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 2 Shiftin g Gea rs CHINA UNICOM (HONG KONG) LIMITED Stock Code : 762 ANNUAL REPORT 2022 BE A GREAT Enhance network capabilities Strive to build premium networks with broader coverage, strengthened capabilities, higher quality and better experience, and open up the information channels for economic and social development • Net addition of mid-band 5G base stations: 310k, net addition of 900MHz 5G base stations: 170k • Net addition of 10G PON ports: 2.14 million • No. of cities covered by government and enterprise premium network: 307 • “One resource pool per city” in 170 cities BE A GREAT Empower the digital transformation of thousands of industries Drive deeper integration of digital technologies with production and operations to enable new use cases, in order to continuously support industrial digitisation • Cumulative no. of 5G industry application projects: >16,000 • Full coverage of 52 categories of national economy • Fully 5G-connected factories: > 1,600 • Successfully built benchmark projects - 5G+ textile manufacturing, 5G+ Internet of Vehicles, 5G+ smart medical care etc. BE A GREAT Safeguard information security Establish a comprehensive security capability system integrating cloud, management, terminals, data and applications to safeguard the robust development of the digital economy • Security operation personnel: >1,200 • Big Security revenue: +380% • Cumulative no. of customers served by security capabilities: > 10,000 EMBRACE OF THE DIGITAL ECONOMY Accelerate the deep integration of the digital and real economies • Industry Internet revenue: +28.6% • Unicom Cloud revenue: +121% • Net profit1: +16.5% 1 Net profit represents the profit attributable to equity shareholders of the Company Company Profile 2 Shareholding Structure 3 Performance Highlights 4 Major Events 6 Chairman's Statement 8 FORWARD-LOOKING STATEMENTS 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. Business Overview 18 Financial Overview 24 Recognition and Awards 30 092 Independent Auditor’s Report 097 Consolidated Statement of Income 098 Consolidated Statement of Comprehensive Income 099 Consolidated Statement of Financial Position 102 Consolidated Statement of Changes in Equity 103 Consolidated Statement of Cash Flows 106 Notes to the Consolidated Financial Statements 206 Financial Summary 208 Corporate Information 209 Corporate Culture Directors and Senior Management 32 Corporate Governance Report 44 Report of the Directors 70 Human Resources Development 90 COMPANY PROFILE 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 267th in “Fortune Global 500” for the year 2022. It was also voted as “Asia’s Most Honored Telecom Company” in 2022 for the seventh 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”. It highlights the strengthening of network and service foundation in order to consolidate the fundamentals. It highlights the integrity of network and expansion into new digital and intelligent models to make a good portfolio. It highlights the integration of factors and market convergence and succeed as a team with partners. Under the new positioning and strategy, 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. In order to become a world-class enterprise with global competitiveness, the Company resolutely carries out national missions and holistically builds comprehensive digital information infrastructure with industry- leading coverage, breadth and depth, so as to build an unobstructed information channel and a new digital base for economic and social development. It resolutely implements the Cyber Superpower strategy, serves the construction of Digital China and Smart Society, and grasps the direction of digital, network- based and intelligent transformation. Using technologically leading and highly integrated digital services which are “comprehensive in coverage, fully online and cloudified, green and one-stop”, it helps thousands of industries “migrate to the cloud, and use data for intelligent empowerment”. It resolutely implements innovation-driven development, and focuses on core technologies and key applications. Through integrated innovation, it turns itself into a technological innovation enterprise and achieves a high level of independence in digital technologies, becoming an important part of the national strategic technological power. The Company strives to be the “new engine” that empowers social and economic transformation, fully utilises the advantages of Big Data and communication network technology, and promotes the development of the digital economy and information consumption upgrade, so as to transform the drivers of economic development, enhance customers’ satisfaction and sense of reward communication services, and let the whole society further enjoy the new benefits brought by information and communication development. information and in Note: # 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. 002 / China Unicom (Hong Kong) Limited SHAREHOLDING STRUCTURE 64.2% Strategic investors*, employee restrictive incentive share** and other public shareholders CHINA UNITED NETWORK COMMUNICATIONS LIMITED (Issued shares: approximately 31.8 billion shares) CHINA UNITED NETWORK COMMUNICATIONS GROUP COMPANY LIMITED 35.8% 17.9% 82.1% 100% China Unicom (BVI) Limited China Unicom Group Corporation (BVI) Limited 26.4%*** 53.5% CHINA UNICOM (HONG KONG) LIMITED (Issued shares: approximately 30.6 billion shares) 20.1% Public Shareholders * 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 phase 2 restrictive share incentive scheme in 2022, China United Network Communications Limited granted restricted shares to the core management talents and professional talents. *** 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 2022 Annual Report 2022 / 003 PERFOR MANCE HIGH LIGHTS Financial Highlights (RMB millions) 2022 2021 Change YoY INDUSTRY INTERNET REVENUE (RMB BIL) UNICOM CLOUD1 REVENUE (RMB BIL) Operating Revenue Service Revenue1 Of which: Industry Internet Revenue EBITDA2 Net Profit3 Basic EPS (RMB) Dividend per share4 (RMB) 354,944 319,348 70,458 99,169 16,745 0.547 0.274 327,854 296,153 54,779 96,321 14,368 0.470 0.216 8.3% 7.8% 28.6% 3.0% 16.5% 16.5% 26.9% 1 Service revenue = operating revenue – sales of telecommunications products 2 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 3 Net profit represented profit attributable to equity shareholders of the Company 4 The proposed 2022 final dividend of RMB0.109 per share is subject to approval by the shareholders at the annual general meeting. Together with the interim dividend of RMB0.165 per share already paid, total dividend for the year is RMB0.274 per share ^ 121% 2022 36.1 2021 16.3 ^ 29% ^ 28% 2022 70.5 2021 54.8 2020 42.7 2019 32.9 IoT REVENUE (RMB BIL) ^ 42% 2022 8.6 2021 6.0 BIG DATA REVENUE (RMB BIL) ^ 58% 2022 4.0 2021 2.6 1 Unicom Cloud revenue included revenue of cloud resources, cloud platforms, cloud services, cloud integration, cloud interconnection, cloud security, etc., generated from integrated innovative solutions 004 / China Unicom (Hong Kong) Limited Annual Report 2022 / 005 MAJOR EVE NTS February 2022 China Unicom acted as the sole official For the first time, China Unicom applied IPv6+ telecommunication service partner of the technology to the private network of the Winter Beijing 2022 Winter Olympics and Paralympic Olympics, provided high-quality network Winter Games. services for the broadcast of the Beijing Winter Olympics by leveraging capabilities such as China Unicom adhered to the concepts of network slicing, segment routing and latency “Green Olympic Games, Sharing Olympic optimisation. Games, Open Olympic Games, and Honest Olympic Games” and earnestly implemented the requirements of “Simple, Safe and March 2022 Wonderful” competitions. With the “Smart Implementing its new strategy, China Unicom Winter Olympics” strategy, it comprehensively broke with its 20-year tradition since listing and achieved zero fault in network support, zero optimised monthly operational statistics complaint in event service, zero infection in disclosure for the first time to promote new personnel, and successfully completed the task value and be a trusted partner for investors. of securing communications for the Winter Olympics. July 2022 Three telecom operators joined hands for the first time to organise a listed telecom companies investor briefing, helping the capital market to gain a deeper understanding of the new development and value of the telecom industry in embracing the digital economy. November 2022 China Unicom obtained approval from the Ministry of Industry and Information Technology to refarm 900 MHz band spectrum resources for 5G system, which is conducive to China Unicom’s rapid promotion of 5G coverage in rural and remote areas with less investment. December 2022 China Unicom convened a partner conference where it unveiled a new chapter of strategic cooperation with Tencent, JD.com, Alibaba and Baidu to leverage their respective capability advantages in various fields such as digital information infrastructure. China Unicom entered into a new commercial pricing agreement and service agreement with China Tower Corporation Limited. April 2022 With “Unicom Cloud”, a reliable digital intelligence cloud, as the foundation, China Unicom launched “Moutai Cloud” together with Guizhou Maotai to help “iMaotai” cope with heavy data traffic. May 2022 Focused on key vertical industries, China Unicom set up 10 industry forces covering 9 major sectors, combined with 17 professional subsidiaries and 19 industrial Internet companies, so as to build a team with industry knowledge. June 2022 China Unicom cultivated new momentum for green development through the implementation of “dual-carbon” missions in an orderly manner. 006 / China Unicom (Hong Kong) Limited Annual Report 2022 / 007 CHAIRMAN’S STATEME NT Dear Shareholders, 2022 was a year when the digital economy played a prominent role as the “accelerator” of national economy and became a key driver of economic recovery. It was also a year when China Unicom firmly stayed on the main channel of the digital economy and commenced the full implementation of its new strategy. Adhering to the strategic guidance of “Strengthen and Solidify, Preserve and Innovate, Integrate and Open” and shouldering responsibilities as “the national team, the key force and the frontline troop”, we unveiled a new paradigm for the Company’s faster transformation into a leading enterprise in digital technologies. We stayed forward-looking and vigorously enhanced basic network capabilities and c u s t o m e r s e r v i c e q u a l i t y . W e a d h e r e d t o innovation-driven development and made multiple achievements in the five main businesses while our core technological innovation capabilities were improved significantly. We insisted on open cooperation, as our i n t e g r a t e d o p e r a t i o n a n d s e r v i c e s y s t e m continuously improved and the industry ecosystem strengthened significantly. The Company’s development scaled new historical heights. LIU LIEHONG Chairman and Chief Executive Officer OVERALL RESULTS In 2022, the Company achieved “four new highs” in business development: Firstly, operating revenue reached RMB354.9 billion, up by 8.3% year-on-year, which was the highest growth rate in nine years. Secondly, the profit attributable to equity shareholders of the Company reached RMB16.7 billion, representing a year-on-year increase of 16.5%. Excluding non-operating gains and losses1, the profit attributable to equity shareholders of the Company reached a new high since the Company’s listing. Thirdly, the proportion of Industry Internet in service revenue exceeded 20% for the first time, and the proportion of innovative business revenue reached a record high. Fourthly, EBITDA2 reached RMB99.2 billion, hitting a record high since the Company’s listing. We resolutely implemented the Cyber Superpower, Digital China and Smart Society strategic deployments. Today, China Unicom is accelerating its transformation from a traditional operator to a leading enterprise in digital technologies. We have achieved transformation and upgrade in four dimensions: First is the upgrade of connectivity scale and structure, which expanded from human connections previously to the connections of people, devices and things as we vigorously developed Internet of Things (IoT) and industrial Internet. Second is the upgrade of our core functions, which expanded from basic connectivity to five main responsibilities and main businesses, namely Big Connectivity, Big Computing, Big Data, Big Application and Big Security. Third is the upgrade of service and empowerment. With the integration of next-generation information technologies such as 5G, cloud computing, Big Data, artificial intelligence (AI) and blockchain and the real economy, our capability to serve the digital government, digital society and digital economy was further enhanced. Fourth is the upgrade of our development philosophy. We changed from the traditional market-driven development model to one which is dually driven by both market and innovation. In particular, we increased investment on technological innovation and talents, unleashing unprecedented momentum of innovative development. In the face of tremendous opportunities in the vast blue ocean of the digital economy, we actively built up our core capabilities. Our full-year capital expenditure reached RMB74.2 billion, which has laid a solid foundation for the stable and long-term development of the Company. The Company continued to be in a strong and healthy financial position in recent years. Its liabilities-to-assets ratio remained at a reasonable level of 46.5%, and its finance costs decreased by 20.9% year-on-year. The Company’s financial strength and ability to counter risks were continuously enhanced. The Company highly values shareholder return. Taking into consideration the Company’s good business development, the Board proposed a final dividend of RMB0.109 per share. Together with the interim dividend of RMB0.165 per share already paid, the full-year dividend reaches RMB0.274 per share, representing a year-on-year increase of 26.9%. The Company will continue to strive to enhance profitability and shareholder return in the future. 008 / China Unicom (Hong Kong) Limited Annual Report 2022 / 009 CHAIRMAN’S STATEMENT FORWARD-LOOKING AND DEDICATED TO BUILDING UP BASIC CAPABILITIES Network is the foundation of development, and added, with the administrative village coverage reaching 96%. The scale and coverage of mid-band 5G were on par with the industry, which helped our mobile subscriber scale reach a new service is the fundamental of the industry. Since high. For broadband premium network, we the implementation of the new strategy, we have maintained our leading advantage in Northern been making great efforts to construct intelligent China. 2.14 million 10 G PON ports were added. a n d c o m p r e h e n s i v e d i g i t a l i n f o r m a t i o n Urban residential coverage3 in Southern China infrastructure, actively building an unobstructed reached 80%, which laid a solid foundation for the information channel and a new digital base for rapid growth of broadband subscribers in the past economic and social development. We spared no two years. For government and enterprise effort to enhance our service quality and strived to premium network, 307 cities and nearly 150,000 build “fully integrated” high-quality service. We commercial buildings were covered. The Company have won extensive praise for our service continued to consolidate its industry-leading reputation that draws customers from afar. leased line brand, with accelerating leased line Further cemented network foundation revenue growth. For computing power premium network, the Company actively implemented the In the past year, the Company continued to Eastern Data and Western Computing strategy, i n c r e a s e i t s i n v e s t m e n t i n b a s i c n e t w o r k enhanced the “5 + 4 + 31 + X” multi-tier capabilities, and the construction of “four premium architecture, and strengthened its leading networks” made remarkable progress. For 5G advantage in backbone network latency and premium network, 310,000 5G mid-band base multi-cloud collaboration. Computing power stations and 170,000 900M base stations were investment for the year amounted to RMB12.4 010 / China Unicom (Hong Kong) Limited billion. Supply of resources was more abundant Further bolstered service quality with “one resource pool per city” in 170 cities and We have been adhering to the original aspiration over 400 MEC nodes. Deployment of computing of “people’s post and telecommunications for the power was improved with the number of IDC people”. Being customer-centric, we insist on cabinets reaching 363,000 and 23 provinces creating value for customers. The Company covered by 1,000-cabinet IDCs. Our multi-cloud further leveraged its edges in unified and collaboration capability has been industry-leading, centralised operation as well as data integration. with the lowest backbone transmission latency in Resolution ratio of smart customer service the industry and 336 internal and external cloud exceeded 98%, and smart customer service ratio resources pools connected. In the future, the exceeded 83%. Customer perception improved Company will continue to enhance its resource significantly, and the valid complaint rate compiled supply capacity in various aspects such as cloud by the Ministry of Industry and Information computing, IDCs and backbone carrier network to Technology (MIIT) hit another record low. The further strengthen the foundation for the rapid Company strengthened customer care. It development of the digital economy. launched the Elderly Exclusive Service Campaign and a brand-new youth-focused brand “Unicom Our co-build co-share with China Telecom WO Pai”. It optimised hotline operations with continued to deepen, with the number of shared industry-leading daily get-through rate in 31 5G base stations reaching a million, accounting for provinces. It bolstered service system and shaped 30% of the world’s total 5G base stations. We differentiated service reputation. It enhanced vigorously promoted 700M base station roaming service effectiveness, with satisfactory resolution in remote rural areas, and has started commercial r a t e o f c u s t o m e r i s s u e s i m p r o v e d b y 2 2 trial on live network. The number of shared 4G percentage points. base stations reached 1.1 million, and cross-sector co-build co-share of infrastructure such as poles and pipelines was also being executed and advanced. Through 5G/4G co-build co-share, we h a v e s a v e d m o r e t h a n R M B 2 7 0 b i l l i o n i n investment for the country on a cumulative basis, and can save operating costs of more than RMB30 billion a year and reduce carbon emissions by more than 10 million tonnes a year. Annual Report 2022 / 011 CHAIRMAN’S STATEMENT EMBRACING INNOVATION TO UNLOCK NEW GROWTH POTENTIAL On the basis of ensuring stable development, we fixed-line broadband subscribers exceeded 100 million. The net addition of subscribers exceeded 8 m i l l i o n f o r t w o c o n s e c u t i v e y e a r s . T h e c o n t i n u e d t o p r o m o t e i n - d e p t h a n d penetration rate of broadband subscribers reached multi-dimensional innovation and transformation, 75%. The integrated ARPU exceeded RMB100 for striving to find a way of development with the the first time, further opening up the huge characteristics of China Unicom. The Company development potential of the household market. achieved stable development in the personal and The Company strengthened the supply of 5G household markets with dual improvement in the digital smart living and smart home application scale and value of basic businesses, providing products by launching new products and services good support to overall growth. It accelerated such as 5G New Calling, elderly exclusive service innovation and transformation and consolidated and “Unicom WO Pai”, etc., vigorously leveraging unique advantages. Industry Internet, a new differentiated advantages driven by product growth engine, brought brand-new vibrancy to the innovation, so as to build up the momentum of the Company’s development in the new era. In 2022, innovative transformation and continuous growth t h e C o m p a n y ’ s s e r v i c e r e v e n u e r e a c h e d of basic businesses. RMB319.3 billion, up by 7.8% year-on-year. Solidified basic businesses Faster growth of innovative businesses The Company’s Industry Internet business In 2022, the Company overcame the adverse continued to accelerate with revenue in 2022 i m p a c t o f t h e p a n d e m i c a n d m a d e n e w exceeding RMB70 billion for the first time, breakthroughs in the scale and value of Big representing a year-on-year growth of 29%. Both Connectivity. The number of mobile billing its scale and growth rate improved. The value of subscribers exceeded 320 million. The penetration Big Connectivity grew, with the number of IoT rate of 5G package subscribers reached 66%, connections reaching approximately 390 million. signifying improved subscriber structure. The We had nearly 70% market share in new 5G Company optimised the product mix of its basic connections. We were the first operator with IoT businesses. Mobile subscriber ARPU increased for connections exceeding human connections. IoT three consecutive years, evidencing further revenue amounted to RMB8.6 billion, up by 42% enhancement of subscriber value. Riding on year-on-year. Non-connection revenue grew by industry development trends, the Company took 63%, significantly outperforming the industry. The advantage of “dual gigabit” network upgrade to Company was building up momentum in Big build an integrated and segmented development Computing as “Unicom Cloud4” continued to model and create a foundation for the sustainable double with revenue in 2022 reaching RMB36.1 growth of broadband business. The number of billion, up by 121% year-on-year. We launched 012 / China Unicom (Hong Kong) Limited Unicom Cloud version 7.0. We further bolstered 2022, it has built over 16,000 large-scale 5G our “secure digital smart cloud” brand image, and application projects on a cumulative basis, which further enhanced our proprietary R&D and were replicated among 52 major categories of the innovation capability. The full stack of our national economy. It built more than 1,600 fully proprietary and controllable cloud is 100% 5G-connected factories, establishing the no. 1 self-developed and is compatible with more than brand in “5G + Industrial Internet” and setting sail 90% of domestic mainstream software and for a new journey which travels steadily and far. In h a r d w a r e p r o d u c t s , m e e t i n g c u s t o m e r s ’ 2022, the Company won the “Enterprise 5G localisation needs. The overall rating of our Leadership Award” at the 19th 5G World Summit. government affairs cloud platform ranked no. 1 in The Company accounted for 40% of the project the country. In 2022, we implemented more than nominations at the 5th “Blooming Cup” ( 5G 10 provincial government affairs cloud projects application contest) organised by the MIIT and and more than 200 hospital cloudification projects. won the most awards in the industry. Big Security The Company maintained its leadership in Big achieved rapid growth. The Company set up a Data, and achieved revenue of RMB4.0 billion, up dedicated network and information security by 58% year-on-year. In recent years, we have department and a cybersecurity research institute, provided digital government development services with over 1,200 security operation staffs. It to more than 20 provincial governments and 100 operated the Cybersecurity Industry Innovation municipal governments, and have provided Big and Development Alliance of China, and worked Data capability support to 25 ministries and with nearly 400 partners to fortify the “New Great commissions. We deeply participated in the digital Wall” for cybersecurity. Big Security revenue in and intelligent operation of governments at all 2022 grew by nearly 4 times. Our security levels, highlighting our advantages in data capabilities have served over 10,000 customers governance and data security. The Company is cumulatively. leading the way in Big Application. By the end of Annual Report 2022 / 013 CHAIRMAN’S STATEMENT Deepened Technological Innovation Transformation awarded the 2022 World Internet Leading The Company has made milestone progress in Technological Achievement Award as well as the a c h i e v i n g h i g h - l e v e l i n d e p e n d e n c e a n d First Prize at the 2022 World Artificial Intelligence competence in technologies. We established Conference. These accolades proved the rapid C h i n a U n i c o m S c i e n c e a n d T e c h n o l o g y improvement of China Unicom’s technological Association and engaged 16 fellows as special innovation and strengthened our determination to experts of the Technology Committee. Our make further inroads in technological innovation. technological innovation was strengthened with industry-leading R&D spending intensity. R&D expenses in 2022 increased by 43% year-on-year. The proportion of technological innovation talents reached 30%. We were granted 1,666 patents. S H A R I N G T H E D E V E L O P M E N T BENEFITS OF THE ERA THROUGH OPEN COOPERATION In the digital era, cross-sector collaboration is Revenue of self-developed products increased by commonplace. With integration of factors such as more than 70% year-on-year. We stepped up technologies and production processes as well as efforts in core technological R&D, and put into commercial and market convergence, new vitality application 63 outcomes such as signal Big Data emerges in various industries. We continued to platform, 5G full connectivity platform and promote open cooperation ecosystem and actively self-developed UPF, etc. With the upgrade of our lead collective efforts. Taking advantage of its smart brain, 402 kinds of online services have pivotal position in the upstream and downstream been made available in the China Unicom APP, value chain, the Company attracted more partners e n a b l i n g t o t a l o n l i n e e x p e r i e n c e o f c o r e to join the ecosystem. It took the initiative to businesses. The Company was awarded the integrate into the development of the digital honorary title of “Outstanding Contribution economy, and deepened integration and open Enterprise in Technological Innovation” by the cooperation. The Company fully promoted the SASAC for three consecutive years, and was capability generation model of “one China Unicom 014 / China Unicom (Hong Kong) Limited with integrated capabilities and operating services” and established 10 industry forces covering 9 major sectors. It fully combined the systematic 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 As a warm-hearted, responsible and bold professional capabilities of 17 professional enterprise, China Unicom always believes in subsidiaries and 19 industrial Internet companies extending kindness through technology and with the national four-tier operational system sharing warmth with actions. The Company comprising the headquarters, provinces, cities, actively devoted itself to the development of counties and villages to provide customers with social welfare undertakings, and deeply focused integrated solutions and operating services. on the four major areas of ideological continuity, Synergy between domestic and international social livelihood, environmental protection and o p e r a t i o n s h a v e b e e n b o o s t e d . W e h a v e pandemic safety. As always, China Unicom international Internet interconnection with more implemented national requirements with practical than 140 operators worldwide, with international actions, fulfilled social responsibilities in return to interconnection bandwidth reaching 100 Tbps. people’s trust, and contributed to the construction Data roaming service covers nearly 250 countries of a warm and harmonious society. We continued and regions. We served and integrated into local to provide love and assistance to diversified e c o n o m i c a n d s o c i a l d e v e l o p m e n t m o r e groups such as the elderly, left-behind children, proactively, and signed strategic cooperation labour workers and youth students. Believing in agreements with 27 provincial governments and sustainable development, the Company cares 109 large enterprises. We provided digital village deeply about environmental protection on an services to more than 230,000 administrative ongoing basis. By frequently carrying out various villages, building the no. 1 brand in digital villages. voluntary campaigns, we contributed to ecological Our cooperation with Tencent, Alibaba, JD.com, protection and restoration. The Company actively B a i d u a n d o t h e r s t r a t e g i c i n v e s t o r s w a s responded to national initiatives and shouldered comprehensively upgraded as we worked with r e s p o n s i b i l i t i e s a s a c e n t r a l s t a t e - o w n e d them to jointly promote value creation. We enterprise. Driven by the three major means, actively embraced the comprehensive registration reducing the rent of small and medium-sized system reform. China Unicom Smart Connection enterprises, clearing outstanding payables to Technology Limited, a subsidiary of the Company, private enterprises and reducing financing costs of is proposed to be spun off and listed on the small and medium-sized enterprises, the Company Sci-Tech Innovation Board to share the fruitful dedicated itself to helping small and medium-sized b e n e f i t s a n d p r o m i s i n g p r o s p e c t s o f t h e enterprises overcome difficulties, strongly Company’s development with more investors. It underpinning the prosperity and development of will strive to contribute to the development of market economy. We continued to strengthen the Transportation Superpower, Cyber Superpower base for digital villages and consolidate the and Digital China with the power of China Unicom. f o u n d a t i o n f o r r u r a l r e v i t a l i s a t i o n a n d development, building an information highway for digital agriculture and smart village. Annual Report 2022 / 015 CHAIRMAN’S STATEMENT We care about the realisation of capital market value and actively explore the reshaping and OUTLOOK Information is an important carrier for the upgrade of valuation methodology. The Company evolution of human civilisation. Recently, new took the lead in revamping the monthly disclosure concepts such as Metaverse, digital twin and AI metrics that had been used for 20 years, and generated content (AIGC) have emerged and new joined hands with China Telecom and China technologies continuously redefine market Mobile to organise the first telco industry joint perception, which has put forward greater investor briefing. We are pleased to see the challenges to the capacity and experience capital market’s positive response to the requirements of information pipelines and Company’s development prospects. As the first computing power network, while providing central SOE to echo attempt to reshape valuation industry players with huge opportunities. By 2025, methodology, the Company’s performance in the China’s digital economy will exceed RMB60 capital market was outstanding with boosted trillion7. The huge market, the blue ocean of share price and trading volume. Our share price development and eye-catching technologies have has surged by over 90% from the trough5. Since created enormous prospects for future and November last year, China Unicom A Share, the imagination. Today, China Unicom is accelerating controlling shareholder of the Company, has been its transformation into a leading enterprise in the most traded stock in the A-share market digital technologies. We ride on the reshaping of during the period 6. China Unicom actively valuation methodology to actively contribute to the r e s p o n d s t o t h e r e s h a p i n g o f v a l u a t i o n high-quality development of a “Chinese modern methodology, and will continue to provide good capital market”. In 2023, we will further step up return to shareholders and the market by investment. Capital expenditure will reach enhancing corporate value. RMB76.9 billion, of which computing power network investment will account for more than T h e C o m p a n y c o n t i n u e d t o i m p r o v e i t s 19% and grow by over 20% year-on-year, in an governance mechanism, enhance its execution, effort to solidify a digital base. We will further strengthen risk management and internal control strengthen technological investment to develop to provide solid support for the sustainable and more specialised and innovative products in the healthy development of the Company. It received five main responsibilities and main businesses, so numerous recognitions, including ranking 267th in as to enhance our core competitiveness and “Fortune Global 500” for the year 2022, ranking innovation-driven capability. We will further build 366th in “The Forbes Global 2000” for the year stronger operating service system. With a focus 2022 and being voted as “Asia’s Most Honoured on strengthening county-level companies, we will Telecom Company” by Institutional Investor for the bolster our marketing capabilities to enhance seventh consecutive years. market-driven development. We will further 016 / China Unicom (Hong Kong) Limited s t r e n g t h e n d i g i t a l t r a n s f o r m a t i o n , a n d Last but not least, on behalf of the Board, I would comprehensively turn the Company’s digital like to express my sincere gratitude to all system from good to excellent, so as to enhance shareholders, customers and all sectors of society our digitally empowered production and operation for their long-term care and support to the capabilities. We will be a better “way-paver” to Company, and to all employees for their continued provide the “No. 1 connection” for the digital efforts and contributions. economy. We will be a better “enabler” to empower the digital transformation of thousands of industries. We will be a better “guard” to build the most reliable cybersecurity defence line for the development of the digital economy. We will continue to deeply implement the “1 + 9 + 3” s t r a t e g i c p l a n n i n g s y s t e m , m a k e n e w achievements in high-quality development with new morale and initiatives, and contribute to C h i n e s e - s t y l e m o d e r n i s a t i o n w i t h d i g i t a l , Liu Liehong network-based and intelligent transformation. We Chairman and Chief Executive Officer will stabilise growth, enhance capability and create value, with an aim to maintain steady growth of Hong Kong, 8 March 2023 service revenue, double-digit growth of net profit, and continuous improvement of return on equity in the year. Note 1: Excluding the one-off gain from the sale of CDMA network in 2008, the profit attributable to equity shareholders of the Company reached the highest since listing. Note 2: 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 3: Urban residential coverage rate in the 21 southern provinces. Note 4: 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 5: Based on the intra-day lowest price of HK$3.27 on 28 October 2022 and intra-day highest price of HK$6.31 on 3 March 2023. Note 6: Cumulative trading volume for the period between 1 November 2022 and 3 March 2023. Note 7: Data were sourced from the China Academy of Information and Communications Technology. Annual Report 2022 / 017 BUSIN ESS OV ERVI EW 2022 is the starting year for China Unicom to fully implement its new strategic plan. Adhering to the guidance of President Xi Jinping’s Thought on Socialism with Chinese Characteristics in the new era, China Unicom resolutely implements the decision and deployment of the State Council. Sticking to its corporate positioning as the “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” and under the strategic guidance of “Strengthen and Solidify, Preserve and Innovate, Integrate and Open”, the Company vigorously developed its five main responsibilities and main businesses, namely “Big Connectivity, Big Computing, Big Data, Big Application and Big Security”, and steadily improved the effectiveness of the “1 + 9 + 3” strategic planning system, achieving a good start in the first year of the full implementation of its new strategy. CHEN ZHONGYUE Executive Director and President In terms of “Big Connectivity”, China Unicom seized the development opportunities of “dual-gigabit” and “IoT connections exceeding human connections”, and adhered to coordinated development in terms of quantity, quality, structure, and efficiency. Strategic positioning, policy design, and resource allocation were all working in the same directions to achieve value-based operation based on scale, compliant development based on quality, integrated development based on structure, and effective development based on efficiency. The Company fully promoted the value-based operation with terminal-network-business synergy around the integration development of all subscribers, and focused on increasing the scale and value of connectivity. By December 2022, the subscriber scale reached a new record, with a cumulative total of 860 million “Big Connectivity” subscribers and broadband subscribers crossing the 100 million historical mark. 5G package subscribers reached a cumulative total of 210 million. The Company launched the “Gewu” device management platform, delving into the two major fields of smart cities and industrial internet, providing customers with convenient and professional device management services. China Unicom was the first operator in the industry with IoT connections exceeding human connections, with the cumulative number of IoT terminal connections reaching 386 million. In terms of “Big Computing”, Unicom Cloud has been fully upgraded to version 7.0, with breakthroughs in core technologies. The core performance indicators of computing, storage and network were enhanced. The Company is the only operator that received excellent certification for its cloud-native container platform in financial scenarios. It successfully launched a self-developed operating system, CULinux, and a self-developed database. By deepening its “5 + 4 + 31 + X” cloud resource allocation and promoting further penetration of provincial nodes, the Company is gradually realising its deployment of computing power with one pool for one city. The new Unicom Cloud product system, which consists of industry cloud version, private cloud version and information technology innovation cloud version, comprehensively meets customers’ needs for cloudification in all scenarios. The Company also supported the construction of digital government and smart city, provided technical support for pandemic prevention, and actively participated in the digital transformation of central state-owned enterprises. In terms of “Big Data”, the Company continued to upgrade its capabilities in integrated innovation of data, artificial intelligence, blockchain, consolidate its data governance, data security and data visualisation service capabilities, and improve its product system. The Company released the “Zizhi” Government Affairs Big Data Platform. 11 capabilities were included in the Data Governance Industry Map of the China Academy of Information and Communications Technology. In the fields of digital government, digital finance, smart culture and tourism, data security, etc., the Company has realised large-scale replication of provincial and municipal benchmark projects. China Unicom’s Big Data business maintained rapid development, continuously led the industry in market share, and had the largest blockchain patent reserve among central state-owned enterprises. 018 / China Unicom (Hong Kong) Limited Annual Report 2022 / 019 BUSINESS OVERVIEW In terms of “Big Applications”, the Company was of 5G private network PLUS, and won the c o m m i t t e d t o c r e a t i n g m o r e d i v e r s e a n d “Enterprise 5G Leadership Award” at the 19th 5G user-friendly innovative products, deepening W o r l d S u m m i t h o s t e d b y I n f o r m a T e c h . supply-side structural reform of products for Furthermore, the Company released the 5G individuals and households. China Unicom Private Network Product System 3.0 and created launched a 5G New Calling product series and 50 innovative application products to serve more constructed the “Unicom Smart Home” product than 3,800 industry private network customers, s y s t e m t o b r i n g n e w q u a l i t y u p g r a d e o f with more than 16,000 “commodity flat” projects experiences to its customers. China Unicom o f l a r g e - s c a l e 5 G a p p l i c a t i o n . T a k i n g t h e deeply implemented “one Unicom, integrated construction of fully 5G-connected factories for capability aggregation, and integrated operation industrial enterprises in key industries, including service”. It focused on vertical industries and steel, mining and equipment manufacturing as a honed its specialised and innovative abilities. The means, the Company penetrated into the Company has independently developed more than construction of application in 20 scenarios across 200 products in 14 fields including digital the industry, creating more than 1,600 fully government, smart city, industrial Internet and 5G-connected factory projects. It has preliminarily medical and healthcare, with new contract value achieved scale application in auxiliary production of more than RMB10 billion for the year, more processes such as on-site auxiliary assembly and than the previous 3 years combined. Based on the intelligent logistics in the factory, etc. and is 5GC 2B three-dimensional network architecture penetrating into core application scenarios such as featuring “One cloud with extensive network remote equipment control and flexible production coverage”, the Company continued its innovation and manufacturing. 020 / China Unicom (Hong Kong) Limited In terms of “Big Security”, the Company leveraged development based on structure, and effective the advantages of its basic network resources and development based on efficiency. Firstly, the four-level operation system to create a “cloud, Company accelerated the development of “dual network, data and service” integrated security gigabit” in terms of scale, application and product and operation service system. The integration. It promoted 5G digital smart living to Company launched “Mogong” security operation drive mobile business’s new advancement in scale service platform and continuously upgraded and value, and promoted 1000M smart home to Unicom Cloud Shield Anti-DDoS Pioneer, Large drive broadband business to achieve new heights Network Situational Awareness and other in terms of scale and value. It revamped brand advantageous products. The Company jointly operations, enhanced the scale and value of created an industrial ecology and launched a connectivity, so as to secure a leading position in security cloud market, thereby continuously customer perception. Secondly, the Company meeting the diversified and scenario-based accelerated the innovation of products and modes security needs of the government and large of computing-network integration, focused on the enterprises. China Unicom has provided services new supply of large-scale integration products for to more than 200 leading customers. In the key businesses and markets, and strengthened provision of network security support services for the operation of Unicom APP. It drove the new major events such as the Beijing Winter Olympics, upgrade of 2I2C products and marketing models the National People’s Congress, and the 20th supported by three gigabit, deepened the National Congress of the Communist Party of transformation of “platform + cloud network + X” China, the Company achieved zero accident, zero model, and accelerated the iteration of platform mistake and zero complaint. functions. It accelerated the construction of key market products, touchpoint systems, marketing In terms of marketing strategies, the Company organizations and responsibility systems, leading pursued coordinated development of quantity, and promoting innovative transformation of quality, structure and efficiency, with an aim to marketing models in segmented markets. Thirdly, realise scale-based value management, compliant the Company accelerated total integration based development based on quality, integrated on fixed-line and mobile integration as well as Annual Report 2022 / 021 BUSINESS OVERVIEW high-quality structural upgrade of subscribers, management-oriented sales model to a new realising the deep integration of all factors model of BU-based coordination involving multiple including fixed-line and mobile, cloud network, professions, so as to keep close to customers, terminal, application, finance and account. With integrate into the scenarios and drive the “platform the integration and mutual promotion of all + cloud network + X” marketing transformation. professions and integrated development of online Secondly, physical channel deployment has been and offline touchpoints, the Company achieved optimized by the dual revitalisation of channels new value through the in-depth operation of all and terminals: the Company actively implemented customers. the plan for dual revitalisation of channels and terminals, focused on the construction of channel In terms of marketing channels, the Company and terminal integration capabilities, enhanced the further constructed the OMO digital marketing retail capabilities of terminal channels, and service system and strived to promote the strengthened the cooperation with terminal transformation to the all-factor integrated manufacturers and outlets, so as to enable wider operation system for targeted market segments. access of physical channels, keep close to Firstly, a marketing service organisation for customers and optimise channel deployment and segmented markets has been initially established: structure. Thirdly, the Company made outstanding focusing on the targeted market segments, the achievements in online and offline integration of Company restructured its marketing service five capabilities: it unified production tools to organisational structure, upgrading the channel enable “one-screen handling”, unified order 022 / China Unicom (Hong Kong) Limited scheduling to efficiently support front-line As at the end of 2022, the Company had 1 million production, unified production delivery to mid-band 5G base stations, 170,000 newly built significantly improve production efficiency, unified 900M low-band base stations, and 2,276,000 4G traffic aggregation to maximise the value of big base stations in operation, including 1,696,000 data, and unified resource visualisation to realise self-built 4G base stations and sharing 580,000 of the digital display of “3+2” grids. China Telecom’s 4G base stations. 5/4G coverage in administrative villages reached 96%. As for the In terms of network capabilities, with a focus on fixed-line network, the Company continued to its five main responsibilities and main businesses, expand network coverage in new regions and while pursuing moderate advancement, promoting stepped up the network upgrade in PON + LAN u s e t h r o u g h c o n s t r u c t i o n a n d c o m b i n i n g areas. The total number of broadband access construction with use, the Company unswervingly ports reached 250 million, of which FTTH ports increased its investment to facilitate th e accounted for 93.2%. The Company continued to construction of digital information infrastructure optimise its international network deployment. As and accelerate the building of four premium at the end of 2022, the international submarine networks of 5G, broadband, government and cable capacity, international Internet outbound enterprise, and computing power. The Company capacity and inbound bandwidth reached 79.5T, m a d e g r e a t e f f o r t s t o e n h a n c e i t s c o r e 5.96T and 4.83T, respectively. The Company’s competitiveness, sustainable development international roaming services covered 626 capabilities and value creation capabilities, thereby operators in 260 countries and regions. promoting network quality to a new level and further laying a solid network foundation for the Company’s high-quality development. Annual Report 2022 / 023 FI NAN CIAL OV ERVI EW OVERVIEW In 2022, the Company firmly progressed to the REVENUE In 2022, the Company’s revenue was RMB354.94 Company’s “1 + 9 + 3” strategic planning, total billion, up by 8.3% year-on-year, of which, service revenue was RMB354.94 billion in 2022, up by revenue was RMB319.35 billion, up by 7.8% year- 8.3% year-on-year. Service revenue reached on-year due to continuous optimisation of the RMB319.35 billion, up by 7.8% year-on-year. Net revenue mix. profit1 was RMB16.74 billion, up by RMB2.37 billion year-on-year. In 2022, the Company’s net cash flow from operating activities was RMB100.54 billion. Capital expenditure was RMB74.20 billion. Liabilities-to- assets ratio was 46.5% as at 31 December 2022. SERVICE REVENUE (RMB BIL) 319.35 99.17 EBITDA2 (RMB BIL) INDUSTRY INTERNET BUSINESS SERVICE REVENUE (RMB BIL) 70.46 024 / China Unicom (Hong Kong) Limited 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 2022 and 2021: (RMB in billions) 2022 2021 As a percentage As a percentage Total of service Total of service amount revenue amount revenue Service revenue Include: Basic business Industry Internet business 319.35 248.89 70.46 100.0% 77.9% 22.1% 296.15 241.37 54.78 100.0% 81.5% 18.5% Basic Business In 2022, service revenue from basic business was RMB248.89 billion, up by 3.1% year-on-year. Industry Internet Business In 2022, service revenue from Industry Internet business was RMB70.46 billion, up by 28.6% year-on- year. Annual Report 2022 / 025 FINANCIAL OVERVIEW COSTS AND EXPENSES In 2022, total costs and expenses amounted to RMB342.60 billion, up by 8.0% 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 2022 and 2021: (RMB in billions) Operating costs Include: Interconnection charges Depreciation and amortisation Network, operation and support expenses Employee benefit expenses Include: salaries under employment contract Costs of telecommunications products sold Selling and marketing expenses General, administrative and other 2022 2021 As a As a Total percentage Total percentage amount of revenue amount of revenue 342.60 10.95 86.83 56.42 60.72 96.5% 3.1% 24.4% 15.9% 17.1% 317.18 11.56 85.65 53.09 58.94 96.7% 3.5% 26.1% 16.2% 18.0% 40.85 11.5% 39.75 12.1% 34.72 34.46 9.8% 9.7% 30.68 32.21 9.4% 9.8% operating expenses 58.50 16.5% 45.05 13.7% 026 / China Unicom (Hong Kong) Limited Interconnection charges The interconnection charges were RMB10.95 billion in 2022, down by 5.3% year-on-year and, as a percentage of revenue, changed from 3.5% in 2021 to 3.1% in 2022. Depreciation and amortisation Depreciation and amortisation charges were RMB86.83 billion in 2022, up by 1.4% year-on-year and, as a percentage of revenue, changed from 26.1% in 2021 to 24.4% in 2022. Network, operation and support expenses The Company expanded the scale of the basic network and relevant infrastructure. Network, operation and support expenses were RMB56.42 billion in 2022, up by 6.3% year-on-year and, as a percentage of revenue were basically stable, changed from 16.2% in 2021 to 15.9% in 2022. Employee benefit expenses The Company continued to optimise the operating results assessment to strengthen performance, effectiveness and the recruitment of innovative talents, employee benefit expenses were to RMB60.72 billion in 2022, up by 3.0% year-on-year and, as a percentage of revenue, changed from 18.0% in 2021 to 17.1% in 2022. Cost of telecommunications products sold Costs of telecommunications products sold were RMB34.72 billion and revenue from sales of telecommunications products were RMB35.59 billion in 2022. Gross profits on sales of telecommunications products was RMB0.87 billion. Selling and marketing expenses With the Company fully strengthening digital empowerment and accelerating O2O integrated operation development, selling and marketing expenses were RMB34.46 billion in 2022, up by 7.0% year-on-year and, as a percentage of revenue, decreased from 9.8% in 2021 to 9.7% in 2022. General, administrative and other operating expenses General, administrative and other operating expenses were RMB58.50 billion in 2022, up by 29.9% year- on-year, mainly due to the rapid growth of the Industry Internet business leading to increased related service costs. Annual Report 2022 / 027 FINANCIAL OVERVIEW EARNINGS (RMB in billions) amount amount Change 2022 Total 2021 Total Operating profits Net interest income/(finance costs) 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 12.34 0.66 2.15 1.59 3.85 20.59 3.75 16.74 10.67 –0.17 1.86 1.45 4.12 17.93 3.42 14.37 15.7% N/A 15.6% 10.0% –6.5% 14.8% 9.6% 16.5% Profit before income tax In 2022, the Company benefited from continuous enhancement in growth quality and profitability, profit before income tax was RMB20.59 billion, up by 14.8% year-on-year. COMMITTED TO SHARING THE FRUITS OF THE COMPANY’S LONG-TERM DEVELOPMENT WITH SHAREHOLDERS Income tax expenses In 2022, the Company’s income tax expenses was RMB3.75 billion and the effective tax rate was 18.2%. Profit for the year In 2022, the Company’s net profit1 was RMB16.74 billion, increased by RMB2.37 billion year-on-year. Basic earnings per share was RMB0.547, up by 16.5% year-on-year. 028 / China Unicom (Hong Kong) Limited EBITDA2 In 2022, the Company’s EBITDA was RMB99.17 billion, up by 3.0% year-on-year. EBITDA as a percentage of service revenue was 31.1%, down by 1.4 percentage points year-on-year. CAPITAL EXPENDITURE AND CASH FLOW In 2022, capital expenditure of the Company totaled RMB74.20 billion, which mainly consisted of investments in mobile network, household internet and fixed-line voice, government, enterprise and innovative business etc. In 2022, the Company’s net cash flow from operating activities was RMB100.54 billion. Free cash flow3 was RMB26.34 billion after the deduction of the capital expenditure. The table below sets forth the major items of the capital expenditure in 2022: 2022 Total (RMB in billions) expenditure As percentage Total Include: Mobile network Household internet and fixed-line voice Government, enterprise and innovative business Transmission network, infrastructure and others 74.20 26.41 8.76 14.12 24.91 100.0% 35.6% 11.8% 19.0% 33.6% BALANCE SHEET The Company’s total assets changed from RMB591.08 billion as at 31 December 2021 to RMB642.66 billion as at 31 December 2022. Total liabilities changed from RMB257.64 billion as at 31 December 2021 to RMB299.13 billion as at 31 December 2022. The liabilities-to-assets ratio changed from 43.6% as at 31 December 2021 to 46.5% as at 31 December 2022. The debt-to-capitalisation ratio increased from 9.7% as at 31 December 2021 to 14.3% as at 31 December 2022. The net debt-to-capitalisation ratio was 0.5% as at 31 December 2022. 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 expense, 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. Annual Report 2022 / 029 RECOGN ITION AND AWARDS 030 / China Unicom (Hong Kong) Limited Annual Report 2022 / 031 For more information, please visit the Company’s website at www.chinaunicom.com.hk DIR EC TORS AND SENI OR MANAGEME NT LIU LIEHONG Chairman and Chief Executive Officer Aged 54, 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 an Alternate Member of 20th Central Committee, 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. 032 / China Unicom (Hong Kong) Limited CHEN ZHONGYUE Executive Director and President Aged 51, 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. Annual Report 2022 / 033 DIRECTORS AND SENIOR MANAGEMENT WANG JUNZHI Executive Director Aged 58, 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. 034 / China Unicom (Hong Kong) Limited LIANG BAOJUN Senior Vice President Aged 53, 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 Mantager 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. Annual Report 2022 / 035 DIRECTORS AND SENIOR MANAGEMENT HE BIAO Senior Vice President Aged 51, 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, a Director and Senior Vice President of CUCL, as well as Director of certain member of the Group. Mr. He has extensive experience in management and telecommunications industry. 036 / China Unicom (Hong Kong) Limited TANG YONGBO Senior Vice President Aged 49, 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 was a Deputy to the 13th National People's Congress. Mr. Tang is currently Vice General Manager of Unicom Group, Senior Vice President and General Counsel of A Share Company, Director, Senior Vice President and General Counsel of CUCL, as well as Director of certain member of the Group. Mr. Tang has extensive experience in management and the telecommunications industry. Annual Report 2022 / 037 DIRECTORS AND SENIOR MANAGEMENT LI YUZHUO Executive Director and Chief Financial Officer Aged 50, a postgraduate with a master's degree in Business Administration, was appointed in February 2022 as an Executive Director and Chief Financial Officer of the Company. 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, etc. of A Share Company, the Director and the Chief Financial Officer of CUCL, as well as Director of certain member of the Group. Ms. Li has extensive experience in financial investment and capital operation. 038 / China Unicom (Hong Kong) Limited CAO XINGXIN Senior Vice President Aged 56, a postgraduate with a master’s degree in Literature, was appointed in March 2023 as a Senior Vice President of the Company. Mr. Cao served as Deputy Director General of the Bureau of Officials of the CPC Central Committee and State Organs of the Organization Department of the CPC Central Committee (COD), Bureau-level official and Deputy Director of the Office of Civil Servants Administration of COD, Deputy Director General and Bureau-level official at level 1 of the (Third) Bureau of Civil Servants of COD, Deputy Head ( Bureau Chief level) of the National Institute for Party Leadership of COD. Mr. Cao is currently Vice General Manager of Unicom Group, Senior Vice President of A Share Company as well as Director and Senior Vice President of CUCL. Mr. Cao has extensive experience in management. Annual Report 2022 / 039 DIRECTORS AND SENIOR MANAGEMENT CHEUNG WING LAM LINUS Independent Non-Executive Director Aged 74, 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. 040 / China Unicom (Hong Kong) Limited WONG WAI MING Independent Non-Executive Director Aged 65, 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. Annual Report 2022 / 041 DIRECTORS AND SENIOR MANAGEMENT CHUNG SHUI MING TIMPSON Independent Non-Executive Director Aged 71, was appointed in October 2008 as an Independent Non-Executive Director of the Company. Mr. Chung is 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, a member of the National Committee of the 10th to 13th Chinese People’s Political Consultative Conference, 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 and China COSCO Shipping Corporation Limited. 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. 042 / China Unicom (Hong Kong) Limited LAW FAN CHIU FUN FANNY Independent Non-Executive Director Aged 70, was appointed in November 2012 as an Independent Non-Executive Director of the Company. Mrs. Law is currently 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, China Taiping Insurance Holdings Company Limited and New World Development Company Limited (all listed on the Hong Kong Stock Exchange). Mrs. Law served as a Member of the Executive Council of the Government of the Hong Kong Special Administrative Region (“HKSAR”), 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, an Independent Non-Executive Director of DTXS Silk Road Investment Holdings Company Limited and an External Director of China Resources (Holdings) Co., 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. Annual Report 2022 / 043 CORPORATE GO VERN ANCE REPORT The Board believes that a healthy corporate culture is the core of good corporate governance. China Unicom persistently enhances the development of corporate culture, and has established China Unicom system of corporate culture philosophy guided by the new strategy. China Unicom follows the vision of ”Strive to build a world-class enterprise with global competitiveness”, fulfills the mission of ”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”, and practices the core values of “Customer-oriented, Employee-friendly, Attentive to quality service, Inherently innovative, Proud of endeavours, Adhering to integrity”. It also adheres to the corporate style of ”Rigorous, Pragmatic, Skillful, Meticulous, Efficient”. The management philosophy of ”Create value for customers, Dually driven by market and innovation, One China Unicom with integrated capabilities and operating services“ has been established. The penetration and integration of China Unicom’s corporate culture philosophy into production and operation, integrating the corporate culture into the entire process of production, operation and management, which help enhancing and improving the operational effectiveness and management efficiency while ensuring the ideal corporate culture has been reflected in the company’s strategies, business models and operating practices. 044 / China Unicom (Hong Kong) Limited The Board is committed to high standards of regularly published statements relating to its risk corporate governance and recognises that good management and internal control in accordance governance is vital for the long-term success and with relevant regulatory requirement to confirm its sustainability of the Company’s business. The compliance with related risk management and Board will persistently enhance the corporate corporate internal control requirements and other governance of the Company by promoting regulatory requirements. The Board is responsible corporate culture philosophy and core values at all for performing overall corporate governance l e v e l s o f t h e C o m p a n y . W e h o p e a l l o u r duties. The Company has adopted a Corporate executives, management and employees would Governance Practice which sets out the key terms implement the practice and integrate ”integrity o f r e f e r e n c e o f t h e B o a r d o n c o r p o r a t e and self-discipline, uphold integrity and anti- governance functions, including, amongst others, corruption“ into the ideological foundation to d e v e l o p i n g a n d r e v i e w i n g t h e C o r p o r a t e s e r v e a s t h e b a s i c c o d e o f c o n d u c t f o r Governance Policy and corporate governance practitioners, while complying with laws and practices of the Company; reviewing and r e g u l a t i o n s , o p e r a t e s i n c o m p l i a n c e w i t h m o n i t o r i n g t h e t r a i n i n g a n d c o n t i n u o u s regulations and be honest and self-disciplined. professional development of Directors and senior And adhering to the ethical concept and code of management; reviewing and monitoring the conduct of honesty, trustworthiness and due Company’s policies and practices on compliance diligence, and strive to maximize the interests of w i t h l e g a l a n d r e g u l a t o r y r e q u i r e m e n t s ; customers, shareholders, employees and society. developing, reviewing and monitoring the code of The scope of the relevant basic code of conduct conduct and compliance manual applicable to covers matters related to legislation, regulation employees and Directors; and reviewing the and ethics, including but not limited to principles Company’s compliance with the Corporate of honesty and trustworthiness, conflict of G o v e r n a n c e C o d e a n d t h e d i s c l o s u r e i n interest, handling of stakeholder relations, “Corporate Governance Report”. information disclosure and confidentiality, protection of company assets, reporting and In 2022, the Company’s continuous efforts in punishment. As a company incorporated in Hong corporate governance gained wide recognition Kong, the Company adopts the Companies from the capital markets and the Company was Ordinance (Chapter 622 of the Laws of Hong accredited with a number of awards. The Kong), the Securities and Futures Ordinance of Company was voted as “Asia’s Most Honored Hong Kong and other related laws and regulations Telecom Company” for seven years in a row in as the basic guidelines for the Company’s “2022 All-Asia Executive Team” ranking organised corporate governance. As a company listed in b y t h e a u t h o r i t a t i v e f i n a n c i a l m a g a z i n e , Hong Kong, the current articles of association are Institutional Investor. Meanwhile, the Company in compliance with the Rules Governing the was also honored with “Asia’s Best ESG Listing of Securities on The Stock Exchange of ( T e l e c o m s) ” a n d “ A s i a ’ s B e s t I R T e a m Hong Kong Limited. These rules serve as (Telecoms)”. The Company was awarded “Asia’s guidance for the Company to improve the Best CSR” by Corporate Governance Asia. The foundation of its corporate governance, and the Company strives to comply with the relevant Company was accredited with “Platinum Award — Excellence in Environmental, Social, and requirements of international and local corporate Governance” in “The Asset ESG Corporate governance best practices. The Company has Awards 2022”. Annual Report 2022 / 045 CORPORATE GOVERNANCE REPORT Part 2 of the Corporate Governance Code as set out in Appendix 14 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Hong Kong Stock Exchange”) (the “Listing Rules”) provides for code provisions (the “Code Provisions”) and recommended best practices with respect to (i) corporate purpose, strategy and governance, (ii) board composition and nomination, (iii) directors’ responsibilities, delegation and board proceedings, (iv) audit, internal control and risk management, (v) remuneration and (vi) shareholders engagement. Other than the disclosures made in the section headed “Board of Directors” below, the Company confirms that for the year ended 31 December 2022, 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 eight Directors, including four executive Directors and four independent non-executive Directors. Particulars of the Directors are set out on pages 32 to 43 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 4 Executive Directors Independent Non-Executive Directors 4 AGE GROUP 3 45-54 1 55-64 4 >65 046 / China Unicom (Hong Kong) Limited GENDER 6 male 2 female DURATION OF SERVICE (YEARS) 4 4 >10 <5 The roles and responsibilities of the Chairman and independence to the Company upon appointment the Chief Executive Officer of the Company were a n d a n n u a l l y . S u c h m e c h a n i s m s e n a b l e performed by the same individual for the year e n d e d 3 1 D e c e m b e r 2 0 2 2 . T h e C o m p a n y considers that, as all major decisions are made by the Board and relevant Board Committees after discussion, through supervision by the Board and the independent non-executive Directors together with effective internal control mechanism, the Company has achieved a balance of power and authority. In addition, the same individual performing the roles of the Chairman and the independent views and inputs are available to the Board in an effective way, and the Board will review the implementation and effectiveness of such mechanisms on an annual basis. The functions of non-executive Directors include, amongst other things, attending board meetings, exercising independent judgements at meetings, playing a leading role in resolving any potential conflicts of interest, serving on committees by C h i e f E x e c u t i v e O f f i c e r c a n e n h a n c e t h e invitation and carefully examining whether the Company’s efficiency in decision-making and performance of the Company has reached the execution, effectively capturing business planned corporate targets and objectives, and opportunities. All independent non-executive Directors of the C o m p a n y p o s s e s s g o o d k n o w l e d g e a n d experience in different areas. The Company has established various channels for independent non- executive Directors to express their views in an open and honest manner and, if necessary, in a confidential manner. The independent non- executive Directors have been making positive c o n t r i b u t i o n s t o t h e d e v e l o p m e n t o f t h e monitoring and reporting on matters relating to the performance of the Company. With respect to the nomination and appointment of new directors and senior management members and the succession planning for Directors, 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 Company’s strategies and policies through the Board. The Nomination Committee will independent, constructive and informed advice. consider candidates on merit against objective Apart from the regular Board meeting, the criteria and with due regard to the benefits of Chairman meets annually with independent non-executive Directors, without the presence of other Directors, which further promotes the exchange of diversified views and opinions. Non-executive Directors have maintained close contact with the management and actively express constructive opinions on matters relating to corporate governance, operation management, risk prevention and the capital market at board meetings. These views and opinions facilitate the diversity on the Board, including but not limited to gender, age, cultural and educational background, professional experience, skills, knowledge and duration of service. 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 B o a r d i n m a k i n g t h e i r d e c i s i o n s i n t h e candidates. The Directors of the Company shareholders’ best interests. All independent non- (including non-executive Directors) are not executive Directors, except for their equity appointed for a specific term. However, pursuant interests and remuneration disclosed in this to the Company’s articles of association, one-third annual report, do not have any business with or of the directors shall retire from office by rotation financial interests in the Company, its holding and shall be eligible for re-election at each annual company or subsidiaries, and have confirmed their general meeting. Annual Report 2022 / 047 CORPORATE GOVERNANCE REPORT 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 2022, the Directors as at 31 December 2022 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 Li Yuzhuo Independent Non-Executive Director Cheung Wing Lam Linus Wong Wai Ming Chung Shui Ming Timpson Law Fan Chiu Fun Fanny Types of training A, B A, B A, B A, B A, B A, B A, B A, B A: attending relevant seminars and/or conferences and/or forums; delivering speeches at relevant seminars and/or conferences and/or forums B: reading or writing relevant newspapers, journals and articles relating to general economy, general business, telecommunications, corporate governance, business ethics or directors’ duties 048 / China Unicom (Hong Kong) Limited The Company has determined remuneration interim and final results, dividends, major policy. The proposed remuneration package of investments, equity-related capital market Directors of the Company will be determined by operations, mergers and acquisitions, major the Remuneration Committee, subject to approval connected transactions and annual internal control by the Board and in compliance with applicable evaluation. The arrangements on delegation of laws, regulations and policies, and taking into powers and responsibilities to management are account the responsibilities of such person in the reviewed by the Board periodically to ensure that Company, his experience and performance as well they remain appropriate to the needs of the a s t h e p r e v a i l i n g m a r k e t c o n d i t i o n s . T h e Company. remuneration package for executive Directors includes salary and performance-linked annual The Board convenes meetings regularly and all bonuses. The remuneration of executive Directors Directors have adequate opportunity to be present is determined by reference to their respective at the meetings and to include matters for duties and responsibilities in the Company, their discussion in the meeting agenda. Notices of r e s p e c t i v e e x p e r i e n c e , p r e v a i l i n g m a r k e t regular board meetings are delivered to the conditions and applicable regulatory requirements Directors at least 14 days in advance of the while the award of the performance-linked annual meetings. The Company delivers, on a best b o n u s e s i s t i e d t o t h e a t t a i n m e n t o f k e y endeavor basis, all documents for regular board performance indicators or targets set by the meetings to the Directors for review at least one Company. The remuneration of non-executive week prior to the meetings (and ensures that all Directors is determined by reference to prevailing documents are delivered to the Directors no less m a r k e t c o n d i t i o n s a n d t h e i r r e s p e c t i v e than three days prior to the regular meetings as responsibilities and workload from serving as non- required by the Code Provisions). executive Directors and members of the board committees of the Company. The Company also The Company Secretary, being an employee of the adopted share option scheme for the purpose of Company, has day-to-day knowledge of the providing long term incentives to eligible Company’s affairs and reports to the Chairman of participants, including Directors (details of such the Board. The Company Secretary keeps close share option scheme are set out in the paragraph contact with all Directors and ensures that the headed “Share Option Scheme of the Company” operation of the Board and all board committees is on pages 72 to 73 of this annual report). The in compliance with the procedures as set forth in r e m u n e r a t i o n f o r e a c h D i r e c t o r a n d t h e the Company’s articles of association and the remuneration of senior management by band are charters of the board committees. Additionally, disclosed on pages 147 to 149 of this annual the Company Secretary is responsible for report. In addition to the remuneration, the compiling and regularly submitting draft minutes Company has arranged appropriate insurance of board meetings and committee meetings to the coverage in respect of legal action against the Directors and committee members for their Directors. review and comments, and final versions of minutes for their records, within a reasonable time The Board has provided clear guidelines for after the relevant meetings. Each Director may delegation of powers and responsibilities to obtain advice from and the services of the management. However, certain important matters C o m p a n y S e c r e t a r y t o e n s u r e t h a t b o a r d must be decided only by the Board, including, but p r o c e d u r e s , a n d a l l a p p l i c a b l e r u l e s a n d not limited to, long-term objectives and strategies, regulations, are followed. Physical board meetings annual budget, initial announcements on quarterly, will be held for the selection, appointment or Annual Report 2022 / 049 CORPORATE GOVERNANCE REPORT dismissal of the Company Secretary. To ensure strategy and latest development of the Company the possession of up-to-date knowledge and and the industry. Besides formal board meetings, market information to perform her duties, the t h e C h a i r m a n a l s o m e e t s a n n u a l l y w i t h Company Secretary attended over 15 hours of independent non-executive Directors, without the professional training in 2022. presence of other Directors, which further promotes the exchange of diversified views and 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 opinions. In order to ensure that all Directors have independent professional advice at the expense of appropriate knowledge of the matters discussed the Company. In addition, if any substantial at the meetings, adequate, accurate, clear, shareholder of the Company or any Directors has complete and reliable information regarding those significant conflicts of interest in a matter to be matters is provided in advance and in a timely resolved, the Board will convene a board meeting manner, and all Directors have the right to inspect in respect of such matter and those Directors who documents and information in relation to matters have conflicts of interest must abstain from voting to be decided by the Board. The Directors have and will not be counted in the quorum of the frequently visited various branches in Mainland meeting. China to gain better understanding of the Company’s daily operations. In addition, the All Directors are required to devote sufficient time Company has arranged relevant trainings for the and attention to the affairs of the Company. A Directors (which include training sessions culture of openness and debate are promoted in conducted by professional advisers, such as the Board and the Directors are encouraged to lawyers and accountants, from time to time) in express their views and concerns. The Company order to broaden their knowledge in the relevant provides monthly operating update to the areas and to improve their understanding of the Directors, so as to ensure the Directors are Company’s business, legal and regulatory familiar with the Company’s latest operations. In r e q u i r e m e n t s a n d t h e l a t e s t o p e r a t i o n a l addition, through regular board meetings and technologies. The Board also conducts annual reports from management, the Directors are able evaluation of its performance. Such efforts have to clearly understand the operations, business improved the corporate governance of the Company. 050 / China Unicom (Hong Kong) Limited In 2022, the Board held five board meetings and passed two written resolutions for, amongst other things, discussion and approval of important matters such as the 2021 annual results, the 2022 annual budget, the 2022 interim results, the first and the first three quarters results for 2022, sustainability report, reports on risk management and internal control, approval to sign commercial pricing agreement and service agreement with China Tower Corporation Limited, renewal of continuing connected transactions, the appointment of executive Directors, the appointment of Company Secretary and the amendment of the audit committee charter. Set forth below is an overview of the attendance during the year of 2022 by the Board members at various meetings: Meetings Attended/Held During Each Director’s Tenure Audit Remuneration Nomination Board Meeting Committee Committee Committee Shareholders Meeting Meeting Meeting Meeting 4/5 5/5 5/5 5/5 2/2 5/5 5/5 4/5 4/5 N/A N/A N/A N/A N/A 4/4 4/4 3/4 3/4 N/A N/A N/A N/A N/A 1/1 1/1 1/1 N/A 0/1 N/A N/A N/A N/A N/A N/A 1/1 1/1 1/1 0/1 1/1 0/1 1/1 1/1 1/1 1/1 1/1 Executive Directors Liu Liehong (Chairman) Chen Zhongyue Wang Junzhi Li Yuzhuo1 Mai Yanzhou2 Independent Non-Executive Directors Cheung Wing Lam Linus Wong Wai Ming Chung Shui Ming Timpson Law Fan Chiu Fun Fanny Note 1: On 28 February 2022, Ms. Li Yuzhuo was appointed as executive Director of the Company. Note 2: On 28 February 2022, Mr. Mai Yanzhou was appointed as executive Director of the Company. On 30 May 2022, Mr. Mai Yanzhou has resigned as executive Director of the Company. Note 3: Certain Directors (including non-executive Director) did not attend the shareholders meeting and meetings of the Board and Committees due to other business commitments or being overseas. In 2022, 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. Annual Report 2022 / 051 CORPORATE GOVERNANCE REPORT The Company has adopted the “Model Code for the Company, to perform their duties. The Securities Transactions by Directors of Listed c o m m i t t e e s r e p o r t t h e i r d e c i s i o n s o r Issuers” as set out in Appendix 10 to the Listing recommendations to the Board after meetings. Rules (the “Model Code”) to govern securities transactions by directors. Further to the specific Audit Committee Composition enquiries made by the Company to the Directors, Currently the Audit Committee comprised Mr. all Directors have confirmed their compliance with Wong Wai Ming, Mr. Cheung Wing Lam Linus, the Model Code for the year ended 31 December Mr. Chung Shui Ming Timpson and Mrs. Law Fan 2022. Chiu Fun Fanny, all being independent non- executive Directors of the Company. The The Directors acknowledge their responsibilities Chairman of the Audit Committee is Mr. Wong for preparing the financial statements for the year Wai Ming. All members of the Audit Committee ended 31 December 2022, which give a true and have satisfied the “independence” requirements fair view of the financial position of the Company in relation to an Audit Committee member under as at the statement of financial position date and applicable laws, regulations and rules. The financial performance and cash flows of the C h a i r m a n o f t h e A u d i t C o m m i t t e e i s a n Company for the year ended the statement of accountant with expertise and experience in financial position date, are properly prepared on accounting and financial management. Another the going concern basis in accordance with member of the Audit Committee is also an relevant statutory requirements and applicable accountant with extensive accounting professional financial reporting standards. A statement of the experience. independent auditors about their reporting responsibilities related to the financial statements Major Responsibilities is set out in the independent auditor’s report on T h e p r i m a r y r e s p o n s i b i l i t i e s o f t h e A u d i t pages 92 to 96 of this annual report. Committee include: as the key representative COMMITTEES UNDER THE BOARD The Company has established three committees body, overseeing the Company’s relationship with the independent auditor, considering and approving the appointment, resignation and o f t h e B o a r d u n d e r t h e B o a r d , t h e A u d i t removal of the independent auditor; pre-approval Committee, the Remuneration Committee and the of services and fees to be provided by the Nomination Committee. Each committee has a independent auditor based on the established pre- written charter, which is available on the websites approval framework; supervising the independent of the Company and The Stock Exchange of Hong auditor and determining the potential impact of Kong Limited. From time to time as required by n o n - a u d i t s e r v i c e s o n s u c h a u d i t o r ’ s the Listing Rules, the Board also establishes independence; reviewing quarterly and interim independent board committee for the purpose of financial information as well as annual financial advising and providing voting recommendations to statements; coordinating and discussing with the i n d e p e n d e n t s h a r e h o l d e r s o n c o n n e c t e d independent auditor with respect to any issues t r a n s a c t i o n s a n d t r a n s a c t i o n s s u b j e c t t o identified and recommendations made during the independent shareholders’ approval entered into audits; reviewing correspondences from the by the Company and/or its subsidiaries. The independent auditor to the management and c o m m i t t e e s a r e p r o v i d e d w i t h s u f f i c i e n t responses of the management; discussing the risk resources, including, amongst others, obtaining management and internal control system with the independent professional advice at the expense of management as well as reviewing the reports on 052 / China Unicom (Hong Kong) Limited the risk management and internal control The Audit Committee has performed its duties p r o c e d u r e s o f t h e C o m p a n y . T h e A u d i t effectively, and enabled the Board to better Committee set up a whistle-blowing system to monitor the financial condition of the Company, receive and handle cases of complaints regarding supervise the risk management and internal the Company’s financial reporting, internal control control (included but not limited to operational, or other matters. The whistle-blowers can use, in financial, compliance, environmental, social and confidence and anonymity, to raise concerns governance) of the Company, ensure the integrity about possible improprieties in any matter related and reliability of the financial statements of the t o t h e C o m p a n y t h r o u g h w h i s t l e - b l o w i n g Company, prevent significant errors in the financial channels. Any complaints on the aforementioned s t a t e m e n t s a n d e n s u r e t h e C o m p a n y ’ s subject matters can be submitted by post (No. 21 compliance with the relevant requirements of the Financial Street, Xicheng District, Beijing, 100033, Listing Rules with respect to audit committee. China) or by phone (86-(010) 88091674). The Audit Committee is responsible to and regularly reports Remuneration Committee Composition its work to the Board. C u r r e n t l y t h e R e m u n e r a t i o n C o m m i t t e e comprised Mr. Cheung Wing Lam Linus, Mr. Work Completed in 2022 Wong Wai Ming and Mr. Chung Shui Ming The Audit Committee meets the Board and Timpson, all being independent non-executive management as well as independent auditor at Directors of the Company. The Chairman of the least four times each year, and assists the Board Remuneration Committee is Mr. Cheung Wing in its review of the financial statements to ensure Lam Linus. effective risk management and internal control as well as efficient audit. Besides, the Audit Major Responsibilities Committee meets the independent auditor at least The primary responsibilities of the Remuneration two times each year, without the presence of Committee include: making recommendations to other Directors and management. the Board on the policies and structure for all Directors’ and senior management’s remuneration The Audit Committee held four meetings in 2022 and on the establishment of a formal and for, amongst other things, discussion and approval t r a n s p a r e n t p r o c e d u r e f o r d e v e l o p i n g of the 2021 annual results, the 2022 interim remuneration policy; reviewing and approving the results, and the first and the first three quarters management’s remuneration proposals with results for 2022. In addition, the Audit Committee reference to the corporate goals and objectives approved in the meetings the sustainability report, set by the Board; making recommendations to the the report of the work of sustainability, the report Board on the remuneration packages of individual on risk management, the report on internal audit executive Directors and senior management and internal control, the report on continuing (including benefits in kind, pension right and connected transaction, the amendment of audit c o m p e n s a t i o n p a y m e n t s , i n c l u d i n g a n y committee charter, the appointment, the audit compensation payable for loss or termination of fees and the audit plans of the independent t h e i r o f f i c e o r a p p o i n t m e n t) ; m a k i n g auditor as well as the non-audit services provided r e c o m m e n d a t i o n s t o t h e B o a r d o n t h e by the independent auditor in 2022. remuneration of non-executive Directors; consulting the Chairman about the remuneration p r o p o s a l s f o r o t h e r e x e c u t i v e D i r e c t o r s ; Annual Report 2022 / 053 CORPORATE GOVERNANCE REPORT c o n s i d e r i n g s a l a r i e s p a i d b y c o m p a r a b l e Major Responsibilities companies, time commitment and responsibilities The primary responsibilities of the Nomination and employment conditions elsewhere in the Committee include: reviewing the structure, size Group; considering any concrete plan proposed by and composition (including the skills, knowledge the management of the Company for the grant of and experience) of the Board at least annually and share which has not been granted, and any plan to making recommendations on any proposed amend any existing share sche me of th e changes to the Board to complement the Company; reviewing and approving compensation corporate strategy of the Company; identifying payable to executive Directors and senior individuals suitably qualified to become Board management for any loss or termination of office members and making recommendations to the or appointment to ensure that it is consistent with Board; formulating, reviewing and implementing contractual terms; reviewing and approving t h e b o a r d d i v e r s i t y p o l i c y ; a s s e s s i n g t h e compensation arrangements relating to dismissal independence of independent non-executive or removal of Directors for misconduct to ensure Directors; making recommendations to the Board that they are consistent with contractual terms; on the appointment or re-appointment of Directors and ensuring that no Director or any of his/her and succession planning for Directors; providing associates is involved in deciding his/her own advice to the Board on candidates of the senior remuneration. management nominated by the CEO and on changes to the senior management of the Work Completed in 2022 Company. The Remuneration Committee meets at least once a year. The Remuneration Committee held Work Completed in 2022 one meeting in 2022 for, amongst other things, The Nomination Committee meets at least once a discussion and approval of proposal for appraisal year. The Nomination Committee held one and remuneration of senior management. meeting and passed one written resolutions in 2022 for, amongst other things, reviewing the The Remuneration Committee has performed its structure, size and composition of the Board, duties effectively on reviewing and approving the reviewing the board diversity policy and its proposal of appraisal of senior management, as implementation, assessment of the independence well as making recommendations to the Board of independent non-executive Directors, making with regards to the remuneration packages for recommendations to the Board on the proposed senior management. re-election of Directors and the appointment of executive Directors. Nomination Committee Composition Currently the Nomination Committee comprised The Company has determined nomination policy. Mr. Chung Shui Ming Timpson, Mr. Liu Liehong With respect to the nomination and appointment and Mrs. Law Fan Chiu Fun Fanny. Except for Mr. of new directors and senior management Liu Liehong, who is the Chairman and CEO of the members and the succession planning for Company, Mr. Chung Shui Ming Timpson and directors, the Nomination Committee would, after Mrs. Law Fan Chiu Fun Fanny are independent considering the Company’s need for new non-executive Directors of the Company. The directors and/or senior management members, Chairman of the Nomination Committee is Mr. identify a wide range of candidates from within Chung Shui Ming Timpson. the Company and the human resources market 054 / China Unicom (Hong Kong) Limited and make recommendations to the Board. The Committee will consider their professional Nomination Committee will consider candidates knowledge, skills, experience and the balance of on merit against objective criteria and with due diversity of perspectives which are appropriate to regard to the benefits of diversity on the Board, the Company’s business model and specific including but not limited to gender, age, cultural needs. In identifying suitable candidates for and educational background, professional appointment to the Board, the Nomination experience, skills, knowledge and duration of Committee will give due regard to the benefits of service. After having obtained the consent from diversity on the Board and base on a range of candidates in relation to the relevant nomination diversity perspectives including but not limited to and based on the Company’s actual needs, the gender, age, cultural and educational background, Board would convene a meeting, attendees of professional experience, skills, knowledge and which include non-executive Directors, to consider duration of service. The ultimate decision will be the qualifications of the candidates. Pursuant to based on merit and contribution that the selected the Company’s articles of association, one-third of candidates will bring to the Board. The Board and the Directors shall retire from office by rotation the Nomination Committee review the board and be eligible for re-election at each annual diversity policy as well as its implementation and general meeting. effectiveness every year to ensure that the board diversity policy continues to serve its purpose. The Company has also determined a policy Currently the Board comprises eight members, concerning diversity of board members. The amongst which two members, accounting for Company recognises and embraces the benefits 25% of the whole Board, are female directors. of having a diverse Board, and notes increasing The Board considers that gender diversity is diversity at Board level as an essential element in achieved in respect of the Board, and targets to maintaining a competitive advantage. All Board maintain at least the current level of female appointments are made on merit on a selective representation. In addition, the gender proportion basis, in the context of the skills and experience (Male/Female) of all employees of the Company is the Board as a whole requires to be effective. In 1.63:1. The female representation in senior reviewing Board composition, the Nomination management has continuously increased, from 11.9% in 2019 to 12.8% in 2022. The Company targets to maintain at least the current level of female representation in the workforce (including s e n i o r m a n a g e m e n t) . T h e C o m p a n y h a s f o r m u l a t e d t h e “ H u m a n R e s o u r c e s R i s k Prevention and Control Manual”, adopted strict inspection and control procedures in recruitment and promotion and strictly prohibited any discrimination against employees in terms of age and gender. The Company also ensures that the recruitment and selection practices at all levels are appropriately structured so that a diverse range of candidates are considered. The Company cares about female employees. It protected the rights and interests of female employees and provided targeted and considerate services to them, to retain the female talents. Annual Report 2022 / 055 CORPORATE GOVERNANCE REPORT 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/esg/cg_report.php. 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 2022 is as follows: Items Note (in RMB thousands) 2022 Audit and other assurance services Non-audit services (i) (ii) 47,775 3,611 Notes: (i) (ii) Audit and other assurance services in 2022 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. Non-audit services included other services that can be reasonably provided by the independent auditor. In 2022, 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. 056 / China Unicom (Hong Kong) Limited Organisation systems The Company set up a group-wide risk management and internal control systems consisting of the Board, the Internal Control and Risk Management Committee, the Integrated Management Department and each relevant professional functional departments. THE BOARD Highest decision making body AUDIT COMMITTEE Supervision body INTERNAL CONTROL AND RISK MANAGEMENT COMMITTEE Highest coordination and deliberation body at company management level COMMITTEES IN RELATED PROFESSIONAL The cross departmental body of risk management in professional fields FINANCIAL RISK COMMITTEE The cross departmental body in financial risk management INTERNAL CONTROL AND RISK MANAGEMENT OFFICE Daily working departments PROFESSIONAL FUNCTIONAL DEPARTMENTS Professional internal control management and execution departments INTERNAL AUDIT DEPARTMENT Integrated risk management and internal control department and supervision and evaluation department INVESTMENT DECISION COMMITTEE The cross departmental body in risk management of investment decision WORKING STEERING GROUP OF INTERNET AND CYBERSECURITY The cross departmental body in risk management of internet and cybersecurity ...... The cross departmental bodies in risk management Branches and Subsidiaries INTERNAL CONTROL AND RISK MANAGEMENT COMMITTEE Coordination and deliberation body at company management level INTERNAL CONTROL AND RISK MANAGEMENT OFFICE Daily working departments COMMITTEES IN RELATED PROFESSIONAL With reference to the needs of CUCL and the Company, the cross departmental bodies of risk management in professional fields have been established PROFESSIONAL FUNCTIONAL DEPARTMENTS 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 Annual Report 2022 / 057 CORPORATE GOVERNANCE REPORT The Company has an internal audit department Using the risk evaluation as fundamental with the with 640 staff members, with officers stationed at adoption of Internal Control Integrated Framework various provincial branches. The internal audit i s s u e d b y t h e C o m m i t t e e o f S p o n s o r i n g d e p a r t m e n t r e p o r t s d i r e c t l y t o t h e A u d i t Organisations of the Treadway Commission (the Committee at least twice annually and is “COSO”), the Company established and improved independent of the Company’s daily operation and internal control systems based on the following a c c o u n t i n g f u n c t i o n s . T h e i n t e r n a l a u d i t five fundamental components: department responsible for overall risk evaluation, special risk evaluation and internal control self- 1. Control Environment: Establishes the testing etc. It has also formulated targeted risk control environment which fulfill COSO prevention and control measures, conducted risk requirements to provide the appropriate follow-up inspections and has enhanced the risk operating environment for the effective awareness of the employees, all of which have implementation of internal control played an active role in the Company’s effective s u p p o r t a n d s a f e g u a r d o f i t s o p e r a t i o n 2. Risk Evaluation: Establishes the Policy on m a n a g e m e n t a n d b u s i n e s s d e v e l o p m e n t . R i s k E v a l u a t i o n M a n a g e m e n t a n d F u r t h e r m o r e , w i t h a n e m p h a s i s o n t h e evaluation mechanism, evaluates the risks effectiveness of internal control with respect to to the achievement of its objectives across the efficiency of operations, accuracy of financial the Company and identifies to the new risk information, and compliance with rules and due to the changes regulations, the internal audit department conducts, amongst others, internal control 3. Control Activities: Deploys appropriate assessment and internal audit on economic policies and control procedures over the accountability. In addition, the internal audit Company’s business activities, identifies department also contributes to strengthening the key control procedures and policies of operation and management, improving internal significant control activities through control systems, mitigating operational risks and evaluation increasing the economic efficiency of the Company. 4. Information and Communication: Identifies relevant information and communication methods, establishes information and communication mechanisms to aggregate and delivers relevant information 5. 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 058 / China Unicom (Hong Kong) Limited Risk evaluation and management Customer information protection risk The Company has established and gradually China has successively launched the Data Security improved its comprehensive closed-loop risk Law and the Personal Information Protection Law, m a n a g e m e n t s y s t e m f o r t h e p u r p o s e o f indicating the extensive attention of the country “integrating management of day-to-day general and the society on the security of customer risks and spontaneous critical risks”, achieved the information held by telecom operators. The closed-loop management by risk evaluation, early Company attaches great importance to the warning and follow-up inspections to ensure the protection of customer information. In strict effectiveness of operation management. The accordance with the requirements of national laws C o m p a n y e v a l u a t e d t h e a d e q u a c y a n d and regulations, the Company has continuously appropriateness on risk and control measures i m p r o v e d t h e d a t a s e c u r i t y a n d p e r s o n a l a c c o r d i n g t o t h e n e w b u s i n e s s m o d e l , information protection system, ensured the safe management requirement, change of system, and stable operation of the system, strengthened adjustment of duties and findings from internal the protection of customer information, so as to and external inspections. prevent and crack down on telecom and network 2022 Risk evaluation result protecting the legitimate rights and property The followings were the major significant risks safety of the people, and has built a line of w h i c h t h e C o m p a n y e n c o u n t e r e d a n d i t s defense to protect customer information security. fraud crimes. The Company is committed to countermeasures in 2022: Cybersecurity risk Business transformation and development risk With the increasing new demand for digital, With the rapid development of digital economy network-based and intelligent development and and communication technology, Internet has upgrading of the telecommunications industry, the entered thousands of households and integrated research and development (R&D) of innovative into thousands of industries which has a profound products will become a long-term challenge for effect on the aspects of economy, society and sustainable development. The Company attaches living. The Company places great importance in great importance to the R&D of innovative cybersecurity. In strict accordance with the products and the reserve of innovative talents, requirements of national laws and regulations, the continues to strengthen innovation-driven Company has unswervingly practiced the overall development, recruits more scientific and national security concept, continued to build a technological innovation personnel and R&D strong network, and established a joint prevention personnel, demonstrating its great efforts to build and control technology system for cybersecurity, the core competitiveness and sustainable so as to strengthen active security protection and development capabilities for future business. ensure the safe operation of communication networks. Annual Report 2022 / 059 CORPORATE GOVERNANCE REPORT The scope of the 2022 overall risk evaluation growth of the Company. Internal Control and Risk covered the whole Group, which included Management Office conducted inspections on headquarter, 31 provincial companies and its effectiveness on risk management and internal cities-level branch offices and subsidiaries. control implementation in regular or irregular time Through both the quantitative and qualitative interval, improved and enhanced risk management analysis, the Company fully considered the and internal control designs continuously. Our changes in operating environment, business and Internal Audit Department has continued to policies, identified the potential risk to the organise our branches and subsidiaries to conduct Company’s operation, and planned for the risk annual internal control self-assessment based on according to the quantitative result. After reporting the actual conditions of each unit and improve the to each professional departments and the quality of such self-assessment tasks, so as to management, the significant risks and the risk g r a d u a l l y d e v e l o p a q u a n t i t a t i v e i n t e r n a l level of the year were finally determined. The a s s e s s m e n t r e g i m e g o v e r n e d b y u n i f o r m annual risk management instructions from the standards. Through the effective rectification of management were implemented according to the issues identified during the audit, assessment of Policy on Risk Management and the Company’s t h e i n t e r n a l c o n t r o l s y s t e m a n d i t s risk management requirement. This included the implementation, improvements made to the f o r m u l a t i o n o f r e l e v a n t r i s k m a n a g e m e n t system and process optimisation, a long-term s t r a t e g i e s , s o l u t i o n a n d c o r r e s p o n d i n g mechanism for closed-loop management in departments carried out interim follow-up internal control has been put in place. According to inspection works. The negative impacts arising the internal control self-assessment reports from from the risks and risk events were controlled as the branches and subsidiaries, self-assessment planned and were within an acceptable range. reports from each professional department, There were no significant control failings or current year exceptional issues in internal control weaknesses that have been identified during the discovered during internal audit and the Company year. annual risk management report, the Group’s Internal Control and Risk Management Office at its Monitoring and Optimisation headquarter formed the Company’s internal To ensure the effectiveness of risk management control self-assessment report, which acted as and internal control designs, the Company carried supporting document for the management to out risk evaluation timely and compared the risk issue a statement of the effectiveness of internal points, formulated or enhanced corresponding c o n t r o l . B a s e d o n d i f f e r e n t d i s c l o s u r e internal control measures according to the change requirements on Company’s internal control in business and management. At the same time, assessment report from different listing regulatory the internal control manual will be updated timely body, the Company prepared internal control t h r o u g h t h e a s s e s s m e n t a n d r e v i e w o n assessment report respectively. applications on internal contr ol wo rk flo w m o d i f i c a t i o n s u b m i t t e d b y p r o f e s s i o n a l d e p a r t m e n t s , r i s k e v a l u a t i o n r e p o r t s a n d e x c e p t i o n a l i s s u e s f r o m i n t e r n a l c o n t r o l assessment etc., so as to provide the effective support for the development of the sustainable 060 / China Unicom (Hong Kong) Limited As a telecommunications operator, the Company improving data encryption, protection of critical is subject to the regulations, e.g., relevant information infrastructure and security of supply provisions in the Cybersecurity Law of the chain of the information technology products and People’s Republic of China, Data Security Law of services; (ii) estab lish ing data prote cti o n the People’s Republic of China and Personal compliance policies and guidelines, including Information Protection Law of the People’s training on crisis management and compliance of Republic of China, designed to protect critical cybersecurity laws and regulations; ( iii) self- information infrastructure. Personal privacy, examining potential risks and weakness of data information security, and data protection are system and updating private policy; (iv) enhancing increasingly significant issues in China and other the real-time monitoring and alarm reporting jurisdictions in which the Company operate. For system and implementing an emergency action example, Cybersecurity Law of the People’s plan to allow the Company to act responsively and Republic of China which sets forth the general minimise losses in the event of an emergency; f r a m e w o r k r e g u l a t i n g n e t w o r k p r o d u c t s , and (v) continuously improving compliance efforts equipment and services, as well as the operation through enhanced sharing of relevant knowledge and maintenance of information networks, the internally and externally. The Company is required protection of personal data, and the supervision t o p e r f o r m a s e c u r i t y a s s e s s m e n t w h e n and administration of cybersecurity in China. transferring personal information and important Identification Methods for Illegal Collection and data overseas if such personal information and Use of Personal Information by Apps published in important data are collected and generated from 2019, stipulating standards for determining illegal the operation in China. acts of collecting and using personal information through mobile applications. Information Security Technology — Personal Information Security Annual review 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 Specification published in 2020 replaced the old management and internal control systems on an version published in 2017. The Cyber Security ongoing basis and the Board conducted an annual Review Measures published in 2020 require that review of the risk management and internal the procurement of network products and c o n t r o l s y s t e m s o f t h e C o m p a n y a n d i t s services that affect or may affect national security subsidiaries for the financial year ended 31 should be subject to a network security review. December 2022, which covered all material The Data Security Law of the People’s Republic of controls including financial, operational and China and Personal Information Protection Law of compliance controls. After receiving the reports the People’s Republic of China published in 2021 from the Internal Audit Department, as well as the further regulate data and personal information confirmation from the management to the Board processing activities, and protect the legitimate on the effectiveness of these systems, the Board r i g h t s a n d i n t e r e s t s o f i n d i v i d u a l s a n d i s o f t h e v i e w t h a t t h e C o m p a n y ’ s r i s k organisations from being infringed. The Company management and internal control systems is also devotes significant resources to network effective and adequate. The review also ensure security, data security and other security the adequacy of resources, staff qualifications and measures to protect its systems and data and in experience, training programmes and budget of response to the evolving cybersecurity laws and the Company’s accounting, internal audit, financial regulations. The Company also employs risk reporting function, as well as those relating to the management and internal control systems. Company’s ESG performance and reporting. including, among other things, (i)continuously strengthening data security capabilities, such as Annual Report 2022 / 061 CORPORATE GOVERNANCE REPORT Information Disclosure Controls and owned enterprise reform. China Unicom adopts Procedural Standards systematic thinking and strives to synergistically In order to further enhance the Company’s system i n t e g r a t e t h e t h r e e - y e a r a c t i o n p l a n f o r of information disclosure, and to ensure the state-owned enterprise reform and the innovation truthfulness, accuracy, completeness and and reform tasks determined by “1+9+3” timeliness of its public disclosures (including strategic plan, aiming to promote high-quality inside information), the Company has adopted and corporate development. In 2022, China Unicom implemented the Information Disclosure Control carried forward the spirit of integrity and honesty, Policy. In an effort to standardise the principles for unswervingly pushes forward the anti-corruption information disclosures, the Company established campaign. the Information Disclosure Review Committee under the management and formulated the C h i n a U n i c o m c o n t i n u o u s l y i m p r o v e s t h e procedures in connection with the compilation and anti-corruption system. In 2022, the Company rep or t i ng of the Com pany’s fin anc ial a nd further improved the system and revised the operational statistics and other information, as relevant system and measures based on the well as the procedures in connection with the actual situation. Focusing on strengthening top- preparation and review of the periodic reports. level supervision, practising integrity construction Moreover, the Company established detailed and strengthening external risk control, the implementation rules with respect to the contents Company formulated a number of policies and and requirements of financial data verification, in measures, such as the “Work Measures of China particular, the upward undertakings by the Unicom to Strengthen the Supervision of “Top individual responsible officers at the major Leaders” and Leading Team”, the “Work Plan for departments. China Unicom to Strengthen the Construction of Integrity Culture”, the “Interim Provisions of China Policy and Work of Anti-corruption Unicom on Discipline Inspection and Supervision China Unicom always adheres to integrity Suggestions” and the “Notice on the Correct management and compliance while further Application of China Unicom’s Measures for the implementing the three-year action plan for state- Administration of Blacklist of Suppliers (Revised)”. 062 / China Unicom (Hong Kong) Limited C h i n a U n i c o m c o n t i n u o u s l y e n r i c h e s anti-corruption measures in many ways, including POLICY ON PAYMENT OF DIVIDEND The objective of the dividend policy is to achieve a promoting risk classification, organising 48 long-term, sustainable and steadily increasing secondary units to systematically identify integrity 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 risk points, thoroughly investigating the causes shareholders’ value. The declaration and payment from all aspects, and formulating targeted of future dividends will depend upon, among other prevention and control and rectification measures. things, financial condition, business prospects, The completion rate of major investigation and future earnings, cash flow, liquidity level and cost rectification measures for integrity risk prevention of capital. The Company believes such policy will and control reached 99.18%. The Company provide the shareholders with a stable return in deepened anti-corruption education, and carried the long term along with the growth of the out 5 large-scale anti-corruption warning education Company. Pursuant to the Companies Ordinance programs throughout the system, covering more (Chapter 622 of the Laws of Hong Kong) and the than 1,256,000 person-time. The Company Company’s articles of association, the Company innovated anti-corruption tools and improved may only pay dividends out of profits available for supervision efficiency through informatisation. distribution. In 2022, China Unicom’s corporate integrity Taking into consideration the Company’s good ecosystem continued to improve. The number of business development, the Board recommended c o m p l a i n t s a n d v i s i t s a c r o s s t h e s y s t e m the payment of a final dividend of RMB0.109 per decreased by 22.6% year-on-year in 2022, share for the year ended 31 December 2022, following year-on-year decreases for four together with an interim dividend of RMB0.165 consecutive years from 2018 to 2021. The per share already distributed during the year, total strategic results of anti-corruption efforts dividend for 2022 amounted to RMB0.274 per continued to consolidate and expand, and the share. Going forward, the Company will continue anti-corruption work has achieved remarkable to strive for enhancing its profitability and results. shareholders’ returns. Annual Report 2022 / 063 CORPORATE GOVERNANCE REPORT CORPORATE TRANSPARENCY AND INVESTOR RELATIONS In addition to publishing annual reports and interim analysts, fund managers, investors and journalists. Archived webcast of the investor presentation is also available on the Company’s website to reports, the Company discloses major unaudited ensure wide dissemination of information and financial information (including revenue, operating data. expenses, EBITDA, net profit) and other key performance indicators on a quarterly basis and The Company’s investor relations department is announces key operational statistics on a monthly responsible for providing information and services basis in order to enhance the Company’s requested by investors, maintaining timely t r a n s p a r e n c y a n d i m p r o v e i n v e s t o r s ’ c o m m u n i c a t i o n s w i t h i n v e s t o r s a n d f u n d understanding of the business operations of the managers, including responding to investors’ Company. inquiries and meeting with company-visit investors, as well as gathering market information Upon the announcement of interim and annual and passing views from shareholders to the results or major transactions, the Company will Directors and management to ensure such views g e n e r a l l y h o l d a n a l y s t b r i e f i n g s , p r e s s are properly communicated. The Company also c o n f e r e n c e s , a n d g l o b a l c o n f e r e n c e w i t h arranges from time to time road shows and i n v e s t o r s . D u r i n g s u c h c o n f e r e n c e s , t h e actively attends investor conferences arranged by management of the Company would interact investment banks, through which the Company’s directly with analysts, fund managers, investors management meets and communicates with and journalists to provide them with relevant investors to provide them with opportunities to information and data of the Company. The understand more accurately the Company’s latest Company’s management would accurately and development and performance in various aspects, thoroughly respond to questions raised by including business operations and management. 064 / China Unicom (Hong Kong) Limited In 2022, the Company participated in the following investor conferences: Date Conferences January 2022 January 2022 March 2022 March 2022 May 2022 June 2022 July 2022 July 2022 September 2022 September 2022 UBS Greater China Conference 2022 ICBCI Strategic Conference 2022 25th Credit Suisse Asian Investment Conference ICA 2nd Annual Future of Asia Conference HSBC 9th Annual China Conference Nomura Investment Forum Asia 2022 China Telecom Industry Investor Briefing ICA 3rd Annual Asia Pacific Opportunities Summit 3rd Annual Jefferies Asia Forum 29th Annual CITIC CLSA Flagship Investors‘ Forum October–November 2022 13th Credit Suisse China Investment Conference November 2022 November 2022 Citi China Investor Conference 2022 Daiwa Investment Conference Hong Kong 2022 I n a d d i t i o n , t h r o u g h a n n o u n c e m e n t s , p r e s s r e l e a s e s a n d t h e C o m p a n y w e b s i t e (www.chinaunicom.com.hk), 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 2022, 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 Gold Award by an international institution, “iNova Awards”, this year. Furthermore, the Company has determined a Shareholders’ Communication Policy which has been uploaded on the Company’s website, so as to ensure that the shareholders of the Company are provided with 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 maintains as on- going dialogue with shareholders while gathering market information and passing views from shareholders to the Directors and management, through the different channels as set out in the Shareholders’ Communication Policy, including but not limited to corporate communications, company’s website, general meetings and investor conferences. The Board reviewed the Company’s shareholders and investor engagement and communication activities conducted during the year and was satisfied with the implementation and effectiveness of the Shareholders’ Communication Policy. 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 “2022 All-Asia Executive Team” ranking organised by Institutional Investor. Annual Report 2022 / 065 CORPORATE GOVERNANCE REPORT SHAREHOLDERS’ RIGHTS Annual General Meeting The last annual general meeting of the Company was held on 12 May 2022, at which the following The Board endeavors to maintain an on-going resolutions were passed and percentage of votes dialogue with shareholders, and in particular, to cast in favor of the resolutions are set out as communicate with shareholders through annual follows: general meetings. Notices of annual general meeting are sent to shareholders at least 21 days • to receive and consider the financial b e f o r e t h e m e e t i n g . T h e D i r e c t o r s a n d representatives of the Board committees usually a t t e n d t h e m e e t i n g s a n d t r e a s u r e t h e s t a t e m e n t s a n d t h e R e p o r t s o f t h e Directors and of the Independent Auditor for the year ended 31 December 2021 opportunities to communicate with shareholders (over 99%) at such meetings. The independent auditor also attends the annual general meeting for the • to declare a final dividend for the year ended reporting to shareholders every year. At general 31 December 2021 (over 99%) meetings, the chairman of the meeting proposes i n d i v i d u a l r e s o l u t i o n s i n r e s p e c t o f e a c h • to re-elect Mr. Liu Liehong, Mr. Wang 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 Junzhi, Mr. Mai Yanzhou, Ms. Li Yuzhuo, Mr. Cheung Wing Lam Linus and Mrs. Law Fan Chiu Fun Fanny as Directors, and to authorise the Board to fix remuneration of scrutineers to ensure that all votes are counted the Directors (over 99%) and recorded appropriately, and publishes the poll results in a timely manner. • to re-appoint auditor and authorise the Board to fix their remuneration for the year ending 31 December 2022 (over 99%) • to grant a general mandate for share buy- back (over 99%) • to grant a general mandate to issue new shares (over 96%) • to extend the general mandate to issue new shares (over 96%) The next annual general meeting will be held on 18 May 2023. Please refer to the circular, which sets out the details, that has been sent together with this Annual Report. 066 / China Unicom (Hong Kong) Limited Putting Forward Resolutions at Annual General If the requisition signed by the requisitionists does Meetings not require the Company to give shareholders Pursuant to Section 615 of the Companies notice of a resolution, such requisition may be Ordinance (Chapter 622 of the Laws of Hong deposited at the registered office of the Company Kong), the following persons may put forward a not less than one week before the next annual resolution at the next annual general meeting of general meeting. the Company: (a) any number of shareholders, together holding not less than 2.5% of the total Convening Extraordinary General Meetings voting rights of all shareholders which have, as at Pursuant to Section 566 of the Companies the date of the requisition, a right to vote at the Ordinance, shareholder(s) holding not less than next annual general meeting, or (b) not less than 5% of the total voting rights of all shareholders 50 shareholders who have a right to vote on the having a right to vote at general meetings of the resolution at the annual general meeting to which Company as at the date of deposit of the the requests relate. requisition, may request the Directors of the Company to convene an extraordinary general The resolution must be one which may be meeting. The requisition must state the objects of properly moved and is intended to be moved at t h e m e e t i n g a n d m u s t b e s i g n e d b y t h e the next annual general meeting. The requisition requisitionists and deposited at the registered must be signed by the requisitionists and office of the Company. deposited at the registered office of the Company at least six weeks or if later, the time at which If the Directors do not, within 21 days from the notice is given of the annual general meeting date of deposit of the requisition, proceed duly to before the annual general meeting, the Company convene a meeting to be held not more than 28 has a duty to give notice of such proposed d a y s a f t e r t h e n o t i c e o f t h e m e e t i n g , resolution to all shareholders who are entitled to shareholder(s) requisitioning the meeting, or any receive notice of the next annual general meeting. of them representing more than half of their total voting rights, may themselves convene a meeting In addition, requisitionists may require the to be held within three months of such date. Company to circulate to shareholders entitled to receive notice of the annual general meeting a Meetings convened by the requisitionists must be statement of not more than 1,000 words with convened in the same manner, as nearly as respect to the resolution to be proposed. possible, as meetings to be convened by However, the Company is not required to circulate Directors of the Company. Any reasonable any statement if the court is satisfied that this expenses incurred by the requisitionists will be right is being abused to secure needless publicity reimbursed by the Company due to the failure of for defamatory matters. In such event, the the Directors duly to convene a meeting. requisitionists may be ordered to pay for the Company’s expenses for application to the court. Annual Report 2022 / 067 CORPORATE GOVERNANCE REPORT Putting Forward Resolutions at Extraordinary General Meetings Shareholders may not put forward resolutions to CONTINUOUS EVOLUTION OF CORPORATE GOVERNANCE The Company continuously analyses the corporate be considered at any general meetings other than g o v e r n a n c e d e v e l o p m e n t o f i n t e r n a t i o n a l annual general meetings. However, shareholders advanced enterprises and the investors’ desires, may request an extraordinary general meeting to review and enhance corporate governance consider any such resolution as described in procedures and practices from time to time so as “Convening Extraordinary General Meetings” to meet our shareholders’ expectations, commits above. to high standards of corporate governance and recognises that good governance is vital for the Any queries relating to shareholders’ rights on long-term success and sustainability of the putting forward resolutions at general meetings Company’s business. 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. 068 / China Unicom (Hong Kong) Limited 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 Annual Report 2022 / 069 REP ORT OF THE DIRE CTORS The board of directors (the “Board”) of China at the forthcoming annual general meeting, the Unicom (Hong Kong) Limited (the “Company”) is 2022 Final Dividend is expected to be paid in Hong pleased to present its report together with the Kong dollars on or about 15 June 2023 to those audited financial statements of the Company and members registered in the Company’s register of its subsidiaries (the “Group”) for the year ended members as at 25 May 2023 (the “Final Dividend 31 December 2022. Record Date”). PRINCIPAL ACTIVITIES T h e p r i n c i p a l a c t i v i t y o f t h e C o m p a n y i s FINANCIAL INFORMATION Please refer to the Financial Summary on pages investment holding. The principal activities of 206 to 207 for the summary of the operating Company’s subsidiaries are the provision of results, assets and liabilities of the Group for the comprehensive telecommunications services. five years ended 31 December 2022. RESULTS AND APPROPRIATION The results of the Group for the year ended 31 Please refer to the financial statements on pages 97 to 205 for the operating results of the Group for December 2022 are set out on pages 97 to 98 of the year ended 31 December 2022 and the this annual report. respective financial positions of the Group and the Company as at that date. Taking into consideration the Company’s good business development, the Board has resolved to recommend at the forthcoming shareholders’ BUSINESS REVIEW The business review of the Group for the year general meeting that the payment of a final ended 31 December 2022 is set out in the dividend of RMB0.109 per ordinary share (“2022 sections headed “Chairman’s Statement” on Final Dividend”) for the year ended 31 December pages 8 to 17, “Business Overview” on pages 18 2022, totaling approximately RMB3,335 million. to 23, “Financial Overview” on pages 24 to 29, Together with the 2022 interim dividend payment “Financial Statements” on pages 97 to 205, of RMB0.165 per share during 2022, the total “Human Resources Development” on pages 90 d i v i d e n d p a y m e n t f o r 2 0 2 2 a m o u n t e d t o to 91, “Corporate Governance Report” on pages RMB0.274 per share, totaling approximately 44 to 69 and “Report of the Directors” on pages RMB8,384 million ( 2021: RMB6,609 million) . 70 to 89 respectively of this annual report. All Going forward, the Company will continue to references herein to other sections or reports in s t r i v e f o r e n h a n c i n g i t s p r o f i t a b i l i t y a n d this annual report form part of this Report of the shareholders’ returns. If approved by shareholders Directors. 070 / China Unicom (Hong Kong) Limited LOANS Please refer to Notes 33, 39 and 45.3 to the SHARE CAPITAL Please refer to Note 30 to the consolidated consolidated financial statements for details of the financial statements for details of the share borrowings of the Group. capital. PROMISSORY NOTES Please refer to Note 34 to the consolidated RESERVES Please refer to page 102 and page 182 of this financial statements for details of the promissory annual report for the movements in the reserves notes of the Group. CORPORATE BONDS Please refer to Note 35 to the consolidated of the Group and the Company during the year ended 31 December 2022 respectively. As at 31 December 2022, the distributable reserve of the Company amounted to approximately RMB6,474 financial statements for details of the corporate million (2021: approximately RMB5,368 million). bonds of the Group. COMMERCIAL PAPERS Please refer to Note 40 to the consolidated SUBSIDIARIES, ASSOCIATES AND JOINT VENTURES Please refer to Notes 18, 19 and 20 to the financial statements for details of the commercial consolidated financial statements for details of the papers of the Group. Company’s subsidiaries, the Group’s associates CAPITALISED INTEREST Please refer to Note 15 to the consolidated financial statements for details of the interest capitalised by the Group for the year. EQUITY-LINKED AGREEMENTS Other than the share option scheme as disclosed in this Report of the Directors, as at 31 December 2022, no equity-linked agreements were entered into by the Group during the year or subsisted. PROPERTY, PLANT AND EQUIPMENT Please refer to Note 15 to the consolidated and joint ventures. CHANGES IN SHAREHOLDERS’ EQUITY Please refer to page 102 of this annual report for the Consolidated Statement of Changes in Equity and page 182 for the Statement of Changes in Equity. EMPLOYEE BENEFIT EXPENSES Please refer to Note 8 to the consolidated financial statements for details of the employee benefit expenses provided to employees of the Group. financial statements for movements in the property, plant and equipment of the Group for the PRE-EMPTIVE RIGHTS There are no provisions for pre-emptive rights in year. CHARGE ON ASSETS As at 31 December 2022, no property, plant and equipment was pledged to banks as loan security (31 December 2021: Nil). the articles of association of the Company requiring the Company to offer new shares to the existing shareholders in proportion to their shareholdings. Annual Report 2022 / 071 REPORT OF THE DIRECTORS MAJOR CUSTOMERS AND SUPPLIERS The Group’s sales to its five largest customers for the year ended 31 December 2022 did not exceed or otherwise as may be required in accordance with the provisions of the 2014 Share Option Scheme. Under the 2014 Share Option Scheme: 30% of the Group’s total turnover for the year. (1) share options may be granted to employees including all Directors; The Group’s purchases from its largest supplier for the year ended 31 December 2022 represented (2) any grant of share options to a Connected approximately 17% of the Group’s total purchases Person (as defined in the Listing Rules) of for the year. The total purchases attributable to the the Company must be approved by the five largest suppliers of the Group for the year independent non-executive Directors of the e n d e d 3 1 D e c e m b e r 2 0 2 2 a c c o u n t e d f o r Company (excluding any independent approximately 42% of the total purchases of the non-executive Director of the Company in Group for the year. None of the Directors nor their respective close associates (as defined in the Rules Governing the 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, Listing of Securities on The Stock Exchange of including where necessary the prior Hong Kong Limited (the “Listing Rules”)) nor any approval of the shareholders; shareholder of the Company ( which to the knowledge of the Directors owns more than 5% (3) the maximum aggregate number of shares of the Company’s share capital) had any interests in respect of which share options may be in the five largest suppliers of the Group for the granted (the “Scheme Mandate Limit”) year ended 31 December 2022. shall be calculated in accordance with the SHARE OPTION SCHEME OF THE COMPANY Pursuant to a resolution passed at the annual following formula: N = A – B – C general meeting held on 16 April 2014, the where: Company adopted a new share option scheme (the “2014 Share Option Scheme”). The purpose “N” is the maximum aggregate number of the 2014 Share Option Scheme was to recognise the contribution that certain individuals have made to the Company, to attract and retain the best available personnel and to promote the of shares in respect of which share options may be granted pursuant to the 2014 Share Option Scheme; success of the Company. The 2014 Share Option “A” is the maximum aggregate number Scheme is valid and effective for a period of 10 years commencing on 22 April 2014 and will expire on 22 April 2024. Following the expiry of the 2014 Share Option Scheme, no further share option can be granted under the 2014 Share Option Scheme, but the provisions of the 2014 Share Option Scheme will remain in full force and effect to the extent necessary to give effect to the exercise of any share options granted prior thereto of shares in respect of which shares options may be granted pursuant to the 2014 Share Option Scheme and any other share option schemes of the Company, being 10% of the aggregate of the number of shares in issue as at the date of adoption of the 2014 Share Option Scheme; 072 / China Unicom (Hong Kong) Limited “B” is the maximum aggregate number (6) the total number of shares in the Company of shares underlying the share issued and to be issued upon exercise of options already granted pursuant to the share options granted to a participant of the 2014 Share Option Scheme; and the 2014 Share Option Scheme (including both exercised and outstanding share “C” is the maximum aggregate number options) in any 12-month period must not of shares underlying the options exceed 1% of the issued share capital of already granted pursuant to any the Company; and other share option schemes of the Company. (7) an offer shall be deemed to have been accepted by the eligible participant and to Shares in respect of share options which have taken effect when the duplicate notice have lapsed in accordance with the terms of grant comprising acceptance of the offer of the 2014 Share Option Scheme and any duly signed by the grantee together with a o t h e r s h a r e o p t i o n s c h e m e s o f t h e remittance in favour of the Company of Company will not be counted for the HKD1.00 by way of consideration for the purpose of determining the maximum grant thereof is received by the Company aggregate number of shares in respect of within the time period specified in the which options may be granted pursuant to offer. the 2014 Share Option Scheme; No share options had been granted since adoption (4) the option period commences on any day of the 2014 Share Option Scheme. As at 1 after the date on which such share option is J a n u a r y 2 0 2 2 a n d 3 1 D e c e m b e r 2 0 2 2 , offered, but may not exceed 10 years from 1,777,437,107 options were available for grant the offer date; under the Scheme Mandate Limit. (5) the subscription price shall not be less than As at 31 December 2022, 1,777,437,107 shares the higher of: were available for issue under the 2014 Share Option Scheme, representing approximately (a) the closing price of the shares on the 5.81% of issued share capital of the Company as Hong Kong Stock Exchange on the at the date of this annual report. offer date in respect of the share options; and (b) the average closing price of the shares on the Hong Kong Stock Exchange for the five trading days DIRECTORS’, CHIEF EXECUTIVES’ AND EMPLOYEES’ INTERESTS UNDER THE SHARE OPTION SCHEME OF THE COMPANY For the year ended 31 December 2022 and as at immediately preceding the offer 31 December 2022, none of the Directors of the date; Company or chief executives or employees of the Company had any interests under any share option scheme of the Company. Annual Report 2022 / 073 REPORT OF THE DIRECTORS DIRECTORS’ AND CHIEF EXECUTIVES’ INTERESTS AND SHORT POSITIONS IN SHARES, UNDERLYING SHARES AND DEBENTURES As at 31 December 2022, 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 2022, 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 2022, 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. 074 / China Unicom (Hong Kong) Limited MATERIAL INTERESTS AND SHORT POSITIONS OF SUBSTANTIAL SHAREHOLDERS IN SHARES AND UNDERLYING SHARES OF THE COMPANY As at 31 December 2022, 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 (“A Share Company”)1 (iii) China Unicom (BVI) Limited — 24,683,896,309 80.67% — 16,376,043,282 53.52% (“Unicom BVI”)1 16,376,043,282 — 53.52% (iv) China Unicom Group Corporation (BVI) Limited (“Unicom Group BVI”)2,3 Notes: 8,082,130,236 225,722,791 27.15% (1) Unicom Group and 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 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 2022, 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. Annual Report 2022 / 075 REPORT OF THE DIRECTORS REPURCHASE, SALE OR REDEMPTION OF LISTED SHARES OF THE COMPANY For the year ended 31 December 2022, neither INDEPENDENCE OF INDEPENDENT NON-EXECUTIVE DIRECTORS The Company has received from each of its independent non-executive Directors the annual the Company nor any of its subsidiaries had confirmation of his independence pursuant to Rule repurchased, sold or redeemed any of the 3.13 of the Listing Rules and the Company Company’s listed shares. considers that all independent non-executive COMPOSITION OF THE BOARD The following is the list of Directors during the year and up to date of this report. Executive Directors: Directors are currently independent. 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 Chen Zhongyue Wang Junzhi during 2022 or as at 31 December 2022, the Directors or his/her connected entity(ies) did not Li Yuzhuo (appointed on 28 February 2022) have any material interest, whether directly or Mai Yanzhou (appointed on 28 February 2022 and i n d i r e c t l y , i n a n y s i g n i f i c a n t t r a n s a c t i o n , resigned on 30 May 2022) arrangement or contract entered into by the Independent Non-Executive Directors: Cheung Wing Lam Linus Wong Wai Ming Chung Shui Ming Timpson Law Fan Chiu Fun Fanny Company. None of the Directors for re-election at the forthcoming annual general meeting has an unexpired service agreement which is not determinable by the Company within one year without payment of compensation (other than Pursuant to the articles of association, Mr. Chen statutory compensation). Zhongyue, Mr. Wong Wai Ming and Mr. Chung Shui Ming Timpson will retire at the forthcoming annual general meeting of the Company and, being eligible, offer themselves for re-election. DIRECTORS’ INTEREST IN COMPETING BUSINESSES Unicom Group and A Share Company are engaged in telecommunications business and other related Please refer to Note 8 to the consolidated financial businesses in China that are similar to and/or statements for details of the emoluments of the compete with those of the Company. Executive Directors. directors of the Company also hold executive positions with Unicom Group and A Share Company. Please refer to the section headed “Directors and Senior Management” on pages 32 to 43 of this annual report for further details. 076 / China Unicom (Hong Kong) Limited Mr. Mai Yanzhou (resigned from his position as an executive Director of the Company with effect from 30 May 2022) served as a non-executive EMPLOYEE AND REMUNERATION POLICY A s a t 3 1 D e c e m b e r 2 0 2 2 , t h e G r o u p h a d director and the deputy chairman of the board of a p p r o x i m a t e l y 2 4 3 , 5 8 6 e m p l o y e e s , 7 2 3 directors of PCCW Limited. Mr. Mai Yanzhou also employees and 349 employees in Mainland China, served as a non-executive director of HKT Limited Hong Kong and other countries, respectively. and HKT Management Limited ( the trustee- Furthermore, the Group had approximately 10,345 manager of the HKT Trust). temporary staff in Mainland China. For the year ended 31 December 2022, employee benefit Each of PCCW Limited, HKT Limited and HKT expenses were approximately RMB60.73 billion M a n a g e m e n t L i m i t e d i s e n g a g e d i n t h e ( f o r t h e y e a r e n d e d 3 1 D e c e m b e r 2 0 2 1 : telecommunications business and other related RMB58.94 billion), of which the salary of the businesses that may compete with those of the contract employees was approximately RMB40.85 Company. billion (for the year ended 31 December 2021: RMB39.75 billion) . The Group endeavors to Apart from the above, there are no competing maintain its employees’ remuneration in line with interests of directors which are disclosable under the market trend and to remain competitive. Rule 8.10(2)(b) of the Listing Rules at any time Employees’ remuneration is determined in during the year of 2022 up to and including the accordance with the Group’s remuneration and date of this annual report. DIRECTORS OF SUBSIDIARIES The names of all directors who have served on the bonus policies based on their performance. The Group also provides comprehensive benefit packages and career development opportunities for its employees, including retirement benefits, boards of the subsidiaries of the Company during the housing benefits and internal and external training year ended 31 December 2022 and up to the date of programmes, which are tailored in accordance this report of directors are available on the Company’s with individual needs. website (http://www.chinaunicom.com.hk). PERMITTED INDEMNITY Pursuant to the Company’s articles of association, The Company has adopted share option schemes, under which the Company may grant share options to eligible employees for subscribing for subject to the applicable laws and regulations, the Company’s shares. every Director shall be indemnified out of the assets of the Company against all costs, charges, expenses, losses and liabilities which he/she may sustain or incur in the execution of his/her office CONTINUING CONNECTED TRANSACTIONS On 21 October 2019, CUCL, a wholly-owned or otherwise in relation thereto. The Company has subsidiary of the Company, and Unicom Group taken out insurance against the liability and costs associated with defending any proceedings which entered into a comprehensive services agreement (the “2020–2022 Comprehensive Services may be brought against directors of the Group. Agreement”) to renew certain continuing Annual Report 2022 / 077 REPORT OF THE DIRECTORS c o n n e c t e d t r a n s a c t i o n s i n c l u d i n g ( i ) (b) certain other telecommunications telecommunications resources leasing; ( ii) facilities required by CUCL for its p r o p e r t y l e a s i n g ; ( i i i) v a l u e - a d d e d operations. telecommunications services; ( iv) materials procurement services; (v) engineering design and The rental charges for the leasing of c o n s t r u c t i o n s e r v i c e s ; ( v i ) a n c i l l a r y international telecommunications telecommunications services; (vii) comprehensive r e s o u r c e s a n d o t h e r support services; (viii) shared services; and (ix) telecommunications facilities are financial services, including deposit services, based on the annual depreciation lending and other credit services, and other financial services. Pursuant to the 2020–2022 charges of such resources and t e l e c o m m u n i c a t i o n s f a c i l i t i e s Comprehensive Services Agreement, CUCL and provided that such charges would Unicom Group shall provide certain services and not be higher than market rates. facilities to each other and the receiving party shall CUCL shall be responsible for the pay the corresponding service fees in a timely manner. The 2020–2022 Comprehensive Services on-going maintenance of such international telecommunications Agreement is valid for a term of three years resources. CUCL and Unicom Group starting from 1 January 2020 and expiring on 31 shall determine and agree which December 2022. party is to provide maintenance service to the telecommunications Unicom Group is the ultimate co n tr olling facilities referred to in (b). Unless shareholder of the Company and is therefore a otherwise agreed by CUCL and connected person of the Company under the Unicom Group, such maintenance Listing Rules. Details of the continuing connected transactions under the 2020–2022 Comprehensive Services Agreement are as follows: service charges would be borne by C U C L . I f U n i c o m G r o u p i s responsible for maintaining any t e l e c o m m u n i c a t i o n s f a c i l i t i e s (1) Telecommunications Resources Leasing referred to in (b), CUCL shall pay to Unicom Group agrees to lease to CUCL: U n i c o m G r o u p t h e r e l e v a n t (a) c e r t a i n i n t e r n a t i o n a l shall be determined with reference maintenance service charges which telecommunications resources to market rate, or where there is no ( i n c l u d i n g i n t e r n a t i o n a l m a r k e t r a t e , s h a l l b e a g r e e d t e l e c o m m u n i c a t i o n s c h a n n e l between the parties and determined g a t e w a y s , i n t e r n a t i o n a l o n a c o s t - p l u s b a s i s . W h e n t e l e c o m m u n i c a t i o n s s e r v i c e determining the pricing standard or gateways, international submarine reasonable profit margin, to the cable capacity, international land extent practicable, management of cables and international satellite the Company shall take into account facilities); and the rates of at least two similar and 078 / China Unicom (Hong Kong) Limited comparable transactions entered practicable, management of the Company with or carried out by Independent shall take into account the rates of at least Third Parties or relevant industry two similar and comparable transactions profit margins in the corresponding entered with or carried out by Independent period of reference. CUCL and Third Parties in the corresponding period of Unicom Group agree to settle the reference. The rental charges are payable net rental charges and service quarterly in arrears. charges due to Unicom Group on a quarterly basis. For the year ended 31 December 2022, the rental charges paid by CUCL to Unicom For the year ended 31 December G r o u p a m o u n t e d t o a p p r o x i m a t e l y 2022, the total charges paid by RMB1,056 million, and the rental charges CUCL to Unicom Group amounted to paid by Unicom Group to CUCL was approximately RMB234 million. negligible. (2) Property Leasing (3) Value-added Telecommunications CUCL and Unicom Group agree to lease to Services each other properties and ancillary facilities Unicom Group (or its subsidiaries) agrees to o w n e d b y C U C L o r U n i c o m G r o u p provide the customers of CUCL with ( i n c l u d i n g t h e i r r e s p e c t i v e b r a n c h v a r i o u s t y p e s o f v a l u e - a d d e d companies and subsidiaries). telecommunications services. The rental charges for the leasing of each CUCL shall settle the revenue generated other properties and ancillary facilities are from the value-added telecommunications based on market rates. Where there is no services with the branches of Unicom m a r k e t r a t e o r i t i s n o t p o s s i b l e t o Group (or its subsidiaries) on the condition determine the market rate, the rate shall be that such settlement will be based on the negotiated and agreed between the two average revenue for independent value- parties. Market rates refer to the rates at a d d e d t e l e c o m m u n i c a t i o n s c o n t e n t which the same or similar type of products p r o v i d e r s w h o p r o v i d e v a l u e - a d d e d or services are provided by Independent telecommunications content to CUCL in the Third Parties in the ordinary course of same region. The amount shall be settled business and under normal commercial on a monthly basis. terms. Negotiated rates refer to the rates based on the reasonable costs plus the For the year ended 31 December 2022, the a m o u n t o f t h e r e l e v a n t t a x e s a n d total amount allocated to Unicom Group in r e a s o n a b l e p r o f i t m a r g i n . W h e n relation to value-added telecommunications determining the p ricin g standard or services amounted to approximately reasonable profit margin, to the extent RMB130 million. Annual Report 2022 / 079 REPORT OF THE DIRECTORS (4) Materials Procurement Services Parties in the ordinary course of business 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 and under normal commercial terms. comprehensive procurement services for Negotiated rates refer to the rates based on i m p o r t e d a n d d o m e s t i c the reasonable costs incurred in providing telecommunications materials and other the services plus the amount of the d o m e s t i c n o n - t e l e c o m m u n i c a t i o n s relevant taxes and reasonable profit margin. materials to CUCL. Unicom Group also When determining the pricing standard or agrees to provide services on management reasonable profit margin, to the extent o f t e n d e r s , v e r i f i c a t i o n o f t e c h n i c a l practicable, management of the Company specifications, installation, consulting and shall take into account the rates of at least agency services. In addition, Unicom Group two similar and comparable transactions will sell cable, modem and other materials entered into with Independent Third Parties operated by itself to CUCL and will also in the corresponding period or the relevant provide storage and logistics services in industry profit margin for reference. The r e l a t i o n t o t h e a b o v e m a t e r i a l s service charges due to Unicom Group will procurement. be settled on a monthly basis. Charges for the provision of materials For the year ended 31 December 2022, the procurement services are calculated at the total charges paid by CUCL to Unicom rate of: Group amounted to approximately RMB137 (a) up to 3% of the contract value of million. those procurement contracts in the (5) Engineering Design and Construction c a s e o f d o m e s t i c m a t e r i a l s Services procurement; and 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 engineering design, construction and (b) up to 1% of the contract value of supervision services and IT services to those procurement contracts in the CUCL. Engineering design services include c a s e o f i m p o r t e d m a t e r i a l s p l a n n i n g a n d d e s i g n , e n g i n e e r i n g procurement. inspection, telecommunications electronic e n g i n e e r i n g , t e l e c o m m u n i c a t i o n s The charges for the provision of materials equipment engineering and corporate operated by Unicom Group, and the pricing 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 . and/or charging standar d of va rio u s Construction services include services materials procurement services, and relating to telecommunications equipment, storage and logistics services commission t e l e c o m m u n i c a t i o n s r o u t i n g , p o w e r relevant to the direct material procurement supplies, telecommunications conduit, and are based on the market rates. Where there technical support systems. IT services is no market rate or it is not possible to i n c l u d e s e r v i c e s r e l a t i n g t o o f f i c e determine the market rate, the rate will be automation, software testing, network negotiated and agreed between the two upgrading, research and development of parties. Market rates refer to the rates at new business, and development of support which the same or similar type of assets or systems. services is provided by Independent Third 080 / China Unicom (Hong Kong) Limited T h e c h a r g e s f o r t h e p r o v i s i o n o f (6) Ancillary Telecommunications Services engineering design and construction Unicom Group agrees to provide to CUCL services are based on market rates. Market ancillary telecommunications services, rates refer to the rates at which the same including certain telecommunications pre- or similar type of products or services are sale, on-sale and after-sale services such as provided by Independent Third Parties in assembling and repairing of certain client the ordinary course of business and under telecommunications equipment, sales n o r m a l c o m m e r c i a l t e r m s . W h e n agency services, printing and invoice determining the pricing standard, to the d e l i v e r y s e r v i c e s , m a i n t e n a n c e o f extent practicable, management of the telephone booths, customers’ acquisitions Company shall take into account the rates a n d s e r v i c i n g a n d o t h e r c u s t o m e r s ’ of at least two similar and comparable services. transactions entered with or carried out by I n d e p e n d e n t T h i r d P a r t i e s i n t h e The charges payable for the provision of corresponding period of reference. In the ancillary telecommunications services are event the recipient will determine the determined by the market rates between specific provider of engineering design and the two parties. Where there is no market construction services through tender, the rate or it is not possible to determine the provider will be no less qualified and market rates, the rate will be negotiated equipped than the Independent Third and agreed between the two parties. Parties, and will participate in the tender Market rates refer to the rates at which the procedure in a similar manner as the same or similar type of assets or services Independent Third Parties. Under such are provided by Independent Third Parties c i r c u m s t a n c e s , t h e p r i c i n g w i l l b e u n d e r n o r m a l c o m m e r c i a l t e r m s . determined by the final rate according to Negotiated rates refer to the rates based on the tender procedure. the reasonable costs plus the amount of the relevant taxes and reasonable profit T h e s e r v i c e c h a r g e s w i l l b e s e t t l e d margin. When determining the pricing between CUCL and Unicom Group as and standard or reasonable profit margin, to the when the relevant services are provided. extent practicable, management of the Company shall take into account the rates For the year ended 31 December 2022, the of at least two similar and comparable total charges paid by CUCL to Unicom transactions entered into with Independent G r o u p a m o u n t e d t o a p p r o x i m a t e l y Third Parties in the corresponding period or RMB2,434 million. the relevant industry profit margin for reference. The service charges will be settled between CUCL and Unicom Group as and when the relevant services are provided. For the year ended 31 December 2022, the total services charges paid by CUCL to Unicom Group amounted to approximately RMB3,026 million. Annual Report 2022 / 081 REPORT OF THE DIRECTORS (7) Comprehensive Support Services two similar and comparable transactions Unicom Group and CUCL agree to provide entered into with Independent Third Parties comprehensive support services to each in the corresponding period or the relevant other, including dining services, facilities industry profit margin for reference. The leasing services (excluding those facilities service charges will be settled between w h i c h a r e p r o v i d e d u n d e r t h e CUCL and Unicom Group as and when the Telecommunications Resources Leasing relevant services are provided. above), vehicle services, health and medical services, labour services, security services, For the year ended 31 December 2022, the hotel and conference services, gardening total services charges paid by CUCL to services, decoration and renovation Unicom Group amounted to approximately services, sales services, construction RMB1,638 million, and the total services agency, equipment maintenance services, charges paid by Unicom Group to CUCL market development, technical support amounted to approximately RMB121 services, research and development million. s e r v i c e s , s a n i t a r y s e r v i c e s , p a r k i n g services, staff trainings, storage services, (8) Shared Services advertising services, marketing, property Unicom Group and CUCL agree to provide management services, information and shared services to each other, including, communications technology services but not limited to, the following: (a) CUCL (including construction and installation will provide headquarter human resources services, system integration services, services to Unicom Group; ( b) Unicom software development, product sales and Group and CUCL will provide business agent services, operation and maintenance support centre services to each other; (c) services, and consultation services). CUCL will provide hosting services related to the services referred to in (a) and (b) The service charges are determined by the above to Unicom Group; and (d) Unicom market rates between the two parties. Group will provide premises to CUCL and Where there is no market rate or it is not other shared services requested by its possible to determine the market rate, the headquarters. In relation to the services rate will be negotiated and agreed between referred to in (b) above, CUCL will provide the two parties. Market rates refer to the support services, such as billing and rates at which the same or similar type of settlement services provided by the a s s e t s o r s e r v i c e s a r e p r o v i d e d b y business support centre and operational Independent Third Parties under normal statistics reports. Unicom Group will commercial terms. Negotiated rates refer to p r o v i d e s u p p o r t s e r v i c e s , i n c l u d i n g the rates based on the reasonable costs telephone card production, development plus the amount of the relevant taxes and and related services, maintenance and r e a s o n a b l e p r o f i t m a r g i n . W h e n t e c h n i c a l s u p p o r t a n d m a n a g e m e n t determining the pricing stan dard o r s e r v i c e s i n r e l a t i o n t o t h e reasonable profit margin, to the extent telecommunications card operational practicable, management of the Company system. shall take into account the rates of at least 082 / China Unicom (Hong Kong) Limited Unicom Group and CUCL share the costs The key pricing policies are follows: r e l a t e d t o t h e s h a r e d s e r v i c e s proportionately in accordance with their (a) Deposit Services respective total assets value, except that The interest rate for Unicom Group’s the total assets value of the overseas deposit with CUCL or its subsidiaries subsidiaries and the listed company of will be no more than the maximum Unicom Group will be excluded from the interest rate promulgated by the total asset value of Unicom Group. The People’s Bank of China for the same shared costs proportion will be agreed type of deposit, the interest rate for between Unicom Group and CUCL in the same type of deposit offered to accordance with the total assets value set other clients and the applicable out in the financial statements provided to interest rate offered by the general each other, as adjusted in accordance with commercial banks in PRC for the their respective total assets value on an same type of deposit. annual basis. (b) Lending and other credit services For the year ended 31 December 2022, the The lending interest rate will follow total services charges paid by CUCL to t h e i n t e r e s t r a t e s t a n d a r d Unicom Group amounted to approximately promulgated by the People’s Bank of RMB79 million, and the services charges China, and will be no less than the paid by Unicom Group to CUCL was minimum interest rate offered by negligible. (9) Financial Services CUCL and its subsidiaries to other clients for the same type of loan, and the applicable interest rate offered to CUCL or its subsidiaries agrees to provide U n i c o m G r o u p b y t h e g e n e r a l financial services to Unicom Group, commercial banks in PRC for the including deposit services, lending and same type of loan. For the year other credit services, and other financial ended 31 December 2022, the services. Other financial services include maximum daily lending and other settlement services, acceptance of bills, credit services balance (including entrusted loans, credit verification, financial accrued interests) amounted to and financing consultation, consultation, approximately RMB10,806 million. agency business, approved insurance agent services, and other businesses approved by China Banking Regulatory Commission. Annual Report 2022 / 083 REPORT OF THE DIRECTORS (c) Other financial services The legal department is responsible for the review The fees to be charged by CUCL or of the agreement for connected transactions. The its subsidiaries for the provision of finance department takes the lead in the daily the financial services to Unicom management and supervision of connected Group will comply with the relevant transactions, including liaising with the relevant prescribed rates for such services as business departments for account reconciliation determined by the People’s Bank of 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 C h i n a o r t h e C h i n a B a n k i n g implementation of connected transactions Regulatory Commission. Where no together with business departments on a routine relevant prescribed rate is applicable, basis and performing supervisory examination. the fee will be determined with The finance department regularly reports the reference to market rates of similar status of the implementation of connected financial services charges and transactions to the Audit Committee. The audit agreed between the parties. department includes review on connected transactions into the scope of annual internal T h e s e r v i c e c h a r g e s w i l l b e s e t t l e d control assessment and reports the results to the between CUCL or its subsidiaries and management. Unicom Group as and when the relevant services are provided. Furthermore, the aforesaid continuing connected transactions have been reviewed by independent For the financial year ended 31 December 2022, non-executive directors of the Company. The the above continuing connected transactions have independent non-executive directors confirmed not exceeded their respective caps. t h a t t h e a f o r e s a i d c o n t i n u i n g c o n n e c t e d transactions were entered into (a) in the ordinary The Company has formulated and strictly and usual course of business of the Group; (b) implemented various systems including the either on normal commercial terms or better or, if A d m i n i s t r a t i v e M e a s u r e s o f C o n n e c t e d there are not sufficient comparable transactions to Transactions of China Unicom to ensure that judge whether they are on normal commercial connected transactions are properly entered into terms, on terms no less favourable to the Group in accordance with pricing mechanisms and the than terms available to or from independent third terms of the transactions are fair and reasonable parties; and (c) in accordance with the relevant and are in the interests of the Company and the agreements governing them on terms that are fair Shareholders as a whole. and reasonable and in the interests of the shareholders of the Company as a whole. The staff from the relevant business departments and the connected persons of the Company will The Company’s independent auditor was engaged negotiate the pricing terms of the continuing to report on the Group’s continuing connected connected transactions. These pricing terms will transactions in accordance with Hong Kong be determined in accordance with the pricing policy principles set out in the 2020–2022 Standard on Assurance Engagements 3000 “Assurance Engagements Other Than Audits or comprehensive services agreement, which should Reviews of Historical Financial Information” and be fair and reasonable and subject to the review of with reference to Practice Note 740 “Auditor’s the finance department. Letter on Continuing Connected Transactions 084 / China Unicom (Hong Kong) Limited under the Hong Kong Listing Rules” issued by the statements for a summary of the related party H o n g K o n g I n s t i t u t e o f C e r t i f i e d P u b l i c transactions entered into by the members of the Accountants. The independent auditor has issued Group for the year ended 31 December 2022. an unqualified letter containing his findings and Only the connected transactions set out in note c o n c l u s i o n s i n r e s p e c t o f t h e c o n t i n u i n g 45.1 of the consolidated financial statements connected transactions disclosed by the Group in constitute continuing connected transactions pages 78 to 84 of this annual report in accordance under Chapter 14A of the Listing Rules, the details with paragraph14A.56 of the Listing Rules. The of which ( except for fully exempt continuing independent auditors’ letter has confirmed that connected transactions) have been disclosed in nothing has come to their attention that cause t h e p a r a g r a p h “ C o n t i n u i n g C o n n e c t e d them to believe that the continuing connected Transactions” in the Report of the Directors transactions: above. Other related party transactions do not constitute connected transactions or continuing (A) have not been approved by the Board; connected transactions under Chapter 14A of the (B) were not, in all material respects, in accordance with the pricing policies of the Group as stated in this annual report; (C) were not entered into, in all material respects, in accordance with the relevant agreements governing the continuing connected transactions; and Listing Rules. On 28 October 2022, CUCL and Unicom Group entered into a 2023–2025 comprehensive services agreement (the “2023–2025 Comprehensive Services Agreement”) and Finance Company and Unicom Group entered into a 2023–2025 financial services agreement (the “2023–2025 Financial Services Agreement”). Pursuant to the 2023– 2025 Comprehensive Services Agreement, CUCL (D) have exceeded their respective annual caps and Unicom Group agreed to provide services to for the financial year ended 31 December each other or by one to the other, including (i) use 2 0 2 2 s e t o u t i n t h e p r e v i o u s of telecommunications resources; (ii) property announcements of the Company. leasing; (iii) value-added telecommunications A copy of the independent auditor’s letter has engineering design and construction and IT been provided by the Company to the Hong Kong services; (vi) ancillary telecommunications services; (iv) materials procurement services; (v) Stock Exchange. services; (vii) comprehensive support services and (viii) shared services. Pursuant to the 2023–2025 The Company confirms that it has complied with Financial Services Agreement, Finance Company the requirements of Chapter 14A of the Listing agreed to provide financial services to Unicom Rules in relation to all connected transactions and G r o u p . T h e a b o v e c o n t i n u i n g c o n n e c t e d continuing connected transactions to which any transactions will be for a term of three years from Group member was a party during 2022. Please 1 January 2023 to 31 December 2025. refer to Note 45 to the consolidated financial Annual Report 2022 / 085 REPORT OF THE DIRECTORS MAJOR TRANSACTION — COMMERCIAL PRICING AGREEMENT AND SERVICE AGREEMENT WITH CHINA TOWER CORPORATION LIMITED Reference is made to the announcements dated 8 July 2016 and 1 February 2018 issued by the Company in connection with the commercial pricing of the lease of telecommunications towers and related assets from China Tower Corporation Limited (the “Tower Company”) through CUCL. The agreements expired on 31 December 2022. On 13 December 2022, the Board announced that it approved CUCL and the Tower Company to sign a c o m m e r c i a l p r i c i n g a g r e e m e n t ( t h e “Commercial Pricing Agreement”) and a service agreement (the “Service Agreement”). On 18 January 2023, the Commercial Pricing Agreement and the Service Agreement have been signed, capabilities and technological competitive advantages and further solidify the digital foundation for the Company’s high-quality development. CORPORATE GOVERNANCE REPORT Report on the Company’s corporate governance is set out in “Corporate Governance Report” on pages 44 to 69. MATERIAL LEGAL PROCEEDINGS As a company incorporated in Hong Kong and listed in Hong Kong, the Company adopts the C o m p a n i e s O r d i n a n c e o f H o n g K o n g , t h e Securities and Futures Ordinance of Hong Kong, Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited, the Company’s Articles of Association and other related laws and regulations as the basic g u i d e l i n e s f o r t h e C o m p a n y ’ s c o r p o r a t e under which CUCL leases assets and receives governance. services provided by the Tower Company, including tower products, indoor distribution The principal activities of Company’s subsidiaries system products, transmission products and a r e t h e p r o v i s i o n o f c o m p r e h e n s i v e service products. The term of each of the telecommunications services. The Company is Commercial Pricing Agreement and the Service required to comply with the Cybersecurity Law of Agreement shall be five years, effective from 1 t h e P e o p l e ’ s R e p u b l i c o f C h i n a , January 2023 to 31 December 2027. Details of the Telecommunications Regulations of the People’s Commercial Pricing Agreement and the Service Republic of China, Administrative Regulations on Agreement are set out in the circular dated 5 Telecommunications Companies with Foreign January 2023. The Company is of the view that entering into the Commercial Pricing Agreement and the Service Agreement with the Tower Company will enable the Company to promote a quick, precise and effective 5G/4G network roll-out, while at the same time reduce capital expenditure and o p e r a t i n g e x p e n s e s . B y c o - u s i n g t h e telecommunications tower assets, the Company expects it will benefit from the advantages arising from the effective operation and sharing of resources in the long term, helping the Company build new digital information infrastructure I n v e s t m e n t s a n d o t h e r r e l a t e d l a w s a n d r e g u l a t i o n s . A t t h e s a m e t i m e , o v e r s e a 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 2022, the Company had not been involved in any material litigation, arbitration or administrative proceedings. So far as the Company is aware of, no such litigation, arbitration or administrative proceedings were pending or threatened as at 31 December 2022. 086 / China Unicom (Hong Kong) Limited PUBLIC FLOAT Based on publicly available information and so far as Directors are aware, the Company has maintained the specified amount of public float as required by the Hong Kong Stock Exchange during the year ended 31 December 2022 and as at the date of this annual report. DONATIONS For the year ended 31 December 2022, the Group made charitable and other donations in an aggregate amount of approximately RMB1.045 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 18 May 2023, and entitlement to the 2022 Final Dividend, the register of members of the Company will be closed for registration of transfer of shares. 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 10 May 2023 Closure of register of members From 11 May 2023 to 18 May 2023 Record date 11 May 2023 (2) For ascertaining the shareholders’ entitlement to the 2022 Final Dividend: Latest time to lodge transfer documents for registration 4:30 p.m. of 24 May 2023 Closure of register of members Final Dividend Record date 25 May 2023 25 May 2023 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 2022 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 2022 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 Taxation Administration of the People’s Republic of China (the “STA”); (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 STA, the Company is required to withhold and pay enterprise income tax when it pays the 2022 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. Annual Report 2022 / 087 REPORT OF THE DIRECTORS As a result of the foregoing, in respect of any case, do not desire to have the Company withhold shareholders whose names appear on the Enterprise Income Tax from their 2022 Final Company’s register of members on the Final Dividend, should lodge with the Company’s Share Dividend Record Date and who are not individuals (including HKSCC Nominees Limited, other Registrar, Hong Kong Registrars Limited, at Shops 1712–1716, 17th Floor, Hopewell Centre, 183 custodians, corporate nominees and trustees such Queen’s Road East, Wan Chai, Hong Kong, at or as securities companies and banks, and other before 4:30 p.m. of 24 May 2023, and present the entities or organisations) , the Company will documents from such shareholder’s governing tax distribute the 2022 Final Dividend payable to them a u t h o r i t y w i t h i n t h e t e r r i t o r y o f t h e P R C after deducting the amount of Enterprise Income confirming that the Company is not required to Tax payable on such dividend. Investors who withhold and pay Enterprise Income Tax in respect invest in the shares in the Company listed on the o f t h e d i v i d e n d t h a t s u c h s h a r e h o l d e r i s Main Board of The Stock Exchange of Hong Kong entitled to. Limited through the Shanghai Stock Exchange or Shenzhen Stock Exchange (the Shanghai-Hong If anyone would like to change the identity of the Kong Stock Connect or Shenzhen-Hong Kong holders in the register of members, please enquire Stock Connect investors) are investors who hold about the relevant procedures with the nominees shares through HKSCC Nominees Limited, and in or trustees. The Company will withhold for accordance with the above requirements, the payment of the Enterprise Income Tax for its non- Company will pay to HKSCC Nominees Limited resident enterprise shareholders strictly in the amount of the 2022 Final Dividend after a c c o r d a n c e w i t h t h e r e l e v a n t l a w s a n d deducting the amount of Enterprise Income Tax requirements of the relevant government payable on such dividend. agencies and adhere strictly to the information set out in the Company’s register of members on the In respect of any shareholders whose names Final Dividend Record Date. The Company appear on the Company’s register of members on assumes no liability whatsoever in respect of and the Final Dividend Record Date and who are will not entertain any claims, arising from any individual shareholders, there will be no deduction delay in, or inaccurate determination of, the status of Enterprise Income Tax from the dividend that of the shareholders, or any disputes over the such shareholder is entitled to. mechanism of withholding and payment of Enterprise Income Tax. Shareholders who are not individual shareholders listed on the Company’s register of members and who (i) are resident enterprises of the People’s MANAGEMENT CONTRACTS Other than employment contracts, no contract Republic of China (the “PRC”) (as defined in the concerning the management and administration of Enterprise Income Tax Law), or (ii) are enterprises t h e w h o l e o r a n y s u b s t a n t i a l p a r t o f t h e deemed to be resident enterprises of the PRC in Company’s business was entered into or existed accordance with the Notice, and who, in each during 2022. 088 / China Unicom (Hong Kong) Limited INDEPENDENT AUDITOR At the close of the 2021 annual general meeting of the Company held on 13 May 2021, KPMG and KPMG Huazhen LLP retired as independent auditors of the Company upon expiration of their term of office. The Hong Kong financial reporting for the year ended 31 December 2021 and 31 December 2022 have been audited by Deloitte Touche Tohmatsu, which retire and, being eligible, offer itself for re-appointment at the 2023 annual general meeting. A resolution to re-appoint Deloitte Touche Tohmatsu and to authorise the Directors to fix its respective remuneration will be proposed at the 2023 annual general meeting. By Order of the Board Liu Liehong Chairman and Chief Executive Officer Hong Kong, 8 March 2023 Annual Report 2022 / 089 HU M AN RE SOURCES DEVE LOPMENT China Unicom focuses on its core value of “employee-friendly” and emphasises that employees are the fundamental cornerstone of corporate development. We always pay attention to the common growth of employees and the C o m p a n y , a n d s t r i v e t o m a i n t a i n t h e comprehensive development and vitality of employees. In 2022, we managed human resources based on the strategic positioning of talent-led development, with the implementation of the “1 + 9 + 3” strategic planning system as a priority. The guidance opinion on strengthen the enterprise through talents was effectively implemented in the first year and provided a strong guarantee for the Company’s high-quality development. China Unicom insisted on improving efficiency and controlling the total number of employees. The Company implemented target management of employment efficiency, differentiated and controlled the total number of employees of organisations at all levels. In 2022, the labour productivity of the Company continued to improve and the total number of employees was basically stable while increasing investment in strategic resources. The Company also intensified its efforts in attracting talents for undergoing transformation and staffed new recruits precisely. In 2022, the number of new employees from campus recruitment increased by 25% year-on- year, which were mainly assigned to take on transformational positions in the innovation field. The Company implemented the “New Seedling Scheme” in a unified manner to build a training system by covering five stages from contract signing to the first anniversary of induction, with an aim to accelerating the growth of graduates. China Unicom increased investment in strategic resources guided by its strategies. The Company implemented structural labour cost policies, and formed a new pattern of precise allocation of labour cost and resources as well as integrated development through a combination of policies consisting of “structural adjustment of existing employees + centralised coordination of new recruits + stimulating the vitality of frontline units + strategic resource guarantee + targeted support”. The Company adopted performance- based compensation as the principal mechanism with a diversified remuneration structure, optimised its value creation based internal remuneration distribution mechanism, improved the rights protection mechanism for employees in difficulties, so as to coordinate and optimise the distribution and widen the gap in remuneration. The Company provided diversified incentives and flexibly offered mid and long-term incentives, which in turn enabled it to complete granting the second batch of the restricted shares of China United Network Communications Limited (“A Share Company”) of 0.8 billion shares to 7,700 persons, thereby building a community of shared interests and risks. China Unicom conducted comprehensive analysis on the leadership team structure and the overall planning according to the needs of the Company’s new strategy implementation by focusing on the top-level design. The Company continuously optimised the quality and ability of management 090 / China Unicom (Hong Kong) Limited personnel, promoted the development of the structure for the management personnel, strengthened the supervision of management personnel and further motivated managers at all levels to take new responsibilities and act in the new era. The Company regularly carried out talent exchanges and trainings for outstanding young managers in the northern and southern as well as eastern and western regions, despatched outstanding managers to provincial branches under difficulties to offer “group-based” support, with targeted support to provincial branches in Tibet and Xinjiang. In addition to the establishment of the industry corps and the selection of excellent persons to take charge of strategic business units, the Company also implemented the “Emerging Industry Cadre Project” to foster young and energetic talents for emerging industries, promoted the gradual optimisation of the professional structure and the continuous improvement of the overall function of the leadership at all levels. The Company continuously improved the appraisal and evaluation system, refined the mechanism for promotion and d e m o t i o n o f m a n a g e m e n t p e r s o n n e l , comprehensively promoted the contractual management of managers’ tenure system, c o u p l e d w i t h i n t e n s i f y i n g i t s e f f o r t s i n performance appraisals to continuously stimulate their vitality. T h e C o m p a n y a c t i v e l y i m p l e m e n t e d “ t h e workforce development strategy” and sought to build a powerful enterprise with talents, optimised the structure of the talent team for scientific and technological innovation, improved the quality of the talent team, sped up the establishment of talent and innovation advantages to create a “strong magnetic field” for attracting talents. By implementing key talent projects such as “gathering technological talents, emerging industry managers, introduction of young talents, and development of proprietary capabilities”, the Company kept stepping up its efforts in the cultivation and introduction of outstanding talents. With the proportion of scientific and technological innovation talents exceeding 30%, the Company has built a four-level professional talent echelon t h a t c o n s i s t s o f 2 0 , 0 0 0 l e a d e r s , e x p e r t s , backbones and cutting-edge talents. In response to the national policy for stabilising employment, the Company recruited more than 13,000 employees through campus recruitment and social recruitment, reaching a new high in recent years, and providing more strivers with a great place to start their careers. The Company was the only player in the industry being recognised as the “World’s Best Employer 2022” by Forbes. Focusing on the implementation of the Group’s “1 + 9 + 3” strategic planning and prioritising the cultivation of various talent teams to strengthen strategic capabilities and improve innovation capabilities, the Group formulated the annual key training plans for management personnel and p r o f e s s i o n a l s . A c c o r d i n g t o p r o f e s s i o n a l c h a r a c t e r i s t i c s , t h e G r o u p e s t a b l i s h e d competency standards, improved curriculum systems, empowered through training and provided capacity certification, all with a view to e n a b l i n g i n d e p e n d e n t c u l t i v a t i o n o f k e y capabilities systematically, and continuous to carry out digital empowerment for key groups to improve professional capabilities and quality. ANALYSIS OF STAFF COMPOSITION PERSONNEL BY PROFESSION BY AGE BY EDUCATION BACKGROUND 7.7% 12.2% 14.4% 9.3% 50.5% 17.7% 67.9% 25.2% 65.5% 29.6% Marketing Technical Support Management Between 30-50 years old Over 50 years old Under 30 years old Bachelor degree Secondary school or below Postgraduate or above For further details of Human Resources Development, please refer to the relevant sections of the Company’s detailed Sustainability Report 2022. Please visit the Company’s website at www.chinaunicom.com.hk. Annual Report 2022 / 091 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 205, which comprise the consolidated statement of financial position as at 31 December 2022, 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 2022, 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. 092 / China Unicom (Hong Kong) Limited table column width 65ptINDEPENDENT AUDITOR’S REPORT 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. Revenue 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 revenue transactions. Details of the accounting policies for revenue recognition and an analysis of revenue are disclosed in Notes 2.25 and 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. • 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. Annual Report 2022 / 093 table column width 65pt 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 Our procedures in relation to the impairment of goodwill and a key audit matter because the impairment assessment of the long-lived assets included: cash-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 Details of the accounting policies for impairment of goodwill and derived data and our own assessments of key inputs used long-lived assets and the related accounting estimates are in deriving the discount rate. disclosed in Notes 2.8, 2.13 and 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. 094 / China Unicom (Hong Kong) Limited table column width 65ptINDEPENDENT AUDITOR’S REPORT 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. Annual Report 2022 / 095 table column width 65pt • Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern. • Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation. • 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 8 March 2023 096 / China Unicom (Hong Kong) Limited table column width 65ptINDEPENDENT AUDITOR’S REPORT Revenue 6 354,944 327,854 Year ended 31 December Note 2022 2021 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) 7 8 9 10 11 12 13 14 14 The notes on pages 106 to 205 are an integral part of these consolidated financial statements. (10,947) (86,829) (56,425) (60,726) (34,720) (92,957) (1,095) 1,747 2,153 1,593 3,850 20,588 (3,751) (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) 16,837 14,507 16,745 92 14,368 139 16,837 14,507 0.55 0.55 0.47 0.47 Annual Report 2022 / 097 table column width 65ptCONSOLIDATED STATEMENT OF INCOMEFor the year ended 31 December 2022(All amounts in Renminbi (“RMB”) millions, except per share data) For the year ended 31 December 2022 (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) Share of other comprehensive income of associates Currency translation differences Other comprehensive income for the year, net of tax Year ended 31 December 2022 2021 16,837 14,507 (160) (2) (162) (5) (167) (53) 2 408 357 190 135 (3) 132 (23) 109 (3) — (133) (136) (27) Total comprehensive income for the year 17,027 14,480 Total comprehensive income attributable to: Equity shareholders of the Company Non-controlling interests 16,940 87 14,341 139 Total comprehensive income for the year 17,027 14,480 The notes on pages 106 to 205 are an integral part of these consolidated financial statements. 098 / China Unicom (Hong Kong) Limited table column width 65ptCONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME 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 At 31 December 2022 (All amounts in RMB millions) As at 31 December Note 2022 2021 15 16 17 19 20 13 21 22 23 25 26 21 27 28 45 45 23 24 29 352,433 355,031 59,227 2,771 42,469 8,582 469 61 5,857 4,109 20,442 32,866 2,771 41,278 7,138 271 71 4,025 3,715 17,682 496,420 464,848 1,882 271 26,331 21,155 4,606 465 1,944 19,593 14,699 55,297 1,846 406 17,957 17,925 10,558 270 2,007 29,011 11,968 34,280 146,243 126,228 642,663 591,076 Annual Report 2022 / 099 table column width 65ptCONSOLIDATED STATEMENT OF FINANCIAL POSITION At 31 December 2022 (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 Lease liabilities Deferred income tax liabilities Deferred revenue Amounts due to ultimate holding company Amounts due to related parties Other obligations As at 31 December Note 2022 2021 30 31 32 33 36 13 37 45 45 38 254,056 (15,234) 3,335 99,462 254,056 (17,228) 2,937 92,572 341,619 332,337 1,917 1,096 343,536 333,433 1,528 36,429 950 7,832 300 — 1,218 1,835 10,415 417 6,951 — 742 1,098 48,257 21,458 100 / China Unicom (Hong Kong) Limited table column width 65ptCONSOLIDATED STATEMENT OF FINANCIAL POSITION 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 As at 31 December Note 2022 2021 39 40 33 34 35 36 41 45 45 38 21 331 5,025 368 — — 12,495 154,838 5,811 2,197 1,759 18,326 2,125 2,493 44,714 388 385 6,875 372 1,004 2,039 12,144 140,124 4,246 1,435 4,028 12,926 2,262 2,519 45,704 122 250,870 236,185 299,127 257,643 642,663 591,076 (104,627) (109,957) Total assets less current liabilities 391,793 354,891 The notes on pages 106 to 205 are an integral part of these consolidated financial statements. Approved and authorised for issue by the Board of Directors on 8 March 2023 and signed on behalf of the Board by: Liu Liehong Li Yuzhuo Chairman and Chief Executive Officer Executive Director and Chief Financial Officer Annual Report 2022 / 101 table column width 65pt For the year ended 31 December 2022 (All amounts in RMB millions) Notes Share capital 254,056 Attributable to equity shareholders of the Company General Investment risk revaluation Statutory Other Retained Non- controlling reserve reserve reserves reserves profits Total interests Total equity 850 — — — — — 137 — — — — (9,434) 31,431 (41,668) 132 — — — — — — — — — — — — — 1,384 — — — — — (159) — — (56) — — — — 136 19 91,352 14,368 326,587 14,341 933 139 327,520 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 1 January 2021 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 32 32 Share Company (as defined in Note 1) 44 Others Balance at 31 December 2021 254,056 987 (9,302) 32,815 (41,728) 95,509 332,337 1,096 333,433 Total comprehensive income for the year Contribution from non-controlling interests Share of associate’s other reserves Appropriation to statutory reserves Dividends relating to 2021 final Dividends relating to 2022 interim Capital contribution relating to share-based payment borne by A Share Company Others 32 32 44 — — — — — — — — — — — — — — — — (162) — — — — — — — — — — 1,471 — — — — 357 16,745 16,940 87 17,027 235 38 — — — 55 — — — (1,471) (2,937) (5,049) 235 38 — (2,937) (5,049) — — 55 — 739 — — — — — (5) 974 38 — (2,937) (5,049) 55 (5) Balance at 31 December 2022 254,056 987 (9,464) 34,286 (41,043) 102,797 341,619 1,917 343,536 The notes on pages 106 to 205 are an integral part of these consolidated financial statements. 102 / China Unicom (Hong Kong) Limited table column width 65ptCONSOLIDATED STATEMENT OF CHANGES IN EQUITY Cash flows from operating activities Cash generated from operations Interest received Interest paid Income tax paid For the year ended 31 December 2022 (All amounts in RMB millions) Year ended 31 December Note 2022 2021 103,365 114,414 1,747 (1,150) (3,425) 1,215 (1,324) (3,669) Net cash inflow from operating activities 100,537 110,636 Cash flows from investing activities Purchase of property, plant and equipment, right-of-use assets and other assets (a) Proceeds from disposal of property, plant and equipment and other assets Acquisition of financial assets measured at fair value through profit or 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) Proceeds from disposal of equity securities measured at FVOCI (non-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 Dividends received from joint venture 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 (72,470) 1,710 (1,741) 1,876 (17,630) — 26,864 1 — (21,328) 22,028 149 (1) — — 998 150 (2,518) (11,800) 17,600 (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 Net cash outflow from investing activities (56,112) (74,784) Annual Report 2022 / 103 table column width 65ptCONSOLIDATED STATEMENT OF CASH FLOWS For the year ended 31 December 2022 (All amounts in RMB millions) Cash flows from financing activities Contributions from non-controlling interests Proceeds from short-term bank loans and other obligations Proceeds from commercial papers Loans from related parties Repayment of short-term bank loans Repayment of long-term bank loans Repayment of commercial papers Repayment of related party loans Repayment of promissory notes 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 in statutory reserve deposits placed by Finance Company Year ended 31 December Note 2022 2021 867 330 5,000 471 (385) (420) (6,800) — (1,000) (2,000) (13,373) (5) (7,986) 621 870 10 685 6,800 207 (740) (763) (7,000) (2,507) — (1,000) (12,727) (5) (8,690) 980 171 Net cash outflow from financing activities (23,810) (24,579) Net increase in cash and cash equivalents Cash and cash equivalents, beginning of year Effect of changes in foreign exchange rate 20,615 34,280 402 11,273 23,085 (78) Cash and cash equivalents, end of year 29 55,297 34,280 Analysis of the balances of cash and cash equivalents: Cash balances Bank balances — 55,297 — 34,280 55,297 34,280 (a) Major non-cash transaction: On 13 December 2022, the Board of Directors of the Company approved China United Network Communications Corporation Limited (“CUCL”) and China Tower Corporation Limited (“Tower Company”) to sign a commercial pricing agreement and a service agreement, which constituted a lease modification under HKFRS 16, “Leases”. The transaction has no impact on the consolidated statement of cash flows for the year ended 31 December 2022. Details of this transaction are set out in Note 16 and Note 45. The notes on pages 106 to 205 are an integral part of these consolidated financial statements. 104 / China Unicom (Hong Kong) Limited table column width 65ptCONSOLIDATED STATEMENT OF CASH FLOWS The reconciliation of profit before income tax to cash generated from operations 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 (gains)/losses 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 in inventories (Increase)/decrease in restricted deposits Increase in other assets Increase in prepayments and other current assets Decrease/(increase) in amounts due from ultimate holding company Increase in amounts due from related parties Decrease in amounts due from domestic carriers Increase in accounts payable and accrued liabilities Increase/(decrease) in other taxes payable Increase/(decrease) in advances from customers (Decrease)/increase in contract liabilities Increase in deferred revenue Increase in other obligations (Decrease)/increase in amounts due to ultimate holding company Increase in amounts due to related parties Decrease in amounts due to domestic carriers Year ended 31 December 2022 2021 20,588 17,927 86,829 (1,747) 1,046 1,882 6,918 (149) (72) (438) (24) (2,153) (1,593) 55 (13,718) 147 (5,529) (338) (1,083) (1,108) (3,611) 188 (195) 63 14,866 742 266 (990) 980 83 (2,440) 4,037 (137) 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) Cash generated from operations 103,365 114,414 The notes on pages 106 to 205 are an integral part of these consolidated financial statements. Annual Report 2022 / 105 table column width 65pt For the year ended 31 December 2022 (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 comprehensive telecommunications services. 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 (the “Listing Rules”) and the Hong Kong Companies Ordinance. 106 / China Unicom (Hong Kong) Limited table column width 65ptNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 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 consolidated 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 2022, current liabilities of the Group exceeded current assets by approximately RMB104.6 billion (2021: approximately RMB110.0 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 RMB193.5 billion of revolving banking facilities of which approximately RMB184.6 billion was unutilised as at 31 December 2022; 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 2022 have been prepared on a going concern basis. Annual Report 2022 / 107 table column width 65pt For the year ended 31 December 2022 (All amounts in RMB millions unless otherwise stated) 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 a number of amendments to HKFRSs that are first effective for the current accounting period of the Group: • • • • Amendments to HKFRS 3,“Reference to the Conceptual Framework” Amendments to HKAS 16, “Property, Plant and Equipment — Proceeds before Intended Use” Amendments to HKAS 37,“Onerous Contracts — Cost of Fulfilling a Contract” Amendments to HKFRSs,“Annual Improvements to HKFRSs 2018–2020” In addition, the Group applied the agenda decisions of the International Financial Reporting Standard Interpretations Committee of the International Accounting Standard Board (the “Committee”), including “Demand Deposits with Restrictions on Use arising from a Contract with a Third Party” (IAS 7, “Statement of Cash Flows”) and “Lessor Forgiveness of Lease Payments” (IFRS 9, “Financial Instruments” and IFRS 16, “Leases”), which are relevant to the Group. Given that HKFRSs contain wordings that are almost identical to the equivalent IFRS Standards except for minor differences, the agenda decision of the Committee is equally applicable to the Group. The application of the above amendments and agenda decisions have had no material effect on the Group’s financial positions and performance for the current and prior periods and/or on the disclosures set out in these consolidated financial statements. 108 / China Unicom (Hong Kong) Limited table column width 65ptNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 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 2022 and which have not been adopted in these consolidated financial statements. 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, “Non-current Liabilities with Covenants” Amendments to HKAS 1 and HKFRS Practice Statement 2, “Disclosure of Accounting Policies” Amendments to HKAS 8, “Definition of Accounting Estimates” HKFRS 17 (including the October 2020 and February 2022 Amendments to HKFRS 17), “Insurance Contracts” Amendments to HKAS 12, Effective for accounting periods beginning on or after 1 January 2024 1 January 2024 1 January 2023 1 January 2023 1 January 2023 1 January 2023 “Deferred Tax related to Assets and Liabilities arising from a Single Transaction” Amendments to HKFRS 10 and HKAS 28, to be determined “Sale or Contribution of Assets between an Investor and its Associate or Joint Venture” Amendments to HKFRS 16, “Lease Liability in a Sale and Leaseback” 1 January 2024 The Group has not applied any new standard or amendments 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. Annual Report 2022 / 109 table column width 65pt For the year ended 31 December 2022 (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. 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. 110 / China Unicom (Hong Kong) Limited table column width 65ptNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 2.3 Subsidiaries and non-controlling interests (Continued) 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 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. Annual Report 2022 / 111 table column width 65pt For the year ended 31 December 2022 (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 Group and other 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. 112 / China Unicom (Hong Kong) Limited table column width 65ptNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 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 make 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 carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing on the date when the fair value was determined. When a fair value gain or loss on a non-monetary item is recognised in profit or loss, any exchange component of that gain or loss is also recognised in profit or loss. When a fair value gain or loss on a non-monetary item is recognised in other comprehensive income, any exchange component of that gain or loss is also recognised in other comprehensive 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 statement of income as part of the gain or loss on disposal. Annual Report 2022 / 113 table column width 65pt For the year ended 31 December 2022 (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”) mainly 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, including costs of testing whether the related assets is functioning properly. 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% 0–3% 3% 114 / China Unicom (Hong Kong) Limited table column width 65ptNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 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. During the year, the Group adjusted the residual rate of certain transmission assets (mainly optical cable assets) to zero. The effect of such change in accounting estimate is disclosed in Note 15. (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. Annual Report 2022 / 115 table column width 65pt For the year ended 31 December 2022 (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 an asset recognised in respect of contract costs 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). 116 / China Unicom (Hong Kong) Limited table column width 65ptNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 2.11 Other assets Other assets mainly represent (i) computer software; (ii) long-term prepaid services charges 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 services charges 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. Annual Report 2022 / 117 table column width 65pt For the year ended 31 December 2022 (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 as a 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. 118 / China Unicom (Hong Kong) Limited table column width 65ptNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 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, intangible assets with finite useful lives and contract costs 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 (the “cash-generating unit”). Before the Group recognises an impairment loss for assets capitalised as contract costs under HKFRS 15 “Revenue from contracts with customers” (“HKFRS 15”), the Group assesses and recognises any impairment loss on other assets related to the relevant contracts in accordance with applicable standards. Then, impairment loss, if any, for assets capitalised as contract costs is recognised to the extent the carrying amounts exceeds the remaining amount of consideration that the Group expects to receive in exchange for related goods or services less the costs which relate directly to providing those goods or services that have not been recognised as expenses. The assets capitalised as contract costs are then included in the carrying amount of the cash-generating unit to which they belong for the purpose of evaluating impairment of that cash-generating unit. An impairment loss is recognised for the amount by which the asset’s (or the cash-generating unit’s) carrying amount exceeds its recoverable amount. The recoverable amount is the higher of (i) 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 (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. Annual Report 2022 / 119 table column width 65pt For the year ended 31 December 2022 (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) In measuring ECLs, the Group takes into account reasonable and supportable information that is available without undue cost or effort. This includes information about past events, current conditions and forecasts of future economic conditions. ECLs are measured on either of the following bases: — — twelve-month ECLs: these are losses that are expected to result from possible default events within the twelve months after the reporting date; and lifetime ECLs: these are losses that are expected to result from all possible default events over the expected lives of the items to which the ECL model applies. Loss allowances for accounts receivable and contract assets are always measured at an amount equal to lifetime ECLs. ECLs on 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. 120 / China Unicom (Hong Kong) Limited table column width 65ptNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 2.14 Credit losses from financial instruments and contract assets (Continued) Significant increases in credit risk (Continued) Depending on the nature of the financial instruments, the assessment of a significant increase in credit risk is performed on either an individual basis or a collective basis. When the assessment is performed on a collective basis, the financial instruments are grouped based on shared credit risk characteristics, such as past due status and credit risk ratings. ECLs are remeasured at each reporting date to reflect changes in the financial instrument’s credit risk since initial recognition. Any change in the ECL amount is recognised as an impairment gain or loss in profit or loss. 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. Costs necessary to make the sale include incremental costs directly attributable to the sale and other costs necessary to sell inventories. Annual Report 2022 / 121 table column width 65pt For the year ended 31 December 2022 (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 presented on the consolidated statement of financial position include: (a) cash, which comprises of cash on hand and demand deposits, excluding bank balances that are subject to regulatory restrictions that result in such balances no longer meeting the definition of cash; and (b) cash equivalents, which comprise of short-term (generally with original maturity of three months or less), highly liquid investments that are readily convertible to a known amount of cash and which are subject to an insignificant risk of changes in value. Cash equivalents are held for the purpose of meeting short-term cash commitments rather than for investment or other purposes. For the purposes of the consolidated statement of cash flows, cash and cash equivalents consist of cash and cash equivalents as defined above. 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. 122 / China Unicom (Hong Kong) Limited table column width 65ptNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 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. 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 pension insurance 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 2022 and 2021, 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. Annual Report 2022 / 123 table column width 65pt For the year ended 31 December 2022 (All amounts in RMB millions unless otherwise stated) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 2.22 Employee benefits (Continued) (d) Supplementary benefits In addition to participating in local governmental defined contribution social insurance, individual 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 Willis Towers Watson (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 2022, the amount of the liability was RMB109 million (2021: RMB100 million). The remeasurement of liability is recognised in other comprehensive income, which is not allowed to reverse to profit or 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. 124 / China Unicom (Hong Kong) Limited table column width 65ptNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 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. Annual Report 2022 / 125 table column width 65pt For the year ended 31 December 2022 (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; 126 / China Unicom (Hong Kong) Limited table column width 65ptNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 2.25 Revenue recognition (Continued) • Revenue from transmission lines usage and associated services, which mainly represent income from offering transmission lines and customer-end equipment to customers for usage and related services, are recognised upon fulfillment of services obligation over the respective usage and service period; • Standalone sales of telecommunications products, which mainly represent handsets and accessories, and telecommunications equipment, are recognised when 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. Annual Report 2022 / 127 table column width 65pt For the year ended 31 December 2022 (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. 128 / China Unicom (Hong Kong) Limited table column width 65ptNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 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. 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. Annual Report 2022 / 129 table column width 65pt For the year ended 31 December 2022 (All amounts in RMB millions unless otherwise stated) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 2.29 Borrowing costs (Continued) 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. 130 / China Unicom (Hong Kong) Limited table column width 65ptNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 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; how the intangible asset will generate probable future economic benefits; Annual Report 2022 / 131 table column width 65pt For the year ended 31 December 2022 (All amounts in RMB millions unless otherwise stated) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 2.32 Research and development expenditure (Continued) • 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 2022, research and development expenditure recognised as expense in the consolidated statement of income was RMB6,836 million (2021: RMB4,792 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. 132 / China Unicom (Hong Kong) Limited table column width 65ptNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 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. Annual Report 2022 / 133 table column width 65pt For the year ended 31 December 2022 (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”), 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 2022 and 2021, 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 2022 and 2021. 134 / China Unicom (Hong Kong) Limited table column width 65ptNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 3. FINANCIAL RISK MANAGEMENT AND FAIR VALUES OF FINANCIAL INSTRUMENTS (Continued) 3.1 Financial risk factors (Continued) (a) Market risk (Continued) (i) Foreign exchange risk (Continued) 2022 2021 Original RMB Original RMB currency Exchange equivalent currency Exchange equivalent millions rate millions millions rate millions 38 692 19 19 — 28 — — 112 2 1,396 2 26 7 0.89 6.96 7.42 0.05 8.39 5.18 4.71 0.89 6.96 7.42 0.05 8.39 5.18 4.71 34 4,818 139 1 — 147 2 5,141 — 780 15 73 17 135 33 1,053 97 587 18 108 — 8 1 1 166 2 70 9 31 2 0.82 6.38 7.22 0.06 8.61 4.72 4.62 0.82 6.38 7.22 0.06 8.61 4.72 4.62 79 3,743 128 6 2 40 3 4,001 1 1,058 14 4 77 146 9 1,309 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 JPY — denominated in GBP — denominated in SGD — denominated in AUD Sub-total Financial assets measured at FVOCI: — denominated in Euro 217 7.42 1,613 247 7.22 1,786 Total 7,807 7,096 Annual Report 2022 / 135 table column width 65pt For the year ended 31 December 2022 (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) 2022 2021 Original RMB Original RMB currency Exchange equivalent currency Exchange equivalent millions rate millions millions rate millions 25 1 6.96 7.42 400 61 1 — 1 6 0.89 6.96 7.42 0.05 8.39 5.18 171 11 182 357 425 7 — 8 31 828 1,010 28 2 6.38 7.22 — 46 1 155 — — 0.82 6.38 7.22 0.06 8.61 4.72 178 14 192 — 293 7 9 — — 309 501 Borrowings: — denominated in US dollars — denominated in Euro Sub-total Accounts payable: — denominated in HK dollars — denominated in US dollars — denominated in Euro — denominated in JPY — denominated in GBP — denominated in SGD Sub-total Total 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 2022, 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 RMB389 million (2021: approximately RMB361 million) for cash and cash equivalents, accounts receivable, borrowings and accounts payable denominated in foreign currencies, and the effect on other comprehensive income would be approximately RMB161 million (2021: approximately RMB179 million) for financial assets denominated in foreign currency, which were recorded in FVOCI. 136 / China Unicom (Hong Kong) Limited table column width 65ptNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 3. FINANCIAL RISK MANAGEMENT AND FAIR VALUES OF FINANCIAL INSTRUMENTS (Continued) 3.1 Financial risk factors (Continued) (a) Market risk (Continued) (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 2022, 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 RMB161 million (2021: approximately RMB179 million). The financial assets measured at FVPL comprise primarily equity securities of certain PRC listed companies. As at 31 December 2022, if the price of the respective listed equity securities had increased/ decreased by 10%, the effect on profit after tax would be approximately RMB7 million (2021: approximately RMB9 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 assets are mainly short-term in nature and the interest involved will not be significant. The Group’s interest rate risk mainly arises from interest-bearing borrowings including bank loans, commercial papers, promissory notes, corporate bonds, related 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 2022 and 2021, 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 2022 and 2021. As at 31 December 2022, the Group had approximately RMB12,598 million (2021: approximately RMB13,410 million) of long-term floating rate borrowings and short-term borrowings and approximately RMB51,562 million (2021: approximately RMB28,551 million) of long-term fixed rate borrowings and lease liabilities. Annual Report 2022 / 137 table column width 65pt For the year ended 31 December 2022 (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) (iii) Cash flow and fair value interest rate risk (Continued) For the year ended 31 December 2022, 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 RMB47 million (2021: approximately RMB50 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. 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. 138 / China Unicom (Hong Kong) Limited table column width 65ptNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 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. To the extent that interest flows are floating rate, the undiscounted amount is derived based on management’s best estimates at the end of the reporting period: At 31 December 2022 Long-term bank loans 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 Between Between Less than 1 and 2 and Over Carrying 1 year 2 years 5 years 5 years amounts 388 370 719 12,750 11,055 28,272 692 1,313 2,497 334 5,083 154,838 5,811 1,759 18,326 2,125 256 872 — — — — — — — — — — — 326 — — 92 — — — — — — — 1,896 48,924 3,711 331 5,025 154,838 5,811 2,059 18,326 2,125 203,911 11,681 30,189 2,097 243,046 Annual Report 2022 / 139 table column width 65pt For the year ended 31 December 2022 (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) (c) Liquidity risk (Continued) 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 Between Between Less than 1 and 2 and Over Carrying 1 year 2 years 5 years 5 years 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 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. 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. 140 / China Unicom (Hong Kong) Limited table column width 65ptNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 3. FINANCIAL RISK MANAGEMENT AND FAIR VALUES OF FINANCIAL INSTRUMENTS (Continued) 3.2 Capital risk management (Continued) 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 RMB6,721 million and RMB50 million, respectively, as at 31 December 2022 (2021: RMB6,090 million and RMB60 million, respectively). The Group’s debt-to-capitalisation ratios are as follows: Interest-bearing debts: — Short-term bank loans — Long-term bank loans — Commercial papers — Lease liabilities (non-current portion) — Amounts due to a related party — Amounts due to ultimate holding company — 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 2022 2021 331 1,528 5,025 36,429 742 471 368 — — 12,495 57,389 343,536 385 1,835 6,875 10,415 742 — 372 2,039 1,004 12,144 35,811 333,433 Interest-bearing debts plus total equity 400,925 369,244 Debt-to-capitalisation ratio 14.3% 9.7% 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. Annual Report 2022 / 141 table column width 65pt For the year ended 31 December 2022 (All amounts in RMB millions unless otherwise stated) 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 2022: 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 1,733 2,805 17,770 22,308 — 40 — 40 114 1,240 — 1,847 4,085 17,770 1,354 23,702 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 32,726 142 / China Unicom (Hong Kong) Limited table column width 65ptNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 3. FINANCIAL RISK MANAGEMENT AND FAIR VALUES OF FINANCIAL INSTRUMENTS (Continued) 3.3 Fair value estimation (Continued) (a) Financial assets measured at fair value (Continued) The fair value of financial instruments traded in active markets is based on quoted market prices at the statement of financial position date. A market is regarded as active if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service, or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm’s length basis. The quoted market price used for financial assets held by the Group is the current bid price. These instruments are included in level 1 and comprise primarily equity securities of Telefónica, debt securities issued by banks which are classified as financial assets measured at FVOCI and certain equity investments, investments in monetary funds that are classified as financial assets measured at FVPL. During the years ended 31 December 2022 and 2021, 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 2022 and 2021, 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 as at Carrying amounts Fair value as at as at 31 December 31 December Fair value measurements 31 December 31 December 2022 2022 as at 31 December 2022 categorised into 2021 2021 Level 1 Level 2 Level 3 Non-current portion of long-term bank loans 1,528 1,571 Non-current portion of amounts due to ultimate holding company 300 291 — — 1,571 291 — — 1,835 1,900 — — The fair values of the non-current portion of long-term bank loans and non-current portion of amounts due to ultimate holding company are based on the expected cash flows of principal and interests payment discounted at market rates ranging from 0.57% to 4.35% (2021: 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 2022 and 2021 due to the nature or short maturity of those instruments. Annual Report 2022 / 143 table column width 65pt For the year ended 31 December 2022 (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 2022 and 2021. 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). 144 / China Unicom (Hong Kong) Limited table column width 65ptNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 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”) at 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 2022 2021 21,303 155,918 77,780 26,170 12,947 20,448 4,782 319,348 35,596 22,039 155,918 60,833 22,444 12,542 17,894 4,483 296,153 31,701 354,944 327,854 353,835 1,109 326,615 1,239 Annual Report 2022 / 145 table column width 65pt For the year ended 31 December 2022 (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 for those performance obligations which are satisfied as invoiced. 7. NETWORK, OPERATION AND SUPPORT EXPENSES Note 2022 2021 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) 12,216 15,088 15,816 11,070 2,235 13,130 13,806 13,129 10,900 2,122 56,425 53,087 (i) During the years ended 31 December 2022 and 2021, 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 2022 and 2021, 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 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: 2022 2021 Expense relating to short-term leases and leases of low value assets Variable lease payments not included in the measurement of lease liabilities* 1,771 7,243 1,521 5,660 * During the years ended 31 December 2022 and 2021, 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. 146 / China Unicom (Hong Kong) Limited table column width 65ptNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 8. EMPLOYEE BENEFIT EXPENSES Salaries and wages Contributions to defined contribution pension schemes Contributions to medical insurance Contributions to housing fund Other housing benefits Share-based compensation Note 2022 2021 44,813 8,423 3,239 4,174 22 55 44,092 7,685 3,257 3,750 24 136 60,726 58,944 44 8.1 Directors’ emoluments The remuneration of each director for the year of 2022 is set out below: Name of director Note (RMB’000) (RMB’000) (RMB’000) (RMB’000) (RMB’000) Bonuses Contributions Salaries and paid and to pension Fees allowance payable* schemes Total (a) (b) (c) (d) (e) Liu Liehong Chen Zhongyue Wang Junzhi Li Yuzhuo Mai Yanzhou Cheung Wing Lam Linus Wong Wai Ming Chung Shui Ming Timpson Law Fan Chiu Fun Fanny — — — — — 414 423 431 397 364 591 240 176 425 — — — — 352 352 316 264 132 — — — — 140 140 140 118 55 — — — — 856 1,083 696 558 612 414 423 431 397 1,665 1,796 1,416 593 5,470 * In addition, according to the “Notice on the Compensation Information Disclosure of the Central Government Controlled Enterprises” (Guozifenpei [2016] No.339) (translated from 《關於做好中央企業負責人薪酬信息披露工作的通知》（國資 分配[2016]339號）), certain directors were also entitled to deferred bonuses in relation to the years of 2019 to 2021. The deferred bonuses paid to Mr. Liu Liehong, Mr. Chen Zhongyue, Mr. Wang Junzhi and Mr. Mai Yanzhou were RMB74,000, RMB203,500, RMB16,600 and RMB586,000 respectively. Annual Report 2022 / 147 table column width 65pt For the year ended 31 December 2022 (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 2021 is set out below: Name of director Note (RMB’000) (RMB’000) (RMB’000) (RMB’000) (RMB’000) Bonuses Contributions Salaries and paid and to pension Fees allowance payable schemes Total (a) (f) (b) (c) (g) (h) (i) 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 Notes: — — — — — — — 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 (a) Mr. Liu Liehong was appointed as executive director, chairman and chief executive officer on 3 September 2021. (b) Mr. Chen Zhongyue was appointed as executive director and president on 19 February 2021. (c) Mr. Wang Junzhi was appointed as executive director on 3 December 2021. (d) Ms. Li Yuzhuo was appointed as executive director and chief financial officer on 28 February 2022. (e) Mr. Mai Yanzhou was appointed as executive director on 28 February 2022 and resigned as executive director on 30 May 2022. (f) Mr. Wang Xiaochu resigned as executive director, chairman and chief executive officer on 27 August 2021. (g) Mr. Li Fushen resigned as executive director on 11 June 2021. (h) Mr. Zhu Kebing resigned as executive director on 18 June 2021. (i) Mr. Fan Yunjun resigned as executive director on 28 April 2021. 148 / China Unicom (Hong Kong) Limited table column width 65ptNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 8. EMPLOYEE BENEFIT EXPENSES (Continued) 8.1 Directors’ emoluments (Continued) During the years of 2022 and 2021, no share options were granted to the directors. No directors waived the right to receive emoluments during the years ended 31 December 2022 and 2021. During the years of 2022 and 2021, the Company did not incur any payment to any director for loss of office or as an inducement to any director to join the Company. 8.2 Senior management’s emoluments Of the seven (2021: seven) senior management of the Company for the year ended 31 December 2022, four (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 three (2021: four) senior management, two fall within the band from RMB Nil to RMB1,000,000 and one falls within the band from RMB1,000,001 to RMB1,500,000 (2021: all fall within the band from RMB Nil to RMB1,000,000). 8.3 Five highest paid individuals Of the five highest paid individuals for the year ended 31 December 2022, five of them are staffs and one falls within the band from RMB2,000,001 to RMB2,500,000, two fall within the band from RMB2,500,001 to RMB3,000,000, one falls within the band from RMB3,000,001 to RMB3,500,000, and one falls within the band from RMB4,000,001 to RMB4,500,000 (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). The aggregate of the emoluments in respect of the five (2021: five) highest paid individuals are as follows: Salaries and allowances Bonuses paid and payable Contributions to pension schemes 2022 2021 (RMB’000) (RMB’000) 1,579 12,334 993 4,307 11,893 893 14,906 17,093 During the years of 2022 and 2021, 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. Annual Report 2022 / 149 table column width 65pt 2022 2021 34,152 568 30,256 427 34,720 30,683 Note 2022 2021 6,552 366 24,537 2,717 2,267 3,370 48 4 2,704 1,285 786 1,395 39,374 628 1,882 5,042 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 92,957 77,263 For the year ended 31 December 2022 (All amounts in RMB millions unless otherwise stated) 9. COSTS OF TELECOMMUNICATIONS PRODUCTS SOLD Handsets and other telecommunication products Others 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 Loss on disposal of property, plant and equipment 15 Others 150 / China Unicom (Hong Kong) Limited table column width 65ptNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 11. FINANCE COSTS Note 2022 2021 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 (gain)/loss — Others 12. OTHER INCOME — NET Dividend from financial assets measured at FVOCI (non-recycling) Government grants Additional deduction for VAT Investment income from debt securities measured at FVOCI (recycling) Fair value gains/(losses) on financial assets measured at FVPL Gains on disposal of financial assets measured at FVPL Others 69 111 802 93 13 (28) 42 204 977 141 21 (82) 1,060 1,303 (15) 50 8 74 1,095 1,385 2022 2021 149 872 2,325 438 24 72 (30) 179 613 2,384 850 (39) 15 117 3,850 4,119 Annual Report 2022 / 151 table column width 65pt For the year ended 31 December 2022 (All amounts in RMB millions unless otherwise stated) 13. TAXATION Hong Kong profits tax has been provided at the rate of 16.5% (2021: 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 Mainland China and the applicable statutory enterprise income tax rate is 25% (2021: 25%). Taxation for certain subsidiaries in Mainland China was calculated at a preferential tax rate of 15% (2021: 15%). Provision for income tax on the estimated taxable profits for the year — Hong Kong — Mainland China and other jurisdictions Over provision in respect of prior years Deferred taxation Income tax expenses 2022 2021 36 3,422 (58) 83 2,625 (115) 3,400 2,593 351 827 3,751 3,420 Reconciliation between actual income tax expense and accounting profit at PRC statutory tax rate: Note 2022 2021 Profit before income tax 20,588 17,927 Expected income tax expense at PRC statutory tax rate of 25% 5,147 4,482 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 provision in respect of prior years Tax effect of unused tax losses not recognised, net of utilisation (i) (i) (ii) (40) (155) (662) 329 (398) (473) (58) 61 (29) (259) (333) 503 (362) (400) (115) (67) Actual tax expense 3,751 3,420 152 / China Unicom (Hong Kong) Limited table column width 65ptNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 13. TAXATION (Continued) (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% (2021: 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% (2021: 15%), and certain research and development costs of the Group’s Mainland China subsidiaries are qualified for 75% for the first three quarters of 2022 and 100% for the fourth quarter of 2022 (2021: 75%) additional deduction for tax purpose. (ii) As at 31 December 2022, the Group did not recognise deferred tax assets in respect of tax losses amounting to approximately RMB446 million (2021: approximately RMB203 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 to ten years from the year incurred and hence will be expired by the year of 2023 to 2032. As at 31 December 2022, the Group did not recognise deferred tax assets in respect of fair value losses on financial assets through other comprehensive income (non-recycling) amounting to approximately RMB9,852 million (2021: approximately RMB9,679 million), since it is not probable that the related tax benefit will be realised. The movement of the net deferred tax assets/(liabilities) is as follows: Net deferred tax assets after offsetting: — Beginning of year — Deferred tax credited/(charged) to the consolidated statement of income — Deferred tax credited to other comprehensive income — End of year Net deferred tax liabilities after offsetting: — Beginning of year — Deferred tax charged to the consolidated statement of income — Deferred tax credited to other comprehensive income — End of year 2022 2021 271 189 9 469 (417) (540) 7 (950) 745 (474) — 271 (64) (353) — (417) Annual Report 2022 / 153 table column width 65pt For the year ended 31 December 2022 (All amounts in RMB millions unless otherwise stated) 13. TAXATION (Continued) 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 Unrealised Accruals of profit from the Accelerated expenses not transactions depreciation of Right-of-use Deferred tax arising from allowance regulation losses for tax purpose Company and equipment liabilities Others Total Credit loss under PRC Unused tax yet deductible with Tower property, plant assets/ lease At 1 January 2021 Credited/(charged) to the consolidated statement of income (Note (i)) 2,493 1,258 130 (49) At 31 December 2021 2,623 1,209 Credited/(charged) to the consolidated statement of income Credited to other comprehensive income 1,168 — (47) — At 31 December 2022 3,791 1,162 — 34 34 (25) — 9 4,183 560 4,743 1,127 — 5,870 (Note (ii)) (11,099) (1,769) 317 (67) 250 (12,868) (65) — (3,603) — 390 13 403 (19) — 3,139 321 3,460 1,113 16 185 (16,471) 384 4,589 681 (827) (146) (351) 16 (481) (i) The prepayments for the leasehold land were revalued for PRC tax purposes as at 31 December 2003 and 2004. However, the resulting revaluations of the prepayments for the leasehold land were not recognised under 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 Taxation Administration (“STA”) 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 2022 and 2021 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 2022 and 2021 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 2022 and 2021. 154 / China Unicom (Hong Kong) Limited table column width 65ptNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 14. EARNINGS PER SHARE (Continued) The following table sets forth the computation of basic and diluted earnings per share: 2022 2021 Numerator (in RMB millions): Profit attributable to equity shareholders of the Company used in computing basic/diluted earnings per share 16,745 14,368 Denominator (in millions): Number of ordinary shares outstanding used in computing basic/diluted earnings per share 30,598 30,598 Basic/Diluted earnings per share (in RMB) 0.55 0.47 15. PROPERTY, PLANT AND EQUIPMENT The movements of property, plant and equipment for the years ended 31 December 2022 and 2021 are as follows: 2022 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 78,179 23 1,573 — (491) 831,045 553 56,007 — (59,885) 19,825 455 1,323 — (1,948) 3,336 66 257 — (566) 43,411 72,329 (59,160) (7,959) (41) 975,796 73,426 — (7,959) (62,931) End of year 79,284 827,720 19,655 3,093 48,580 978,332 Accumulated depreciation and impairment: Beginning of year Charge for the year Disposals (41,674) (2,707) 408 (561,526) (60,279) 56,927 (15,008) (1,299) 1,710 (2,418) (302) 369 (139) (2) 41 (620,765) (64,589) 59,455 End of year (43,973) (564,878) (14,597) (2,351) (100) (625,899) Net book value: End of year 35,311 262,842 5,058 Beginning of year 36,505 269,519 4,817 742 918 48,480 352,433 43,272 355,031 Annual Report 2022 / 155 table column width 65pt For the year ended 31 December 2022 (All amounts in RMB millions unless otherwise stated) 15. PROPERTY, PLANT AND EQUIPMENT (Continued) 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 (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 End of year (41,674) (561,526) (15,008) (2,418) (139) (620,765) Net book value: End of year 36,505 269,519 4,817 Beginning of year 37,415 273,221 4,614 918 793 43,272 355,031 48,144 364,187 For the year ended 31 December 2022, interest expense of approximately RMB28 million (2021: approximately RMB82 million) was capitalised in CIP. The capitalised borrowing rate represents the cost of capital for raising the related borrowings and varied from 2.29% to 2.71% for the year ended 31 December 2022 (2021: 2.01% to 3.48%). Mainly as a result of the Group’s ongoing modification of its telecommunications network and following subscribers’ voluntarily cross network migration progress, the Group disposed certain property, plant and equipment with carrying amounts of RMB3,476 million (2021: RMB5,899 million) for consideration of RMB1,594 million (2021: RMB2,150 million) for the year ended 31 December 2022, resulting in a net loss of approximately RMB1,882 million for the year ended 31 December 2022 (2021: approximately RMB3,749 million). In 2022, the Group adjusted the residual value of certain optical cable assets from 3% to 0% due to the increasing removal costs and decreasing recycling value. The change was accounted for as a change in accounting estimate in accordance with HKAS 8, “Accounting Policies, Changes in Accounting Estimates and Errors” effect from 1 December 2022 using the prospective application method. The depreciation and amortisation for the year ended 31 December 2022 increased by approximately RMB2,350 million as a result of the aforesaid changes in accounting estimates. 156 / China Unicom (Hong Kong) Limited table column width 65ptNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 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 2022 Tele- communications Buildings equipment Land use rights Others Total 15,840 4,876 (2,274) 44,930 34,478 (850) 13,971 248 (221) 1,337 643 (88) 76,078 40,245 (3,433) 18,442 78,558 13,998 1,892 112,890 (8,104) (3,806) 2,137 (29,691) (8,788) 728 (5,037) (300) 32 (380) (542) 88 (43,212) (13,436) 2,985 (9,773) (37,751) (5,305) (834) (53,663) 8,669 40,807 8,693 1,058 59,227 Beginning of year 7,736 15,239 8,934 957 32,866 Annual Report 2022 / 157 table column width 65pt For the year ended 31 December 2022 (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 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) Beginning of year 7,670 20,558 8,907 Details of total cash outflow for leases and the maturity analysis of lease liabilities are set out in Note 36. 7,736 15,239 8,934 957 825 32,866 37,960 On 13 December 2022, the Board of Directors of the Company approved CUCL and Tower Company to sign the commercial pricing agreement and the service agreement, which constituted a lease modification under HKFRS 16, “Leases”. In accordance with HKFRS 16, the lease liabilities are remeasured based on the lease term of the modified lease by discounting the revised lease payments using revised discount rates at the effective date of the modification. The Group recognised an increase in lease liabilities amounting to approximately RMB31.0 billion and a corresponding adjustment to the carrying amount of the right-of-use assets. Details of this transaction are set out in Note 45. 158 / China Unicom (Hong Kong) Limited table column width 65ptNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 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 (2021: 1%), the applicable discount rate of 11% (2021: 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 2022 and 2021, any reasonably possible change in the assumptions used in the calculation of recoverable amount would not result in impairment losses. 18. INVESTMENTS IN SUBSIDIARIES As at 31 December 2022, the details of the Company’s subsidiaries are as follows: Name CUCL Place and date of incorporation/ establishment and nature of Percentage of equity interests held Particular of issued share Principal activities and legal entity Direct Indirect capital/paid up capital place of operation The PRC, 21 April 2000, limited liability company 100% — RMB213,044,797,828 Telecommunications operation in the PRC China Unicom Global Limited Hong Kong, 29 May 2015, 100% — HKD2,625,097,491 Investment holding limited company China Unicom (Hong Kong) Operations Hong Kong, 24 May 2000, Limited limited company China Unicom (Americas) Operations USA, 24 May 2002, Limited limited company China Unicom (Europe) Operations Limited The United Kingdom, 8 November 2006, limited company China Unicom (Japan) Operations Japan, 25 January 2007, Corporation limited company China Unicom (Singapore) Operations Pte Singapore, 5 August 2009, Limited limited company China Unicom (South Africa) Operations South Africa, 19 November 2012, (Pty) Limited limited liability company — — — — — — 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, Telecommunications GBP1 each operation in the United Kingdom 100% 1,000 shares, Telecommunications JPY366,000 each operation in Japan 100% 80,000,000 shares, Telecommunications RMB1 each operation in Singapore 100% 200 shares in total: Telecommunications 100 shares, ZAR1 each; 100 shares, ZAR512,063.34 each operation in South Africa Annual Report 2022 / 159 table column width 65pt For the year ended 31 December 2022 (All amounts in RMB millions unless otherwise stated) 18. INVESTMENTS IN SUBSIDIARIES (Continued) Name legal entity Direct Indirect capital/paid up capital place of operation Place and date of incorporation/ establishment and nature of Percentage of equity interests held Particular of issued share Principal activities and China Unicom (MYA) Operations The Republic of the Union of — 100% 2,150,000 shares, Communications relevant Company Limited Myanmar (“Myanmar”), 7 June 2013, limited liability company China Unicom (Australia) Operations Pty Australia, 27 May 2014, Limited limited liability company China Unicom (Russia) Operations Russia, 28 December 2016, Limited Liability Company limited liability company China Unicom (Brazil) Brazil, 23 June 2016, Telecommunications Limited limited liability company China Unicom (Brazil) Holdings Ltda. Brazil, 27 October 2017, limited liability company China Unicom Operations (Thailand) Thailand, 20 November 2017, Limited limited liability company China Unicom Operations (Malaysia) Malaysia, 10 November 2017, Sdn. Bhd. limited liability company China Unicom Operations Korea Korea, 24 November 2017, Co., Ltd limited liability company China Unicom (Vietnam) Operations Vietnam, 19 April 2018, Company Limited limited liability company China Unicom (Cambodia) Operations Cambodia, 11 May 2018, Co. Ltd limited liability company PT China Unicom Indonesia Operations Indonesia, 25 October 2019, limited liability company China Unicom (Philippines) Philippines, 6 November 2019, Operations Inc limited liability company China Unicom (Mexico), S.A.DE C.V. Mexico, 29 October 2021, limited liability company Unicom Vsens Telecommunications The PRC, 19 August 2008, Company Limited limited liability company 160 / China Unicom (Hong Kong) Limited — — — — — — — — — — — — — USD1 each services in Myanmar 100% 17,685,920 shares, Telecommunications AUD1 each operation in Australia 100% RUB127,435,000 Telecommunications service in Russia 100% R$21,165,840 Telecommunications service in Brazil 100% R$21,277,298 Investment holding 100% 1,040,000 shares, Telecommunications service Baht100 each in Thailand 100% 3,200,000 shares, Telecommunications service MYR1 each in Malaysia 100% 60,000 shares, Telecommunications service KRW5,000 each in Korea 100% VND2,276,000,000 Telecommunications service in Vietnam 100% 10,000 shares, Telecommunications service Riels4,000 each in Cambodia 100% 20,000,000,001 shares, Telecommunications service Rp1 each in Indonesia 100% 103,012 shares, Telecommunications service Php100 each in Philippines 100% Peso88,000,000 Telecommunications service in Mexico 100% RMB610,526,532 Sales of handsets, telecommunications equipment and provision of technical services in the PRC table column width 65ptNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 18. INVESTMENTS IN SUBSIDIARIES (Continued) Name legal entity Direct Indirect capital/paid up capital place of operation Place and date of incorporation/ establishment and nature of Percentage of equity interests held Particular of issued share Principal activities and China Unicom Digital Technology The PRC, 30 April 2006, — 100% RMB8,243,177,616 Provision of information Co., Ltd limited liability company communications technology services in the PRC China Unicom Online Information The PRC, 29 March 2006, — 100% RMB400,000,000 Provision of internet and Technology Company Limited limited liability company value-added telecommunications services in the PRC Beijing Telecom Planning and The PRC, 25 April 1996, — 100% RMB264,227,115 Provision of consultancy, Designing Institute Company Limited limited liability company survey, design and contract services relating to information projects and construction projects in the telecommunications industry in the PRC China Information Technology The PRC, 11 November 1991, — 75% RMB544,666,668 Provision of consultancy, Designing & Consulting Institute limited liability company Company Limited survey, design and contract services relating to information projects and construction projects in the telecommunications industry in the PRC China Unicom Information Navigation The PRC, 17 September 1998, — 100% RMB6,825,087,800 Provision of Company Limited limited liability company Huaxia P&T Project Consultation and The PRC, 5 March 1998, — 100% RMB50,100,000 Management Company Limited limited liability company telecommunications customer services in the PRC Provision of project consultation and monitoring and project bidding agency services in the PRC Provision of property services in the PRC Zhengzhou Kaicheng Industrial The PRC, 21 December 2005, Company Limited limited liability company Unicompay Company Limited The PRC, 11 April 2011, — — 100% RMB2,200,000 100% RMB250,000,000 Provision of e-payment limited liability company services in the PRC Annual Report 2022 / 161 table column width 65pt For the year ended 31 December 2022 (All amounts in RMB millions unless otherwise stated) 18. INVESTMENTS IN SUBSIDIARIES (Continued) Name legal entity Direct Indirect capital/paid up capital place of operation Place and date of incorporation/ establishment and nature of Percentage of equity interests held Particular of issued share Principal activities and Beijing Wo Digital Media Advertising The PRC, 21 July 2006, — 100% RMB20,000,000 Co., Ltd limited liability company Provision of advertising design, production, agency and publication in the PRC Guangdong Unicom Communication The PRC, 28 May 2013, — 100% RMB30,000,000 Provision of Construction Co., Ltd limited liability company China Unicom Intelligence Security The PRC, 15 August 2007, Technology Corporation Limited limited liability company Unicom Cloud Data Company Limited The PRC, 4 June 2013, limited liability company Unicom Innovation Investment The PRC, 29 April 2014, Company Limited limited liability company Xiaowo Technology Co. Ltd The PRC, 24 October 2014, limited liability company China Unicom Smart Connection The PRC, 7 August 2015, Technology Company Limited limited liability company Unicom Intelligent Network Ruixing The PRC, 26 September 2018, Technology (Beijing) Co., Ltd. limited liability company Finance Company The PRC, 17 June 2016, limited liability company China Unicom Innovation Investment The PRC, 28 January 2016, Company (Shenzhen) Limited limited liability company telecommunications network construction, maintenance and technical services in the PRC — — — — — — — — 100% RMB150,000,000 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% RMB3,540,000,000 Venture capital investment business in the PRC 100% RMB200,000,000 Provision of internet and value-added telecommunications services in the PRC 68.88% RMB246,796,148 Auto informatisation in the PRC 55.10% RMB10,000,000 Provision of technology promotion service of intelligent transportation system’s products in the PRC 91% RMB3,000,000,000 Provision of financial services in the PRC 100% RMB200,000 Venture capital investment business in the PRC 162 / China Unicom (Hong Kong) Limited table column width 65ptNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 18. INVESTMENTS IN SUBSIDIARIES (Continued) Name legal entity Direct Indirect capital/paid up capital place of operation Place and date of incorporation/ establishment and nature of Percentage of equity interests held Particular of issued share Principal activities and Lianchuangqianxian (Guizhou) The PRC, 8 October 2016, Technology Service Co., Ltd. limited liability company China Unicom Innovation Investment The PRC, 1 February 2016, (Shenzhen) Investment Centre limited partnership Unicom Big Data Co., Ltd. The PRC, 24 August 2017, limited liability company Liantong Travel Service (Beijing) The PRC, 30 September 2017, Company Limited limited liability company China Unicom (Guangdong) Industrial The PRC, 5 January 2017, Internet Company Limited limited liability company — — — — — 60% RMB1,000,000 Venture capital investment business in the PRC 100% RMB68,074,936 Venture capital investment business in the PRC 100% RMB500,000,000 Provision of data processing service in the PRC 100% RMB100,000,000 Provision of tourism and information services in the PRC 100% RMB150,000,000 Provision of information communications technology business in the PRC China Unicom (Zhejiang) Industry The PRC, 20 June 2017, — 100% RMB61,000,000 Provision of information Internet Company Limited limited liability company communications technology business in the PRC China Unicom (Shandong) Industrial The PRC, 3 March 2017, — 100% RMB100,000,000 Provision of information Internet Company Limited limited liability company communications technology business in the PRC China Unicom (Fujian) Industrial The PRC, 23 February 2018, — 100% RMB50,000,000 Provision of information Internet Company Limited limited liability company communications technology business in the PRC China Unicom (Shanxi) Industrial The PRC, 21 March 2018, — 100% RMB100,000,000 Provision of information Internet Company Limited limited liability company communications technology business in the PRC Annual Report 2022 / 163 table column width 65pt For the year ended 31 December 2022 (All amounts in RMB millions unless otherwise stated) 18. INVESTMENTS IN SUBSIDIARIES (Continued) Name legal entity Direct Indirect capital/paid up capital place of operation Place and date of incorporation/ establishment and nature of Percentage of equity interests held Particular of issued share Principal activities and China Unicom Xiongan Industrial The PRC, 25 April 2018, — 100% RMB724,342,600 Provision of information Internet Company Limited limited liability company communications technology business in the PRC China Unicom (Sichuan) Industrial The PRC, 29 March 2018, — 100% RMB100,000,000 Provision of information Internet Company Limited limited liability company communications technology business in the PRC China Unicom (Liaoning) Industrial The PRC, 28 March 2018, — 100% RMB50,000,000 Provision of information Internet Company Limited limited liability company communications technology business in the PRC China Unicom (Jiangsu) Industrial The PRC, 9 May 2018, — 100% RMB26,200,000 Provision of information Internet Company Limited limited liability company communications technology business in the PRC China Unicom (Shanghai) Industrial The PRC, 13 March 2018, limited — 100% RMB70,000,000 Provision of information Internet Company Limited liability company communications technology business in the PRC China Unicom (Heilongjiang) Industrial The PRC, 14 March 2018, — 100% RMB50,000,000 Provision of information Internet Company Limited limited liability company communications technology business in the PRC Henan Industrial Interconnection & The PRC, 30 May 2019, — 40% RMB90,000,000 Provision of information Technology Co, Ltd limited liability company communications technology business in the PRC China Unicom Video Technology The PRC, 17 January 2018, — 100% RMB100,000,000 Provision of technology Co., Ltd. limited liability company 164 / China Unicom (Hong Kong) Limited research and development of TV and mobile video, consultation disposal, promotion and value- added telecommunications services table column width 65ptNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 18. INVESTMENTS IN SUBSIDIARIES (Continued) Name legal entity Direct Indirect capital/paid up capital place of operation Place and date of incorporation/ establishment and nature of Percentage of equity interests held Particular of issued share Principal activities and China Unicom Internet of Things The PRC, 16 March 2018, — 100% RMB261,516,703 Provision of internet of Corporation Limited limited liability company things technology consultation and services in the PRC China Unicom High-tech Big Data The PRC, 29 March 2018, — 51% RMB10,000,000 Provision of big data service, Artificial Intelligence Technology limited liability company (Chengdu) Co., Ltd. cloud computation and infrastructure service in the PRC China Unicom iRead Science and The PRC, 28 April 2018, — 100% RMB51,000,000 Provision of internet and Culture Co., Ltd. limited liability company value-added telecommunications services in the PRC China Unicom WO Music & Culture The PRC, 8 May 2018, — 100% RMB100,000,000 Provision of internet Co., Ltd. limited liability company information technology services in the PRC China Unicom Leasing Co., Ltd. The PRC, 11 April 2018, 25% 75% RMB2,500,000,000 Provision of finance leasing limited liability company business in the PRC Yunjing Culture And Tourism The PRC, 27 February 2019, — 60% RMB25,000,000 Provision of tourism, big Technology Co., LTD limited liability company data business, data analysis, processing and application services in the PRC Yundun Intelligent Security Technology The PRC, 11 November 2019, — 51% RMB100,000,000 Provision of software Co., Ltd limited liability company development, technology promotion and development in the PRC Wobaifu Information Technology The PRC, 17 April 2020, — 100% RMB1,000,000 Provision of software and (Tianjin) Co., LTD limited liability company Changchun FAW Communications The PRC, 27 September 2002, Technology Co., Ltd. limited liability company Yichun Digital Economy Industry The PRC, 14 December 2020, Operation Co., Ltd limited liability company information technology services in the PRC — — 51% RMB86,458,636 Telecommunications operation in the PRC 51% RMB22,650,000 Provision of telecommunication, television broadcasting and satellite transmission services in the PRC Annual Report 2022 / 165 table column width 65pt For the year ended 31 December 2022 (All amounts in RMB millions unless otherwise stated) 18. INVESTMENTS IN SUBSIDIARIES (Continued) Name legal entity Direct Indirect capital/paid up capital place of operation Place and date of incorporation/ establishment and nature of Percentage of equity interests held Particular of issued share Principal activities and Lianchuang Weilai (Wuhan) Intelligent The PRC, 29 July 2020, — 50.98% RMB1,760,000,000 Provision of investment Manufacturing Industry Investment limited liability company business in the PRC Partnership (Limited Partnership) Hebei Sign Technology Co., Ltd. The PRC, 22 October 2021, — 70% RMB10,000,000 Provision of other limited liability company technology promotion service in the PRC China Unicom Spirit Realm Video The PRC, 9 July 2021, — 100% RMB500,000 Provision of internet and (Jiangxi) Technology Company limited liability company Limited China Unicom Innovation Investment The PRC, 6 June 2014, Company (Shanghai), Ltd limited liability company China Unicom Western Innovation The PRC, 6 September 2021, Institute limited liability company China Unicom Zhiyu (Shanghai) The PRC, 5 June 2018, Information Service and Technology limited liability company Co., Ltd China Unicom Zhiyu (Shanghai) The PRC, 2 April 2019, Innovation Incubator Management limited liability company Co., Ltd Lian Kuan (Wuhan) Investment Center The PRC, 24 July 2020, (Limited Partnership) limited liability company Lingang Data Intelligence Technology The PRC, 29 December 2021 (Shanghai) Co., Ltd. limited liability company value-added telecommunications services in the PRC — — — — — — 70% RMB40,000,000 Venture capital 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 incubator management in the PRC 72.60% RMB10,500,000 Provision of investment business in the PRC 100% RMB237,450,000 Provision of internet data and security services; cloud computing services in the PRC China Unicom Intelligence Technology The PRC, 30 May 2022, — 100% RMB169,250,000 Provision of internet data Industrial Co., Ltd limited liability company services, 5G Communications technology services and AI industry application services in the PRC 166 / China Unicom (Hong Kong) Limited table column width 65ptNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 18. INVESTMENTS IN SUBSIDIARIES (Continued) Name legal entity Direct Indirect capital/paid up capital place of operation Place and date of incorporation/ establishment and nature of Percentage of equity interests held Particular of issued share Principal activities and China Unicom (Beijing) Industrial The PRC, 21 November 2022, — 100% Not Applicable Provision of information Internet Co., Ltd limited liability company communications technology business in the PRC China Unicom (Jilin) Industrial Internet The PRC, 8 August 2022, — 100% RMB50,000,000 Provision of information Company Limited limited liability company communications technology business in the PRC China Unicom (Anhui) Industry Internet The PRC, 13 July 2022, — 100% Not Applicable Provision of information Company Limited limited liability company communications technology business in the PRC Unicom (Jiangxi) Industrial Internet The PRC, 16 November 2022, — 100% Not Applicable Provision of information Co., Ltd limited liability company communications technology business in the PRC China Unicom (Hubei) Industrial Internet The PRC, 26 September 2022, — 100% RMB50,000,000 Provision of information Company Limited limited liability company communications technology business in the PRC China Unicom (Hunan) Industrial The PRC, 13 September 2022, — 100% Not Applicable Provision of information Internet Co., Ltd limited liability company communications technology business in the PRC China Unicom (Henan) Industrial The PRC, 22 August 2022, — 100% Not Applicable Provision of information Internet Company Limited limited liability company communications technology business in the PRC China Unicom (Hainan) Industrial The PRC, 19 July 2022, — 100% RMB50,000,000 Provision of information Internet Company Limited limited liability company communications technology business in the PRC Yunjin Intelligence Technology The PRC, 6 June 2022, — 45% RMB42,500,000 Provision of internet data Corporation Limited limited liability company services and technology development in the PRC Annual Report 2022 / 167 table column width 65pt For the year ended 31 December 2022 (All amounts in RMB millions unless otherwise stated) 18. INVESTMENTS IN SUBSIDIARIES (Continued) Name entity Direct Indirect capital/paid up capital of operation Place and date of incorporation/ establishment and nature of legal Percentage of equity interests held Particular of issued share Principal activities and place Chongqing Digital Intelligence The PRC, 8 August 2022, — 70% RMB84,000,000 Provision of technology Integration Innovation Technology limited liability company Co., LTD Unicom (Langfang) Cloud Data The PRC, 31 October 2022, — 100% RMB5,000,000 Company Limited limited liability company development and application, integrated innovation and operation in the PRC Provision of type 1 value-added telecommunications services and internet information services etc. in the PRC Unicom (Zhejiang) Cloud Data Company The PRC, 25 May 2022, — 100% RMB40,000,000 Provision of big data Limited limited liability company services and information technology services in the PRC None of the subsidiaries had issued any debt securities at the end of the year except for CUCL, which has issued short-term commercial papers, in which the Group has no interest. Details of the issued debt securities are disclosed in Note 40. 19. INTEREST IN ASSOCIATES Share of net assets 2022 2021 42,469 41,278 The following list contains the particulars of a material associate as at 31 December 2022: Name Form of business structure Place of incorporation and business Proportion of ownership interest held by a subsidiary Paid up capital Principal activities Tower Company Incorporated The PRC 20.65% RMB176,008,471,024 Construction, maintenance and operation of communications towers in the PRC (Note 45.2) The above associate is accounted for using the equity method in the consolidated financial statements. 168 / China Unicom (Hong Kong) Limited table column width 65ptNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 19. INTEREST IN ASSOCIATES (Continued) Summarised financial information of the material associate, adjusted for any differences in accounting policies, and reconciled to the carrying amount in the consolidated financial statements, are disclosed below: Current assets Non-current assets Current liabilities Non-current liabilities Equity Revenue Profit for the year Total comprehensive income for the year Reconciled to the Group’s interest in the associate: Net assets of the associate The Group’s effective interest Adjustment for the remaining balance of the deferred gain from the transactions with Tower Company Tower Company 2022 2021 49,706 255,854 (65,158) (46,811) 48,344 274,915 (76,182) (57,723) (193,591) (189,354) 92,170 8,787 8,787 86,585 7,328 7,327 193,591 20.65% 189,354 20.65% 39,977 39,102 (740) (1,001) Carrying amount in the consolidated financial statements 39,237 38,101 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 2022 As at 31 December 2021 Carrying amount Fair value Carrying amount Fair value Interest in listed associate — Tower Company 39,237 27,273 38,101 25,556 Annual Report 2022 / 169 table column width 65pt For the year ended 31 December 2022 (All amounts in RMB millions unless otherwise stated) 19. INTEREST IN ASSOCIATES (Continued) Aggregate information of associates that are not individually material: The Group’s share of profit The Group’s share of other comprehensive income The Group’s share of total comprehensive income 2022 2021 (5) 2 (3) 88 — 88 Aggregate carrying amount of the Group’s interest in these associates 3,232 3,177 20. INTEREST IN JOINT VENTURES Share of net assets 2022 2021 8,582 7,138 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 2022: Name structure and business held by a subsidiary Paid up capital Principal activities Form of business Place of incorporation ownership interest Proportion of Merchants Union Consumer Finance Incorporated The PRC 50% RMB10,000,000,000 Consumer finance consulting Company Limited (“MUCFC”) in the PRC 170 / China Unicom (Hong Kong) Limited table column width 65ptNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 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 2022 2021 164,346 (147,279) (17,067) 149,698 (135,661) (14,037) 17,501 3,329 3,329 22,079 (4,175) (500) 15,933 3,063 3,063 20,598 (4,555) (477) 17,067 50% 14,037 50% Carrying amount in the consolidated financial statements 8,533 7,019 Aggregate information of joint ventures that are not individually material: The Group’s share of profit The Group’s share of other comprehensive income The Group’s share of total comprehensive income Aggregate carrying amount of the Group’s interest in these joint ventures 2022 2021 (70) — (70) 49 (84) — (84) 119 Annual Report 2022 / 171 table column width 65pt For the year ended 31 December 2022 (All amounts in RMB millions unless otherwise stated) 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 2022 2021 263 69 332 (271) 408 69 477 (406) 61 71 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 obtain 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 Note 2022 2021 Advances received from customers for future services (i) Others 43,437 1,277 44,446 1,258 44,714 45,704 (i) Contract liabilities primarily relate 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 2021 was recognised as revenue for the year ended 31 December 2022. 172 / China Unicom (Hong Kong) Limited table column width 65ptNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 22. CONTRACT COSTS Direct incremental costs of broadband and internet protocol television (“IPTV”) service Sales commissions Note 2022 2021 (i) (ii) 5,557 300 3,277 748 5,857 4,025 (i) Direct incremental costs for activating broadband and IPTV service 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 service recognised in profit or loss during the year was RMB3,659 million (2021: RMB2,688 million). There was no significant impairment in relation to the capitalised costs as at 31 December 2022 (2021: 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 RMB450 million (2021: RMB939 million). There was no significant impairment in relation to capitalised costs as at 31 December 2022 (2021: Nil). 23. FINANCIAL ASSETS MEASURED AT FAIR VALUE Note 2022 2021 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) (i) (ii) (iii) (ii) (iii) 1,847 1,130 1,132 2,006 803 906 4,109 3,715 2,955 16,638 3,287 25,724 19,593 29,011 23,702 32,726 Annual Report 2022 / 173 table column width 65pt For the year ended 31 December 2022 (All amounts in RMB millions unless otherwise stated) 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 2022 2021 42 120 1,613 114 117 1,786 103 1,847 2,006 (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 2022 2021 9,921 4,778 7,403 4,565 14,699 11,968 Note 2022 2021 (i) (ii) 16,469 13,367 2,049 186 1,738 1,361 171 2,783 20,442 17,682 174 / China Unicom (Hong Kong) Limited table column width 65ptNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 25. OTHER ASSETS (Continued) Intangible assets (i) Cost: At 1 January 2021 Additions Transfer from CIP Disposals Computer software 32,004 692 6,004 (5,735) Others Total 3,887 34 340 (466) 35,891 726 6,344 (6,201) At 31 December 2021 32,965 3,795 36,760 Additions Transfer from CIP Disposals 393 4,109 (1,920) 158 3,475 (263) 551 7,584 (2,183) At 31 December 2022 35,547 7,165 42,712 Accumulated amortisation and impairment: At 1 January 2021 Amortisation charge for the year Disposals (22,657) (3,491) 5,171 (2,260) (476) 320 (24,917) (3,967) 5,491 At 31 December 2021 (20,977) (2,416) (23,393) Amortisation charge for the year Disposals (3,631) 1,886 (1,335) 230 (4,966) 2,116 At 31 December 2022 (22,722) (3,521) (26,243) Net book value: At 31 December 2022 12,825 3,644 16,469 At 31 December 2021 11,988 1,379 13,367 (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). Annual Report 2022 / 175 table column width 65pt For the year ended 31 December 2022 (All amounts in RMB millions unless otherwise stated) 26. INVENTORIES Handsets and other telecommunication products Others 27. ACCOUNTS RECEIVABLE Accounts receivable Less: Credit loss allowance 2022 2021 1,450 432 1,410 436 1,882 1,846 2022 2021 40,769 (14,438) 28,127 (10,170) 26,331 17,957 The gross carrying amount of accounts receivable from contracts with customers amounted to RMB40,670 million as at 31 December 2022 (2021: RMB28,062 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 2022 2021 10,609 5,135 9,070 1,517 10,620 3,061 3,519 757 26,331 17,957 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 positions 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. 176 / China Unicom (Hong Kong) Limited table column width 65ptNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 27. ACCOUNTS RECEIVABLES (Continued) The Group measures loss allowances for accounts receivable at an amount equal to lifetime ECLs, which is calculated using a provision matrix for those assessed on collective basis. 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 2022: 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 % 7 41 90 100 3,018 1,406 729 2,333 (211) (583) (656) (2,333) 7,486 (3,783) Expected Gross carrying Loss loss rate amount allowance % 3 21 65 100 100 8,108 16,666 4,347 1,674 2,488 (221) (3,436) (2,836) (1,674) (2,488) 33,283 (10,655) Annual Report 2022 / 177 table column width 65pt For the year ended 31 December 2022 (All amounts in RMB millions unless otherwise stated) 27. ACCOUNTS RECEIVABLES (Continued) 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) 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. 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 178 / China Unicom (Hong Kong) Limited 2022 2021 10,170 5,519 (1,251) 9,722 2,564 (2,116) 14,438 10,170 table column width 65ptNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 27. ACCOUNTS RECEIVABLES (Continued) 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 2022 2021 (i) 3,962 778 4,628 8,285 70 3,432 3,935 766 3,581 6,193 25 3,425 21,155 17,925 (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 2022 and 2021, there was no significant impairment for the prepayments and other current assets. 29. CASH AND CASH EQUIVALENTS AND OTHER CASH FLOW INFORMATION (a) Cash and cash equivalents 2022 2021 Cash at bank and in hand 55,297 34,280 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. Cash and cash equivalents include demand deposits and short term deposits with original maturity of three months or less for the purpose of meeting the Group’s short term cash commitments, which carry interest at market rates ranging from 0.01% to 1.50% (2021: 0.01% to 1.50%). Annual Report 2022 / 179 table column width 65pt For the year ended 31 December 2022 (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 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 Long-term Commercial Promissory Corporate Lease Other bank loans bank loans papers notes bonds liabilities borrowings Total (Note 39) (Note 33) (Note 40) (Note 34) (Note 35) (Note 36) At 1 January 2022 385 2,207 6,875 1,004 2,039 22,559 7,755 42,824 Changes from financing cash flows: Proceeds from short-term bank loans Proceeds from commercial papers Loans from a related party Repayment of short-term bank loans Repayment of commercial papers Repayment of promissory notes Repayment of corporate bonds Repayment of long-term bank loans Payment of issuing expense for commercial papers Capital element of lease rentals paid Net deposits with Finance Company by related parties 330 — — (385) — — — — — — — — — — — — — — (420) — — — — 5,000 — — (6,800) — — — (5) — — — — — — — (1,000) — — — — — — — — — — — (2,000) — — — — — — — — — — — — — (13,373) — — 471 — — — — — — — 330 5,000 471 (385) (6,800) (1,000) (2,000) (420) (5) (13,373) — 621 621 Total changes from financing cash flows (55) (420) (1,805) (1,000) (2,000) (13,373) 1,092 (17,561) Exchange adjustments Other changes: Increase in lease liabilities from entering into new leases/lease modifications during the year Decrease due to termination of lease contracts Others Total other changes — — — 1 1 — — — — — — — — — — — 39,997 (259) 22 39,760 — — 109 109 — — (45) (45) — — (39) 39,997 (259) — (39) 39,738 — — (4) (4) — — 48,924 8,847 65,023 At 31 December 2022 331 1,896 5,025 180 / China Unicom (Hong Kong) Limited table column width 65ptNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 29. CASH AND CASH EQUIVALENTS AND OTHER CASH FLOW INFORMATION (Continued) (b) Reconciliation of liabilities arising from financing activities (Continued) Short-term Long-term Commercial Promissory Corporate Lease Other bank loans bank loans papers notes bonds liabilities borrowings Total (Note 39) (Note 33) (Note 40) (Note 34) (Note 35) (Note 36) 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) — — — — — — — — — — — — — — 300 — 207 — — — — (2,507) — 685 6,800 207 (740) (7,000) (1,000) (763) (2,507) (5) (12,727) — (12,727) — 980 980 (1,000) (12,727) (1,020) (16,070) — — — (31) — — 40 40 7,911 (586) — — — 563 7,911 (586) 790 7,325 563 8,115 At 31 December 2021 385 2,207 6,875 1,004 2,039 22,559 7,755 42,824 Annual Report 2022 / 181 table column width 65pt For the year ended 31 December 2022 (All amounts in RMB millions unless otherwise stated) 30. SHARE CAPITAL Issued and fully paid: Number of shares millions Share capital At 1 January 2021, at 31 December 2021 and at 31 December 2022 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 2021 254,056 (9,486) Total comprehensive income for the year Dividends relating to 2020 final Dividends relating to 2021 interim — — — 114 — — 572 — — — 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 Total comprehensive income for the year Dividends relating to 2021 final Dividends relating to 2022 interim — — — (173) — — — — — 9,265 (2,937) (5,049) 9,092 (2,937) (5,049) Balance at 31 December 2022 254,056 (9,545) 572 15,447 260,530 (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. 182 / China Unicom (Hong Kong) Limited table column width 65ptNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31. RESERVES (Continued) (b) Nature and purpose (Continued) (i) Statutory reserves (Continued) Accordingly, CUCL appropriated approximately RMB1,471 million (2021: approximately RMB1,384 million) to the statutory reserve fund for the year ended 31 December 2022. 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 2022 and 2021, 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 STA 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 shall be transferred 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. Annual Report 2022 / 183 table column width 65pt For the year ended 31 December 2022 (All amounts in RMB millions unless otherwise stated) 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 the annual general meeting held on 12 May 2022, the shareholders of the Company approved the payment of a final dividend of RMB0.096 per ordinary share for the year ended 31 December 2021, totaling approximately RMB2,937 million which has been reflected as a reduction of retained profits for the year ended 31 December 2022. At a meeting held on 8 August 2022, the Board of Directors of the Company declared the payment of 2022 interim dividend of RMB0.165 per ordinary share to the shareholders totalling approximately RMB5,049 million. At a meeting held on 8 March 2023, the Board of Directors of the Company proposed the payment of a final dividend of RMB0.109 per ordinary share to the shareholders for the year ended 31 December 2022 totaling approximately RMB3,335 million. The proposed dividend has not been reflected as a dividend payable in the consolidated financial statements as at 31 December 2022, but will be reflected in the consolidated financial statements for the year ending 31 December 2023. 2022 2021 Declared and paid interim dividend: RMB0.165 (2021: RMB0.120) per ordinary share by the Company 5,049 3,672 Proposed final dividend: RMB0.109 (2021: RMB0.096) per ordinary share by the Company 3,335 2,937 8,384 6,609 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 STA of the PRC, pursuant to which the Company qualifies as a PRC TRE from 1 January 2008. Therefore, as at 31 December 2022, 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. 184 / China Unicom (Hong Kong) Limited table column width 65ptNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 33. LONG-TERM BANK LOANS Interest rates and final maturity 2022 2021 RMB denominated bank loans Fixed interest rates ranging from 1.08% to 1.20% (2021: 1.08% to 1.20%) per annum with maturity through 2036 (2021: maturity through 2036) 1,714 2,015 US dollars denominated Fixed interest rates ranging from Nil to 1.55% bank loans (2021: Nil to 1.55%) per annum with maturity through 2039 (2021: maturity through 2039) 171 178 Euro denominated bank loans Fixed interest rates ranging from 1.10% to 2.50% (2021: 1.10% to 2.50%) per annum with maturity through 2034 (2021: maturity through 2034) 11 14 Sub-total Less: Current portion 1,896 (368) 2,207 (372) 1,528 1,835 As at 31 December 2022, long-term bank loans of approximately RMB42 million (2021: approximately RMB42 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 2022 2021 368 354 691 483 1,896 (368) 372 362 830 643 2,207 (372) 1,528 1,835 Annual Report 2022 / 185 table column width 65pt For the year ended 31 December 2022 (All amounts in RMB millions unless otherwise stated) 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, and was fully repaid in November 2022. 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, and was fully repaid in June 2022. 36. LEASE LIABILITIES At 31 December 2022 and 2021, the lease liabilities were repayable as follows: 2022 2021 Present value Present value of the Total of the Total minimum minimum minimum minimum lease lease lease lease payments payments payments payments Within 1 year 12,495 12,750 12,144 12,395 After 1 year but within 2 years After 2 years but within 5 years After 5 years 10,437 25,026 966 11,055 28,272 1,313 4,210 5,228 977 4,458 5,882 1,317 36,429 40,640 10,415 11,657 Total lease liabilities 48,924 53,390 22,559 24,052 Less: total future interest expenses Present value of lease liabilities (4,466) 48,924 (1,493) 22,559 The total cash outflow for leases incurred by the Group for the year ended 31 December 2022 was RMB23,048 million (2021: RMB20,753 million). 186 / China Unicom (Hong Kong) Limited table column width 65ptNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 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 2022 2021 6,951 5,927 1,278 1,170 937 1,795 2,448 2,732 (925) (642) (721) (987) (1,567) (1,708) 7,832 6,951 Note 2022 2021 (a) (b) 2,493 1,218 2,493 1,124 3,711 3,617 (2,493) (2,519) 1,218 1,098 Annual Report 2022 / 187 table column width 65pt For the year ended 31 December 2022 (All amounts in RMB millions unless otherwise stated) 38. OTHER OBLIGATIONS (Continued) (a) One-off cash housing subsidies Certain staff quarters, prior to 1998, were sold to certain of the Group’s employees at preferential prices, subject to a number of eligibility requirements. In 1998, the State Council issued a circular which stipulated that the sale of quarters to employees at preferential prices should be terminated. In 2000, the State Council issued a further circular stating that cash subsidies should be made to certain eligible employees following the withdrawal of the allocation of staff quarters. However, the specific timetable and procedures for the implementation of these policies were to be determined by individual provincial or municipal governments based on the particular situation of the provinces or municipality. Based on the relevant detailed local government regulations promulgated, certain entities within the Group adopted cash housing subsidy plans. In accordance with these plans, for those eligible employees who had not been allocated with quarters or who had not been allocated with quarters up to the prescribed standards before the discounted sales of quarters were terminated, the Group determined to pay them one-off cash housing subsidies based on their years of service, positions and other criteria. Based on the available information, the Group estimated the required provision for these cash housing subsidies amounted to RMB4,142 million, which was charged to the 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 2022, the Group’s unpaid one-off cash housing subsidies amounted to approximately RMB2,493 million (31 December 2021: RMB2,493 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. (b) 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 contributions was classified as financial liabilities by the Group. 39. SHORT-TERM BANK LOANS Interest rates and final maturity 2022 2021 RMB denominated bank loans Fixed interest rates ranging from 1.65%- 2.00% (2021: 1.80%–1.85%) per annum with maturity through 2023 (2021: maturity through 2022) 331 385 At 31 December 2022 and 2021, all short-term bank loans were unsecured. 188 / China Unicom (Hong Kong) Limited table column width 65ptNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 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. 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, and was fully repaid in March 2022. 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. On 2 September 2022, CUCL issued tranche one of 2022 short term commercial papers in an amount of RMB5 billion, with a maturity period of 365 days from the date of issue and which carries interest at 1.73% per annum. Annual Report 2022 / 189 table column width 65pt For the year ended 31 December 2022 (All amounts in RMB millions unless otherwise stated) 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 2022 2021 85,475 3,966 4,975 6,808 12,379 8,402 2,311 20,177 10,345 75,014 4,281 5,128 6,587 13,196 5,822 3,709 19,098 7,289 154,838 140,124 The aging analysis of accounts payable and accrued liabilities based on the billing date is as follows: Less than six months Six months to one year More than one year 2022 2021 131,253 8,018 15,567 119,332 7,199 13,593 154,838 140,124 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. 190 / China Unicom (Hong Kong) Limited table column width 65ptNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 42. MUTUAL INVESTMENT OF THE COMPANY AND TELEFÓNICA IN EACH OTHER (Continued) 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 2022, the related financial assets measured at FVOCI amounted to approximately RMB1,613 million (2021: approximately RMB1,786 million). For the year ended 31 December 2022, the decrease in fair value of the financial assets measured at FVOCI was approximately RMB173 million (2021: increase of approximately RMB114 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 2022, 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) The closing price of the shares on the SEHK on the offer date in respect of the share options; and (ii) The average closing price of the shares on the SEHK for the five trading days immediately preceding the offer date. The option period commences on any day after the date on which such share option is offered, but may not exceed 10 years from the offer date. No share options had been granted since adoption of the 2014 Share Option Scheme. No options are outstanding as at 31 December 2022 and 2021. 44. RESTRICTED A-SHARE INCENTIVE SCHEME The Phase I 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. Annual Report 2022 / 191 table column width 65pt For the year ended 31 December 2022 (All amounts in RMB millions unless otherwise stated) 44. RESTRICTED A-SHARE INCENTIVE SCHEME (Continued) The Phase I Restricted A-Share Incentive Scheme (Continued) 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, the third Lock-Up Period of approximately 4 years for the first batch as well as the second Lock-Up Period of approximately 3 years for the second batch have expired in April 2022. During the year ended 31 December 2022, with the fulfilment of the vesting conditions, the Phase I Restricted Shares of 206,767,725 (2021: 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 2022, the Phase I Restricted Shares of 25,296,975 (2021: 24,202,275) were forfeited and repurchased. The Phase II Restricted A-Share Incentive Scheme Pursuant to the share incentive scheme (Phase II) of A Share Company (the “Phase II Restricted A-Share Incentive Scheme”), approximately 838 million restricted shares of A Share Company (the “Phase II Restricted Shares”) were approved for granting to the core employees of the Group, the granted Phase II Restricted Shares of 838,340,000 were subscribed by the participants on 1 November 2022 (the “Grant Date”), with a subscription price of RMB2.48 per share. The fair value of the Phase II Restricted Shares granted under the Grant Date is RMB0.93 per share, as determined based on the difference between the market price of A Share Company of RMB3.41 per share at the Grant Date, and the subscription price of RMB2.48 per share. The Phase II Restricted Shares are subject to various Lock-Up Periods of approximately 2 years, 3 years and 4 years, respectively, immediately from the Grant Date. During the Lock-Up Period, these shares are not transferrable, nor subject to any guarantee or indemnity. The Phase II 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 II Restricted Shares granted upon the expiry of each of the Lock-Up Period. 192 / China Unicom (Hong Kong) Limited table column width 65ptNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 44. RESTRICTED A-SHARE INCENTIVE SCHEME (Continued) The Phase II Restricted A-Share Incentive Scheme (Continued) Subject to fulfilment of all service and performance conditions under the Phase II 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 “Phase II vesting conditions”), the restriction over the Phase II 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 Phase II vesting conditions are not fulfilled and hence the Phase II Restricted Shares cannot be unlocked, A Share Company shall repurchase the Phase II Restricted Shares based on the lower of the subscription price from the participants and the market price at the time of repurchase. For the year ended 31 December 2022, the Group recognised share-based payment expenses and other reserves of RMB55 million under the Phase I and Phase II Restricted A-Share Incentive Schemes (2021: RMB136 million). 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-owned enterprises, 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. Annual Report 2022 / 193 table column width 65pt For the year ended 31 December 2022 (All amounts in RMB millions unless otherwise stated) 45. MATERIAL RELATED PARTY TRANSACTIONS (Continued) 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 2022 2021 Transactions with Unicom Group and its subsidiaries: Charges for value-added telecommunications services Rental charges for short-term property leasing and related services Charges for use of telecommunications resources and related services Charges for engineering design and construction and IT 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) 130 274 1,056 1,039 234 270 2,434 79 137 3,026 1,638 121 2,337 86 28 2,587 1,224 193 11,800 11,400 17,600 323 11,500 357 194 / China Unicom (Hong Kong) Limited table column width 65ptNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 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) (i) On 21 October 2019, CUCL and Unicom Group entered into the “2020–2022 Comprehensive Services Agreement” to renew certain continuing connected transactions. “2020–2022 Comprehensive Services Agreement” has a term of three years commencing on 1 January 2020 and expired on 31 December 2022. On 28 October 2022, CUCL and Unicom Group entered into the “2023–2025 Comprehensive Services Agreement”, and Finance Company and Unicom Group entered into the “2023–2025 Financial Services Agreement”. Pursuant to the “2023–2025 Comprehensive Services Agreement”, CUCL and Unicom Group agreed to provide services to each other or by one to the other, including ( i) use of telecommunications resources; (ii) property leasing; (iii) value-added telecommunications services; (iv) materials procurement services; (v) engineering design and construction and IT services; (vi) ancillary telecommunications services; (vii) comprehensive support services and (viii) shared services. Pursuant to the “2023–2025 Financial Services Agreement”, Finance Company agreed to provide financial services to Unicom Group. (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. Annual Report 2022 / 195 table column width 65pt For the year ended 31 December 2022 (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) (a) Recurring transactions (Continued) (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 2022 and 2021, the services charges paid by Unicom Group to CUCL was negligible. 196 / China Unicom (Hong Kong) Limited table column width 65ptNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 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. Annual Report 2022 / 197 table column width 65pt For the year ended 31 December 2022 (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) (a) Recurring transactions (Continued) (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. (b) Amounts due from Unicom Group and its subsidiaries Amount due from Unicom Group as at 31 December 2022 included loans from Finance Company to Unicom Group of RMB4,600 million in total with maturity period of one year and respective floating interest rate of Loan Prime Rate (“LPR”) published by the National Interbank Funding Center (“NIFC”) (2021: RMB10,400 million in total with maturity period of one year and respective floating interest rate of LPR published by the NIFC). 198 / China Unicom (Hong Kong) Limited table column width 65ptNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 45. MATERIAL RELATED PARTY TRANSACTIONS (Continued) 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 applicable to the leased tower portfolio as confirmed by both parties are effective from 1 January 2018 for a period of five years. On 13 December 2022, the Board of Directors of the Company approved CUCL and Tower Company to sign the Commercial Pricing Agreement and the Service Agreement, and the material terms of the Commercial Pricing Agreement and the Service Agreement have been agreed and finalised, in which CUCL leases assets and receives services provided by Tower Company, including tower products, indoor distribution system products, transmission products and service products. The agreements further reduced the products pricing and increased the co-tenancy discount rates offered to the Group. The term of each of the Commercial Pricing Agreement and the Service Agreement is five years, effective from 1 January 2023 to 31 December 2027. Annual Report 2022 / 199 table column width 65pt For the year ended 31 December 2022 (All amounts in RMB millions unless otherwise stated) 45. MATERIAL RELATED PARTY TRANSACTIONS (Continued) 45.2 Related party transactions with Tower Company (Continued) (a) Related party transactions (Continued) (i) Lease of the tower assets and other related services (Continued) 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 RMB37,814 million (2021: RMB12,407 million), and a right-of-use asset with the balance of RMB37,617 million (2021: RMB11,807 million) as of 31 December 2022. In addition, the Group recognised additions of right-of-use assets in 2022 amounting to RMB33,773 million (2021:RMB2,737 million), recorded depreciation of right-of-use asset of RMB7,840 million (2021: RMB7,480 million), interest expense of RMB368 million (2021: RMB575 million), and variable lease payments and other related service charges of RMB11,070 million (2021: RMB10,900 million) in the consolidated statement of income for the year ended 31 December 2022. 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 2022 was RMB8,522 million (2021: RMB6,102 million). (ii) Income from data and internet application services and engineering design and construction services The Group provided data and internet application services and engineering design and construction services, including system integration and engineering design services to Tower Company. Except as mentioned in Note 45.2(a)(i), amounts due from/to Tower Company are unsecured, interest- free, repayable on demand/on contract terms with Tower Company as described above. 200 / China Unicom (Hong Kong) Limited table column width 65ptNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 45. MATERIAL RELATED PARTY TRANSACTIONS (Continued) 45.3 Other related party transactions with Unicom Group and its subsidiaries (a) Related party transactions Note 2022 2021 Transactions with Unicom Group and its subsidiaries: Interest expenses on unsecured entrusted loan Lending of loan Repayment of loan Net deposits with Finance Company Interest expenses on the deposits in Finance Company (i) (i) (i) (ii) (ii) 32 471 — 631 73 61 207 2,507 978 80 (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 in June 2021. 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 in September 2021. On 27 December 2022, the Group borrowed an unsecured entrusted loan from Unicom Group of RMB300 million with a maturity period of 3 years and interest rate at 2.90% per annum. On 28 December 2022, the Group borrowed an unsecured entrusted loan from Unicom Group of RMB171 million with a maturity period of 1 year and interest rate at 2.90% per annum. (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. Annual Report 2022 / 201 table column width 65pt For the year ended 31 December 2022 (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 Amounts due to Unicom Group and its subsidiaries as at 31 December 2022 included a balance of deposits received by Finance Company from Unicom Group and its subsidiaries of RMB6,721 million (2021: RMB6,090 million) with interest rates ranging from 0.42% to 2.75% per annum for saving and deposits of different terms. Amounts due to Unicom Group and its subsidiaries as at 31 December 2022 included an unsecured entrusted loan from A Share Company of RMB742 million (2021: RMB742 million) with a maturity period of 5 years and interest rate at 4.28% per annum, unsecured entrusted loans from Unicom Group of RMB300 million (2021: Nil) with a maturity period of 3 years and interest rate at 2.90% per annum and an unsecured entrusted loan from Unicom Group of RMB171 million with a maturity period of 1 year and interest rate at 2.90% per annum (2021: Nil). 46. CONTINGENCIES AND COMMITMENTS 46.1 Capital commitments As at 31 December 2022 and 2021, the Group had capital commitments, mainly in relation to the construction of telecommunications network, as follows: 2022 2021 Land and Land and buildings Equipment Total buildings Equipment Total Authorised and contracted for Authorised but not contracted for 3,405 7,119 30,193 36,327 33,598 43,446 2,192 8,154 23,921 45,654 26,113 53,808 10,524 66,520 77,044 10,346 69,575 79,921 46.2 Contingent liabilities As at 31 December 2022, the Group had no material contingent liabilities and no material financial guarantees issued. 202 / China Unicom (Hong Kong) Limited table column width 65ptNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 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 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 As at 31 December 2022 2021 2 237,426 12,230 28 1,613 1 237,426 11,644 43 1,786 251,299 250,900 156 8,774 27 321 161 7,670 52 764 9,278 8,647 260,577 259,547 254,056 (8,973) 3,335 12,112 254,056 (8,800) 2,937 11,231 260,530 259,424 Annual Report 2022 / 203 table column width 65pt For the year ended 31 December 2022 (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 Total liabilities As at 31 December 2022 2021 18 4 22 9 16 25 47 16 4 20 24 79 103 123 Total equity and liabilities 260,577 259,547 Net current assets 9,253 8,544 Total assets less current liabilities 260,552 259,444 The Company’s statement of financial position was approved and authorised for issue by the Board of Directors on 8 March 2023 and signed on behalf of the Board of Directors by: Liu Liehong Li Yuzhuo Chairman and Chief Executive Officer Executive Director and Chief Financial Officer 204 / China Unicom (Hong Kong) Limited table column width 65ptNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 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 2022. For details, please refer to Note 32. 49. APPROVAL OF FINANCIAL STATEMENTS The consolidated financial statements were approved by the Board of Directors on 8 March 2023. Annual Report 2022 / 205 table column width 65pt FINANCIAL SUMMARY For the five-year ended 31 December 2022 (All amounts in RMB millions, except per share data) Selected financial summary for 2018 to 2022, including selected consolidated statement of income data and consolidated statement of financial position data for 2018, 2019, 2020, 2021 and 2022 were prepared in accordance with HKFRSs. RESULTS Selected Statement of Income Data 2022 2021 2020 2019 2018 Revenue 354,944 327,854 303,838 290,515 290,877 Interconnection charges Depreciation and amortisation Network, operation and support expenses Employee benefit expenses Costs of telecommunications products sold Other operating expenses Finance costs Interest income Share of net profit of associates Share of net profit of joint ventures Other income — net Profit before income tax Income tax expenses (10,947) (86,829) (56,425) (60,726) (34,720) (92,957) (1,095) 1,747 2,153 1,593 3,850 20,588 (3,751) (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) Profit for the year 16,837 14,507 12,577 11,372 10,257 Profit attributable to: Equity shareholders of the Company Non-controlling interests 16,745 92 14,368 139 12,493 84 11,330 42 10,197 60 Profit for the year 16,837 14,507 12,577 11,372 10,257 Earnings per share for profit attributable to equity shareholders of the Company: Basic earnings per share (RMB) Diluted earnings per share (RMB) 206 / China Unicom (Hong Kong) Limited 0.55 0.55 0.47 0.47 0.41 0.41 0.37 0.37 0.33 0.33 table column width 65pt 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 2022 2021 2020 2019 2018 367,401 384,475 352,433 59,227 23,702 146,243 26,331 55,297 642,663 36,429 250,870 154,838 331 12,495 5,025 — — 368 1,528 — — 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 — — 364,187 37,960 27,682 108,636 16,287 23,085 580,616 16,458 222,028 134,437 740 11,503 7,000 — 1,000 418 2,482 998 1,999 43,073 4,093 83,595 17,233 34,945 562,499 21,535 205,190 117,525 5,564 10,790 8,995 — — 437 2,869 998 2,998 299,127 343,536 257,643 333,433 253,096 327,520 241,744 320,755 — 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 Annual Report 2022 / 207 table column width 65pt CORPORATE INFORMATION BOARD OF DIRECTORS (As At 8 March 2023) 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 Li Yuzhuo Executive Director and Chief Financial Officer Hong Kong Tel: (852) 2126 2018 Independent Non-Executive Directors Cheung Wing Lam Linus Wong Wai Ming Chung Shui Ming Timpson Law Fan Chiu Fun Fanny Audit Committee Wong Wai Ming (Chairman) Cheung Wing Lam Linus Chung Shui Ming Timpson Law Fan Chiu Fun Fanny Remuneration Committee Cheung Wing Lam Linus (Chairman) Wong Wai Ming Chung Shui Ming Timpson Nomination Committee MAJOR SUBSIDIARY China United Network Communications Corporation Limited No. 21 Financial Street, 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 Website: www.computershare.com/hk/contact PUBLICATIONS Financial reports, announcements, press releases and other investor information on the Company are available to access Chung Shui Ming Timpson (Chairman) electronically via the Company’s website. STOCK CODE Hong Kong Stock Exchange: 762 COMPANY WEBSITE www.chinaunicom.com.hk Liu Liehong Law Fan Chiu Fun Fanny COMPANY SECRETARY Chan Ngar Wai AUDITOR Deloitte Touche Tohmatsu Registered Public Interest Entity Auditors LEGAL ADVISORS Freshfields Bruckhaus Deringer 208 / China Unicom (Hong Kong) Limited Corporate Culture OUR VISION Strive to build a world-class enterprise with global competitiveness OUR MISSION 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 OUR CORE VALUES Customer-oriented Employee-friendly Attentive to quality service Inherently innovative Proud of endeavours Adhering to integrity CORPORATE STYLE Rigorous, Pragmatic, Skillful, Meticulous, Efficient OPERATION AND MANAGEMENT PHILOSOPHIES Create value for customers Driven by both market and innovation One China Unicom with integrated capabilities and operating services CHINA UNICOM (HONG KONG) LIMITED CHINA UNICOM (HONG KONG) LIMITED 75th Floor, The Center, 99 Queen’s Road Central, Hong Kong 75th Floor, The Center, 99 Queen’s Road Central, Hong Kong Tel : (852) 2126 2018 Tel : (852) 2126 2018 Fax : (852) 2126 2016 Fax : (852) 2126 2016 www.chinaunicom.com.hk www.chinaunicom.com.hk C H I N A U N I C O M ( 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 2 Shiftin g Gea rs CHINA UNICOM ( HONG KONG) LIMITED Stock Code : 762 ANNUAL REPORT 2022