the Group for the year ordinary share ( “2021 Final Dividend” ) for the year ended 31 December 2021 is set out in the sections ended 31 December 2021, totaling approximately headed “Chairman’ s Statement” on pages 8 RMB2,937 million. Together with the 2021 interim to 15, “Business Overview” on pages 16 to 21, CHINA UNICOM �HONG KONG� LIMITEDANNUAL REPORT 2021068 069 “Financial Overview” on pages 22 to 27, “Financial Statements” on pages 97 to 199, “Human Resources PROPERTY, PLANT AND EQUIPMENT Please refer to Note 15 to the consolidated financial Development” on pages 86 to 87, “Substainability statements for movements in the property, plant and Report” on pages 88 to 91, “Corporate Governance equipment of the Group for the year. Report” on pages 42 to 67 and “Report of the Directors” on pages 68 to 85 respectively of this annual report. All references herein to other CHARGE ON ASSETS As at 31 December 2021, no property, plant and sections or reports in this annual report form part of equipment was pledged to banks as loan security (31 this Report of the Directors. December 2020: Nil). LOANS Please refer to Notes 33, 39 and 45.3 to the SHARE CAPITAL Please refer to Note 30 to the consolidated financial consolidated financial statements for details of the statements for details of the share capital. borrowings of the Group. PROMISSORY NOTES Please refer to Note 34 to the consolidated financial RESERVES Please refer to page 102 and page 181 of this annual report for the movements in the reserves of the statements for details of the promissory notes of the Group and the Company during the year ended 31 Group. CORPORATE BONDS Please refer to Note 35 to the consolidated financial statements for details of the corporate bonds of the Group. COMMERCIAL PAPERS Please refer to Note 40 to the consolidated financial December 2021 respectively. As at 31 December 2021, the distributable reserve of the Company amounted to approximately RMB5,368 million (2020: approximately RMB13,679 million). SUBSIDIARIES, ASSOCIATES AND JOINT VENTURES Please refer to Notes 18, 19 and 20 to the consolidated financial statements for details of the statements for details of the commercial papers of Company’ s subsidiaries, the Group’ s associates and the Group. joint ventures. CAPITALISED INTEREST Please refer to Note 15 to the consolidated financial CHANGES IN SHAREHOLDERS’ EQUITY Please refer to page 102 of this annual report for the statements for details of the interest capitalised by Consolidated Statement of Changes in Equity and the Group for the year. page 181 for the Statement of Changes in Equity. EQUITY-LINKED AGREEMENTS Other than the share option scheme as disclosed in EMPLOYEE BENEFIT EXPENSES Please refer to Note 8 to the consolidated financial this Report of Directors, as at 31 December 2021, no statements for details of the employee benefit equity-linked agreements were entered into by the expenses provided to employees of the Group. Group during the year or subsisted. 070 PRE-EMPTIVE RIGHTS There are no provisions for pre-emptive rights in commencing on 22 April 2014 and will expire on 22 April 2024. Following the expiry of the 2014 Share the articles of association of the Company requiring Option Scheme, no further share option can be the Company to offer new shares to the existing granted under the 2014 Share Option Scheme, but shareholders in proportion to their shareholdings. the provisions of the 2014 Share Option Scheme will remain in full force and effect to the extent MAJOR CUSTOMERS AND SUPPLIERS The Group’ s sales to its five largest customers for necessary to give effect to the exercise of any share options granted prior thereto or otherwise as may the year ended 31 December 2021 did not exceed be required in accordance with the provisions of the 30% of the Group’ s total turnover for the year. 2014 Share Option Scheme. Under the 2014 Share Option Scheme: The Group’ s purchases from its largest supplier for the year ended 31 December 2021 represented (1) share options may be granted to employees approximately 17% of the Group’ s total purchases including all Directors; for the year. The total purchases attributable to the five largest suppliers of the Group for the year ended (2) any grant of share options to a Connected 31 December 2021 accounted for approximately 45% 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 Limited (the “Listing Rules” )) nor any shareholder of the Company (which to the knowledge of the Directors owns more than 5% of the Company’ s share capital) had any interests in 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 the five largest suppliers of the Group for the year shareholders; ended 31 December 2021. S H A R E O P T I O N S C H E M E O F T H E COMPANY Pursuant to a resolution passed at the annual general meeting held on 16 April 2014, the Company adopted a new share option scheme (the “2014 Share Option Scheme” ). The purpose of the (3) the maximum aggregate number of shares in respect of which share options may be granted shall be calculated in accordance with the following formula: N = A – B – C 2014 Share Option Scheme was to recognise the where: contribution that certain individuals have made to the Company, to attract and retain the best “N” is the maximum aggregate number 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 of shares in respect of which share options may be granted pursuant to the 2014 Share Option Scheme; CHINA UNICOM �HONG KONG� LIMITEDANNUAL REPORT 2021REPORT OF THE DIRECTORS070 071 “A” is the maximum aggregate number (5) the subscription price shall not be less than of shares in respect of which shares the higher of: options may be granted pursuant to the 2014 Share Option Scheme and (a) the closing price of the shares on any other share option schemes of the the Hong Kong Stock Exchange on Company, being 10% of the aggregate the offer date in respect of the share of the number of shares in issue as at options; and the date of adoption of the 2014 Share Option Scheme; (b) the average closing price of the shares on the Hong Kong Stock Exchange “B” is the maximum aggregate number of for the five trading days immediately shares underlying the share options preceding the 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 “C” is the maximum aggregate number of share options granted to a participant of the shares underlying the options already 2014 Share Option Scheme (including both granted pursuant to any other share exercised and outstanding share options) in option schemes of the Company. any 12-month period must not exceed 1% of Shares in respect of share options which have lapsed in accordance with the terms of (7) the consideration payable for each grant is the issued share capital of the Company; and the 2014 Share Option Scheme and any other HKD1.00. share option schemes of the Company will not be counted for the purpose of determining No share options had been granted since adoption of the maximum aggregate number of shares the 2014 Share Option Scheme. in respect of which options may be granted pursuant to the 2014 Share Option Scheme; As at 31 December 2021, 1,777,437,107 options were available for issue under the 2014 Share Option (4) the option period commences on any day Scheme, representing approximately 5.81% of after the date on which such share option is issued share capital of the Company as at the date of offered, but may not exceed 10 years from the this annual report. offer date; DIRECTORS’ , CHIEF EXECUTIVES’ AND EMPLOYEES’ INTERESTS UNDER THE SHARE OPTION SCHEME OF THE COMPANY For the year ended 31 December 2021 and as at 31 December 2021, 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. 072 DIRECTORS’ AND CHIEF EXECUTIVES’ INTERESTS AND SHORT POSITIONS IN SHARES, UNDERLYING SHARES AND DEBENTURES As at 31 December 2021, 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: Long Positions in the Shares and Underlying Shares of the Company 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 2021, 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 2021, 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. CHINA UNICOM �HONG KONG� LIMITEDANNUAL REPORT 2021REPORT OF THE DIRECTORS 072 073 MATERIAL INTERESTS AND SHORT POSITIONS OF SUBSTANTIAL SHAREHOLDERS IN SHARES AND UNDERLYING SHARES OF THE COMPANY As at 31 December 2021, 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: Long Positions in the Shares and Underlying Shares of the Company Name of Shareholders Directly Indirectly Issued Shares Ordinary Shares Held Percentage of (i) China United Network Communications Group Company Limited ( “Unicom Group” )1,2 (ii) China United Network Communications Limited ( “Unicom A Share Company” )1 — — 24,683,896,309 80.67% 16,376,043,282 53.52% (iii) China Unicom (BVI) Limited 16,376,043,282 — 53.52% ( “Unicom BVI” )1 (iv) China Unicom Group Corporation 8,082,130,236 225,722,791 27.15% (BVI) Limited (“Unicom Group BVI” )2,3 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 2021, 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. 074 REPURCHASE, SALE OR REDEMPTION OF LISTED SHARES OF THE COMPANY For the year ended 31 December 2021, neither INDEPENDENCE OF INDEPENDENT NON-EXECUTIVE DIRECTORS The Company has received from each of its the Company nor any of its subsidiaries had independent non-executive Directors the annual repurchased, sold or redeemed any of the confirmation of his independence pursuant to Rule Company’ s listed shares. 3.13 of the Listing Rules and the Company considers that all independent non-executive Directors are COMPOSITION OF THE BOARD The following is the list of Directors during the year currently independent. and up to date of this report. Executive Directors: DIRECTORS’ INTEREST IN TRANSACTIONS, ARRANGEMENTS AND CONTRACTS Save for the service agreements between the Liu Liehong (Chairman and Chief Executive Officer) Company and the executive Directors, subsisted (appointed on 3 September 2021) during 2021 or as at 31 December 2021, the Wang Xiaochu (resigned on 27 August 2021) Directors or his /her connected entity(ies) did Chen Zhongyue (appointed on 19 February 2021) not have any material interest, whether directly Wang Junzhi (appointed on 3 December 2021) or indirectly, in any significant transaction, Li Fushen (resigned on 11 June 2021) arrangement or contract entered into by the Mai Yanzhou (appointed on 28 February 2022) Company. Zhu Kebing (resigned on 18 June 2021) Fan Yunjun (resigned on 28 April 2021) None of the Directors for re-election at the Li Yuzhuo (appointed on 28 February 2022) forthcoming annual general meeting has an unexpired service agreement which is not Independent Non-Executive Directors: determinable by the Company within one year Cheung Wing Lam Linus Wong Wai Ming Chung Shui Ming Timpson Law Fan Chiu Fun Fanny Pursuant to the articles of association, Mr. Liu without payment of compensation (other than statutory compensation). DIRECTORS’ INTEREST IN COMPETING BUSINESSES Unicom Group and the A Share Company are Liehong, Mr. Wang Junzhi, Mr. Mai Yanzhou, Ms. Li engaged in telecommunications business and Yuzhuo, Mr. Cheung Wing Lam Linus and Mrs. Law other related businesses in China that are similar Fan Chiu Fun Fanny will retire at the forthcoming to and/or compete with those of the Company. annual general meeting of the Company and, being Executive directors of the Company also hold eligible, offer themselves for re-election. executive positions with Unicom Group and the A Please refer to Note 8 to the consolidated financial “Directors and Senior Management” on pages 30 to statements for details of the emoluments of the 41 of this annual report for further details. Share Company. Please refer to the section headed Directors. Mr. Li Fushen (resigned from his position as an executive Director of the Company with effect from 11 June 2021) was served as a non-executive director and the deputy chairman of the board of directors of PCCW Limited. Mr. Li Fushen also CHINA UNICOM �HONG KONG� LIMITEDANNUAL REPORT 2021REPORT OF THE DIRECTORS074 075 served as a non-executive director of HKT Limited and HKT Management Limited ( the trustee- manager of the HKT Trust) . Mr. Zhu Kebing E M P L O Y E E A N D R E M U N E R A T I O N POLICY A s a t 3 1 D e c e m b e r 2 0 2 1 , t h e G r o u p h a d (resigned from his position as an executive Director approximately 242,497 employees, 598 employees and Chief Financial Officer of the Company with and 286 employees in Mainland China, Hong Kong effect from 18 June 2021) was served as a non- and other countries, respectively. Furthermore, executive director of PCCW Limited, HKT Limited the Group had approximately 12,606 temporary and HKT Management Limited. Mr. Mai Yanzhou staff in Mainland China. For the year ended 31 serves as a non-executive director and the deputy December 2021, employee benefit expenses were chairman of the board of directors of PCCW Limited. approximately RMB58.944 billion (for the year Mr. Mai Yanzhou also serves as a non-executive ended 31 December 2020: RMB55.740 billion). director of HKT Limited and HKT Management The Group endeavors to maintain its employees’ Limited (the trustee-manager of the HKT Trust). remuneration in line with the market trend and E a c h o f P C C W L i m i t e d , H K T L i m i t e d a n d is determined in accordance with the Group’ s HKT Management Limited is engaged in the remuneration and bonus policies based on telecommunications business and other related their performance. The Group also provides businesses that may compete with those of the comprehensive benefit packages and career to remain competitive. Employees’ remuneration Company. development opportunities for its employees, including retirement benefits, housing benefits and Apart from the above, there are no competing internal and external training programmes, which interests of directors which are disclosable under are tailored in accordance with individual needs. Rule 8.10(2)(b) of the Listing Rules at any time during the year of 2021 up to and including the date of this The Company has adopted share option schemes, annual report. under which the Company may grant share options to eligible employees for subscribing for the DIRECTORS OF SUBSIDIARIES The names of all directors who have served on the Company’ s shares. boards of the subsidiaries of the Company during the year ended 31 December 2021 and up to the date of this report of directors are available on the USE OF PROCEEDS FROM ISSUE OF NEW SHARES As part of the mixed ownership reform plan, on Company’s website (http://www.chinaunicom.com.hk). 22 August 2017, the Company and Unicom BVI PERMITTED INDEMNITY Pursuant to the Company’ s articles of association, entered into a share subscription agreement. The completion of allotment and issuance of the subscription shares took place on 28 November subject to the applicable laws and regulations, every 2017. 6,651,043,262 new ordinary shares of the Director shall be indemnified out of the assets of Company have been issued for a cash consideration the Company against all costs, charges, expenses, of HKD13.24 per share to Unicom BVI and the losses and liabilities which he/she may sustain or gross proceeds amounted to HKD88,059.81 million incur in the execution of his/her office or otherwise (equivalent to approximately RMB74,953.87 million) in relation thereto. The Company has taken out and the net issue price amounted to HKD13.24 each. insurance against the liability and costs associated The closing price was HKD12.04 per share as quoted with defending any proceedings which may be on the Hong Kong Stock Exchange as at the date of brought against directors of the Group. the share subscription agreement. Details of such issue have been disclosed in the circular dated 28 August 2017. 076 As disclosed in our 2020 Annual Report, the actual U n i c o m G r o u p i s t h e u l t i m a t e c o n t r o l l i n g amounts of proceeds utilised up to 31 December shareholder of the Company and is therefore 2020 was approximately RMB74.58 billion and a connected person of the Company under the remaining proceeds as at 31 December 2020 was Listing Rules. Details of the continuing connected approximately RMB0.38 billion. Such remaining transactions under the 2020-2022 Comprehensive proceeds would be utilised in technology validation Services Agreement are as follows: and enablement and launch of trial programs in relation to the 5G network. The Company utilised the (1) Telecommunications Resources Leasing proceeds according to the above-mentioned plan Unicom Group agrees to lease to CUCL: during the period of 1 January 2021 to 31 December 2021. As at 31 December 2021, the Company did not (a) certain international telecommunications have proceeds that remained unused. CONTINUING CONNECTED TRANSACTIONS On 21 October 2019, CUCL, a wholly-owned resources (including international telecommunications channel gateways, international telecommunications service gateways, international submarine cable subsidiary of the Company, and Unicom Group capacity, international land cables and entered into a comprehensive services agreement international satellite facilities); and ( t h e “ 2 0 2 0 - 2 0 2 2 C o m p r e h e n s i v e S e r v i c e s Agreement” ) to renew certain continuing connected (b) certain other telecommunications transactions including (i) telecommunications facilities required by CUCL for its resources leasing; ( ii) property leasing; (iii) operations. value-added telecommunications services; (iv) materials procurement services; (v) engineering The rental charges for the leasing of design and construction services; (vi) ancillary international telecommunications telecommunications services; (vii) comprehensive resources and other telecommunications support services; (viii) shared services; and (ix) facilities are based on the annual financial services, including deposit services, depreciation charges of such resources lending and other credit services, and other financial and telecommunications facilities services. Pursuant to the 2020-2022 Comprehensive provided that such charges would not be Services Agreement, CUCL and Unicom Group shall higher than market rates. CUCL shall be provide certain services and facilities to each other responsible for the on-going maintenance and the receiving party shall pay the corresponding of such international telecommunications service fees in a timely manner. The 2020-2022 resources. CUCL and Unicom Group Comprehensive Services Agreement is valid for a shall determine and agree which party term of three years starting from 1 January 2020 and is to provide maintenance service to the expiring on 31 December 2022. telecommunications facilities referred to in (b). Unless otherwise agreed by CUCL and Unicom Group, such maintenance CHINA UNICOM �HONG KONG� LIMITEDANNUAL REPORT 2021REPORT OF THE DIRECTORS 076 077 service charges would be borne by services are provided by Independent Third CUCL. If Unicom Group is responsible Parties in the ordinary course of business for maintaining any telecommunications and under normal commercial terms. facilities referred to in (b), CUCL shall Negotiated rates refer to the rates based on pay to Unicom Group the relevant the reasonable costs plus the amount of the maintenance service charges which relevant taxes and reasonable profit margin. shall be determined with reference When determining the pricing standard to market rate, or where there is no or reasonable profit margin, to the extent market rate, shall be agreed between practicable, management of the Company the parties and determined on a cost- shall take into account the rates of at least plus basis. When determining the pricing two similar and comparable transactions standard or reasonable profit margin, entered with or carried out by Independent to the extent practicable, management Third Parties in the corresponding period of of the Company shall take into account reference. The rental charges are payable the rates of at least two similar and quarterly in arrears. comparable transactions entered with or carried out by Independent Third Parties For the year ended 31 December 2021, the or relevant industry profit margins in the rental charges paid by CUCL to Unicom corresponding period of reference. CUCL Group amounted to approximately RMB1,039 and Unicom Group agree to settle the net million, and the rental charges paid by rental charges and service charges due to Unicom Group to CUCL was negligible. Unicom Group on a quarterly basis. (3) Value-added Telecommunications Services For the year ended 31 December Unicom Group (or its subsidiaries) agrees to 2021, the total charges paid by provide the customers of CUCL with various CUCL to Unicom Group amounted to types of value-added telecommunications approximately RMB270 million. services. (2) Property Leasing CUCL shall settle the revenue generated CUCL and Unicom Group agree to lease to from the value-added telecommunications each other properties and ancillary facilities services with the branches of Unicom owned by CUCL or Unicom Group (including Group (or its subsidiaries) on the condition their respective branch companies and that such settlement will be based on the subsidiaries). average revenue for independent value-added telecommunications content providers who The rental charges for the leasing of each provide value-added telecommunications other properties and ancillary facilities content to CUCL in the same region. The are based on market rates. Where there revenue shall be settled on a monthly basis. is no market rate or it is not possible to determine the market rate, the rate shall For the year ended 31 December 2021, the be negotiated and agreed between the two total revenue allocated to Unicom Group in parties. Market rates refer to the rates at relation to value-added telecommunications which the same or similar type of products or services amounted to approximately RMB274 million. 078 (4) Materials Procurement Services Third Parties in the ordinary course of U n i c o m G r o u p a g r e e s t o p r o v i d e business and under normal commercial comprehensive procurement services for terms. Negotiated rates refer to the rates imported and domestic telecommunications based on the reasonable costs incurred in m a t e r i a l s a n d o t h e r d o m e s t i c n o n - providing the services plus the amount of the telecommunications materials to CUCL. relevant taxes and reasonable profit margin. Unicom Group also agrees to provide services When determining the pricing standard on management of tenders, verification or reasonable profit margin, to the extent of technical specifications, installation, practicable, management of the Company consulting and agency services. In addition, shall take into account the rates of at least Unicom Group will sell cable, modem and two similar and comparable transactions other materials operated by itself to CUCL entered into with Independent Third Parties and will also provide storage and logistics in the corresponding period or the relevant services in relation to the above materials industry profit margin for reference. The procurement. service charges due to Unicom Group will be Charges for the provision of materials procurement services are calculated at the For the year ended 31 December 2021 the settled on a monthly basis. rate of: total charges paid by CUCL to Unicom Group amounted to approximately RMB28 million. (a) up to 3% of the contract value of those procurement contracts in the case of (5) Engineering Design and Construction domestic materials procurement; and Services Unicom Group agrees to provide engineering (b) up to 1% of the contract value of those design, construction and supervision services procurement contracts in the case of and IT services to CUCL. Engineering design imported materials procurement. services include planning and design, engineering inspection, telecommunications The charges for the provision of materials electronic engineering, telecommunications operated by Unicom Group, and the pricing equipment engineering and corporate and/or charging standard of various materials t e l e c o m m u n i c a t i o n s e n g i n e e r i n g . procurement services, and storage and Construction services include services logistics services commission relevant to the relating to telecommunications equipment, direct material procurement are based on the telecommunications routing, power supplies, market rates. Where there is no market rate telecommunications conduit, and technical or it is not possible to determine the market support systems. IT services include services rate, the rate will be negotiated and agreed relating to office automation, software between the two parties. Market rates refer to testing, network upgrading, research the rates at which the same or similar type of and development of new business, and assets or services is provided by Independent development of support systems. CHINA UNICOM �HONG KONG� LIMITEDANNUAL REPORT 2021REPORT OF THE DIRECTORS 078 079 The charges for the provision of engineering The charges payable for the provision of design and construction services are based ancillary telecommunications services are on market rates. Market rates refer to the determined by the market rates between rates at which the same or similar type the two parties. Where there is no market of products or services are provided by rate or it is not possible to determine the Independent Third Parties in the ordinary market rates, the rate will be negotiated course of business and under normal and agreed between the two parties. Market commercial terms. When determining the rates refer to the rates at which the same pricing standard, to the extent practicable, or similar type of assets or services are management of the Company shall take provided by Independent Third Parties under into account the rates of at least two similar normal commercial terms. Negotiated and comparable transactions entered with rates refer to the rates based on the or carried out by Independent Third Parties reasonable costs plus the amount of the in the corresponding period of reference. In relevant taxes and reasonable profit margin. the event the recipient will determine the When determining the pricing standard specific provider of engineering design and or reasonable profit margin, to the extent construction services through tender, the practicable, management of the Company provider will be no less qualified and equipped shall take into account the rates of at least than the Independent Third Parties, and two similar and comparable transactions will participate in the tender procedure in entered into with Independent Third Parties a similar manner as the Independent Third in the corresponding period or the relevant Parties. Under such circumstances, the industry profit margin for reference. The pricing will be determined by the final rate service charges will be settled between CUCL according to the tender procedure. and Unicom Group as and when the relevant services are provided. The service charges will be settled between CUCL and Unicom Group as and when the For the year ended 31 December 2021, relevant services are provided. the total services charges paid by CUCL to Unicom Group amounted to approximately For the year ended 31 December 2021, RMB2,587 million. the total charges paid by CUCL to Unicom Group amounted to approximately RMB2,337 million. (6) Ancillary Telecommunications Services Unicom Group agrees to provide to CUCL ancillary telecommunications services, including certain telecommunications pre- sale, on-sale and after-sale services such as assembling and repairing of certain client telecommunications equipment, sales agency services, printing and invoice delivery services, maintenance of telephone booths, customers’ acquisitions and servicing and other customers’ services. 080 (7) Comprehensive Support Services two similar and comparable transactions U n i c o m G r o u p a n d C U C L a g r e e t o entered into with Independent Third Parties provide comprehensive support services in the corresponding period or the relevant to each other, including dining services, industry profit margin for reference. The facilities leasing services (excluding those service charges will be settled between CUCL facilities which are provided under the and Unicom Group as and when the relevant Telecommunications Resources Leasing services are provided. above), vehicle services, health and medical services, labour services, security services, For the year ended 31 December 2021, hotel and conference services, gardening the total services charges paid by CUCL to services, decoration and renovation services, Unicom Group amounted to approximately sales services, construction agency, RMB1,224 million, and the total services equipment maintenance services, market charges paid by Unicom Group to CUCL development, technical support services, amounted to approximately RMB193 million. r e s e a r c h a n d d e v e l o p m e n t s e r v i c e s , sanitary services, parking services, staff (8) Shared Services trainings, storage services, advertising Unicom Group and CUCL agree to provide services, marketing, property management shared services to each other, including, services, information and communications but not limited to, the following: (a) CUCL technology services (including construction will provide headquarter human resources and installation services, system integration services to Unicom Group; (b) Unicom Group services, software development, product and CUCL will provide business support sales and agent services, operation and centre services to each other; (c) CUCL maintenance services, and consultation will provide hosting services related to the services). services referred to in (a) and (b) above to Unicom Group; and (d) Unicom Group will The service charges are determined by the provide premises to CUCL and other shared market rates between the two parties. Where services requested by its headquarters. In there is no market rate or it is not possible relation to the services referred to in (b) to determine the market rate, the rate will above, CUCL will provide support services, be negotiated and agreed between the two such as billing and settlement services parties. Market rates refer to the rates at provided by the business support centre which the same or similar type of assets or and operational statistics reports. Unicom services are provided by Independent Third Group will provide support services, including Parties under normal commercial terms. telephone card production, development and Negotiated rates refer to the rates based on related services, maintenance and technical the reasonable costs plus the amount of the support and management services in relation relevant taxes and reasonable profit margin. to the telecommunications card operational When determining the pricing standard system. or reasonable profit margin, to the extent practicable, management of the Company shall take into account the rates of at least CHINA UNICOM �HONG KONG� LIMITEDANNUAL REPORT 2021REPORT OF THE DIRECTORS 080 081 Unicom Group and CUCL share the costs same type of deposit offered to other related to the shared services proportionately clients and the applicable interest rate in accordance with their respective total offered by the general commercial assets value, except that the total assets banks in PRC for the same type of value of the overseas subsidiaries and the deposit. listed company of Unicom Group will be excluded from the total asset value of Unicom (b) Lending and other credit services Group. The shared costs proportion will be The lending interest rate will follow the agreed between Unicom Group and CUCL in interest rate standard promulgated by accordance with the total assets value set out the People’ s Bank of China, and will be in the financial statements provided to each no less than the minimum interest rate other, as adjusted in accordance with their offered by CUCL and its subsidiaries respective total assets value on an annual to other clients for the same type of basis. loan, and the applicable interest rate offered to Unicom Group by the general For the year ended 31 December 2021, commercial banks in PRC for the the total services charges paid by CUCL to same type of loan. For the year ended Unicom Group amounted to approximately 31 December 2021, the maximum RMB86 million, and the services charges paid d a i l y l e n d i n g a n d o t h e r c r e d i t by Unicom Group to CUCL was negligible. services balance (including accrued (9) Financial Services CUCL or its subsidiaries agrees to provide interests) amounted to approximately RMB10,583 million. financial services to Unicom Group, including (c) Other financial services deposit services, lending and other credit The fees to be charged by CUCL services, and other financial services. or its subsidiaries for the provision Other financial services include settlement of the financial services to Unicom services, acceptance of bills, entrusted loans, Group will comply with the relevant credit verification, financial and financing prescribed rates for such services as consultation, consultation, agency business, determined by the People’ s Bank of approved insurance agent services, and China or the China Banking Regulatory other businesses approved by China Banking Commission. Where no relevant Regulatory Commission. The key pricing policies are follows: prescribed rate is applicable, the fee will be determined with reference to market rates of similar financial services charges and agreed between (a) Deposit Services the parties. The interest rate for Unicom Group’ s deposit with CUCL or its subsidiaries The service charges will be settled between will be no more than the maximum CUCL or its subsidiaries and Unicom Group interest rate promulgated by the as and when the relevant services are People’ s Bank of China for the same provided. type of deposit, the interest rate for the 082 For the financial year ended 31 December 2021, the Furthermore, the aforesaid continuing connected above continuing connected transactions have not transactions have been reviewed by independent exceeded their respective caps. non-executive directors of the Company. The independent non-executive directors confirmed that T h e C o m p a n y h a s f o r m u l a t e d a n d s t r i c t l y the aforesaid continuing connected transactions implemented various systems including the were entered into (a) in the ordinary and usual Administrative Measures of Connected Transactions course of business of the Group; (b) either on normal of China Unicom to ensure that connected commercial terms or better or, if there are not transactions are properly entered into in accordance sufficient comparable transactions to judge whether with pricing mechanisms and the terms of the they are on normal commercial terms, on terms no transactions are fair and reasonable and are in the less favourable to the Group than terms available interests of the Company and the Shareholders as a to or from independent third parties; and (c) in whole. accordance with the relevant agreements governing them on terms that are fair and reasonable and in The staff from the relevant business departments the interests of the shareholders of the Company as and the connected persons of the Company will a whole. negotiate the pricing terms of the continuing connected transactions. These pricing terms will The Company’ s independent auditor was engaged be determined in accordance with the pricing policy to report on the Group’ s continuing connected principles set out in the 2020-2022 comprehensive transactions in accordance with Hong Kong services agreement, which should be fair and Standard on Assurance Engagements 3000 reasonable and subject to the review of the finance “Assurance Engagements Other Than Audits or department. Reviews of Historical Financial Information” and with reference to Practice Note 740 “Auditor’ s The legal department is responsible for the review Letter on Continuing Connected Transactions under of the agreement for connected transactions. the Hong Kong Listing Rules” issued by the Hong The finance department takes the lead in the Kong Institute of Certified Public Accountants. The daily management and supervision of connected independent auditor has issued an unqualified letter transactions, including liaising with the relevant containing his findings and conclusions in respect business departments for account reconciliation of the continuing connected transactions disclosed w i t h c o n n e c t e d p a r t i e s , m o n i t o r i n g t h e by the Group in pages 76 to 82 of this annual implementation of connected transactions together report in accordance with paragraph14A.56 of the with business departments on a routine basis and Listing Rules. The independent auditors’ letter has performing supervisory examination. The finance confirmed that nothing has come to their attention department regularly reports the status of the that cause them to believe that the continuing implementation of connected transactions to the connected transactions: Audit Committee. The audit department includes review on connected transactions into the scope of (A) have not been approved by the Board; annual internal control assessment and reports the results to the management. (B) were not, in all material respects, in accordance with the pricing policies of the Group as stated in this annual report; CHINA UNICOM �HONG KONG� LIMITEDANNUAL REPORT 2021REPORT OF THE DIRECTORS082 083 (C) were not entered into, in all material respects, in accordance with the relevant agreements MATERIAL LEGAL PROCEEDINGS As a company incorporated in Hong Kong and listed 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 in Hong Kong, the Company adopts the Companies transactions; and Ordinance of Hong Kong, the Securities and Futures Ordinance of Hong Kong, Rules Governing the (D) have exceeded their respective annual caps Listing of Securities on The Stock Exchange of Hong for the financial year ended 31 December Kong Limited, the Company’ s Articles of Association 2021 set out in the previous announcements and other related laws and regulations as the basic of the Company. guidelines for the Company’ s corporate governance. A copy of the independent auditor’ s letter has been The principal activities of Company’ s subsidiaries provided by the Company to the Hong Kong Stock are the provision of cellular and fixed-line voice Exchange. and related value-added services, broadband and other Internet-related services, information The Company confirms that it has complied with the communications technology services, and business requirements of Chapter 14A of the Listing Rules in and data communications services in the PRC. relation to all connected transactions and continuing The Company is required to comply with the connected transactions to which any Group member Cybersecurity Law of the People’ s Republic of China, was a party during 2021. Please refer to Note 45 to Telecommunications Regulations of the People’ s the consolidated financial statements for a summary Republic of China, Administrative Regulations on of the related party transactions entered into by Telecommunications Companies with Foreign the members of the Group for the year ended 31 Investments and other related laws and regulations. December 2021. CORPORATE GOVERNANCE REPORT Report on the Company’ s corporate governance is set out in “Corporate Governance Report” on pages 42 to 67. DELIST OF ADSs AND TERMINATION OF ADSs PRORGAM Pursuant to the former U.S. President’ s executive 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 2021, 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 order and the requirements of the New York pending or threatened as at 31 December 2021. Stock Exchange LLC (the “NYSE” ), the delisting of the Company’ s the American Depositary Shares ( “ADSs” ) from NYSE has taken effect on 18 May PUBLIC FLOAT Based on publicly available information and so far as 2021, and the ADSs Program has terminated on Directors are aware, the Company has maintained 18 October 2021. The Company’ s ordinary shares the specified amount of public float as required are traded on The Stock Exchange of Hong Kong by the Hong Kong Stock Exchange during the year Limited. ended 31 December 2021 and as at the date of this annual report. 084 DONATIONS For the year ended 31 December 2021, the Group made charitable and other donations in an aggregate amount of approximately RMB2.082 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 12 May 2022, and entitlement to the 2021 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 (and any adjournment thereof): Latest time to lodge transfer documents for registration 4:30 p.m. of 3 May 2022 Closure of register of members From 4 May 2022 to 12 May 2022 Record date 4 May 2022 (2) For ascertaining the shareholders’ entitlement to the 2021 Final Dividend: Latest time to lodge transfer documents for registration 4:30 p.m. of 20 May 2022 Closure of register of members Dividend Record date 23 May 2022 23 May 2022 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 2021 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 2021 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 2021 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. As a result of the foregoing, in respect of any shareholders whose names appear on the Company’ s register of members on the Dividend Record Date and who are not individuals (including HKSCC Nominees Limited, other custodians, corporate nominees and trustees such as securities companies and banks, and other entities or organisations), the Company will distribute the 2021 Final Dividend payable to them after deducting the amount of Enterprise Income Tax payable on such dividend. Investors who invest in the shares in the Company listed on the Main Board of The Stock Exchange of Hong Kong Limited through the Shanghai Stock Exchange or Shenzhen Stock Exchange (the Shanghai-Hong Kong Stock Connect or Shenzhen-Hong Kong CHINA UNICOM �HONG KONG� LIMITEDANNUAL REPORT 2021REPORT OF THE DIRECTORS 084 085 Stock Connect investors) are investors who hold Company assumes no liability whatsoever in respect shares through HKSCC Nominees Limited, and of and will not process any claims, arising from in accordance with the above requirements, the any delay in, or inaccurate determination of, the Company will pay to HKSCC Nominees Limited the status of the shareholders, or any disputes over the amount of the 2021 Final Dividend after deducting mechanism of withholding. the amount of Enterprise Income Tax payable on such dividend. MANAGEMENT CONTRACTS Other than employment contracts, no contract In respect of any shareholders whose names concerning the management and administration of appear on the Company’ s register of members on the whole or any substantial part of the Company’ s the Dividend Record Date and who are individual business was entered into or existed during 2021. shareholders, there will be no deduction of Enterprise Income Tax from the dividend that such shareholder is entitled to. INDEPENDENT AUDITOR At the close of the 2021 annual general meeting of the Company held on 13 May 2021, KPMG and Shareholders who are not individual shareholders KPMG Huazhen LLP retired as independent auditor listed on the Company’ s register of members and of the Company upon expiration of its term of who (i) are resident enterprises of the People’ s office. The Hong Kong financial reporting for the Republic of China (the “PRC” ) (as defined in the year ended 31 December 2021 have been audited Enterprise Income Tax Law), or (ii) are enterprises by Deloitte Touche Tohmatsu, which retire and, deemed to be resident enterprises of the PRC being eligible, offer itself for re-appointment at the in accordance with the Notice, and who, in each 2022 annual general meeting. A resolution to re- case, do not desire to have the Company withhold appoint appointment of Deloitte Touche Tohmatsu Enterprise Income Tax from their 2021 Final and to authorise the Directors to fix its respective Dividend, should lodge with the Company’ s Share remuneration will be proposed at the 2022 annual Registrar, Hong Kong Registrars Limited, at Shops general meeting. 1712-1716, 17th Floor, Hopewell Centre, 183 Queen’ s Road East, Wan Chai, Hong Kong, at or before 4:30 p.m. of 20 May 2022, and present the documents from such shareholder’ s governing tax authority in the PRC 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. By Order of the Board Liu Liehong If anyone would like to change the identity of the Chairman and Chief Executive Officer holders in the register of members, please enquire about the relevant procedures with the nominees Hong Kong, 11 March 2022 or trustees. The Company will withhold for payment of the Enterprise Income Tax for its non-resident enterprise shareholders strictly in accordance with the relevant laws and requirements of the relevant government agencies and adhere strictly to the information set out in the Company’ s register of members on the Dividend Record Date. The CHINA UNICOM �HONG KONG� LIMITED ANNUAL REPORT 2021 086 086 H U M A N R E S O U R C E S D E V E L O P M E N T Adhering to the team collaboration approach, more than 2,800 vacancies through the internal China Unicom continuously optimises its system human resources market, with an accumulation of and mechanism, allowing employees and teams more than 12,000 applicants. who highly contributing to customer needs and enhancing corporate value to share higher The Company adopted performance-based returns, thus achieving the mutual growth of the compensation as the principal mechanism with a Company and the employees. In 2021, underpinned diversified remuneration structure. The Company by the goals of promoting “staff in and out” , improved the employee compensation distribution “post up and down” and “compensation up and and performance evaluation mechanism to achieve down” , China Unicom paid continuous efforts to the aligned growth of employee benefits and the deepen the human resources system reform and return and efficiency of the Company. The Company implement a talent-based enterprise, providing optimised its value-based internal remuneration human resources support for the Company’ s distribution mechanism, coordinating and comprehensive digital transformation and optimising the distribution and widening the gap achieving sustainable high-quality development. in remuneration, so as to realise precision in allocation. The Company launched an integrated Supply-side reforms in human resources continued incentive reporting system, which is able to to improve employment efficiency and optimise deliver customised remuneration report to the employment structure. The Company strengthened employees, further enhancing employees’ sense t h e e m p l o y m e n t e f f i c i e n c y u p t o i n d u s t r y of achievement. A long-term incentive system was benchmarks and internal benchmarks by rationally also established to effectively attract, retain, and allocating employment resources, resulting in a 7% appropriately compensate talents. year-on-year increase in the labour productivity. In 2021, the Company stepped up the introduction Focusing on the top-level design, the Company of transformation talents, 6,032 high school conducted comprehensive analysis on the graduates were introduced and mainly allocated to leadership team structure and the overall planning innovative transformation roles. Internal personnel and coordination with due regard to the needs were mobilised orderly through the internal human of the Company in the course of development. resources market. In 2021, the Company opened China Unicom continuously optimised the quality and ability of management, strengthened the CHINA UNICOM �HONG KONG� LIMITEDANNUAL REPORT 2021086 087 086 087 supervision of managers and motivating managers the construction of four-level professional talent at all levels to take new responsibilities and deliver echelon that consists of 19,000 leaders, experts, new initiatives in the new era. The Company backbones and cutting-edge talents, of which strategically accelerated structural optimisation technical professionals accounted for more than and further strengthened the young manager 50%. The Company accelerated the training and development, as well as the communication introduction of high-level talents and introduced between the headquarters and the frontline. In more than 40 domestic industrial experts in the 2021, the Company organised the “100 People to field of scientific and technological innovation. Xiong’ an” talent exchange program in accordance Digital empowerment of key groups was carried out with the construction requirement of Xiong’ an to realise the full coverage of digital empowerment New Area. Management systems with terms and of 4,000 management personnel and 19,000 four- deeds were fully implemented. While promoting the level professional talents. withdrawn rate of 2nd tier managers of no less than 1.5% per annum, the Company stepped up effort Focusing on the Group’ s digital transformation to withdraw managers, further stimulating their work, with improvement in the digital capabilities vitality. for all employees as a core aim, the Group formulated the annual key training plans for T h e C o m p a n y f o r m u l a t e d a n d i s s u e d t h e management personnel and professionals, and “Guiding Opinions on In-depth Implementation of carried out regular and multi-level professional Strengthening Enterprise through Talents” , which a b i l i t y i m p r o v e m e n t a n d t r a n s f o r m a t i o n determined that the Company would vigorously empowerment training. Targeting on the career adjust the talent structure based on innovation, d e v e l o p m e n t o f e m p l o y e e s , t h e C o m p a n y including increasing the proportion of scientific and implemented differentiated training for different technological innovation and R&D personnel and groups, constructed digital ability standards promoting the implementation through reforming and curriculum systems for key groups, formed the resource allocation model, implementing key training programs and increased standardised talent projects and deepening the reform of talent empowerment and system guidance. mechanism. The Company continued to strengthen ANALYSIS OF STAFF COMPOSITION PERSONNEL BY PROFESSION BY AGE BY EDUCATION BACKGROUND 12.37% 12.37% Administrative & Administrative & Support Support 0.89%0.89% Other Other 28.90% 28.90% Technical Technical 7.38%7.38% Management Management 16.97% 16.97% Over 50 Over 50 years old years old 15.48% 15.48% Under 30 Under 30 years old years old 11.26% 11.26% Secondary school Secondary school or below or below 8.53%8.53% Postgraduate or Postgraduate or above above 16.87% 16.87% College College 50.46% 50.46% Marketing Marketing 67.55% 67.55% Between 30-50 Between 30-50 years old years old 63.34% 63.34% Bachelor degree Bachelor degree For further details of Human Resources Development, please refer to the relevant sections of the Company’s detailed Sustainability Report 2021 to be published in May 2022. Please visit the Company’s website at www.chinaunicom.com.hk. CHINA UNICOM �HONG KONG� LIMITED ANNUAL REPORT 2021 088 089 088 089 S U S TA I N A B I L I T Y R E P O R T China Unicom is always committed to integrating its own development with broader sustainable d e v e l o p m e n t t o a c h i e v e t h e h a r m o n y a n d alignment of corporate interests and social goals. In 2021, under the guidance of the new development philosophies of 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 expressed its willingness and attitude to assume the responsibility of sustainable development by formulating the sustainable development strategy system of China Unicom. In the face of the impact of the pandemic, rapid changes in situations and uncertainties in the tough external environment, we bravely assumed the responsibilities of economic, social, environmental and technological innovation, and started a new journey of high-quality development with new positioning and new strategic pattern. COMMITTING THE CORPORATE RESPONSIBILITIES AND STEADILY PERFORMING THE RESPONSIBILITY OF ECONOMIC DEVELOPMENT China Unicom supports the development of digital As achievements in the opening year, we have economy and empowers thousands of industries demonstrated our new responsibilities in serving with digital intelligence by continuously enriching the implementation of major national strategies to the connotations of communication products meet the people’ s demand for high-quality life and and services, with a view to vigorously improve lead the transformation and upgrade of thousands network quality and user experience and provide of industries. BEARING IN MIND THE NEEDS OF THE COUNTRY AND RESOLUTELY SHOULDERING THE RESPONSIBILITY OF NATIONAL STRATEGIC PLANS Adhering to the people-oriented value and fundamental logic, China Unicom accelerated the construction of high-speed and ubiquitous, air-space-ground integrated, cloud-network integrated, smart and agile, green and low- carbon, and secured and controllable digital i n f o r m a t i o n i n f r a s t r u c t u r e o f i n t e l l i g e n c e and comprehensiveness, so as to build Cyber Superpower and Digital China through promoting r e g i o n a l c o o r d i n a t i o n d e v e l o p m e n t a n d maintaining network information security. customers with quality communication services. As a “pioneer” in the mixed-ownership reform of central state-owned enterprises, China Unicom has been guided by the market-oriented allocation factors of production, deeply reformed systems and mechanisms and accelerated the establishment of new mechanism that stimulates the vitality of micro entities to better adapt production relations to productivity development, leading to significant improvement in operational efficiency. China Unicom considers employees as the most valuable resources of the Company, it attaches great importance to employees and helps them achieve success, providing them with a broad development p l a t f o r m t o p r o m o t e t h e c o m p r e h e n s i v e development of employees and form good vibes for the harmonious development of employees and the enterprise. CHINA UNICOM �HONG KONG� LIMITEDANNUAL REPORT 2021SUSTAINABILITY REPORT 090 091 CARING FOR THE PEOPLE AND STRONGLY BEARING THE RESPONSIBILITY OF SOCIETY AND PEOPLE’ S LIVELIHOOD China Unicom has always adhered to the people-oriented development philosophy, taking the improvement of people’ s well-being and all-round development as the starting point and goal of digital development. The Company effectively connected the consolidation and expansion of poverty alleviation achievements with rural revitalisation, actively delivered the warmth of public welfare, promoted the common prosperity of the society, and continuously enhanced the people's sense of gain, happiness and security. At the same time, the Company actively implemented the national “dual carbon” requirements to help build a beautiful China and gathered the advantages of all parties to form an integrated and opened collaboration ecosystem to promote the common development of the industry chain. INSIGHT IN THE TREND AND DEEPLY IMPLEMENTING THE RESPONSIBILITY OF SCIENTIFIC AND TECHNOLOGICAL INNOVATION China Unicom is committed to becoming the national team in the operation and service of digital information infrastructure, the key force in the establishment of Cyber Superpower, Digital China and Smart Society, and the frontline troop in the integration and innovation of digital technologies. Targeting at serving national strategies and supporting and leading high-quality development, the Company will coordinate development and security, focus on improving demand-driven original technology, source supply, resource allocation, transformation and application capabilities, and accelerate the construction of a world-class enterprise to play a better role as a state-owned enterprise in achieving technology independence and self-improvement and building a modern industrial system. COMMUNITY PARTNERS SHAREHOLDERS CHINA UNICOM’S SUBSTAINABILITY STRATEGY SYSTEM CREATE AND ENHANCE VALUE GOVERNMENT Resolutely shouldering the responsibility of national strategy plan EMPLOYEES Steadily performing the responsibility of economic development Strongly bearing the responsibility of society and people’s livelihood Deeply implementing the responsibility of semantic and technological innovation CUSTOMERS PEERS The Company will publish its detailed. Sustainability Report 2021 in May 2022. For more details, please visit the Company’ s website at https://www.chinaunicom.com.hk. CHINA UNICOM �HONG KONG� LIMITEDANNUAL REPORT 2021092 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 (collectively referred to as the “Group”) set out on pages 97 to 199, which comprise the consolidated statement of financial position as at 31 December 2021, 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 2021, and of its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with Hong Kong Financial Reporting Standards (“HKFRSs”) issued by the Hong Kong Institute of Certified Public Accountants (the “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 judgment, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. table column width 65ptCHINA UNICOM �HONG KONG� LIMITEDANNUAL REPORT 2021INDEPENDENT AUDITOR’S REPORT | 093 Key audit matter Revenue recognition How our audit addressed the key audit matter We identified revenue recognition as a key audit matter because Our procedures in relation to revenue recognition comprising there is an inherent industry risk around the accuracy of revenue both control testing and substantive procedures on a sample recorded by the IT billing systems given the complexity of the basis, included involving our internal IT specialists to assist systems and the significance of volumes of data processed by the with: systems. Revenues from the provision of telecommunications services are, reside, including interface controls between different IT • Testing the IT environment in which the billing systems in general, recognised as performance obligations are satisfied. applications. Fees for telecommunications packages are recognised for each service type in the packages. The data records are captured and • Testing the key controls over the calculation of the amounts the revenue transactions are recorded by the IT billing systems. billed to customers and the capturing and recording of the Details of the accounting policies for revenue recognition and an analysis of revenues are disclosed in Note 2.25 and Note 6, • Testing the key controls over the authorisation of the rate respectively, to the consolidated financial statements. changes and the input of such rates to the billing systems. revenue transactions. • Testing the end-to-end reconciliations from data records to the billing systems and to the general ledger. • Testing the accuracy of customer bill calculations and the respective revenue transactions recorded. • Testing revenue transactions by comparing the amounts recognised in general ledger to supporting documents, including customer bills, contracts and billing reports. table column width 65pt092 094 Key audit matter How our audit addressed the key audit matter Impairment of goodwill and long-lived assets We identified the impairment of goodwill and long-lived assets as a Our procedures in relation to the impairment of goodwill and key audit matter because the impairment assessment of the cash- long-lived assets included: generating unit to which those assets belong requires the management to exercise significant judgments relating to the • With the assistance of our internal valuation specialists, estimation of level of revenue, amount of operating costs and assessing the discount rate and assumptions used by the applicable discount rate. management in the value in use model and comparing the discount rate used by the management to externally derived Details of the accounting policies for impairment of goodwill and data and our own assessments of key inputs used in long-lived assets and the related accounting estimates are deriving the discount rate. disclosed in Note 2.8, Note 2.13 and Note 4.2, respectively, to the consolidated financial statements. Details of goodwill impairment • With the assistance of our internal valuation specialists, assessment are disclosed in Note 17 to the consolidated financial comparing the key inputs to the projected cash flows, such statements. as the revenue growth rate and amount of operating costs, with corresponding historical data to evaluate the reasonableness of the management’s projections. • Assessing and challenging the significant judgments and estimates used in the management’s impairment assessment and evaluating the sensitivity analysis performed by the management. Other Information The directors of the Company are responsible for the other information. The other information comprises the information included in the annual report, but does not include 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. table column width 65ptCHINA UNICOM �HONG KONG� LIMITEDANNUAL REPORT 2021INDEPENDENT AUDITOR’S REPORT 094 | 095 Responsibilities of Directors and Those Charged with Governance for the Consolidated Financial Statements The directors of the Company are responsible for the preparation of the consolidated financial statements that give a true and fair view in accordance with 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. Those charged with governance are responsible 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 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 judgment and maintain professional skepticism 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. table column width 65pt096 • Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation. • Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, actions taken to eliminate threats or safeguards applied. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. The engagement partner on the audit resulting in the independent auditor’s report is Ip Kan Wah. Deloitte Touche Tohmatsu Certified Public Accountants Hong Kong 11 March 2022 table column width 65ptCHINA UNICOM �HONG KONG� LIMITEDANNUAL REPORT 2021INDEPENDENT AUDITOR’S REPORT | 097 (All amounts in Renminbi (“RMB”) millions, except per share data) For the year ended 31 December 2021 Year ended 31 December Note 2021 2020 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 Profit for the year 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) 6 7 8 9 10 11 12 13 14 14 327,854 303,838 (11,557) (85,652) (53,087) (58,944) (30,683) (77,263) (1,385) 1,215 1,862 1,448 4,119 17,927 (3,420) (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) 14,507 12,577 14,368 139 12,493 84 14,507 12,577 0.47 0.47 0.41 0.41 The notes on pages 106 to 199 are an integral part of these consolidated financial statements. table column width 65ptCONSOLIDATED STATEMENT OF INCOME096 098 For the year ended 31 December 2021 (All amounts in RMB millions) 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 fair value through other comprehensive income (“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 Items 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 2021 2020 14,507 12,577 135 (3) 132 (23) 109 (3) (133) (136) (1,482) 4 (1,478) (5) (1,483) 34 (257) (223) Other comprehensive income for the year, net of tax (27) (1,706) Total comprehensive income for the year 14,480 10,871 Total comprehensive income attributable to: Equity shareholders of the Company Non-controlling interests 14,341 139 10,787 84 Total comprehensive income for the year 14,480 10,871 The notes on pages 106 to 199 are an integral part of these consolidated financial statements. table column width 65ptCHINA UNICOM �HONG KONG� LIMITEDANNUAL REPORT 2021CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME  | 099 At 31 December 2021 (All amounts in RMB millions) As at 31 December Note 2021 2020 15 16 17 19 20 13 21 22 23 25 26 21 27 28 45 45 23 24 29 355,031 364,187 32,866 2,771 41,278 7,138 271 71 4,025 3,715 17,682 37,960 2,771 38,802 5,656 745 103 3,672 3,493 14,591 464,848 471,980 1,846 406 17,957 17,925 10,558 270 2,007 29,011 11,968 34,280 1,951 823 16,287 15,882 10,570 195 3,665 24,189 11,989 23,085 126,228 108,636 591,076 580,616 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 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 table column width 65ptCONSOLIDATED STATEMENT OF FINANCIAL POSITION098 100 At 31 December 2021 (All amounts in RMB millions) 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 2021 2020 30 31 32 33 34 35 36 13 37 45 38 254,056 (17,228) 2,937 92,572 254,056 (18,821) 5,018 86,334 332,337 326,587 1,096 933 333,433 327,520 1,835 — — 10,415 417 6,951 742 1,098 2,482 998 1,999 16,458 64 5,927 3,042 98 21,458 31,068 table column width 65ptCHINA UNICOM �HONG KONG� LIMITEDANNUAL REPORT 2021CONSOLIDATED STATEMENT OF FINANCIAL POSITION 100 | 101 As at 31 December Note 2021 2020 39 40 33 34 35 36 41 45 45 38 21 385 6,875 372 1,004 2,039 12,144 140,124 4,246 1,435 4,028 12,926 2,262 2,519 45,704 122 740 7,000 418 — 1,000 11,503 134,437 5,482 2,805 1,640 9,183 2,291 2,529 42,641 359 236,185 222,028 257,643 253,096 591,076 580,616 (109,957) (113,392) Current liabilities Short-term bank loans Commercial papers Current portion of long-term bank loans Current portion of promissory notes 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 Current portion of other obligations Contract liabilities Advances from customers Total liabilities Total equity and liabilities Net current liabilities Total assets less current liabilities 354,891 358,588 The notes on pages 106 to 199 are an integral part of these consolidated financial statements. Approved and authorised for issue by the Board of Directors on 11 March 2022 and signed on behalf of the Board by: Liu Liehong Director Li Yuzhuo Director table column width 65pt 102 For the year ended 31 December 2021 (All amounts in RMB millions) Attributable to equity shareholders of the Company General Investment Share risk revaluation Statutory Other Retained Non- controlling Note capital reserve reserve reserves reserves profits Total interests Balance at 1 January 2020 254,056 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 final Capital contribution relating to share-based payment borne by A Share Company (as defined in Note 1) Others 32 44 — — — — — — — 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 Total equity 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 Total comprehensive income for the year Contribution from non-controlling interests Addition of subsidiaries Share of associate’s other reserves Appropriation to statutory reserves Appropriation to other reserves Dividends relating to 2020 final Dividends relating to 2021 interim Capital contribution relating to share-based payment borne by A Share Company Others 32 32 44 — — — — — — — — — — — — — — — 137 — — — — 132 — — — — — — — — — — — — — 1,384 — — — — — (159) — — (56) — — — — 136 19 14,368 14,341 139 14,480 — — — (1,384) (137) (5,018) (3,672) — — — — (56) — — (5,018) (3,672) 136 19 10 14 — — — — — — — 10 14 (56) — — (5,018) (3,672) 136 19 Balance at 31 December 2021 254,056 987 (9,302) 32,815 (41,728) 95,509 332,337 1,096 333,433 The notes on pages 106 to 199 are an integral part of these consolidated financial statements. table column width 65ptCHINA UNICOM �HONG KONG� LIMITEDANNUAL REPORT 2021CONSOLIDATED STATEMENT OF CHANGES IN EQUITY  | 103 For the year ended 31 December 2021 (All amounts in RMB millions) Year ended 31 December 2021 2020 114,414 107,428 1,215 (1,324) (3,669) 1,309 (1,832) (1,354) Cash flows from operating activities Cash generated from operations Interest received Interest paid Income tax paid Net cash inflow from operating activities 110,636 105,551 Cash flows from investing activities Purchase of property, plant and equipment, right-of-use assets and other assets Proceeds from disposal of property, plant and equipment and other assets Acquisition of financial assets measured at fair value through profit and loss (“FVPL”) Proceeds from disposal of financial assets measured at FVPL Acquisition of debt securities measured at FVOCI (recycling) Acquisition of equity securities measured at FVOCI (non-recycling) Proceeds from disposal of debt securities measured at FVOCI (recycling) Net cash inflows from addition of subsidiaries Acquisition of other financial assets measured at amortised cost Proceeds from disposal of other financial assets measured at amortised cost Dividends 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 joint ventures Dividends received from associates Increase 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 a related party to Finance Company (72,047) 2,267 (2,294) 646 (28,930) (8) 26,494 1,462 (61,463) 60,762 179 (2,328) (45) 8 813 (400) (11,400) 11,500 (58,656) 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 Net cash outflow from investing activities (74,784) (92,018) table column width 65ptCONSOLIDATED STATEMENT OF CASH FLOWS102 104 For the year ended 31 December 2021 (All amounts in RMB millions) Cash flows from financing activities Contribution from non-controlling interests Proceeds from short-term bank loans and other obligations Proceeds from commercial papers 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 Decrease/(increase) in statutory reserve deposits placed by Finance Company Net cash outflow from financing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents, beginning of year Effect of changes in foreign exchange rate Year ended 31 December Note 2021 2020 10 685 6,800 207 (740) (763) (7,000) (2,507) (1,000) (12,727) (5) (8,690) 980 171 66 2,740 8,000 — (7,564) (395) (10,000) (50) — (11,696) (7) (5,447) 283 (1,140) (24,579) (25,210) 11,273 23,085 (78) (11,677) 34,945 (183) Cash and cash equivalents, end of year 29 34,280 23,085 Analysis of the balances of cash and cash equivalents: Cash balances Bank balances — 34,280 1 23,084 34,280 23,085 The notes on pages 106 to 199 are an integral part of these consolidated financial statements. table column width 65ptCHINA UNICOM �HONG KONG� LIMITEDANNUAL REPORT 2021CONSOLIDATED STATEMENT OF CASH FLOWS 104 | 105 Year ended 31 December 2021 2020 17,927 16,027 85,652 (1,215) 1,308 3,749 3,301 (179) (15) (850) 39 (1,862) (1,448) 136 (4,243) 454 (3,038) (359) 250 (826) (1,747) (88) (75) 1,658 7,053 (307) (225) 3,063 1,108 71 2,388 2,763 (29) 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 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 Impairment losses under expected credit loss (“ECL”) model and write-down of inventories Dividends 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 losses/(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 in contract assets Increase in contract costs (Increase)/decrease in inventories Decrease/(increase) in restricted deposits Increase in other assets Increase in prepayments and other current assets Increase in amounts due from ultimate holding company Increase in amounts due from related parties Decrease/(increase) in amounts due from domestic carriers Increase in accounts payable and accrued liabilities (Decrease)/increase in other taxes payable (Decrease)/increase in advances from customers Increase in contract liabilities Increase in deferred revenue Increase/(decrease) in other obligations Increase/(decrease) in amounts due to ultimate holding company Increase in amounts due to related parties (Decrease)/increase in amounts due to domestic carriers Cash generated from operations 114,414 107,428 The notes on pages 106 to 199 are an integral part of these consolidated financial statements. table column width 65pt 106106 For the year ended 31 December 2021 (All amounts in RMB millions unless otherwise stated) 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. 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 New York Stock Exchange LLC filed Form 25 with the United States Securities and Exchange Commission on 7 May 2021 and the delisting of the Company’s ADS has taken effective on 18 May 2021. 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 immediate 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 consolidated financial statements have been prepared in accordance with Hong Kong Financial Reporting Standards (“HKFRSs”) issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”), which collective term includes all applicable individual HKFRSs, Hong Kong Accounting Standards (“HKASs”) and Interpretations issued by the HKICPA. The consolidated financial statements also comply with the applicable disclosure provisions of the Rules Governing the Listing of Securities on the SEHK (“Listing Rules”) and the Hong Kong Companies Ordinance. table column width 65ptCHINA UNICOM �HONG KONG� LIMITEDANNUAL REPORT 2021NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 106 106 | 107 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 2.2 Basis of preparation The consolidated financial statements have been prepared under the historical cost basis, except for certain financial instruments that are measured at fair values at the end of each reporting period. The consolidated financial statements prepared by the PRC subsidiaries for PRC statutory reporting purposes are based on Chinese Accounting Standards for Business Enterprises issued by the Ministry of Finance (the “MOF”) of the PRC, which became effective from 1 January 2007 with certain transitional provisions. The Group also prepared concolidated financial statements in accordance with Chinese Accounting Standards for Business Enterprises (“PRC financial statements”).There are certain differences between the Group’s HKFRS financial statements and PRC financial statements. The principal adjustments made to PRC financial statements to conform to 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-method investees. (a) Going Concern Assumption As at 31 December 2021, current liabilities of the Group exceeded current assets by approximately RMB110.0 billion (2020: approximately RMB113.4 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 RMB237.5 billion of revolving banking facilities of which approximately RMB223.3 billion was unutilised as at 31 December 2021; 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 that 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 2021 have been prepared on a going concern basis. table column width 65pt For the year ended 31 December 2021 (All amounts in RMB millions unless otherwise stated) 108 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 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 HKFRSs that have significant effect on the consolidated financial statements and major sources of estimation uncertainty are discussed in Note 4. (c) New Accounting Standards and Amendments The HKICPA has issued an amendment to HKFRSs that is first effective for the current accounting period of the Group: • Amendments to HKFRS 9, HKAS 39, HKFRS 7, HKFRS 4 and HKFRS 16, “Interest Rate Benchmark Reform— Phase 2” The Group has early applied the amendment to HKFRS 16, “Covid-19-Related Rent Concessions Beyond 30 June 2021” which extends the availability of the practical expedient in paragraph 46A of HKFRS 16, “Leases” (“HKFRS 16”) by one year. The Group does not take advantage of the practical expedient. In addition, the Group applied the agenda decision of the International Financial Reporting Standard Interpretations Committee of the International Accounting Standard Board issued in June 2021 which clarified the costs an entity should include as “estimated costs necessary to make the sale” when determining the net realisable value of inventories. The application of the above amendments and agenda decision have had no material effect on the Group’s financial positions and performance for the current or prior periods and/or on the disclosures set out in these consolidated financial statements. table column width 65ptCHINA UNICOM �HONG KONG� LIMITEDANNUAL REPORT 2021NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 108 | 109 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 2.2 Basis of preparation (Continued) (d) New standard and amendments to HKFRSs issued but not yet effective for the current year The HKICPA has issued a number of new standard and amendments to HKFRSs which are not yet effective for the year ended 31 December 2021 and which have not been adopted in these consolidated financial statements. Amendments to HKFRS 3, “Reference to the Conceptual Framework” Amendments to HKAS 16, Effective for accounting periods beginning on or after 1 January 2022 “Property, Plant and Equipment — Proceeds before Intended Use” 1 January 2022 Amendments to HKAS 37, “Onerous Contracts — Cost of Fulfilling a Contract” Amendments to HKFRSs, “Annual Improvements to HKFRSs 2018–2020” Amendments to HKAS 1, “Classification of Liabilities as Current or Non-current” and related amendments to Hong Kong Interpretation 5 (2020) Amendments to HKAS 1 and HKFRS Practice Statement 2, “Disclosure of Accounting Policies” Amendments to HKAS 8, “Definition of Accounting Estimates” HKFRS 17, “Insurance Contracts” and the related Amendments Amendments to HKAS 12, 1 January 2022 1 January 2022 1 January 2023 1 January 2023 1 January 2023 1 January 2023 “Deferred Tax related to Assets and Liabilities arising from a Single Transaction” 1 January 2023 Amendments to HKFRS 10 and HKAS 28, “Sale or Contribution of Assets between an Investor and its Associate or Joint Venture” to be determined Except for the early application of the amendment to HKFRS 16, “Covid-19-Related Rent Concessions Beyond 30 June 2021”, the Group has not applied any new standard or amendment to HKFRSs that is not yet effective for the current accounting period. The Group is assessing the impact of such new standard and amendments to standards, and will adopt the relevant new standard and amendments in the subsequent periods as required. So far it has concluded that the adoption of them is unlikely to have a significant impact on the consolidated financial statements. table column width 65pt 110 For the year ended 31 December 2021 (All amounts in RMB millions unless otherwise stated) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 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. 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 consolidated statement of income. 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. 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 elects to measure non-controlling interests 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. table column width 65ptCHINA UNICOM �HONG KONG� LIMITEDANNUAL REPORT 2021NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 110 | 111 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 2.3 Subsidiaries and non-controlling interests (Continued) 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 a 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, unless the investment 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 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. 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. 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. On acquisition of the investment in an associate or a joint venture, any excess of the cost of the investment over the Group’s share of the net fair value of the identifiable assets and liabilities of the investee is recognised as goodwill, which is included within the carrying amount of the investment. 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. table column width 65pt 112 For the year ended 31 December 2021 (All amounts in RMB millions unless otherwise stated) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 2.4 Associates, joint ventures and joint arrangement (Continued) 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. In addition, the Group accounts for all amounts previously recognised in other comprehensive income in relation to that associate or joint venture on the same basis as would be required if that associate or joint venture had directly disposed of the related assets or liabilities. A joint operation is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the assets, and obligations for the liabilities, relating to the joint arrangement. The Group accounts for the assets, liabilities, revenues and expenses relating to its interest in a joint operation in accordance with HKFRSs applicable to the particular assets, liabilities, revenues and expenses. 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 bears 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. table column width 65ptCHINA UNICOM �HONG KONG� LIMITEDANNUAL REPORT 2021NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 112 | 113 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 (the “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. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated. (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 presenting profit or loss and other comprehensive income are translated at average exchange rates (unless the use of the average rate for a period 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 reserves. On consolidation, exchange differences arising from the translation of the net investment in foreign operations are recognised in other comprehensive income. When a foreign operation is sold, such exchange differences attributable to the equity shareholders of the Company are reclassified to the consolidated statement of income as part of the gain or loss on disposal. table column width 65pt 114 For the year ended 31 December 2021 (All amounts in RMB millions unless otherwise stated) 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 non-monetary assets, 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 consolidated 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% table column width 65ptCHINA UNICOM �HONG KONG� LIMITEDANNUAL REPORT 2021NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 114 | 115 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 2.7 Property, plant and equipment (Continued) (c) Depreciation (Continued) Leasehold improvements are depreciated over the shorter of their estimated useful lives and the lease terms. The assets’ residual values, useful lives and depreciation method are reviewed, and adjusted if appropriate, at each statement of financial position date. (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 consolidated 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 a cash-generating unit (or group of cash-generating units) for the purpose of impairment testing, which are expected to benefit from the synergies of business combination in which the goodwill arose and represent the lowest level at which the goodwill is monitored for internal management purposes and not larger than an operating segment. If the recoverable amount is less than its carrying amount, the impairment loss is allocated first to reduce the carrying amount of any goodwill and then to the other assets on a pro-rata basis based on the carrying amount of each asset in the cash-generating unit (or group of cash-generating units). 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. table column width 65pt 116 For the year ended 31 December 2021 (All amounts in RMB millions unless otherwise stated) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 2.9 Contract costs (Continued) 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 on a systematic basis that is consistent with the transfer to the customer of the goods or services to which the assets relate. 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 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 represents the Group’s obligation to transfer goods or services to a customer for which the Group has received consideration (or an amount of consideration is due) from the customer. 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 selling 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). table column width 65ptCHINA UNICOM �HONG KONG� LIMITEDANNUAL REPORT 2021NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 116 | 117 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 2.11 Other assets Other assets mainly represent (i) computer software; (ii) long-term 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. 2.12 Financial assets and financial liabilities 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 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, certain financial assets included in 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. The effective interest method is a method of calculating the amortised cost of a financial asset and of allocating interest income over the relevant period. Interest income is recognised in the consolidated statement of income using the effective interest method and disclosed as interest income. The Group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. Gains and losses arising from derecognition of financial assets, being the differences between the net sales proceeds and the carrying values, are recognised in the consolidated statement of income. table column width 65pt 118 For the year ended 31 December 2021 (All amounts in RMB millions unless otherwise stated) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 2.12 Financial assets and financial liabilities (Continued) 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 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 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 investment revaluation reserve (non-recycling) until the investment is disposed of. At the time of disposal, the amount accumulated in the investment revaluation reserve (non-recycling) is transferred to retained profits. It is not recycled through profit or loss. Fair value gains or losses of financial assets measured at FVPL and 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. Financial liabilities The Group’s financial liabilities are subsequently measured at amortised cost using the effective interest method or at FVPL. The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The Group derecognises financial liabilities when, and only when, the Group’s obligations are discharged, cancelled or have expired. The difference between the carrying amount of the financial liability derecognised and the consideration paid and payable is recognised in profit or loss. Offsetting a financial asset and a financial liability A financial asset and a financial liability are offset and the net amount presented in the consolidated statement of financial position when, and only when, the Group currently has a legally enforceable right to set off the recognised amounts; and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously. table column width 65ptCHINA UNICOM �HONG KONG� LIMITEDANNUAL REPORT 2021NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 118 | 119 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 2.13 Impairment of non-financial assets other than goodwill At the end of the reporting period, the Group reviews the carrying amounts of its property, plant and equipment, right-of-use assets and other intangible assets with finite useful lives to determine whether there is any indication that these assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the relevant asset is estimated in order to determine the extent of the impairment loss (if any). Intangible assets that are not yet available for use are not subject to amortisation and are tested for impairment at each statement of financial position date and whenever there is an indication that they may be impaired. For the purpose of assessing impairment, assets are estimated individually, or when it is not possible, grouped at the smallest levels for which there are largely independent identifiable cash inflows of those from other assets or groups of assets. 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 of disposal and (ii) value in use. 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, certain financial assets included in 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 HKFRS 15, “Revenue from contracts with customers” (“HKFRS 15”) (see Note 2.10); and — debt securities measured at FVOCI (recycling). Financial assets measured at fair values, 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. table column width 65pt 120 For the year ended 31 December 2021 (All amounts in RMB millions unless otherwise stated) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 2.14 Credit losses from financial instruments and contract assets (Continued) Measurement of ECLs (Continued) 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. Loss allowances for accounts receivable and contract assets are always measured at an amount equal to lifetime ECLs. ECLs on these financial assets assessed on collective basis 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. table column width 65ptCHINA UNICOM �HONG KONG� LIMITEDANNUAL REPORT 2021NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 120 | 121 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 2.14 Credit losses from financial instruments and contract assets (Continued) Significant increases in credit risk (Continued) 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. Except for debt securities measured at FVOCI (recycling),the Group recognises an impairment gain or loss for all other financial instruments with a corresponding adjustment to their carrying amount through a loss allowance account, while corresponding adjustment of debt securities measured at FVOCI (recycling) is made to other comprehensive income without reducing its carrying amount. 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; the lender(s) of the borrower, for economic or contractual reasons relating to the borrower’s financial difficulty, having granted to the borrower a concession(s) that the lender(s) would not otherwise consider; it becoming probable that the borrower will enter into bankruptcy or other financial reorganisation; 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. Financial assets written off may still be subject to enforcement activities under the Group’s recovery procedures, taking into account legal advice where appropriate. A write-off constitutes a derecognition event. Any subsequent recoveries are recognised in the consolidated statement of income. 2.15 Inventories Inventories, which primarily comprise handsets 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. Cost necessary to make the sale include incremental costs directly attributable to the sale and other cost necessary to sell inventories. table column width 65pt 122 For the year ended 31 December 2021 (All amounts in RMB millions unless otherwise stated) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 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). 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 (the “PBOC”) placed by Finance Company and customers deposit placed by Unicompay Company Limited for e-payment services. 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 consolidated 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 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 which consequently are effectively recognised in profit or loss over the useful life of the asset. 2.20 Borrowings Borrowings including bank loans, commercial papers, promissory notes and corporate bonds 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 consolidated statement of income over the period of the instruments 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. table column width 65ptCHINA UNICOM �HONG KONG� LIMITEDANNUAL REPORT 2021NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 122 | 123 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 2.21 Share capital Ordinary shares are classified as equity. Incremental costs directly attributable to the issuance of new shares are shown in equity as a deduction, net of tax, from the proceeds. Where any group company purchases the Company’s ordinary shares (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 consolidated 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 Group is required to make contributions to the retirement plans at certain percentage of the employees’ payroll. 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. For the years ended 31 December 2021 and 2020, no forfeited contributions may be used by the Group to reduce the existing level of contributions. (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 consolidated 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. table column width 65pt 124 For the year ended 31 December 2021 (All amounts in RMB millions unless otherwise stated) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 2.22 Employee benefits (Continued) Supplementary benefits (d) 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. For defined benefit plan, the Group’s obligation for this benefit plan is determined using the projected unit credit method and recognised as liability, with actuarial valuation carried out at the end of each annual reporting period. The actuarial valuation was carried out by Towers Watson Consulting (Shenzhen) Co., Ltd. (member of China Association of Actuaries), a qualified independent actuary. Actuarial assumptions mainly include discount rate and future mortality etc. This defined benefit plan does not have any plan assets. The present value of the defined benefit obligation is included in non-current other obligations and salary and welfare payables (current portion). As at 31 December 2021, the amount of the unfunded liability was RMB100 million (2020: RMB75 million). The remeasurement of liability is recognised in other comprehensive income, which is not allowed to reverse to profit and loss in subsequent period. (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 consolidated statement of income of the period in which the revision occurs, with a corresponding adjustment to equity. The equity amount is recognised in other reserves 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. table column width 65ptCHINA UNICOM �HONG KONG� LIMITEDANNUAL REPORT 2021NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 124 | 125 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 (if the other recognition criteria are met). 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 a performance obligation is satisfied (i.e. 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. A performance obligation represents a good or service (or a bundle of goods or services) that is distinct or a series of distinct goods or services that are substantially the same. For contracts that contain more than one performance obligations, the Group allocates the transaction price to each performance obligation on a relative stand-alone selling price basis. The stand-alone selling price of the distinct good or service underlying each performance obligation is determined at contract inception. It represents the price at which the Group would sell a promised good or service separately to a customer. If a stand-alone selling price is not directly observable, the Group estimates it using appropriate techniques such that the transaction price ultimately allocated to any performance obligation reflects the amount of consideration to which the Group expects to be entitled in exchange for transferring the promised goods or services to the customer. table column width 65pt 126 For the year ended 31 December 2021 (All amounts in RMB millions unless otherwise stated) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 2.25 Revenue recognition (Continued) 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 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. Control is transferred over time and revenue is recognised over time by reference to the progress towards complete satisfaction of the relevant performance obligation if one of the following criteria is met: • the customer simultaneously receives and consumes the benefits provided by the Group’s performance as the Group performs; • • the Group’s performance creates or enhances an asset that the customer controls as the Group performs; or the Group’s performance does not create an asset with an alternative use to the Group and the Group has an enforceable right to payment for performance completed to date. Further details of the Group’s revenue recognition policies are as follows: • • Voice usage and monthly fees are recognised when the services are rendered; Revenues from the provision of broadband and mobile data services are recognised when the services are provided to customers; • Data and internet application service revenues, which mainly represent revenue from the provision of data storage and application, information communications technology and other internet related services, are recognised during the period of fulfillment of services obligation; • Other value-added services revenues, 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; table column width 65ptCHINA UNICOM �HONG KONG� LIMITEDANNUAL REPORT 2021NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 126 | 127 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 2.25 Revenue recognition (Continued) • Standalone sales of telecommunications products, which mainly represent handsets and accessories, and telecommunications equipment, are recognised when control has been transferred 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. In general, revenue from rendering of telecommunication services are recognised over-time during the period of fulfillment of services obligation using output method, whereas revenue from sales of handsets and other telecommunications equipment are treated as separate performance obligations, are recognised at a point in time. When another party is involved in providing goods or services to a customer, the Group determines whether the nature of its promise is a performance obligation to provide the specified goods or services itself (i.e. the Group is a principal) or to arrange for those goods or services to be provided by the other party (i.e. the Group is an agent). The Group is a principal if it controls the specified good or service before that good or service is transferred to a customer. The Group is an agent if its performance obligation is to arrange for the provision of the specified good or service by another party. In this case, the Group does not control the specified good or service provided by another party before that good or service is transferred to the customer. When the Group acts as an agent, it recognises revenue in the amount of any fee or commission to which it expects to be entitled in exchange for arranging for the specified goods or services to be provided by the other party. 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. table column width 65pt 128 For the year ended 31 December 2021 (All amounts in RMB millions unless otherwise stated) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 2.28 Lease 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 of primarily computers and office furniture that have a lease term of 12 months or less and do not contain a purchase option and leases of low-value assets. 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 adjusted by interest accretion and lease payments. 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 lease term. The estimated useful lives of right-of-use assets are determined on the same basis as those of property, plant 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. table column width 65ptCHINA UNICOM �HONG KONG� LIMITEDANNUAL REPORT 2021NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 128 | 129 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 2.28 Lease (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. The Group accounts for the remeasurement of lease liabilities by making corresponding adjustments to the relevant right-of-use asset. 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 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. table column width 65pt 130 For the year ended 31 December 2021 (All amounts in RMB millions unless otherwise stated) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 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 substantially all the activities necessary to prepare 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 does not exceed the amount of borrowing cost incurred during that period. Other borrowing costs are recognised as expenses when incurred. 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 jurisdictions 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. table column width 65ptCHINA UNICOM �HONG KONG� LIMITEDANNUAL REPORT 2021NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 130 | 131 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 2.30 Taxation (Continued) (b) Deferred income tax (Continued) 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. Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied to the same taxable entity by the same taxation authority. Current and deferred income tax are recognised in profit or loss, except when they relate to items that are recognised in other comprehensive income or directly in equity, in which case, the current and deferred income tax are also recognised in other comprehensive income or directly in equity respectively. Where current tax or deferred tax arises from the initial accounting for a business combination, the tax effect is included in the accounting for the business combination. 2.31 Dividend distribution Dividend distribution to the Company’s shareholders is recognised as a liability in the period in which the dividends are approved by the Company’s shareholders. 2.32 Research and development expenditure Expenditure on research activities is recognised as an expense in the period in which it is incurred. An internally-generated intangible asset arising from development activities (or from the development phase of an internal project) is recognised if, and only if, all of the following have been demonstrated: • • • the technical feasibility of completing the intangible asset so that it will be available for use or sale; the intention to complete the intangible asset and use or sell it; the ability to use or sell the intangible asset; table column width 65pt 132 For the year ended 31 December 2021 (All amounts in RMB millions unless otherwise stated) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 2.32 Research and development expenditure (Continued) • • how the intangible asset will generate probable future economic benefits; the availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset; and • the ability to measure reliably the expenditure attributable to the intangible asset during its development. The amount initially recognised for internally-generated intangible asset is the sum of the expenditure incurred from the date when the intangible asset first meets the recognition criteria listed above. Where no internally-generated intangible asset can be recognised, development expenditure is recognised as an expense in the period in which it is incurred. For the year ended 31 December 2021, research and development expenditure recognised as an expense in the consolidated statement of income was RMB4,792 million (2020: RMB2,964 million). 2.33 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. 2.34 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. table column width 65ptCHINA UNICOM �HONG KONG� LIMITEDANNUAL REPORT 2021NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 132 | 133 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 2.35 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; (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. table column width 65pt 134 For the year ended 31 December 2021 (All amounts in RMB millions unless otherwise stated) 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 United States dollars (“US dollars” or “USD”), Hong Kong dollars (“HK dollars” or “HKD”) and European dollars (“Euro”). Exchange risk mainly exists with respect to the financial assets and financial liabilities denominated in foreign currencies including balances with international carriers, cash and cash equivalents. 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 2021 and 2020, the Group had not entered into any forward exchange contracts or currency swap contracts. 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 2021 and 2020. table column width 65ptCHINA UNICOM �HONG KONG� LIMITEDANNUAL REPORT 2021NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 134 | 135 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) 2021 Original currency millions Exchange rate RMB equivalent millions Original currency millions 2020 Exchange rate RMB equivalent millions 97 587 18 108 — 8 1 1 166 2 9 31 70 2 0.82 6.38 7.22 0.06 8.61 4.72 4.62 0.82 6.38 7.22 8.61 4.72 0.06 4.62 79 3,743 128 6 2 40 3 4,001 1 1,058 14 77 146 4 9 1,309 48 353 30 — — 1 — 1 219 2 — — — — 0.84 6.52 8.03 0.06 8.89 4.93 5.02 0.84 6.52 8.03 8.89 4.93 0.06 5.02 40 2,305 241 — — 7 1 2,594 1 1,429 16 — — — — 1,446 Cash and cash equivalents: — denominated in HK dollars — denominated in US dollars — denominated in Euro — denominated in Japanese Yen (“JPY”) — denominated in Great Britain Pound (“GBP”) — denominated in Singapore dollars (“SGD”) — denominated in Australian dollars (“AUD”) Sub-total Accounts receivable: — denominated in HK dollars — denominated in US dollars — denominated in Euro — denominated in GBP — denominated in SGD — denominated in JPY — denominated in AUD Sub-total Financial assets measured at FVOCI: — denominated in Euro 247 7.22 1,786 208 8.03 1,672 Total 7,096 5,712 Borrowings: — denominated in US dollars — denominated in Euro Sub-total Accounts payable: — denominated in JPY — denominated in US dollars — denominated in Euro Sub-total Total 28 2 6.38 7.22 155 46 1 0.06 6.38 7.22 178 14 192 9 293 7 309 501 31 2 — 36 1 6.52 8.03 0.84 6.52 8.03 204 18 222 — 235 8 243 465 table column width 65pt 136 For the year ended 31 December 2021 (All amounts in RMB millions unless otherwise stated) 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 2021, if RMB had strengthened/weakened by 10% against foreign currencies, primarily with respect to US dollars, HK dollars, Euro, JPY, GBP, SGD and AUD, while all other variables are held constant, the effect on profit after tax would be approximately RMB361 million (2020: approximately RMB268 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 RMB179 million (2020: approximately RMB167 million) for financial assets denominated in foreign currency, which were recorded in FVOCI. (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 (non-recycling) or FVPL. The financial assets measured at FVOCI (non-recycling) comprise primarily equity securities of Telefónica S.A. (“Telefónica”). As at 31 December 2021, 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 RMB179 million (2020: approximately RMB167 million). The financial assets measured at FVPL comprise primarily equity securities of certain PRC listed companies. As at 31 December 2021, if the price of the respective listed equity securities had increased/decreased by 10%, the effect on profit after tax, would be approximately RMB9 million (2020: approximately RMB17 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. table column width 65ptCHINA UNICOM �HONG KONG� LIMITEDANNUAL REPORT 2021NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 136 | 137 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) The Group’s interest rate risk mainly arises from interest-bearing borrowings including bank loans, commercial papers, promissory notes, corporate bonds, related party 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 2021 and 2020, 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 borrowings 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 2021 and 2020. As at 31 December 2021, the Group had approximately RMB13,410 million (2020: approximately RMB12,910 million) of long-term floating rate borrowings and short-term borrowings and approximately RMB28,551 million (2020: approximately RMB37,900 million) of long-term fixed rate borrowings and lease liabilities. For the year ended 31 December 2021, if interest rates on the long-term floating rate borrowings and short-term borrowings had increased/decreased 50 basic points while all other variables are held constant, the effect on profit after tax is approximately RMB50 million (2020: approximately RMB48 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 telecommunications operators. table column width 65pt For the year ended 31 December 2021 (All amounts in RMB millions unless otherwise stated) 138 3. FINANCIAL RISK MANAGEMENT AND FAIR VALUES OF FINANCIAL INSTRUMENTS (Continued) 3.1 Financial risk factors (Continued) (b) Credit risk (Continued) 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. table column width 65ptCHINA UNICOM �HONG KONG� LIMITEDANNUAL REPORT 2021NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 138 | 139 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 cash flows of the financial liabilities and lease liabilities (including interest expense) categorised by time from the end of the period under review to the contractual maturity date: At 31 December 2021 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 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 Less than 1 year Between 1 and 2 years Between 2 and 5 years Over 5 years Carrying amounts 406 1,033 2,073 12,395 2,519 392 6,894 140,124 4,246 4,028 12,959 2,262 392 — — 4,458 134 — — — — — 773 — 867 — — 5,882 17 — — — — — — — 906 — — 1,317 962 — — — — — — — 2,207 1,004 2,039 22,559 3,617 385 6,875 140,124 4,246 4,028 13,668 2,262 189,331 5,757 6,766 3,185 203,014 428 34 1,088 11,757 2,529 751 7,007 134,437 5,482 1,640 9,315 2,291 469 1,030 2,073 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 14,071 10,617 2,928 201,300 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. table column width 65pt 140 For the year ended 31 December 2021 (All amounts in RMB millions unless otherwise stated) 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 (as defined in Note 45.1) and an associate of RMB6,090 million and of RMB60 million, respectively, as at 31 December 2021 (2020: RMB5,112 million and RMB58 million, respectively). table column width 65ptCHINA UNICOM �HONG KONG� LIMITEDANNUAL REPORT 2021NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 140 | 141 3. FINANCIAL RISK MANAGEMENT AND FAIR VALUES OF FINANCIAL INSTRUMENTS (Continued) 3.2 Capital risk management (Continued) 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 — Current portion of promissory notes — Lease liabilities (current portion) Total equity 31 December 31 December 2021 2020 385 1,835 — — 6,875 10,415 742 372 2,039 1,004 12,144 740 2,482 998 1,999 7,000 16,458 3,042 418 1,000 — 11,503 35,811 333,433 45,640 327,520 Interest-bearing debts plus total equity 369,244 373,160 Debt-to-capitalisation ratio 9.7% 12.2% 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, the financial assets included in prepayments and other current assets, amounts due from ultimate holding company, related parties and domestic carriers, financial assets measured at fair value and certain other assets. Financial liabilities of the Group mainly include the financial liabilities included in accounts payable and accrued liabilities, bills payable, 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. table column width 65pt For the year ended 31 December 2021 (All amounts in RMB millions unless otherwise stated) 142 3. FINANCIAL RISK MANAGEMENT AND FAIR VALUES OF FINANCIAL INSTRUMENTS (Continued) 3.3 Fair value estimation (Continued) (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 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 as at 31 December 2021: Level 1 Level 2 Level 3 Total Recurring fair value measurement: Equity securities measured at FVOCI (non-recycling) Financial assets measured at FVPL Debt securities measured at FVOCI (recycling) Total 1,903 3,143 26,630 31,676 — 42 — 42 103 905 — 2,006 4,090 26,630 1,008 32,726 The following table presents the Group’s assets that are measured at fair value at 31 December 2020: Level 1 Level 2 Level 3 Total Recurring fair value measurement: Equity securities measured at FVOCI (non-recycling) Financial assets measured at FVPL Debt securities measured at FVOCI (recycling) Total 1,786 1,465 23,350 26,601 — 100 — 100 52 929 — 1,838 2,494 23,350 981 27,682 table column width 65ptCHINA UNICOM �HONG KONG� LIMITEDANNUAL REPORT 2021NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 142 | 143 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 that are classified as financial assets measured at FVPL. During the years ended 31 December 2021 and 2020, 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 instruments carried at other than fair value As at 31 December 2021 and 2020, the carrying amounts, fair values and the level of fair values of the Group’s long-term financial liabilities carried at amortised cost are disclosed below: Carrying amounts Fair value as at 31 as at 31 Carrying amounts Fair value as at 31 as at 31 December December Fair value measurements December December 2021 2021 as at 31 December 2021 categorised into 2020 2020 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 1,835 — — 1,900 — — — — — 1,900 — — — — — 2,482 998 1,999 2,552 1,005 2,050 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% (2020: 0.57% to 4.35%) 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 2021 and 2020 due to the nature or short maturity of those instruments. table column width 65pt 144 For the year ended 31 December 2021 (All amounts in RMB millions unless otherwise stated) 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 and residual values, the amount of depreciation expenses may change. 4.2 Impairment of goodwill and long-lived assets The Group tests whether long-lived assets, including property, plant and equipment and right-of-use assets, have suffered from any impairment, in accordance with the accounting policy stated in Note 2.13. For goodwill, the impairment testing is performed annually at the end of each reporting period, in accordance with the accounting policy stated in Note 2.8. The recoverable amount of the cash-generating unit at the lowest level to which those assets belong has been determined based on a value in use calculation. Management estimates value in use based on estimated discounted pre-tax future cash flows of the cash generating unit. If there is any significant change in management’s assumptions, including discount rate, the revenue growth rate or amount of operating costs in the future cash flow projection, the estimated recoverable amount of the cash-generating unit and the Group’s results would be significantly affected. Such impairment losses are recognised in the consolidated statement of income. Accordingly, there will be an impact to the future results if there is a significant change in the recoverable amount of the cash-generating unit. Management uses all readily available information in determining an amount that is a reasonable approximation of recoverable amount. No significant impairment loss on goodwill or long-lived assets was recognised for the years ended 31 December 2021 and 2020. 4.3 Allowance for ECLs For collective assessment, 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). table column width 65ptCHINA UNICOM �HONG KONG� LIMITEDANNUAL REPORT 2021NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 144 | 145 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 makes resources allocation decisions based on internal management functions and assesses 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 revenue from a single customer accounted for 10 percent or more of the Group’s revenue in all periods presented. 6. REVENUE Revenue from telecommunications services are subject to value-added tax (“VAT”) and VAT rates applicable to various telecommunications services. The VAT rates for basic telecommunications services and value-added telecommunications services are 9% and 6%, respectively, while VAT rate for sales of telecommunications products is 13%. 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 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 HKFRS 15 Revenue from other sources 2021 2020 22,039 155,918 60,833 22,444 12,542 17,894 4,483 296,153 31,701 23,183 150,730 47,923 21,287 12,307 16,519 3,865 275,814 28,024 327,854 303,838 326,615 1,239 302,732 1,106 table column width 65pt 146 For the year ended 31 December 2021 (All amounts in RMB millions unless otherwise stated) 6. REVENUE (Continued) 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, interconnection 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 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 satisfied as invoiced. 7. NETWORK, OPERATION AND SUPPORT EXPENSES Note 2021 2020 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) 13,130 13,806 13,129 10,900 2,122 10,750 12,901 9,180 11,246 2,209 53,087 46,286 (i) During the years ended 31 December 2021 and 2020, 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 2021 and 2020, 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: 2021 2020 Expense relating to short-term leases and leases of low value assets Variable lease payments not included in the measurement of lease liabilities* 1,521 5,660 1,322 5,415 * During the years ended 31 December 2021 and 2020, 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. table column width 65ptCHINA UNICOM �HONG KONG� LIMITEDANNUAL REPORT 2021NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 146 | 147 Note 2021 2020 44,092 42,534 7,685 3,257 3,750 24 136 5,534 3,794 3,486 17 375 58,944 55,740 44 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 8.1 Directors’ emoluments The remuneration of each director for the year of 2021 is set out below: Name of Director Note (RMB’000) (RMB’000) (RMB’000) (RMB’000) (RMB’000) Salaries and Bonuses paid to pension Contributions Fees allowance and payable schemes Total (a) (b) (c) (d) (e) (f) (g) Liu Liehong Wang Xiaochu Chen Zhongyue Wang Junzhi Li Fushen Zhu Kebing Fan Yunjun Cheung Wing Lam Linus Wong Wai Ming Chung Shui Ming Timpson Law Fan Chiu Fun Fanny — — — — — — — 398 406 415 381 78 156 215 18 106 106 70 — — — — 78 413 215 18 336 300 265 — — — — 41 97 183 22 64 65 54 — — — — 197 666 613 58 506 471 389 398 406 415 381 1,600 749 1,625 526 4,500 table column width 65pt 148 For the year ended 31 December 2021 (All amounts in RMB millions unless otherwise stated) 8. EMPLOYEE BENEFIT EXPENSES (Continued) 8.1 Directors’ emoluments (Continued) 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 and Bonuses paid to pension Contributions Fees allowance and 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 (h) (i) (g) (j) — — — — — — 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 1,822 890 2,955 552 6,219 Notes: (a) (b) (c) (d) Mr. Liu Liehong was appointed as executive director, chairman and chief executive officer on 3 September 2021. Mr. Wang Xiaochu resigned as executive director, chairman and chief executive officer on 27 August 2021. Mr. Chen Zhongyue was appointed as executive director and president on 19 February 2021. Mr. Wang Junzhi was appointed as executive director on 3 December 2021. (e) Mr. Li Fushen resigned as executive director on 11 June 2021. (f) Mr. Zhu Kebing resigned as executive director on 18 June 2021. (g) Mr. Fan Yunjun was appointed as executive director on 17 February 2020 and resigned on 28 April 2021. (h) Mr. Li Guohua resigned as executive director on 11 March 2020. (i) (j) Mr. Shao Guanglu resigned as executive director on 16 January 2020. Mr. Cesareo Alierta Izuel retired as non-executive director on 25 May 2020. table column width 65ptCHINA UNICOM �HONG KONG� LIMITEDANNUAL REPORT 2021NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 148 | 149 8. EMPLOYEE BENEFIT EXPENSES (Continued) 8.1 Directors’ emoluments (Continued) During the years of 2021 and 2020, no share options were granted to the directors. No directors waived the right to receive emoluments during the years ended 31 December 2021 and 2020. During the years of 2021 and 2020, the Company did not incur any payment to any director for loss of office or as an inducement to any director to join or upon joining the Company. 8.2 Senior management’s emoluments Of the seven senior management of the Company for the year ended 31 December 2021, three of them are directors of the Company and their remuneration has been disclosed in Note 8.1. For the remuneration of the remaining four senior management, all fall within the band from RMB0 to RMB1,000,000. 8.3 Five highest paid individuals Of the five highest paid individuals for the year ended 31 December 2021, five of them are staffs and three fall within the band from RMB3,000,001 to RMB3,500,000, one falls within the band from RMB3,500,001 to RMB4,000,000, and one falls within the band from RMB4,000,001 to RMB4,500,000 (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). The aggregate of the emoluments in respect of the five (2020: five) highest paid individuals are as follows: Salaries and allowances Bonuses paid and payable Contributions to pension schemes 2021 2020 (RMB’000) (RMB’000) 4,307 11,893 893 5,624 6,696 827 17,093 13,147 During the years of 2021 and 2020, the Group did not incur any payment to the above five highest paid individuals for loss of office or as an inducement to these individuals to join or upon joining the Group. 9. COSTS OF TELECOMMUNICATIONS PRODUCTS SOLD Handsets and other telecommunication products Others 2021 2020 30,256 427 26,619 243 30,683 26,862 table column width 65pt 150 Note 2021 2020 For the year ended 31 December 2021 (All amounts in RMB millions unless otherwise stated) 10. OTHER OPERATING EXPENSES Impairment losses under ECL, net of reversal Write-down of inventories Commission and other service expenses Advertising and promotion expenses Internet access terminal maintenance expenses Customer retention costs Auditors’ remuneration: — Audit and other assurance services — Non-audit services Property management fee Office and administrative expenses Transportation expense Miscellaneous taxes and fees Service technical support expenses Repairs and maintenance expenses 2,809 492 23,178 2,682 2,053 3,203 41 8 2,528 1,491 1,460 1,426 27,206 783 3,749 4,154 5,300 284 21,041 2,723 2,744 3,007 77 — 2,490 1,332 1,372 1,353 21,243 911 2,365 3,995 Loss on disposal of property, plant and equipment 15 Others 11. FINANCE COSTS 77,263 70,237 Note 2021 2020 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 Total 42 204 977 141 21 (82) 1,303 8 74 112 312 1,234 122 38 (206) 1,612 46 89 1,385 1,747 table column width 65ptCHINA UNICOM �HONG KONG� LIMITEDANNUAL REPORT 2021NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 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 (losses)/gains on financial assets measured at FVPL Gains on disposal of financial assets measured at FVPL Others 150 | 151 2021 2020 179 613 2,384 850 (39) 15 117 210 506 1,456 174 154 87 324 4,119 2,911 13. TAXATION Hong Kong profits tax has been provided at the rate of 16.5% (2020: 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 jurisdictions in which the Group operates. The Company’s subsidiaries operate mainly in the PRC and the applicable statutory enterprise income tax rate is 25% (2020: 25%). Taxation for certain subsidiaries in the PRC was calculated at a preferential tax rate of 15% (2020: 15%). Provision for income tax on the estimated taxable profits for the year — Hong Kong — Mainland China and other jurisdictions (Over)/under provision in respect of prior years Deferred taxation Income tax expenses 2021 2020 83 2,625 (115) 2,593 827 99 2,858 40 2,997 453 3,420 3,450 table column width 65pt 152 For the year ended 31 December 2021 (All amounts in RMB millions unless otherwise stated) 13. TAXATION (Continued) Reconciliation between actual income tax expense and accounting profit at PRC statutory tax rate: Note 2021 2020 Profit before income tax 17,927 16,027 Expected income tax expense at PRC statutory tax rate of 25% 4,482 4,007 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 (Over)/under provision in respect of prior years Tax effect of unused tax losses not recognised, net of utilization (i) (i) (ii) (29) (259) (333) 503 (362) (400) (115) (67) (39) (140) (268) 447 (197) (332) 40 (68) Actual tax expense 3,420 3,450 (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% (2020: 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% (2020: 15%), and certain research and development costs of the Group’s PRC subsidiaries are qualified for 75% (2020: 75%) additional deduction for tax purpose. (ii) As at 31 December 2021, the Group did not recognise deferred tax assets of approximately RMB51 million (2020: approximately RMB181 million) in respect of tax losses amounting to approximately RMB203 million (2020: approximately RMB726 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 or ten years from the year incurred and hence will be expired by the year of 2026 or 2031. As at 31 December 2021, the Group did not recognise deferred tax assets of RMB2,419million (2020: RMB2,448 million) in respect of changes in fair value of financial assets measured at FVOCI (non-recycling), since it is not probable that the related tax benefit will be realised. table column width 65ptCHINA UNICOM �HONG KONG� LIMITEDANNUAL REPORT 2021NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 152 | 153 2021 2020 745 (474) — 1,226 (471) (10) 271 745 (64) (353) — (417) (87) 18 5 (64) 13. TAXATION (Continued) The movement of the net deferred tax assets/(liabilities) is as follows: Net deferred tax assets after offsetting: — Beginning of year — Deferred tax charged to the consolidated statement of income — Deferred tax charged to other comprehensive income — End of year Net deferred tax liabilities after offsetting: — Beginning of year — Deferred tax (charged)/credited to the consolidated statement of income — Deferred tax credited to other comprehensive income — End of year 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 regulation (Note (i)) Accruals of Unrealised Accelerated expenses not profit from depreciation yet the of property, deductible transactions plant and Right-of-use Unused tax for tax with Tower losses purpose Company equipment (Note (ii)) Contract assets/lease costs liabilities Others Total Deferred tax arising from Credit loss allowance At 1 January 2020 1,918 1,306 370 3,341 Credited/(charged) to the consolidated statement of income Charged to other comprehensive income 575 — (48) — (370) — 842 — 381 (64) — (2,527) — (8,572) (39) At 31 December 2020 2,493 1,258 Credited/(charged) to the consolidated statement of income 130 (49) At 31 December 2021 2,623 1,209 — 34 34 4,183 317 (11,099) 560 (67) (1,769) 4,743 250 (12,868) 370 20 — 390 13 403 2,064 1,139 1,080 (5) (453) (5) 3,139 681 321 (827) 3,460 (146) 39 — — — — table column width 65pt 154 For the year ended 31 December 2021 (All amounts in RMB millions unless otherwise stated) 13. TAXATION (Continued) (i) The prepayments for the leasehold land were revalued for PRC tax purposes as at 31 December 2004 and 2003. However, the resulting revaluations of the prepayments for the leasehold land were not recognised under HKFRSs. Accordingly, deferred tax assets were recorded by the Group under 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 State Administration Taxation (“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 2021 and 2020 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 2021 and 2020 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. There were no dilutive potential ordinary shares for the years ended 31 December 2021 and 2020. The following table sets forth the computation of basic and diluted earnings per share: Numerator (in RMB millions): Profit attributable to equity shareholders of the Company used in computing basic/diluted earnings per share Denominator (in millions): 2021 2020 14,368 12,493 Number of ordinary shares outstanding used in computing basic/diluted earnings per share 30,598 30,598 Basic/Diluted earnings per share (in RMB) 0.47 0.41 table column width 65ptCHINA UNICOM �HONG KONG� LIMITEDANNUAL REPORT 2021NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 154 | 155 15. PROPERTY, PLANT AND EQUIPMENT The movements of property, plant and equipment for the years ended 31 December 2021 and 2020 are as follows: 2021 Office furniture, Tele- fixtures, motor communications vehicles and Leasehold Buildings equipment other equipment improvements CIP Total Cost: Beginning of year Additions Transfer from CIP Transfer to other assets Disposals 76,658 30 2,001 — (510) 841,394 903 62,370 — (73,622) 20,255 468 1,165 — (2,063) 3,701 299 208 — (872) 48,251 67,870 (65,744) (6,966) — 990,259 69,570 — (6,966) (77,067) End of year 78,179 831,045 19,825 3,336 43,411 975,796 Accumulated depreciation and impairment: Beginning of year Charge for the year Disposals End of year Net book value: End of year (39,243) (2,822) 391 (568,173) (61,346) 67,993 (15,641) (1,279) 1,912 (2,908) (340) 830 (107) (32) — (626,072) (65,819) 71,126 (41,674) (561,526) (15,008) (2,418) (139) (620,765) Beginning of year 37,415 273,221 4,614 36,505 269,519 4,817 918 793 43,272 355,031 48,144 364,187 table column width 65pt 156 For the year ended 31 December 2021 (All amounts in RMB millions unless otherwise stated) 15. PROPERTY, PLANT AND EQUIPMENT (Continued) 2020 Office furniture, Tele- fixtures, motor communications vehicles and Leasehold Buildings equipment other equipment improvements CIP Total Cost: Beginning of year Additions Transfer from CIP Transfer to other assets Disposals 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) 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 (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 End of year (39,243) (568,173) (15,641) (2,908) (107) (626,072) Net book value: End of year 37,415 273,221 Beginning of year 38,320 269,688 4,614 4,434 793 809 48,144 364,187 54,150 367,401 For the year ended 31 December 2021, interest expense of approximately RMB82 million (2020: approximately RMB206 million) was capitalised as CIP. The capitalised borrowing rate represents the cost of capital for raising the related borrowings and varied from 2.01% to 3.48% for the year ended 31 December 2021 (2020: 2.35% to 3.12%). 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 RMB5,899 million (2020: RMB3,868 million) for consideration of RMB2,150 million (2020: RMB1,503 million) for the year ended 31 December 2021, resulting in a net loss of approximately RMB3,749 million for the year ended 31 December 2021 (2020: approximately RMB2,365 million). table column width 65ptCHINA UNICOM �HONG KONG� LIMITEDANNUAL REPORT 2021NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 156 | 157 2021 Tele- communications Buildings equipment Land use rights Others Total 15,867 4,062 (4,089) 42,456 3,511 (1,037) 13,709 330 (68) 1,133 338 (134) 73,165 8,241 (5,328) 15,840 44,930 13,971 1,337 76,078 (8,197) (3,677) 3,770 (21,898) (8,563) 770 (4,802) (280) 45 (308) (206) 134 (35,205) (12,726) 4,719 (8,104) (29,691) (5,037) (380) (43,212) 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 Beginning of year 7,670 20,558 8,907 7,736 15,239 8,934 957 825 32,866 37,960 table column width 65pt 158 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) For the year ended 31 December 2021 (All amounts in RMB millions unless otherwise stated) 16. RIGHT-OF-USE ASSETS (Continued) 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 Beginning of year 9,325 23,922 7,670 20,558 8,907 9,173 825 653 37,960 43,073 Details of total cash outflow for leases and the maturity analysis of lease liabilities are set out in Note 36. 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 share of the fair values of the separately identifiable net assets acquired prior to the adoption of AG 5 in 2005. Goodwill is allocated to the Group’s cash-generating unit (the “CGU”). The recoverable amount of the CGU with 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, and extrapolated using a steady 1% growth rate (2020: 1%),the applicable discount rate of 11% (2020: 11%). Management determined expected growth rate 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 2021 and 2020, any reasonably possible change in the assumptions used in the calculation of recoverable amount would not result in impairment losses. table column width 65ptCHINA UNICOM �HONG KONG� LIMITEDANNUAL REPORT 2021NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 158 | 159 18. INVESTMENTS IN SUBSIDIARIES As at 31 December 2021, the details of the Company’s major 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 Corporation Limited (“CUCL”) limited liability company operation in the PRC China Unicom Global Limited Hong Kong, 29 May 2015, limited company China Unicom (Hong Kong) Operations Limited Hong Kong, 24 May 2000, China Unicom (Americas) Operations Limited China Unicom (Europe) Operations Limited China Unicom (Japan) Operations Corporation limited company USA, 24 May 2002, limited company The United Kingdom, 8 November 2006, limited company Japan, 25 January 2007, limited company China Unicom (Singapore) Operations Singapore, 5 August 2009, Pte Limited limited company China Unicom (South Africa) Operations (Pty) Limited South Africa, 19 November 2012, limited liability company 100% — HKD2,625,097,491 Investment holding — — — — — — 100% HKD1,510,100,000 Telecommunications service in Hong Kong 100% 5,000 shares, USD100 each Telecommunications service in the USA 100% 4,861,000 shares, GBP1 each Telecommunications operation in the United Kingdom 100% 1,000 shares, JPY366,000 each Telecommunications operation in Japan 100% 30,000,000 shares, RMB1 each 100% 200 shares in total: 100 shares, ZAR 1 each 100 shares, ZAR 512,063.34 each Telecommunications operation in Singapore Telecommunications operation in South Africa China Unicom (MYA) Operations Company Limited The Republic of the Union of Myanmar (“Myanmar”), 7 June 2013, limited liability company — 100% 2,150,000 shares, USD1 each Communications technology training in Myanmar China Unicom (Australia) Operations Pty Australia, 27 May 2014, — 100% Limited limited liability company 12,190,411 shares, AUD 1 each Telecommunications operation in Australia table column width 65pt 160 For the year ended 31 December 2021 (All amounts in RMB millions unless otherwise stated) 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 (Russia) Operations Limited Liability Company Russia, 28 December 2016, limited liability company China Unicom (Brazil) Telecommunications Brazil, 23 June 2016, Limited limited liability company China Unicom (Brazil) Holdings Ltda. Brazil, 27 October 2017, limited China Unicom Operations (Thailand) Limited China Unicom Operations (Malaysia) Sdn. Bhd. China Unicom Operations Korea Co., Ltd 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 China Unicom (Mexico) Operations Limited Mexico, 29 October 2021, Unicom Vsens Telecommunications Company Limited limited liability company The PRC, 19 August 2008, limited liability company — — — — — — — — — — — — 100% RUB10,000 100% R$21,165,840 Telecommunications service in Russia Telecommunications service in Brazil 100% R$21,277,298 Investment holding 100% 1,040,000 shares, Baht100 each Telecommunications service in Thailand 100% 3,200,000 shares, MYR1 each Telecommunications service in Malaysia 100% 60,000 shares, KRW5,000 each Telecommunications service in Korea 100% VND2,276,000,000 Telecommunications service in Vietnam 100% 10,000 shares, Riels4,000 each Telecommunications service in Cambodia 100% 20,000,000,001 shares, Telecommunications Rp1 each service in Indonesia 100% 103,012 shares, Php100 each Telecommunications service in Philippines 100% Not applicable Telecommunications service in Mexico 100% RMB610,526,500 Sales of handsets, telecommunications equipment and provision of technical services in the PRC table column width 65ptCHINA UNICOM �HONG KONG� LIMITEDANNUAL REPORT 2021NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 160 | 161 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 Digital Technology Co., Ltd The PRC, 30 April 2006, limited liability company China Unicom Online Information Technology Company Limited The PRC, 29 March 2006, limited liability company — — 100% RMB7,063,177,615.78 Provision of information communications technology services in the PRC 100% RMB400,000,000 Provision of internet Beijing Telecom Planning and Designing The PRC, 25 April 1996, — 100% RMB264,227,115 Institute Company Limited limited liability company China Information Technology Designing & Consulting Institute Company Limited The PRC, 11 November 1991, limited liability company — 100% RMB430,000,000 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 — — 100% RMB6,825,087,800 100% RMB50,100,000 information services and value-added telecommunications services in the PRC Provision of consultancy, survey, design and contract services relating to information and construction projects in the telecommunications industry in the PRC Provision of consultancy, survey, design and contract services relating to information projects and construction projects in the telecommunications industry in the PRC Provision of customer services in the PRC Provision of project consultation and monitoring in the PRC table column width 65pt 162 For the year ended 31 December 2021 (All amounts in RMB millions unless otherwise stated) 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 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 China Unicom Intelligence Security Technology Corporation Limited The PRC, 15 August 2007, limited liability company Unicom Cloud Data Company Limited The PRC, 4 June 2013, limited liability company Unicom Innovation Investment Company The PRC, 29 April 2014, Limited limited liability company Xiaowo Technology Co., Ltd The PRC, 24 October 2014, limited liability company — — — — — — — — 100% RMB2,200,000 100% RMB250,000,000 100% RMB20,000,000 Provision of property services in the PRC Provision of e-payment services in the PRC Provision of advertising design, production, agency and publication in the PRC 100% RMB30,000,000 Provision of 100% RMB150,000,000 telecommunications network construction, maintenance and technical services in the PRC Provision of technical development and consultation in the PRC 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 Provision of internet information services and value-added telecommunications services in the PRC China Unicom Smart Connection Technology The PRC, 7 August 2015, — 68.88% RMB246,796,148 Auto informatisation in Company Limited limited liability company the PRC table column width 65ptCHINA UNICOM �HONG KONG� LIMITEDANNUAL REPORT 2021NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 162 | 163 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 Intelligent Network Ruixing Technology (Beijing) Co., Ltd. The PRC, 26 September 2018, limited liability company — 55.10% RMB10,000,000 Provision of technology promotion service of intelligent transportation system’s products in the PRC 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 (Guizhou) Limited The PRC, 8 October 2016, 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 Liantong Travel Service (Beijing) Company Limited The PRC, 30 September 2017, limited liability company China Unicom (Guangdong Branch) Internet Industry Limited The PRC, 5 January 2017, limited liability company — 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 the PRC 100% RMB200,000 Venture capital investment business in the PRC 60% RMB1,000,000 Venture capital investment business in the PRC 100% RMB79,300,000 Venture capital investment business in the PRC 100% RMB500,000,000 Provision of data 100% RMB100,000,000 100% RMB100,000,000 processing service in the PRC Provision of tourism and information services in the PRC Provision of information communications technology business in the PRC table column width 65pt 164 For the year ended 31 December 2021 (All amounts in RMB millions unless otherwise stated) 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 (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 Company Limited The PRC, 21 March 2018, limited liability company China Unicom Xiongan Industrial Internet The PRC, 25 April 2018, Company Limited limited liability company China Unicom (Sichuan) Industrial Internet Company Limited The PRC, 29 March 2018, limited liability company China Unicom (Liaoning) Industrial Internet Company Limited The PRC, 28 March 2018, limited liability company — — — — — — — 100% RMB11,000,000 100% RMB50,000,000 100% RMB50,000,000 100% RMB50,000,000 100% RMB274,342,600 100% RMB50,000,000 100% RMB20,000,000 Provision of information communications technology business in the PRC Provision of information communications technology business in the PRC Provision of information communications technology business in the PRC Provision of information communications technology business in the PRC Provision of information communications technology business in the PRC Provision of information communications technology business in the PRC Provision of information communications technology business in the PRC table column width 65ptCHINA UNICOM �HONG KONG� LIMITEDANNUAL REPORT 2021NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 164 | 165 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 Company Limited The PRC, 13 March 2018, limited liability company China Unicom (Heilongjiang) Industrial Internet Company Limited The PRC, 14 March 2018, 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% RMB26,200,000 100% RMB20,000,000 100% RMB50,000,000 40% RMB90,000,000 Provision of information communications technology business in the PRC Provision of information communications technology business in the PRC Provision of information communications technology business in the PRC Provision of information communications technology business in the PRC 100% RMB100,000,000 Provision of technology China Unicom Internet of Things Corporation Limited The PRC, 16 March 2018, limited liability company — 100% RMB207,000,000 research and development and consultation services of TV video and mobile video in the PRC Provision of internet of things technology, system development, technical consultation, sales and maintenance of system and equipment and online data processing transaction business in the PRC table column width 65pt 166 For the year ended 31 December 2021 (All amounts in RMB millions unless otherwise stated) 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 High-tech Big Data Artificial Intelligence Technology (Chengdu) Co., Ltd. The PRC, 29 March 2018, limited liability company — 51% RMB10,000,000 China Unicom iRead Science and Culture The PRC, 28 April 2018, — 100% RMB51,000,000 Co., Ltd. limited liability company China Unicom WO Music & Culture Co., Ltd. The PRC, 8 May 2018, — 100% RMB100,000,000 limited liability company Provision of Big Data Service, cloud computation and infrastructure service in the PRC Provision of internet information technology, online video, online reading material services in the PRC Provision of internet information technology services in the PRC China Unicom Leasing Co., Ltd. The PRC, 11 April 2018, limited liability company 25% 75% RMB2,500,000,000 Provision of finance leasing business in the PRC 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) The PRC, 17 April 2020, Co., Ltd limited liability company Changchun FAW Communications Technology Co., Ltd. The PRC, 27 September 2002, limited liability company — — — — 60% RMB20,000,000 Provision of data analysis, 51% RMB51,000,000 processing and application services in the PRC Provision of software development, technology promotion and development in the PRC 100% RMB10,000,000 Provision of software and 51% RMB86,458,600 information technology service in the PRC Telecommunications operation in the PRC table column width 65ptCHINA UNICOM �HONG KONG� LIMITEDANNUAL REPORT 2021NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 166 | 167 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 Yichun Digital Economy Industry Operation Co., Ltd The PRC, 14 December 2020, limited liability company Lianchuang Weilai (Wuhan) Intelligent Manufacturing Industry Investment Partnership (Limited Partnership) Hebei Sign Technology Co., Ltd. The PRC, 29 July 2020, limited liability company The PRC, 22 October 2021, limited liability company China Unicom Spirit Realm Video (Jiangxi) The PRC, 9 July 2021, Technology Company Limited limited liability company China Unicom Innovation Investment Company The PRC, 6 June 2014, (Shanghai)., Ltd limited liability company China Unicom Western Innovation Institute The PRC, 6 September 2021, limited liability company China Unicom Zhiyu (Shanghai) Information The PRC, 5 June 2018, Service and Technology Co., Ltd limited liability company China Unicom Zhiyu (Shanghai) Innovation The PRC, 2 April 2019, Incubator Management Co., Ltd limited liability company Lian Kuan (Wuhan) Investment Center (Limited The PRC, 24 July 2020, Partnership) limited liability company Lingang Data Intelligence Technology (Shanghai) Co., Ltd. The PRC, 29 December 2021, limited liability company — 51% RMB22,650,000 Provision of telecommunication, television broadcasting and satellite transmission services in the PRC Provision of investment business in the PRC 50.98% RMB1,760,000,000 70% RMB10,000,000 Provision of other 100% RMB10,000,000 technology promotion service in the PRC Provision of internet and telecommunication value-added business in the PRC 70% RMB40,000,000 Provision of pioneer investment business in the PRC 100% RMB50,000,000 Provision of information technology consultation services 70% RMB1,000,000 Provision of business incubator management in the PRC 70% RMB400,000 Provision of business 72.6% RMB10,500,000 100% Not Applicable incubator management in the PRC Provision of investment business in the PRC Provision of internet date and security services and cloud computing services in the PRC — — — — — — — — — None of the subsidiaries issued any debt securities at the end of the year except for CUCL, which issued promissory notes, corporate bonds and commercial papers, in which the Group has no interest. Details of these issued debt securities are disclosed in Note 34, Note 35 and Note 40, respectively. table column width 65pt 168 For the year ended 31 December 2021 (All amounts in RMB millions unless otherwise stated) 19. INTEREST IN ASSOCIATES Share of net assets The following list contains the particulars of a material associate as at 31 December 2021: Name Form of business structure Place of incorporation and business Proportion of ownership interest held by a subsidiary Paid up capital Tower Company Incorporated The PRC 20.65% RMB176,008,471,024 2021 2020 41,278 38,802 Principal activities 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. 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 transactions with Tower Company Tower Company 2021 2020 48,344 274,915 (76,182) (57,723) (189,354) 86,585 7,328 7,327 43,204 294,176 (106,635) (44,499) (186,246) 81,099 6,427 6,427 189,354 20.65% 186,246 20.65% 39,102 38,460 (1,001) (1,262) Carrying amount in the consolidated financial statements 38,101 37,198 table column width 65ptCHINA UNICOM �HONG KONG� LIMITEDANNUAL REPORT 2021NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 168 | 169 19. INTEREST IN ASSOCIATES (Continued) 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 2021 As at 31 December 2020 Carrying amount Fair value Carrying amount Fair value Interest in listed associate — Tower Company 38,101 25,556 37,198 34,873 Aggregate information of associates that are not individually material: The Group’s share of net profit The Group’s share of other comprehensive income The Group’s share of total comprehensive income 2021 2020 88 — 88 — — — Aggregate carrying amount of the Group’s interest in these associates 3,177 1,604 20. INTEREST IN JOINT VENTURES Share of net assets 2021 2020 7,138 5,656 The following list contains the particulars of a material joint venture, which is an unlisted corporate entity and has no available quoted market price as at 31 December 2021: 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% RMB10,000,000,000 Consumer finance consulting in the PRC table column width 65pt 170 For the year ended 31 December 2021 (All amounts in RMB millions unless otherwise stated) 20. INTEREST IN JOINT VENTURES (Continued) 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 2021 2020 149,698 (135,661) (14,037) 15,933 3,063 3,063 20,598 (4,555) (477) 14,037 50% 108,311 (97,283) (11,028) 12,651 1,668 1,668 15,710 (3,059) (728) 11,028 50% Carrying amount in the consolidated financial statements 7,019 5,514 Aggregate information of joint ventures that are not individually material: The Group’s share of net profit The Group’s share of other comprehensive income The Group’s share of total comprehensive income 2021 2020 (84) — (84) (47) — (47) Aggregate carrying amount of the Group’s interest in these joint ventures 119 142 table column width 65ptCHINA UNICOM �HONG KONG� LIMITEDANNUAL REPORT 2021NOTES 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 170 | 171 2021 2020 408 69 477 (406) 71 832 94 926 (823) 103 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 customers obtian the control 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) 2021 2020 44,446 1,258 41,537 1,104 45,704 42,641 (i) Contract liabilities primarily 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 2020 was recognised as revenue for the year ended 31 December 2021. table column width 65pt 172 For the year ended 31 December 2021 (All amounts in RMB millions unless otherwise stated) 22. CONTRACT COSTS Direct incremental costs of activating broadband and internet protocol television (“IPTV”) service Sales commissions Note 2021 2020 (i) (ii) 3,277 748 2,410 1,262 4,025 3,672 (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 RMB2,688 million (2020: RMB2,524 million). There was no significant impairment in relation to the capitalised costs as at 31 December 2021 (2020: Nil). (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 RMB939 million (2020: RMB1,152 million). There was no significant impairment in relation to capitalised costs as at 31 December 2021 (2020: Nil). 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) Note 2021 2020 (i) (ii) (iii) (ii) (iii) 2,006 803 906 1,838 934 721 3,715 3,493 3,287 25,724 1,560 22,629 29,011 24,189 32,726 27,682 table column width 65ptCHINA UNICOM �HONG KONG� LIMITEDANNUAL REPORT 2021NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 172 | 173 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 2021 2020 42 117 1,786 103 114 1,672 52 2,006 1,838 (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 2021 2020 7,403 4,565 6,900 5,089 11,968 11,989 Note 2021 2020 (i) (ii) 13,367 10,974 1,361 171 2,783 1,281 442 1,894 17,682 14,591 table column width 65pt 174 For the year ended 31 December 2021 (All amounts in RMB millions unless otherwise stated) 25. OTHER ASSETS (i) Intangible assets Cost: At 1 January 2020 Additions Transfer from CIP Disposals Computer software 31,358 145 4,097 (3,596) Others Total 3,578 13 399 (103) 34,936 158 4,496 (3,699) At 31 December 2020 32,004 3,887 35,891 Additions Transfer from CIP Disposals 692 6,004 (5,735) 34 340 (466) 726 6,344 (6,201) At 31 December 2021 32,965 3,795 36,760 Accumulated amortisation and impairment: At 1 January 2020 Amortisation charge for the year Disposals (21,773) (4,331) 3,447 (1,839) (509) 88 (23,612) (4,840) 3,535 At 31 December 2020 (22,657) (2,260) (24,917) Amortisation charge for the year Disposals (3,491) 5,171 (476) 320 (3,967) 5,491 At 31 December 2021 (20,977) (2,416) (23,393) Net book value: At 31 December 2021 11,988 1,379 13,367 At 31 December 2020 9,347 1,627 10,974 (ii) VAT recoverable includes input VAT and prepaid VAT which is expected to be deducted beyond one year. VAT recoverable which is expected to be deducted within one year are included in “Prepayments and other current assets”. See Note 28(i). table column width 65ptCHINA UNICOM �HONG KONG� LIMITEDANNUAL REPORT 2021NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 26. INVENTORIES Handsets and other telecommunication products Others 27. ACCOUNTS RECEIVABLE Accounts receivable Less: Credit loss allowance 174 | 175 2021 2020 1,410 436 1,682 269 1,846 1,951 2021 2020 28,127 (10,170) 26,009 (9,722) 17,957 16,287 The gross carrying amount of accounts receivable from contracts with customers amounted to RMB28,062 million as at 31 December 2021 (2020: RMB25,933 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 2021 2020 10,620 3,061 3,519 757 8,963 2,766 3,914 644 17,957 16,287 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 major corporate customers as there is higher risk that a prolonged pandemic could lead to increased credit default rates. table column width 65pt 176 For the year ended 31 December 2021 (All amounts in RMB millions unless otherwise stated) 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 2021: 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% 49% 85% 100% 2,719 1,154 611 1,985 (162) (563) (522) (1,985) 6,469 (3,232) Expected Gross carrying Loss loss rate amount allowance 4% 28% 71% 88% 100% 8,538 7,954 2,107 1,132 1,927 (304) (2,206) (1,500) (1,001) (1,927) 21,658 (6,938) table column width 65ptCHINA UNICOM �HONG KONG� LIMITEDANNUAL REPORT 2021NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 176 | 177 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 2020: 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% 2,696 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) 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. table column width 65pt 178 For the year ended 31 December 2021 (All amounts in RMB millions unless otherwise stated) 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 2021 2020 9,722 2,564 (2,116) 7,368 5,097 (2,743) 10,170 9,722 The creation and release of credit loss allowance for 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 2021 2020 (i) 3,935 766 3,581 6,193 25 3,425 3,549 625 3,607 5,726 12 2,363 17,925 15,882 (i) VAT recoverable includes the input VAT and prepaid VAT that is expected to 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 2021 and 2020, there was no significant impairment for the prepayments and other current assets. table column width 65ptCHINA UNICOM �HONG KONG� LIMITEDANNUAL REPORT 2021NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 178 | 179 29. CASH AND CASH EQUIVALENTS AND OTHER CASH FLOW INFORMATION (a) Cash and cash equivalents Cash at bank and in hand 2021 2020 34,280 23,085 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 2021 740 2,900 7,000 998 2,999 27,961 8,212 50,810 Changes from financing cash flows: Proceeds from short-term bank loans and other obligations Proceeds from commercial papers Loans from a related party Repayment of short-term bank loans Repayment of commercial papers Repayment of corporate bonds Repayment of long-term bank loans Repayment of related party loans Payment of issuing expense for commercial papers Capital element of lease rentals paid Net deposits with Finance Company by related parties 385 — — (740) — — — — — — — — — — — — — (763) — — — — — 6,800 — — (7,000) — — — (5) — — Total changes from financing cash flows (355) (763) (205) 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 — — — — — (31) — — 101 101 — — — 80 80 — — — — — — — — — — — — — — — 6 6 — — — — — (1,000) — — — — — — — — — — — — — — (12,727) — 300 — 207 — — — — (2,507) — — 980 685 6,800 207 (740) (7,000) (1,000) (763) (2,507) (5) (12,727) 980 (1,000) (12,727) (1,020) (16,070) — — — 40 40 — — (31) 7,911 (586) — 7,325 — — 563 563 7,911 (586) 790 8,115 At 31 December 2021 385 2,207 6,875 1,004 2,039 22,559 7,755 42,824 table column width 65pt 180 For the year ended 31 December 2021 (All amounts in RMB millions unless otherwise stated) 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 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 party loans 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) — (11,696) — 8,170 (838) — 7,332 — — — — — (50) — — 283 233 — — — — — 2,740 8,000 (7,564) (10,000) (395) (50) (7) (11,696) 283 (18,689) (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 table column width 65ptCHINA UNICOM �HONG KONG� LIMITEDANNUAL REPORT 2021NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 180 | 181 Number of shares millions Share capital 30. SHARE CAPITAL Issued and fully paid: At 1 January 2020, at 31 December 2020 and at 31 December 2021 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 2020 Total comprehensive income for the year Dividends relating to 2019 final 254,056 — — (8,033) (1,453) — Balance at 31 December 2020 254,056 (9,486) Total comprehensive income for the year Dividends relating to 2020 final Dividends relating to 2021 interim — — — 114 — — 572 — — 572 — — — 22,021 5,101 (4,529) 268,616 3,648 (4,529) 22,593 267,735 265 (5,018) (3,672) 379 (5,018) (3,672) Balance at 31 December 2021 254,056 (9,372) 572 14,168 259,424 (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 statutory reserves, which are appropriated from profit after tax but before dividend distribution. CUCL is required to allocate at least 10% of its profit after tax determined under the PRC Company Law to the statutory 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 RMB1,384 million (2020: approximately RMB1,246 million) to the statutory reserve fund for the year ended 31 December 2021. table column width 65pt 182 For the year ended 31 December 2021 (All amounts in RMB millions unless otherwise stated) 31. RESERVES (Continued) (b) Nature and purpose (Continued) (i) Statutory reserves (Continued) 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 HKFRSs, the appropriations to the staff bonus and welfare fund are charged to the consolidated statement of income as expenses incurred since any assets acquired through this fund belong to the employees. For the years ended 31 December 2021 and 2020, 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 measured at FVOCI (non-recycling), net of tax, until the financial assets are derecognised. (iv) Other reserves 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. table column width 65ptCHINA UNICOM �HONG KONG� LIMITEDANNUAL REPORT 2021NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 182 | 183 32. DIVIDENDS At the annual general meeting held on 13 May 2021, the shareholders of the Company approved the payment of a final dividend of RMB0.164 per ordinary share for the year ended 31 December 2020, totaling approximately RMB5,018 million which has been reflected as a reduction of retained profits for the year ended 31 December 2021. At a meeting held on 19 August 2021, the Board of Directors of the Company declared the payment of an 2021 interim dividend of RMB0.120 per ordinary share to the shareholders totalling approximately RMB3,672 million. At a meeting held on 11 March 2022, the Board of Directors of the Company proposed the payment of a final dividend of RMB0.096 per ordinary share to the shareholders for the year ended 31 December 2021 totaling approximately RMB2,937 million. The proposed final dividend has not been reflected as a dividend payable in the consolidated financial statements as at 31 December 2021, but will be reflected in the consolidated financial statements for the year ending 31 December 2022. Declared and paid interim dividend: RMB0.120 (2020: Nil) per ordinary share by the Company Proposed final dividend: RMB0.096 (2020: RMB0.164) per ordinary share by the Company 2021 2020 3,672 2,937 — 5,018 6,609 5,018 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 2021, 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. table column width 65pt 184 For the year ended 31 December 2021 (All amounts in RMB millions unless otherwise stated) 33. LONG-TERM BANK LOANS Interest rates and final maturity 2021 2020 RMB denominated Fixed interest rates ranging from 1.08% to 1.20% (2020: 1.08% bank loans to 1.20%) per annum with maturity through 2036 (2020: maturity through 2036) 2,015 2,678 US dollars Fixed interest rates ranging from Nil to 1.55% (2020: Nil to denominated bank loans 1.55%) per annum with maturity through 2039 (2020: maturity through 2039) 178 204 Euro denominated Fixed interest rates ranging from 1.10% to 2.50% (2020: 1.10% bank loans to 2.50%) per annum with maturity through 2034 (2020: maturity through 2034) 14 18 Sub-total Less: Current portion 2,207 (372) 2,900 (418) 1,835 2,482 As at 31 December 2021, long-term bank loans of approximately RMB42 million (2020: approximately RMB46 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 — More than one year and no later than two years — More than two years and no later than five years — More than five years Less: Portion classified as current liabilities 2021 2020 372 362 830 643 2,207 (372) 418 444 1,072 966 2,900 (418) 1,835 2,482 table column width 65ptCHINA UNICOM �HONG KONG� LIMITEDANNUAL REPORT 2021NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 184 | 185 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, CUCL issued RMB1 billion 5-year corporate bonds, bearing interest at 3.43% per annum, and was fully repaid in June 2021. On 19 June 2019, CUCL issued RMB2 billion 3-year corporate bonds, bearing interest at 3.67% per annum. 36. LEASE LIABILITIES At 31 December 2021 and 2020, the lease liabilities were repayable as follows: 2021 Present value of 2020 Present value of the minimum Total minimum the minimum Total minimum lease payments lease payments lease payments lease payments Within 1 year 12,144 12,395 11,503 11,757 After 1 year but within 2 years After 2 years but within 5 years After 5 years 4,210 5,228 977 4,458 5,882 1,317 9,770 5,575 1,113 10,352 6,203 1,498 10,415 11,657 16,458 18,053 Total lease liabilities 22,559 24,052 27,961 29,810 Less: total future interest expenses Present value of lease liabilities (1,493) 22,559 (1,849) 27,961 The total cash outflow for leases incurred by the Group for the year ended 31 December 2021 was RMB20,753 million (2020: RMB19,708 million). table column width 65pt 186 For the year ended 31 December 2021 (All amounts in RMB millions unless otherwise stated) 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 Balance at end of the year 38. OTHER OBLIGATIONS One-off cash housing subsidies Others Sub-total Less: Current portion 2021 2020 5,927 4,851 937 1,795 915 1,204 2,732 2,119 (721) (987) (591) (452) (1,708) (1,043) 6,951 5,927 Note 2021 2020 (i) (ii) 2,493 1,124 2,496 131 3,617 2,627 (2,519) (2,529) 1,098 98 (i) 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. table column width 65ptCHINA UNICOM �HONG KONG� LIMITEDANNUAL REPORT 2021NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 186 | 187 38. OTHER OBLIGATIONS (Continued) (i) One-off cash housing subsidies (Continued) 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 consolidated 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 2021, the Group’s unpaid one-off cash housing subsidies amounted to approximately RMB2,493 million (2020: 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. (ii) Others mainly include the contributions from other investors of a subsidiary established by the Group in the form of limited partnership with fixed life. The balance of the contribution was classified as financial liabilities by the Group. 39. SHORT-TERM BANK LOANS Interest rates and final maturity 2021 2020 RMB denominated Fixed interest rates ranging from 1.80% to 1.85% (2020: 1.85%) bank loans per annum with maturity through 2022 (2020: maturity through 2021) 385 740 At 31 December 2021 and 2020, all short-term bank loans were unsecured. 40. COMMERCIAL PAPERS 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, and was fully repaid in January 2021. 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, and was fully repaid in January 2021. 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, and was fully repaid in February 2021. table column width 65pt 188 For the year ended 31 December 2021 (All amounts in RMB millions unless otherwise stated) 40. COMMERCIAL PAPERS (Continued) On 23 June 2021, CUCL issued tranche one of 2021 super short term commercial papers in an amount of RMB2 billion, with a maturity period of 270 days from the date of issue and which carries interest at 2.80% per annum. On 27 July 2021, CUCL issued tranche two of 2021 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 2.23% per annum, and was fully repaid in January 2022. On 27 July 2021, CUCL issued tranche three of 2021 super short term commercial papers in an amount of RMB1.8 billion, with a maturity period of 180 days from the date of issue and which carries interest at 2.23% per annum, and was fully repaid in January 2022. 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 Amounts due to technical support services and other service providers/content providers VAT received from customer in advance Accrued expenses Others 2021 2020 75,014 4,281 5,128 6,587 13,196 5,822 3,709 19,098 7,289 73,046 3,779 5,723 5,261 12,248 4,852 2,746 17,186 9,596 140,124 134,437 The aging analysis of accounts payable and accrued liabilities based on the invoice date is as follows: Less than six months Six months to one year More than one year 2021 2020 119,332 7,199 13,593 116,553 8,846 9,038 140,124 134,437 table column width 65ptCHINA UNICOM �HONG KONG� LIMITEDANNUAL REPORT 2021NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 188 | 189 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 US dollars 1 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 US dollars 500 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 US dollars 500 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 2021, the related financial assets measured at FVOCI amounted to approximately RMB1,786 million (2020: approximately RMB1,672 million). For the year ended 31 December 2021, the increase in fair value of the financial assets measured at FVOCI was approximately RMB114 million (2020: decrease of approximately RMB1,453 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 2021, 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 HK dollars 1.00. 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) (ii) The closing price of the shares on the SEHK on the offer date in respect of the share options; and 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 are outstanding as at 31 December 2021 and 2020. table column width 65pt190 For the year ended 31 December 2021 (All amounts in RMB millions unless otherwise stated) 44. RESTRICTED A-SHARE INCENTIVE SCHEME Pursuant to the share incentive scheme (Phase I) of A Share Company (the “Phase I Restricted A-Share Incentive Scheme”), not more than 848 million restricted shares of A Share Company (the “Phase I Restricted Shares”) were approved for granting to the core employees of the Group, the first batch granted Phase I Restricted Shares of 793,861,000 and second batch granted Phase I 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 Phase I 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 Phase I 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 Phase I Restricted Shares shall be unlocked (or repurchased and cancelled by A Share Company) separately in three tranches in proportion of 40%, 30% and 30% of the total number of the Phase I Restricted Shares granted upon the expiry of each of the Lock-Up Period. Subject to fulfilment of all service and performance conditions under the Phase I Restricted A-Share Incentive Scheme which include the achievement of certain revenue and profit targets of A Share Company, the Participants’ individual performance appraisal, etc. (collectively referred to as “vesting conditions”), the restriction over the Phase I 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 Phase I Restricted Shares cannot be unlocked, A Share Company shall repurchase the Phase I Restricted Shares based on the respective subscription price from the Participants. Pursuant to the Phase I Restricted A-Share Incentive Scheme, the second Lock-Up Period of approximately 3 years for the first batch as well as the first Lock-Up Period of approximately 2 years for the second batch have expired in April 2021. During the year ended 31 December 2021, with the fulfilment of the vesting conditions, the Phase I Restricted Shares of 218,379,125 in aggregate were approved for unlocking after the expiry of the Lock-Up Period by the Board of Directors of A Share Company. During the year ended 31 December 2021, the Phase I Restricted Shares of 24,202,275 (2020: 18,110,200) were forfeited and repurchased. For the year ended 31 December 2021, the Group recognised share-based payment expenses and other reserves of RMB136 million under the Phase I Restricted A-Share Incentive Scheme (2020: RMB375 million). table column width 65ptCHINA UNICOM �HONG KONG� LIMITEDANNUAL REPORT 2021NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS190 | 191 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 other than the Group (“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 2021 2020 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 subsidiaries Repayment of loans lending by Finance Company to Unicom Group and its subsidiaries 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) 274 1,039 270 2,337 86 28 2,587 1,224 193 188 999 283 2,034 77 47 2,735 979 229 11,400 16,500 11,500 357 13,704 387 table column width 65pt For the year ended 31 December 2021 (All amounts in RMB millions unless otherwise stated) 45. MATERIAL RELATED PARTY TRANSACTIONS (Continued) 192 45.1 Connected transactions with Unicom Group and its subsidiaries other than the Group (“Unicom Group and its subsidiaries”) (Continued) (a) Recurring transactions (Continued) (i) On 21 October 2019, CUCL and Unicom Group entered into the “2020–2022 Comprehensive Services Agreement” to renew certain continuing connected transactions. The services are existing continuing connected transactions and their respective terms are substantially the same as those set out in the previous agreement: “2017–2019 Comprehensive Services Agreement” signed on 25 November 2016, 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 2020. (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 years ended 31 December 2021 and 2020, the services charges paid by Unicom Group to CUCL was negligible. table column width 65ptCHINA UNICOM �HONG KONG� LIMITEDANNUAL REPORT 2021NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 192 | 193 45. MATERIAL RELATED PARTY TRANSACTIONS (Continued) 45.1 Connected transactions with Unicom Group and its subsidiaries other than the Group (“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, short-term 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 the PRC for the same type of loan. table column width 65pt 194 For the year ended 31 December 2021 (All amounts in RMB millions unless otherwise stated) 45. MATERIAL RELATED PARTY TRANSACTIONS (Continued) 45.1 Connected transactions with Unicom Group and its subsidiaries other than the Group (“Unicom Group and its subsidiaries”) (Continued) (b) Amounts due from Unicom Group and its subsidiaries Amount due from Unicom Group as at 31 December 2021 included loans from Finance Company to Unicom Group of RMB10,400 million in total with respective floating interest rate of Loan Prime Rate (“LPR”) published by the National Interbank Funding Center (“NIFC”) (2020: RMB10,500 million in total with respective floating interest rate of LPR published by NIFC). 45.2 Related party transactions with Tower Company (a) Related Party transactions (i) 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’s 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. Based on 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 RMB12,407 million (2020: RMB17,837 million), and a right-of-use asset with the balance of RMB11,807 million (2020: RMB17,005 million) as of 31 December 2021. In addition, the Group recognised additions of right-of-use assets in 2021 amounting to RMB2,737 million (2020:RMB3,035 million), recorded depreciation of right-of-use asset of RMB7,480 million (2020: RMB7,088 million), interest expense of RMB575 million (2020: RMB757 million), and variable lease payments and other related service charges of RMB10,900 million (2020: RMB11,246 million) in its consolidated statement of income for the year ended 31 December 2021. The related accounts payable and bills payable balance (exclude lease liabilities) to Tower Company included in the balance of amounts due to related parties as at 31 December 2021 was RMB6,102 million (2020: RMB5,908 million). table column width 65ptCHINA UNICOM �HONG KONG� LIMITEDANNUAL REPORT 2021NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 194 | 195 45. MATERIAL RELATED PARTY TRANSACTIONS (Continued) 45.2 Related party transactions with Tower Company (Continued) Related Party transactions (Continued) (ii) (a) Income from data and internet application services and engineering design and construction services The Group provide data and internet application services and engineering design and construction services, including system integration and engineering design services to Tower Company. Income for the year ended 31 December 2021 was RMB306 million (2020: RMB295 million). Except as mentioned in 45.2(a)(i), amounts due from/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 Other related party transactions with Unicom Group and its subsidiaries (a) Related party transactions Transactions with Unicom Group and its subsidiaries: Interest expenses on unsecured entrusted loan Borrowing of loan Repayment of loan Net deposits with Finance Company Interest expenses on the deposits in Finance Company Note 2021 2020 (i) (i) (i) (ii) (ii) 61 207 2,507 978 80 132 — — 233 74 (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. The Group partially repaid this loan amounting to RMB2,300 million for the current year. On 21 May 2021, the Group borrowed an unsecured entrusted loan from Unicom Group BVI of HK dollars 250 million (equivalent to RMB207 million) with a maturity period of 1 year and floating interest rate at six- month Hong Kong Interbank Offered Rate plus 0.9%. The Group fully repaid this loan for the current year. (ii) 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 the PRC for the same type of deposit. table column width 65pt 196 For the year ended 31 December 2021 (All amounts in RMB millions unless otherwise stated) 45. MATERIAL RELATED PARTY TRANSACTIONS (Continued) 45.3 Other related party transactions with Unicom Group and its subsidiaries (Continued) (b) Amounts due to Unicom Group and its subsidiaries Amount due to Unicom Group and its subsidiaries as at 31 December 2021 included a balance of deposits received by Finance Company from Unicom Group and its subsidiaries of RMB6,090 million with interest rates ranging from 0.42% to 2.75% per annum for saving and deposits of different terms (2020: RMB5,112 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 2021 included a balance of unsecured entrusted loan from A Share Company of RMB742 million with a maturity period of 5 years and interest rate at 4.28% per annum (2020: 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 2021 and 2020, the Group had capital commitments, mainly in relation to the construction of telecommunications network, as follows: 2021 2020 Land and Land and buildings Equipment Total buildings Equipment Total Authorised and contracted for Authorised but not contracted for 2,192 8,154 23,921 45,654 26,113 53,808 2,582 8,314 23,500 39,487 26,082 47,801 10,346 69,575 79,921 10,896 62,987 73,883 46.2 Contingent liabilities As at 31 December 2021, the Group had no material contingent liabilities and no material financial guarantees issued. table column width 65ptCHINA UNICOM �HONG KONG� LIMITEDANNUAL REPORT 2021NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 196 | 197 As at 31 December 2021 2020 1 237,426 11,644 43 1,786 3 237,426 5,300 10 1,672 250,900 244,411 — 161 7,670 52 764 6,492 215 15,617 171 989 8,647 23,484 259,547 267,895 254,056 (8,800) 2,937 11,231 254,056 (8,914) 5,018 17,575 259,424 267,735 47. COMPANY-LEVEL STATEMENT OF FINANCIAL POSITION ASSETS Non-current assets 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 Share capital Reserves Retained profits — Proposed final dividend — Others Total equity table column width 65pt 198 For the year ended 31 December 2021 (All amounts in RMB millions unless otherwise stated) 47. COMPANY-LEVEL STATEMENT OF FINANCIAL POSITION (Continued) LIABILITIES Non-current liabilities Lease liabilities Other non-current liabilities Current liabilities Lease liabilities Accounts payable and accrued liabilities Loan from a subsidiary Amount due to a subsidiary Total liabilities As at 31 December 2021 2020 16 4 20 24 79 — — 103 123 — — — 10 89 60 1 160 160 Total equity and liabilities 259,547 267,895 Net current assets 8,544 23,324 Total assets less current liabilities 259,444 267,735 The Company’s statement of financial position was approved and authorised for issue by the Board of Directors on 11 March 2022 and signed on behalf of the Board by: Liu Liehong Director Li Yuzhuo Director table column width 65ptCHINA UNICOM �HONG KONG� LIMITEDANNUAL REPORT 2021NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 198 | 199 48. NON-ADJUSTING EVENT AFTER THE REPORTING PERIOD Proposed final dividend After the statement of financial position date, the Board of Directors proposed a final dividend for the year of 2021. For details, please refer to Note 32. 49. APPROVAL OF FINANCIAL STATEMENTS The consolidated financial statements were approved by the Board of Directors on 11 March 2022. table column width 65pt 200200 For the five-year ended 31 December 2021 (All amounts in RMB millions, except per share data) Selected financial summary for 2017 to 2021, including selected consolidated statement of income data and consolidated statement of financial position data for 2017, 2018, 2019, 2020 and 2021 were prepared in accordance with HKFRSs. RESULTS Selected Statement of Income Data 2021 2020 2019 2018 2017 Revenue 327,854 303,838 290,515 290,877 274,829 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 (11,557) (85,652) (53,087) (58,944) (30,683) (77,263) (1,385) 1,215 1,862 1,448 4,119 17,927 (3,420) (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) Profit for the year 14,507 12,577 11,372 10,257 1,850 Profit attributable to: Equity shareholders of the Company Non-controlling interests 14,368 139 12,493 84 11,330 42 10,197 60 1,828 22 Profit for the year 14,507 12,577 11,372 10,257 1,850 Earnings per share for profit attributable to equity shareholders of the Company: Basic earnings per share (RMB) Diluted earnings per share (RMB) 0.47 0.47 0.41 0.41 0.37 0.37 0.33 0.33 0.07 0.07 table column width 65ptCHINA UNICOM �HONG KONG� LIMITEDANNUAL REPORT 2021FINANCIAL SUMMARY 200 200 | 201 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 2021 2020 2019 2018 2017 355,031 32,866 32,726 126,228 17,957 34,280 591,076 10,415 236,185 140,124 385 12,144 6,875 1,004 2,039 372 1,835 — — 257,643 333,433 364,187 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 1,999 253,096 327,520 367,401 384,475 416,596 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 2,998 241,744 320,755 — 4,673 75,909 14,433 30,060 540,320 — 214,910 122,458 15,085 — — — 16,994 441 3,173 — 999 226,034 314,286 — 4,446 76,722 13,964 32,836 571,983 — 242,622 125,211 22,500 — 8,991 17,960 — 410 3,473 — 17,981 267,636 304,347 table column width 65pt CHINA UNICOM �HONG KONG� LIMITED ANNUAL REPORT 2021 CORPORATE INFORMATION BOARD OF DIRECTORS (As At 11 March 2022) Executive Directors REGISTERED OFFICE 75th Floor, Liu Liehong Executive Director, Chairman and Chief Executive Officer The Center, 99 Queen’ s Road Central, Chen Zhongyue Executive Director and President Wang Junzhi Executive Director Mai Yanzhou Executive Director and Senior Vice President Li Yuzhuo Executive Director and Chief Financial Officer Hong Kong Tel: (852) 2126 2018 MAJOR SUBSIDIARY China United Network Communications Corporation Limited Independent Non-Executive Directors No. 21 Financial Street, 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) Liu Liehong Law Fan Chiu Fun Fanny AUDITOR Deloitte Touche Tohmatsu Registered Public Interest Entity Auditors LEGAL ADVISORS Freshfields Bruckhaus Deringer Sullivan & Cromwell LLP Xicheng District, Beijing 100033, P.R.C. Tel: (86) 10 6625 9550 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 PUBLICATIONS Financial reports, announcements, press releases and other investor information of the Company are available to access electronically via the Company’ s website. STOCK CODE Hong Kong Stock Exchange: 762 COMPANY WEBSITE www.chinaunicom.com.hk C O R P O R A T E C U L T U R E 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 MANAGEMENT PHILOSOPHY Create value for customers OUR CORE VALUES Customer-oriented Employee-friendly Attentive to quality service Inherently innovative Proud of endeavours CHINA UNICOM (HONG KONG) LIMITED 75th Floor, The Center, 99 Queen’s Road Central, Hong Kong Tel : (852) 2126 2018 Fax : (852) 2126 2016 www.chinaunicom.com.hk Concept and Design: Coolgrey Design Workshop Limited Printing and Production: Cre8 (Greater China) Ltd. 

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