UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 20-F
| ¨ |
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934 |
OR
| x |
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2014
OR
| ¨ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
OR
| ¨ |
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Date of event requiring this shell company report
Commission
file number 1-31517
(Exact Name of Registrant as Specified in Its Charter)
China Telecom Corporation Limited
(Translation of Registrant’s Name into English)
People’s Republic of China
(Jurisdiction of Incorporation or Organization)
31 Jinrong
Street, Xicheng District
Beijing, People’s Republic of China 100033
(Address of Principal Executive Offices)
Mr. Xu Fei
China
Telecom Corporation Limited
31 Jinrong Street, Xicheng District
Beijing, People’s Republic of China 100033
Email: xufei@chinatelecom.com.cn
Telephone: (+86-10) 5850 2281
Fax: (+86-10) 6601 0728
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
|
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| Title of Each Class |
|
Name of Each Exchange On Which Registered |
| American depositary shares
H shares, par value RMB1.00 per share |
|
New York Stock Exchange, Inc.
New York Stock Exchange, Inc.* |
| * |
Not for trading, but only in connection with the listing on the New York Stock Exchange, Inc. of American depositary shares, each representing 100 H shares. |
Securities registered or to be registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None
(Title of Class)
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered
by the annual report.
As of December 31, 2014, 67,054,958,321 domestic shares and 13,877,410,000 H shares, par value RMB1.00 per
share, were issued and outstanding. H shares are ordinary shares of the Company listed on The Stock Exchange of Hong Kong Limited.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes x No ¨
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes ¨ No x
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90
days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data
File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of
“accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated
Filer x Accelerated Filer ¨ Non-Accelerated Filer ¨
Indicate by check mark which basis of accounting the registrant has used to prepare the
financial statements included in this filing.
U.S. GAAP ¨
International Financial Reporting Standards as issued by the International Accounting Standards Board x
Other ¨
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the
registrant has elected to follow. Item 17 ¨ Item 18 ¨
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes ¨ No x
CHINA TELECOM CORPORATION LIMITED
TABLE OF CONTENTS
FORWARD-LOOKING STATEMENTS
This annual report contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. These forward-looking statements are, by their nature, subject to significant risks and uncertainties, and include, without limitation, statements
relating to:
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our business and operating strategies and our ability to successfully execute these strategies; |
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our network expansion and capital expenditure plans; |
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our operations and business prospects; |
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the expected benefit of any acquisitions or other strategic transactions; |
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our financial condition and results of operations; |
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the expected impact of new services on our business, financial condition and results of operations; |
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the future prospects of and our ability to integrate acquired businesses and assets; |
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the industry regulatory environment as well as the industry outlook generally; and |
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future developments in the telecommunications industry in the People’s Republic of China, or the PRC. |
The words “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,”
“may,” “plan,” “seek,” “will,” “would” and similar expressions, as they relate to us, are intended to identify a number of these forward-looking statements.
These forward-looking statements are subject to risks, uncertainties and assumptions, some of which are beyond our control. In addition, these
forward-looking statements reflect our current views with respect to future events and are not a guarantee of future performance. We are under no obligation to update these forward-looking statements and do not intend to do so. Actual results may
differ materially from the information contained in the forward-looking statements as a result of a number of factors, including, without limitation, the risk factors set forth in “Item 3. Key Information—D. Risk Factors” and the
following:
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any changes in the regulations or policies of the Ministry of Industry and Information Technology (prior to March 2008, the Ministry of Information Industry, or the MII), or the MIIT, and other relevant government
authorities relating to, among other matters: |
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the granting and approval of licenses; |
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interconnection and settlement arrangements; |
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capital investment priorities; |
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the provision of telephone and other telecommunications services to rural areas in the PRC; |
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the convergence of television broadcast, telecommunications and Internet access networks, or three-network convergence; and |
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spectrum and numbering resources allocation; |
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the effects of competition on the demand for and price of our services; |
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effects of our restructuring and integration following the completion of our acquisition of the Code Division Multiple Access technology, or CDMA, telecommunications business, or the CDMA Business in 2008;
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any potential further restructuring or consolidation of the PRC telecommunications industry; |
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changes in the PRC telecommunications industry as a result of the issuance of the fourth generation mobile telecommunications, or 4G, licenses by the MIIT; |
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the development of new technologies and applications or services affecting the PRC telecommunications industry and our current and future business; |
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changes in political, economic, legal and social conditions in the PRC, including changes in the PRC government’s specific policies with respect to foreign investment in and entry by foreign companies into the PRC
telecommunications industry, economic growth, inflation, foreign exchange and the availability of credit; and |
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implementation of a value-added tax to replace the business tax in the PRC. |
CERTAIN DEFINITIONS AND CONVENTIONS
As used in this annual report, references to “us,” “we,” the “Company,” “our Company” and “China
Telecom” are to China Telecom Corporation Limited and its consolidated subsidiaries except where we make clear that the term means China Telecom Corporation Limited or a particular subsidiary or business group only. References to matters
relating to our H shares or American depositary shares, or ADSs, or matters of corporate governance are to the H shares, ADSs and corporate governance of China Telecom Corporation Limited. In respect of any time prior to our incorporation,
references to “us,” “we” and “China Telecom” are to the telecommunications business in which our predecessors were engaged and which were subsequently assumed by us. All references to “China Telecom Group” are
to China Telecommunications Corporation, our controlling shareholder. Unless the context otherwise requires, these references include all of its subsidiaries, including us and our subsidiaries. Unless otherwise indicated, references to and
statements regarding China and the PRC in this annual report do not apply to Hong Kong Special Administrative Region, Macau Special Administrative Region or Taiwan.
PART I
| Item 1. |
Identity of Directors, Senior Management and Advisers. |
Not applicable.
| Item 2. |
Offer Statistics and Expected Timetable. |
Not applicable.
| A. |
Selected Financial Data |
The following table presents our selected financial data. The
selected consolidated statements of financial position data as of December 31, 2013 and 2014, and the selected consolidated statements of comprehensive income (except for earnings per ADS) and consolidated cash flow data for the years ended
December 31, 2012, 2013 and 2014, are derived from our audited consolidated financial statements included elsewhere in this annual report, and should be read in conjunction with those consolidated financial statements. The selected consolidated
statements of financial position data as of December 31, 2010, 2011 and 2012 and the selected consolidated statements of comprehensive income (except for earnings per ADS) and consolidated cash flow data for the years ended December 31,
2010 and 2011 are derived from our consolidated financial statements which are not included in this annual report. Our consolidated financial statements are prepared in accordance with International Financial Reporting Standards, or IFRS, as issued
by the International Accounting Standards Board.
The selected financial data reflect the acquisitions and divestment in 2012 and 2013 and
the establishment of new subsidiaries in 2014 described under “Item 4. Information on the Company—A. History and Development of the Company—Industry Restructuring and Our Acquisition of the CDMA Business in 2008”, “—Our
Acquisition from China Telecom Group of the CDMA Network Assets and Associated Liabilities”, “—Changes in Our Corporate Organization in 2013” and “—Changes in Our Corporate Organization in 2014”.
On December 31, 2012, we purchased from China Telecom Group certain assets and associated liabilities relating to the CDMA network
located in 30 provinces, municipalities and autonomous regions in the PRC for a total consideration of approximately RMB87,210.35 million, of which RMB25,500 million was paid in January 2013 and the balance will be payable at any time on or before
the fifth anniversary of December 31, 2012, or the Mobile Network Acquisition. The Mobile Network Acquisition was recognized as an assets acquisition and the assets and associated liabilities acquired by the Company are stated at their
respective purchase prices, including related tax expenses, on December 31, 2012.
- 2 -
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As of or for the year ended December 31, |
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2010 RMB |
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2011 RMB |
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2012 RMB |
|
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2013 RMB |
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2014 RMB |
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2014 US$ |
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(in millions, except share numbers and per share and per ADS data) |
|
| Consolidated Statements of Comprehensive Income Data: |
|
|
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| Operating revenues |
|
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219,969 |
|
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245,149 |
|
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283,176 |
|
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321,584 |
|
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324,394 |
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52,283 |
|
| Operating expenses (1) |
|
|
(196,554 |
) |
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|
(221,028 |
) |
|
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(261,968 |
) |
|
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(294,116 |
) |
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(295,886 |
) |
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(47,688 |
) |
| Operating income |
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23,415 |
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24,121 |
|
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21,208 |
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27,468 |
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28,508 |
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4,595 |
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| Earnings before income tax |
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20,273 |
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22,006 |
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19,817 |
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23,088 |
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23,257 |
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3,748 |
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| Income tax |
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(4,846 |
) |
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(5,416 |
) |
|
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(4,753 |
) |
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(5,422 |
) |
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(5,498 |
) |
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(886 |
) |
| Profit attributable to equity holders of the Company |
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15,309 |
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16,494 |
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14,949 |
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17,545 |
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17,680 |
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2,849 |
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| Basic earnings per share(2) |
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0.19 |
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0.20 |
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0.18 |
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0.22 |
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0.22 |
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0.04 |
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| Basic earnings per ADS(2) |
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18.92 |
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20.38 |
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18.47 |
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21.68 |
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21.85 |
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3.52 |
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| Cash dividends declared per share |
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0.07 |
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0.07 |
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0.07 |
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0.08 |
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0.08 |
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0.01 |
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As of or for the year ended December 31, |
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2010 RMB |
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2011 RMB |
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2012 RMB |
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2013 RMB |
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2014 RMB |
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2014 US$ |
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(in millions, except share numbers and per share and per ADS data) |
|
| Consolidated Statements of Financial Position Data: |
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| Cash and cash equivalents |
|
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25,922 |
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27,475 |
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30,099 |
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16,070 |
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20,436 |
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3,294 |
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| Accounts receivable, net |
|
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17,337 |
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18,486 |
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18,782 |
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|
20,022 |
|
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|
21,562 |
|
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|
3,475 |
|
| Total current assets |
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|
55,360 |
|
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|
59,713 |
|
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|
65,375 |
|
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|
52,783 |
|
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59,543 |
|
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|
9,597 |
|
| Property, plant and equipment, net |
|
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272,532 |
|
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|
268,925 |
|
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|
373,781 |
|
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|
374,341 |
|
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|
372,876 |
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|
60,097 |
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| Total assets |
|
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420,708 |
|
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|
419,331 |
|
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|
545,291 |
|
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|
543,239 |
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561,274 |
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90,461 |
|
| Short-term debt |
|
|
20,675 |
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9,187 |
|
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6,523 |
|
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27,687 |
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43,976 |
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|
7,088 |
|
| Current portion of long-term debt |
|
|
10,352 |
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|
11,766 |
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10,212 |
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20,072 |
|
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|
82 |
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13 |
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| Accounts payable |
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40,072 |
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44,460 |
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68,948 |
|
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81,132 |
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88,458 |
|
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|
14,257 |
|
| Total current liabilities |
|
|
127,012 |
|
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|
127,397 |
|
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193,610 |
|
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|
200,098 |
|
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|
206,325 |
|
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33,254 |
|
| Long-term debt and payable |
|
|
42,549 |
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|
31,150 |
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|
83,070 |
|
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|
62,617 |
|
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|
62,918 |
|
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|
10,141 |
|
| Deferred revenues (including current portion) |
|
|
6,203 |
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|
4,805 |
|
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|
3,445 |
|
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|
2,431 |
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|
1,858 |
|
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|
299 |
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| Total liabilities |
|
|
174,494 |
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|
162,376 |
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279,191 |
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264,575 |
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271,166 |
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43,704 |
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| Equity attributable to equity holders of the Company |
|
|
245,718 |
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256,167 |
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|
265,139 |
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277,741 |
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289,183 |
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46,608 |
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| Consolidated Cash Flow Data: |
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| Net cash generated from operating activities |
|
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75,599 |
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73,025 |
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70,722 |
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88,351 |
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96,405 |
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15,538 |
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| Net cash used in investing activities(3) |
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(45,747 |
) |
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(43,646 |
) |
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(48,295 |
) |
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(107,948 |
) |
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(81,708 |
) |
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(13,169 |
) |
| Capital expenditures(3) |
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(41,611 |
) |
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(48,506 |
) |
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(50,071 |
) |
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(70,921 |
) |
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(80,273 |
) |
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|
(12,938 |
) |
| Net cash (used in) / generated from financing activities |
|
|
(38,748 |
) |
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(27,723 |
) |
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(19,802 |
) |
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|
5,637 |
|
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(10,327 |
) |
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(1,664 |
) |
| (1) |
Includes an impairment loss in 2010 on property, plant and equipment of RMB139 million, which mainly represented impairment made in respect of certain of our obsolete telecommunications equipment. |
| (2) |
The basic earnings per share have been calculated based on the respective net profit attributable to equity holders of the Company in 2010, 2011, 2012, 2013 and 2014 and the weighted average number of shares in issue
during each of the relevant years of 80,932,368,321 shares. Basic earnings per ADS have been computed as if all of our issued and outstanding shares, including domestic shares and H shares, are represented by ADSs during each of the years presented.
Each ADS represents 100 H shares. |
| (3) |
Capital expenditures are part of and not an addition to net cash used in investing activities. |
Pursuant to the shareholders’ approval at the annual general meeting held on May 29, 2014, a final dividend of RMB6,198 million
(RMB0.076583 equivalent to HK$0.095 per share, pre-tax) for the year ended December 31, 2013 was declared, all of which has been fully paid. Pursuant to a resolution passed at the Directors’ meeting on March 18, 2015, a final dividend
of approximately RMB6,085 million (RMB0.075187 equivalent to HK$0.095 per share, pre-tax) for the year ended December 31, 2014 was proposed for shareholders’ approval at the forthcoming annual general meeting.
- 3 -
Exchange Rate Information
Our business is primarily conducted in China and substantially all of our revenues are denominated in Renminbi. We present our historical
consolidated financial statements in Renminbi. In addition, solely for the convenience of the reader, this annual report contains translations of certain Renminbi and Hong Kong dollar amounts into U.S. dollars at specific rates. For any date and
period, the exchange rate refers to the exchange rate as set forth in the H.10 statistical release of the Federal Reserve Board. Unless otherwise indicated, conversions of Renminbi or Hong Kong dollars into U.S. dollars in this annual report are
based on the exchange rate on December 31, 2014 (RMB6.2046 to US$1.00 and HK$7.7531 to US$1.00). We make no representation that any Renminbi or Hong Kong dollar amounts could have been, or could be, converted into U.S. dollars or vice versa, as
the case may be, at any particular rate, the rates stated below, or at all. For a detailed explanation of the risk of currency rate fluctuations, please see “D. Risk Factors—Risks Relating to the People’s Republic of China—
Fluctuation of the Renminbi could materially affect our financial condition, results of operations and cash flows.” under this Item. The PRC government imposes controls over its foreign currency reserves in part through direct regulation of the
conversion of Renminbi into foreign exchange. Examples of such government regulations and restrictions are set forth in “Risk Factors—Risks Relating to the People’s Republic of China—Government control of currency conversion may
adversely affect our financial condition.”
On April 22, 2015, the daily exchange rates reported by the Federal Reserve Board
was RMB6.1927 to US$1.00 and HK$7.7500 to US$1.00. The following table sets forth additional information concerning exchange rates between Renminbi and U.S. dollars and between Hong Kong dollars and U.S. dollars for the periods indicated. These
rates are provided solely for your convenience and are not necessarily the exchange rates that we use in this annual report or will use in the preparation of our future periodic reports or any information to be provided to you.
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RMB per US$1.00 |
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HK$ per US$1.00 |
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High |
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Low |
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High |
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Low |
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| October 2014 |
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6.1385 |
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6.1107 |
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October 2014 |
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7.7645 |
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7.7541 |
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| November 2014 |
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6.1429 |
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6.1117 |
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November 2014 |
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7.7572 |
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7.7519 |
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| December 2014 |
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6.2256 |
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|
6.1490 |
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December 2014 |
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7.7616 |
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7.7509 |
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| January 2015 |
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6.2535 |
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6.1870 |
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January 2015 |
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7.7563 |
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7.7508 |
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| February 2015 |
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6.2695 |
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6.2399 |
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February 2015 |
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|
7.7584 |
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|
7.7517 |
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| March 2015 |
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6.2741 |
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6.1955 |
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March 2015 |
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7.7686 |
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|
7.7534 |
|
| April 2015 (through April 22, 2015) |
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6.2152 |
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6.1927 |
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April 2015 (through April 22, 2015) |
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7.7525 |
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|
7.7499 |
|
- 4 -
The following table sets forth the average exchange rates between Renminbi and U.S. dollars and
between Hong Kong dollars and U.S. dollars for each of 2010, 2011, 2012, 2013 and 2014 calculated by averaging the exchange rates on the last day of each month during each of the relevant years.
Average Exchange Rate
|
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RMB per US$ 1.00 |
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HK$ per US$1.00 |
|
| 2010 |
|
|
6.7603 |
|
|
|
7.7692 |
|
| 2011 |
|
|
6.4475 |
|
|
|
7.7793 |
|
| 2012 |
|
|
6.2990 |
|
|
|
7.7556 |
|
| 2013 |
|
|
6.1412 |
|
|
|
7.7565 |
|
| 2014 |
|
|
6.1704 |
|
|
|
7.7554 |
|
| B. |
Capitalization and Indebtedness |
Not applicable.
| C. |
Reasons for the Offer and Use of Proceeds |
Not applicable.
Risks Relating to Our Business
We face increasing competition, which may materially and adversely affect our business, financial condition and results of operations.
The telecommunications industry in the PRC is rapidly evolving.
After the industry restructuring in 2008, China Unicom (Hong Kong) Limited (formerly known as China Unicom Limited), or China Unicom, and our
Company have full-service capabilities and compete with each other in both wireline and wireless telecommunications services. China Mobile Limited, or China Mobile, continues to be the leading provider of mobile telecommunications services in the
PRC and competes with us in mobile telecommunications services and other telecommunications services.
In particular, in December 2013,
each of China Mobile Communications Corporation, or China Mobile Group, China Telecom Group and China United Network Communications Group Company Limited (formerly known as China United Telecommunications Corporation prior to its merger with China
Network Communications Group Corporation), or Unicom Group, received a license from the MIIT to operate 4G business nationwide. The licenses permit China Mobile Group, China Telecom Group and Unicom Group to provide 4G services based on LTE/Time
Division Duplex standard, or TD-LTE technologies, respectively. We have been authorized by China Telecom Group to operate 4G business nationwide based on TD-LTE technologies. China Mobile, China Unicom and our Company have all launched 4G services
based on TD-LTE technologies. The Company aims to adopt a flexible approach in deployment of LTE network with one hybrid network of integrated resources leveraging both TD-LTE technologies and LTE FDD technologies in order to leverage collaborated
use of different spectrum resources to meet customers’ demand. In June 2014, China Telecom Group was approved by the MIIT, and authorized us, to commence the LTE FDD and TD-LTE hybrid network trial in 16 cities in the PRC. In August, November
and December, 2014, China Telecom Group was approved by the MIIT, and authorized us, to expand the LTE hybrid network trial to reach a total of 40, 41 and 56 cities, respectively. On February 27, 2015, China Telecom Group was granted by the
MIIT the permit, and authorized us, to provide 4G service based on LTE FDD technologies nationwide. However, we cannot assure you that: (i) our 4G services will deliver the quality and levels of services currently anticipated; (ii) we will
be able to provide all planned 4G services or we will be able to provide such services on schedule; (iii) there will be sufficient demand for 4G services for us to deliver these services profitably; (iv) our competitors’ 4G, or newer
technology based, services will not be more popular among potential subscribers; or (v) we will not encounter unexpected technological difficulties in providing 4G services. The failure of any of these possible developments to occur could
impede our growth, which could have a material adverse effect on our business, financial condition and results of operations. In addition, one of our major competitors, China Unicom, was also granted the permit to provide 4G services based on LTE
FDD technologies on February 27, 2015. We expect that the market competition will be further intensified as a result of our competitors expanding their 4G services, which could materially and adversely affect our business and prospect.
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In December 2013, China Mobile Group received permission from the MIIT to authorize China Mobile
to operate fixed-line telecommunications businesses. Prior to December 2013, China Unicom, China Tietong Telecommunications Corporation, or China Railcom, and our Company were the only operators licensed by the MIIT to provide fixed-line
telecommunications services in China. China Mobile’s entry into the fixed-line broadband market has intensified and may continue to intensify competition in this sector, which could have a material adverse effect on our business, financial
condition and results of operations.
We also face increasing competition from other competitors outside the telecommunications industry.
Television cable companies providing fixed-line broadband services, Internet services providers and mobile software and application developers (such as Over-the-Top messaging services providers who offer contents and services on the Internet without
their proprietary telecommunications network infrastructure), are competing with us in voice or data services. During the past few years, some of our traditional revenue contributors have experienced a slowdown in the growth rate or negative growth,
primarily due to the alternative means of communication becoming increasingly popular among the consumers. For example, the aggregate revenues contributed by our wireline and mobile voice services grew at a rate of 4.7% in 2012 and 4.7% in 2013 but
decreased at a rate of 8.9% in 2014. We cannot assure you that such trend will not continue with respect to some of our traditional services, or our other services will not experience slowdown amid the intense market competition, which could have a
material adverse effect on our business, financial condition and results of operations.
In addition, the PRC government has taken various
initiatives to encourage competition in the telecommunications industry, such as the three-network convergence policy and the policy encouraging non-State owned companies to enter the industry. For more details of the three-network convergence
policy, please see “Item 4. Information on the Company – B. Business Overview – Three-Network Convergence Policy.” In May 2010, the PRC State Council issued Certain Opinion on Encouraging and Guiding the Sound Development of
Private Investment, encouraging private investment in industry sectors that are mainly state-controlled, such as basic telecommunications services. In June 2012, the MIIT issued Opinions on Encouraging and Guiding Private Investment in the
Telecommunications Industry, encouraging private-sector investment in the telecommunications industry. On May 17, 2013, the MIIT issued the Trial Plan of Resale of Mobile Telecommunications Services, pursuant to which the MIIT would grant
qualified companies mobile virtual network operator licenses which would allow them to purchase mobile telecommunications services in bulk from mobile networks operators and resell such services to customers. As of April 15, 2015, the MIIT
granted 42 mobile virtual network operator licenses to qualified companies, and we have entered into resale contracts for telecommunications services with 26 qualified companies. We plan to enter into resale contracts with more qualified companies
in order to further expand the reach of our mobile telecommunications services. On December 25, 2014, the MIIT issued the Notice on Opening the Broadband Access Market to Private Capital, encouraging private capital to invest in the
construction and operation of the broadband access network and cooperate with basic telecommunications operators in various ways to provide broadband access services and broadband resale services to customers. As a result, the competitive landscape
in the PRC telecommunications industry may further diversify, causing more intensified competition.
Increasing competition from other
existing telecommunications services providers, including China Mobile and China Unicom, as well as competition from new competitors, could materially and adversely affect our business and prospect by, among other factors, forcing us to lower our
tariffs, reducing or reversing the growth of our customer base and reducing usage of our services. Any of these developments could materially and adversely affect our revenues and profitability. We cannot assure you that the increasingly competitive
environment and any change in the competitive landscape of the telecommunications industry in the PRC would not have a material adverse effect on our business, financial condition or results of operations.
The growth of our 4G business is subject to significant uncertainties involved in the operations of the Tower Company.
On July 11, 2014, the Company, China United Network Communications Corporation Limited and China Mobile Communication Company Limited
entered into a Promoters’ Agreement for China Communications Facilities Services Corporation Limited to jointly establish China Communications Facilities Services Corporation Limited (later renamed as China Tower Corporation Limited, the
“Tower Company”). The Tower Company is primarily engage in the construction, maintenance and operation of telecommunications towers as well as ancillary facilities. See “Item 4. Information on the Company—A. History and
Development of the Company—Establishment of the Tower Company”. Our Company, China United Network Communications Corporation Limited and China Mobile Communication Company Limited are in discussions with a view to selling
telecommunications towers and ancillary facilities to the Tower Company. The Tower Company will be responsible for constructing and operating telecommunications towers and ancillary facilities, while the basic telecommunications services providers,
including us, will rent these telecommunications assets from the Tower Company. According to the policies of the MIIT, starting from January 1, 2015, in principle, the three telecommunications operators, including us, will no longer construct
their own telecommunications towers. The Tower Company will have a significant effect on the growth of our 4G business and our results of operations. However, the operations of the Tower Company are subject to significant uncertainties, including
uncertainties as to the construction progress of the telecommunications towers and the terms of provision of services by the Tower Company to us. If the operations of the Tower Company cannot be carried out in a smooth and timely manner, or if we
fail to rent the relevant telecommunications assets and utilize other services necessary for the expansion of our 4G network coverage from the Tower Company on commercially desirable terms, the growth of our 4G business as well as our financial
condition and results of operations may be materially and adversely affected.
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We may further lose wireline telephone subscribers and revenues derived from our wireline
voice services may continue to decline, which may adversely affect our results of operations, financial condition and prospects.
We continued to lose wireline telephone subscribers and revenues derived from our wireline voice services continued to decline during the past
several years mainly due to the increasing popularity of mobile voice services and other alternative means of communication, such as Over-the-Top messaging services. Tariffs for mobile voice services have continued decreasing in recent years, which
further accelerated substitution of the wireline voice services by the mobile voice services. The number of our fixed-line subscribers decreased by 4.4% at the end of 2013 compared to that at the end of 2012 and further decreased by 7.9% at the end
of 2014. Revenues from our wireline voice services decreased by 10.9% in 2013 compared to 2012 and further decreased by 13.1% in 2014. The percentage of revenues derived from our wireline voice services out of our total operating revenues continued
to decrease, from 15.3% in 2012 to 12.0% in 2013 and 10.4% in 2014.
We have been taking various measures in order to mitigate the impact
of loss of our wireline telephone subscribers and stabilize our revenues from wireline voice services. See “Item 4. Information on the Company—B. Business Overview—Our Products and Services—Wireline Voice Services.” However,
we cannot assure you that we will be successful in mitigating the adverse impact of the substitution of wireline voice services by mobile voice services and other alternative means of communication or in slowing down the decline of our revenues
generated from wireline voice services. Migration from wireline voice services to mobile services and other alternative means of communication may further intensify in the future, which may affect the financial performance of our wireline voice
services and thus adversely affect our results of operations, financial condition and prospects as a whole.
We will continue to be
controlled by China Telecom Group, which could cause us to take actions that may conflict with the best interests of our other shareholders.
China Telecom Group, a wholly state-owned enterprise, owned approximately 70.89% of our outstanding shares as of April 22, 2015.
Accordingly, subject to our Articles of Association and applicable laws and regulations, China Telecom Group, as our controlling shareholder, will continue to be able to exercise significant influence over our management and policies by:
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controlling the election of our Directors and, in turn, indirectly controlling the selection of our senior management; |
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determining the timing and amount of our dividend payments; |
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approving our annual budgets; |
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deciding on increases or decreases in our share capital; |
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determining issuance of new securities; |
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approving mergers and acquisitions; and |
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amending our Articles of Association. |
The interests of China Telecom Group as our controlling
shareholder could conflict with our interests or the interests of our other shareholders. As a result, China Telecom Group may take actions with respect to our business that may not be in our or our other shareholders’ best interests.
We depend on China Telecom Group and its other subsidiaries to provide certain services and facilities for which we currently have
limited alternative sources of supply.
In addition to being our controlling shareholder, China Telecom Group, by itself and
through its other subsidiaries, also provides us with services and facilities necessary for our business activities, including, but not limited to:
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use of international gateway facilities; |
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provision of services in areas outside our service regions necessary to enable us to provide end-to-end services to our customers; |
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use of certain inter-provincial optic fibers; and |
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lease of properties and assets. |
The interests of China Telecom Group and its other
subsidiaries as providers of these services and facilities may conflict with our interests. We currently have limited alternative sources of supply for these services and facilities. Therefore, we have limited leverage in negotiating with China
Telecom Group and its other subsidiaries over the terms for the provision of these services and facilities. Termination or adverse changes of the terms for the provisions of these services and facilities could materially and adversely affect our
business, results of operations and financial condition. See “Item 4. Information on the Company—A. History and Development of the Company—Industry Restructuring and Our Acquisition of the CDMA Business in 2008” and
“—Our Acquisition from China Telecom Group of the CDMA Network Assets and Associated Liabilities” and “Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions” for a description of the
services and facilities provided by China Telecom Group and its other subsidiaries.
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Since our services require interconnection with networks of other operators, disruption in
interconnections with those networks could have a material adverse effect on our business and results of operations.
Under the
relevant telecommunications regulations, telecommunications operators are required to interconnect with networks of other operators. China Telecom Group entered into interconnection settlement agreements with other telecommunications operators,
including Unicom Group and China Mobile Group. We entered into an interconnection settlement agreement, as amended, with China Telecom Group, which allows our networks to interconnect with China Telecom Group’s networks as well as networks of
the other telecommunications operators, with whom China Telecom Group had interconnection arrangements. The effective provision of our wireline voice, mobile voice and other services requires interaction between our networks and those of China
Telecom Group, Unicom Group, China Mobile Group and other telecommunications operators. Any interruption in our interconnection with the networks of those operators or other international telecommunications carriers with which we interconnect due to
technical or competitive reasons may affect our operations, service quality and customer satisfaction, and, in turn, our business and results of operations. In addition, any obstacles in existing interconnection arrangements and leased line
agreements or any change in their terms, as a result of natural events, accidents, or for regulatory, technological, competitive or other reasons, could lead to temporary service disruptions and increased costs that may seriously jeopardize our
operations and adversely affect our profitability and growth.
We may be unable to obtain sufficient financing to fund our capital
requirements, which could limit our growth potential and prospects.
We believe that cash from operations, together with any
necessary borrowings, will provide sufficient financial resources to meet our projected capital and other expenditure requirements. However, we may require additional funds to the extent we have underestimated our capital requirements or
overestimated our future cash from operations. In addition, a significant feature of our business strategy is to continue to transform our Company into a modern integrated information services provider, which may require additional capital
resources. The cost of implementing new technologies, upgrading our networks, expanding capacity or acquisitions of businesses or assets may be significant. Furthermore, in order for us to effectively respond to technological changes and more
intensive competition, we may need to make substantial investments in the future.
Financing may not be available to us on acceptable
terms or at all. In addition, any future issuance of equity securities, including securities convertible or exchangeable into or that represent the right to receive equity securities, may require approval from the relevant government authorities.
Our ability to obtain additional financing will depend on a number of factors, including:
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our future financial condition, results of operations and cash flows; |
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general market conditions for financing activities by telecommunications companies; and |
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economic, political and other conditions in the markets where we operate or plan to operate. |
We cannot assure you that we can obtain sufficient financing at commercially reasonable terms or at all. If adequate capital is not available
on commercially reasonable terms, our growth potential and prospects could be materially and adversely affected. Furthermore, additional issuances of equity securities will result in dilution to our shareholders. Incurrence of debt would result in
increased interest expense and could require us to agree to restrictive operating and financial covenants.
If we are not able to
respond successfully and cost-efficiently to technological or industry developments, our business may be materially and adversely affected.
The telecommunications market is characterized by rapid advancements in technology, evolving industry standards and changes in customer needs.
We cannot assure you that we will be successful in responding to these developments. In addition, new services or technologies, such as mobile Internet, the three-network convergence, cloud computing and Internet of Things, may render our existing
services or technologies less competitive. In the event we do take measures to respond to technological developments and changes in industry standards, the integration of new technology or industry standards or the upgrading of our networks may
require substantial time, effort and capital investment. For example, we continue to make significant investment to improve our broadband network, including the upgrade of optic fiber coverage capacity, and our mobile network. However, we may not be
able to recover our investment as expected.
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Our ability to respond to technological developments may also be adversely affected by external
factors, some of which are beyond our control. For example, we have started implementing Internet Protocol version 6, or IPv6, the next-generation Internet Protocol version, on our networks. However, the successful deployment and application of IPv6
depends on a number of external factors, including, among others, timely development of IPv6-compatible devices and applications by third-party suppliers. If the future transition to IPv6 is delayed due to factors beyond our control, we may face
obstacles in further developing our Internet-related services in the future. We cannot assure you that we will succeed in integrating these new technologies and industry standards or adapting our network and systems in a timely and cost-effective
manner, or at all. Our inability to respond successfully and cost-efficiently to technological or industry developments may materially and adversely affect our business, results of operations and competitiveness.
We face a number of risks relating to our Internet-related services.
We currently provide a range of Internet-related services, including dial-up and broadband Internet access, and Internet-related applications.
We face a number of risks in providing these services.
Our network may be vulnerable to unauthorized access, computer viruses and other
disruptive problems. We cannot assure you that the security measures we have implemented will not be circumvented or otherwise fail to protect the integrity of our network, including our mobile network. Unauthorized access could jeopardize the
security of confidential information stored in our customers’ computer systems and mobile phone systems and may subject us to litigations, liabilities for information loss and/or reputational damage. Eliminating computer viruses and other
security problems may also require interruptions, delays or suspension of our services, reduce our customer satisfaction and cause us to incur costs.
In addition, because we provide connections to the Internet and host websites for customers and develop Internet content and applications, we
may be perceived as being associated with the content carried over our network or displayed on websites that we host. We cannot and do not screen all of this content and may face litigation claims due to a perceived association with this content.
These types of claims have been brought against other providers of online services in the past. Regardless of the merits of the lawsuits, these types of claims can be costly to defend, divert management resources and attention, and may damage our
reputation.
We are subject to anti-monopoly investigations by the PRC governmental authorities.
In recent years, the PRC governmental authorities have taken more stringent measures to implement the PRC Anti-monopoly Law. In 2011, the PRC
National Development and Reform Commission, or the NDRC, initiated an anti-monopoly investigation over our pricing practices with respect to our Internet dedicated leased line access services to Internet service providers. In response to this
investigation, we have conducted a self-evaluation of the relevant pricing practices and submitted in November 2011 to the NDRC a proposal for enhancement initiatives as well as an application for suspension of investigation, setting out our plan to
carry out capacity expansion and reduce the price for direct interconnection with other backbone network operators, further standardize our tariff arrangement of Internet dedicated leased line access services, continue to upgrade our broadband
access capacity and reduce the bandwidth unit price of Internet access for public customers. In December 2013, we submitted to the NDRC an implementation report on the remedial measures. As of the date of this annual report, we have not received any
further investigation or improvement requirement from the NDRC. In the event of any adverse determination by the NDRC investigation, we may be required to carry out additional remedial measures and/or subject to penalties being imposed on us.
Implementation of a value-added tax to replace the business tax in the PRC has had, and in the short term will continue to have, a
material and adverse effect on our revenues and profitability.
Our business operations in China are currently subject to PRC
value-added tax, or VAT. On November 16, 2011, the Ministry of Finance, or the MOF, and the State Administration of Taxation. or the SAT, introduced a pilot tax program under which the PRC business tax will be replaced with a VAT. On
April 29, 2014, the MOF and the SAT announced that the pilot program would be extended to cover the telecommunications industry. Effective from June 1, 2014, the pilot tax rate for basic telecommunications services (including voice
communication and lease or sale of network resources) is 11% and the pilot tax rate for value-added telecommunications services (including, among others, internet access services, short and multimedia messaging services, transmission and application
service of electronic data and information) is 6%.
The operating revenues are presented in the financial statements as excluding any VAT.
Some of the expenditures of the Company do not qualify for input VAT credits, including, among others, depreciation and amortization and personnel expenses. In addition, the actual deduction of some of our expenditures as input VAT credits will
depend on the application of VAT to the other industries, the timetable for which still remains uncertain. As a result, it is expected that there would be a material adverse effect on the revenues and operating profit of the Company in the short
term.
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Risks Relating to the Telecommunications Industry in the PRC
The current and future government regulations and policies that extensively govern the telecommunications industry may limit our
flexibility in responding to market conditions, competition or changes in our cost structure.
Our business is subject to
extensive government regulation. The MIIT, which is the primary telecommunications industry regulator under the PRC’s State Council, regulates, among other things:
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industry policies and regulations; |
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telecommunications resource allocation; |
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interconnection and settlement arrangements; |
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enforcement of industry regulations; |
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universal service obligations; |
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network information security; |
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network access license approval for telecom equipment and terminals; and |
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network construction plans. |
Other PRC governmental authorities also take part in regulating
tariff policies, capital investment and foreign investment in the telecommunications industry. The regulatory framework within which we operate may constrain our ability to implement our business strategies and limit our flexibility to respond to
market conditions or to changes in our cost structure.
In addition, these regulations and policies that govern the telecommunications
industry in the PRC have experienced continuous changes in the past several years. The interpretation and enforcement of the PRC’s World Trade Organization commitments regarding telecommunications services may also affect telecommunications
regulations. Possible future changes to regulations and policies of the PRC government governing the telecommunications industry could adversely affect our business and operations. For example, to provide a uniform regulatory framework for the
orderly development of the telecommunications industry, the PRC government is currently preparing a draft telecommunications law. If and when the telecommunications law is adopted by the National People’s Congress or its Standing Committee, it
is expected to provide a new regulatory framework for telecommunications regulation in the PRC. We cannot be certain how this law will affect our business and operations and whether it will contain more stringent regulatory requirements than the
current telecommunications regulations. Any significant future changes in regulations or policies that govern the telecommunications industry may have a material adverse effect on our business and operations.
The PRC government may require us, along with other providers in the PRC, to provide universal services with specified obligations, and
we may not be compensated adequately for providing such services.
Under the Telecommunications Regulations promulgated by the
State Council, telecommunications service providers in the PRC are required to fulfill universal service obligations in accordance with relevant regulations to be promulgated by the PRC government. The MIIT has the authority to delineate the scope
of universal service obligations. The MIIT may also select universal service providers through a tendering process. The MIIT, together with other governmental authorities, is also responsible for formulating administrative rules relating to the
establishment of a universal service fund and compensation schemes for universal services. The PRC government currently uses financial resources to compensate for the expenses incurred in the “Village to Village” and the “Broadband
China” projects before the establishment of a universal service fund. The State Council issued the Notice on the “Broadband China” Policy and the Implementation Plan on August 1, 2013, which included the provision of broadband
services to villages as part of the universal service obligations of telecommunications service providers and mentioned improving the compensation scheme for the expenses incurred by the telecommunications services providers in undertaking the
“Broadband China” projects in the villages. However, the compensation from the PRC government may not be sufficient to cover all of our expenses for providing the telecommunications services under the relevant projects.
Under the Telecommunications Regulations, all PRC telecommunications operators shall provide universal services, and we expect to perform our
duties thereunder accordingly. We may not be able to realize adequate return on investments for expanding networks to, and providing telecommunications services in, those economically less developed areas due to potentially higher capital
expenditure requirements, lower usage by customers and lack of flexibility in setting our tariffs. If we are required to provide universal services with specified obligations without proper compensation by the government, our business and
profitability may be materially adversely affected.
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Risks Relating to the People’s Republic of China
Substantially all of our assets are located in the PRC and substantially all of our revenues are derived from our operations in the PRC.
Accordingly, our results of operations and prospects are subject, to a significant extent, to the economic, political and legal developments in the PRC.
The PRC’s economic, political and social conditions, as well as government policies, could affect our business.
Substantially all of our business, assets and operations are located in the PRC. The PRC’s economy differs from the economies of most
developed countries in many respects, including without limitation:
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government involvement; |
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control of foreign exchange; and |
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allocation of resources. |
While the PRC’s economy has experienced significant growth in
the past 30 years, growth has been uneven, both geographically and among various sectors of the economy. The PRC government has implemented various measures to encourage economic growth and guide the allocation of resources. Some of these measures
benefit the overall economy of the PRC, but may also have a negative effect on us.
Economic developments in the PRC have a significant
effect on our financial condition and results of operations. Although the PRC has been one of the world’s fastest growing economies in terms of GDP growth in the past 30 years, the global financial crisis that unfolded in 2008 and continued in
the past few years has led to a marked slowdown in the economic growth of the PRC. For example, the GDP growth rate of the PRC decreased from 11.4% in 2007 to 7.4% in 2014. The PRC economy may continue to grow at a relatively slow pace in the next
few years. The global economy may continue to deteriorate in the future and continue to have an adverse impact on the PRC economy. Any significant slowdown in the PRC economy could have a material adverse effect on the PRC telecommunications
industry as well as our business and operations.
Government control of currency conversion may adversely affect our financial
condition.
We receive substantially all of our revenues in Renminbi, which currently is not a freely convertible currency. A
portion of these revenues must be converted into other currencies to meet our foreign currency obligations. These foreign currency-denominated obligations include:
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payment of interest and principal on foreign currency-denominated debt; |
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payment for equipment and materials purchased offshore; and |
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payment of dividends declared, if any, in respect of our H shares. |
Under the PRC’s
existing foreign exchange regulations, we will be able to pay dividends in foreign currencies without prior approval from the State Administration of Foreign Exchange by complying with certain procedural requirements. However, the PRC government may
take measures at its discretion in the future to restrict access to foreign currencies for both current account transactions and capital account transactions. We may not be able to pay dividends in foreign currencies to our shareholders, including
holders of our ADSs, if the PRC government restricts access to foreign currencies for current account transactions.
Foreign exchange
transactions under our capital account, including foreign currency-denominated borrowings from foreign banks, issuance of foreign currency-denominated debt securities, if any, and principal payments in respect of foreign currency—denominated
obligations, continue to be subject to significant foreign exchange controls and require the approval of the State Administration of Foreign Exchange. These limitations could affect our ability to obtain foreign exchange through debt or equity
financing, or to obtain foreign exchange to meet our payment obligations under the debt securities, if any, or to obtain foreign exchange for capital expenditures.
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Fluctuation of the Renminbi could materially affect our financial condition, results of
operations and cash flows.
We receive substantially all of our revenues, and our financial statements are presented, in Renminbi.
The value of the Renminbi against U.S. dollar and other currencies fluctuates and is affected by, among other things, changes in the PRC’s and international political and economic conditions. Since 1994, the conversion of Renminbi into foreign
currencies, including Hong Kong and U.S. dollars, has been based on rates set by the People’s Bank of China, which are set daily based on the previous business day’s inter—bank foreign exchange market rates and current exchange rates
on the world financial markets. On July 21, 2005, the PRC government introduced a managed floating exchange rate system to allow the value of the Renminbi to fluctuate within a regulated band based on market supply and demand and by reference
to a basket of currencies. In April 2012, the PRC government expanded the floating band of Renminbi trading prices against the U.S. dollar in the inter-bank spot foreign currency exchange market from 0.5% to 1.0%. Fluctuations in exchange rates may
adversely affect the value, translated or converted into U.S. dollars or Hong Kong dollars, of our net assets, earnings and any declared dividends payable on our H shares in foreign currency terms. Our financial condition and results of operations
may also be affected by changes in the value of certain currencies other than the Renminbi, in which our obligations are denominated. For further information on our foreign exchange risks and certain exchange rates, see “Item 3. Key
Information—A. Selected Financial Data—Exchange Rate Information” and “Item 11. Quantitative and Qualitative Disclosures about Market Risk—Foreign Exchange Rate Risk.” We cannot assure you that any future movements in
the exchange rate of the Renminbi against the U.S. dollar or other foreign currencies will not adversely affect our results of operations and financial condition.
The PRC legal system has inherent uncertainties that could limit the legal protections available to you.
We were incorporated under PRC laws and are governed by our Articles of Association. The PRC legal system is based on written statutes. Prior
court decisions may be cited for reference but have limited precedential value. Since 1979, the PRC government has promulgated laws and regulations dealing with economic matters such as foreign investment, corporate organization and governance,
commerce, taxation and trade. However, because these laws and regulations are relatively new, and because of the limited number of published cases and their non-binding nature, interpretation and enforcement of these laws and regulations involve
uncertainties.
The ability of our shareholders to enforce their rights in respect of violations of corporate governance procedures may be
limited. In this regard, our Articles of Association provide that most disputes between holders of H shares and our Company, directors, supervisors, officers or holders of domestic shares, arising out of our Articles of Association or the PRC
Company Law and related regulations concerning the affairs of our Company, are to be resolved through arbitration by an arbitration tribunal in Hong Kong or the PRC, rather than by a court of law. Awards that are made by PRC arbitral authorities
recognized under the Arbitration Ordinance of Hong Kong can be enforced in Hong Kong. Hong Kong arbitration awards are also enforceable in the PRC. However, to our knowledge, no action has been brought in the PRC by any holder of H shares to enforce
an arbitral award, and we are uncertain as to the outcome of any action, if brought in the PRC to enforce an arbitral award made in favor of holders of H shares. See “Item 10. Additional Information—B. Memorandum and Articles of
Association.”
To our knowledge, there has not been any published report of judicial enforcement in the PRC by holders of H shares of
their rights under the Articles of Association of a PRC company or the PRC Company Law.
Unlike in the United States, the applicable PRC
laws did not specifically allow shareholders to sue the directors, supervisors, senior management or other shareholders on behalf of the corporation to enforce a claim against such party or parties that the corporation has failed to enforce itself
until January 1, 2006, when the amendments to the PRC Company Law passed on October 27, 2005 became effective. Although the amended PRC Company Law provides that shareholders, under certain circumstances, may sue the directors, supervisors
and senior management on behalf of the company, no detailed implementation rules or judicial interpretations have been issued in this regard. In addition, our minority shareholders may not be able to enjoy protections to the same extent afforded to
shareholders of companies incorporated under the state laws of the United States.
Although we will be subject to the Rules Governing the
Listing of Securities on The Stock Exchange of Hong Kong Limited, or the Listing Rules, and the Hong Kong Codes on Takeovers and Mergers and Share Buy-backs, or the Codes, the holders of H shares will not be able to bring actions on the basis of
violations of the Listing Rules or the Codes, and must rely on the Hong Kong Stock Exchange and The Securities and Futures Commission of Hong Kong to enforce the Listing Rules or the Codes, as the case may be.
You may experience difficulties in effecting service of legal process and enforcing judgments against us and our management.
We are a company incorporated under PRC laws, and substantially all of our assets and our subsidiaries are located in the PRC. In
addition, most of our directors and officers reside within the PRC, and substantially all of the assets of our directors and officers are located within the PRC. As a result, it may not be possible to effect service of process within the United
States or elsewhere outside the PRC upon most of our directors or officers, including with respect to matters arising under applicable laws and regulations. Moreover, our PRC counsel has advised us that the PRC does not have treaties providing for
the reciprocal recognition and enforcement of judgments of courts with the United States, the United Kingdom or most other Western countries. Our Hong Kong counsel has also advised us that Hong Kong has no arrangement for the reciprocal enforcement
of judgments with the United States.
- 12 -
As a result, recognition and enforcement in the PRC of judgments of a court in the United States
and any of the other jurisdictions mentioned above in relation to any matter not subject to a binding arbitration provision may be difficult or impossible.
Holders of H shares may be subject to PRC taxation.
Under the Enterprise Income Tax Law of the PRC, or the EIT Law, and its implementing regulations, holders of our H shares or ADSs which are
“non-resident enterprises” for the EIT Law’s purpose are subject to enterprise income tax at the rate of 10.0% with respect to dividends paid by us and income derived from sale of our H shares or ADSs, unless reduced under an
applicable tax treaty. In addition, a resident enterprise, including a foreign enterprise whose “de facto management body” is located in the PRC, is not subject to any PRC income tax with respect to dividends paid to it by us. The capital
gains realized by such resident enterprise are subject to the PRC enterprise income tax. Specifically, according to the Notice of the PRC State Administration of Taxation Concerning the Withholding Enterprise Income Tax on Dividend Distributed by
PRC Resident Enterprises to Overseas Non-Resident Enterprise Holders of H shares issued in November 2008 and the Approval of the PRC State Administration of Taxation Concerning the Collection of Enterprise Income Tax on Dividend from B-shares
Received by Non—Resident Enterprise issued in July 2009, when PRC resident enterprises distribute dividend to overseas non-resident enterprise holders of H shares for the year 2008 and the years thereafter, the 10.0% enterprise income tax will
be withhold. The Company will withhold the 10.0% enterprise income tax when it pays dividend to holders of H shares or ADSs who are non-resident enterprises. See “Item 10. Additional Information—E. Taxation—People’s Republic of
China.”
Furthermore, dividends paid by us to holders of our H shares or ADSs who are individuals outside the PRC are subject to a
withholding tax of 20.0% unless reduced by an applicable tax treaty. For example, Hong Kong and Macau individual residents are subject to a withholding tax of 10.0% on dividends paid to them. In addition, gains realized by individuals upon the sale
or other disposition of our H shares or ADSs are temporarily exempted from PRC capital gains tax. If the exemptions are withdrawn in the future, holders of our H shares or ADSs who are individuals may be required to pay PRC capital gains tax upon
the sale or other disposition of our H shares. See “Item 10. Additional Information—E. Taxation— People’s Republic of China.”
Natural disasters and health hazards in the PRC may severely disrupt our business and operations and may have a material adverse effect
on our financial condition and results of operations.
Several natural disasters and health hazards have struck mainland China in
recent years. In 2010, a major earthquake registering 7.1 on the Richter scale struck Qinghai Province. Our network equipment and other assets in the affected areas sustained some damage in the earthquakes, leading to service stoppage and other
disruptions in our operations in those areas. In March 2011, a major earthquake registering 9.0 on the Richter scale struck Japan, which affected our international communications services. In 2013, another major earthquake registering 7.0 on the
Richter scale struck Sichuan Province, and floods struck 18 provinces including Gansu and Heilongjiang Provinces, causing widespread damages to telecommunications equipment in the affected areas and resulting in disruptions of the telecommunications
services. In 2014, three major earthquakes registering 6.1, 6.5 and 6.6, respectively, on the Richter scale struck Yunan Province and another major earthquake registering 6.3 on the Richter scale struck Sichuan Province, causing severe damages to
telecommunications equipment as well as disruptions to telecommunications services in the affected areas. We are unable to predict the effect, if any, that any future natural disasters and health hazards may have on our business. Any future natural
disasters and health hazards may, among other things, significantly disrupt our ability to adequately staff our business, and may generally disrupt our operations. Furthermore, such natural disasters and health hazards may severely restrict the
level of economic activity in affected areas, which may in turn materially and adversely affect our business and prospects. As a result, any natural disasters or health hazards in the PRC or other regions in the world may have a material adverse
effect on our financial condition and results of operations.
The audit reports included in this annual report have been prepared by
our independent registered public accounting firm whose work may not be inspected fully by the Public Company Accounting Oversight Board and, as such, you may be deprived of the benefits of such inspection.
Our independent registered public accounting firm that issues the audit reports included in our annual reports filed with the U.S. Securities
and Exchange Commission, as auditors of companies that are traded publicly in the United States and a firm registered with the Public Company Accounting Oversight Board (United States), or the PCAOB, is required by the laws of the United States to
undergo regular inspections by the PCAOB to assess its compliance with the laws of the United States and professional standards.
- 13 -
Because we have substantial operations within the PRC and the PCAOB is currently unable to
conduct inspections of the work of our independent registered public accounting firm as it relates to those operations without the approval of the Chinese authorities, our independent registered public accounting firm is not currently inspected
fully by the PCAOB. This lack of PCAOB inspections in the PRC prevents the PCAOB from regularly evaluating our independent registered public accounting firm’s audits and its quality control procedures. As a result, investors may be deprived of
the benefits of PCAOB inspections.
Inspections of other firms that the PCAOB has conducted outside the PRC have identified deficiencies
in those firms’ audit procedures and quality control procedures, which may be addressed as part of the inspection process to improve future audit quality.
The inability of the PCAOB to conduct full inspections of auditors in the PRC makes it more difficult to evaluate the effectiveness of our
independent registered public accounting firm’s audit procedures or quality control procedures as compared to auditors outside the PRC that are subject to PCAOB inspections. Investors may lose confidence in our reported financial information
and procedures and the quality of our financial statements.
If the settlement recently reached between the SEC and the Big Four
PRC-based accounting firms (including the Chinese affiliate of our independent registered public accounting firm), concerning the manner in which the SEC may seek access to audit working papers from audits in China of US-listed companies, is not or
cannot be performed in a manner acceptable to authorities in China and the US, we could be unable to timely file future financial statements in compliance with the requirements of the Exchange Act.
In late 2012, the SEC commenced administrative proceedings under Rule 102(e) of its Rules of Practice and also under the Sarbanes-Oxley Act of
2002 against the mainland Chinese affiliates of the “Big Four” accounting firms (including the mainland Chinese affiliate of our independent registered public accounting firm). A first instance trial of the proceedings in July 2013 in the
SEC’s internal administrative court resulted in an adverse judgment against the firms. The administrative law judge proposed penalties on the Chinese accounting firms including a temporary suspension of their right to practice before the SEC,
although that proposed penalty did not take effect pending review by the Commissioners of the SEC. On February 6, 2015, before a review by the Commissioner had taken place, the Chinese accounting firms reached a settlement with the SEC whereby
the proceedings were stayed. Under the settlement, the SEC accepts that future requests by the SEC for the production of documents will normally be made to the CSRC. The Chinese accounting firms will receive requests matching those under
Section 106 of the Sarbanes-Oxley Act of 2002, and are required to abide by a detailed set of procedures with respect to such requests, which in substance require them to facilitate production via the CSRC. If they fail to meet specified
criteria, the SEC retains authority to impose a variety of additional remedial measures on the Chinese accounting firms depending on the nature of the failure. Remedies for any future noncompliance could include, as appropriate, an automatic
six-month bar on a single firm’s performance of certain audit work, commencement of a new proceeding against a firm, or in extreme cases the resumption of the recently-stayed proceeding against all four firms. The SEC also reserves the right to
resume those proceedings in circumstances where, notwithstanding the accounting firms’ compliance with the procedures in the settlement agreement, the SEC does not receive a production of documents which it considers satisfactory (for example
because of action or inaction by the Chinese authorities).
In the event that the SEC restarts the administrative proceedings, depending
upon the final outcome listed companies in the United States with major PRC operations may find it difficult or impossible to retain auditors in respect of their operations in the PRC, which could result in financial statements being determined to
not be in compliance with the requirements of the Exchange Act, including possible delisting. Moreover, any negative news about any such future proceedings against these accounting firms may cause investor uncertainty regarding China-based, United
States-listed companies and the market price of our ADSs may be adversely affected.
If the Chinese affiliate of our independent
registered public accounting firm were denied, even temporarily, the ability to practice before the SEC and we were unable to timely find another registered public accounting firm to audit and issue an opinion on our financial statements, our
financial statements could be determined not to be in compliance with the requirements of the Exchange Act. Such a determination could ultimately lead to the delisting of our ordinary shares from the NYSE or deregistration from the SEC, or both,
which would substantially reduce or effectively terminate the trading of our ADSs in the United States.
- 14 -
| Item 4. |
Information on the Company. |
| A. |
History and Development of the Company |
Our Restructuring and Initial Public Offering in 2002
We were incorporated under PRC laws on September 10, 2002 as a joint stock company with limited liability under the name
“China Telecom Corporation Limited.” As part of our initial restructuring, China Telecom Group’s telecommunications operations in Shanghai Municipality, Guangdong Province, Jiangsu Province and Zhejiang Province, together with the
related assets and liabilities, were transferred to us in consideration of 68,317,270,803 of our shares.
Following our restructuring,
China Telecom Group continues to be the holder of the licenses required for operating our telecommunications business. In accordance with the approval of the MIIT, we derive our exclusive rights to operate our business from our status as a
subsidiary controlled by China Telecom Group, and China Telecom Group must hold and maintain all licenses received from the MIIT in connection with our business for our benefits. The government currently does not charge license fees for the
telecommunications licenses held by China Telecom Group.
In 2002, we successfully completed our initial public offering of H shares and
raised approximately RMB10,659 million in aggregate net proceeds for us. Upon completion of our initial public offering, our H shares have been listed for trading on the Hong Kong Stock Exchange, and ADSs representing our H shares have been listed
for trading on the NYSE.
Industry Restructuring and Our Acquisition of the CDMA Business in 2008
Industry Restructuring in 2008
In 2008, pursuant to a joint announcement relating to the further reform of the telecommunications industry in the PRC issued by the MIIT, the
NDRC and the MOF, the following restructuring transactions took place in the telecommunications industry: (a) the acquisition by China Telecom Group of the assets of the CDMA network and the acquisition by us of the subscriber base of the CDMA
network then owned by China Unicom; (b) the acquisition by China Telecom Group of the basic telecommunications service business operated by China Satellite Communications Corporation, or China Satellite; (c) the merger between China Unicom
and China Netcom; and (d) the acquisition of China Railcom by China Mobile.
Our Acquisition of the CDMA Business
On July 27, 2008, we, China Unicom and CUCL entered into an acquisition agreement, or the CDMA Acquisition Agreement, pursuant to which we
agreed to acquire from CUCL the CDMA Business and related assets and liabilities (including the entire equity interest in China Unicom (Macau) Company Limited and 99.5% of the equity interest in Unicom Huasheng Telecommunications Technology Co.
Ltd., or Unicom Huasheng) for a total consideration of RMB43,800 million. The cost of the acquisition had been fully paid by us by February, 2010.
Related Transactions
Lease of capacity on the CDMA Network by our Company from China Telecom Group
On July 27, 2008, China Telecom Group, Unicom Group, and Unicom New Horizon Mobile Telecommunications Company Limited, or Unicom New
Horizon, a wholly-owned subsidiary of Unicom Group, entered into a CDMA network disposal agreement, pursuant to which Unicom Group and Unicom New Horizon sold the CDMA cellular telecommunications network constructed by Unicom New Horizon, or the
CDMA Network, to China Telecom Group for a consideration of RMB66,200 million, or the CDMA Network Acquisition. On October 1, 2008, China Telecom Group completed the acquisition of the CDMA Network. On July 27, 2008, we entered into a CDMA
network capacity lease agreement with China Telecom Group to lease the capacity on the CDMA Network from China Telecom Group. As we acquired from China Telecom Group certain assets and associated liabilities relating to the CDMA network in 2012, we
did not renew the CDMA network capacity lease agreement with China Telecom Group after it expired on December 31, 2012.
Our Acquisition from
China Telecom Group of the CDMA Network Assets and Associated Liabilities
On August 22, 2012, we and China Telecom Group
entered into an acquisition agreement, or CDMA Network Acquisition Agreement, pursuant to which we agreed to purchase from China Telecom Group certain assets and associated liabilities relating to the CDMA network located in 30 provinces,
municipalities and autonomous regions in the PRC for an initial consideration of RMB84,595.41 million, subject to an adjustment based on the change in the value of such assets and associated liabilities from March 31, 2012 to the completion
date, or the Mobile Network Acquisition. The Mobile Network Acquisition was completed on December 31, 2012, or the Completion Date, and the final consideration of the Mobile Network Acquisition was agreed to be RMB87,210.35 million, or the
Final Consideration.
- 15 -
Pursuant to the CDMA Network Acquisition Agreement, (i) RMB25,500 million of the Final
Consideration was paid in January 2013 and (ii) the balance of the Final Consideration, or the Deferred Payment, will be payable at any time on or before the fifth anniversary of the Completion Date. Payment of the Final Consideration was and
will be funded from our internal resources and relevant debt financing sources. The Company may, from time to time, prepay all or part of the Deferred Payment at any time after the Completion Date without any penalty until the fifth anniversary of
the Completion Date. The Company will pay interest on the outstanding amount of the Deferred Payment to China Telecom Group at half-yearly intervals and the interest will accrue from the day following the Completion Date. The interest rate will be
set at a five basis points premium to the yield of the five-year super AAA rated Medium Term Notes most recently published by the National Association of Financial Market Institutional Investors before the Completion Date and will be adjusted once a
year in accordance with the last yield of the five-year super AAA rated Medium Term Notes published by the National Association of Financial Market Institutional Investors at the end of each year. The interest rates for the first year, the second
year and the third year after the Completion Date are 4.83%, 6.25% and 5.11%, respectively. In the event any amount payable by the Company under the CDMA Network Acquisition Agreement is not paid when due, the Company will be subject to liquidated
damages on such amount at a daily rate of 0.03% of the arrears from the date following the applicable due date to the date when such amount has been paid in full.
Changes in Our Corporate Organization in 2013
On April 26, 2013, the Company entered into a disposal agreement with China Telecom Group, pursuant to which the Company has agreed to
sell to China Telecom Group an 80% equity interest in E-surfing Media, a subsidiary of the Company primarily engaging in providing platform operating services for mobile Internet video and Internet video and offering video services for subscribers
through cooperation with content providers, for an initial consideration of RMB1,195 million. The initial consideration was subject to an adjustment based on 80% of the change in the book value of the net assets of E-surfing Media during the period
from December 31, 2012 to the completion date of the disposal. The risks and rewards of the ownership of the equity interest in E-surfing Media were transferred to China Telecom Group on June 30, 2013. The final consideration was arrived
at RMB1,248 million and received by the Company by December 31, 2013.
On June 9, 2013, we set up a wholly-owned subsidiary,
iMUSIC Culture & Technology Co., Ltd., or iMUSIC, which engages in the provision of music production and related information services. The registered capital of iMUSIC is RMB250 million.
On August 19, 2013, we set up a subsidiary, Zhejiang Yixin Technology Co., Ltd., or Zhejiang Yixin, with Netease, Inc., a leading
Internet technology company in China, to launch “YiChat”, a mobile Internet multimedia instant messaging application for smartphones. Zhejiang Yixin has a registered capital of RMB10 million, of which 73% is owned by us and the remaining
27% is owned by Netease, Inc.
On December 16, 2013, China Telecom Global, a wholly-owned subsidiary of the Company primarily engaged
in the provision of international value-added network services, entered into an acquisition agreement with China Telecom Group, pursuant to which China Telecom Global has agreed to purchase from China Telecom Group 100% of the equity interest in
China Telecom (Europe) Limited, or China Telecom Europe, for an initial consideration of RMB261 million. The consideration was subject to an adjustment based on the change in the net asset value of China Telecom Europe from June 30, 2013 to the
completion date. The initial consideration has been paid within 15 Business Days upon the completion of the acquisition. The acquisition was completed on December 31, 2013, and the final consideration was RMB278 million, which was paid by
June 30, 2014.
Changes in Our Corporate Organization in 2014
On June 17, 2014, we set up a wholly-owned subsidiary, Chengdu E-store Technology Co., Ltd., which engages in software technology
development. The registered capital of Chengdu E-store Technology Co., Ltd.is RMB45 million.
Establishment of the Tower Company
On July 11, 2014, the Company, China United Network Communications Corporation Limited and China Mobile Communication Company Limited
entered into a Promoters’ Agreement for China Communications Facilities Services Corporation Limited to jointly establish the Tower Company. The registered capital of the Tower Company is RMB10 billion. The Company, China United Network
Communications Corporation Limited and China Mobile Communication Company Limited subscribed for 2.99 billion shares, 3.01 billion shares and 4.00 billion shares, respectively, of the Tower Company in cash at a par value of RMB1.00 per share,
representing a shareholding percentage of 29.9%, 30.1% and 40.0%, respectively. The Tower Company was registered on July 15, 2014 and was renamed as China Tower Corporation Limited on September 2, 2014. We had paid in our subscription of
the registered capital of the Tower Company by December 31, 2014. Our Company, China United Network Communications Corporation Limited and China Mobile Communication Company Limited are in discussions with a view to selling telecommunications
towers and ancillary facilities to the Tower Company.
- 16 -
The Tower Company is primarily engaged in the construction, maintenance and operation of
telecommunications towers as well as ancillary facilities. The Tower Company will have a significant effect on the growth of our 4G business and our results of operations. However, the operations of the Tower Company are subject to significant
uncertainties, please see “Item 3. Key Information – D. Risk Factors - Risk Relating to Our Business – The growth of our 4G business is subject to significant uncertainties involved in the operations of the Tower Company.” We
expect that in the long term we would benefit from the operations of the Tower Company in the following aspects: (i) we would leverage the rich resources of the Tower Company to promptly and effectively expand our 4G network coverage and
density, remedy the weakness of having relatively less base stations at 800 MHz bandwidth and improve our network competitive strength; (ii) we would enhance our long-term profitability by leveraging on the existing tower assets as well as the
co-use synergies made possible by the Tower Company; and (iii) as one of the major shareholders of the Tower Company, we would benefit from its future earnings and value enhancement.
- 17 -
Organizational Structure
Set out below is a chart illustrating our corporate structure and significant subsidiaries as of April 22, 2015:
- 18 -
| (1) |
Formerly known as China Telecom (Hong Kong) International Limited |
| (2) |
Formerly known as China Unicom (Macau) Company Limited. |
| (3) |
Formerly known as Unicom Huasheng Telecommunications Technology Co., Ltd. |
| (4) |
Formerly known as Bestpay Co., Ltd. |
In addition, our Company has a branch in each of 22
provinces, five autonomous regions and four centrally administered municipalities in the PRC. See “—Our Acquisition from China Telecom Group and Corporate Organization Restructuring” included elsewhere under this Item.
General Information
Our principal
executive offices are located at 31 Jinrong Street, Xicheng District, Beijing, PRC 100033 and our telephone number is (+86-10) 6642-8166. Our website address is www.chinatelecom-h.com. The information on our website is not a part of this annual
report. We have appointed CT Corporation System at 13th floor, 111 Eighth Avenue, New York, New York 10011 as our agent for service of process in the United States.
We are an integrated information service provider in the PRC with
full-service capabilities. Following our acquisition of the CDMA Business in 2008, we began to offer a comprehensive range of telecommunications services, including wireline voice services, mobile voice services, Internet access services,
value-added services, integrated information application services, telecommunications network resource services and lease of network equipment and other related services. See “—A. History and Development of the Company—Industry
Restructuring and Our Acquisition of the CDMA Business in 2008.”
Since 2005, we have started to implement our business strategy of
transformation from a traditional basic telecommunications service provider to a modern integrated information services provider. Specifically, we have enhanced our efforts in developing our non-voice services, such as Internet access services,
value-added services and integrated information application services, while we continue to strengthen our traditional services such as the wireline voice services, in achieving a more structurally optimized business and enhanced competitive
strength. We aim to provide differentiated and innovative services to create value for customers by leveraging on our integrated resources.
In January 2009, the MIIT issued to China Telecom Group, our controlling shareholder, a license to operate 3G business nationwide based on
CDMA2000 technology. We have been authorized by China Telecom Group to operate CDMA2000 3G mobile business in the PRC. We launched our CDMA2000 3G mobile services in March 2009 and have extended our CDMA2000 3G mobile services nationwide in the PRC.
In December 2013, the MIIT issued to China Telecom Group, our controlling shareholder, a license to operate 4G business nationwide based
on TD-LTE technology. We have been authorized by China Telecom Group to operate TD-LTE 4G mobile business in the PRC. We launched our TD-LTE 4G mobile services on February 14, 2014 and have extended our TD-LTE 4G mobile services to around 100
cities in the PRC.
In June 2014, China Telecom Group was approved by the MIIT, and authorized us to, commence the LTE FDD and TD-LTE
hybrid network trial in 16 cities in the PRC. In August, November and December, 2014, China Telecom Group was approved by the MIIT, and authorized us to, expand the LTE hybrid network trial to reach a total of 40, 41 and 56 cities, respectively. On
February 27, 2015, China Telecom Group was granted by the MIIT the permit, and authorized us, to provide 4G services based on LTE FDD technologies nationwide.
Our Operation Strategy
In 2014,
we continued to leverage on our economies of scale and focus on our data business to further increase both of our revenues and profits. In particular, we have implemented the following seven operational strategies:
| |
• |
|
We efficiently centralized operations in our 4G business and strengthened the collaborative development of 3G and 4G services; |
| |
• |
|
We created differentiated broadband products to enhance core competitive advantage in broadband services; |
| |
• |
|
We persisted in a terminal-led approach and maintained a prosperous industry value chain; |
| |
• |
|
We accelerated the Internet-oriented transformation of marketing channels and implemented the online-to-offline model; |
| |
• |
|
We reinforced our efforts in promoting various applications to enhance customer value; |
- 19 -
| |
• |
|
We deepened the reform in establishing market-driven resource allocation and operation mechanisms by sub-dividing performance evaluation units with performance contracts and promoting top-down service support system for
frontline units; and |
| |
• |
|
We focused on customers’ perceptions to promote the Internet-oriented transformation of services. |
Subscribers and Service Usage
Our
operating revenues depend largely on the size of our customer base, usage volume and the level and structure of our tariffs. The following table shows our selected operating data as of the dates and for the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
As of or for the year
ended December 31, |
|
| |
|
2012 |
|
|
2013 |
|
|
2014 |
|
| Wireline Voice Services: |
|
|
|
|
| Local wireline access lines in service (in millions) |
|
|
163.0 |
|
|
|
155.8 |
|
|
|
143.6 |
|
| Residential |
|
|
103.5 |
|
|
|
97.6 |
|
|
|
90.9 |
|
| Government and enterprises |
|
|
38.7 |
|
|
|
40.2 |
|
|
|
40.9 |
|
| Public telephones |
|
|
13.3 |
|
|
|
12.6 |
|
|
|
11.4 |
|
| Wireless local access |
|
|
7.5 |
|
|
|
5.4 |
|
|
|
0.4 |
|
| Wireline local voice usage (in billion pulses)(1) |
|
|
172.2 |
|
|
|
148.7 |
|
|
|
130.4 |
|
| Domestic long distance wireline usage (in billion minutes) (2) |
|
|
41.2 |
|
|
|
33.5 |
|
|
|
29.4 |
|
| International, Hong Kong, Macau and Taiwan long distance wireline usage (in billion minutes)(3) |
|
|
1.0 |
|
|
|
0.8 |
|
|
|
0.6 |
|
| Mobile Voice Services: |
|
|
|
|
|
|
|
|
|
|
|
|
| Mobile subscribers (in millions) |
|
|
160.6 |
|
|
|
185.6 |
|
|
|
185.6 |
|
| Mobile voice usage (in billion minutes) |
|
|
509.2 |
|
|
|
603.6 |
|
|
|
655.9 |
|
| Internet Access Services: |
|
|
|
|
|
|
|
|
|
|
|
|
| Wireline broadband subscribers (in millions) |
|
|
90.1 |
|
|
|
100.1 |
|
|
|
107.0 |
|
| 3G + 4G mobile internet traffic (in KTB) |
|
|
72.3 |
|
|
|
175.1 |
|
|
|
273.2 |
|
| Value-added Services |
|
|
|
|
|
|
|
|
|
|
|
|
| Mobile SMS Usage (in billion messages) |
|
|
55.8 |
|
|
|
64.2 |
|
|
|
64.6 |
|
| Mobile Color Ring Tone subscribers (in millions) |
|
|
92.2 |
|
|
|
102.0 |
|
|
|
96.6 |
|
| Wireline caller ID service subscribers (in millions) |
|
|
109.9 |
|
|
|
103.1 |
|
|
|
93.7 |
|
| Wireline Color Ring Tone subscribers (in millions) |
|
|
68.1 |
|
|
|
62.2 |
|
|
|
56.9 |
|
| (1) |
Pulses are the billing units for calculating local telephone usage fees. |
| (2) |
Includes calls originated by mobile subscribers that are carried over our long distance networks. |
| (3) |
Includes calls originated by subscribers of other operators that are carried through the international gateways of China Telecom Group. |
Our Products and Services
Wireline Voice Services
The total number of wireline telephone subscribers decreased to 143.6 million as of December 31, 2014 from 155.8 million as of
December 31, 2013.
Our wireline voice services include local wireline services, domestic long distance wireline services and
international, Hong Kong, Macau and Taiwan long distance wireline services. The total local wireline usage decreased by approximately 12.3% from 148.7 billion pulses in 2013 to 130.4 billion pulses in 2014. Total domestic long distance wireline
usage was 29,442 million minutes in 2014, representing a decrease of approximately 12.2% from 33,517 million minutes in 2013. Total usage of international, Hong Kong, Macau and Taiwan long distance wireline services in 2014 was
625 million minutes, representing a decrease of approximately 23.0% from 812 million minutes in 2013.
The decrease in the
number of wireline telephone subscribers and our wireline voice service usage was primarily attributable to the continuing decline in tariffs for mobile services, the increasing penetration of mobile voice and other alternative communications means,
such as Over-the-Top messaging services and the migration of some of our wireline telephone subscribers to our mobile services. The rate of decrease of our wireline voice service usage has slowed down in 2014 compared to 2013 primarily as a result
of our in-depth integration of wireline voice services with mobile, broadband, value-added and integrated information services to stabilize usage.
- 20 -
Mobile Voice Services
Our mobile voice services include local calls, domestic long distance calls, international long distance calls, intra-provincial roaming,
inter-provincial roaming and international roaming. In 2014, amid the intense market competition, we experienced relatively slow growth in our mobile services. As of December 31, 2014, the number of subscribers of our mobile services stayed
roughly the same as that as of December 31, 2013. The number of subscribers of our 3G and 4G services increased from 103.1 million as of December 31, 2013 to 118.6 million as of December 31, 2014, representing 63.9% of our
mobile subscribers. The mobile voice usage increased to 655.9 billion minutes in 2014 from 603.6 billion minutes in 2013.
In 2014, we
focused on developing our 3G and 4G services. We seek to further expand our mobile subscriber base through marketing efforts in open channel sales of mobile handsets.
In addition, we continued to enhance the scale development of industry applications to attract government and enterprise subscribers.
Internet Access Services
Our Internet access services consist of wireline Internet access services, including dial-up and broadband services, and wireless Internet
access services. Internet access services have become increasingly important in our revenue structure. We offer Internet access services through integrated and customizable service plans along with other services, which creates the synergy that
mutually benefits our Internet access, mobile and other services.
In 2014, we continued to accelerate the optic fiber upgrade of our
network and to increase the broadband connection speed. As of December 31, 2014, more than 90% of the urban areas were covered with at least 20Mbps customer access bandwidth, up by 5 percentage points over the previous year. The number of our
wireline broadband subscribers increased by 6.8% to 107.0 million as of December 31, 2014 from 100.1 million as of December 31, 2013. Among these subscribers, fiber-to-the-home subscribers, or FTTH subscribers, reached
42.6 million as of December 31, 2014, accounting for approximately 40% of the total wireline broadband subscribers, representing an increase of 13% over 2013. In addition, by utilizing our competitive wireline broadband access capacity, we
continued to develop and incorporate new applications and services in order to build customer loyalty and increase the overall value of our services. Moreover, we further enhanced the coverage and access capabilities of our wireless broadband
network. In 2014, our total handset data traffic reached 273KTB, representing an increase of 56.0% over 2013, and the monthly average mobile data traffic per handset subscriber reached 227MB.
Value-Added Services
Our value-added services comprise primarily wireline and mobile value-added services.
Our wireline value-added services include our wireline voice related services, such as caller ID services, Color Ring Tone services and short
messaging services, or SMS. Color Ring Tone refers to a service where subscribers can customize the answer ring tone heard by the caller from a wide selection of songs, melodies, sound effects or voice recordings to replace the monotonous ring
connecting tone. Our wireline value-added services also include wireline Internet related services, such as Internet data center, or IDC, services, IP-virtual private dial-up network, or IP-VPDN, services, and Internet protocol TV, or IPTV,
services.
Our mobile value-added services primarily consist of (i) function-based services, such as mobile Color Ring Tone services,
multimedia messaging services, or MMS and email services, (ii) content-based services and applications, such as content services relating to music, videos and books, as well as (iii) industry-specific applications for government and
enterprises, such as government administration and supervision, transport and logistics, digital hospital and integrated e-Surfing radio-frequency identification, or RFID. Our broad portfolio of mobile Internet products and applications has gained
wide market acceptance and contributed to the development of our mobile value-added services. The usage volumes of music and video content services through our mobile network increased significantly. Our industry-specific applications continue to
gain market acceptance.
The number of subscribers to our wireline caller ID services was 93.7 million as of December 31, 2014,
a decrease from 103.1 million as of December 31, 2013. The usage volume of our mobile SMS increased by 0.5% from 64.2 billion messages in 2013 to 64.6 billion messages in 2014. The number of subscribers to our mobile Color Ring Tone
services decreased to 96.6 million as of December 31, 2014 from 102.0 million as of December 31, 2013.
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Integrated Information Application Services
Our integrated information application services consist of “Best Tone” services, IT services and IT application services as well as
“V-Net” services. “Best Tone” service provides our customers with phone number storage, enquiry and call transfer services, as well as various information needed in daily life. IT services and IT application services include
information technology-based integrated solutions such as system integration, outsourcing, special advisory, information application, knowledge services and software development. “V-Net” services refer to products and applications, such as
music, video, software and recharge of online game cards, provided through broadband access and operated on a nationwide basis.
In 2014,
our integrated information application services continued to expand. We launched a new smart home product, “Joy me”, which integrates the network, equipment and applications used in homes, and an Internet financial product,
“Tianyibao”. To further enhance these services, we seek to develop services incorporating new technologies such as cloud computing and Internet of Things.
Telecommunications Network Resource Services and Lease of Network Equipment
Our telecommunications network resource services primarily include services relating to our optic fiber and circuits, such as optic fiber and
circuit leasing; virtual private network, or VPN, and bandwidth leasing. We offer telecommunications network resource services as certain of our total telecommunications solutions to large enterprise customers, including government agencies, large
corporations and institutions. Many of these customers choose to lease our circuits to form VPNs based on various technologies, and links their local area networks at different locations. We also collaborate with a number of international
telecommunications service providers to provide global communications services for multinational corporations. In addition, we lease network equipment to large enterprise customers.
In 2014, we continued to focus on government, financial and large enterprise customers. Our marketing efforts focused on providing global
one-stop shop, tailored services and comprehensive solutions to these customers. These customers can enjoy a full range of consulting, trouble-shooting, billing and collection, and technical support services by contacting any designated account
manager in our Company.
Other Services
Our other services primarily include sales and repairs and maintenance of equipment as well as the resale of mobile services.
Our Customers and Brand Management
In 2014, we continued to promote our full-service brand names under our enterprise brand “China Telecom,” improved our brand
management system, and further enhanced “e-Surfing” as our leading brand name through, among others, promoting our “e-Surfing 4G” mobile terminals as well as providing contents for both “e-Surfing” 3G and 4G
smartphones. Through providing contents to our services on a multi-dimensional level and our coordinated marketing efforts, we continue to enhance the brand recognition and market influence for “e-Surfing.”
Tariffs
Prior to May, 2014, the
levels and categorization of most of our current tariffs were subject to regulation by various government authorities. As a result of the governmental effort to gradually ease the regulations on the tariffs, the MIIT and the NDRC issued the Notice
on Implementing the Market Based Tariffs for Telecommunications Services, pursuant to which, effective from May 10, 2014, telecommunications operators are permitted to set the tariffs of all telecommunications services based on the cost,
customers’ demand and market conditions. See “—Regulatory and Related Matters—Tariff Setting” included elsewhere under this Item.
Wireline Voice Services
For our local wireline telephone services, we charge a usage fees based on call usage.
Currently, all domestic long distance wireline services using public switched telephone network, or PSTN, are charged at the unified rate with
a discount rate during off-peak hours.
We offer international, Hong Kong, Macau and Taiwan long distance wireline services through the
international gateways of China Telecom Group. China Telecom Group negotiates bilateral settlement arrangements and rates based on the international settlement standards in the telecommunications industry, and we follow those settlement arrangements
and rates.
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Mobile Voice Services
Generally we charge subscribers of our mobile voice services the following categories of tariffs: local usage charges, long-distance call
charges and roaming charges.
With respect to international, Hong Kong, Macau and Taiwan roaming of our mobile voice services, we settle
roaming revenues in accordance with roaming agreements between China Telecom Group and each of the international, Hong Kong, Macau and Taiwan operators.
Internet Access Services, Value-added Service and Integrated Information Application Services
We determine tariffs for these services according to market conditions.
Telecommunications Network Resource Services and Lease of Network Equipment
Telecommunications Network Resource Services. We determine the tariffs for our telecommunications network resource services according to
market conditions. We generally charge a fee for installation and testing for our telecommunications network resource services and a fixed monthly fee. We offer various promotion discounts for our customers who wish to upgrade to higher bandwidth
services. These promotion discounts have stimulated demand for our telecommunications network resource services in recent years.
Lease
of Network Equipment. We determine the tariffs for our lease of network equipment according to market conditions. We generally charge monthly fees for leased network equipment on a discount basis and leased network equipment tariffs have
generally decreased in recent years. We provide different discounts to our customers on a case by case basis.
Interconnection and Roaming
Arrangements
Interconnection
Interconnection refers to various arrangements that permit the connection of our networks to other mobile or fixed-line networks. These
arrangements provide for the sharing and settlement of revenues from the base usage charges and, if applicable, roaming charges and domestic and international long distance charges.
China Telecom Group entered into interconnection settlement agreements with other telecommunications operators, including Unicom Group and
China Mobile Group. We entered into an interconnection settlement agreement, as amended, with China Telecom Group, which allows our networks to interconnect with China Telecom Group’s networks as well as networks of the other telecommunications
operators, with whom China Telecom Group had interconnection arrangements. Our interconnection arrangements with China Telecom Group and other telecommunications operators enable our subscribers to communicate with the subscribers of those operators
and to make and receive local, domestic and international long distance calls. All interconnection and settlement arrangements among public wireline telephone, mobile, and Internet networks in the PRC are governed by the Telecommunications
Regulations and the rules on interconnection arrangements and settlement promulgated by the MIIT. See “— Regulatory and Related Matters—Interconnection” included elsewhere under this Item.
International Roaming
We provide international roaming services across different mobile network standards, including CDMA, CDMA to Global System for Mobile
Communications, or GSM, CDMA to Wideband Code Division Multiple Access, or WCDMA, and LTE to WCDMA, and are planning to provide 4G international roaming services on LTE to LTE networks, to our subscribers, which allow them to access mobile
telecommunications services and use voice, SMS and data services while they are physically outside of their registered service area but in the coverage areas of other mobile telecommunications networks in other countries and regions with which we or
our GSM/WCDMA roaming sponsor have roaming arrangements.
As of December 31, 2014, subscribers of our mobile services can roam on
mobile networks in more than 200 countries and regions based on international roaming agreements between China Telecom Group and the local CDMA operators or GSM/WCDMA roaming providers. A mobile service subscriber using roaming services is charged
at our roaming usage rates for both incoming and outgoing calls, plus applicable long distance tariffs. With respect to international roaming, we settle roaming revenues and expenses with international operators in accordance with roaming agreements
between China Telecom Group and each of the international operators. China Telecom Group has also agreed to arrange for us to participate in its future international roaming arrangements.
- 23 -
Marketing, Sales, Distribution and Customer Services
Marketing Sales and Distribution
Our marketing strategy is to establish our image as a full-service telecommunications service provider and utilize our comprehensive services
platform and nationwide marketing and distribution network. We have devoted substantial efforts in advertisements to promote recognition of and loyalty to our products and services. In order to respond to market competition as well as attract and
motivate customers to use our services, we have also grouped certain of our local voice, long distance voice and data services, differentiated price for one or more products and combined certain products into one integrated service plan to targeted
customers to address their telecommunications needs.
In order to achieve the scale development of our business, we tailored products and
marketing strategies to target different customer groups. For the government and enterprise market, we focused on the development of key industry-specific applications for government agencies, corporations and financial institutions, to drive the
scale development of mid-to-high-end mobile subscriber base. For the student market, we emphasize the marketing of smartphones, broadband and e-Surfing products and services. We promoted customer-selected service packages to our residential
customers and have increased the synergy between our mobile services and wireline broadband services. We seek to further expand our business in the rural areas through establishing distribution channels, bundled promotional plans and organized
marketing activities. For the overseas market, we continue to focus on overseas carriers, overseas Chinese companies and multinational corporations. Our overseas network coverage continues to expand, while we are improving our overseas distribution
channels.
We implement our marketing strategy through an integrated sales and distribution channel network, which covers:
(i) dedicated service channel comprising customer managers specifically assigned to market our services to large enterprises, communities and rural areas; (ii) electronic-based service channel such as customer service hotlines, online
service centers and third-party e-commerce platforms; (iii) business outlet channel, including self-owned and third-party business outlets; and (iv) mobile handset chain stores, electronics chain stores, supermarkets and large-scale
telecommunications equipment distribution stores. As part of our strategy to provide integrated services, we continue to enhance information sharing with respect to information relating to sales and distribution across the integrated sales and
distribution channel network. In 2014, sales in our self-owned business outlets increased primarily due to enhancement of the sales function at our self-owned business outlets. Open channel sales continue to grow through cooperation with well-known
third-party business outlets, e-commerce platforms, electronics chain stores, top retail stores and their affiliated stores.
In 2014, we
continued to leverage on the growing mobile subscriber base to invigorate the handset value chain, and further stimulated the handset supply and sales through subsidies and direct supply to sales outlets. The portfolio of handsets offered was
further enlarged and the cost performance was further enhanced. In 2014, we offered over 1,300 3G terminal models, including over 300 3G smartphones priced around RMB1,000 per unit, and nearly 100 4G terminal models to our customers.
Furthermore, we have adopted various marketing approaches and initiatives, such as customer experience, customer relationship management, SMS,
telesales, sales plans and joint promotion with our business partners such as Internet portal companies and software development companies, to promote our products and services, in particular, our value-added services.
Customer Service
We provide customer services through all channels on our integrated sales and distribution channel network and continue to enrich our customer
services channels by partnering with third-party Internet-based channels, including launching customer service platforms on “Yichat” and “Wechat” two mobile messaging applications, as well as “Weibo”, a Chinese
microblogging website, the users for which have reached over 127 million in the aggregate, as of December 31, 2014. Our customer services typically include service inquiries, service applications, customers’ complaints, product and
service promotions, service initiation and termination, payment reminder services and emergency services. Through establishing and implementing our customer full-service standard, we have significantly improved our basic customer services, such as
service processing time, request responding time and providing service related and other information to customers through text messages.
Information Technology System
We
employ our information technology, or IT, system to support our wireline voice services, mobile voice services and other services. In recent years, through continuous upgrading, our IT system has the capability to support our wireline, mobile and
other services on an integrated basis and to support other services related operations such as account opening, billing and customer services.
- 24 -
Network System
Our network has extensive coverage and scale and employs a variety of advanced technologies and suitable architecture. It offers comprehensive
functions and a reliable operation. In addition, it supports a comprehensive range of end-to-end telecommunications services and enables customized products to be delivered for a variety of telecommunications needs. Our network system is managed and
operated by our experienced network management and maintenance teams and is supported by our strong research and development capabilities. And in light of future advances in technology, we have formulated viable plans to migrate our network system
efficiently to the next generation.
On December 31, 2012, we completed the acquisition from China Telecom Group of certain assets
and associated liabilities relating to the CDMA network located in 30 provinces, municipalities and autonomous regions in the PRC. In addition, we lease certain CDMA network facilities in Xizang Autonomous Region from China Telecom Group and have
the exclusive right to use and operate such CDMA network to provide our CDMA mobile services. See “Item 4. Information on the Company—A. History and Development of the Company—Our Acquisition from China Telecom Group of the CDMA
Network Assets and Associated Liabilities” and “Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions” for details.
Network Architecture
Our network system consists of access networks, data networks, core networks, transport networks, service networks and support networks.
| |
• |
|
Access networks: Access networks include wireline access network based on copper cables and optic fibers and wireless access network based on CDMA, TD-LTE and FDD, which are directly connected to customers to provide
data and voice services. |
| |
• |
|
Data networks: Data networks include Internet network and basic data network, and provide network support for all telecommunications services based on IP. |
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• |
|
Core networks: Core networks include our wireline telephone network, mobile core network, and support our basic telecommunications services. |
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• |
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Transport networks: Transport networks provide electronic transmission of various service signals for access networks, data networks and core networks. |
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Service networks: The service networks provide the platform and ancillary systems for a variety of value-added services and application products. |
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Support networks: Support networks include signaling networks, digital synchronous networks and various network management systems, in order to support the reliable and effective operation of our networks and services
at all levels. |
Equipment procurement
We purchase most of our network equipment from leading international and domestic suppliers. We purchase a variety of network equipment from
domestic suppliers, such as transport equipment and local switches. We make most of our purchases through competitive tenders primarily based on product and service quality, system compatibility and price.
Purchases from our five largest suppliers of telecommunications equipment accounted for approximately 35.0% of our total amount of annual
purchases in 2014. Purchases from our single largest supplier of telecommunications equipment accounted for approximately 10.5% of our total amount of annual purchases in 2014.
Competition
Following the
industry restructuring in 2008, China Unicom and our Company have full-service capabilities and compete with each other in both wireline and wireless telecommunications services. China Mobile continues to be the leading provider of mobile
telecommunications services in the PRC and competes with us in mobile telecommunications services and other telecommunications services. In December 2013, China Mobile received a license from the MIIT to operate fixed-line telecommunications
businesses, leading to intensified competition in this sector.
Since the PRC’s accession to the WTO, foreign operators have been
permitted to gradually increase their investments in the telecommunications industry in the PRC. Like domestic service providers, foreign operators are subject to the licensing requirements of the MIIT. In addition, investments by foreign operators
may not exceed limits set forth in the relevant laws and regulations with respect to the amount of investment and percentage of total ownership interests that foreign operators are permitted to make in telecommunications enterprises in the PRC. For
example, the foreign ownership in basic telecommunications services will be subject to a limit of 49.0%. See “—Regulatory and Related Matters—Licensing” included elsewhere under this Item.
- 25 -
We also face increasing competition from other competitors outside the telecommunications
industry. Television cable companies providing fixed-line broadband services, Internet services providers and mobile software and application developers (such as Over-the-Top messaging services providers), among others, are competing with us in
voice or data services.
In recent years, the PRC Government has taken various initiatives to encourage competition in the
telecommunications industry, such as the three-network convergence policy and the policy encouraging non-State owned companies to enter the industry. In May 2010, the PRC State Council issued Certain Opinion on Encouraging and Guiding the Sound
Development of Private Investment, encouraging private investment in industry sectors that are mainly state-controlled, such as basic telecommunications services. In June 2012, the MIIT issued Opinions on Encouraging and Guiding Private Investment
in the Telecommunications Industry, encouraging private-sector investment in the telecommunications industry. On May 17, 2013, the MIIT issued the Trial Plan of Resale of Mobile Telecommunications Services, pursuant to which the MIIT would
grant qualified companies mobile virtual network operator licenses which would allow them to purchase mobile telecommunications services in bulk from mobile networks operators and resell such services to customers. In an effort to further encourage
private-sector investment in the broadband network construction and business operation, as well as encourage private capital to enter into the telecommunications market through equity investment, the State Council issued the Notice on the
“Broadband China” Policy and the Implementation Plan on August 1, 2013 and Certain Opinion on Promoting Information Consumption and Stimulating Domestic Demand on August 8, 2013, and the MIIT also issued the Informationization
Development Plan on September 29, 2013 and the Notice on Opening the Broadband Access Market to Private Capital on December 25, 2014. As a result, the competitive landscape in the PRC telecommunications industry may further diversify,
causing more intensified competition. As of April 15, 2015, the MIIT has issued mobile virtual network operator licenses to 42 private enterprises, of which 26 enterprises have entered into resale contracts for telecommunications services with
us. Starting the second quarter of 2014, 15 mobile virtual network operators who entered into resale contract with us start to offer mobile telecommunications services in over one hundred PRC cities.
Trademarks
We conduct our
business under the “China Telecom” brand name and logo. Currently, China Telecom Group owns certain trademarks in the PRC, some of which have been registered with the Trademark Office of the PRC State Administration for Industry and
Commerce, or the Trademark Office, and some of which are in the process of being registered with the Trademark Office. China Telecom Group has executed a trademark license agreement with us. Under this agreement, China Telecom Group agreed to grant
to us and our subsidiaries the right to use these trademarks upon the completion of the registration on a royalty-free basis until December 31, 2015, which is automatically renewable for three more years at our option. See “Item 7. Major
Shareholders and Related Party Transactions—B. Related Party Transactions—Ongoing Related Party Transactions between Us and China Telecom Group—Trademark License Agreements.”
Regulatory and Related Matters
Overview
The
PRC’s telecommunications industry is subject to extensive government regulation. A number of central government authorities have regulatory responsibilities for various aspects of the telecommunications industry. These authorities primarily
include:
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• |
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The MIIT, which is responsible for, among other things: |
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formulating and enforcing industry policies and regulations as well as technical standards; |
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granting telecommunications service licenses; |
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supervising the operations and quality of service of telecommunications service providers; |
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allocating and administering telecommunications resources such as spectrum and numbers; |
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together with other relevant regulatory authorities, including the NDRC, regulating tariff charging mechanisms for telecommunications services; |
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formulating interconnection and settlement arrangements between telecommunications networks; and |
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maintaining fair and orderly market competition among service providers. |
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Provincial communications administrations under the MIIT, which oversee the implementation of the Ministry’s regulations and exercise regulatory authorities delegated by the Ministry within their respective
provinces, autonomous regions and centrally administered municipalities. |
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• |
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The NDRC approves investment and finance projects exceeding certain capital expenditure amounts as well as foreign investment projects exceeding certain investment amounts. |
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In order to provide a uniform regulatory framework to encourage the orderly development of the
telecommunications industry, the PRC government is in the process of drafting a telecommunications law. We expect that, if and when the telecommunications law is adopted by the National People’s Congress or its Standing Committee, the highest
state legislative body in the PRC, it will become the basic telecommunications statute and provide a regulatory framework for the telecommunications industry in the PRC.
Telecommunications Regulations
The PRC’s State Council promulgated the Telecommunications Regulations, which became effective as of September 25, 2000 and were
amended on July 29, 2014 by the Decision of the State Council on Amending Certain Administrative Regulations. The Telecommunications Regulations are substantially consistent with, and are primarily intended to streamline and clarify, the then
existing rules and policies for the telecommunications industry. The Telecommunications Regulations provide the primary regulatory framework for the PRC’s telecommunications industry in the interim period prior to the adoption of the
telecommunications law.
The Telecommunications Regulations are intended to develop a transparent and fair regulatory environment to
encourage fair and orderly competition and development in the telecommunications industry. The Telecommunications Regulations address all key aspects of telecommunications operations, including, among others, entry into the telecommunications
industry, network interconnection, telecommunications resource allocation, tariffs and service standards.
Licensing
The Telecommunications Regulations adopt the existing regulatory distinction between basic and value-added telecommunications services, which
are subject to different licensing requirements. Basic telecommunications services include, among others, wireline local and domestic long distance telephone services, international telecommunications services, mobile communications services (such
as 900/1800MHz GSM, 800MHz CDMA, 3G and 4G mobile communications services), satellite communications services, paging services, data communications services (such as Internet data transmission services, international data communications services),
trunking services, network access services and domestic and international telecommunications facility services. Value-added telecommunications services include, among others, value-added services provided over wireline telephone networks (e.g.,
telephone information, call center, voice mail and video conferencing services), value-added services provided over mobile networks, value-added services provided over Internet networks (e.g., Internet data center and Internet access and content
services) and value-added services provided over other data networks (e.g., computer information, e-mail and electronic data interchange services).
Providers of any basic telecommunications services as well as providers of value-added services in two or more provinces, autonomous regions
and centrally administered municipalities in the PRC must apply for licenses from the MIIT. In accordance with the approval of the MIIT, we derive our exclusive rights to operate our business from our status as a subsidiary controlled by China
Telecom Group, which holds the licenses required for operating our telecommunications business. In January 2009, China Telecom Group received a license from the MIIT to operate 3G services nationwide, which permits China Telecom Group to provide 3G
services based on CDMA2000 technology. We have been authorized by China Telecom Group to operate 3G services nationwide based on CDMA2000 technology. In December 2013, China Telecom Group received a license from the MIIT to operate 4G services
nationwide, which permits China Telecom Group to provide 4G services based on TD-LTE technology. We have been authorized by China Telecom Group to operate 4G services nationwide based on TD-LTE technology. In June 2014, China Telecom Group was
approved by the MIIT, and authorized us, to commence the LTE FDD and TD-LTE hybrid network trial in 16 cities in the PRC. In August, November and December, 2014, China Telecom Group was approved by the MIIT, and authorized us, to expand the LTE
hybrid network trial to reach a total of 40, 41 and 56 cities, respectively. On February 27, 2015, China Telecom Group was granted by the MIIT the permit, and authorized us, to provide 4G services based on LTE FDD technologies nationwide.
After its accession to the WTO in December 2001, the PRC promulgated the Administrative Regulations on Telecommunications Companies with
Foreign Investment, effective on January 1, 2002, implementing its commitments to the WTO. Those commitments include the gradual reduction of foreign ownership restrictions in the telecommunications industry and the step-by-step opening of the
telecommunications market in the PRC to foreign operators. According to those regulations, enterprises with foreign investment may operate basic and value-added telecommunications services subject to the approval of the MIIT and the Ministry of
Commerce (formerly the Ministry of Foreign Trade and Economic Cooperation). Certain limitations have been placed on the total registered capital of, and maximum foreign shareholdings in, such enterprises. However, the presence or absence of foreign
investments in an applicant for telecommunications licenses will presumably bear no direct relation to the decision on whether to issue licenses, inasmuch as the issuance of new licenses is governed by a separate set of rules and regulations. In
recent years, the PRC gradually fulfilled the market-opening commitments it made to the WTO and lifted many restrictions for foreign investors and service providers in respect of telecommunications services. The remaining restrictions regarding
mobile services, value-added telecommunications services and fixed line services are as follows.
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For mobile voice and data services: |
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there is no longer any geographic restriction and the foreign ownership shall be no more than 49.0%. |
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For value-added telecommunications services: |
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there is no longer any geographic restriction and the foreign ownership shall be no more than 50.0%. |
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For fixed line services: |
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• |
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there is no longer any geographic restriction and the ownership shall be no more than 49.0%. |
The MIIT has promulgated the Administrative Measures for the Licensing of Telecommunications Business Operations, which became effective on
April 10, 2009. Those regulations apply to the application for, and examination and approval of, telecommunications business licenses in the PRC.
Pursuant to the Circular on the Framework Plan for the China (Shanghai) Pilot Free Trade Zone issued by the State Council on
September 18, 2013, qualified foreign investment enterprises will be permitted to provide specific value-added telecommunications services in the China (Shanghai) Pilot Free Trade Zone, subject to protections on Internet information security
and approval by the State Council in case of a breakthrough in the limitations provided for under the administrative regulations.
Tariff Setting
Prior to May 10, 2014, under the Telecommunications Regulations, telecommunications tariffs are categorized into government fixed tariffs,
government guidance tariffs and market based tariffs. The telecommunications providers are permitted to set tariffs for certain services provided the tariff levels are below the tariff ceilings set by the MIIT and the NDRC.
As a result of the governmental effort to gradually ease the regulations on the tariffs, on May 5, 2014, the MIIT and the NDRC issued the
Notice on Implementing the Market Based Tariffs for Telecommunications Services. Pursuant to this Notice, effective from May 10, 2014, the government fixed tariffs and the government guidance tariffs are abolished and telecommunications
operators are permitted to set the tariffs of all telecommunications services based on the cost and market conditions. The Telecommunications Regulations were subsequently amended on July 29, 2014 by the Decision of the State Council on
Amending Certain Administrative Regulations to reflect this policy change as well as other amendments.
Interconnection
Under the Telecommunications Regulations and the Administrative Rules on Interconnection between the Public Telecommunications Networks
promulgated by the MII in May 2001, as amended in September 2014, major telecommunications operators in the PRC cannot refuse requests for interconnection and must enter into interconnection agreements upon request by other service providers.
Interconnection agreements must be reported to the MIIT. Telecommunications operators must ensure the smooth interconnection pursuant to the interconnection agreements as well as the applicable regulations and may not unilaterally terminate the
interconnection.
The Telecommunications Regulations further provide that the technical standards and settlement methods for network
interconnections be formulated by the MIIT. In accordance with these regulations, China Telecom Group has entered into various interconnection agreements with other telecommunications service providers, including China Mobile and China Unicom.
On December 30, 2013, the MIIT issued the Guidance Opinions on Building New National Network Interconnection Hubs, pursuant to which
seven new interconnection hubs altogether have been built in Chengdu, Wuhan, Xi’an, Shenyang, Nanjing, Chongqing and Zhengzhou, in addition to the three existing interconnection hubs in Beijing, Shanghai and Guangzhou. The operations of these
new interconnection hubs have significantly improved the quality and speed of interconnection between the telecommunications networks.
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The MIIT issued the Notice on Public Telecommunications Network Interconnection Settlement and
Relay Fees Allocation in October 2003 and two Notices on Adjustment to Settlement Standards for Interconnection Fees of Wireline Local Telephone Networks in October 2006 and April 2009, respectively, which provided for interconnection settlement
arrangement standards for local inter-district calls between wireline local telephone operators as well as public telecommunications network. In November 2009, the MIIT issued the Notice on Adjustment to Settlement Standards for Interconnection Fees
of Public Telecommunications Network and the Notice on the Settlement Standards for Interconnection Fees of TD-SCDMA, which provided for adjustments to certain interconnections settlement standards between telecommunications operators. Effective
from January 1, 2014, some of the settlement standards have been further adjusted pursuant to the Notice on Adjustment to Settlement Standards for Interconnection Fees of Public Telecommunications Network issued by the MIIT on December 17,
2013. Prior to January 1, 2014, when a mobile user of a basic telecommunications operator (excluding China Mobile’s TD-SCDMA 157 and 188 prefix numbers users) initiates a call to a mobile user of another basic telecommunications operator,
the settlement charge is set uniformly at a rate of RMB0.06 per minute payable by the basic telecommunications operator originating the call to the basic telecommunications operator receiving the call. In the event a China Mobile’s TD-SCDMA 157
and 188 prefix numbers user initiates a call to a user of our Company or China Unicom within the scope of local network, China Mobile will pay a settlement charge of RMB0.012 per minute to our Company or China Unicom. With effect from
January 1, 2014, when a mobile users of our Company or China Unicom initiates a call to a mobile user of China Mobile (not including TD-SCDMA 157 and 188 prefix numbers users), the interconnection settlement charges payable by our Company or
China Unicom to China Mobile will be adjusted from the prevailing rate of RMB0.06 per minute to RMB0.04 per minute. Other existing voice interconnection settlement standards remain unchanged. The MIIT will assess the above interconnection settlement
policy once every two years based on the development conditions of the telecommunications market and will make adjustments when appropriate. Meanwhile, the SMS interconnection settlement standard is adjusted from RMB0.03 per message to RMB0.01 per
message, and the MMS interconnection settlement standard is adjusted from RMB0.10 per message to RMB0.05 per message.
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The following table sets forth selected interconnection revenues sharing and settlement
arrangements for local calls and domestic long distance calls:
|
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| Network from Which Calls Originated |
|
Network at Which Calls Terminated |
|
Current Main Settlement Arrangement |
| Mobile operator |
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Wireline local operator or transferred through mobile operator’s long distance network to wireline local operator |
|
(1) Mobile operator collects the cellular usage charge from its subscribers
(2) Mobile operator pays RMB0.06 per minute to wireline operator.
(3) Starting January 1, 2010, mobile operator (China Mobile) pays RMB0.012 per minute to
wireline operator for calls originated from TD-SCDMA“157” or “188” prefix phone numbers in local areas |
|
|
|
| Wireline local operator |
|
Mobile local operator |
|
(1) Wireline operator collects the usage charge from its subscribers
(2) No revenues sharing or settlement prior to June 1, 2010. Wireline operator pays RMB0.001 per minute to mobile operator after June 1, 2010 |
|
|
|
| Wireline operator |
|
Transferred through wireline operator’s long distance network to mobile operator |
|
(1) Wireline operator collects the usage charge from its subscribers
(2) Wireline operator pays RMB0.06 per minute to mobile operator |
|
|
|
| Wireline local operator A |
|
Wireline local operator B |
|
(1) Operator A collects the usage charge from its subscribers
(2) In the case of local calls from operator A not using operator B’s local inter-district trunk circuit, operator A pays 50.0% of usage charge to
operator B (3) In the case of local inter-district calls from operator A using
operator B’s local inter-district trunk circuit, operator A pays no more than RMB0.06 per minute to operator B |
|
|
|
| Mobile operator A |
|
Mobile local operator B or transferred through mobile operator A’s long distance network to mobile operator B |
|
(1) Mobile operator A collects the cellular usage charge from its subscribers
(2) Prior to January 1, 2014, mobile operator A pays RMB0.06 per minute to mobile
operator B. Starting from January 1, 2010, mobile operator A (China Mobile) pays RMB0.012 per minute to mobile operator B for calls originated from TD-SCDMA “157” or “188” prefix phone numbers users in local areas. Starting
from January 1, 2014, mobile operator A (China Telecom or China Unicom) pays RMB0.04 per minute to mobile operator B (China Mobile) for calls originated from a mobile user of operator A (China Telecom or China Unicom) to a mobile user of operator B
(China Mobile) (not including TD-SCDMA 157 and 188 prefix numbers). |
- 30 -
The following table sets forth selected current main interconnection revenues sharing and
settlement arrangements for PSTN international long distance calls, including calls originated from and terminated in Hong Kong, Macau and Taiwan:
|
|
|
|
|
| Network from Which Calls Originated |
|
Network at Which Calls Terminated |
|
Current Main Settlement Arrangement |
| Domestic wireline local or mobile operator A |
|
Without using the carrier identity code of operator B, through the domestic and international long distance network of operator B |
|
(1) Operator A collects the tariff from the subscribers
(2) Operator A retains RMB0.06 per minute, and operator B gets the rest of the international long distance tariff. |
|
|
|
|
|
Using the carrier identity code of operator B, through the domestic and international long distance network of operator B |
|
(1) Operator B collects the tariff from the subscribers
(2) Operator B pays operator A RMB0.06 per minute |
|
|
|
| International long distance operator |
|
Operator B through domestic long distance network of operator C and international gateway of domestic operator A |
|
(1) Operator A pays not more than RMB0.54 per minute to operator C, operator C pays not more than RMB0.06 per minute to operator B, where operator A and operator C, or operator B and operator C can be the same
operator |
The following table sets forth selected current main interconnection revenues sharing and settlement
arrangements for SMS:
|
|
|
|
|
| Network from Which SMS Originated |
|
Network at Which SMS Terminated |
|
Current Main Settlement Arrangement |
| Wireline or mobile operator A |
|
Wireline or mobile operator B |
|
(1) Operator A collects the tariff from its subscribers
(2) Operator A pays RMB0.03 per SMS to operator B. Starting January 1, 2014, operator A pays RMB0.01 per SMS to operator B. |
- 31 -
The following table sets forth selected current main interconnection revenues sharing and
settlement arrangements for MMS:
|
|
|
|
|
| Network from Which MMS Originated |
|
Network at Which MMS Terminated |
|
Current Main Settlement Arrangement |
| Mobile operator A |
|
Mobile operator B |
|
(1) Operator A collects the tariff from its subscribers
(2) Operator A pays RMB0.10 per MMS to operator B. Starting January 1, 2014, operator A pays RMB0.05 per MMS to operator B. |
The primary interconnection settlement arrangement for the Internet backbone networks in China is the
interconnection settlement through the network access points, or the NAPs, which is determined by the MIIT and currently set as RMB420,000 per gigabyte.
Technical Standards
The MIIT sets
industry technical standards for telecommunications terminal and interconnection related equipment used in the public telecommunications networks. A network access license from the MIIT and other relevant regulatory authorities is required for all
such equipment. Most of the standards set by the MIIT conform to standards recommended by the International Telecommunications Union and other international telecommunications standards organizations.
Telecommunications Resources
The
MIIT is responsible for the administration and allocation of telecommunications resources in the PRC, including radio frequencies and telecommunications network numbers. The use of these resources by telecommunications service providers is subject
to the approval of the MIIT or the relevant provincial communications administrations and a usage fee payable to the PRC government.
In
2014, we paid approximately RMB159 million of usage fees for the telecommunications network numbers and approximately RMB381 million of frequency usage fees, respectively.
Quality of Service
Under the
Telecommunications Regulations, the MIIT and the relevant provincial communications administration have the responsibility of supervising and monitoring the quality of services provided by telecommunications service providers in the PRC. Under the
Telecommunications Regulations, customers of telecommunications service providers have the right to submit complaints to the MIIT and the relevant provincial communications administration or other relevant government authorities.
On March 13, 2005, the MII promulgated the Telecommunications Services Standards which were amended in September 2014. The
Telecommunications Services Standards aim to protect the rights of the customers of telecommunications services and sets forth minimum quality requirements for telecommunications services provided by telecommunications operators.
The MII promulgated the Measures on the Supervision and Administration of Quality of Service of the Public Telecommunications Networks, or the
Measures on Quality of Service, effective August 1, 2005. The Measures on Quality of Service provide the supervision and administration of services of public telecommunications networks, including, among others, wireline local telephone
networks, domestic long distance telephone networks, international telephone networks, and IP telephone networks. Under the Measures on Quality of Service, telecommunications operators are required to set up a unit which is responsible for solving
the problems with respect to the public telecommunications network services.
Under the PRC Consumer Protection Law, Consumers’
Associations can participate in the inspection and examination of goods and services by relevant governmental authorities; and customers can lodge their complaints with Consumers’ Associations, which can investigate the goods or services
involved in the complaints, and mediate the complaints.
In addition, the MIIT, together with other governmental authorities, has taken
measures to prompt telecommunications operators to screen indecent contents carried through their networks.
- 32 -
Universal Services
Under the Telecommunications Regulations, telecommunications service providers in the PRC are required to fulfill universal service obligations
in accordance with relevant regulations to be promulgated by the PRC government, and the MIIT has been given authority by the PRC government to delineate the scope of its universal service obligations. The MIIT may also select universal service
providers through a tendering process. The MIIT, together with other regulatory authorities, is also responsible for formulating administrative rules relating to the establishment of a universal service fund and compensation schemes for universal
services. The PRC government currently uses financial resources to compensate the expenses incurred in the “Village to Village” and the “Broadband China” projects before the establishment of a universal service fund. The State
Council issued the Notice on the “Broadband China” Policy and the Implementation Plan on August 1, 2013, which included the provision of broadband services to villages as part of the universal service obligations of telecommunications
service providers and mentioned improving the compensation scheme for the expenses incurred in the “Broadband China” projects undertaken by telecommunications service providers in the villages. Under the compensation scheme,
telecommunications operators may receive compensation from the PRC government for the “Broadband China” projects. However, the compensation from the PRC government may not be sufficient to cover all of our expenses for providing the
telecommunications services under the relevant projects.
Under the Telecommunications Regulations, all PRC telecommunications operators
shall provide universal services, our Company, together with other telecommunications operators, has undertaken the “Village to Village” project since 2004. Currently, the PRC government implements the “Broadband China” projects
which require telecommunications operators to provide broadband services in a number of remote villages in the PRC as part of their universal service obligations. Under the “Broadband” projects, China Telecom Group and our Company had
invested in the construction of broadband network facilities in certain remote villages of 31 provinces and autonomous regions by the end of 2014. We believe the expenses for such operation and maintenance will not have a material effect on our
financial condition.
State-Owned Assets Supervision
Under the PRC Company Law, PRC Enterprise State-Owned Assets Law, Interim Measures for the Supervision and Administration of State-Owned Assets
of the Enterprises, and other administrative regulations, the State Owned Assets Supervision and Administration Commission of the State Council, or the SASAC, among others, supervises the preservation of the value of state-owned assets, guides the
reform and restructuring of state-owned enterprises, and evaluates the performance of management executives of state-owned enterprises through legal procedures. Our controlling shareholder, China Telecom Group, is a wholly state-owned enterprise and
subject to the SASAC’s supervision.
Three-Network Convergence Policy
In January 2010, the PRC government announced its decision to accelerate the advancement of convergence of telecommunications, television
broadcast and Internet access networks to realize interconnection and resource sharing among the three networks and further develop the provision of voice, data, television and other services. Specifically, the three-network convergence policy will
be initially carried out on a trial basis in selective geographic locations during the period from 2010 to 2012 and further implemented across-the-board in the following three years. In June 2010, the State Council issued the Trial Plan for
Three-Network Convergence and called for 12 volunteer regions (cities) and enterprises for the first trial. Following the completion of the first trial in December 2011, the State Council announced 42 additional regions (cities) for the second phase
of the trial, which was expected to complete by the end of 2012. In September 2012, we received the Information Network Communicated Audio-Video Program License from the State Administration of Press, Publication, Radio, Film and Television
(formerly, the State Administration of Radio, Film and Television).
“Broadband China” Policy
In August 2013, the State Council issued the Notice on the “Broadband China” Policy and the Implementation Plan, which treats
broadband as a strategic national infrastructure, strengthens the overall top-level design and planning, coordinates the research and development of the key technologies, formulation of the standard, the safety of the information technology and the
construction of the emergency communication system, strengthens the synergy effect of website construction, application, innovative service and industry support, comprehensively utilizes the cable technology and the wireless technology to accelerate
the convergence of telecommunications, television broadcast and Internet access networks, and accelerates the construction of the next generation national information infrastructures. In September 2013, the MIIT promulgated an Information-Based
Development Plan to further elaborate the “Broadband China” Policy and to encourage private capital to enter into the telecommunications market through equity investment.
- 33 -
VAT Reform Applicable to the Telecommunications Industry
On November 16, 2011, the Ministry of Finance, or the MOF, and the SAT, introduced a pilot tax program under which the PRC business tax
would be replaced with a VAT. On April 29, 2014, the MOF and the SAT announced that the pilot program would be extended to cover the telecommunications industry. Effective from June 1, 2014, the pilot tax rate for basic telecommunications
services is 11% and the pilot tax rate for value-added telecommunications services is 6%. It is expected that the application of the VAT to the telecommunications industry would have a material adverse effect on our revenues and operating profits in
the short term. See “Item 3. Key Information — D. Risk Factors — Risks Relating to Our Business — Implementation of a value-added tax to replace the business tax in the PRC may decrease our revenues and profitability.”
However, we expect that in the long term replacing the business tax with the VAT will be beneficial to the development of our business. We
will strive to reduce the adverse effect of the application of VAT to the telecommunications industry on our revenues and profits by taking key measures and considerations such as:
(i) we would optimize development and sales models, implement stringent cost control measure, and enhance control on purchasing and
vendors’ tax profiles;
(ii) as the VAT pilot program expands to other industries nationwide, it is expected that we would be able to
deduct more operating costs and investments as input VAT credits in future;
(iii) following our strategic transformation, the proportion
of revenues generated from value-added telecommunications services is expected to increase, resulting in a lower average tax rate of output VAT; and
(iv) input VAT credit on capital expenditures would reduce the carrying amounts of fixed assets, resulting in a reduction of depreciation
expenses, which can enhance our future profits.
Amended Employment Contract Law
The amended PRC Employment Contract Law, effective as of July 1, 2013, and the Interim Provisions on Labor Dispatch, effective as of
March 1, 2014, focus on strengthening the administration of the employment practice involving dispatched employees, and provide that, among others, the dispatched employees shall have the right to receive the same compensation as that received
by other employees hired by the employer for the same type of positions, shall account for no more than 10% of the total employees hired by an employer and shall only be employed for temporary, supporting or substitutive positions. The amended PRC
Employment Contract Law and the Interim Provisions on Labor Dispatch have not had, and we do not believe they will have, a material adverse effect on our personnel expenses or number of employees.
Mobile Number Portability Trial
In April 2009, Hainan Province kicked off the mobile number portability trial with a team of experts from the MIIT holding a training session
in the city of Haikou to introduce the relevant policies and requirements for the mobile number portability trial, which would allow mobile users to migrate from the network of one telecommunications operator to another without having to change
their mobile numbers. In November 2010, Tianjin and Hainan each began mobile number portability trial for the local China Mobile subscribers. Pursuant to the relevant policy then issued by the MIIT, mobile users of China Mobile, China Unicom and our
Company in Tianjin may migrate among the networks of the three operators, while mobile users in Hainan may only migrate from China Mobile to our Company or China Unicom and not from China Unicom or our Company to China Mobile. In May 2014, the MIIT
promulgated the Administration Measures on Mobile Number Portability Trial, effective as of May 17, 2014, which regulated the implementation measures for mobile number portability trials. On the same date, Hainan began providing the local
mobile users with mobile number portability among the local networks of our Company, China Unicom and China Mobile. On September 20, 2014, Jiangxi, Hubei and Yunnan began offering mobile number portability services to the local mobile users. We
do not expect the mobile number portability trials to have a material effect on our financial condition or results of operations.
| C. |
Organization Structure |
See “—A. History and Development of the
Company—Our Restructuring and Initial Public Offering in 2002” included elsewhere under this Item.
- 34 -
| D. |
Property, Plants and Equipment |
Properties
Executive Offices
Our principal executive offices are located in Beijing and we obtained the right to occupy and use these offices pursuant to an agreement we
entered into with China Telecom Group in September 2002 and supplemental agreements on October 26, 2003, April 13, 2004, December 15, 2005, December 26, 2007, March 31, 2008, August 25, 2010 and
August 22, 2012, respectively. See “Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions—Ongoing Related Party Transactions between Us and China Telecom Group—Centralized Services
Agreement.”
Properties
We conduct our business on land and premises either owned by ourselves or leased from China Telecom Group and/or its affiliates and third
parties. As to our owned properties, although the land and building titles to a majority of these properties have been registered in our name after they were acquired by us as part of our restructuring, land and building titles to the remaining
properties are still registered in the name of China Telecom Group. China Telecom Group has agreed to indemnify us against any loss or damage incurred by us caused by or arising from any challenge to, or interference with, our right to use these
properties. As to our leased properties, China Telecom Group has undertaken to us that it will indemnify us against any loss or damage caused by or arising from any challenge to, or interference with, such right. See “Item 7. Major Shareholders
and Related Party Transactions—B. Related Party Transactions—Ongoing Related Party Transactions between Us and China Telecom Group—Property Leasing Framework Agreement.”
| Item 4A. |
Unresolved Staff Comments. |
None.
| Item 5. |
Operating and Financial Review and Prospects. |
You should read the following discussion
and analysis in conjunction with our audited consolidated financial statements and our selected financial data, in each case included elsewhere in this annual report. Our consolidated financial statements have been prepared in accordance with IFRS,
as issued by the International Accounting Standards Board.
Our audited consolidated financial statements included elsewhere in this
annual report reflect the acquisitions and divestment in 2012 and 2013 and the establishment of new subsidiaries in 2014 described under “Item 4. Information on the Company—A. History and Development of the Company—Industry
Restructuring and Our Acquisition of the CDMA Business in 2008”, “—Our Acquisition from China Telecom Group of the CDMA Network Assets and Associated Liabilities”, “—Changes in Our Corporate Organization in 2013”
and “—Changes in Our Corporate Organization in 2014”.
In addition, since we and China Telecom Europe were under common
control of China Telecom Group after the completion of our acquisition of China Telecom Europe from China Telecom Group on December 31, 2013, the acquisition of China Telecom Europe has been accounted for as a combination of entities under
common control in a manner similar to a pooling-of-interests. Accordingly, the assets and liabilities of China Telecom Europe have been accounted for at historical amounts and the consolidated financial statements for periods prior to the
acquisition have been restated to include the financial position and results of operations of China Telecom Europe on a combined basis. Unless otherwise indicated in this section, our financial data for periods prior to the acquisition are presented
based on those restated amounts. See Note 1 to our consolidated financial statements included elsewhere in this annual report on Form 20-F.
Overview
We are an integrated
information service provider in the PRC. We offer a comprehensive range of telecommunications services, including wireline voice services, mobile voice services, Internet access services, value-added services, integrated information application
services, telecommunications network resource services and lease of network equipment and other related services. We continue to leverage our full-service capabilities to further enhance our integrated and differentiated development of operation of
wireline, mobile and Internet access services, and to distinguish us from our competitors.
We are the leading provider of wireline
telecommunications services in our service regions in the PRC, consisting of 21 provinces, municipalities and autonomous regions.
- 35 -
Following our acquisition of China Telecom System Integration Co., Limited, China Telecom Global
Limited and China Telecom (Americas) Corporation pursuant to an Equity Purchase Agreement we entered into with China Telecom Group on June 15, 2007, we began to offer leased network equipment and related services in certain countries in the
Asia Pacific region and North and South America.
Following our acquisition of the CDMA Business in October 2008, we began to offer CDMA
mobile services in 31 provinces, municipalities and autonomous regions in mainland China and Macau, which were previously operated by China Unicom. We launched our 3G services in March 2009. We launched our 4G services in February, 2014. In June
2014, China Telecom Group was approved by the MIIT, and authorized us, to commence the LTE FDD and TD-LTE hybrid network trial in 16 cities in the PRC. In August, November and December, 2014, China Telecom Group was approved by the MIIT, and
authorized us, to expand the LTE hybrid network trial to reach a total of 40, 41 and 56 cities, respectively. On February 27, 2015, China Telecom Group was granted by the MIIT the permit, and authorized us, to provide 4G services based on LTE
FDD technologies nationwide.
Financial Overview
Our operating revenues increased by 0.9%, from RMB321,584 million in 2013 to RMB324,394 million in 2014. The increase was mainly attributable
to revenues growth from Internet access services, value-added services and integrated information application services. Our total operating expenses increased by 0.6%, from RMB294,116 million in 2013 to RMB295,886 million in 2014. The increase in
operating expenses was primarily due to increases in network operations and support and personnel expenses. Our operating income increased by 3.8%, from RMB27,468 million in 2013 to RMB28,508 million in 2014. The profit attributable to equity
holders of the Company increased from RMB17,545 million in 2013 to RMB17,680 million in 2014.
The table below sets forth a breakdown of
our operating revenues in terms of amount and as a percentage of our total operating revenues for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, |
|
| |
|
2012 |
|
|
2013 |
|
|
2014 |
|
| |
|
Amount |
|
|
Percentage
of
Operating
Revenues |
|
|
Amount |
|
|
Percentage
of
Operating
Revenues |
|
|
Amount |
|
|
Percentage
of
Operating
Revenues |
|
| |
|
(RMB in millions, except percentage data) |
|
| Operating Revenues: (1) |
|
|
|
|
| Wireline voice services(2) |
|
|
43,369 |
|
|
|
15.3 |
% |
|
|
38,633 |
|
|
|
12.0 |
% |
|
|
33,587 |
|
|
|
10.4 |
% |
| Mobile voice services(3) |
|
|
49,166 |
|
|
|
17.4 |
% |
|
|
58,217 |
|
|
|
18.1 |
% |
|
|
54,673 |
|
|
|
16.9 |
% |
| Internet access services(4) |
|
|
87,662 |
|
|
|
31.0 |
% |
|
|
99,394 |
|
|
|
30.9 |
% |
|
|
112,431 |
|
|
|
34.7 |
% |
| Value-added services(5) |
|
|
31,137 |
|
|
|
11.0 |
% |
|
|
36,230 |
|
|
|
11.3 |
% |
|
|
38,419 |
|
|
|
11.8 |
% |
| Integrated information application services(6) |
|
|
23,181 |
|
|
|
8.2 |
% |
|
|
25,233 |
|
|
|
7.8 |
% |
|
|
26,939 |
|
|
|
8.3 |
% |
| Telecommunications network resource services and lease of network
equipment(7) |
|
|
15,737 |
|
|
|
5.5 |
% |
|
|
17,586 |
|
|
|
5.5 |
% |
|
|
17,332 |
|
|
|
5.3 |
% |
| Other services(8) |
|
|
32,924 |
|
|
|
11.6 |
% |
|
|
46,291 |
|
|
|
14.4 |
% |
|
|
41,013 |
|
|
|
12.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total operating revenues |
|
|
283,176 |
|
|
|
100.0 |
% |
|
|
321,584 |
|
|
|
100.0 |
% |
|
|
324,394 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1) |
Before June 1, 2014, most of the Group’s operating revenues were subject to business tax levied at rates of 3%, relevant business tax was set off against operating revenues. Pursuant to the Notice on Covering
Telecommunications Industries under the Value-Added Tax (“VAT”) Reform (Caishui [2014] No.43) jointly issued by the Ministry of Finance and the State Administration of Taxation, from 1 June 2014, the pilot programme of replacing
business tax with VAT is extended to cover the telecommunications industry. The VAT rate for basic telecommunications services (including voice communication, lease or sale of network resources) is 11% while the VAT rate for value-added
telecommunications services (including Internet access services, short and multimedia messaging services, transmission and application service of electronic data and information) is 6%, and VAT is excluded from operating revenues. With effect from
June 1, 2014, the Group is no longer required to pay business tax of 3% on telecommunications services. |
| (2) |
Represent the aggregate amount of monthly fees, local usage fees, domestic long distance usage fees, international, Hong Kong, Macau and Taiwan long distance usage fees, interconnections fees and installation fees
charged to customers for the provision of wireline telephony services. |
| (3) |
Represent the aggregate amount of monthly fees, local usage fees, domestic long distance usage fees, international, Hong Kong, Macau and Taiwan long distance usage fees and interconnections fees charged to customers for
the provision of mobile telephony services. |
| (4) |
Represent amounts charged to customers for the provision of Internet access services. |
- 36 -
| (5) |
Represent the aggregate amount of fees charged to customers for the provision of value-added services, which comprise primarily caller ID services, short messaging services, Color Ring Tone, Internet data center and
Virtual Private Network services and etc. |
| (6) |
Represent primarily the aggregate amount of fees charged to customers for Best Tone information services and IT services and applications. |
| (7) |
Represent primarily the aggregate amount of fees charged to customers for the provision of telecommunications network resource services and lease income from other domestic telecommunications operators and enterprise
customers for the usage of the Group’s telecommunications networks and equipment. |
| (8) |
Represent primarily revenue from sale, and repair and maintenance of equipment as well as the resale of mobile services. |
The following table sets forth a breakdown of our operating expenses in terms of amount and as a percentage of our total operating revenues
for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, |
|
| |
|
2012 |
|
|
2013 |
|
|
2014 |
|
| |
|
Amount |
|
|
Percentage
of
Operating
Revenues |
|
|
Amount |
|
|
Percentage
of
Operating
Revenues |
|
|
Amount |
|
|
Percentage
of
Operating
Revenues |
|
| |
|
(RMB in millions, except percentage data) |
|
| Operating Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Depreciation and amortization |
|
|
49,666 |
|
|
|
17.5 |
% |
|
|
69,083 |
|
|
|
21.5 |
% |
|
|
66,345 |
|
|
|
20.5 |
% |
| Network operations and support expenses |
|
|
65,979 |
|
|
|
23.3 |
% |
|
|
53,102 |
|
|
|
16.5 |
% |
|
|
68,651 |
|
|
|
21.2 |
% |
| Selling, general and administrative expenses |
|
|
63,099 |
|
|
|
22.3 |
% |
|
|
70,448 |
|
|
|
21.9 |
% |
|
|
62,719 |
|
|
|
19.3 |
% |
| Personnel expenses |
|
|
42,857 |
|
|
|
15.1 |
% |
|
|
46,723 |
|
|
|
14.6 |
% |
|
|
50,653 |
|
|
|
15.6 |
% |
| Other operating expenses |
|
|
40,367 |
|
|
|
14.3 |
% |
|
|
54,760 |
|
|
|
17.0 |
% |
|
|
47,518 |
|
|
|
14.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total operating expenses |
|
|
261,968 |
|
|
|
92.5 |
% |
|
|
294,116 |
|
|
|
91.5 |
% |
|
|
295,886 |
|
|
|
91.2 |
% |
The following table sets forth our operating revenues, operating expenses, operating income and profit
attributable to equity holders of the Company in terms of amount and as a percentage of our total operating revenues, and cash flows from operating activities for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, |
|
| |
|
2012 |
|
|
2013 |
|
|
2014 |
|
| |
|
Amount |
|
|
Percentage
of
Operating
Revenues |
|
|
Amount |
|
|
Percentage
of
Operating
Revenues |
|
|
Amount |
|
|
Percentage
of
Operating
Revenues |
|
| |
|
(RMB in millions, except percentage data) |
|
| Operating revenues |
|
|
283,176 |
|
|
|
100.0 |
% |
|
|
321,584 |
|
|
|
100.0 |
% |
|
|
324,394 |
|
|
|
100.0 |
% |
| Operating expenses |
|
|
261,968 |
|
|
|
92.5 |
% |
|
|
294,116 |
|
|
|
91.5 |
% |
|
|
295,886 |
|
|
|
91.2 |
% |
| Operating income |
|
|
21,208 |
|
|
|
7.5 |
% |
|
|
27,468 |
|
|
|
8.5 |
% |
|
|
28,508 |
|
|
|
8.8 |
% |
| Profit attributable to equity holders of the Company |
|
|
14,949 |
|
|
|
5.3 |
% |
|
|
17,545 |
|
|
|
5.5 |
% |
|
|
17,680 |
|
|
|
5.5 |
% |
| Net cash from operating activities |
|
|
70,722 |
|
|
|
— |
|
|
|
88,351 |
|
|
|
— |
|
|
|
96,405 |
|
|
|
— |
|
Critical Accounting Policies
Our discussion and analysis of our financial condition and results of operations contained elsewhere in this annual report are based on our
consolidated financial statements which have been prepared in accordance with IFRS. Our reported financial condition and results of operations are sensitive to accounting methods, assumptions and estimates that underlie the preparation of our
financial statements. We base our assumptions and estimates on historical experience and on various other assumptions that we believe to be reasonable and which form the basis for making judgments about matters that are not readily apparent from
other sources. On an on going basis, our management evaluates its estimates. Actual results may differ from those estimates as facts, circumstances and conditions change.
The selection of critical accounting policies, the judgments and other uncertainties affecting application of those policies and the
sensitivity of reported results to changes in conditions and assumptions are factors to be considered when reviewing our financial statements. Our principal accounting policies are set forth in detail in Note 2 to our consolidated financial
statements included elsewhere in this annual report. We believe the following critical accounting policies involve the most significant judgments and estimates used in the preparation of our financial statements.
- 37 -
Revenue recognition
Our revenue recognition methods are as follows:
| |
(i) |
Revenue derived from local, domestic long distance and international, Hong Kong, Macau and Taiwan long distance usage are recognized as the services are provided. |
| |
(ii) |
Fees received for wireline installation charges for periods prior to January 1, 2012 are deferred and recognized over the expected customer relationship period. The direct costs associated with the installation of
wireline services are deferred to the extent of the installation fees and amortized over the same expected customer relationship period. From 2012 onwards, since the amounts of fees received and the associated direct costs incurred are
insignificant, the fees and associated direct costs are not deferred, and are recognized in profit or loss when received or incurred. |
| |
(iii) |
Monthly service fees are recognized in the month during which the services are provided to customers. |
| |
(iv) |
Revenue from sale of prepaid calling cards is recognized as the cards are used by customers. |
| |
(v) |
Revenue derived from value-added services is recognized when the services are provided to customers. |
Revenue from value-added services in which no third party service providers are involved, such as caller display and Internet data center
services, are presented on a gross basis. Revenues from all other value-added services are presented on either gross or net basis based on the assessment of each individual arrangement with third parties. The following factors indicate that we are
acting as principal in the arrangements with third parties:
| |
i) |
We are responsible for providing the applications or services desired by customers, and take responsibility for fulfillment of ordered applications or services, including the acceptability of the applications or
services ordered or purchased by customers; |
| |
ii) |
We take title of the inventory of the applications before they are ordered by customers; |
| |
iii) |
We have risks and rewards of ownership, such as risks of loss for collection from customers after applications or services are provided to customers; |
| |
iv) |
We establish selling prices with customers; |
| |
v) |
We can modify the applications or perform part of the services; |
| |
vi) |
We have discretion in selecting suppliers used to fulfill an order; and |
| |
vii) |
We determine the nature, type, characteristics, or specifications of the applications or services. |
If majority of the indicators of risks and responsibilities exist in the arrangements with third parties, we are acting as the principal and
have exposure to the significant risks and rewards associated with the rendering of services or the sale of applications, and revenues for these services are recognized on gross basis. If majority of the indicators of risks and responsibilities do
not exist in the arrangements with third parties, we are acting as the agent, and revenues for these services are recognized on a net basis.
| |
(vi) |
Revenue from the provision of Internet and telecommunications network resource services is recognized when the services are provided to customers. |
| |
(vii) |
Interconnection fees from domestic and foreign telecommunications operators are recognized when the services are rendered as measured by the minutes of traffic processed. |
| |
(viii) |
Lease income from operating leases is recognized over the term of the lease. |
| |
(ix) |
Revenue derived from integrated information application services is recognized when the services are provided to customers. |
| |
(x) |
Sale of equipment is recognized on delivery of the equipment to customers and when the significant risks and rewards of ownership and title have been transferred to the customers. Revenue from repair and maintenance of
equipment is recognized when the service is provided to customers. |
- 38 -
We offer promotional packages, which involve the bundled sales of terminal equipment (mobile
handsets) and telecommunications services, to customers. The total contract consideration of a promotional package is allocated to revenues generated from the provision of telecommunications services and the sales of terminal equipment using the
residual method. Under the residual method, the total contract consideration of the arrangement is allocated as follows: the undelivered component, which is the provision of telecommunications services, is measured at fair value, and the remainder
of the contract consideration is allocated to the delivered component, which are the sales of terminal equipment. We recognize revenues generated from the delivery and sales of the terminal equipment when the title of the terminal equipment is
passed to the customers whereas revenues generated from the provision of telecommunications services are recognized based upon the actual usage of such services. During each of the years in the three-year period ended December 31, 2014, a
substantial portion of the total contract consideration is allocated to the provision of telecommunications services since the terminal equipment is typically provided free of charge or at a nominal amount to promote our core business of the
provision of telecommunications services, and the fair value of the telecommunications services approximates the total contract consideration.
Accounting for Long-lived Assets
Depreciation. Property, plant and equipment are depreciated on a straight-line basis over the estimated useful lives of the assets after
taking into account their estimated residual value. The following estimated useful lives are used for depreciation purposes. These estimated useful lives are based on our historical experience with similar assets and take into account anticipated
technological changes.
|
|
|
| |
|
Depreciable lives
primarily range from |
|
|
| Buildings and improvements |
|
8 - 30 years |
| Telecommunications network plant and equipment |
|
6 - 10 years |
| Furniture, fixture, motor vehicles and other equipment |
|
5 - 10 years |
We review the estimated useful lives of the assets regularly in order to determine the amount of depreciation
expense to be recorded during any reporting period. The depreciation expense for future periods is adjusted if there are significant changes from previous estimates.
Customer relationships. The customer relationships, as part of the CDMA Business we acquired from China Unicom and CUCL in 2008, were
recorded at their fair value on the date of acquisition and are amortized on a straight-line basis over the estimated useful life of five years. By the end of the expected customer relationship period, fully amortized customer relationships were
written off.
Impairment. The carrying amounts of long-lived assets, including property, plant and equipment, intangible assets,
construction in progress and other investments are reviewed periodically in order to determine whether there is any indication of impairment. These assets are tested for impairment whenever events or changes in circumstances indicate that their
recorded carrying amounts may not be recoverable. For goodwill, the impairment testing is performed annually at the end of each reporting period.
The recoverable amount of an asset or a cash-generating unit is the greater of its fair value less costs of disposal and value in use. When an
asset does not generate cash flows largely independent of those from other assets, the recoverable amount is determined for the smallest group of assets that generates cash inflows independently (i.e., a cash generating unit). In determining the
value in use, expected future cash flows generated by the assets are discounted to their present value using a pre-tax discount rate that reflects current market assessments of time value of money and the risk specific to the asset. The goodwill
arising from a business combination, for the purposes of impairment testing, is allocated to cash generating units that are expected to benefit from the synergies of the combination.
An impairment loss is recognized if the carrying amount of an asset or its cash-generating unit exceeds its estimated recoverable amount.
Impairment loss is recognized as an expense in the profit or loss. Impairment loss recognized in respect of cash-generating units is allocated first to reduce the carrying amount of any goodwill allocated to the units and then to reduce the carrying
amounts of the other assets in any unit (group of units) on a pro rata basis.
For the years ended December 31, 2012, 2013 and 2014,
no provision for impairment loss was made against the carrying value of property, plant and equipment.
Impairment Losses for Bad
and Doubtful Debts
We estimate impairment losses for bad and doubtful debts resulting from the inability of our customers to make
the required payments. We base our estimates on the aging of our accounts receivable balance, customer credit-worthiness, and historical write-off experience. If the financial condition of our customers were to deteriorate, actual write-offs might
be higher than expected.
- 39 -
Amounts due from the provision of telecommunications services to residential and business
customers are generally due within 30 days from the date of billing. Customers who have accounts overdue by more than 90 days will have their services disconnected.
The following table summarizes the changes in the provision for impairment losses for bad and doubtful debts for each of the years in the
three-year period ended December 31, 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, |
|
| |
|
2012 |
|
|
2013 |
|
|
2014 |
|
| |
|
(RMB in millions) |
|
|
|
|
|
| At beginning of year |
|
|
1,942 |
|
|
|
2,024 |
|
|
|
2,198 |
|
| Impairment losses for doubtful debts |
|
|
1,624 |
|
|
|
1,740 |
|
|
|
2,075 |
|
| Accounts receivable written off |
|
|
(1,542 |
) |
|
|
(1,566 |
) |
|
|
(1,795 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| At end of year |
|
|
2,024 |
|
|
|
2,198 |
|
|
|
2,478 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recently Issued International Financial Reporting Standards
Up to the date of issue of our 2014 financial statements, the International Accounting Standards Board has issued the following amendments, new
standards which are not yet effective for the annual accounting period ended December 31, 2014:
|
|
|
|
|
| |
|
Effective for
accounting period
beginning on or after |
|
| Amendments to IAS 19, “Defined Benefit Plans: Employee Contributions” |
|
|
July 1, 2014 |
|
| Amendments to IFRSs, “Annual Improvements to IFRSs 2010-2012 Cycle” |
|
|
July 1, 2014 (with
limited exceptions) |
|
| Amendments to IFRSs, “Annual Improvements to IFRSs 2011-2013 Cycle” |
|
|
July 1, 2014 |
|
| Amendments to IFRSs, “Annual Improvements to IFRSs 2012-2014 Cycle” |
|
|
January 1, 2016 |
|
| IFRS 14, “Regulatory Deferral Accounts” |
|
|
January 1, 2016 |
|
| Amendments to IAS 1, “Disclosure Initiative” |
|
|
January 1, 2016 |
|
| Amendments to IFRS 11, “Accounting for Acquisitions of Interests in Joint Operations” |
|
|
January 1, 2016 |
|
| Amendments to IAS 16 and IAS 38, “Clarification of Acceptable Methods of Depreciation and Amortization” |
|
|
January 1, 2016 |
|
| Amendments to IAS 16 and IAS 41, “Agriculture: Bearer Plants” |
|
|
January 1, 2016 |
|
| Amendments to IAS 27, “Equity Method in Separate Financial Statements” |
|
|
January 1, 2016 |
|
| Amendments to IFRS 10 and IAS 28, “Sale or Contribution of Assets between an Investor and its Associate or Joint
Venture” |
|
|
January 1, 2016 |
|
| Amendments to IFRS 10, IFRS 12 and IAS 28, “Investment Entities: Applying the Consolidation Exception” |
|
|
January 1, 2016 |
|
| IFRS 15, “Revenue from Contracts with Customers” |
|
|
January 1, 2017 |
|
| IFRS 9, “Financial Instruments” |
|
|
January 1, 2018 |
|
We have not adopted the amendments or new standards listed above. We are in the process of making an
assessment of the impact that will result from adopting the amendments and new standards issued by the IASB which are not yet effective for the accounting period ended December 31, 2014. Except for IFRS 15, “Revenue from Contracts with
Customers”, so far we believe that the adoption of these amendments and new standards is unlikely to have a significant impact on our financial position and the results of operations.
Year Ended December 31, 2014 Compared to Year Ended December 31, 2013
Operating Revenues
Our operating revenues increased by RMB2,810 million, or 0.9%, from RMB321,584 million in 2013 to RMB324,394 million in 2014. This increase was
primarily driven by the revenues growth from Internet access services, value-added services and integrated information application services, which was partially offset by a decrease in revenues from wireline voice services, mobile voice services,
telecommunications network resource services and lease of network equipment and other services.
Wireline Voice Services. Revenues
from our wireline voice services decreased by 13.1%, from RMB38,633 million in 2013 to RMB33,587 million in 2014. This decrease was primarily due to the increasing penetration of mobile voice services and other alternative means of communications,
which continued to divert revenues from wireline voice services, as well as the migration of some of our wireline telephone subscribers to our 3G and 4G services. Revenues from our wireline voice services accounted for 10.4% of our operating
revenues in 2014, compared to 12.0% in 2013.
- 40 -
Mobile Voice Services. Revenues from our mobile voice services decreased by 6.1%, from
RMB58,217 million in 2013 to RMB54,673 million in 2014, representing 16.9% of our operating revenues in 2014, compared to 18.1% in 2013. This decrease was primarily due to the effect of the launch of 4G services by our competitors, the VAT reform,
the change in our sales model and the mobile Internet services as alternative means of communications.
Internet Access Services.
Revenues from our Internet access services increased by 13.1% from RMB99,394 million in 2013 to RMB112,431 million in 2014, representing 34.7% of our operating revenues. This increase was primarily due to the significant increase of data traffic on
our wireline broadband as well as wireless broadband and the expansion of our informationization applications. The number of our wireline broadband subscribers increased to 107.0 million as of December 31, 2014, representing an increase of
6.9 million, or 6.8%, from 100.1 million as of December 31, 2013. The revenues attributable to mobile Internet access services in 2014 was RMB37,809 million, representing an increase of 35.2% from RMB27,962 million in 2013, of which
revenues attributable to handset data traffic was RMB34,086 million, representing an increase of 48.8% from 2013.
Value-Added
Services. Revenues from our value-added services increased by 6.0% from RMB36,230 million in 2013 to RMB38,419 million in 2014, representing 11.8% of our operating revenues in 2014. This increase was primarily due to the rapid growth of revenues
from our wireline value-added services such as IDC and iTV services and, to a lesser extent, the increase in revenues from mobile value-added services. The revenues attributable to wireline value-added services in 2014 were RMB18,428 million,
representing an increase of 11.8% from RMB16,482 million in 2013. The revenues attributable to mobile value-added services in 2014 were RMB19,991 million, representing an increase of 1.2% from 2013.
Integrated Information Application Services. Revenues from our integrated information application services increased by 6.8% from
RMB25,233 million in 2013 to RMB26,939 million in 2014, representing 8.3% of our operating revenues in 2014. This increase was primarily due to the fact that we accelerated the promotion of industry applications, leading to a rapid growth of
revenues attributable to wireline integrated information application services. The revenues attributable to wireline integrated information application services in 2014 were RMB19,619 million, representing an increase of 10.3% from RMB17,792 million
in 2013, while the revenues attributable to mobile integrated information application services in 2014 were RMB7,320 million, representing a decrease of 1.6% from RMB7,441 million in 2013.
Telecommunications Network Resource Services and Lease of Network Equipment. Revenues from our telecommunications network resource
services and lease of network equipment decreased by 1.4%, from RMB17,586 million in 2013 to RMB17,332 million in 2014, representing 5.3% of our operating revenues in 2014. This decrease was primarily due to the high VAT rate applicable to revenues
from telecommunications network resource services and lease of network equipment. Revenue from lease of mobile network equipment was RMB463 million in 2014.
Other Services. Revenues from other services decreased by 11.4%, from RMB46,291 million in 2013 to RMB41,013 million in 2014. The
decrease in revenues from other services was primarily due to the reduction of the centralized procurement and sales of mobile terminal equipment. The revenues from sales of mobile terminal equipment decreased by 16.3% to RMB31,343 million in
2014 from RMB37,435 million in 2013.
Operating Expenses
Our operating expenses increased by 0.6%, from RMB294,116 million in 2013 to RMB295,886 million in 2014. The increase in operating expenses was
primarily due to the increased network operations and support expenses and personnel expenses, which was partially offset by the decreases in the depreciation and amortization, and selling, general and administrative expenses as well as other
operating expenses.
Depreciation and Amortization. Our depreciation and amortization expenses decreased by 4.0%, from RMB69,083
million in 2013 to RMB66,345 million in 2014, mainly due to the saving in the amortization expenses of the customer relationships in this year.
Network Operations and Support Expenses. Our network operations and support expenses increased by 29.3%, from RMB53,102 million in 2013
to RMB68,651 million in 2014, which was primarily due to the increased expenses on the network operating and maintenance for purposes of improving our 3G and 4G network services, wireline and wireless broadband services and the increased property
rental expenses as well as the disposal of the Personal Access System assets.
- 41 -
Selling, General and Administrative Expenses. Our selling, general and administrative
expenses decreased by 11.0% from RMB70,448 million in 2013 to RMB62,719 million in 2014. The decrease was primarily due to the fact that we accelerated the optimization and innovation of our sales models, strengthened the management and control on
selling expenses, especially on terminal subsidies, and improved the utilization efficiency of marketing resources. Commission and service expenses for third parties were RMB28,367 million, an increase of 11.2% from 2013. Advertising and promotional
expenses were RMB26,122 million, a decrease of 28.4% from 2013. The cost of mobile terminal equipment offered to customers for free or at a nominal price is recorded in advertising and promotional expenses and was RMB15,340 million in 2014, a
decrease of 32.7% from 2013. Our general and administrative expenses decreased by 2.5% from 2013, primarily due to our continuous detailed and fine management of such expenses.
Personnel Expenses. Personnel expenses increased by 8.4%, from RMB46,723 million in 2013 to RMB50,653 million in 2014. This increase
was primarily attributable to increased remuneration for our frontline staff. The personnel expenses as a percentage of our operating revenues increased from 14.6% in 2013 to in 15.6% 2014.
Other Operating Expenses. Our other operating expenses primarily consist of interconnection charges, cost of goods sold, donations and
other expenses. Our other operating expenses were RMB47,518 million in 2014, which decreased by 13.2% from RMB54,760 million in 2013, which was primarily due to reduction of the centralized procurement and sales of mobile terminal equipment and
savings of mobile interconnection charges. The cost of mobile terminal equipment sold was RMB29,982 million in 2014, which decreased by 14.9% from 2013.
Net Finance Costs
In 2014, our net finance costs increased by 2.7% from RMB5,153 million in 2013 to RMB5,291 million in 2014, mainly due to the fact that the
interest rate of the deferred consideration of Mobile Network Acquisition increased from 4.83% per annum in 2013 to 6.25% per annum in 2014.
The net exchange gain was RMB55 million in 2014, compared to a net exchange loss of RMB3 million in 2013, which was mainly due to the
appreciation of the RMB against the Euro in 2014, which was partially offset by the depreciation of the RMB against the USD in 2014. According to the exchange rates published by the People’s Bank of China on December 31, 2014, the exchange
rate of Renminbi appreciated by 12.9% against the Euro from December 31, 2013 and depreciated by 0.4% against the USD from December 31, 2013.
Income Tax
In
2014, our income tax expense was RMB5,498 million with an effective tax rate of 23.6%. Our expected income tax expense at our statutory tax rate of 25.0% in 2014 would be RMB5,814 million. The difference between our effective tax rate and the
statutory tax rate of 25.0% was primarily due to the preferential income tax rate applicable to some of our subsidiaries and our branches with operations in the western regions of China. See Note 26 to our consolidated financial statements included
elsewhere in this annual report for further details in respect of the reconciliation of our effective tax rate to the statutory tax rate of 25.0%.
Profit Attributable to Equity Holders of the Company
As a result of foregoing, the profit attributable to equity holders of the Company was RMB17,680 million in 2014, with a net margin of 5.5%,
compared to a profit attributable to equity holders of the Company of RMB17,545 million with a net margin of 5.5% in 2013.
Foreign
Currency Fluctuation Impact
See “Item 3. Key Information—D. Risk Factors—Risks Relating to the People’s
Republic of China— Fluctuation of the Renminbi could materially affect our financial condition, results of operations and cash flows.” and “Item 11. Quantitative and Qualitative Disclosures about Market Risk—Foreign Exchange Rate
Risk.”
Year Ended December 31, 2013 Compared to Year Ended December 31, 2012
Operating Revenues
Our operating revenues increased by RMB38,408 million, or 13.6%, from RMB283,176 million in 2012 to RMB321,584 million in 2013. This increase
was primarily driven by the revenues growth from mobile voice services, non-voice services (including Internet access services, value-added services, integrated information application services and telecommunications network resource services and
lease of network equipment), and other services, which was partially offset by a decrease in revenues from wireline voice services.
- 42 -
Wireline Voice Services. Revenues from our wireline voice services decreased by 10.9%,
from RMB43,369 million in 2012 to RMB38,633 million in 2013. This decrease was primarily due to the increasing penetration of mobile voice services and other alternative means of communications, which continued to divert revenues from wireline voice
services. Revenues from our wireline voice services accounted for 12.0% of our operating revenues in 2013, compared to 15.3% in 2012.
Mobile Voice Services. Revenues from our mobile voice services increased by 18.4%, from RMB49,166 million in 2012 to RMB58,217 million
in 2013, representing 18.1% of our operating revenues in 2013, compared to 17.4% in 2012. This increase was primarily due to the rapid expansion of our mobile services subscriber base. The number of our mobile services subscribers increased to
185.6 million as of December 31, 2013, representing an increase of 15.5% from 160.6 million as of December 31, 2012.
Internet Access Services. Revenues from our Internet access services increased by 13.4% from RMB87,662 million in 2012 to RMB99,394
million in 2013, representing 30.9% of our operating revenues. This increase was primarily due to the significant increase of data traffic on our wireless broadband and the continuing expansion of our wireline broadband subscriber base. The number
of our wireline broadband subscribers increased to 100.1 million as of December 31, 2013, representing an increase of 10 million, or 11.1%, from 90.1 million as of December 31, 2012. The revenues attributable to mobile
Internet access services in 2013 was RMB27,962 million, representing an increase of 40.7% from RMB19,880 million in 2012.
Value-Added
Services. Revenues from our value-added services increased by 16.4% from RMB31,137 million in 2012 to RMB36,230 million in 2013, representing 11.3% of our operating revenues in 2013. This increase was primarily due to the rapid growth of
revenues from our mobile value-added services as a result of the rapid growth in the number of our mobile subscribers and, to a lesser extent, the increase in revenues from wireline value-added services, such as Internet Data Center and iTV content
services. The revenues attributable to mobile value-added services in 2013 were RMB19,748 million, compared to RMB16,848 million in 2012.
Integrated Information Application Services. Revenues from our integrated information application services increased by 8.9% from
RMB23,181 million in 2012 to RMB25,233 million in 2013, representing 7.8% of our operating revenues in 2013. This increase was primarily due to the rapid growth of our ICT service. The revenues attributable to mobile integrated information
application services in 2013 was RMB7,441 million, representing an increase of 10.3% from RMB6,749 million in 2012.
Telecommunications
Network Resource Services and Lease of Network Equipment. Revenues from our telecommunications network resource services and lease of network equipment increased by 11.7%, from RMB15,737 million in 2012 to RMB17,586 million in 2013, representing
5.5% of our operating revenues in 2013. This increase was primarily due to the increasing revenues from domestic and international circuits services and lease of network equipment driven by the increasing demand from government and enterprise
customers for informatization. Revenue from lease of mobile network equipment was RMB383 million in 2013.
Other Services. Revenues
from other services increased by 40.6%, from RMB32,924 million in 2012 to RMB46,291 million in 2013. The increase in revenues from other services was primarily due to the increase in sales of mobile terminal equipment. The revenues from sales of
mobile terminal equipment increased by 51.2% to RMB37,435 million in 2013 from RMB24,757 million in 2012, corresponding to the significant increase in the volume of mobile terminal equipment sold in 2013.
Operating Expenses
Our operating expenses increased by 12.3%, from RMB261,968 million in 2012 to RMB294,116 million in 2013. The increase in operating expenses
was primarily due to increased depreciation and amortization and selling, general and administrative expenses as well as other operating expenses.
Depreciation and Amortization. Our depreciation and amortization expenses increased by 39.1%, from RMB49,666 million in 2012 to
RMB69,083 million in 2013, mainly due to the increased depreciation of mobile network assets we acquired at the end of 2012. The depreciation and amortization expenses as a percentage of our operating revenues increased from 17.5% in 2012 to 21.5%
in 2013.
Network Operations and Support Expenses. Our network operations and support expenses decreased by 19.5%, from RMB65,979
million in 2012 to RMB53,102 million in 2013, which was primarily due to the fact that we no longer needs to pay CDMA network capacity lease fees to China Telecom Group. Our lease with China Telecom Group regarding certain CDMA network assets
expired on December 31, 2012 and was not renewed following our acquisition of CDMA mobile network assets from China Telecom Group in 2012.
- 43 -
Selling, General and Administrative Expenses. Our selling, general and administrative
expenses increased by 11.6% from RMB63,099 million in 2012 to RMB70,448 million in 2013. The increase was primarily due to the increased efforts to expand social channels and appropriately increased marketing expenditure for promotional and
marketing initiatives. Commission and service expenses for third parties were RMB25,519 million, an increase of 30.6% from 2012. Advertising and promotional expenses were RMB36,490 million, an increase of 4.5% from 2012. The cost of mobile terminal
equipment offered to customers for free or at a nominal price is recorded in advertising and promotional expenses and was RMB22,795 million in 2013, an increase of 4.8% from 2012. Our general and administrative expenses decreased by 2.5% from 2012,
primarily due to our continuous stringent control of such expenses.
Personnel Expenses. Personnel expenses increased by 9.0%, from
RMB42,857 million in 2012 to RMB46,723 million in 2013. This increase was primarily attributable to increased remuneration for our frontline employees to increase their passion and promote business development. The personnel expenses as a percentage
of our operating revenues decreased from 15.1% in 2012 to 14.6% in 2013.
Other Operating Expenses. Our other operating expenses
primarily consist of interconnection charges, cost of goods sold, donations and other expenses. Our other operating expenses were RMB54,760 million in 2013, which increased by 35.7% from RMB40,367 million in 2012, largely corresponding to an
increase in the cost of mobile terminal equipment sold. The cost of mobile terminal equipment sold was RMB35,227 million in 2013, which increased by 52.5% from 2012.
Net Finance Costs
In 2013, our net finance costs increased by 229.9% from RMB1,562 million in 2012 to RMB5,153 million in 2013, mainly due to the interest
expenses arising from the deferred consideration of Mobile Network Acquisition and new short-term loans.
The net exchange loss was RMB3
million in 2013, compared to a net exchange gain of RMB1 million in 2012, which was mainly due to the depreciation of RMB against the Euro in 2013. According to the exchange rates published by the People’s Bank of China on December 31,
2013, the exchange rate of Renminbi depreciated by 1.2% against the Euro from December 31, 2012.
Income Tax
In 2013, our income tax expense was RMB5,422 million with an effective tax rate of 23.5%. Our expected income tax expense at our statutory tax
rate of 25.0% in 2013 would be RMB5,772 million. The difference between our effective tax rate and the statutory tax rate of 25.0% was primarily due to the preferential income tax rate applicable to some of our subsidiaries and our branches with
operations in the western regions of China. See Note 26 to our consolidated financial statements included elsewhere in this annual report for further details in respect of the reconciliation of our effective tax rate to the statutory tax rate of
25.0%.
Profit Attributable to Equity Holders of the Company
As a result of foregoing, the profit attributable to equity holders of the Company was RMB17,545 million in 2013, with a net margin of 5.5%,
compared to a profit attributable to equity holders of the Company of RMB14,949 million with a net margin of 5.3% in 2012.
Foreign
Currency Fluctuation Impact
See “Item 3. Key Information—D. Risk Factors—Risks Relating to the People’s
Republic of China— Fluctuation of the Renminbi could materially affect our financial condition, results of operations and cash flows.” and “Item 11. Quantitative and Qualitative Disclosures about Market Risk—Foreign Exchange Rate
Risk.”
| B. |
Liquidity and Capital Resources |
Cash Flows and Working Capital
The following table summarizes our cash flows for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, |
|
| |
|
2012 |
|
|
2013 |
|
|
2014 |
|
| |
|
(RMB in millions) |
|
| Net cash generated from operating activities |
|
|
70,722 |
|
|
|
88,351 |
|
|
|
96,405 |
|
| Net cash used in investing activities |
|
|
(48,295 |
) |
|
|
(107,948 |
) |
|
|
(81,708 |
) |
| Net cash (used in) / generated from financing activities |
|
|
(19,802 |
) |
|
|
5,637 |
|
|
|
(10,327 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Increase / (decrease) in cash and cash equivalents |
|
|
2,625 |
|
|
|
(13,960 |
) |
|
|
4,370 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 44 -
Cash and cash equivalents increased by 27.2% from RMB16,070 million as of December 31, 2013,
of which 94.3% was denominated in RMB, to RMB20,436 million as of December 31, 2014, of which 93.1% was denominated in RMB. Our net cash inflow was RMB4,370 million in 2014, as compared with a net cash outflow of RMB13,960 million in 2013.
Our principal source of liquidity is cash generated from operating activities, which was RMB96,405 million in 2014, an increase of RMB8,054
million from RMB88,351 million in 2013. The increase was mainly due to the increase in operating revenues and the decrease in payment of expenses related to operating activities.
Net cash used in investing activities decreased by RMB26,240 million from RMB107,948 million in 2013 to RMB81,708 million in 2014 primarily as
a result of the payment of part of the consideration of Mobile Network Acquisition in 2013.
Net cash outflow in financing activities was
RMB10,327 million in 2014 compared to RMB5,637 million net cash inflow in financing activities in 2013. This decrease in cash inflow was primarily due to the repayment of part of the short-term loans.
Our working capital (defined as current assets minus current liabilities) was a deficit of RMB146,782 million as of December 31, 2014,
compared to a deficit of RMB147,315 million as of December 31, 2013.
We estimate that our current cash and cash equivalents,
together with our existing credit facilities from domestic commercial banks, cash flows from operating activities, as well as funds available from short-term and long-term bank borrowings and commercial paper, will be sufficient to satisfy our
future working capital requirements and capital expenditures through the end of 2015. We have established and maintained high credit ratings with our principal domestic commercial lenders, which have facilitated our ability to obtain short-term and
long-term credit on favorable terms to meet our financing requirements. As of December 31, 2014, we had available credit facilities of RMB130,488 million with major domestic commercial banks, from which we can draw upon. We intend to fund the
Mobile Network Acquisition by internal resources and relevant debt financings.
Indebtedness
Our indebtedness as of the dates indicated was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
As of December 31, |
|
| |
|
2012 |
|
|
2013 |
|
|
2014 |
|
| |
|
(RMB in millions) |
|
| Short-term debt |
|
|
6,523 |
|
|
|
27,687 |
|
|
|
43,976 |
|
| Current portion of long-term debt |
|
|
10,212 |
|
|
|
20,072 |
|
|
|
82 |
|
| Finance lease obligations (including current portion) |
|
|
3 |
|
|
|
1 |
|
|
|
— |
|
| Long-term debt and deferred consideration due to China Telecom Group |
|
|
83,070 |
|
|
|
62,617 |
|
|
|
62,494 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total debt |
|
|
99,808 |
|
|
|
110,377 |
|
|
|
106,552 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our short-term debt constituted 41.3% of our total debt as of December 31, 2014. The weighted average
interest rate of our short-term debt was 5.1% as of December 31, 2014, representing an increase of 0.4% from that as of December 31, 2013.
Our total debt decreased by RMB3,825 million from RMB110,377 million as of December 31, 2013 to RMB106,552 million as of
December 31, 2014, primarily due to the repayment of medium-term notes amounting to RMB20 billion and part of the short-term loans, which was partially offset by the newly issued super short-term commercial papers amounting to RMB19 billion.
Our debt-to-asset ratio (total debt divided by total assets) decreased from 20.3% in 2013 to 19.0% in 2014. We believe that our Company has maintained a solid capital structure.
Our long-term debt and deferred consideration due to China Telecom Group (including current portion) decreased from RMB82,689 million as of
December 31, 2013 to RMB62,576 million as of December 31, 2014.
Of our total debt as of December 31, 2014, 99.2%, 0.5% and
0.3% were denominated in Renminbi, U.S. dollars and Euros, respectively.
Our short-term and long-term debt does not contain any financial
covenants which materially restrict our operations.
- 45 -
Capital Expenditure
The following table sets forth our historical and planned capital expenditure requirements for the periods indicated. Actual future capital
expenditures for the periods after December 31, 2014 may differ from the amounts indicated below.
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, |
|
| |
|
2013 |
|
|
2014 |
|
|
2015
(Planned) |
|
| |
|
(RMB in millions) |
|
| Total capital expenditure |
|
|
79,992 |
|
|
|
76,889 |
|
|
|
107,800 |
|
In 2014, in line with the progress of the LTE FDD and TD-LTE hybrid network trial as well as optic fiber
business in cities, we increased investment in our 4G network and related network infrastructure and continued to invest in optic fiber broadband network. Focusing on investment return, we continued to control and reduce capital expenditure in
connection with 2G and 3G mobile businesses and traditional wireline voice services. In 2014, our capital expenditure was RMB76,889 million, a decrease of 3.9% from RMB79,992 million in 2013.
Our capital expenditure for 2015 is projected to be approximately RMB107,800 million, a portion of which will be invested in the mobile
network assets, in particular the 4G network covering locations at county-level or above across the nation, a portion of which will be invested in upgrading bandwidth access capacity of our optic fiber broadband network above 50Mbps across cities
nationwide, and a portion of which will be invested in our Internet businesses and other emerging businesses which will contribute to our overall growth.
Capital Resources
The main sources of our capital expenditure are cash generated from operating activities, bank borrowings and other indebtedness. We expect
that we will have sufficient funding sources to meet our capital expenditure requirements in the future.
| C. |
Research and Development, Patents and Licenses, etc. |
Our emphasis on research and
development has contributed to the development of our advanced network, system, and the rollout of our new applications and services. Our researchers focus on network planning and support, new technology trials, market evaluation, investment-related
financial analysis and other key areas. Specific areas of research include mobile communications technology, optic fiber transmission technology, next generation networks, cloud computing, big data, Internet of Things, broadband access, operation
and service support systems and development of value-added services.
Please also refer to our discussion in each section of
“—Overview” and “—A. Operating Results” included elsewhere under this Item.
| E. |
Off-Balance Sheet Arrangements |
As of December 31, 2014, we did not have any
off-balance sheet arrangements or guarantees.
| F. |
Contractual Obligations and Commercial Commitments |
The following table sets forth our
contractual obligations as of December 31, 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Payable in |
|
| |
|
Total |
|
|
2015 |
|
|
2016 |
|
|
2017 |
|
|
2018 |
|
|
2019 |
|
|
After
2019 |
|
| |
|
(RMB in millions) |
|
| Contractual Obligations(1): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Short-term debt |
|
|
43,976 |
|
|
|
43,976 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| Long-term debt and payable |
|
|
63,000 |
|
|
|
82 |
|
|
|
82 |
|
|
|
61,792 |
|
|
|
71 |
|
|
|
71 |
|
|
|
902 |
|
| Interest payable |
|
|
9,674 |
|
|
|
3,318 |
|
|
|
3,161 |
|
|
|
3,161 |
|
|
|
6 |
|
|
|
6 |
|
|
|
22 |
|
| Finance lease obligations |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| Operating lease commitments |
|
|
9,139 |
|
|
|
2,635 |
|
|
|
1,921 |
|
|
|
1,389 |
|
|
|
1,021 |
|
|
|
678 |
|
|
|
1,495 |
|
| Capital commitments |
|
|
7,165 |
|
|
|
7,165 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total contractual obligations |
|
|
132,954 |
|
|
|
57,176 |
|
|
|
5,164 |
|
|
|
66,342 |
|
|
|
1,098 |
|
|
|
755 |
|
|
|
2,419 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 46 -
| (1) |
Short-term debt and long-term debt and payable include recognized and unrecognized interest payable; the above amounts were not discounted. |
| Item 6. |
Directors, Senior Management and Employees. |
| A. |
Directors and Senior Management |
Directors and Senior Officers
Pursuant to our Articles of Association, our directors must be elected by our shareholders at a general meeting. Our directors are generally
elected for a term of three years and may serve consecutive terms if re-elected. The term of office for the fifth session of the Board of Directors, or the Board, is three years, starting from May 29, 2014 until the date of the Company’s
annual general meeting for the year 2016 to be held in 2017, upon which the sixth session of the Board will be elected.
On May 29,
2014, the term of office of the fourth session of the Board expired. Mr. Wu Jichuan, Mr. Qin Xiao and Mr. Xie Liang retired as the members of the fourth session of the Board. At the 2013 annual general meeting held on May 29,
2014, the members of the fourth session of the Board, Mr. Wang Xiaochu, Mr. Yang Jie, Madam Wu Andi, Mr. Zhang Jiping, Mr. Yang Xiaowei, Mr. Sun Kangmin, Mr. Ke Ruiwen, Mr. Tse Hau Yin, Aloysius, Madam Cha May
Lung, Laura and Mr. Xu Erming were approved to be re-appointed as members of the fifth session of the Board, and Mr. Zhu Wei and Madam Wang Hsuehming were approved to be appointed as members of the fifth session of the Board. On
December 12, 2014, the Board appointed Mr. Chen Zhongyue as an Executive Vice President of the Company. As of December 31, 2014, the Board comprised 12 Directors with seven Executive Directors, one Non-Executive Director and four
Independent Non-Executive Directors.
On February 10, 2015, Madam Wu Andi retired from her positions as an Executive Director,
Executive Vice President and Chief Financial Officer of the Company.
On February 17, 2015, the Board appointed Mr. Yung Shun
Loy, Jacky as the Deputy Chief Financial Officer of the Company.
- 47 -
The following table sets forth certain information concerning our current Directors and executive
officers. The business address of each of our Directors and executive officers is 31 Jinrong Street, Xicheng District, Beijing, PRC 100033.
|
|
|
|
|
|
|
| Name |
|
Age |
|
|
Position |
| Wang Xiaochu |
|
|
56 |
|
|
Chairman of the Board of Directors and Chief Executive Officer |
| Yang Jie |
|
|
52 |
|
|
Executive Director, President and Chief Operating Officer |
| Zhang Jiping |
|
|
59 |
|
|
Executive Director and Executive Vice President |
| Yang Xiaowei |
|
|
51 |
|
|
Executive Director and Executive Vice President |
| Sun Kangmin |
|
|
57 |
|
|
Executive Director and Executive Vice President |
| Ke Ruiwen |
|
|
51 |
|
|
Executive Director and Executive Vice President |
| Zhu Wei |
|
|
46 |
|
|
Non-Executive Director |
| Tse Hau Yin, Aloysius |
|
|
67 |
|
|
Independent Non-Executive Director |
| Cha May Lung, Laura |
|
|
65 |
|
|
Independent Non-Executive Director |
| Xu Erming |
|
|
65 |
|
|
Independent Non-Executive Director |
| Wang Hsuehming |
|
|
65 |
|
|
Independent Non-Executive Director |
| Gao Tongqing |
|
|
51 |
|
|
Executive Vice President |
| Chen Zhongyue |
|
|
43 |
|
|
Executive Vice President |
| Yung Shun Loy, Jacky |
|
|
52 |
|
|
Deputy Chief Financial Officer, Qualified Accountant and Company Secretary |
Wang Xiaochu, age 56, is the Chairman of the Board and Chief Executive Officer of our Company.
Mr. Wang graduated from Beijing Institute of Posts and Telecommunications in 1989 and received a doctorate degree in business administration from the Hong Kong Polytechnic University in 2005. Mr. Wang served as Deputy Director General and
Director General of the Hangzhou Telecommunications Bureau in Zhejiang Province, Director General of the Tianjin Posts and Telecommunications Administration, Chairman and Chief Executive Officer of China Mobile (Hong Kong) Limited, Vice President of
China Mobile Communications Corporation, President of China Telecommunications Corporation, Chairman of the board of directors and a Non-Executive Director of China Communications Services Corporation Limited. He is also the Chairman of China
Telecommunications Corporation and Honorary Chairman of China Communications Services Corporation Limited. He was responsible for the development of China Telecom’s telephone network management systems and various other information technology
projects and as a result, received the Third-Class Award from the State Scientific and Technological Progress Award and the First-Class Award from the former Ministry of Posts and Telecommunications, or the MPT, Scientific and Technological Progress
Award. Mr. Wang has extensive experience in the management and telecommunications industry.
Yang Jie, age 52, is an Executive
Director, President and Chief Operating Officer of our Company. Mr. Yang is a professor-level senior engineer. He graduated from the Beijing University of Posts and Telecommunications with a major in radio engineering in 1984 and obtained a
doctorate degree in business administration, or DBA, from the ESC Rennes School of Business in 2008. Mr. Yang served as Deputy Director General of Shanxi Posts and Telecommunications Administration, General Manager of Shanxi Telecommunications
Corporation, Vice President of China Telecom Beijing Research Institute and General Manager of Business Department of the Northern Telecom of China Telecommunications Corporation. He is also the President of China Telecommunications Corporation.
Mr. Yang has extensive experience in the management and telecommunications industry.
Zhang Jiping, age 59, is an Executive
Director and Executive Vice President of our Company. Mr. Zhang is a professor-level senior engineer. He graduated from the Beijing University of Posts and Telecommunications with a bachelor’s degree in radio telecommunications engineering
in 1982, studied in a postgraduate program in applied computer engineering at Northeastern Industrial University from 1986 to 1988, and received a doctorate degree in business administration from the Hong Kong Polytechnic University in 2004. He
served as Deputy Director General of Directorate General of Telecommunications, or the DGT, of the MPT, a Deputy Director General and Director of the Telecommunication Technology Center of the Posts and Telecommunications Administration of Liaoning
Province. He is also a Vice President of China Telecommunications Corporation and the Chairman of Supervisory Committee of China Tower Corporation Limited. Mr. Zhang has extensive experience in management and telecommunications industry.
Yang Xiaowei, age 51, is an Executive Director and Executive Vice President of our Company. Mr. Yang is a senior engineer. He
received a bachelor’s degree from the Computer Application Department of Chongqing University in 1998 and a master’s degree in engineering from the Management Engineering Department of Chongqing University in 2001. Mr. Yang was the
Assistant to Director General and Deputy Director General of Chongqing Telecommunications Bureau, a Deputy Director General of the Chongqing Telecommunications Administration Bureau and a Director General of Chongqing Municipal Communication
Administration Bureau. Mr. Yang served as General Manager of the Chongqing branch and the Guangdong branch of the Unicom Group, Vice President of the Unicom Group, Director of the Unicom Group and Executive Director and Vice President of China
Unicom Limited. Mr. Yang also served as Director and Vice President of China Unicom Corporation Limited and Chairman of Unicom Huasheng Telecommunications Technology Co. Ltd. He is also a Vice President of China Telecommunications Corporation.
Mr. Yang has extensive experience in management and telecommunications industry.
- 48 -
Sun Kangmin, age 57, is an Executive Director and Executive Vice President of our Company.
Mr. Sun is a senior engineer. He holds a bachelor’s degree. Mr. Sun served as Head of the Information Industry Department of Sichuan Province, Director General of Communication Administration Bureau of Sichuan Province, Chairman and
General Manager of Sichuan Telecom Company Limited. He is also a Vice President of China Telecommunications Corporation, Chairman of the board of directors and an Executive Director of China Communications Services Corporation Limited and a Director
of China Tower Corporation Limited. Mr. Sun has extensive experience in the management and telecommunications industry.
Ke
Ruiwen, age 51, is an Executive Director and Executive Vice President of our Company. Mr. Ke obtained a doctorate degree in business administration (DBA) from the ESC Rennes School of Business. Mr. Ke served as Deputy Director General
of Jiangxi Posts and Telecommunications Administration, Deputy General Manager of Jiangxi Telecom, Managing Director of the Marketing Department of the Company and China Telecommunications Corporation, General Manager of Jiangxi Telecom, Managing
Director of the Human Resources Department of the Company and China Telecommunications Corporation. He is also a Vice President of China Telecommunications Corporation. Mr. Ke has extensive experience in the management and telecommunications
industry.
Zhu Wei, age 46, is a Non-executive Director of our Company. Mr. Zhu received his post-graduate diploma in
political economy from Jinan University and is currently the Chairman of Guangdong Rising Assets Management Co., Ltd (one of the domestic shareholders of our Company). Mr. Zhu Wei previously served as the Deputy Manager of the Issuing
Department, director of the General Office, and Deputy Manager of the Research and Development Department of Guangzhou Securities Company of the People’s Bank of China, Guangzhou Branch, Deputy General Manager of Guangzhou Securities Financial
Consultancy Company, General Manager of Shenzhen Yuntong Xinda Communications Limited, assistant to the General Manager of Guangdong Technology Ventures Investment Company, General Manager of the Asset Management Department and Director of Guangdong
Technology Venture Capital Group Company Limited, General Manager of Guangdong Kerui Investment Management Company, the Chairman of Guangdong Hongtu Technology (Holdings) Company Limited, Deputy Chairman and General Manager of Guangdong Southern
Media Holdings Limited, and Deputy Director of Banking Supervision Department IV of the China Banking Regulatory Commission. Mr. Zhu has extensive experience in finance, securities and corporate management.
Tse Hau Yin, Aloysius, age 67, is an Independent Non-Executive Director of our Company. Mr. Tse is currently an Independent
Non-Executive Director of CNOOC Limited, Linmark Group Limited, Sinofert Holdings Limited and SJM Holdings Limited, all of which are listed on the Main Board of The Stock Exchange of Hong Kong Limited, or the HKSE Main Board. Mr. Tse is also an
Independent Non-Executive Director of OCBC Wing Hang Bank Limited (formerly known as “Wing Hang Bank Limited”), which was listed on the HKSE Main Board until October 2014. He was an Independent Non-Executive Director of China Construction
Bank Corporation, which is listed on the HKSE Main Board, from 2004 to 2010. Mr. Tse was appointed as an Independent Non-Executive Director of CCB International (Holdings) Limited, a wholly owned subsidiary of China Construction Bank
Corporation in March 2013. He is also a member of the International Advisory Council of the People’s Municipal Government of Wuhan. Mr. Tse is a fellow of the Institute of Chartered Accountants in England and Wales, and the Hong Kong
Institute of Certified Public Accountants, or HKICPA. Mr. Tse is a former president and a former member of the Audit Committee of the HKICPA. He joined KPMG in 1976, became a partner in 1984 and retired in March 2003. Mr. Tse was a
Non-Executive Chairman of KPMG’s operations in the PRC and a member of the KPMG China advisory board from 1997 to 2000. Mr. Tse is a graduate of the University of Hong Kong.
Cha May Lung, Laura, age 65, is an Independent Non-Executive Director of our Company. Mrs. Cha is currently a Hong Kong Delegate
to the 12th National People’s Congress, PRC, a Member of the Executive Council of the Government of the Hong Kong Special Administrative Region and Chairman of the Financial Services Development Council, Government of the HKSAR. She is the
Non-Executive Deputy Chairman of The Hongkong and Shanghai Banking Corporation, the Asia Pacific subsidiary of HSBC Holdings plc, of which she is a Non-Executive Director. She is the Non-Executive Director of Unilever, PLC and Unilever, N.V, and the
Vice Chairman of the International Advisory Council of the China Securities Regulatory Commission (“CSRC”), a Member of the International Advisory Council of the China Banking Regulatory Commission. Mrs. Cha served as Vice Chairman of
CSRC from January 2001 to September 2004 and Assistant Director of Corporate Finance, Senior Director, Executive Director and Deputy Chairman of the Securities and Futures Commission of Hong Kong from 1991 to 2001. She received a Juris Doctor degree
from Santa Clara University of U.S.A. in 1982.
Xu Erming, age 65, is an Independent Non-Executive Director of our Company.
Professor Xu is a professor and Ph.D. supervisor of the Graduate School at the Renmin University of China and Vice Chairman of the Chinese Enterprise Management Research Association. He is also entitled to the State Council’s special government
allowances. He is the Independent Supervisor of Harbin Electric Company Limited (formerly known as Harbin Power Equipment Company Limited). Over the years, Professor Xu has conducted research in areas related to strategic management,
organizational theories, international management and education management and has been responsible for research on many subjects put forward by the PRC National Natural Science Foundation, the PRC National Social Science Foundation, and other
authorities at provincial and ministerial level in the PRC. He has received many awards such as the Ministry of Education’s Class One Excellent Higher Education Textbook Award, the State-Level Class Two Teaching Award and the National Excellent
Course Award. Professor Xu has been a visiting professor at over 10 domestic universities and has been awarded the Fulbright Scholar of U.S.A. twice. Professor Xu was previously a lecturer at the New York State University at Buffalo, U.S.A., the
University of Scranton, U.S.A., the University of Technology, Sydney, the Kyushu University, Japan and the Hong Kong Polytechnic University.
- 49 -
Wang Hsuehming, age 65, is an Independent Non-executive Director of our Company.
Madam Wang graduated from the University of Massachusetts and attended Columbia University. She is currently a Senior Advisor and was former Chairman of BlackRock China. She was also formerly Chairman of China at Goldman Sachs Asset Management,
having joined Goldman Sachs in 1994, became a partner in 2000 and an Advisory Director from 2010 to 2011. Ms. Wang served as a Director of The Paulson Institute. With nearly 30 years of experience in financial services, she participated in
pioneering efforts in China’s economic reform and restructuring, including serving as an advisor to the CAAC and its subsequent regional airlines on privatization and capital equipment financing.
Gao Tongqing, age 51, is an Executive Vice President of our Company. Mr. Gao graduated from the Changchun Institute of Posts and
Telecommunications with a major in telecommunications engineering and received a doctorate degree in business administration from the Hong Kong Polytechnic University. Mr. Gao served as Deputy Director General of Xinjiang Uygur Autonomous
Region Posts and Telecommunications Administration, Deputy General Manager and General Manager of Xinjiang Uygur Autonomous Region Telecom Company, General Manager of China Telecom Jiangsu branch. He is also a Vice President of China
Telecommunications Corporation. Mr. Gao has extensive experience in management and telecommunications industry.
Chen
Zhongyue, age 43, is an Executive Vice President of China Telecommunications Corporation. Mr. Chen received a bachelor degree in English studies from Shanghai International Studies University and a master degree in international trade
economy from Zhejiang University. Mr. Chen served as Deputy General Manager of China Telecom Zhejiang branch, Managing Director of the Public Customers Department of the Company and China Telecommunications Corporation, General Manager of China
Telecom Shanxi branch. He is also a Vice President of China Telecommunications Corporation. Mr. Chen has extensive experience in management and the telecommunications industry.
Yung Shun Loy, Jacky, age 52, is the Deputy Chief Financial Officer, Qualified Accountant and the Company Secretary of our Company.
Mr. Yung is a fellow member of the Hong Kong Institute of Certified Public Accountants, a fellow member of the Association of Chartered Certified Accountants of United Kingdom, and a Certified Practising Accountant in Australia. He has a
bachelor’s degree in laws and a bachelor’s degree in social sciences. Mr. Yung has extensive experience in auditing, company secretary and senior financial management of listed companies.
There is no family relationship between any of our directors or executive officers.
Supervisors
The
PRC Company Law requires a joint stock company with limited liability to establish a supervisory committee. Our supervisory committee has three Supervisors. Two members of our supervisory committee are employee representatives elected by our
employees. The remaining member is appointed by shareholders at a general meeting. The term of office of our Supervisors is three years, which is renewable upon re-election or re-appointment. The term of office for the fifth session of our
Supervisory Committee is three years, starting from May 29, 2014 until the date of the Company’s annual general meeting for the year 2016 to be held in 2017, upon which the sixth session of the Supervisory Committee will be elected.
On May 29, 2014, the term of office of the fourth session of the Supervisory Committee expired. Madam Zhu Lihao retired as a Supervisor
of our Company. At the 2013 annual general meeting held on May 29, 2014, Mr. Shao Chunbao, Mr. Hu Jing and Mr. Du Zuguo were approved to be re-appointed as Supervisors of the fifth session of the Supervisory Committee. On the
same date, Mr. Tang Qi and Mr. Zhang Jianbin were re-elected by the employees of the Company democratically as Supervisors of the our Company representing the employees.
On February 18, 2015, Mr. Shao Chunbao resigned from his position as a Supervisor and the Chairman of the Supervisory Committee of
the Company. Mr. Sui Yixun was nominated as a Supervisor of the Company, pending approval by the shareholders of the Company at the annual general meeting for the year 2014.
On March 12, 2015, Mr. Du Zuguo resigned from his position as a Supervisor of the Company. Mr. Ye Zhong was nominated as a
Supervisor of the Company, pending approval by the shareholders of the Company at the annual general meeting for the year 2014.
- 50 -
The following table sets forth certain information concerning our current Supervisors:
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| Name |
|
Age |
|
|
Position |
| Tang Qi |
|
|
56 |
|
|
Supervisor (Employee Representative) |
| Zhang Jianbin |
|
|
49 |
|
|
Supervisor (Employee Representative) |
| Hu Jing |
|
|
39 |
|
|
Supervisor |
Tang Qi, age 56, is an Employee Representative Supervisor of the Supervisory Committee of our Company.
Mr. Tang is currently the Vice Chairman of the Labour Union of China Telecommunications Corporation and China Telecom Corporation Limited. Mr. Tang received a doctorate degree in business administration (DBA) from the Hong Kong Polytechnic
University. Mr. Tang served as the Director of the marketing department of the Posts and Telecommunications Administration of Shandong Province, Manager of the marketing department of China Telecommunications Corporation, General Manager of
China Telecom Shandong branch, General Manager of China Telecom Chongqing branch. Mr. Tang is a senior engineer and has extensive experience in operation and management in the telecommunications industry.
Zhang Jianbin, age 49, is an Employee Representative Supervisor of the Supervisory Committee of our Company. Mr. Zhang is
currently the Deputy Managing Director of the Corporate Strategy Department (Legal Department) and the Deputy General Counsel of China Telecommunications Corporation. Mr. Zhang graduated from the Law School of Peking University in 1989 and
received an LLM degree. He also had an executive master’s degree of business administration from the Guanghua School of Management at Peking University in 2006. He previously worked at the Department of Policy and Regulation of the MPT and the
Directorate General of Telecommunications, or DGT, of the MPT. He served as Deputy Director of the General Office and Deputy Director of the Legal Affairs Division of the DGT of the MPT, Director of the Corporate Strategy Department (Legal
Department) of the Company. Mr. Zhang is a senior economist with extensive experience in telecommunications legislation and regulation, corporate governance, corporate legal affairs and risk management.
Hu Jing, age 39, is a Supervisor of the Supervisory Committee of our Company. Mr. Hu is currently the director in the Audit
Department of the Company. Mr. Hu received a bachelor’s degree in accounting from the Xi’an University of Finance and Economics in 1997 and a master’s degree in business administration from the Northwest University in 2003.
Mr. Hu served at various financial and auditing positions at Shaanxi Telecom Company and China Telecommunications Corporation. He is a member of the Chinese Institute of Certified Public Accountants and a senior accountant with extensive
experience in finance and auditing.
Compensation of Directors and Supervisors
Our directors and supervisors receive compensation in the form of fees, salaries, allowances and benefits in kind, including our contribution
to the pension plans for our directors and supervisors. The aggregate amount of compensation we paid to our directors and Supervisors as a group for the year ended December 31, 2014 was approximately RMB9.517 million. The following table sets
forth the compensation received or receivable by our Company’s directors and supervisors(1):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Directors’/
supervisors’
fees |
|
|
Salaries,
allowances
and benefits
in kind |
|
|
Discretionary
bonuses |
|
|
Share-based
payments |
|
|
Retirement
scheme
contributions |
|
|
Total |
|
| |
|
RMB thousands |
|
| 2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Executive Directors |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Wang Xiaochu |
|
|
— |
|
|
|
340 |
|
|
|
479 |
|
|
|
— |
|
|
|
93 |
|
|
|
912 |
|
| Yang Jie |
|
|
— |
|
|
|
340 |
|
|
|
479 |
|
|
|
— |
|
|
|
92 |
|
|
|
911 |
|
| Wu Andi(2) |
|
|
— |
|
|
|
296 |
|
|
|
431 |
|
|
|
— |
|
|
|
87 |
|
|
|
814 |
|
| Zhang Jiping |
|
|
— |
|
|
|
296 |
|
|
|
423 |
|
|
|
— |
|
|
|
89 |
|
|
|
808 |
|
| Yang Xiaowei |
|
|
— |
|
|
|
296 |
|
|
|
423 |
|
|
|
— |
|
|
|
88 |
|
|
|
807 |
|
| Sun Kangmin |
|
|
— |
|
|
|
296 |
|
|
|
431 |
|
|
|
— |
|
|
|
88 |
|
|
|
815 |
|
| Ke Ruiwen |
|
|
— |
|
|
|
296 |
|
|
|
423 |
|
|
|
— |
|
|
|
77 |
|
|
|
796 |
|
|
|
|
|
|
|
|
| Non-Executive Directors |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Xie Liang(3) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
| Zhu Wei(4) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
- 51 -
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Directors’/
supervisors’
fees |
|
|
Salaries,
allowances
and benefits
in kind |
|
|
Discretionary
bonuses |
|
|
Share-based
payments |
|
|
Retirement
scheme
contributions |
|
|
Total |
|
| |
|
RMB thousands |
|
| Independent Non-Executive Directors |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Tse Hau Yin |
|
|
394 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
394 |
|
| Cha May Lung |
|
|
197 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
197 |
|
| Xu Erming |
|
|
200 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
200 |
|
| Wang Hsuehming(5) |
|
|
114 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
114 |
|
| Qin Xiao(6) |
|
|
82 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
82 |
|
| Wu Jichuan(7) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
| Supervisors |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Shao Chunbao(8) |
|
|
— |
|
|
|
296 |
|
|
|
416 |
|
|
|
— |
|
|
|
70 |
|
|
|
782 |
|
| Tang Qi(9) |
|
|
— |
|
|
|
199 |
|
|
|
466 |
|
|
|
— |
|
|
|
68 |
|
|
|
733 |
|
| Zhang Jianbin(10) |
|
|
— |
|
|
|
157 |
|
|
|
406 |
|
|
|
— |
|
|
|
65 |
|
|
|
628 |
|
| Hu Jing |
|
|
— |
|
|
|
97 |
|
|
|
327 |
|
|
|
— |
|
|
|
58 |
|
|
|
482 |
|
| Du Zuguo(11) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
| Independent Supervisor |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Zhu Lihao(12) |
|
|
42 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
42 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total |
|
|
1,029 |
|
|
|
2,909 |
|
|
|
4,704 |
|
|
|
— |
|
|
|
875 |
|
|
|
9,517 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1) |
The remuneration of all Directors and Supervisors were calculated based on their respective actual terms of office within this year. |
| (2) |
On February 10, 2015, Madam Wu Andi retired as an Executive Director of the Company. |
| (3) |
On May 29, 2014, Mr. Xie Liang retired as a Non-Executive Director of our Company upon expiry of the term of office of the fourth session of the Board. |
| (4) |
On May 29, 2014, Mr. Zhu Wei was approved to be appointed as a Non-Executive Director of the Company at the 2013 annual general meeting. |
| (5) |
On May 29, 2014, Madam Wang Hsuehming was approved to be appointed as an Independent Non-Executive Director of the Company at the 2013 annual general meeting. |
| (6) |
On May 29, 2014, Mr. Qin Xiao retired as an Independent Non-Executive Director of our Company upon expiry of the term of office of the fourth session of the Board. |
| (7) |
On May 29, 2014, Mr. Wu Jichuan retired as an Independent Non-Executive Director of our Company upon expiry of the term of office of the fourth session of the Board. |
| (8) |
On February 18, 2015, Mr. Shao Chunbao resigned as a Supervisor of the Company. |
| (9) |
On May 29, 2014, Mr. Tang Qi has been elected by the employees of the Company democratically as Supervisors of the our Company representing the employees. |
| (10) |
On May 29, 2014, Mr. Zhang Jianbin has been elected by the employees of the Company democratically as Supervisors of the our Company representing the employees. |
| (11) |
On March 12, 2015, Mr. Du Zuguo resigned as a Supervisor of the Company. |
| (12) |
On May 29, 2014, Madam Zhu Lihao retired as the Supervisor of our Company upon expiry of the term of office of the fourth session of the Supervisory Committee. |
Discretionary Bonuses for Executive Directors
Compensation of our Executive Directors is determined pursuant to our director compensation plans thereof approved and adopted by the Board and
the Remuneration Committee. Under the director compensation plan, Executive Directors receive discretionary bonuses subject to achievement of certain performance targets. The amounts of discretionary bonuses are reviewed and determined annually,
with reference to certain financial indicators of the preceding year. Independent directors and non-executive directors do not receive any discretionary bonus.
Discretionary Bonuses for Employee Supervisors
Certain of our supervisors are also our employees. Such employee supervisors are entitled to receiving discretionary bonuses under our
compensation policies that are generally applicable to all employees. The amounts of such discretionary bonuses are determined with reference to the performance of the department in which an employee serves as well as his or her individual
performance. The amounts of discretionary bonuses are reviewed and determined annually, based on the review of performance in the preceding year. Non-employee supervisors do not receive any discretionary bonus from our Company.
- 52 -
Stock Appreciation Rights
We implemented a plan of stock appreciation rights for members of our management in order to provide further incentives for these employees.
The plan is designed to link the financial interests of our senior management with our future results of operations and the performance of our H shares. The number of stock appreciation right units granted to a person may also be adjusted in
accordance with the result of his or her performance evaluation. Under this plan, stock appreciation rights were granted in units with each unit representing one H share. No shares will be issued under the stock appreciation rights plan. Upon
exercise of the stock appreciation rights, a recipient will receive, subject to any applicable withholding tax, a cash payment in Renminbi, translated from the Hong Kong dollar amount equal to the product of the number of stock appreciation rights
exercised and the difference between the exercise price and market price of our Company’s H shares at the date of exercise based on the applicable exchange rate between Renminbi and Hong Kong dollar at the date of the exercise.
- 53 -
In 2012, we approved the granting of 916.7 million stock appreciation right units to
eligible employees. Under the terms of this grant, all stock appreciation rights will have a contractual life of five years from the date of grant and an exercise price of HK$4.76 per unit. A recipient of these stock appreciation rights may exercise
the rights in stages commencing November 2013. As of each of the third, fourth and fifth anniversary of the date of grant, the total number of stock appreciation rights exercisable may not in aggregate exceed 33.3%, 66.7% and 100.0%, respectively,
of the total stock appreciation rights granted to such persons.
In 2013, we did not grant any stock appreciation right units.
In 2014, we did not grant any stock appreciation right units.
During the year ended December 31, 2012, 2013 and 2014, no stock appreciation right units were exercised.
We recognize compensation expense of the stock appreciation rights over the applicable vesting period. Changes in our payment obligation under
the stock appreciation rights plan resulting from changes in fair value of our H shares for the period subsequent to the vesting period through the date of the exercise are also reflected in our earnings. For the year ended December 31, 2012,
compensation expense recognized in respect of stock appreciation rights was RMB163 million. For the year ended December 31, 2013, compensation expense of RMB39 million was reversed by us in respect of stock appreciation rights as a result of
decline in our share price. For the year ended December 31, 2014, compensation expense recognized in respect of stock appreciation rights was RMB130 million.
General
Pursuant to our Articles of Association, our directors must be elected by our shareholders at a general meeting. Our directors are generally
elected for a term of three years and may serve consecutive terms if re-elected. On May 29, 2014, election of members of the Board were conducted and this election generated the fifth session of the Board consisting of 12 directors with seven
Executive Directors, one Non-Executive Director, and four Independent Non-executive Directors, each having a term of office of three years. The term of the fifth session of the Board ends on the day of our annual general meeting for the year 2016 in
2017, upon which the sixth session of the Board will be elected. None of the service contracts with our directors provide benefits to them upon termination.
On May 29, 2014, Mr. Wu Jichuan, Mr. Qin Xiao and Mr. Xie Liang retired as directors of our Company upon expiry of the
term of office of the fourth session of the Board. On May 29, 2014, Mr. Zhu Wei was approved to be appointed as a Non-Executive Director of the Company at the 2013 annual general meeting. On May 29, 2014, Madam Wang Hsuehming was
approved to be appointed as an Independent Non-Executive Director of the Company at the 2013 annual general meeting. On February 10, 2015, Madam Wu Andi retired from her positions as an Executive Director, Executive Vice President and Chief
Financial Officer of the Company. Our Board currently consists of 11 directors with six Executive Directors, one Non-Executive Director and four Independent Non-Executive Directors.
Audit Committee
The Audit
Committee was established in 2002, and currently consists of three members, Mr. Tse Hau Yin, Aloysius, Professor Xu Erming and Madam Wang Hsuehming, all of whom are Independent Non-executive Directors. The Audit Committee is accountable to
the Board and reports to it periodically. The Committee meets at least twice each year. The Charter of the Audit Committee was approved by our Board in March 2005 and amended in March 2009, in December 2011 and in March 2015, respectively, pursuant
to which the principal responsibilities of our Audit Committee include supervision of our Company to ensure authenticity and completeness of our financial statements and effectiveness and integration of the internal control and risk management
system. The Audit Committee also supervises our internal audit department, and is responsible for the review and consideration of the qualification, independence, selection and appointment of independent auditors, and approval of services provided
by the independent auditors. In addition, the Audit Committee is responsible for ensuring that the management performs its duty to establish and maintain an effective internal control system including the adequacy of resources and qualifications and
experience of staff fulfilling the accounting and financial reporting function of the Company as well as the adequacy of the staff’s training programs and related budget. The Audit Committee has established a mechanism for receiving and
handling complaints or anonymous reports in respect of our accounting, internal financial control and audit matters.
- 54 -
In 2014, the Audit Committee held four meetings and passed two written resolutions, at which it
considered matters within its responsibilities, including our Company’s financial statements, assessment of the qualifications, independence and performance of independent auditors and appointment of independent auditors, risk management,
effectiveness of internal control, internal audit, related party transactions and the replacement of the business tax with the VAT. The Audit Committee reviewed the annual audit reports, interim review reports and quarterly agreed-upon procedures
reports prepared by the independent auditors, communicated with the management and the external auditors with regard to the regular financial reports and proposed them for the Board’s approval after review and approval by the Audit Committee
itself. The Audit Committee received quarterly reports in relation to the internal audit and related party transactions and provided guidance to the internal audit department. In addition, the Audit Committee reviewed the internal control assessment
report and attestation report, followed up with the recommendations proposed by our independent auditors, reviewed the annual report, and communicated independently with the auditors twice a year.
Remuneration Committee
The
Remuneration Committee was established in 2003, and currently consists of three members, Professor Xu Erming, Mr. Tse Hau Yin, Aloysius and Madam Wang Hsuehming, all of whom are Independent Non-Executive Directors. The Remuneration
Committee is accountable to the Board and reports to it on its work periodically. The Remuneration Committee meets when necessary. The Charter of the Remuneration Committee was approved by our Board in March 2005 and amended in December 2011,
pursuant to which the Remuneration Committee’s principal responsibilities include supervising the compliance of the Company’s remuneration system with legal requirements, making recommendations to the Board on our overall remuneration
policies and structure relating to compensation of directors and senior management, reviewing and approving the management’s remuneration proposals, determining the remuneration packages of all Executive Directors and senior management, making
recommendations to the Board of Directors on the remuneration of Non-Executive Directors and reviewing and approving severance compensation of directors and senior management.
The Remuneration Committee held one meeting in 2014, at which it reviewed the compensation plan for the fifth session of the Board of
Directors.
Nomination Committee
The Nomination Committee was established in 2005. It currently consists of three members, Ms. Cha May Lung, Laura, Mr. Tse Hau Yin,
Aloysius and Professor Xu Erming, all of whom are Independent Non-Executive Directors. The Nomination Committee is accountable to the Board and regularly reports to the latter on its work. The Nomination Committee meets when necessary. The
Charter of the Nomination Committee was approved by our Board in September 2005 and amended in December 2011 and August 2013, respectively, pursuant to which the Nomination Committee’s principal responsibilities include reviewing the structure,
size, composition and diversity (including but not limited to gender, age, educational background or professional experience, skills, knowledge and length of service) of the board on a regular basis and making recommendations to the board regarding
any proposed changes; identifying individuals suitably qualified to become board members and selecting or making recommendations to the board on the selection of individuals nominated for directorships; assessing the independence of independent
non-executive directors; making recommendations to the board on the appointment or re-appointment of directors and succession planning for directors; and reviewing the Board Diversity Policy as appropriate to ensure its effectiveness and if
necessary, recommend any revision suggestions to the Board for consideration and approval.
The Nomination Committee held one meeting in
2014, at which it reviewed the structure and operations of the Board as well as the change of the Board members upon expiry of the term of office of the fourth session of the Board of Directors.
Independent Board Committee
The
Independent Board Committee consists of all Independent Non-Executive Directors. Meetings of the Independent Board Committee are convened to review certain related party transactions on a case by case basis pursuant to the Listing Rules of the Hong
Kong Stock Exchange.
The Independent Board Committee did not hold any meeting or pass any written resolution in 2014.
- 55 -
General
As of December 31, 2014, we had 300,960 employees. The table below sets forth the numbers of our employees according to their functions as
of December 31, 2012, 2013 and 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
As of December 31, |
|
| |
|
2012 |
|
|
2013 |
|
|
2014 |
|
| |
|
Number of
Employees |
|
|
Percentage
of Total |
|
|
Number of
Employees |
|
|
Percentage
of Total |
|
|
Number of
Employees |
|
|
Percentage
of Total |
|
| Management, finance and administrative |
|
|
49,566 |
|
|
|
16.2 |
% |
|
|
49,113 |
|
|
|
16.0 |
% |
|
|
49,180 |
|
|
|
16.3 |
% |
| Sales and marketing |
|
|
156,260 |
|
|
|
51.1 |
|
|
|
157,915 |
|
|
|
51.5 |
|
|
|
154,456 |
|
|
|
51.3 |
|
| Operations and maintenance |
|
|
97,658 |
|
|
|
32.0 |
|
|
|
97,264 |
|
|
|
31.7 |
|
|
|
95,348 |
|
|
|
31.7 |
|
| Others |
|
|
2,192 |
|
|
|
0.7 |
|
|
|
2,253 |
|
|
|
0.8 |
|
|
|
1,976 |
|
|
|
0.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total |
|
|
305,676 |
|
|
|
100.0 |
% |
|
|
306,545 |
|
|
|
100.0 |
% |
|
|
300,960 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We have implemented a short-term and long-term combined incentive remuneration scheme. The primary components
of an employee’s remuneration include basic salary, a performance based bonus, compensation based on seniority and stock appreciation rights (stock appreciation rights are exclusively for members of our management). In addition, we also
emphasize the importance of employee training and use various means of training to improve the quality and capability of our key employees. We have not been subjected to any material labor disturbances that have interfered with our operations, and
we believe that the relationship between our management and the labor union of our Company is good.
As of December 31, 2014, our Deputy Chief Financial Officer,
Qualified Accountant and Company Secretary, Mr. Yung Shun Loy, Jacky, held 156,000 H shares, representing 0.00112% of the total number of H shares and 0.00019% of the total number of all outstanding shares in our Company.
Apart from those disclosed herein, as of December 31, 2014, none of our directors, supervisors or other senior executives was a legal or
beneficial owner of any shares of our share capital.
- 56 -
| Item 7. |
Major Shareholders and Related Party Transactions. |
The table below sets forth information regarding the ownership of
our share capital as of April 22, 2015 by all persons who are known to us to be the beneficial owners of 5.0% or more of each class of our voting securities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Title of Shares |
|
Identity of Person or Group |
|
Amount Owned |
|
|
Nature of Interest |
|
|
Percentage of
the Respective
Type of
Shares(1) |
|
|
Percentage of
Total Shares(1) |
|
| Domestic shares |
|
China Telecom Group |
|
|
57,377,053,317 |
|
|
|
long position |
|
|
|
85.57 |
% |
|
|
70.89 |
% |
| Domestic shares |
|
Guangdong Rising Assets Management Co., Ltd. |
|
|
5,614,082,653 |
|
|
|
long position |
|
|
|
8.37 |
% |
|
|
6.94 |
% |
|
|
|
|
|
|
| Title of Shares |
|
Identity of Person or Group |
|
Amount Owned |
|
|
Nature of Interest |
|
|
Percentage of
the Respective
Type of
Shares(1) |
|
|
Percentage of
Total Shares(1) |
|
| H shares |
|
JPMorgan Chase & Co. |
|
|
1,792,139,463 |
|
|
|
long position |
|
|
|
12.91 |
% |
|
|
2.21 |
% |
|
|
|
|
|
25,638,482 |
|
|
|
short position |
|
|
|
0.18 |
% |
|
|
0.03 |
% |
|
|
|
|
|
1,128,625,161 |
|
|
|
lending pool |
|
|
|
8.13 |
% |
|
|
1.39 |
% |
| H shares |
|
Commonwealth Bank of Australia |
|
|
1,243,811,074 |
|
|
|
long position |
|
|
|
8.96 |
% |
|
|
1.54 |
% |
| H shares |
|
BlackRock, Inc. |
|
|
1,129,967,538 |
|
|
|
long position |
|
|
|
8.14 |
% |
|
|
1.40 |
% |
| (1) |
The percentage figures above have been rounded off to the nearest second decimal place. |
| (2) |
Information disclosed hereby is based on the information available on the website of the Hong Kong Stock Exchange at www.hkex.com.hk. |
China Telecom Group, located at 31 Jinrong Street, Xicheng District, Beijing, PRC 100033, is our controlling shareholder and is a wholly
state-owned enterprise regulated by the State Council. Guangdong Rising Assets Management Co., Ltd., located at 17 Pearl River West Road, Pearl River New Town, Tianhe District, Guangzhou, Guangdong Province, PRC, is a state-owned enterprise owned
and controlled by the provincial governments in Guangdong Province. JP Morgan Chase & Co. is located at 270 Park Avenue, New York, New York 10017, U.S.A. Commonwealth Bank of Australia is located at Ground Floor, Tower 1, 201 Sussex Street,
Sydney NSW, Australia. BlackRock, Inc. is located at 40 East 52nd Street, New York, New York 10022, U.S.A.
Based solely on information
contained in an Amendment No.8 to Schedule 13G, or the FRI Schedule 13G/A, jointly filed with the SEC, on February 9, 2015 by Franklin Resources, Inc., or FRI, Charles B. Johnson and Rupert H. Johnson, Jr., 1,469,432,951 shares of our Company,
or the FRI Shares, representing approximately 10.6% of the total number of our H shares outstanding as of December 31, 2014, were beneficially owned either by investment companies that were direct or indirect subsidiaries of FRI or by other
managed accounts that were investment management clients of investment managers that were direct or indirect subsidiaries of FRI. These subsidiaries of FRI were generally granted all investment and/or voting power over the FRI Shares owned and, as a
result, may be deemed to be the beneficial owners of the FRI Shares for the purposes of Rule 13d-3 of the Exchange Act. Each of Charles B. Johnson and Rupert H. Johnson, Jr. owned in excess of 10% of the outstanding common stock of FRI and was a
principal shareholder of FRI. Each of FRI, Charles B. Johnson and Rupert H. Johnson, Jr. could be deemed a beneficial owner of securities held by persons and entities for whom or for which the subsidiaries of FRI provided investment management
services. However, each of FRI, Charles B. Johnson and Rupert H. Johnson, Jr. disclaims beneficial ownership of any of the FRI Shares. The principal place of business of each of FRI, Charles B. Johnson and Rupert H. Johnson, Jr., is One Franklin
Parkway, San Mateo, CA 94403-1906, U.S.A. The above disclosure is based solely on the information contained in the FRI Schedule 13G/A. For the numbers of our H shares that each of the subsidiaries of FRI has sole power to vote or to direct the
voting of, or sole power to dispose or to direct the disposition of, or shared power to dispose or to direct the disposition of, and other details of the FRI Schedule 13G/A, please see the Schedule 13G/A jointly filed with the SEC by FRI, Charles B.
Johnson and Rupert H. Johnson, Jr. on February 9, 2015.
None of our major shareholders has voting rights that differ from the voting
rights of other shareholders. We are not aware of any arrangement which may at a subsequent date result in a change of control of our Company.
- 57 -
| B. |
Related Party Transactions |
As of April 22, 2015, China Telecom Group, a wholly
state-owned enterprise, directly owned and controlled 70.89% of our issued share capital. Accordingly, transactions between China Telecom Group and us constitute connected transactions under the Listing Rules.
In connection with our restructuring in 2001, our acquisitions of telecommunications assets from China Telecom Group on December 31, 2003
and June 30, 2004, respectively, our acquisition of the CDMA Business in 2008, the Mobile Network Acquisition in 2012, and our sale of E-surfing Media in 2013, we have entered into various agreements with China Telecom Group relating to the
mutual provision of ongoing telecommunications and other services. Such agreements include those for trademark licensing, centralized services, interconnection arrangements, optic fiber leasing, property leasing, land use right leasing, CDMA network
capacity leasing, CDMA facilities leasing, Internet applications channel services and other services.
Our Independent Non-Executive
Directors have confirmed that all connected transactions for the year ended December 31, 2014 to which our Company was a party:
| |
• |
|
had been entered into, and the agreements governing those transactions were entered into, by our Company in the ordinary and usual course of business; |
| |
• |
|
had been entered into either: |
| |
• |
|
on normal commercial terms or better; or |
| |
• |
|
if there were not sufficient comparable transactions to judge whether they were on normal commercial terms, on terms no less favorable to the Company than those available to or (if applicable) from independent third
parties; and |
| |
• |
|
had been entered into in accordance with the relevant terms that are fair and reasonable and in the overall interests of the shareholders of the Company as a whole. |
The details of the related party arrangements are described below.
Arrangements Relating to Certain Acquisitions
Indemnification
In
connection with the acquisition of telecommunications assets from China Telecom Group by our Company, under the Sale and Purchase Agreement, dated October 26, 2003, between our Company and China Telecom Group, China Telecom Group has undertaken
to indemnify Anhui Telecom Company Limited, Fujian Telecom Company Limited, Jiangxi Telecom Company Limited, Guangxi Telecom Company Limited, Chongqing Telecom Company Limited and Sichuan Telecom Company Limited for any loss or damages suffered by
those companies as a result of, or related to, the reorganization of those companies under which China Telecom Group transferred to those companies the telecommunications operations of China Telecom Group in Anhui Province, Fujian Province, Jiangxi
Province, Guangxi Zhuang Autonomous Region, Chongqing Municipality and Sichuan Province, and for any loss or damages suffered by those companies in connection with events preceding such reorganization.
In connection with the acquisition of telecommunications assets from China Telecom Group by our Company, under the Conditional Sale and
Purchase Agreement, dated April 13, 2004, between our Company and China Telecom Group, China Telecom Group has undertaken to indemnify us and keep us indemnified against any loss or liability suffered by us or any acquired company including,
but not limited to, any diminution in the value of the assets of or shares in any acquired company, any payment made or required to be made by us or any acquired company and any costs and expenses incurred as a result of or in connection with any
claim falling on any acquired company resulting from or by reference to any income, profits or gains earned, accrued or received on or before the date of the acquisition or any event on or before the date of the acquisition whether alone or in
conjunction with other circumstances and whether or not such taxation is chargeable against or attributable to any other person, firm or company.
- 58 -
Ongoing Related Party Transactions between Us and China Telecom Group
The following table sets out the amounts of ongoing related party transactions between us and China Telecom Group for the year ended
December 31, 2014:
|
|
|
|
|
| Transactions |
|
Transaction
Amounts
(RMB millions) |
|
| Net transaction amount of centralized services |
|
|
246 |
|
| Net expenses for interconnection settlement |
|
|
346 |
|
| Lease of property from China Telecom Group |
|
|
695 |
|
| Lease of property to China Telecom Group |
|
|
39 |
|
| Provision of IT services by China Telecom Group |
|
|
1,171 |
|
| Provision of IT services to China Telecom Group |
|
|
167 |
|
| Provision of supplies procurement services by China Telecom Group |
|
|
3,729 |
|
| Provision of supplies procurement services to China Telecom Group |
|
|
3,089 |
|
| Provision of engineering services by China Telecom Group |
|
|
15,478 |
|
| Provision of community services by China Telecom Group |
|
|
2,885 |
|
| Provision of ancillary telecommunications services by China Telecom Group |
|
|
11,549 |
|
| Provision of Internet applications channel services to China Telecom Group |
|
|
366 |
|
| Interest on amounts due to and loans from China Telecom Group* |
|
|
4,431 |
|
| Lease of CDMA network facilities from China Telecom Group* |
|
|
193 |
|
| Lease of inter-provincial transmission optic fibers from China Telecom Group* |
|
|
22 |
|
| Lease of land use rights from China Telecom Group* |
|
|
15 |
|
| * |
These transactions are conducted on normal commercial terms and are fully exempted from compliance with the reporting, announcement, independent shareholders’ approval and/or annual review requirements either under
Rules 14A. 31, 14A.33 or 14A. 65 of the Listing Rules. |
Centralized Services Agreement
Pursuant to the centralized services agreement signed between the Company and China Telecommunications Corporation on September 10, 2002
and the related supplemental agreements subsequently entered into between the two parties (collectively, the “Centralized Services Agreement”), centralized services include centralized business management and operational services provided
by the Company to China Telecommunications Corporation in relation to key corporate customers, its network management center and business support center. Centralized services also include the provision of certain premises by China Telecommunications
Corporation to the Company and the common use of international telecommunications facilities by both parties. In accordance with the Centralized Services Agreement, the aggregate costs incurred by the Company and China Telecommunications Corporation
for the provision of management and operation services will be apportioned between the Company and China Telecommunications Corporation on a pro rata basis according to the revenues generated by each party. Where the Company uses the premises
provided by China Telecommunications Corporation, the Company will pay premises usage fees to China Telecommunications Corporation on a pro rata basis according to the apportioned actual area allocated to the Company. The premises usage fees shall
be determined through negotiation between the two parties based on comparable market rates. When both parties use international telecommunications facilities provided by third parties and accept services by such third parties, such as restoration
maintenance costs, the annual utilization fee and related service costs, and when both parties use the international telecommunications facilities of China Telecommunications Corporation, the associated costs shall be shared on a pro rata basis
according to volume of the inbound and outbound voice calls to and from international regions, Hong Kong, Macau and Taiwan originating from each party divided by the proportion of the aggregate volume of the inbound and outbound voice calls to and
from international regions, Hong Kong, Macau and Taiwan originating from both parties. When the two parties use international telecommunications facilities provided by a third party and accept restoration maintenance costs, such fees shall be
determined according to the actual utilization fee each year. The utilization fee associated with the shared use of the international telecommunications facilities provided by China Telecommunications Corporation shall be determined through
negotiation between the two parties based on market rates.
The Company and China Telecommunications Corporation agreed on August 22,
2012 to renew the Centralized Services Agreement pursuant to its terms for a further term of three years expiring on December 31, 2015. No later than 30 days prior to the expiry of the Centralized Services Agreement, the Company is entitled to
serve a written notice to China Telecommunications Corporation to renew the Centralized Services Agreement, and the parties shall consult and decide on matters relating to such renewal.
- 59 -
Interconnection Settlement Agreement
Pursuant to the interconnection settlement agreement signed between the Company and China Telecommunications Corporation on September 10,
2002 and the related supplemental agreements subsequently entered into between the two parties (collectively, the “Interconnection Settlement Agreement”), the telephone operator connecting a telephone call made to its local access network
shall be entitled to receive from the operator from which the telephone call originated a fee prescribed by the Ministry of Industry and Information Technology from time to time, which is currently RMB0.06 per minute. Interconnection charges are
RMB0.06 per minute for local calls originated from the Company to China Telecommunications Corporation. The settlement regions include Beijing Municipality, Tianjin Municipality, Hebei Province, Heilongjiang Province, Jilin Province, Liaoning
Province, Shanxi Province, Henan Province, Shandong Province, Inner Mongolia Autonomous Region and Xizang Autonomous Region.
The Company
and China Telecommunications Corporation agreed on August 22, 2012 to renew the Interconnection Settlement Agreement pursuant to its terms for a further term of three years expiring on December 31, 2015. No later than 30 days prior to the
expiry of the Interconnection Settlement Agreement, the Company is entitled to serve a written notice to China Telecommunications Corporation to renew the Interconnection Settlement Agreement, and the parties shall consult and decide on matters
relating to such renewal. In addition, the Company and China Telecommunications Corporation have agreed that interconnection settlement charges will be calculated according to the rules and regulations of the relevant telecommunications regulators.
If the telecommunications regulators amend existing, or promulgate new rules or regulations in respect of interconnection settlement, the parties shall apply such amended or new rules and regulations as acknowledged by both parties.
Property Leasing Framework Agreement
Pursuant to the property leasing framework agreement signed between the Company and China Telecommunications Corporation on August 30,
2006 and the related supplemental agreement subsequently entered into between the two parties (collectively, the “Property Leasing Framework Agreement”), the Company and China Telecommunications Corporation and/or its associates can lease
properties from the other party for use as business premises, offices, equipment storage facilities and sites for network equipment. The rental charges under the Property Leasing Framework Agreement shall be determined according to market rates with
reference to the standards set forth by local pricing authorities. The rental charges are subject to review every three years.
The
Company and China Telecommunications Corporation agreed on August 22, 2012 to renew the Property Leasing Framework Agreement pursuant to its terms for a further term of three years expiring on December 31, 2015. No later than 30 days prior
to the expiry of the Property Leasing Framework Agreement, the Company is entitled to serve a written notice to China Telecommunications Corporation to renew the Property Leasing Framework Agreement, and the parties shall consult and decide on
matters relating to such renewal.
IT Services Framework Agreement
Pursuant to the IT services framework agreement signed between the Company and China Telecommunications Corporation on August 30, 2006 and
the related supplemental agreements subsequently entered into between the two parties (collectively, the “IT Services Framework Agreement”), the Company and China Telecommunications Corporation and/or its associates can provide the other
party with information technology services, including office automation and software testing. Each of the Company and China Telecommunications Corporation and/or its associates is entitled to participate in bidding for the right to provide
information technology services to the other party in accordance with the IT Services Framework Agreement. The charges payable for such services shall be determined by reference to the market rates or rates obtained through a tender process. If the
terms offered by the Company or China Telecommunications Corporation and/or its associates are no less favorable than those offered by an independent third-party provider, the Company or China Telecommunications Corporation and/or its associates may
award the tender to the other party.
The Company and China Telecommunications Corporation agreed on August 22, 2012 to renew the IT
Services Framework Agreement pursuant to its terms for a further term of three years expiring on December 31, 2015. No later than 30 days prior to the expiry of the IT Services Framework Agreement, the Company is entitled to serve a written
notice to China Telecommunications Corporation to renew the IT Services Framework Agreement, and the parties shall consult and decide on matters relating to such renewal.
Community Services Framework Agreement
Pursuant to the community services framework agreement signed between the Company and China Telecommunications Corporation on August 30,
2006 and the related supplemental agreements subsequently entered into between the two parties (collectively, the “Community Services Framework Agreement”), China Telecommunications Corporation and/or its associates provide the Company
with community services such as culture, education, property management, vehicle service, health and medical care, hotel and conference service, community and sanitary service. The community services under the Community Services Framework Agreement
are provided at:
(1) the government-prescribed prices (if any);
- 60 -
(2) where there are no government-prescribed prices but the government-guided prices, the
government-guided prices;
(3) where there are neither government-prescribed prices nor government-guided prices, the market prices (if
any), which are the prices at which the same type of services are provided by independent third parties in the ordinary course of business; or
(4) where none of the above is applicable, the prices are to be agreed between the parties based on the reasonable costs incurred in providing
the services plus reasonable profit margin (for this purpose, “reasonable costs” means such costs as confirmed by both parties after negotiations).
The Company and China Telecommunications Corporation agreed on August 22, 2012 to renew the Community Services Framework Agreement
pursuant to its terms for a further term of three years expiring on December 31, 2015. No later than 30 days prior to the expiry of the Community Services Framework Agreement, the Company is entitled to serve a written notice to China
Telecommunications Corporation to renew the Community Services Framework Agreement, and the parties shall consult and decide on matters relating to such renewal.
Supplies Procurement Services Framework Agreement
Pursuant to the supplies procurement services framework agreement signed between the Company and China Telecommunications Corporation on
August 30, 2006 and the related supplemental agreements subsequently entered into between the two parties (collectively, the “Supplies Procurement Services Framework Agreement”), China Telecommunications Corporation and/or its
associates and the Company provide each other with supplies procurement services, including the comprehensive procurement services, the sale of proprietary telecommunications equipment, resale of third-party equipment, management of tenders,
verification of technical specifications, storage, transportation and installation services.
Where the procurement services are provided
on an agency basis, the maximum commission for such procurement services shall be calculated at: (1) not more than 1.0% of the contract value for procurement of imported telecommunications supplies; or (2) not more than 3.0% of the
contract value for the procurement of domestic telecommunications supplies and other domestic non-telecommunication materials. The pricing basis for the services for the provision of supplies procurement other than on an agency basis under the
Supplies Procurement Services Framework Agreement is the same as those set out in the Community Services Framework Agreement.
The Company
and China Telecommunications Corporation agreed on August 22, 2012 to renew the Supplies Procurement Services Framework Agreement pursuant to its terms for a further term of three years expiring on December 31, 2015. No later than 30 days
prior to the expiry of the Supplies Procurement Services Framework Agreement, the Company is entitled to serve a written notice to China Telecommunications Corporation to renew the Supplies Procurement Services Framework Agreement, and the parties
shall consult and decide on matters relating to such renewal.
Engineering Framework Agreement
Pursuant to the engineering framework agreement signed between the Company and China Telecommunications Corporation on August 30, 2006 and
the related supplemental agreements subsequently entered into between the two parties (collectively, the “Engineering Framework Agreement”), China Telecommunications Corporation and/or its associates through bids provide to the Company
services such as construction, design, equipment installation and testing and/or engineering project supervision services. The charges payable for such engineering services shall be determined by reference to market rates. The charges payable for
the design or supervision of engineering projects with a value of over RMB500,000 or construction of engineering projects with a value of over RMB2 million shall be determined by referring to the tender award price.
The Company does not accord any priority to China Telecommunications Corporation and/or its associates to provide such services, and the
tender may be awarded to an independent third party. However, if the terms of an offer from China Telecommunications Corporation and/or its associates are at least as favourable as those offered by other tenderers, the Company may award the tender
to China Telecommunications Corporation and/or its associates.
The Company and China Telecommunications Corporation agreed on
August 22, 2012 to renew the Engineering Framework Agreement pursuant to its terms for a further term of three years expiring on December 31, 2015. No later than 30 days prior to the expiry of the Engineering Framework Agreement, the
Company is entitled to serve a written notice to China Telecommunications Corporation to renew the Engineering Framework Agreement, and the parties shall consult and decide on matters relating to such renewal.
- 61 -
Ancillary Telecommunications Services Framework Agreement
Pursuant to the ancillary telecommunications services framework agreement signed between the Company and China Telecommunications Corporation
on August 30, 2006 and the related supplemental agreements subsequently entered into between the two parties (collectively, the “Ancillary Telecommunications Services Framework Agreement”), China Telecommunications Corporation and/or
its associates provide the Company with certain repair and maintenance services, including repair of telecommunications equipment, maintenance of fire equipment and telephone booths, as well as other customer services. The pricing terms for such
services are the same as those set out in the Community Services Framework Agreement.
The Company and China Telecommunications
Corporation agreed on August 22, 2012 to renew the Ancillary Telecommunications Services Framework Agreement pursuant to its terms for a further term expiring on December 31, 2015. No later than 30 days prior to the expiry of the Ancillary
Telecommunications Services Framework Agreement, the Company is entitled to serve a written notice to China Telecommunications Corporation to renew the Ancillary Telecommunications Services Framework Agreement, and the parties shall consult and
decide on matters relating to such renewal.
Trademark License Agreement
China Telecommunications Corporation has registered a number of trademarks, and is in the process of registering other trademarks with the
Trademark Office. Under the trademark license agreement, dated September 10, 2002, and the related supplemental agreements (collectively, the “Trademark License Agreement”), China Telecommunications Corporation has granted to the
Company a right to use its registered trademarks and its trademarks pending registration on a royalty-free basis.
The Company and China
Telecommunications Corporation agreed on August 22, 2012 to renew the Trademark License Agreement pursuant to its terms for a further term expiring on December 31, 2015. The Company may renew the Trademark License Agreement for such
further periods as the parties may agree, by 30 days’ written notification to China Telecommunications Corporation.
Optic
Fiber Leasing Agreement
The Company leases from China Telecom Group the inter-provincial transmission optic fibers in Shanghai
Municipality, Guangdong Province, Jiangsu Province and Zhejiang Province, which the Company’s telecommunications services are dependent upon, under the Optic Fiber Leasing Agreement dated September 10, 2002 and the related supplemental
agreements (collectively, the “Optic Fiber Leasing Agreement”). The rent payable by the Company to China Telecom Group to lease the relevant parts of the inter-provincial transmission optic fibers will be based on negotiations between the
parties with reference to the market price. In addition, The Company agreed to be responsible for the maintenance of these optic fibers within those service regions.
The Company and China Telecommunications Corporation agreed on August 22, 2012 to renew the Optic Fiber Leasing Agreement pursuant to its
terms for a further term expiring on December 31, 2015. The Company may renew the Optic Fiber Leasing Agreement for such further periods as the parties may agree, by 30 days’ written notification to China Telecommunications Corporation.
Internet Applications Channel Services Framework Agreement
Pursuant to the Internet applications channel services framework agreement signed between the Company and China Telecommunications Corporation
on December 16, 2013 (the “Internet Applications Channel Services Framework Agreement”), the Company will provide Internet applications channel services to China Telecommunications Corporation and/or its associates. The channel
services mainly include the provision of telecommunications channel and applications support platform, provision of billing and deduction services, coordination of sales promotion and development of customers services, etc.
The charges payable for the services under the Internet Applications Channel Services Framework Agreement are calculated on the following
basis:
| |
(1) |
the government-prescribed prices (if any); |
| |
(2) |
where there are no government-prescribed prices but there are government-guided prices, the government-guided prices; |
| |
(3) |
where there are neither government-prescribed prices nor government-guided prices, the market prices. Market prices shall mean the prices at which the same type of services are provided by independent third parties in
the ordinary course of business; or |
| |
(4) |
where none of the above is applicable, the prices are to be agreed between the parties based on the reasonable costs incurred in providing the services plus reasonable profit margin (for this purpose, “reasonable
costs” means such costs as confirmed by both parties after negotiations). |
- 62 -
The Internet Applications Channel Services Framework Agreement became effective on
January 1, 2014 and will expire on December 31, 2015. No later than 30 days prior to the expiry of the Internet Applications Channel Services Framework Agreement, the Company is entitled to serve a written notice to China
Telecommunications Corporation to renew the Internet Applications Channel Services Framework Agreement, and the parties shall consult and decide on matters relating to such renewal.
Our Acquisition from China Telecom Group of the CDMA Network Assets and Associated Liabilities
See “Item 4—Information on the Company—A. History and Development of the Company—Our Acquisition from China Telecom Group
of the CDMA Network Assets and Associated Liabilities.”
Our Short Term Borrowings from China Telecom Group
We from time to time borrow short term unsecured loans from China Telecom Group to supplement our working capital needs. As of
December 31, 2014, the aggregate outstanding principal amount of such loans was RMB19,398 million, which bear interest at fixed rates of 4.5% per annum. See Note 15 to our audited financial statements included elsewhere in this report
for details.
Our Sale of E-surfing Media
See “Item 4—Information on the Company—A. History and Development of the Company –Changes in Our Corporate Organization in
2013”.
Our Acquisition from China Telecommunications Corporation the 100% equity interest of China Telecom Europe
See “Item 4—Information on the Company—A. History and Development of the Company – Changes in Our Corporate Organization in
2013”.
| C. |
Interests of Experts and Counsel |
Not applicable.
| Item 8. |
Financial Information. |
| A. |
Consolidated Statements and Other Financial Information |
Our consolidated financial
statements are set forth beginning on page F-1. No significant change has occurred since the date of the annual financial statements.
Legal
Proceeding
We are the defendant in certain lawsuits and a named party in other legal proceedings arising in the ordinary course of
business. While the outcomes of such contingencies, lawsuits or other legal proceedings cannot be determined at present, we believe that the outcomes of such contingencies, lawsuits or other legal proceedings will not likely result in any material
adverse effect on our financial position, results of operations or cash flows.
In 2011, the NDRC initiated an anti-monopoly investigation
over our pricing practices with respect to our Internet dedicated leased line access services to Internet service providers. In response to this investigation, we have conducted a self-evaluation of the relevant pricing practices and submitted to
the NDRC in November 2011 a proposal for enhancement initiatives as well as an application for suspension of investigation. In December 2013, we submitted an implementation report on rectification measures to the NDRC in response to the requirement
from the NDRC. As of the date of this annual report, we have not received any further investigation or improvement requirement from the NDRC.
Policy on Dividend Distributions
Pursuant to the shareholders’ approval at the annual general meeting held on May 29, 2014, a final dividend of RMB6,198 million
(RMB0.076583 equivalent to HK$0.095 per share, pre-tax) for the year ended December 31, 2013 was declared, all of which has been fully paid. Pursuant to a resolution passed at the Directors’ meeting on March 18, 2015, a final dividend
of approximately RMB6,085 million (RMB0.075187 equivalent to HK$0.095 per share, pre-tax) for the year ended December 31, 2014 was proposed for shareholders’ approval at the forthcoming annual general meeting.
- 63 -
The declaration and payment of dividends for years following 2014 will depend upon our financial
results, our shareholders’ interests, general business conditions and strategies, our capital requirements, contractual restrictions on the payment of dividends by us to our shareholders or by our subsidiaries, if any, to us, possible effects
on our creditworthiness and other factors our directors may deem relevant. Our Board will declare dividends, if any, in Renminbi with respect to our H shares on a per share basis and will pay such dividends in Hong Kong dollars. Any final dividend
for a fiscal year will be subject to shareholders’ approval. Under the PRC Company Law and our Articles of Association, all of our shareholders have equal rights to dividends and distributions. The holders of our H shares will share
proportionately on a per share basis in all dividends and other distributions declared by our Company.
The Bank of New York Mellon, as
depositary, will convert the Hong Kong dollar dividend payment and distribute it to holders of ADSs in U.S. dollars, less related fees and expenses and any withholding tax.
| Item 9. |
The Offer and Listing. |
In connection with our initial public offering, our ADSs were
listed and commenced trading on the NYSE on November 14, 2002 under the symbol “CHA.” Our H shares were listed and commenced trading on the Hong Kong Stock Exchange on November 15, 2002. Prior to these listings, there was no
public market for our equity securities. The NYSE and the Hong Kong Stock Exchange are the principal trading markets for our ADSs and H shares, which are not listed on any other exchanges in or outside the United States.
As of December 31, 2014 and April 22, 2015, there were 13,877,410,000 H shares issued and outstanding. As of December 31, 2014
and April 22, 2015, there were, respectively, 47 and 52 registered holders of American depositary receipts evidencing 6,559,321 and 6,711,420 ADSs. Since certain of the ADSs are held by nominees, the above number may not be representative of
the actual number of U.S. beneficial holders of ADSs or the number of ADSs beneficially held by U.S. persons. The depositary for the ADSs is The Bank of New York Mellon.
The high and low closing sale prices of the shares on the Hong Kong Stock Exchange and of the ADSs on the NYSE for the periods indicated are
as follows.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Price per Share (HK$) |
|
|
Price per ADS (US$) |
|
| |
|
High |
|
|
Low |
|
|
High |
|
|
Low |
|
| Annual |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2010 |
|
|
4.36 |
|
|
|
3.20 |
|
|
|
56.09 |
|
|
|
40.72 |
|
| 2011 |
|
|
5.23 |
|
|
|
4.08 |
|
|
|
67.13 |
|
|
|
52.68 |
|
| 2012 |
|
|
4.91 |
|
|
|
3.29 |
|
|
|
63.48 |
|
|
|
42.05 |
|
| 2013 |
|
|
4.40 |
|
|
|
3.56 |
|
|
|
57.97 |
|
|
|
45.35 |
|
| 2014 |
|
|
5.17 |
|
|
|
3.15 |
|
|
|
66.61 |
|
|
|
40.35 |
|
| Quarterly |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| First Quarter, 2013 |
|
|
4.40 |
|
|
|
3.90 |
|
|
|
57.97 |
|
|
|
50.33 |
|
| Second Quarter, 2013 |
|
|
4.18 |
|
|
|
3.56 |
|
|
|
53.87 |
|
|
|
45.35 |
|
| Third Quarter, 2013 |
|
|
4.22 |
|
|
|
3.65 |
|
|
|
55.19 |
|
|
|
47.27 |
|
| Fourth Quarter, 2013 |
|
|
4.20 |
|
|
|
3.81 |
|
|
|
54.56 |
|
|
|
48.94 |
|
| First Quarter, 2014 |
|
|
3.86 |
|
|
|
3.15 |
|
|
|
49.16 |
|
|
|
40.35 |
|
| Second Quarter, 2014 |
|
|
4.19 |
|
|
|
3.45 |
|
|
|
53.73 |
|
|
|
44.70 |
|
| Third Quarter, 2014 |
|
|
5.17 |
|
|
|
3.88 |
|
|
|
66.61 |
|
|
|
49.17 |
|
| Fourth Quarter, 2014 |
|
|
5.04 |
|
|
|
4.31 |
|
|
|
64.79 |
|
|
|
55.30 |
|
| First Quarter, 2015 |
|
|
5.04 |
|
|
|
4.22 |
|
|
|
65.85 |
|
|
|
56.01 |
|
| Monthly |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| October 2014 |
|
|
4.94 |
|
|
|
4.57 |
|
|
|
63.78 |
|
|
|
58.00 |
|
| November 2014 |
|
|
5.04 |
|
|
|
4.68 |
|
|
|
64.79 |
|
|
|
60.63 |
|
| December 2014 |
|
|
4.71 |
|
|
|
4.31 |
|
|
|
60.91 |
|
|
|
55.30 |
|
| January 2015 |
|
|
4.79 |
|
|
|
4.22 |
|
|
|
62.45 |
|
|
|
56.01 |
|
| February 2015 |
|
|
5.02 |
|
|
|
4.67 |
|
|
|
65.85 |
|
|
|
60.82 |
|
| March 2015 |
|
|
5.04 |
|
|
|
4.63 |
|
|
|
65.09 |
|
|
|
59.62 |
|
| April 2015 (through April 22) |
|
|
5.82 |
|
|
|
5.06 |
|
|
|
78.28 |
|
|
|
65.73 |
|
- 64 -
| Item 10. |
Additional Information. |
Not applicable.
| B. |
Memorandum and Articles of Association |
The following is a summary of certain provisions
of our Articles of Association, as amended. Such summary does not purport to be complete. For further information, you and your advisors should refer to the text of our Articles of Association, as amended, and to the texts of applicable laws and
regulations. A copy of our Articles of Association is filed as an exhibit to this annual report, which is incorporated herein by reference.
Holders of our domestic shares and H shares are deemed to be shareholders of different classes for various matters, which affect their
respective interests. For instance, if we propose an increase in domestic shares, holders of H shares would be entitled to vote on that proposal as a separate class. See “—Voting Rights and Shareholders’ Meetings” included
elsewhere under this Item.
Objects and Purposes
We are a joint stock limited company established in accordance with the PRC Company Law, the State Council’s Special Regulations Regarding
the Issue of Shares Overseas and the Listing of Shares Overseas by Companies Limited by Shares and other relevant laws and regulations of the State. We registered with the PRC State Administration for Industry and Commerce with business license
number 1000001003712. Article 13 of our Articles of Association provides that our scope of business includes, among other things, operation of basic and value-added telecommunications businesses.
Directors
Our Articles of
Association provide that each of our directors is obligated to each shareholder to act honestly in our Company’s best interests; not to exploit corporate assets for personal gain; and not to expropriate the rights of our shareholders.
Where a director is materially interested, directly or indirectly, in a contract, transaction or arrangement (including any proposed contract,
transaction or arrangement) with us, he or she shall declare the nature and extent of his or her interests to the Board at the earliest opportunity, whether or not such contract, transaction or arrangement is otherwise subject to the approval of the
Board. A director shall not vote, and shall not be counted in the quorum of the meeting, on any resolution concerning any contract, transaction or arrangement where the director owns material rights or interests therein. A director is deemed to be
interested in a contract, transaction or arrangement in which his associate (as defined in the Listing Rules of the Hong Kong Stock Exchange) is interested.
Unless the interested director discloses his interests to the board and the contract, transaction or arrangement in which the director is
materially interested is approved by the board of directors at a meeting in which the director neither votes nor is counted in the quorum, such contract, transaction or arrangement may be revoked by us except with respect to a bona fide party
thereto who does not have notice of the breach of duty by the interested director.
Further, we may not make loans or provide guarantees
to directors or any of their associates, except where such loan or guarantee is made or provided under a service contract as approved by shareholders at the shareholders’ general meeting and to meet expenditure requirement incurred or for the
purpose of enabling the director to perform his or her duties properly or made in the ordinary course of business.
All decisions relating
to the compensation of directors are made at shareholders’ meetings.
There are no provisions under our articles of association which
relate to:
| |
• |
|
the retirement or non-retirement of directors under any age limit requirement; |
| |
• |
|
directors’ borrowing power; or |
| |
• |
|
number of shares required for director’s qualification. |
Dividends
Our Board may propose dividend distributions at any time. Our Board may declare interim and special dividends under general authorization by a
shareholders’ ordinary resolution. A distribution of final dividends for any fiscal year is subject to shareholders’ approval. Dividends may be distributed in the form of cash or shares. A distribution of shares, however, must be approved
by special resolution of the shareholders.
- 65 -
We may only distribute dividends from our retained earnings as determined in accordance with the
accounting principles of the PRC or IFRS, whichever is lower, after allowance has been made for:
| |
• |
|
recovery of losses, if any; |
| |
• |
|
allocations to the statutory common reserve fund of 10.0% of our profit; and |
| |
• |
|
allocations to a discretionary common reserve fund if approved by the shareholders. |
Our
Articles of Association require us to appoint on behalf of the holders of H shares a receiving agent that is registered as a trust company under the Trustee Ordinance of Hong Kong to receive dividends declared by us in respect of the H shares on
behalf of such shareholders. Our Articles of Association require that cash dividends in respect of H shares be declared in Renminbi and paid by us in Hong Kong dollars. The Bank of New York Mellon, as the ADS depositary, will convert these proceeds
into U.S. dollars and will remit the converted proceeds to holders of our ADSs after deduction of related fees and expenses and any withholding tax.
Dividends payments may be subject to the PRC withholding tax. See “—E. Taxation—People’s Republic of China—Taxation
of Dividends” included elsewhere under this Item.
Voting Rights and Shareholders’ Meetings
Our Board will convene a shareholders’ annual general meeting once every year and within six months from the end of the preceding fiscal
year. Our Board must convene an extraordinary general meeting within two months of the occurrence of any of the following events:
| |
• |
|
where the number of directors is less than the number stipulated in the PRC Company Law or two-thirds of the number specified in our Articles of Association; |
| |
• |
|
where our unrecovered losses reach one-third of the total amount of our share capital; |
| |
• |
|
where shareholder(s) holding 10.0% or more of our issued and outstanding voting shares so request(s) in writing; |
| |
• |
|
whenever our Board deems necessary or our supervisory board so requests; or |
| |
• |
|
whenever two or more of our independent directors so request. |
Resolutions proposed by
shareholder(s) holding 5.0% or more of the total voting shares shall be included in the agenda for the relevant annual general meeting if they are within the functions and powers of shareholders in general meetings.
All shareholders’ meetings must be convened by our Board by written notice given to shareholders not less than 45 days before the
meeting. We may convene a shareholders’ general meeting where the number of voting shares represented by those shareholders from whom we have received 20 days before the meeting notices of intention to attend the meeting reaches one half or
more of our voting shares; or, if that number is not reached, we shall within five days notify the shareholders again of the matters proposed to be considered at the meeting, the date and the place of the meeting by way of public announcement. After
such public announcement, we may hold the shareholders’ general meeting. The accidental omission by us to give notice of a meeting to, or the non-receipt of notice of a meeting by, a shareholder will not invalidate the proceedings at that
shareholders’ meeting.
Shareholders at meetings have the power, among other matters, to approve or reject our profit distribution
plans, annual budget, financial statements, increases or decreases in share capital, issuances of debentures, mergers, liquidation and any amendment to our Articles of Association. In addition, the rights of a class of shareholders may not be
modified or abrogated, unless approved by a special resolution of shareholders at a general shareholders’ meeting and by a special resolution of shareholders of that class of shares at a separate meeting. Our Articles of Association enumerate
various amendments which would be deemed to be a modification or abrogation of the rights of a class of shareholders, including, among others, increasing or decreasing the number of shares of a class disproportionate to increases or decreases of
other classes of shares, removing or reducing rights to receive dividends in a particular currency or creating shares with voting or equity rights superior to those of shares of that class. There are no restrictions under PRC law or our Articles of
Association on the ability of investors that are not PRC residents to hold H shares and exercise voting rights.
Each share is entitled to
one vote on all matters submitted for vote at all shareholders’ meetings, except for meetings of a special class of shareholders where only holders of shares of the affected class are entitled to vote on the basis of one vote per share of the
affected class.
Shareholders are entitled to attend and vote at meetings either in person or by proxy. Proxies must be in writing and
deposited at our legal address or such other place as is specified in the meeting notice, not less than 24 hours before the time for holding the meeting at which the proxy proposes to vote or the time appointed for the passing of the relevant
resolution(s). When the instrument appointing a proxy is executed by the shareholder’s attorney-in-fact, such proxy when deposited must be accompanied by a notary certified copy of the relevant power of attorney or other authority under which
the proxy was executed.
- 66 -
Resolutions on any of the following matters must be approved by more than two-thirds of the
voting rights held by shareholders who are present in person or by proxy:
| |
• |
|
an increase or decrease in our share capital or the issuance of shares, warrants and other similar securities; |
| |
• |
|
issuance of debentures; |
| |
• |
|
our division, merger, dissolution or liquidation (shareholders who object to a proposed merger are entitled to demand that either we or the shareholders who approved the merger purchase their shares at a fair price);
|
| |
• |
|
amendments to our Articles of Association; |
| |
• |
|
amendment of shareholders’ rights of any class of shares; and |
| |
• |
|
any other matters determined by a majority of shareholders at a general meeting to have a material impact on us and which should be approved by two-thirds of the voting rights. |
All other actions taken by the shareholders will be approved by a majority of the voting rights held by shareholders.
Any shareholder resolution that is in violation of any PRC laws or regulations or the Articles of Association will be null and void.
Liquidation Rights
In the event
of our liquidation, the H shares will rank pari passu with the domestic shares, and any of our assets remaining after payment (in order of priority) of (a) the costs of liquidation (b) wages and social insurance fees payable to or for our
employees, (c) outstanding taxes and (d) bank loans, and company bonds and other debts, will be divided among our shareholders in accordance with the class of shares and their proportional shareholdings.
Increases in Share Capital
Under
our Articles of Association, issuance of new securities, including ordinary shares, securities convertible into ordinary shares, options, warrants or similar rights to subscribe for any ordinary shares or convertible securities, must be approved by
two-thirds of all shareholders and two-thirds of each of the class of domestic shares and the H shares, respectively. No such approval is required if, but only to the extent that, we issue domestic shares and H shares, either separately or
concurrently, in numbers not exceeding 20.0% of the number of domestic shares and H shares then outstanding, respectively, in any 12-month period, as already approved by two-thirds of all shareholders. New issues of shares must also be approved by
relevant PRC authorities.
Shareholders are not liable to make any further contribution to the share capital other than according to the
terms that were agreed upon by the subscriber of the relevant shares at the time of subscription.
Shareholders do not have preemptive
rights with respect to new issues of shares of the Company.
Decrease in Share Capital and Repurchase
We may reduce our registered share capital only upon obtaining the approval of at least two-thirds of our shareholders and, in certain
circumstances, of relevant PRC authorities. The number of H shares that may be repurchased is subject to the Hong Kong Codes on Takeovers and Mergers and Share Buy-backs.
Ownership Threshold
There are no
provisions under our Articles of Association which relate to ownership thresholds above which shareholder ownership is required to be disclosed.
Restrictions on Large or Controlling Shareholders
Our Articles of Association define a controlling shareholder as any person who acting alone or in concert with others:
| |
• |
|
is in a position to elect more than one-half of the Board; |
| |
• |
|
has the power to exercise, or to control the exercise of, 30.0% or more of our voting rights; |
| |
• |
|
holds 30.0% or more of our issued and outstanding shares; or |
| |
• |
|
has de facto control of us in any other way. |
As of the date of this annual report, China
Telecom Group, a wholly state-owned company, is our only controlling shareholder.
- 67 -
Our Articles of Association provide that, in addition to any obligation imposed by laws and
administrative regulations or required by the Listing Rules, a controlling shareholder shall not exercise its voting rights in a manner prejudicial to the interests of all or some shareholders:
| |
• |
|
to relieve a director or supervisor from his or her duty to act honestly in our best interests; |
| |
• |
|
to approve the appropriation by a director or supervisor (for his or her own benefit or for the benefit of any other person) of our assets in any way, including, without limitation, opportunities which may benefit us;
or |
| |
• |
|
to approve the appropriation by a director or supervisor (for his or her own benefit or for the benefit of any other person) of the individual rights of any other shareholders, including, without limitation, rights to
distributions and voting rights (except in accordance with a restructuring of our company which has been submitted for approval by the shareholders at a general meeting in accordance with our Articles of Association). |
If a controlling shareholder exercises its voting rights in violation of the provisions set forth above, a shareholder can sue such
controlling shareholder and enforce its rights through arbitration in the PRC or Hong Kong.
Sources of Shareholders’ Rights
Currently, the primary sources of shareholders’ rights are our Articles of Association, the PRC Company Law and the Listing Rules of the
Hong Kong Stock Exchange that, among other things, impose certain standards of conduct, fairness and disclosure on us, our directors and our controlling shareholder. Our Articles of Association have incorporated the provisions set forth in the
Mandatory Provisions for the Articles of Association of Companies Listed Overseas, or the Mandatory Provisions, adopted in 1994, pursuant to the requirement of the China Securities Regulatory Commission. Any amendment to those provisions will only
become effective after approval by the relevant governmental department authorized by the State Council and the China Securities Regulatory Commission. The Listing Rules of the Hong Kong Stock Exchange require a number of additional provisions to
the Mandatory Provisions to be included in our Articles of Association.
The listing agreement between us and the Hong Kong Stock Exchange
provides that we may not amend certain provisions of our Articles of Association that have been mandated by the Hong Kong Stock Exchange. These provisions relate to:
| |
• |
|
varying the rights of existing classes of shares; |
| |
• |
|
our power to purchase our own shares; |
| |
• |
|
rights of minority shareholders; and |
| |
• |
|
liquidation procedures. |
In addition, for so long as our H shares are listed on the Hong Kong
Stock Exchange, we will be subject to the relevant ordinances, rules and regulations applicable to companies listed on the Hong Kong Stock Exchange, including, among other things, the Listing Rules of the Hong Kong Stock Exchange, the
Securities & Futures Ordinance and the Hong Kong Codes on Takeovers and Mergers and Share Buy-backs.
Unless otherwise specified,
all rights, obligations and protection discussed below are derived from our Articles of Association and the PRC Company Law.
Enforceability of
Shareholders’ Rights
Enforceability of our shareholders’ rights may be limited. See “Item 3. Key
Information—D. Risk Factors—Risks Relating to the People’s Republic of China—The PRC legal system has inherent uncertainties that could limit the legal protections available to you.”
Restrictions on Transferability and the Share Register
Under our Articles of Association, in order for any PRC shareholder to sell its domestic shares to persons outside the PRC who will receive H
shares upon the sale, such sales must be approved by two-thirds of our domestic shareholders and H shareholders at duly convened meetings of domestic shareholders and H shareholders held separately and at a duly convened joint meeting of domestic
shareholders and H shareholders. Such sales are also subject to approval by the State-Owned Assets Supervision and Administration Commission of the State Council, the China Securities Regulatory Commission and other relevant governmental
authorities.
- 68 -
We are required to keep a register of our shareholders which shall be comprised of various parts,
including one part which is to be maintained in Hong Kong in relation to holders of H shares. Shareholders have the right to inspect and, for a reasonable charge, to copy the share register. No transfers of ordinary shares shall be recorded in our
share register within 30 days prior to the date of a shareholders’ general meeting or within five days prior to the record date established for the purpose of distributing a dividend.
We have appointed Computershare Hong Kong Investor Services Limited to act as the registrar of our H shares. This registrar maintains our
register of holders of H shares at our offices in Hong Kong and enters transfers of H shares in such register upon the presentation of the documents described above.
See “Item 4. Information on the Company—A. History and
Development of the Company” and “Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions” for certain arrangements we have entered into with China Telecom Group and/or other entities.
We conduct our business primarily in Renminbi, which is also our
functional and reporting currency. The Renminbi is not a fully-convertible currency. Under the existing PRC foreign exchange regulations, we will be able to pay dividends in foreign currencies without prior approval from the State Administration of
Foreign Exchange by complying with certain procedural requirements. However, the PRC government may take measures at its discretion in the future to restrict access to foreign currencies for both current account transactions and capital account
transactions if foreign currencies become scarce in the PRC. We may not be able to pay dividends in foreign currencies to our shareholders, including holders of our ADSs, if the PRC government restricts access to foreign currencies for current
account transactions.
Foreign exchange transactions under our capital account, including foreign currency-denominated borrowings from
foreign banks, issuance of foreign currency-denominated debt securities and principal payments in respect of foreign currency-denominated obligations, continue to be subject to significant foreign exchange controls and require the approval of the
State Administration of Foreign Exchange. These limitations could affect our ability to obtain foreign exchange through debt or equity financing, or to obtain foreign exchange to meet our payment obligations under the debt securities or foreign
exchange for capital expenditures.
There are no limitations on the right of non-resident or foreign owners to remit dividends or to hold
or vote the ordinary shares or the ADSs imposed by Hong Kong law or by our Articles of Association or other constituent documents.
The taxation of income and capital gains of holders of H shares or ADSs
is subject to the PRC laws and practices and of jurisdictions in which holders of H shares or ADSs are resident or otherwise subject to tax. The following summary of certain relevant taxation provisions is based on current law and practice, is
subject to change and does not constitute legal or tax advice.
The discussion does not deal with all possible tax consequences
relating to an investment in the H shares or ADSs. In particular, the discussion does not address the tax consequences under state, local and other laws, such as non-U.S. federal laws. Accordingly, you should consult your own tax adviser regarding
the tax consequences of an investment in the H shares and ADSs.
The discussion is based upon laws and relevant interpretations in effect
as of the date of this annual report, all of which are subject to change.
People’s Republic of China
The following is a summary of certain PRC tax provisions relating to the ownership and disposition of H shares or ADSs held by the
investors as capital assets. This summary does not purport to address all material tax consequences of the ownership of H shares, and does not take into account the specific circumstances of any particular investors. This summary is based on the PRC
tax laws as in effect on the date of this annual report, as well as on the Agreement between the United States of America and the PRC for the Avoidance of Double Taxation, or the PRC-US Treaty, all of which are subject to change (or changes in
interpretation), possibly with retroactive effect.
This discussion does not address any aspects of PRC taxation other than income
taxation, capital taxation, stamp taxation and estate taxation. Prospective investors are urged to consult their tax advisors regarding Chinese, Hong Kong and other tax consequences of owning and disposing of H shares.
- 69 -
Taxation of Dividends
Individual Investors. According to the PRC Individual Income Tax Law and its implementing regulations, dividends paid by PRC companies
are ordinarily subject to a PRC withholding tax levied at a flat rate of 20.0%. For a foreign individual who is not a PRC resident, the receipt of dividends from a PRC company is normally subject to a withholding tax of 20.0% unless reduced by an
applicable tax treaty. For example, Hong Kong and Macau individual residents are subject to a withholding tax of 10% on dividends paid to them. According to the Notice on Tax Policies for Shanghai-Hong Kong Stock Connect Pilot Program (Cai Shui
[2014] No. 81), the Company shall withhold individual income tax at the rate of 20% with respect to dividends received by the mainland individual investors for investing in our H shares through the Southbound Trading Link. The tax levied on
dividends derived from the investment by mainland securities investment funds in our H shares through the Southbound Trading Link shall be ascertained by reference to the rules applicable to the individual investors. We are not required to withhold
income tax on dividends derived by the mainland enterprise investors through the Southbound Trading Link, and such enterprises shall report the income and make tax payment by themselves.
Enterprises. According to the EIT Law and its implementing regulations, dividends paid by a PRC company to a foreign enterprise which
is a “non-resident enterprise,” which is established under the law of a non-PRC jurisdiction and has no establishment or residence in the PRC or whose dividends from the PRC do not relate to its establishment or residence in the PRC, are
subject to a 10.0% tax, unless reduced by an applicable tax treaty. A resident enterprise, including an enterprise which is established under the law of a non-PRC jurisdiction but whose “de facto management body” is located in the PRC, is
not subject to any PRC withholding tax with respect to dividends paid to it by a PRC company.
Tax Treaties. Investors who do not
reside in the PRC and reside in countries that have entered into double-taxation treaties with the PRC may be entitled to a reduction of the withholding tax imposed on the payment of dividends to investors of our Company who do not reside in the
PRC. The PRC currently has double-taxation treaties with a number of other countries, which include:
| |
• |
|
the United Kingdom; and |
Under the PRC-US Treaty, the PRC may tax a dividend paid by us to an
Eligible U.S. Holder up to a maximum of 10.0% of the gross amount of such dividend. It is arguable that under the PRC-US Treaty, the PRC may only tax gains from the sale or disposition by an Eligible U.S. Holder of H shares or ADSs representing an
interest in the Company of 25.0% or more, but this position is uncertain and the PRC authorities may take a different position. For the purposes of this discussion, an “Eligible U.S. Holder” is a U.S. holder that (i) is a resident of
the United States for the purposes of the PRC-US Treaty, (ii) does not maintain a permanent establishment or fixed base in the PRC to which H shares or ADSs are attributable and through which the beneficial owner carries on or has carried on
business (or, in the case of an individual, performs or has performed independent personal services) and (iii) is not otherwise ineligible for benefits under the PRC-US Treaty with respect to income and gains derived in connection with the H
shares or ADSs.
Taxation of Capital Gains
With respect to individual holders of H shares or ADSs, the PRC Individual Income Tax Law and its implementation regulations stipulate that
gains realized on the sale of equity shares would be subject to income tax at a rate of 20.0%, and empower the MOF to draft detailed tax rules on the mechanism for collecting such tax subject to approval of the State Council. However, as of the date
of this annual report, no such tax rules have been enacted and no income tax on gains realized on the sale of equity shares has been collected. Gains on the sale of shares issued by listed companies by individuals were temporarily exempted from
individual income tax pursuant to notices issued by the State Administration of Taxation dated March 30, 1998. In the event this temporary exemption is withdrawn or ceases to be effective, individual holders of H shares or ADSs may be subject
to capital gains tax at the rate of 20.0% unless such tax is reduced or eliminated by an applicable double-taxation treaty. If tax on capital gains from the sale of H shares or ADSs become applicable, it is arguable that under the PRC-US Treaty, the
PRC may only tax gains from the sale or disposition by an Eligible U.S. Holder of H shares or ADSs representing an interest in our Company of 25.0% or more, but this position is uncertain and the PRC authorities may take a different position.
- 70 -
Under the EIT Law and its implementing regulations, capital gains realized by a foreign
enterprise which is a “non-resident enterprise” upon the sale of the overseas-listed shares of a PRC company are subject to a 10.0% tax, unless reduced by an applicable double-taxation treaty. Capital gains realized by a resident
enterprise, including an enterprise which is established under the law of a non-PRC jurisdiction but whose “de facto management body” is located in the PRC, are subject to the PRC enterprise income tax.
Additional PRC Tax Considerations
PRC Stamp Duty. PRC stamp duty imposed on the transfer of shares of PRC publicly traded companies under the PRC Provisional Regulations
Concerning Stamp Duty, or the Provisional Regulations, should not apply to the acquisition and disposal by non-PRC investors of H shares or ADSs outside of the PRC by virtue of the Provisional Regulations, which became effective on October 1,
1988 and which provide that PRC stamp duty is imposed only on documents executed or received within the PRC that are legally binding in the PRC and are protected under PRC law.
Estate Tax. No liability for estate tax under PRC law will arise from non-PRC nationals holding H shares or ADSs.
Hong Kong
Tax on Dividends
Under the current practice of the Hong Kong Inland Revenue Department, no tax is payable in Hong Kong in respect of dividends paid
by us.
Profits
No tax is imposed in Hong Kong in respect of capital gains from the sale of H shares. Trading gains from the sale of shares by persons carrying
on a trade, profession or business in Hong Kong where such gains are derived from or arise in Hong Kong from such trade, profession or business will be chargeable to Hong Kong profits tax, which is currently (for the year of assessment 2008-2009
onwards) imposed at the rate of 16.5% on corporations and 15.0% on unincorporated businesses. Gains from sales of H shares effected on the Hong Kong Stock Exchange will be considered to be derived from or arise in Hong Kong. Liability for Hong Kong
profits tax would thus arise in respect of trading gains from sales of H shares realized by persons carrying on a business of trading or dealing in securities in Hong Kong. There is no tax treaty in effect between the United States and Hong Kong,
and the PRC-US Treaty does not apply to Hong Kong.
There will be no liability for Hong Kong profits tax in respect of profits from the
sale of ADSs, where purchases and sales of ADSs are effected outside Hong Kong, e.g., on the NYSE.
Stamp Duty
Hong Kong stamp duty will be payable by the purchaser on every purchase and by the seller on every sale of H shares registered on the Hong Kong
branch register. The duty is charged at the ad valorem rate of 0.1% of the consideration for, or (if greater) the value of, the H shares transferred on each of the seller and the purchaser. In other words, a total 0.2% is currently payable on a
typical sale and purchase transaction of H shares. In addition, a fixed duty of HK$5 is currently payable on any instrument of transfer of shares.
The withdrawal of H shares upon the surrender of American Depositary Receipts, or ADRs, and the issuance of ADRs upon the deposit of H shares,
will also attract stamp duty at the rate described above for sale and purchase transactions unless such withdrawal or deposit does not result in a change in the beneficial ownership of the H shares under Hong Kong law. The issuance of the ADRs upon
the deposit of H shares issued directly to the Depositary, as depositary of the ADSs, or for the account of the Depositary, will not be subject to any stamp duty. No Hong Kong stamp duty is payable upon the transfer of ADSs outside Hong Kong.
Estate Duty
No
Hong Kong estate duty is currently payable.
United States
Material United States Federal Income Taxation
This section describes the material United States federal income tax consequences to a U.S. holder of the acquisition, ownership and
disposition of H shares or ADSs. It applies to you only if you hold your H shares or ADSs as capital assets for United States federal income tax purposes. This section does not apply to you if you are a member of a special class of holders subject
to special rules, including:
- 71 -
| |
• |
|
a dealer in securities or currencies; |
| |
• |
|
a trader in securities that elects to use a mark-to-market method of accounting for your securities holdings; |
| |
• |
|
a tax-exempt organization; |
| |
• |
|
a person liable for alternative minimum tax; |
| |
• |
|
a person that actually or constructively owns 10.0% or more of our voting stock; |
| |
• |
|
a person that holds H shares or ADSs as part of a straddle or a hedging or conversion transaction; |
| |
• |
|
a person that purchases or sells shares or ADSs as part of a wash sale for tax purposes; or |
| |
• |
|
a person whose functional currency is not the U.S. dollar. |
This section is based on the
Internal Revenues Code of 1986, as amended, its legislative history, existing and proposed regulations, published rulings and court decisions, all as currently in effect, as well as the PRC-US Treaty. These laws are subject to change, possibly on a
retroactive basis. In addition, this section is based in part upon the representations of the Depositary and the assumption that each obligation in the deposit agreement and any related agreement will be performed in accordance with its terms.
You are a U.S. holder if you are a beneficial owner of H shares or ADSs and you are:
| |
• |
|
a citizen or resident of the United States; |
| |
• |
|
a domestic corporation; |
| |
• |
|
an estate whose income is subject to United States federal income tax regardless of its source; or |
| |
• |
|
a trust if a United States court can exercise primary supervision over the trust’s administration and one or more United States persons are authorized to control all substantial decisions of the trust.
|
If a partnership holds the H shares or ADSs, the United States federal income tax treatment of a partner will generally
depend on the status of the partner and the tax treatment of the partnership. If you hold the H shares or ADSs as a partner in a partnership you should consult your tax advisor with regard to the United States federal income tax treatment of an
investment in the H shares or ADSs.
You should consult your own tax advisor regarding the United States federal, state and local tax
consequences of owning and disposing of H shares and ADSs in your particular circumstances.
In general, and taking into account the
earlier assumptions, for United States federal income tax purposes, if you hold ADRs evidencing ADSs, you will be treated as the owner of H shares represented by those ADSs. Exchanges of H shares for ADRs, and ADRs for H shares, generally will not
be subject to United States federal income tax.
Taxation of Dividends
Under the United States federal income tax laws, and subject to the passive foreign investment company, or PFIC, rules discussed below, if you
are a U.S. holder, the gross amount of any dividend we pay out of our current or accumulated earnings and profits (as determined for United States federal income tax purposes) is subject to United States federal income taxation. If you are a
noncorporate U.S. holder, dividends that constitute qualified dividend income will be taxable to you at the preferential rates applicable to long-term capital gains, provided that you hold H shares or ADSs for more than 60 days during the 121-day
period beginning 60 days before the ex-dividend date and meet other holding period requirements. Dividends we pay with respect to H shares or ADSs generally will be qualified dividend income.
You must include any PRC tax withheld from the dividend payment in this gross amount even though you do not in fact receive it. The dividend
is taxable to you when you, in the case of H shares, or the depositary, in the case of ADSs, receive the dividend, actually or constructively. The dividend will not be eligible for the dividends-received deduction generally allowed to United States
corporations in respect of dividends received from other United States corporations. Subject to certain limitations, the PRC tax withheld and paid over to the PRC will be creditable or deductible against your United States federal income tax
liability. To the extent a refund of the tax withheld is available under PRC law, the amount of tax withheld that is refundable will not be creditable against your United States federal income tax liability. Special rules apply in determining the
foreign tax credit limitation with respect to dividends that are subject to the preferential tax rates.
- 72 -
The amount of the dividend distribution that you must include in your income as a U.S. holder
will be the U.S. dollar value of the Hong Kong dollar payments made, determined at the Hong Kong dollar/U.S. dollar spot rate on the date the dividend distribution is includible in your income, regardless of whether the payment is in fact converted
into U.S. dollars. Generally, any gain or loss resulting from currency exchange fluctuations during the period from the date you include the dividend payment in income to the date you convert the payment into U.S. dollars will be treated as ordinary
income or loss and will not be eligible for the preferential tax rates applicable to qualified dividend income. The gain or loss generally will be income or loss from sources within the United States for foreign tax credit limitation purposes.
Distributions in excess of current and accumulated earnings and profits, as determined for United States federal income tax purposes, will be treated as a non-taxable return of capital to the extent of your basis in the H shares or ADSs and
thereafter as capital gain.
For foreign tax credit purposes, dividends will generally be income from sources outside the United States
and will, depending on your circumstances, be either “passive” or “general” income for purposes of computing the foreign tax credit allowable to you.
Taxation of Capital Gains
Subject to the PFIC rules discussed below, if you are a U.S. holder and you sell or otherwise dispose of your H shares or ADSs, you will
recognize capital gain or loss for United States federal income tax purposes equal to the difference between the U.S. dollar value of the amount that you realize and your tax basis, determined in U.S. dollars, in your H shares or ADSs. Capital gain
of a noncorporate U.S. holder is generally taxed at preferential rates where the property is held for more than one year. The gain or loss will generally be income or loss from sources within the United States for foreign tax credit limitation
purposes. Your ability to deduct capital losses is subject to limitations.
However, under the U.S.-PRC Treaty, if PRC tax were to be
imposed on any gain from the disposition of your H shares or ADSs (as discussed above in “People’s Republic of China — Taxation of Capital Gains”), then such gain will generally be treated as PRC source income. If you are an
Eligible U.S. Holder (as defined above), subject to certain limitations, any such PRC tax will be creditable against your United States federal income tax liability. U.S. holders should consult their tax advisors regarding the tax consequences if a
PRC tax were to be imposed on a disposition of H shares or ADSs, including the availability of the foreign tax credit under your particular circumstances.
Hong Kong Stamp Duty
Any Hong Kong stamp duty that you pay will not be a creditable tax for United States federal income tax purposes, but you may be able to deduct
such stamp duty subject to limitations under the Code.
PFIC Rules
We believe that H shares and ADSs should not be treated as stock of a PFIC for United States federal income tax purposes, but this conclusion
is a factual determination that is made annually and thus may be subject to change. If we were to be treated as a PFIC, unless the H shares or ADSs are “marketable stock” and you are a U.S. holder that elects to be taxed annually on a
mark-to-market basis with respect to the H shares or ADSs, gain realized on the sale or other disposition of your H shares or ADSs would in general not be treated as capital gain. Instead, if you are a U.S. holder, you would be treated as if you had
realized such gain and certain “excess distributions” ratably over your holding period for the H shares or ADSs and would generally be taxed at the highest tax rate in effect for each such year to which the gain was allocated, together
with an interest charge in respect of the tax attributable to each such year. With certain exceptions, your H shares or ADSs will be treated as stock in a PFIC if we were a PFIC at any time during your holding period in your H shares or ADSs.
Dividends that you receive from us will not be eligible for the preferential tax rates applicable to qualified dividend income if we are treated as a PFIC with respect to you either in the taxable year of the distribution or the preceding taxable
year, but instead will be taxable at rates applicable to ordinary income.
| F. |
Dividends and Paying Agents. |
Not applicable.
Not applicable.
You may read and copy documents referred to in this annual report
on Form 20-F that have been filed with the SEC, at its public reference room located at 450 Fifth Street, NW, Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms and their copy charges.
The SEC also maintains a website at http://www.sec.gov that contains reports, proxy statements and other information regarding registrants that file electronically with the SEC.
- 73 -
The SEC allows us to “incorporate by reference” the information we file with the SEC.
This means that we can disclose important information to you by referring you to another document filed separately with the SEC. The information incorporated by reference is considered to be part of this annual report on Form 20-F.
| I. |
Subsidiary Information |
Not applicable.
| Item 11. |
Quantitative and Qualitative Disclosures about Market Risk. |
Our primary market risk
exposures are fluctuations in exchange rates and interest rates.
Foreign Exchange Rate Risk
We conduct our business primarily in Renminbi, which is also our functional and reporting currency. The Renminbi is not a fully-convertible
currency. The value of the Renminbi against the U.S. dollar and other foreign currencies fluctuates and is affected by, among other things, changes in the PRC’s and international political and economic conditions. Since 1994, the conversion of
Renminbi into foreign currencies, including Hong Kong and U.S. dollars, has been based on rates set by the People’s Bank of China, which are set daily based on the previous business day’s inter-bank foreign exchange market rates and
current exchange rates on the world financial markets. From 1994 to July 20, 2005, the official exchange rate for the conversion of Renminbi to U.S. dollars was generally stable. On July 21, 2005, the PRC government introduced a managed
floating exchange rate system to allow the value of the Renminbi to fluctuate within a regulated band based on market supply and demand and by reference to a basket of currencies. In April 2012, the PRC government expanded the floating band of
Renminbi trading prices against the U.S. dollar in the inter-bank spot foreign currency exchange market from 0.5% to 1.0%. Fluctuations in exchange rates may adversely affect the value, translated or converted into United States dollars or Hong Kong
dollars, of our net assets, earnings and any declared dividends. We cannot give any assurance that any future movements in the exchange rate of the Renminbi against the United States dollar or other foreign currencies will not adversely affect our
results of operations and financial condition. See “Item 3. Key Information—D. Risk Factors—Risks Relating to the People’s Republic of China—Government control of currency conversion may adversely affect our financial
condition” and “—Fluctuation of the Renminbi could materially affect our financial condition, results of operations and cash flows.”
The following tables provide information regarding our financial instruments that are sensitive to foreign exchange rates as of
December 31, 2014 and 2013, respectively. For debt obligations, the tables present principal cash flows and related weighted average interest rates by expected maturity dates.
As of December 31, 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Expected Maturity |
|
| |
|
2015 |
|
|
2016 |
|
|
2017 |
|
|
2018 |
|
|
2019 |
|
|
Thereafter |
|
|
Total |
|
|
Fair
Value |
|
| |
|
(RMB equivalent in millions, except interest rates) |
|
| Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Cash and cash equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| United States dollars |
|
|
845 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
845 |
|
|
|
845 |
|
| Japanese yen |
|
|
39 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
39 |
|
|
|
39 |
|
| Euro |
|
|
26 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
26 |
|
|
|
26 |
|
| Hong Kong dollars |
|
|
172 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
172 |
|
|
|
172 |
|
| Other currencies |
|
|
327 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
327 |
|
|
|
327 |
|
| Short-term bank deposits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| United States dollars |
|
|
218 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
218 |
|
|
|
218 |
|
| Japanese yen |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Debts in Japanese yen |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Fixed rate |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| Average interest rate |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
| Debts in United States dollars |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 74 -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Expected Maturity |
|
| |
|
2015 |
|
|
2016 |
|
|
2017 |
|
|
2018 |
|
|
2019 |
|
|
Thereafter |
|
|
Total |
|
|
Fair
Value |
|
| |
|
(RMB equivalent in millions, except interest rates) |
|
| Fixed rate |
|
|
46 |
|
|
|
46 |
|
|
|
46 |
|
|
|
47 |
|
|
|
47 |
|
|
|
259 |
|
|
|
491 |
|
|
|
414 |
|
| Average interest rate |
|
|
1.2 |
% |
|
|
1.2 |
% |
|
|
1.2 |
% |
|
|
1.2 |
% |
|
|
1.2 |
% |
|
|
1.2 |
% |
|
|
|
|
|
|
|
|
| Variable rate |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| Average interest rate(1) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
| Debts in Euro |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Fixed rate |
|
|
30 |
|
|
|
31 |
|
|
|
31 |
|
|
|
24 |
|
|
|
24 |
|
|
|
209 |
|
|
|
349 |
|
|
|
304 |
|
| Average interest rate |
|
|
2.3 |
% |
|
|
2.3 |
% |
|
|
2.3 |
% |
|
|
2.3 |
% |
|
|
2.3 |
% |
|
|
2.3 |
% |
|
|
|
|
|
|
|
|
| Variable rate |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| Average interest rate(1) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
| Debts in other currencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Fixed rate |
|
|
5 |
|
|
|
5 |
|
|
|
5 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
15 |
|
|
|
15 |
|
| Average interest rate(1) |
|
|
3.0 |
% |
|
|
3.0 |
% |
|
|
3.0 |
% |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
| (1) |
The average interest rates for variable rate debts are calculated based on the rates reported as of December 31, 2014. |
As of December 31, 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Expected Maturity |
|
| |
|
2014 |
|
|
2015 |
|
|
2016 |
|
|
2017 |
|
|
2018 |
|
|
Thereafter |
|
|
Total |
|
|
Fair
Value |
|
| |
|
(RMB equivalent in millions, except interest rates) |
|
| Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Cash and cash equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| United States dollars |
|
|
488 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
488 |
|
|
|
488 |
|
| Japanese yen |
|
|
38 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
38 |
|
|
|
38 |
|
| Euro |
|
|
17 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
17 |
|
|
|
17 |
|
| Hong Kong dollars |
|
|
120 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
120 |
|
|
|
120 |
|
| Other currencies |
|
|
249 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
249 |
|
|
|
249 |
|
| Short-term bank deposits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| United States dollars |
|
|
595 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
595 |
|
|
|
595 |
|
| Japanese yen |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Debts in Japanese yen |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Fixed rate |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| Average interest rate |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
| Debts in United States dollars |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Fixed rate |
|
|
47 |
|
|
|
47 |
|
|
|
47 |
|
|
|
48 |
|
|
|
48 |
|
|
|
297 |
|
|
|
534 |
|
|
|
454 |
|
| Average interest rate |
|
|
1.2 |
% |
|
|
1.2 |
% |
|
|
1.2 |
% |
|
|
1.2 |
% |
|
|
1.2 |
% |
|
|
1.2 |
% |
|
|
|
|
|
|
|
|
| Variable rate |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| Average interest rate(1) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
| Debts in Euro |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Fixed rate |
|
|
33 |
|
|
|
33 |
|
|
|
34 |
|
|
|
33 |
|
|
|
26 |
|
|
|
269 |
|
|
|
428 |
|
|
|
363 |
|
| Average interest rate |
|
|
2.3 |
% |
|
|
2.3 |
% |
|
|
2.3 |
% |
|
|
2.3 |
% |
|
|
2.3 |
% |
|
|
2.3 |
% |
|
|
|
|
|
|
|
|
| Variable rate |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| Average interest rate(1) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
| Debts in other currencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Fixed rate |
|
|
5 |
|
|
|
5 |
|
|
|
5 |
|
|
|
5 |
|
|
|
— |
|
|
|
— |
|
|
|
20 |
|
|
|
20 |
|
| Average interest rate(1) |
|
|
3.0 |
% |
|
|
3.0 |
% |
|
|
3.0 |
% |
|
|
3.0 |
% |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
| (1) |
The average interest rates for variable rate debts are calculated based on the rates reported as of December 31, 2013. |
- 75 -
Interest Rate Risk
The People’s Bank of China has the sole authority in the PRC to establish the official interest rates for Renminbi-denominated loans.
Financial institutions in the PRC set their effective interest rates within the range established by the People’s Bank of China. Interest rates and payment methods on loans denominated in foreign currencies are set by financial institutions
based on interest rate changes in the international financial market, cost of funds, risk levels and other factors.
We are exposed to
interest rate risk resulting from fluctuations in interest rates on our short-term and long-term debts. Increases in interest rates will increase the cost of new borrowing and the interest expense with respect to outstanding floating rate debt. As
of December 31, 2013 and 2014, our debt consisted of fixed and variable rate debt obligations with maturities from 2014 to 2060 and from 2015 to 2060, respectively.
- 76 -
The following tables present cash flows and related weighted average interest rates by expected
maturity dates of our interest rate sensitive financial instruments as of December 31, 2013 and 2014, respectively.
As of
December 31, 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Expected Maturity |
|
| |
|
2015 |
|
|
2016 |
|
|
2017 |
|
|
2018 |
|
|
2019 |
|
|
Thereafter |
|
|
Total |
|
|
Fair
Value |
|
| |
|
(RMB equivalent in millions, except interest rates) |
|
| Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Debts in Renminbi |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Fixed rate |
|
|
43,157 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
10 |
|
|
|
43,167 |
|
|
|
43,164 |
|
| Average interest rate |
|
|
5.1 |
% |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
7.9 |
% |
|
|
|
|
|
|
|
|
| Variable rate |
|
|
820 |
|
|
|
— |
|
|
|
61,710 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
62,530 |
|
|
|
62,765 |
|
| Average interest rate(1) |
|
|
5.6 |
% |
|
|
— |
|
|
|
5.1 |
% |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
| Debts in Japanese yen |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Fixed rate |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| Average interest rate |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
| Debts in United States dollars |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Fixed rate |
|
|
46 |
|
|
|
46 |
|
|
|
46 |
|
|
|
47 |
|
|
|
47 |
|
|
|
259 |
|
|
|
491 |
|
|
|
414 |
|
| Average interest rate |
|
|
1.2 |
% |
|
|
1.2 |
% |
|
|
1.2 |
% |
|
|
1.2 |
% |
|
|
1.2 |
% |
|
|
1.2 |
% |
|
|
|
|
|
|
|
|
| Variable rate |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| Average interest rate(1) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
| Debts in Euro |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Fixed rate |
|
|
30 |
|
|
|
31 |
|
|
|
31 |
|
|
|
24 |
|
|
|
24 |
|
|
|
209 |
|
|
|
349 |
|
|
|
304 |
|
| Average interest rate |
|
|
2.3 |
% |
|
|
2.3 |
% |
|
|
2.3 |
% |
|
|
2.3 |
% |
|
|
2.3 |
% |
|
|
2.3 |
% |
|
|
|
|
|
|
|
|
| Variable rate |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| Average interest rate(1) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
| Debts in other currencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Fixed rate |
|
|
5 |
|
|
|
5 |
|
|
|
5 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
15 |
|
|
|
15 |
|
| Average interest rate(1) |
|
|
3.0 |
% |
|
|
3.0 |
% |
|
|
3.0 |
% |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
| (1) |
The average interest rates for variable rate debts are calculated based on the rates reported as of December 31, 2014. |
As of December 31, 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Expected Maturity |
|
| |
|
2014 |
|
|
2015 |
|
|
2016 |
|
|
2017 |
|
|
2018 |
|
|
Thereafter |
|
|
Total |
|
|
Fair
Value |
|
| |
|
(RMB equivalent in millions, except interest rates) |
|
| Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Debts in Renminbi |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Fixed rate |
|
|
46,794 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
10 |
|
|
|
46,804 |
|
|
|
46,469 |
|
| Average interest rate |
|
|
4.6 |
% |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
7.9 |
% |
|
|
|
|
|
|
|
|
| Variable rate |
|
|
880 |
|
|
|
— |
|
|
|
— |
|
|
|
61,710 |
|
|
|
— |
|
|
|
— |
|
|
|
62,590 |
|
|
|
62,383 |
|
| Average interest rate(1) |
|
|
5.5 |
% |
|
|
— |
|
|
|
— |
|
|
|
6.3 |
% |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
| Debts in Japanese yen |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Fixed rate |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| Average interest rate |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
| Debts in United States dollars |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Fixed rate |
|
|
47 |
|
|
|
47 |
|
|
|
47 |
|
|
|
48 |
|
|
|
48 |
|
|
|
297 |
|
|
|
534 |
|
|
|
454 |
|
| Average interest rate |
|
|
1.2 |
% |
|
|
1.2 |
% |
|
|
1.2 |
% |
|
|
1.2 |
% |
|
|
1.2 |
% |
|
|
1.2 |
% |
|
|
|
|
|
|
|
|
| Variable rate |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| Average interest rate(1) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
- 77 -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Expected Maturity |
|
| |
|
2014 |
|
|
2015 |
|
|
2016 |
|
|
2017 |
|
|
2018 |
|
|
Thereafter |
|
|
Total |
|
|
Fair
Value |
|
| |
|
(RMB equivalent in millions, except interest rates) |
|
| Debts in Euro |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Fixed rate |
|
|
33 |
|
|
|
33 |
|
|
|
34 |
|
|
|
33 |
|
|
|
26 |
|
|
|
269 |
|
|
|
428 |
|
|
|
363 |
|
| Average interest rate |
|
|
2.3 |
% |
|
|
2.3 |
% |
|
|
2.3 |
% |
|
|
2.3 |
% |
|
|
2.3 |
% |
|
|
2.3 |
% |
|
|
|
|
|
|
|
|
| Variable rate |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| Average interest rate(1) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
| Debts in other currencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Fixed rate |
|
|
5 |
|
|
|
5 |
|
|
|
5 |
|
|
|
5 |
|
|
|
— |
|
|
|
— |
|
|
|
20 |
|
|
|
20 |
|
| Average interest rate(1) |
|
|
3.0 |
% |
|
|
3.0 |
% |
|
|
3.0 |
% |
|
|
3.0 |
% |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
| (1) |
The average interest rates for variable rate debts are calculated based on the rates reported as of December 31, 2013. |
- 78 -
| Item 12. |
Description of Securities Other than Equity Securities. |
The Bank of New York Mellon, as
the depositary of our ADSs, collects its fees for delivery and surrender of ADSs directly from investors depositing shares or surrendering ADSs for the purpose of withdrawal. The depositary collects fees for making distributions to investors by
deducting those fees from the amounts distributed or by selling a portion of distributable property to pay the fees. The depositary may generally refuse to provide fee-attracting services until its fees for those services are paid.
|
|
|
|
|
|
|
|
|
ADR holders must pay: |
|
|
|
For: |
|
|
|
|
| • |
|
US$5.00 (or less) per 100 ADRs (or portion thereof) |
|
• |
|
Each issuance of an ADR, including as a result of a distribution of shares or rights or other property |
|
|
|
|
|
|
|
|
• |
|
Each cancellation of an ADR, including if the deposit agreement terminates |
|
|
|
|
|
|
|
|
• |
|
Each distribution of securities, other than shares or ADRs, treating the securities as if they were shares for purpose of calculating fees |
|
|
|
|
| • |
|
US$0.02 (or less) per ADR |
|
• |
|
Any cash distribution (not including cash dividend distribution) |
|
|
|
|
| • |
|
Registration or transfer fees (if applicable) |
|
• |
|
Transfer and registration of shares on the share register of our transfer agent and the registrar in Hong Kong from an ADR holder’s name to the name of the depositary or its agent when the ADR holder deposit or withdraw
shares |
|
|
|
|
| • |
|
Expenses of the depositary |
|
• |
|
Conversion of foreign currency to U.S. dollars |
|
|
|
|
|
|
|
|
• |
|
Cable, telex and facsimile transmission expenses |
|
|
|
|
| • |
|
Taxes and other governmental charges the depositary or the custodian has to pay on any ADR or share underlying an ADR, for example, stock transfer taxes, stamp duty or withholding taxes |
|
• |
|
As necessary |
|
|
|
|
| • |
|
Any other charge incurred by the depository or its agents (including the custodian) for servicing of the deposited securities |
|
• |
|
As necessary |
The Bank of New York Mellon has agreed to reimburse us annually for our expenses incurred in connection with
administration and maintenance of the depositary receipt facility. The amount of such reimbursements is subject to certain conditions and limits. From April 30, 2014 to April 22, 2015, with respect to certain expenses incurred by us in
connection with our depositary facility, including listing and legal fees and expenses related to our attendance at the annual ADR training seminar, we received from the Bank of New York Mellon a total of US$54,671 reimbursement, net of withholding
tax. The Bank of New York Mellon also waived certain costs of US$130,359.28 in connection with the administration of the ADR program and other services provided to our registered shareholders for the year 2014.
PART II
| Item 13. |
Defaults, Dividend Arrearages and Delinquencies. |
None.
| Item 14. |
Material Modifications to the Rights of Security Holders and Use of Proceeds. |
Material
Modifications to the Rights of Security Holders
None.
Use of Proceeds
Not applicable.
- 79 -
| Item 15. |
Controls and Procedures. |
Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and the person performing the functions of the principal financial
officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of the end of the period covered by this annual report. Based on this evaluation, our Chief
Executive Officer and the person performing the functions of the principal financial officer have concluded that, as of the end of the fiscal year covered by this annual report, our disclosure controls and procedures were designed, and were
effective, to give reasonable assurance that the information required to be disclosed by us in reports that we file under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of
the SEC, and were also effective to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and the person
performing the functions of the principal financial officer, to allow timely decisions regarding required disclosure.
Management’s Report on
Internal Control Over Financial Reporting.
Our management is responsible for establishing and maintaining adequate internal
control over financial reporting, as such term is defined in Rule 13a-15(f) and Rule 15d-15(f) under the Exchange Act. The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
Internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of management and/or our Board; and (3) provide reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of
any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
As of December 31, 2014, our management, with the participation of our Chief Executive Officer and the person performing the functions of
the principal financial officer, conducted an evaluation of the effectiveness of the internal control over financial reporting based on the framework in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on this evaluation, our management concluded that our internal control over financial reporting was effective as of December 31, 2014.
The effectiveness of our internal control over financial reporting as of December 31, 2014 has been audited by Deloitte Touche Tohmatsu,
an independent registered public accounting firm, as stated in their report which is included herein.
- 80 -
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of China Telecom Corporation Limited:
We have audited China Telecom Corporation Limited and subsidiaries’ internal control over financial reporting as of December 31,
2014, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The management of China Telecom Corporation Limited and
subsidiaries is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on
Internal Control over Financial Reporting. Our responsibility is to express an opinion on China Telecom Corporation Limited and subsidiaries’ internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control
over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control
over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors,
management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A
company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the
assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of
the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal
control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any
evaluation of effectiveness of the internal control over financial reporting to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
In our opinion, China Telecom Corporation Limited and subsidiaries maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
consolidated financial statements of China Telecom Corporation Limited and subsidiaries as of and for the year ended December 31, 2014, and our report dated March 18, 2015 expressed an unqualified opinion on those financial statements.
/s/ Deloitte Touche Tohmatsu
Deloitte Touche Tohmatsu
Hong
Kong, the People’s Republic of China
March 18, 2015
- 81 -
Changes in Internal Control Over Financial Reporting
During the fiscal year ended December 31, 2014, there was no change to our internal control over financial reporting that has materially
affected, or is reasonably likely to materially affect, our internal control over financial reporting.
| Item 16A. |
Audit Committee Financial Expert. |
Our Audit Committee currently consists of three
members, Mr. Tse Hau Yin, Aloysius, Professor Xu Erming and Madam Wang Hsuehming. They are all independent non-executive directors. See “Item 6. Directors, Senior Management and Employees—C. Board Practices—Audit Committee,”
Our Board has determined that Mr. Tse Hau Yin, Aloysius, our independent non-executive director, is qualified as an “audit committee financial expert,” as defined in Item 16A of Form 20-F.
| Item 16B. |
Code of Ethics. |
We have adopted a code of ethics that applies to our chief executive
officer, chief financial officer, controller and other senior officers of our Company. We have filed this code of ethics as an exhibit to our annual report for the fiscal year ended December 31, 2003 and we hereby incorporate that exhibit into
this annual report. The text of this code of ethics is also posted on our Internet website at http://www.chinatelecom-h.com/eng/company/pdf/gaoguan.pdf.
| Item 16C. |
Principal Accountant Fees and Services. |
The following table sets forth the aggregate
audit fees, audit-related fees, tax fees of our principal accountants and all other fees billed for products and services provided by our principal accountants other than the audit fees, audit-related fees and tax fees for each of the fiscal years
2013 and 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Audit Fees
(including VAT) |
|
|
Audit-Related Fees |
|
|
Tax Fees |
|
|
Other Fees |
|
| 2013 |
|
RMB |
59.77 million |
|
|
RMB |
0.95 million |
|
|
RMB |
0.12 million |
|
|
RMB |
0.32 million |
|
| 2014 |
|
RMB |
66.01 million |
|
|
RMB |
1.07 million |
(1) |
|
RMB |
1.96 million |
(2) |
|
RMB |
3.00 million |
(3) |
| (1) |
Audit-related fees in the amount of RMB1.07 million were paid for the advisory services provided to us regarding our internal control. |
| (2) |
Tax fees in the amount of RMB1.96 million were paid for profit tax filing assistance service. |
| (3) |
Other fees in the amount of RMB3.00 million were paid for other advisory services |
Before our
principal accountants were engaged by our Company or our subsidiaries to render audit or non-audit services, the engagements were approved by our Audit Committee.
| Item 16D. |
Exemptions from the Listing Standards for Audit Committees. |
Not applicable.
| Item 16E. |
Purchases of Equity Securities by the Issuer and Affiliated Purchasers. |
None.
| Item 16F. |
Change in Registrant’s Certifying Accountant. |
Not applicable.
| Item 16G. |
Corporate Governance. |
Our Company was incorporated under the PRC laws on
September 10, 2002 as a joint stock company with limited liability. Our H shares are listed on the Hong Kong Stock Exchange. Our ADSs are listed on the NYSE. As a foreign private issuer, we are not required to comply with all the corporate
governance rules of Section 303A of the Listed Company Manual of the NYSE. However, we are required to disclose the significant ways in which our corporate governance practices differ from those followed by U.S. domestic companies under the
listing standards of the NYSE.
- 82 -
Pursuant to the requirements of the Listed Company Manual of the NYSE, the Board of Directors of
all U.S. domestic companies listed on the NYSE must have a majority of independent directors. Under currently applicable PRC and Hong Kong laws and regulations, our Board is not required to have a majority of independent directors. Under the Listing
Rules, at least one third of the board of directors and at least three directors of a listed company shall be independent non-executive directors. Our Board currently consists of 11 directors, of which four are independent directors, representing
over one third of the total number of directors on our Board. These independent directors satisfy the requirements on “independence” under the Listing Rules, which, however differ from the requirements of Section 303A.02 of the Listed
Company Manual of the NYSE.
Pursuant to the requirements of the Listed Company Manual of the NYSE, U.S. domestic companies whose
securities are listed on the NYSE shall formulate corporate governance rules. Pursuant to the currently applicable PRC and Hong Kong laws and regulations, we are not required to formulate any rules for corporate governance. Therefore, our Company
has not formulated any separate corporate governance rules. However, our Company has implemented the Corporate Governance Code of the Hong Kong Stock Exchange for the year ended December 31, 2014.
| Item 16H. |
Mine Safety Disclosure. |
Not applicable.
| Item 17. |
Financial Statements. |
We have elected to provide the financial statements and related
information specified in Item 18 in lieu of Item 17.
| Item 18. |
Financial Statements. |
See Index to Financial Statements for a list of all financial
statements filed as part of this annual report.
- 83 -
| |
(a) |
See Item 18 for a list of the financial statements filed as part of this annual report. |
| |
(b) |
Exhibits to this annual report: |
|
|
|
| Exhibits |
|
Description |
|
|
| 1.1 |
|
Articles of Association (as amended) (English translation) |
|
|
| 2.1 |
|
Form of H Share Certificate.(1) |
|
|
| 2.2 |
|
Form of Deposit Agreement among the Registrant, The Bank of New York, as depositary, and Owners and Beneficial Owners from time to time of American Depositary Shares evidenced by American Depositary Receipts issued thereunder,
including the form of American Depositary Receipt.(2) |
|
|
| 2.3 |
|
We agree to provide the Securities and Exchange Commission, upon request, copies of instruments defining the rights of holders of our long-term debt. |
|
|
| 4.1 |
|
Supplemental Trademark License Agreement, dated October 26, 2003, between the Registrant and China Telecommunications Corporation (English translation).(3) |
|
|
| 4.2 |
|
Sale and Purchase Agreement, dated October 26, 2003, between the Registrant and China Telecommunications Corporation (English translation).(3) |
|
|
| 4.3 |
|
Supplemental Connected Transactions Agreement, dated October 26, 2003, between the Registrant and China Telecommunications Corporation (English translation).(3) |
|
|
| 4.4 |
|
Form of Underwriting Agreement.(4) |
|
|
| 4.5 |
|
Supplemental Trademark License Agreement, dated April 13, 2004, between the Registrant and China Telecommunications Corporation (English translation).(5) |
|
|
| 4.6 |
|
Supplemental Connected Transactions Agreement, dated April 13, 2004, between the Registrant and China Telecommunications Corporation (English translation).(6) |
|
|
| 4.7 |
|
Conditional Sale and Purchase Agreement, dated April 13, 2004, between the Registrant and China Telecommunications Corporation (English translation).(7) |
|
|
| 4.8 |
|
Supplemental Conditional Sale and Purchase Agreement, dated June 9, 2005, between the Registrant and China Telecommunications Corporation (English summary).(8) |
|
|
| 4.9 |
|
Supplemental Centralized Services Agreement, dated December 15, 2005, between the Registrant and China Telecommunications Corporation (English summary).(9) |
|
|
| 4.10 |
|
Property Leasing Framework Agreement, dated August 30, 2006, between the Registrant and China Telecommunications Corporation (English summary).(10) |
|
|
| 4.11 |
|
IT Services Framework Agreement, dated August 30, 2006, between the Registrant and China Telecommunications Corporation (English summary).(10) |
|
|
| 4.12 |
|
Equipment Procurement Services Framework Agreement, dated August 30, 2006, between the Registrant and China Telecommunications Corporation (English summary).(10) |
|
|
| 4.13 |
|
Engineering Framework Agreement, dated August 30, 2006, between the Registrant and China Telecommunications Corporation (English summary). (10) |
|
|
| 4.14 |
|
Community Services Framework Agreement, dated August 30, 2006, between the Registrant and China Telecommunications Corporation (English summary). (10) |
|
|
| 4.15 |
|
Ancillary Telecommunications Service Framework Agreement, dated August 30, 2006, between the Registrant and China Telecommunications Corporation (English summary).
(10) |
|
|
| 4.16 |
|
Strategic Agreement, dated August 30, 2006, between the Registrant and China Communications Services Corporation Limited (English summary).
(10) |
- 84 -
|
|
|
| Exhibits |
|
Description |
|
|
| 4.17 |
|
Supplemental Agreement to the Strategic Agreement, dated June 15, 2007, between the Registrant and the China Communications Services Corporation Limited (English Summary).
(10) |
|
|
| 4.18 |
|
Supplemental Agreement to the Strategic Agreement, dated October 29, 2009, between the Registrant and the China Communications Services Corporation Limited (English Summary).
(13) |
|
|
| 4.19 |
|
Master Agreement for sales and purchase of equity interests in China Telecom (Hong Kong) International Limited, China Telecom System Group Integration Co., Ltd. and China Telecom (USA) Corporation, dated June 15, 2007, between
China Telecommunications Corporation and China Telecom Corporation Limited. (10) |
|
|
| 4.20 |
|
Stock Purchase Agreement in respect of sales and purchase of shares in China Telecom (USA) Corporation, dated June 15, 2007, between China Telecommunications Corporation and China Telecom Corporation Limited. (10) |
|
|
| 4.21 |
|
Share Purchase Agreement in respect of sales and purchase of shares in China Telecom (Hong Kong) International Limited, dated June 15, 2007, between China Telecommunications Corporation and China Telecom Corporation Limited. (10) |
|
|
| 4.22 |
|
Share Transfer Agreement in respect of transfer of shareholdings in China Telecom System Integration Co., Limited, dated June 15, 2007, among China Telecommunications Corporation, China Huaxin Post and Telecommunications
Economy Development Center and China Telecom Corporation Limited. (10) |
|
|
| 4.23 |
|
Agreement on the Transfer of the Entire Equity Interests in China Telecom Group Beijing Corporation, dated March 31, 2008, between the Registrant and China Telecommunications Corporation (English Translation). (11) |
|
|
| 4.24 |
|
Form Merger Agreement, dated January 10, 2008, between the Registrant and each of certain subsidiaries wholly owned by the Registrant (English Translation). (11) |
|
|
| 4.25 |
|
Supplemental Agreement to the Centralized Services Agreement, dated December 26, 2007, between the Registrant and China Telecommunications Corporation (English Summary).
(11) |
|
|
| 4.26 |
|
Supplemental Agreement to the Centralized Services Agreement, dated March 31, 2008, between the Registrant and China Telecommunications Corporation (English Summary).
(11) |
|
|
| 4.27 |
|
Framework Agreement for Transfer of CDMA Business, dated June 2, 2008, among the Registrant, China Unicom Limited and China Unicom Corporation Limited (English Summary).
(11) |
|
|
| 4.28 |
|
Supplemental Agreement to the Interconnection Settlement Agreement, dated July 27, 2008, between the Registrant and China Telecommunications Corporation (English summary).
(12) |
|
|
| 4.29 |
|
Supplemental Agreement to the IT Services Framework Agreement, dated December 15, 2008, between the Registrant and China Telecommunications Corporation (English summary).
(12) |
|
|
| 4.30 |
|
Supplemental Agreement to the Supplies Procurement Services Framework Agreement, dated December 15, 2008, between the Registrant and China Telecommunications Corporation (English summary). (12) |
|
|
| 4.31 |
|
Supplemental Agreement to the Engineering Framework Agreement, dated July 27, 2008, between the Registrant and China Telecommunications Corporation (English summary).
(12) |
|
|
| 4.32 |
|
Supplemental Agreement to the Community Services Framework Agreement, dated December 15, 2008, between the Registrant and China Telecommunications Corporation (English summary).
(12) |
|
|
| 4.33 |
|
Supplemental Agreement to the Ancillary Telecommunications Services Framework Agreement, dated July 27, 2008, between the Registrant and China Telecommunications Corporation (English summary). (12) |
|
|
| 4.34 |
|
CDMA Network Capacity Lease Agreement, dated July 27, 2008, between the Registrant and China Telecommunications Corporation (English translation). (12) |
|
|
| 4.35 |
|
Agreement for Transfer of CDMA Business, dated July 27, 2008, between the Registrant, China Unicom Limited and China Unicom Corporation Limited (English summary).
(12) |
|
|
| 4.36 |
|
Merger Agreement, dated November 14, 2008, between the Registrant and China Telecommunications Corporation Beijing Corporation (English translation). (12) |
|
|
| 4.37 |
|
Supplemental Agreement to the Optic Fiber Leasing Agreement, dated July 10, 2008, between the Registrant and China Telecommunications Corporation (English summary).
(12) |
- 85 -
|
|
|
| Exhibits |
|
Description |
|
|
| 4.38 |
|
Underwriting Agreement regarding Medium Term Notes of China Telecom Corporation Limited in 2008, dated April 15, 2008, among the Registrant, Industrial and Commercial Bank of China Limited and CITIC Securities Company Limited
(English summary), and its Supplemental Agreement, dated December 15, 2008 (English summary). (12) |
|
|
| 4.39 |
|
Underwriting Agreement regarding the First Tranche of Short-Term Commercial Paper of China Telecom Corporation Limited in 2008, dated July 7, 2008, among the Registrant, Bank of Communications Co., Ltd. and China Development
Bank (English summary). (12) |
|
|
| 4.40 |
|
Underwriting Agreement regarding the First Tranche of Medium Term Notes of China Telecom Corporation Limited in 2009, dated September 8, 2009 (as supplemented on September 9, 2009), among the Registrant, Bank of
Communications Co., Ltd. and Agricultural Bank of China Limited (English summary). (13) |
|
|
| 4.41 |
|
Underwriting Agreement regarding the Second Tranche of Medium Term Notes of China Telecom Corporation Limited in 2009, dated October 19, 2009 (as supplemented respectively on October 20, 2009 and December 4, 2009),
among the Registrant, Agriculture Bank of China Limited and China Merchants Bank Co., Ltd. (English summary). (13) |
|
|
| 4.42 |
|
Underwriting Agreement regarding the Third Tranche of Medium Term Notes of China Telecom Corporation Limited in 2009, dated October 19, 2009 (as supplemented respectively on October 20, 2009 and December 4, 2009),
among the Registrant, China Construction Bank Corporation and Industrial and Commercial Bank of China Ltd. (English summary). (13) |
|
|
| 4.43 |
|
Supplemental Agreement to the Centralized Services Agreement, dated August 25, 2010, between the Registrant and China Telecommunications Corporation (English summary)
(14) |
|
|
| 4.44 |
|
Supplemental Agreement to the Interconnection Settlement Agreement, dated August 25, 2010, between the Registrant and China Telecommunications Corporation (English summary)
(14) |
|
|
| 4.45 |
|
Supplemental Agreement to the Property Leasing Framework Agreement, dated August 25, 2010, between the Registrant and China Telecommunications Corporation (English summary)
(14) |
|
|
| 4.46 |
|
Supplemental Agreement to the IT services Framework Agreement, dated August 25, 2010, between the Registrant and China Telecommunications Corporation (English summary)
(14) |
|
|
| 4.47 |
|
Supplemental Agreement to the Community Services Framework Agreement, dated August 25, 2010, between the Registrant and China Telecommunications Corporation (English summary)
(14) |
|
|
| 4.48 |
|
Supplemental Agreement to the Supplies Procurement Services Framework Agreement, dated August 25, 2010, between the Registrant and China Telecommunications Corporation (English summary) (14) |
|
|
| 4.49 |
|
Supplemental Agreement to the Engineering Framework Agreement, dated August 25, 2010, between the Registrant and China Telecommunications Corporation (English summary)
(14) |
|
|
| 4.50 |
|
Supplemental Agreement to the Ancillary Telecommunications Services Framework Agreement, dated August 25, 2010, between the Registrant and China Telecommunications Corporation (English summary) (14) |
|
|
| 4.51 |
|
Supplemental Agreement to the CDMA Network Capacity Lease Agreement, dated August 25, 2010, between the Registrant and China Telecommunications Corporation (English summary)
(14) |
|
|
| 4.52 |
|
Supplemental Agreement to the Trademark License Agreement, dated August 25, 2010, between the Registrant and China Telecommunications Corporation (English summary)
(14) |
|
|
| 4.53 |
|
Supplemental Agreement to the Optic Fiber Leasing Agreement, dated August 25, 2010, between the Registrant and China Telecommunications Corporation (English summary)
(14) |
|
|
| 4.54 |
|
Agreement on the Acquisition of CDMA Network Assets and Associated Liabilities, dated August 20, 2012, between the Registrant and China Telecommunications Corporation (English summary) (15) |
|
|
| 4.55 |
|
Agreement on the Disposal of Equity Interest in E-surfing Media Co., Ltd., dated April 26, 2013, between the Registrant and China Telecommunications Corporation (English Summary)
(15) |
|
|
| 4.56 |
|
Agreement on the Acquisition of China Telecom (Europe) Limited, dated December 16, 2013, between the Registrant and China Telecommunications Corporation (16) |
|
|
| 4.57 |
|
Internet Applications Channel Services Framework Agreement, dated December 16, 2013, between the Registrant and China Telecommunications Corporation (English Summary)
(16) |
- 86 -
|
|
|
| Exhibits |
|
Description |
|
|
4.58
|
|
Promoters’ Agreement for China Communications Facilities Services Corporation Limited (currently known as China Tower Corporation Limited) dated July 11, 2014, among the Registrant, China United Network Communications
Corporation Limited and China Mobile Communication Company Limited |
|
|
| 8.1 |
|
List of subsidiaries of the Registrant |
|
|
| 11.1 |
|
Code of Ethics (English translation).(3) |
|
|
| 12.1 |
|
Certification of CEO pursuant to Rule 13a-14(a) |
|
|
| 12.2 |
|
Certification of CFO pursuant to Rule 13a-14(a) |
|
|
| 13.1 |
|
Certification of CEO pursuant to Rule 13a-14(b) |
|
|
| 13.2 |
|
Certification of CFO pursuant to Rule 13a-14(b) |
| (1) |
Incorporated by reference to our Registration Statement on Form F-1 (File No. 333-100042), filed with the Securities and Exchange Commission on November 5, 2002. |
| (2) |
Incorporated by reference to our Registration Statement on Form F-6 (File No. 333-100617), filed with the Securities and Exchange Commission with respect to American Depositary Shares representing our H shares.
|
| (3) |
Incorporated by reference to our Annual Report on Form 20-F for the fiscal year ended December 31, 2003 (File No. 001-31517), filed with the Securities and Exchange Commission. |
| (4) |
Incorporated by reference to Exhibit 1.1 to our Form 6-K filed on April 29, 2004 |
| (5) |
Incorporated by reference to Exhibit 1.2 to our Form 6-K filed on April 29, 2004. |
| (6) |
Incorporated by reference to Exhibit 1.3 to our Form 6-K filed on April 29, 2004. |
| (7) |
Incorporated by reference to Exhibit 1.5 to our Form 6-K filed on April 29, 2004. |
| (8) |
Incorporated by reference to our Annual Report on Form 20-F for the fiscal year ended December 31, 2004 (File No. 001-31517), filed with the Securities and Exchange Commission. |
| (9) |
Incorporated by reference to our Annual Report on Form 20-F for the fiscal year ended December 31, 2005 (File No. 001-31517), filed with the Securities and Exchange Commission. |
| (10) |
Incorporated by reference to our Annual Report on Form 20-F for the fiscal year ended December 31, 2006 (File No. 001-31517), filed with the Securities and Exchange Commission. |
| (11) |
Incorporated by reference to our Annual Report on Form 20-F for the fiscal year ended December 31, 2007 (File No. 001-31517), filed with the Securities and Exchange Commission. |
| (12) |
Incorporated by reference to our Annual Report on Form 20-F for the fiscal year ended December 31, 2008 (File No. 001-31517), filed with the Securities and Exchange Commission. |
| (13) |
Incorporated by reference to our Annual Report on Form 20-F for the fiscal year ended December 31, 2009 (File No. 001-31517), filed with the Securities and Exchange Commission. |
| (14) |
Incorporated by reference to our Annual Report on Form 20-F for the fiscal year ended December 31, 2010 (File No. 001-31517), filed with the Securities and Exchange Commission. |
| (15) |
Incorporated by reference to our Annual Report on Form 20-F for the fiscal year ended December 31, 2012 (File No. 001-31517), filed with the Securities and Exchange Commission. |
| (16) |
Incorporated by reference to our Annual Report on Form 20-F for the fiscal year ended December 31, 2013 (File No. 001-31517), filed with the Securities and Exchange Commission. |
- 87 -
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the
undersigned to sign this annual report on its behalf.
|
|
|
| CHINA TELECOM CORPORATION LIMITED |
|
|
| By: |
|
/s/ Wang Xiaochu |
|
|
|
| Name: |
|
Wang Xiaochu |
| Title: |
|
Chairman and Chief Executive Officer |
Date: April 28, 2015
CHINA TELECOM CORPORATION LIMITED AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
China Telecom Corporation Limited:
We have audited the accompanying consolidated
statements of financial position of China Telecom Corporation Limited and subsidiaries (the “Group”) as of December 31, 2013 and 2014, and the related consolidated statements of comprehensive income, changes in equity, and cash flows
for each of the years in the two-year period ended December 31, 2014. These consolidated financial statements are the responsibility of the Group’s management. Our responsibility is to express an opinion on these consolidated financial
statements based on our audit. The consolidated financial statements of the Group for the year ended December 31, 2012 were audited by other auditors whose report, dated March 20, 2013, expressed an unqualified opinion on those statements.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable
basis for our opinion.
In our opinion, the 2013 and 2014 consolidated financial statements present fairly, in all material respects, the
financial position of China Telecom Corporation Limited and subsidiaries as of December 31, 2013 and 2014, and the results of their operations and their cash flows for each of the years in the two-year period ended December 31, 2014, in
conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.
We have also audited
the retrospective adjustments to the consolidated statements of comprehensive income, changes in equity, and cash flows for the year ended December 31, 2012, as a result of the acquisition of China Telecom (Europe) Limited discussed in Note 1
to the consolidated financial statements. Our procedures included (1) obtaining the accounting analysis of the retrospective adjustments for the acquisition of China Telecom (Europe) Limited accounted for as a combination of entities under
common control; (2) comparing previously reported amounts of the Group to the previously issued financial statements for such periods; (3) comparing the schedules of intercompany transactions and balances between the Group and China
Telecom (Europe) Limited and on a test basis checking that significant intercompany transactions and balances are properly eliminated; and (4) testing the mathematical accuracy of the consolidation schedule of the Group, which include the
previously issued financial statements of the Group for such periods, the financial statements of China Telecom (Europe) Limited and the elimination of intercompany transactions and balances. In our opinion, such retrospective adjustments are
appropriate and have been properly applied. However, we were not engaged to audit, review, or apply any procedures to the consolidated statements of comprehensive income, changes in equity, and cash flows for the year ended December 31, 2012
other than with respect to the retrospective adjustments and, accordingly, we do not express an opinion or any other form of assurance on the consolidated statements of comprehensive income, changes in equity, and cash flows of the Group for the
year ended December 31, 2012.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the Group’s internal control over financial reporting as of December 31, 2014, based on the criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission, and our report dated March 18, 2015 expressed an unqualified opinion on the effectiveness of the Group’s internal control over financial reporting.
|
| /s/ Deloitte Touche Tohmatsu |
|
| Deloitte Touche Tohmatsu |
| Hong Kong, the People’s Republic of China |
| March 18, 2015 |
F-2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders of
China Telecom Corporation Limited:
We
have audited, before the effects of the retrospective adjustments for the acquisition of China Telecom (Europe) Limited described in note 1, the accompanying consolidated statements of comprehensive income, changes in equity, and cash flows of China
Telecom Corporation Limited and subsidiaries (the “Group”) for the year ended December 31, 2012 (the “2012 consolidated financial statements”). The 2012 consolidated financial statements before the effects of the retrospective
adjustments discussed in note 1 are not presented herein. The 2012 consolidated financial statements are the responsibility of the Group’s management. Our responsibility is to express an opinion on these consolidated financial statements based
on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the 2012 consolidated financial statements, before the effects of the
retrospective adjustments for the acquisition of China Telecom (Europe) Limited described in note 1, present fairly, in all material respects, the results of operations and the cash flows of the Group for the year ended December 31, 2012, in
conformity with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board.
We were not
engaged to audit, review, or apply any procedures to the retrospective adjustments for the acquisition of China Telecom (Europe) Limited described in note 1 and, accordingly, we do not express an opinion or any other form of assurance about whether
such retrospective adjustments are appropriate and have been properly applied. Those retrospective adjustments were audited by a successor auditor.
/s/ KPMG
Hong Kong, China
March 20, 2013
F-3
CHINA TELECOM CORPORATION LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
AS OF DECEMBER 31, 2013 AND 2014
(Amounts in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Note |
|
|
December 31,
2013 |
|
|
December 31,
2014 |
|
| |
|
|
|
|
RMB |
|
|
RMB |
|
| ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Current assets |
|
|
|
|
|
|
|
|
|
|
|
|
| Cash and cash equivalents |
|
|
4 |
|
|
|
16,070 |
|
|
|
20,436 |
|
| Short-term bank deposits |
|
|
|
|
|
|
2,287 |
|
|
|
1,379 |
|
| Accounts receivable, net |
|
|
5 |
|
|
|
20,022 |
|
|
|
21,562 |
|
| Inventories |
|
|
6 |
|
|
|
6,523 |
|
|
|
4,225 |
|
| Prepayments and other current assets |
|
|
7 |
|
|
|
7,569 |
|
|
|
10,581 |
|
| Income tax recoverable |
|
|
|
|
|
|
312 |
|
|
|
1,360 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total current assets |
|
|
|
|
|
|
52,783 |
|
|
|
59,543 |
|
| Non-current assets |
|
|
|
|
|
|
|
|
|
|
|
|
| Property, plant and equipment, net |
|
|
8 |
|
|
|
374,341 |
|
|
|
372,876 |
|
| Construction in progress |
|
|
9 |
|
|
|
44,157 |
|
|
|
53,181 |
|
| Lease prepayments |
|
|
|
|
|
|
25,007 |
|
|
|
24,410 |
|
| Goodwill |
|
|
10 |
|
|
|
29,917 |
|
|
|
29,917 |
|
| Intangible assets |
|
|
11 |
|
|
|
8,045 |
|
|
|
8,984 |
|
| Interests in associates |
|
|
12 |
|
|
|
1,106 |
|
|
|
4,106 |
|
| Investments |
|
|
13 |
|
|
|
1,026 |
|
|
|
972 |
|
| Deferred tax assets |
|
|
14 |
|
|
|
2,927 |
|
|
|
3,232 |
|
| Other assets |
|
|
18 |
|
|
|
3,930 |
|
|
|
4,053 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total non-current assets |
|
|
|
|
|
|
490,456 |
|
|
|
501,731 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total assets |
|
|
|
|
|
|
543,239 |
|
|
|
561,274 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| LIABILITIES AND EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
| Current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
| Short-term debt |
|
|
15 |
|
|
|
27,687 |
|
|
|
43,976 |
|
| Current portion of long-term debt |
|
|
15 |
|
|
|
20,072 |
|
|
|
82 |
|
| Accounts payable |
|
|
16 |
|
|
|
81,132 |
|
|
|
88,458 |
|
| Accrued expenses and other payables |
|
|
17 |
|
|
|
69,633 |
|
|
|
72,442 |
|
| Income tax payable |
|
|
|
|
|
|
371 |
|
|
|
307 |
|
| Current portion of finance lease obligations |
|
|
|
|
|
|
1 |
|
|
|
— |
|
| Current portion of deferred revenues |
|
|
18 |
|
|
|
1,202 |
|
|
|
1,060 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total current liabilities |
|
|
|
|
|
|
200,098 |
|
|
|
206,325 |
|
| Non-current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
| Long-term debt and payable |
|
|
15 |
|
|
|
62,617 |
|
|
|
62,918 |
|
| Deferred revenues |
|
|
18 |
|
|
|
1,229 |
|
|
|
798 |
|
| Deferred tax liabilities |
|
|
14 |
|
|
|
631 |
|
|
|
1,125 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total non-current liabilities |
|
|
|
|
|
|
64,477 |
|
|
|
64,841 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total liabilities |
|
|
|
|
|
|
264,575 |
|
|
|
271,166 |
|
| Equity |
|
|
|
|
|
|
|
|
|
|
|
|
| Share capital |
|
|
19 |
|
|
|
80,932 |
|
|
|
80,932 |
|
| Reserves |
|
|
20 |
|
|
|
196,809 |
|
|
|
208,251 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total equity attributable to equity holders of the Company |
|
|
|
|
|
|
277,741 |
|
|
|
289,183 |
|
| Non-controlling interests |
|
|
|
|
|
|
923 |
|
|
|
925 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total equity |
|
|
|
|
|
|
278,664 |
|
|
|
290,108 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total liabilities and equity |
|
|
|
|
|
|
543,239 |
|
|
|
561,274 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-4
CHINA TELECOM CORPORATION LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014
(Amounts in millions, except
per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
Year ended December 31, |
|
| |
|
Note |
|
|
2012 |
|
|
2013 |
|
|
2014 |
|
| |
|
|
|
|
RMB |
|
|
RMB |
|
|
RMB |
|
| Operating revenues |
|
|
21 |
|
|
|
283,176 |
|
|
|
321,584 |
|
|
|
324,394 |
|
|
|
|
|
|
| Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Depreciation and amortization |
|
|
|
|
|
|
(49,666 |
) |
|
|
(69,083 |
) |
|
|
(66,345 |
) |
| Network operations and support |
|
|
22 |
|
|
|
(65,979 |
) |
|
|
(53,102 |
) |
|
|
(68,651 |
) |
| Selling, general and administrative |
|
|
|
|
|
|
(63,099 |
) |
|
|
(70,448 |
) |
|
|
(62,719 |
) |
| Personnel expenses |
|
|
23 |
|
|
|
(42,857 |
) |
|
|
(46,723 |
) |
|
|
(50,653 |
) |
| Other operating expenses |
|
|
24 |
|
|
|
(40,367 |
) |
|
|
(54,760 |
) |
|
|
(47,518 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total operating expenses |
|
|
|
|
|
|
(261,968 |
) |
|
|
(294,116 |
) |
|
|
(295,886 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Operating income |
|
|
|
|
|
|
21,208 |
|
|
|
27,468 |
|
|
|
28,508 |
|
|
|
|
|
|
| Net finance costs |
|
|
25 |
|
|
|
(1,562 |
) |
|
|
(5,153 |
) |
|
|
(5,291 |
) |
|
|
|
|
|
| Investment income |
|
|
|
|
|
|
93 |
|
|
|
670 |
|
|
|
6 |
|
|
|
|
|
|
| Equity in income of associates |
|
|
|
|
|
|
78 |
|
|
|
103 |
|
|
|
34 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Earnings before income tax |
|
|
|
|
|
|
19,817 |
|
|
|
23,088 |
|
|
|
23,257 |
|
|
|
|
|
|
| Income tax |
|
|
26 |
|
|
|
(4,753 |
) |
|
|
(5,422 |
) |
|
|
(5,498 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Profit for the year |
|
|
|
|
|
|
15,064 |
|
|
|
17,666 |
|
|
|
17,759 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Other comprehensive income for the year: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Items that may be reclassified subsequently to profit or loss: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Change in fair value of available-for-sale equity securities |
|
|
|
|
|
|
(228 |
) |
|
|
414 |
|
|
|
(54 |
) |
| Deferred tax on change in fair value of available-for-sale equity securities |
|
|
|
|
|
|
57 |
|
|
|
(104 |
) |
|
|
14 |
|
| Exchange difference on translation of financial statements of subsidiaries
outside mainland China |
|
|
|
|
|
|
(2 |
) |
|
|
(79 |
) |
|
|
3 |
|
| Share of other comprehensive income of associates |
|
|
|
|
|
|
— |
|
|
|
5 |
|
|
|
(3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Other comprehensive income for the year, net of tax |
|
|
|
|
|
|
(173 |
) |
|
|
236 |
|
|
|
(40 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total comprehensive income for the year |
|
|
|
|
|
|
14,891 |
|
|
|
17,902 |
|
|
|
17,719 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Profit attributable to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Equity holders of the Company |
|
|
|
|
|
|
14,949 |
|
|
|
17,545 |
|
|
|
17,680 |
|
| Non-controlling interests |
|
|
|
|
|
|
115 |
|
|
|
121 |
|
|
|
79 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Profit for the year |
|
|
|
|
|
|
15,064 |
|
|
|
17,666 |
|
|
|
17,759 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total comprehensive income attributable to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Equity holders of the Company |
|
|
|
|
|
|
14,776 |
|
|
|
17,781 |
|
|
|
17,640 |
|
| Non-controlling interests |
|
|
|
|
|
|
115 |
|
|
|
121 |
|
|
|
79 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total comprehensive income for the year |
|
|
|
|
|
|
14,891 |
|
|
|
17,902 |
|
|
|
17,719 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Basic earnings per share |
|
|
28 |
|
|
|
0.18 |
|
|
|
0.22 |
|
|
|
0.22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Number of shares (in millions) |
|
|
28 |
|
|
|
80,932 |
|
|
|
80,932 |
|
|
|
80,932 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-5
CHINA TELECOM CORPORATION LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014
(Amounts in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Attributable to equity holders of the Company |
|
|
|
|
| |
|
Note |
|
|
Share
capital |
|
|
Capital
reserve |
|
|
Share
premium |
|
|
Statutory
reserves |
|
|
Other
reserves |
|
|
Exchange
reserve |
|
|
Retained
earnings |
|
|
Total |
|
|
Non-controlling
interests |
|
|
Total
Equity |
|
| |
|
|
|
|
RMB |
|
|
RMB |
|
|
RMB |
|
|
RMB |
|
|
RMB |
|
|
RMB |
|
|
RMB |
|
|
RMB |
|
|
RMB |
|
|
RMB |
|
| Balance as of January 1, 2012 |
|
|
|
|
|
|
80,932 |
|
|
|
17,000 |
|
|
|
10,746 |
|
|
|
64,316 |
|
|
|
283 |
|
|
|
(863 |
) |
|
|
83,753 |
|
|
|
256,167 |
|
|
|
788 |
|
|
|
256,955 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Profit for the year |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
14,949 |
|
|
|
14,949 |
|
|
|
115 |
|
|
|
15,064 |
|
| Other comprehensive
income |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(171 |
) |
|
|
(2 |
) |
|
|
— |
|
|
|
(173 |
) |
|
|
— |
|
|
|
(173 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total comprehensive income |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(171 |
) |
|
|
(2 |
) |
|
|
14,949 |
|
|
|
14,776 |
|
|
|
115 |
|
|
|
14,891 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Contribution from non-controlling interests |
|
|
|
|
|
|
— |
|
|
|
249 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
249 |
|
|
|
131 |
|
|
|
380 |
|
| Distribution to non-controlling interests |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(73 |
) |
|
|
(73 |
) |
| Acquisition of the Sixth Acquired Business |
|
|
1 |
|
|
|
— |
|
|
|
(48 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(48 |
) |
|
|
— |
|
|
|
(48 |
) |
| Dividends |
|
|
27 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(5,625 |
) |
|
|
(5,625 |
) |
|
|
— |
|
|
|
(5,625 |
) |
| Appropriations |
|
|
20 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,413 |
|
|
|
— |
|
|
|
— |
|
|
|
(1,413 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
| Others |
|
|
|
|
|
|
— |
|
|
|
(380 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(380 |
) |
|
|
— |
|
|
|
(380 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance as of December 31, 2012 |
|
|
|
|
|
|
80,932 |
|
|
|
16,821 |
|
|
|
10,746 |
|
|
|
65,729 |
|
|
|
112 |
|
|
|
(865 |
) |
|
|
91,664 |
|
|
|
265,139 |
|
|
|
961 |
|
|
|
266,100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Profit for the year |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
17,545 |
|
|
|
17,545 |
|
|
|
121 |
|
|
|
17,666 |
|
| Other comprehensive
income |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
315 |
|
|
|
(79 |
) |
|
|
— |
|
|
|
236 |
|
|
|
— |
|
|
|
236 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total comprehensive income |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
315 |
|
|
|
(79 |
) |
|
|
17,545 |
|
|
|
17,781 |
|
|
|
121 |
|
|
|
17,902 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Contribution from non-controlling interests |
|
|
|
|
|
|
— |
|
|
|
141 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
141 |
|
|
|
59 |
|
|
|
200 |
|
| Distribution to non-controlling interests |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(74 |
) |
|
|
(74 |
) |
| Acquisition of the Seventh Acquired Company |
|
|
1 |
|
|
|
— |
|
|
|
(278 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(278 |
) |
|
|
— |
|
|
|
(278 |
) |
| Dividends |
|
|
27 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(5,433 |
) |
|
|
(5,433 |
) |
|
|
— |
|
|
|
(5,433 |
) |
| Appropriations |
|
|
20 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,663 |
|
|
|
— |
|
|
|
— |
|
|
|
(1,663 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
| Disposal of a subsidiary |
|
|
1 |
|
|
|
— |
|
|
|
380 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
11 |
|
|
|
391 |
|
|
|
(144 |
) |
|
|
247 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance as of December 31, 2013 |
|
|
|
|
|
|
80,932 |
|
|
|
17,064 |
|
|
|
10,746 |
|
|
|
67,392 |
|
|
|
427 |
|
|
|
(944 |
) |
|
|
102,124 |
|
|
|
277,741 |
|
|
|
923 |
|
|
|
278,664 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Profit for the year |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
17,680 |
|
|
|
17,680 |
|
|
|
79 |
|
|
|
17,759 |
|
| Other comprehensive
income |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(43 |
) |
|
|
3 |
|
|
|
— |
|
|
|
(40 |
) |
|
|
— |
|
|
|
(40 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total comprehensive income |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(43 |
) |
|
|
3 |
|
|
|
17,680 |
|
|
|
17,640 |
|
|
|
79 |
|
|
|
17,719 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Distribution to non-controlling interests |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(77 |
) |
|
|
(77 |
) |
| Dividends |
|
|
27 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(6,198 |
) |
|
|
(6,198 |
) |
|
|
— |
|
|
|
(6,198 |
) |
| Appropriations |
|
|
20 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,680 |
|
|
|
— |
|
|
|
— |
|
|
|
(1,680 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance as of December 31, 2014 |
|
|
|
|
|
|
80,932 |
|
|
|
17,064 |
|
|
|
10,746 |
|
|
|
69,072 |
|
|
|
384 |
|
|
|
(941 |
) |
|
|
111,926 |
|
|
|
289,183 |
|
|
|
925 |
|
|
|
290,108 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-6
CHINA TELECOM CORPORATION LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014
(Amounts in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
Year ended December 31, |
|
| |
|
Note |
|
|
2012 |
|
|
2013 |
|
|
2014 |
|
| |
|
|
|
|
RMB |
|
|
RMB |
|
|
RMB |
|
| Net cash from operating activities |
|
|
(a |
) |
|
|
70,722 |
|
|
|
88,351 |
|
|
|
96,405 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Cash flows used in investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Capital expenditure |
|
|
|
|
|
|
(50,071 |
) |
|
|
(70,921 |
) |
|
|
(80,273 |
) |
| Purchase of investments |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
(2,990 |
) |
| Lease prepayments |
|
|
|
|
|
|
(133 |
) |
|
|
(111 |
) |
|
|
(184 |
) |
| Proceeds from disposal of property, plant and equipment |
|
|
|
|
|
|
2,696 |
|
|
|
1,538 |
|
|
|
710 |
|
| Proceeds from disposal of lease prepayments |
|
|
|
|
|
|
255 |
|
|
|
360 |
|
|
|
121 |
|
| Net cash (outflow) / inflow from disposal of a subsidiary |
|
|
|
|
|
|
(116 |
) |
|
|
512 |
|
|
|
— |
|
| Purchase of short-term bank deposits |
|
|
|
|
|
|
(2,730 |
) |
|
|
(2,750 |
) |
|
|
(2,566 |
) |
| Maturity of short-term bank deposits |
|
|
|
|
|
|
1,804 |
|
|
|
3,193 |
|
|
|
3,474 |
|
| Payment of the payable to China Telecommunications Corporation related to the Mobile Network Acquisition |
|
|
|
|
|
|
— |
|
|
|
(14,269 |
) |
|
|
— |
|
| Payment for the first installment of the Mobile Network Acquisition |
|
|
|
|
|
|
— |
|
|
|
(25,500 |
) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net cash used in investing activities |
|
|
|
|
|
|
(48,295 |
) |
|
|
(107,948 |
) |
|
|
(81,708 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Cash flows (used in) / from financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Principal element of finance lease payments |
|
|
|
|
|
|
— |
|
|
|
(2 |
) |
|
|
(1 |
) |
| Proceeds from bank debt and other loans |
|
|
|
|
|
|
9,702 |
|
|
|
54,983 |
|
|
|
53,022 |
|
| Repayment of bank debt and other loans |
|
|
|
|
|
|
(24,133 |
) |
|
|
(44,053 |
) |
|
|
(56,819 |
) |
| Payment of dividends |
|
|
|
|
|
|
(5,625 |
) |
|
|
(5,433 |
) |
|
|
(6,198 |
) |
| Payment for the acquisition price of the Fifth Acquisition |
|
|
1 |
|
|
|
(29 |
) |
|
|
— |
|
|
|
— |
|
| Payment for the acquisition price of the Sixth Acquisition |
|
|
1 |
|
|
|
(48 |
) |
|
|
— |
|
|
|
— |
|
| Payment for the acquisition price of the Seventh Acquisition |
|
|
(b |
) |
|
|
— |
|
|
|
— |
|
|
|
(278 |
) |
| Net cash contributions from/ (distributions to) non-controlling interests |
|
|
|
|
|
|
331 |
|
|
|
142 |
|
|
|
(53 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net cash (used in) / from financing activities |
|
|
|
|
|
|
(19,802 |
) |
|
|
5,637 |
|
|
|
(10,327 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net increase / (decrease) in cash and cash equivalents |
|
|
|
|
|
|
2,625 |
|
|
|
(13,960 |
) |
|
|
4,370 |
|
| Cash and cash equivalents at beginning of year |
|
|
|
|
|
|
27,475 |
|
|
|
30,099 |
|
|
|
16,070 |
|
| Effect of changes in foreign exchange rate |
|
|
|
|
|
|
(1 |
) |
|
|
(69 |
) |
|
|
(4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Cash and cash equivalents at end of year |
|
|
|
|
|
|
30,099 |
|
|
|
16,070 |
|
|
|
20,436 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-7
CHINA TELECOM CORPORATION LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014
(Amounts in millions)
| (a) |
Reconciliation of earnings before income tax to net cash from operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year ended December 31, |
|
| |
|
2012 |
|
|
2013 |
|
|
2014 |
|
| |
|
RMB |
|
|
RMB |
|
|
RMB |
|
| Earnings before income tax |
|
|
19,817 |
|
|
|
23,088 |
|
|
|
23,257 |
|
| Adjustments for: |
|
|
|
|
|
|
|
|
|
|
|
|
| Depreciation and amortization |
|
|
49,666 |
|
|
|
69,083 |
|
|
|
66,345 |
|
| Impairment losses for doubtful debts |
|
|
1,612 |
|
|
|
1,744 |
|
|
|
2,084 |
|
| Write down of inventories |
|
|
235 |
|
|
|
360 |
|
|
|
151 |
|
| Investment income |
|
|
(93 |
) |
|
|
(670 |
) |
|
|
(6 |
) |
| Equity in income of associates |
|
|
(78 |
) |
|
|
(103 |
) |
|
|
(34 |
) |
| Interest income |
|
|
(591 |
) |
|
|
(361 |
) |
|
|
(304 |
) |
| Interest expense |
|
|
2,154 |
|
|
|
5,511 |
|
|
|
5,650 |
|
| Unrealized foreign exchange (gain) / loss |
|
|
(1 |
) |
|
|
3 |
|
|
|
(55 |
) |
| (Gain) / loss on retirement and disposal of property, plant and equipment |
|
|
(2,429 |
) |
|
|
(1,021 |
) |
|
|
2,287 |
|
| Increase in accounts receivable |
|
|
(2,124 |
) |
|
|
(3,156 |
) |
|
|
(3,594 |
) |
| (Increase ) / decrease in inventories |
|
|
(1,185 |
) |
|
|
(955 |
) |
|
|
2,280 |
|
| Increase in prepayments and other current assets |
|
|
(1,045 |
) |
|
|
(1,077 |
) |
|
|
(2,359 |
) |
| Decrease / (increase) in other assets |
|
|
484 |
|
|
|
294 |
|
|
|
(2 |
) |
| Increase in accounts payable |
|
|
5,016 |
|
|
|
3,210 |
|
|
|
6,473 |
|
| Increase in accrued expenses and other payables |
|
|
6,245 |
|
|
|
3,148 |
|
|
|
6,571 |
|
| Decrease in deferred revenues |
|
|
(1,360 |
) |
|
|
(1,014 |
) |
|
|
(573 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Cash generated from operations |
|
|
76,323 |
|
|
|
98,084 |
|
|
|
108,171 |
|
| Interest received |
|
|
587 |
|
|
|
358 |
|
|
|
305 |
|
| Interest paid |
|
|
(2,200 |
) |
|
|
(5,573 |
) |
|
|
(5,693 |
) |
| Investment income received |
|
|
23 |
|
|
|
21 |
|
|
|
29 |
|
| Income tax paid |
|
|
(4,011 |
) |
|
|
(4,539 |
) |
|
|
(6,407 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net cash from operating activities |
|
|
70,722 |
|
|
|
88,351 |
|
|
|
96,405 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(b) The Seventh Acquisition represents the acquisition of the 100% equity interest in China Telecom (Europe) Limited, a
wholly owned subsidiary of China Telecommunications Corporation, by China Telecom Global Limited (“CT Global”, a subsidiary of the Company) from China Telecommunications Corporation on December 31, 2013.
See accompanying notes to consolidated financial statements.
F-8
CHINA TELECOM CORPORATION LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All Renminbi amounts in millions, except per share data and except otherwise stated)
| 1. |
PRINCIPAL ACTIVITIES, ORGANIZATION AND BASIS OF PRESENTATION |
Principal activities
China Telecom Corporation Limited (the
“Company”) and its subsidiaries (hereinafter, collectively referred to as the “Group”) offers a comprehensive range of wireline and mobile telecommunications services including wireline voice, mobile voice, Internet,
telecommunication network resource services and lease of network equipment, value-added services, integrated information application services and other related services. The Group provides wireline telecommunications services and related services in
Beijing Municipality, Shanghai Municipality, Guangdong Province, Jiangsu Province, Zhejiang Province, Anhui Province, Fujian Province, Jiangxi Province, Guangxi Zhuang Autonomous Region, Chongqing Municipality, Sichuan Province, Hubei Province,
Hunan Province, Hainan Province, Guizhou Province, Yunnan Province, Shaanxi Province, Gansu Province, Qinghai Province, Ningxia Hui Autonomous Region and Xinjiang Uygur Autonomous Region of the People’s Republic of China (the “PRC”).
Following the acquisition of Code Division Multiple Access (“CDMA”) mobile telecommunications business in October 2008, the Group also provides mobile telecommunications and related services in the mainland China and Macau Special
Administrative Region (“Macau”) of the PRC. The Group also provides international telecommunications services, including lease of network equipment, International Internet access and transit, and Internet data center service in certain
countries of the Asia Pacific, Europe, Africa, South America and North America regions. The operations of the Group in the mainland China are subject to the supervision and regulation by the PRC government.
Organization
As part of
the reorganization (the “Restructuring”) of China Telecommunications Corporation, the Company was incorporated in the PRC on September 10, 2002. In connection with the Restructuring, China Telecommunications Corporation transferred to
the Company the wireline telecommunications business and related operations in Shanghai Municipality, Guangdong Province, Jiangsu Province and Zhejiang Province together with the related assets and liabilities (the “Predecessor
Operations”) in consideration for 68,317 million ordinary domestic shares of the Company. The shares issued to China Telecommunications Corporation have a par value of RMB1.00 each and represented the entire registered and issued share
capital of the Company at that date.
On December 31, 2003, the Company acquired the entire equity interests in Anhui
Telecom Company Limited, Fujian Telecom Company Limited, Jiangxi Telecom Company Limited, Guangxi Telecom Company Limited, Chongqing Telecom Company Limited and Sichuan Telecom Company Limited (collectively the “First Acquired Group”) and
certain network management and research and development facilities from China Telecommunications Corporation for a total purchase price of RMB46,000 (hereinafter, referred to as the “First Acquisition”).
On June 30, 2004, the Company acquired the entire equity interests in Hubei Telecom Company Limited, Hunan Telecom Company Limited,
Hainan Telecom Company Limited, Guizhou Telecom Company Limited, Yunnan Telecom Company Limited, Shaanxi Telecom Company Limited, Gansu Telecom Company Limited, Qinghai Telecom Company Limited, Ningxia Telecom Company Limited and Xinjiang Telecom
Company Limited (collectively the “Second Acquired Group”) from China Telecommunications Corporation for a total purchase price of RMB27,800 (hereinafter, referred to as the “Second Acquisition”).
On June 30, 2007, the Company acquired the entire equity interests in China Telecom System Integration Co., Ltd. (“CTSI”),
CT Global and China Telecom (Americas) Corporation (“CT Americas”) (collectively the “Third Acquired Group”) from China Telecommunications Corporation for a total purchase price of RMB1,408 (hereinafter, referred to as the
“Third Acquisition”).
On June 30, 2008, the Company acquired the entire equity interest in China Telecom Group
Beijing Corporation (“Beijing Telecom” or the “Fourth Acquired Company”) from China Telecommunications Corporation for a total purchase price of RMB5,557 (hereinafter, referred to as the “Fourth Acquisition”).
On August 1, 2011 and December 1, 2011, the subsidiaries of the Company, E-surfing Pay Co., Ltd and E-surfing Media
Co., Ltd., acquired the e-commerce business and video media business (collectively the “Fifth Acquired Group”) from China Telecommunications Corporation and its subsidiaries for a total purchase price of RMB61 (hereinafter, referred to as
the “Fifth Acquisition”).
Pursuant to an acquisition agreement entered into on April 28, 2011 by the Company
and Besttone Holding Co., Ltd. (formerly known as “China Satcom Guomai Communications Co.,Ltd.”) (“Besttone Holding”), which is controlled by China Telecommunications Corporation, upon receiving the relevant government approval
in March 2012, the Company disposed of 100% equity interest in Besttone E-Commerce Co., Ltd., a subsidiary of the Company that was primarily engaged in the provision of e-commerce and booking services, to Besttone Holding. Besttone Holding paid the
consideration by issuing 21,814,894 of its shares to the Company, representing around 4.1% of its enlarged share capital. The disposal of Besttone E-Commerce Co., Ltd. was completed on April 30, 2012.
F-9
CHINA TELECOM CORPORATION LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All Renminbi amounts in millions, except per share data and except otherwise stated)
| 1. |
PRINCIPAL ACTIVITIES, ORGANIZATION AND BASIS OF PRESENTATION (continued) |
Organization (continued)
On April 30, 2012, the Company acquired the digital trunking business (the
“Sixth Acquired Business”) from Besttone Holding Co., Ltd., a subsidiary of China Telecommunications Corporation, at a purchase price of RMB48 (hereinafter, referred to as the “Sixth Acquisition”).
On June 30, 2013, the Company disposed of an 80% equity interest in E-surfing Media Co., Ltd. (“E-surfing Media”), a
subsidiary of the Company primarily engaged in the provision of video media services, to China Telecommunications Corporation. The final consideration for the disposal of the equity interest in E-surfing was arrived at RMB1,248.
Analysis of assets and liabilities of the disposed subsidiary:
|
|
|
|
|
| |
|
June 30, 2013
RMB |
|
| Current assets |
|
|
|
|
| Cash and cash equivalents |
|
|
736 |
|
| Accounts receivable, net |
|
|
150 |
|
| Other current assets |
|
|
1 |
|
| Non-current assets |
|
|
|
|
| Property, plant and equipment, net |
|
|
111 |
|
| Other non-current assets |
|
|
18 |
|
| Current liabilities |
|
|
|
|
| Accounts payable |
|
|
222 |
|
| Other current liabilities |
|
|
64 |
|
| Non-current liabilities |
|
|
8 |
|
|
|
|
|
|
|
|
| Net assets disposed of |
|
|
722 |
|
|
|
|
|
|
Gain on disposal of a subsidiary:
|
|
|
|
|
| |
|
2013 |
|
| |
|
RMB |
|
| Consideration received |
|
|
1,248 |
|
| Net assets disposed of |
|
|
(722 |
) |
| Non-controlling interests |
|
|
144 |
|
|
|
|
|
|
| Gain on disposal |
|
|
670 |
|
|
|
|
|
|
The gain on disposal of E-surfing Media has been included in investment income of the consolidated
statement of comprehensive income.
Net cash inflow from disposal of a subsidiary:
|
|
|
|
|
| |
|
2013 |
|
| |
|
RMB |
|
| Consideration received in cash and cash equivalents |
|
|
1,248 |
|
| Less: cash and cash equivalents disposed of |
|
|
(736 |
) |
|
|
|
|
|
| Net cash inflow from disposal of a subsidiary |
|
|
512 |
|
|
|
|
|
|
On December 31, 2013, CT Global acquired 100% equity interest in China Telecom (Europe) Limited
(“CT Europe” or the “Seventh Acquired Company”), a wholly owned subsidiary of China Telecommunications Corporation, from China Telecommunications Corporation for a total purchase price of RMB278 (hereinafter, referred to as the
“Seventh Acquisition”), and was paid by June 30, 2014.
Hereinafter, the First Acquired Group, the Second
Acquired Group, the Third Acquired Group, the Fourth Acquired Company, the Fifth Acquired Group, the Sixth Acquired Business and the Seventh Acquired Company are collectively referred to as the “Acquired Groups”.
Basis of presentation
Since the Group and the Acquired Groups are under common control of China Telecommunications Corporation, the Group’s acquisitions of
the Acquired Groups have been accounted for as a combination of entities under common control in a manner similar to a pooling-of-interests. Accordingly, the assets and liabilities of these entities have been accounted for at historical amounts and
the consolidated financial statements of the Group prior to the acquisitions are combined with the financial statements of the Acquired Groups. The considerations for the acquisition of the Acquired Groups are accounted for as an equity transaction
in the consolidated statement of changes in equity.
The consolidated results of operations for the year ended
December 31, 2012 and the consolidated financial position as of December 31, 2012 as previously reported by the Group and the combined amounts presented in the consolidated financial statements of the Group to reflect the acquisition of
the Seventh Acquired Company are set out below:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
The Group (as previously
reported) |
|
|
The Seventh
Acquired
Company |
|
|
The Group (as restated) |
|
| |
|
RMB |
|
|
RMB |
|
|
RMB |
|
| Consolidated statement of comprehensive income for the year ended December 31, 2012: |
|
|
|
|
|
|
|
|
|
|
|
|
| Operating revenues |
|
|
283,073 |
|
|
|
103 |
|
|
|
283,176 |
|
| Profit for the year |
|
|
15,040 |
|
|
|
24 |
|
|
|
15,064 |
|
| Consolidated statement of financial position as of December 31, 2012: |
|
|
|
|
|
|
|
|
|
|
|
|
| Total assets |
|
|
545,072 |
|
|
|
219 |
|
|
|
545,291 |
|
| Total liabilities |
|
|
279,042 |
|
|
|
149 |
|
|
|
279,191 |
|
| Total equity |
|
|
266,030 |
|
|
|
70 |
|
|
|
266,100 |
|
For the period presented, all significant transactions and balances between the Group and the Seventh Acquired Company
have been eliminated on combination.
Set up of a subsidiary
On June 17, 2014, the Group set up a subsidiary, Chengdu E-store Technology Co., Ltd, which engages in software technology development.
F-10
CHINA TELECOM CORPORATION LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All Renminbi amounts in millions, except per share data and except otherwise stated)
| 1. |
PRINCIPAL ACTIVITIES, ORGANIZATION AND BASIS OF PRESENTATION (continued) |
Merger with subsidiaries
Pursuant to the resolution passed by the Company’s shareholders at an Extraordinary General Meeting held on February 25, 2008, the Company entered into merger agreements with each of the
following subsidiaries: Shanghai Telecom Company Limited, Guangdong Telecom Company Limited, Jiangsu Telecom Company Limited, Zhejiang Telecom Company Limited, Anhui Telecom Company Limited, Fujian Telecom Company Limited, Jiangxi Telecom Company
Limited, Guangxi Telecom Company Limited, Chongqing Telecom Company Limited, Sichuan Telecom Company Limited, Hubei Telecom Company Limited, Hunan Telecom Company Limited, Hainan Telecom Company Limited, Guizhou Telecom Company Limited, Yunnan
Telecom Company Limited, Shaanxi Telecom Company Limited, Gansu Telecom Company Limited, Qinghai Telecom Company Limited, Ningxia Telecom Company Limited and Xinjiang Telecom Company Limited. In addition, the Company entered into merger agreements
with Beijing Telecom on July 1, 2008. Pursuant to these merger agreements, the Company merged with these subsidiaries and the assets, liabilities and business operations of these subsidiaries were transferred to the Company’s branches in
the respective regions.
| 2. |
SIGNIFICANT ACCOUNTING POLICIES |
The
accompanying financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). These financial statements were
approved and authorized by the Board of Directors on March 18, 2015.
These financial statements are prepared on the
historical cost basis as modified by the revaluation of certain available-for-sale equity securities at fair value (Note 2(l)).
The preparation of financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that
affect the application of policies and the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting
period. The estimates and associated assumptions are based on historical experience and various other factors that management believes are reasonable under the circumstances, the results of which form the basis of making the judgments about carrying
values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from those estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized 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 IFRS that have significant effect on the financial statements and major sources of estimation uncertainty are discussed in Note 36.
F-11
CHINA TELECOM CORPORATION LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All Renminbi amounts in millions, except per share data and except otherwise stated)
| 2. |
SIGNIFICANT ACCOUNTING POLICIES (continued) |
| (b) |
Basis of consolidation |
The consolidated financial statements comprise the Company and its subsidiaries and the Group’s interests in associates.
A subsidiary is an entity controlled by the Company. When fulfilling the following conditions, the Company has control over an entity:
(a) has power over the an investee, (b) has exposure, or rights, to variable returns from its involvement with the investee, and (c) has the ability to use its power over the investee to affect the amount of the investor’s
returns.
When assessing whether the Company has power, only substantive rights (held by the Company and other parties) are
considered.
The financial results of subsidiaries are included in the consolidated financial statements from the date that
control commences until the date that control ceases, and the profit attributable to non-controlling interests is separately presented on the face of the consolidated statement of comprehensive income as an allocation of the profit or loss for the
year between the non-controlling interests and the equity holders of the Company. Non-controlling interests represent the equity in subsidiaries not attributable directly or indirectly to the Company. For each business combination, the Group
measures the non-controlling interests at the proportionate share, of the acquisition date, of fair value of the subsidiary’s net identifiable assets. Non-controlling interests at the end of the reporting period are presented in the
consolidated statement of financial position within equity and consolidated statement of changes in equity, separately from the equity of the Company’s equity holders. Changes in the Group’s interests in a subsidiary that do not result in
a loss of control are accounted for as equity transactions, whereby adjustments are made to the amounts of controlling and non-controlling interests within consolidated equity to reflect the change in relative interests, but no adjustments are made
to goodwill and no gain or loss is recognized. 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 recognized in profit or loss. Any interest
retained in that former subsidiary at the date when control is lost is recognized at fair value and this amount is regarded as the fair value on initial recognition of a financial asset or, when appropriate, the cost on initial recognition of an
investment in an associate or a joint venture.
An associate is an entity, not being a subsidiary, in which the Group
exercises significant influence, but not control, over its management. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies.
An investment in an associate is accounted for in the consolidated financial statements under the equity method and is
initially recorded at cost, adjusted for any excess of the Group’s share of the acquisition-date fair values of the investee’s net identifiable assets over the cost of the investment (if any). Thereafter, the investment is adjusted for the
Group’s equity share of the post-acquisition changes in the associate’s net assets and any impairment loss relating to the investment. When the Group ceases to have significant influence over an associate, it is accounted for as a disposal
of the entire interest in that investee, with a resulting gain or loss being recognized in profit or loss. Any interest retained in that former investee at the date when significant influence is lost is recognized at fair value and this amount is
regarded as the fair value on initial recognition of a financial asset.
All significant intercompany balances and
transactions and unrealized gains arising from intercompany transactions are eliminated on consolidation. Unrealized gains arising from transactions with associates are eliminated to the extent of the Group’s interest in the entity. Unrealized
losses are eliminated in the same way as unrealized gains, but only to the extent that there is no evidence of impairment.
F-12
CHINA TELECOM CORPORATION LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All Renminbi amounts in millions, except per share data and except otherwise stated)
| 2. |
SIGNIFICANT ACCOUNTING POLICIES (continued) |
The
accompanying consolidated financial statements are presented in Renminbi (“RMB”). The functional currency of the Company and its subsidiaries in mainland China is RMB. The functional currency of the Group’s foreign operations is the
currency of the primary economic environment in which the foreign operations operate. Transactions denominated in currencies other than the functional currency during the year are translated into the functional currency at the applicable rates of
exchange prevailing on the transaction dates. Foreign currency monetary assets and liabilities are translated into the functional currency using the applicable exchange rates at the end of the reporting period. The resulting exchange differences,
other than those capitalized as construction in progress (Note 2(i)), are recognized as income or expense in profit or loss. For the periods presented, no exchange differences were capitalized.
When preparing the Group’s consolidated financial statements, the results of operations of the Group’s foreign operations are
translated into RMB at average rate prevailing during the year. Assets and liabilities of the Group’s foreign operations are translated into RMB at the foreign exchange rates ruling at the end of the reporting period. The resulting exchange
differences are recognized in other comprehensive income and accumulated separately in equity in the exchange reserve.
| (d) |
Cash and cash equivalents |
Cash and cash equivalents comprise cash at bank and in hand and time deposits with original maturities of three months or less when
purchased. Cash equivalents are stated at cost, which approximates fair value. None of the Group’s cash and cash equivalents is restricted as to withdrawal.
| (e) |
Accounts and other receivables |
Accounts and other receivables are initially recognized at fair value and thereafter stated at amortized cost using the effective interest method, less allowance for doubtful debts (Note 2(n)) unless the
effect of discounting would be immaterial, in which case they are stated at cost less allowance for doubtful debts.
Inventories
consist of materials and supplies used in maintaining the telecommunications network and goods for resale. Inventories are valued at cost using the specific identification method or the weighted average cost method, less a provision for
obsolescence.
Inventories that are held for resale are stated at the lower of cost or net realizable value. Net realizable
value is the estimated selling price in the ordinary course of business less the estimated costs of completion, the estimated costs to make the sale and the related tax expenses.
| (g) |
Property, plant and equipment |
Property, plant and equipment are initially recorded at cost, less subsequent accumulated depreciation and impairment losses (Note 2(n)). The cost of an asset comprises its purchase price, any directly
attributable costs of bringing the asset to working condition and location for its intended use and the cost of borrowed funds used during the periods of construction. Expenditure incurred after the asset has been put into operation, including cost
of replacing part of such an item, is capitalized only when it increases the future economic benefits embodied in the item of property, plant and equipment and the cost can be measured reliably. All other expenditure is expensed as it is incurred.
Assets acquired under leasing agreements which effectively transfer substantially all the risks and benefits incidental to
ownership from the lessor to the lessee are classified as assets under finance leases. Assets held under finance leases are initially recorded at amounts equivalent to the lower of the fair value of the leased assets at the inception of the lease or
the present value of the minimum lease payments (computed using the rate of interest implicit in the lease). The net present value of the future minimum lease payments is recorded correspondingly as a finance lease obligation. Assets held under
finance leases are amortized over their estimated useful lives on a straight-line basis. As of December 31, 2013 and 2014, the carrying amount of assets held under finance leases were RMB28 and RMB18, respectively.
Gains or losses arising from retirement or disposal of property, plant and equipment are determined as the difference between the net
disposal proceeds and the carrying amount of the asset and are recognized as income or expense in the profit or loss on the date of disposal.
F-13
CHINA TELECOM CORPORATION LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All Renminbi amounts in millions, except per share data and except otherwise stated)
| 2. |
SIGNIFICANT ACCOUNTING POLICIES (continued) |
| (g) |
Property, plant and equipment (continued) |
Depreciation is provided to write off the cost of each asset over its estimated useful
life on a straight-line basis, after taking into account its estimated residual value, as follows:
|
|
|
|
|
| |
|
Depreciable lives
primarily range from |
|
| Buildings and improvements |
|
|
8 to 30 years |
|
| Telecommunications network plant and equipment |
|
|
6 to 10 years |
|
| Furniture, fixture, motor vehicles and other equipment |
|
|
5 to 10 years |
|
Where parts of an item of property, plant and equipment have different useful lives, the cost of the item
is allocated on a reasonable basis between the parts and each part is depreciated separately. Both the useful life of an asset and its residual value are reviewed annually.
Lease
prepayments represent land use rights paid. Land use rights are initially carried at cost or deemed cost and then charged to profit or loss on a straight-line basis over the respective periods of the rights which range from 20 years to 70 years.
| (i) |
Construction in progress |
Construction in progress represents buildings, telecommunications network plant and equipment and other equipment and intangible assets
under construction and pending installation, and is stated at cost less impairment losses (Note 2(n)). The cost of an item comprises direct costs of construction, capitalization of interest charge, and foreign exchange differences on related
borrowed funds to the extent that they are regarded as an adjustment to interest charges during the periods of construction. Capitalization of these costs ceases and the construction in progress is transferred to property, plant and equipment and
intangible assets when the asset is substantially ready for its intended use.
No depreciation is provided in respect of
construction in progress.
Goodwill
represents the excess of the cost over the Group’s interest in the fair value of the net assets acquired in the CDMA business (as defined in Note 10) acquisition.
Goodwill is stated at cost less any accumulated impairment losses. Goodwill is allocated to cash-generating units and is tested annually for impairment (Note 2(n)). On disposal of a cash generating unit
during the year, any attributable amount of the goodwill is included in the calculation of the profit or loss on disposal.
The
Group’s intangible assets comprise computer software and customer relationships acquired in the CDMA business acquisition (Note 11).
Computer software that is not an integral part of any tangible assets, is recorded at cost less subsequent accumulated amortization and impairment losses (Note 2(n)). Amortization of computer software is
calculated on a straight-line basis over the estimated useful lives, which mainly range from three to five years.
The
customer relationships acquired in the CDMA business acquisition are recorded at the acquisition-date fair value and amortized on a straight-line basis over the expected customer relationship of five years. By the end of the expected customer
relationship period, fully amortized customer relationships were written off.
F-14
CHINA TELECOM CORPORATION LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All Renminbi amounts in millions, except per share data and except otherwise stated)
| 2. |
SIGNIFICANT ACCOUNTING POLICIES (continued) |
Investments
in available-for-sale equity securities are carried at fair value with any change in fair value being recognized in other comprehensive income and accumulated separately in equity. For investments in available-for-sale equity securities, a
significant or prolonged decline in the fair value of that investment below its cost is considered to be objective evidence of impairment. When these investments are derecognized or impaired, the cumulative gain or loss previously recognized in
other comprehensive income is recognized in profit or loss. Investments in equity securities that do not have a quoted market price in an active market and whose fair value cannot be reliably measured are stated at cost less impairment losses (Note
2(n)).
| (m) |
Operating lease charges |
Where the Group has the use of assets held under operating leases, payments made under the leases are charged to profit or loss in equal
installments over the accounting periods covered by the lease term, except where an alternative basis is more representative of the pattern of benefits to be derived from the leased asset. Lease incentives received are recognized in profit or loss
as an integral part of the aggregate net lease payments made. Contingent rentals are charged to profit or loss in the accounting period in which they are incurred.
| (i) |
Impairment of accounts and other receivables and investments in equity securities carried at cost |
Accounts and other receivables and investments in equity securities carried at cost are reviewed at the end of each reporting period to
determine whether there is objective evidence of impairment. Objective evidence of impairment includes observable data that comes to the attention of the Group about one or more of the following loss events:
| |
• |
|
significant financial difficulty of the debtor; |
| |
• |
|
a breach of contract, such as a default or delinquency in interest or principal payments; |
| |
• |
|
it becoming probable that the debtor will enter bankruptcy or other financial reorganization; and |
| |
• |
|
significant changes in the technological, market, economic or legal environment that have an adverse effect on the debtor/ issuer.
|
The impairment loss for accounts and other receivables is measured as the difference between the
asset’s carrying amount and the estimated future cash flows, discounted at the financial asset’s original effective interest rate where the effect of discounting is material, and is recognized as an expense in profit or loss.
The impairment loss for investments in equity securities carried at cost is measured as the difference between the asset’s carrying
amount and the estimated future cash flows, discounted at the current market rate of return for a similar financial asset where the effect of discounting is material, and is recognized as an expense in profit or loss.
Impairment losses for accounts and other receivables are reversed through profit or loss if in a subsequent period the amount of the
impairment losses decreases. Impairment losses for equity securities carried at cost are not reversed.
| (ii) |
Impairment of long-lived assets |
The carrying amounts of the Group’s long-lived assets, including property, plant and equipment, intangible assets with finite useful
lives and construction in progress are reviewed periodically to determine whether there is any indication of impairment. These assets are tested for impairment whenever events or changes in circumstances indicate that their recorded carrying amounts
may not be recoverable. For goodwill, the impairment testing is performed annually at each year end.
F-15
CHINA TELECOM CORPORATION LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All Renminbi amounts in millions, except per share data and except otherwise stated)
| 2. |
SIGNIFICANT ACCOUNTING POLICIES (continued) |
| (n) |
Impairment (continued) |
| (ii) |
Impairment of long-lived assets (continued) |
The recoverable amount of an asset or cash-generating unit is the greater of its fair
value less costs of disposal and value in use. When an asset does not generate cash flows largely independent of those from other assets, the recoverable amount is determined for the smallest group of assets that generates cash inflows independently
(i.e. a cash-generating unit). In determining the value in use, expected future cash flows generated by the assets are discounted to their present value using a pre-tax discount rate that reflects current market assessments of time value of money
and the risks specific to the asset. The goodwill arising from a business combination, for the purpose of impairment testing, is allocated to cash-generating units that are expected to benefit from the synergies of the combination.
An impairment loss is recognized if the carrying amount of an asset or its cash-generating unit exceeds its estimated recoverable amount.
Impairment loss is recognized as an expense in profit or loss. Impairment loss recognized in respect of cash-generating units is allocated first to reduce the carrying amount of any goodwill allocated to the units and then to reduce the carrying
amounts of the other assets in the unit (group of units) on a pro rata basis.
The Group assesses at the end of each reporting
period whether there is any indication that an impairment loss recognized for an asset in prior years may no longer exist. An impairment loss is reversed if there has been a favorable change in the estimates used to determine the recoverable amount.
A subsequent increase in the recoverable amount of an asset, when the circumstances and events that led to the write-down cease to exist, is recognized as an income in profit or loss. The reversal is reduced by the amount that would have been
recognized as depreciation and amortization had the write-down not occurred. An impairment loss in respect of goodwill is not reversed. For the years presented, no reversal of impairment loss was recognized in profit or loss.
The
revenue recognition methods of the Group are as follows:
| |
(i) |
Revenue derived from local, domestic long distance and international, Hong Kong, Macau and Taiwan long distance usage are recognized as the services are provided.
|
| |
(ii) |
Fees received for wireline installation charges for periods prior to January 1, 2012 are deferred and recognized over the expected customer relationship period.
The direct costs associated with the installation of wireline services are deferred to the extent of the installation fees and amortized over the same expected customer relationship period. From 2012 onwards, since the amounts of fees received and
the associated direct costs incurred are insignificant, the fees and associated direct costs are not deferred, and are recognized in profit or loss when received or incurred. |
| |
(iii) |
Monthly service fees are recognized in the month during which the services are provided to customers. |
| |
(iv) |
Revenue from sale of prepaid calling cards are recognized as the cards are used by customers. |
| |
(v) |
Revenue derived from value-added services is recognized when the services are provided to customers. |
Revenue from value-added services in which no third party service providers are involved, such as caller display and Internet data center
services, are presented on a gross basis. Revenues from all other value-added services are presented on either gross or net basis based on the assessment of each individual arrangement with third parties. The following factors indicate that the
Group is acting as principal in the arrangements with third parties:
| |
i) |
The Group is responsible for providing the applications or services desired by customers, and takes responsibility for fulfillment of ordered applications or services,
including the acceptability of the applications or services ordered or purchased by customers; |
| |
ii) |
The Group takes title of the inventory of the applications before they are ordered by customers; |
| |
iii) |
The Group has risks and rewards of ownership, such as risks of loss for collection from customers after applications or services are provided to customers;
|
F-16
CHINA TELECOM CORPORATION LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All Renminbi amounts in millions, except per share data and except otherwise stated)
| 2. |
SIGNIFICANT ACCOUNTING POLICIES (continued) |
| (o) |
Revenue recognition (continued) |
| |
iv) |
The Group establishes selling prices with customers; |
| |
v) |
The Group can modify the applications or perform part of the services; |
| |
vi) |
The Group has discretion in selecting suppliers used to fulfill an order; and |
| |
vii) |
The Group determines the nature, type, characteristics, or specifications of the applications or services. |
If majority of the indicators of risks and responsibilities exist in the arrangements with third parties, the Group is acting as a
principal and have exposure to the significant risks and rewards associated with the rendering of services or the sale of applications, and revenues for these services are recognized on gross basis. If majority of the indicators of risks and
responsibilities do not exist in the arrangements with third parties, the Group is acting as an agent, and revenues for these services are recognized on a net basis.
| |
(vi) |
Revenue from the provision of Internet and telecommunications network resource services are recognized when the services are provided to customers.
|
| |
(vii) |
Interconnection fees from domestic and foreign telecommunications operators are recognized when the services are rendered as measured by the minutes of traffic
processed. |
| |
(viii) |
Lease income from operating leases is recognized over the term of the lease. |
| |
(ix) |
Revenue derived from integrated information application services are recognized when the services are provided to customers. |
| |
(x) |
Sale of equipment is recognized on delivery of the equipment to customers and when the significant risks and rewards of ownership and title have been transferred to the
customers. Revenue from repair and maintenance of equipment is recognized when the service is provided to customers. |
The Group offers promotional packages, which involve the bundled sales of terminal equipment (mobile handsets) and telecommunications services, to customers. The total contract consideration of a
promotional package is allocated to revenues generated from the provision of telecommunications services and the sales of terminal equipment using the residual method. Under the residual method, the total contract consideration of the arrangement is
allocated as follows: The undelivered component, which is the provision of telecommunications services, is measured at fair value, and the remainder of the contract consideration is allocated to the delivered component, which is the sales of
terminal equipment. The Group recognizes revenues generated from the delivery and sales of the terminal equipment when the title of the terminal equipment is passed to the customers whereas revenues generated from the provision of telecommunications
services are recognized based upon the actual usage of such services. During each of the years in the three-year period ended December 31 2014, a substantial portion of the total contract consideration is allocated to the provision of
telecommunications services since the terminal equipment is typically provided free of charge or at a nominal amount to promote the Group’s core business of the provision of telecommunications services, and the fair value of the
telecommunication services approximates the total contract consideration.
| (p) |
Advertising and promotion expense |
The costs for advertising and promoting the Group’s telecommunications services are expensed as incurred. Advertising and promotion expense, which is included in selling, general and administrative
expenses, was RMB34,905, RMB36,490 and RMB26,122 for the years ended December 31, 2012, 2013 and 2014 respectively, among which, the costs of terminal equipment offered as part of a promotional package to our customers for free or at a nominal
amount to promote the Group’s telecommunication service amounted to RMB21,754, RMB22,795 and RMB15,340 for the years ended December 31, 2012, 2013 and 2014 respectively.
F-17
CHINA TELECOM CORPORATION LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All Renminbi amounts in millions, except per share data and except otherwise stated)
| 2. |
SIGNIFICANT ACCOUNTING POLICIES (continued) |
Net
finance costs comprise interest income on bank deposits, interest costs on borrowings, and foreign exchange gains and losses. Interest income from bank deposits is recognized as it accrues using the effective interest method.
Interest costs incurred in connection with borrowings are calculated using the effective interest method and are expensed as incurred,
except to the extent that they are capitalized as being directly attributable to the construction of an asset which necessarily takes a substantial period of time to get ready for its intended use.
| (r) |
Research and development expense |
Research and development expenditure is expensed as incurred. For the years ended December 31, 2012, 2013 and 2014, research and development expense was RMB608, RMB630 and RMB607 respectively.
The
Group’s contributions to defined contribution retirement plans administered by the PRC government and defined contribution retirement plans administered by independent external parties are recognized in profit or loss as incurred. Further
information is set out in Note 33.
Compensation expense in respect of the stock appreciation rights granted is accrued as a
charge to the profit or loss over the applicable vesting period based on the fair value of the stock appreciation rights. The liability of the accrued compensation expense is re-measured to fair value at the end of each reporting period with the
effect of changes in the fair value of the liability charged or credited to profit or loss. Further details of the Group’s stock appreciation rights scheme are set out in Note 34.
| (t) |
Interest-bearing borrowings |
Interest-bearing borrowings are recognized initially at fair value less attributable transaction costs. Subsequent to initial recognition, interest-bearing borrowings are stated at amortized cost with any
difference between the amount initially recognized and the redemption value recognized in profit or loss over the period of the borrowings, together with any interest, using the effective interest method.
| (u) |
Accounts and other payables |
Accounts and other payables are initially recognized at fair value and thereafter stated at amortized cost unless the effect of discounting would be immaterial, in which case they are stated at cost.
| (v) |
Provisions and contingent liabilities |
A provision is recognized in the consolidated statement of financial position when the Group has a legal or constructive obligation as a result of a past event, and it is probable that an outflow of
economic benefits will be required to settle the obligation. Where the time value of money is material, provisions are stated at the present value of the expenditure expected to settle the obligation.
Where it is not probable that an outflow of economic benefits will be required, or the amount cannot be estimated reliably, the
obligation is disclosed as a contingent liability, unless the probability of outflow of economic benefits is remote. Possible obligations, whose existence will only be confirmed by the occurrence or non-occurrence of one or more future events, are
also disclosed as contingent liabilities unless the probability of outflow of economic benefits is remote.
F-18
CHINA TELECOM CORPORATION LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All Renminbi amounts in millions, except per share data and except otherwise stated)
| 2. |
SIGNIFICANT ACCOUNTING POLICIES (continued) |
Income tax
for the year comprises current tax and movement in deferred tax assets and liabilities. Income tax is recognized in profit or loss except to the extent that it relates to items recognized in other comprehensive income, or directly in equity, in
which case the relevant amounts of tax are recognized in other comprehensive income or directly in equity respectively. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at
the end of the reporting period, and any adjustment to tax payable in respect of previous years. Deferred tax is provided using the balance sheet liability method, providing for all temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and their tax bases. The amount of deferred tax is calculated on the basis of the enacted or substantively enacted tax rates that are expected to apply in the period when the asset is realized or the
liability is settled. The effect on deferred tax of any changes in tax rates is charged or credited to profit or loss, except for the effect of a change in tax rate on the carrying amount of deferred tax assets and liabilities which were previously
recognized in other comprehensive income, in such case the effect of a change in tax rate is also recognized in other comprehensive income.
A deferred tax asset is recognized only to the extent that it is probable that future taxable income will be available against which the asset can be utilized. Deferred tax assets are reduced to the
extent that it is no longer probable that the related tax benefit will be realized
Deferred tax liabilities are generally
recognized for all taxable temporary differences. Deferred tax liabilities are recognized for taxable temporary differences associated with investments in subsidiaries and associates, except where the Group is able to control the reversal of the
temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.
Dividends are
recognized as a liability in the period in which they are declared.
| |
(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) |
The entity is an associate or joint venture of the Group (or an associate or joint venture of a member of a group of which the Group is a member); or the Group is an
associate or joint venture of the entity (or an associate or joint venture of a member of a group of which the entity is a member); |
| |
(iii) |
The entity and the Group are joint ventures of the same third party; |
| |
(iv) |
The entity is a joint venture of a third entity and the Group is an associate of the third entity; or the Group is a joint venture of a third entity and the entity is
an associate of the third entity; |
| |
(v) |
The entity is controlled or jointly controlled by a person identified in (a); |
| |
(vi) |
A person identified in (a)(i) has significant influence over the entity or is a member of the key management personnel of the entity (or of a parent of the entity).
|
Close members of the family of a person are those family members who may be expected to influence, or be
influenced by, that person in their dealings with the entity.
F-19
CHINA TELECOM CORPORATION LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All Renminbi amounts in millions, except per share data and except otherwise stated)
| 2. |
SIGNIFICANT ACCOUNTING POLICIES (continued) |
An
operating segment is a component of an entity that engages in business activities from which revenues are earned and expenses are incurred, and is identified on the basis of the internal financial reports that are regularly reviewed by the chief
operating decision maker in order to allocate resource and assess performance of the segment. For the periods presented, management has determined that the Group has one operating segment as the Group is only engaged in the integrated
telecommunications business. The Group’s assets located outside mainland China and operating revenues derived from activities outside mainland China are less than 10% of the Group’s assets and operating revenues, respectively. No
geographical area information has been presented as such amount is immaterial. No single external customer accounts for 10 percent or more of the Group’s operating revenues.
| 3. |
APPLICATION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS |
The IASB has issued a number of new and revised IFRSs that are effective for accounting period beginning on or after January 1, 2014. The Group has applied the following new interpretation and
amendments to IFRSs that are effective for the current year:
| |
• |
|
Amendments to IAS 32, “Offsetting Financial Assets and Financial Liabilities” |
| |
• |
|
Amendments to IAS 36, “Recoverable Amount Disclosures for Non-Financial Assets” |
The Group has not yet applied any new and revised standard or interpretation that is not yet effective for the current accounting period (Note 37).
Amendments to IAS 32, “Offsetting Financial Assets and Financial Liabilities”
The amendments to IAS 32 clarify the requirements relating to the offset of financial assets and financial liabilities. Specifically, the
amendments clarify the criterion that an entity “currently has a legally enforceable right to set off the recognized amounts” and “intends either to settle on a net basis, or to realize the assests and settle the liability
simultaneously”. The application of the amendments has no significant impact on the Group’s consolidated financial statements.
Amendments to IAS 36, “Recoverable Amount Disclosures for Non-Financial Assets”
The amendments to IAS 36 remove the requirement to disclose the recoverable amount of a cash generating unit (CGU) to which goodwill or other intangible assets with indefinite useful lives had been
allocated when there has been no impairment or reversal of impairment of the related CGU. Furthermore, the amendments introduce additional disclosure requirements applicable to when the recoverable amount of an asset or a CGU is measured at fair
value less costs of disposal. These new disclosures include the fair value hierarchy, key assumptions and valuation techniques used which are in line with the disclosure required by IFRS 13 Fair Value Measurements. The application of the amendments
has no significant impact on the Group’s consolidated financial statements.
IFRIC 21, “Levies”
The interpretation defines a levy as payment to a government for which an entity receives no specific goods or services. A
liability is recognized when the obligating event occurs. The obligating event is the activity that triggers payment of the levy. This is typically specified in the legislation that imposes the levy. The application of the interpretation has no
significant impact on the Group’s consolidated financial statements.
F-20
CHINA TELECOM CORPORATION LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All Renminbi amounts in millions, except per share data and except otherwise stated)
| 4. |
CASH AND CASH EQUIVALENTS |
|
|
|
|
|
|
|
|
|
| |
|
December 31, |
|
| |
|
2013 |
|
|
2014 |
|
| |
|
RMB |
|
|
RMB |
|
| Cash at bank and in hand |
|
|
14,639 |
|
|
|
18,660 |
|
| Time deposits with original maturity within three months |
|
|
1,431 |
|
|
|
1,776 |
|
|
|
|
|
|
|
|
|
|
|
|
|
16,070 |
|
|
|
20,436 |
|
|
|
|
|
|
|
|
|
|
| 5. |
ACCOUNTS RECEIVABLE, NET |
Accounts receivable, net, are analyzed as follows:
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
December 31, |
|
| |
|
Note |
|
2013 |
|
|
2014 |
|
| |
|
|
|
RMB |
|
|
RMB |
|
| Accounts receivable |
|
|
|
|
|
|
|
|
|
|
| Third parties |
|
|
|
|
21,293 |
|
|
|
22,853 |
|
| China Telecom Group |
|
(i) |
|
|
391 |
|
|
|
329 |
|
| Other telecommunications operators in the PRC |
|
|
|
|
536 |
|
|
|
858 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,220 |
|
|
|
24,040 |
|
| Less: Allowance for doubtful debts |
|
|
|
|
(2,198 |
) |
|
|
(2,478 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,022 |
|
|
|
21,562 |
|
|
|
|
|
|
|
|
|
|
|
|
Note:
| (i) |
China Telecommunications Corporation together with its subsidiaries other than the Group are referred to as “China Telecom Group”. |
The following table summarizes the changes in allowance for doubtful debts for each of the years in the three-year period ended
December 31, 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year ended December 31, |
|
| |
|
2012 |
|
|
2013 |
|
|
2014 |
|
| |
|
RMB |
|
|
RMB |
|
|
RMB |
|
| At beginning of year |
|
|
1,942 |
|
|
|
2,024 |
|
|
|
2,198 |
|
| Impairment losses for doubtful debts |
|
|
1,624 |
|
|
|
1,740 |
|
|
|
2,075 |
|
| Accounts receivable written off |
|
|
(1,542 |
) |
|
|
(1,566 |
) |
|
|
(1,795 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| At end of year |
|
|
2,024 |
|
|
|
2,198 |
|
|
|
2,478 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ageing analysis of accounts receivable from telephone and Internet subscribers is as follows:
|
|
|
|
|
|
|
|
|
| |
|
December 31, |
|
| |
|
2013 |
|
|
2014 |
|
| |
|
RMB |
|
|
RMB |
|
| Current, within 1 month |
|
|
11,887 |
|
|
|
11,273 |
|
| 1 to 3 months |
|
|
2,438 |
|
|
|
2,600 |
|
| 4 to 12 months |
|
|
1,784 |
|
|
|
1,865 |
|
| More than 12 months |
|
|
488 |
|
|
|
660 |
|
|
|
|
|
|
|
|
|
|
|
|
|
16,597 |
|
|
|
16,398 |
|
| Less: Allowance for doubtful debts |
|
|
(2,122 |
) |
|
|
(2,355 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
14,475 |
|
|
|
14,043 |
|
|
|
|
|
|
|
|
|
|
F-21
CHINA TELECOM CORPORATION LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All Renminbi amounts in millions, except per share data and except otherwise stated)
| 5. |
ACCOUNTS RECEIVABLE, NET (continued) |
Ageing analysis of accounts receivable from other telecommunications operators and
enterprise customers is as follows:
|
|
|
|
|
|
|
|
|
| |
|
December 31, |
|
| |
|
2013 |
|
|
2014 |
|
| |
|
RMB |
|
|
RMB |
|
| Current, within 1 month |
|
|
2,436 |
|
|
|
3,012 |
|
| 1 to 3 months |
|
|
1,169 |
|
|
|
1,679 |
|
| 4 to 12 months |
|
|
1,302 |
|
|
|
1,924 |
|
| More than 12 months |
|
|
716 |
|
|
|
1,027 |
|
|
|
|
|
|
|
|
|
|
|
|
|
5,623 |
|
|
|
7,642 |
|
| Less: Allowance for doubtful debts |
|
|
(76 |
) |
|
|
(123 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
5,547 |
|
|
|
7,519 |
|
|
|
|
|
|
|
|
|
|
Ageing analysis of accounts receivable that are not impaired is as follows:
|
|
|
|
|
|
|
|
|
| |
|
December 31, |
|
| |
|
2013 |
|
|
2014 |
|
| |
|
RMB |
|
|
RMB |
|
| Not past due |
|
|
17,839 |
|
|
|
19,408 |
|
|
|
|
|
|
|
|
|
|
| Less than 1 month past due |
|
|
1,206 |
|
|
|
1,356 |
|
| 1 to 3 months past due |
|
|
977 |
|
|
|
798 |
|
|
|
|
|
|
|
|
|
|
| Amounts past due |
|
|
2,183 |
|
|
|
2,154 |
|
|
|
|
|
|
|
|
|
|
|
|
|
20,022 |
|
|
|
21,562 |
|
|
|
|
|
|
|
|
|
|
Amounts due from the provision of telecommunications services to customers are generally due within 30
days from the date of billing.
Inventories
represent:
|
|
|
|
|
|
|
|
|
| |
|
December 31, |
|
| |
|
2013 |
|
|
2014 |
|
| |
|
RMB |
|
|
RMB |
|
| Materials and supplies |
|
|
905 |
|
|
|
789 |
|
| Goods for resale |
|
|
5,618 |
|
|
|
3,436 |
|
|
|
|
|
|
|
|
|
|
|
|
|
6,523 |
|
|
|
4,225 |
|
|
|
|
|
|
|
|
|
|
| 7. |
PREPAYMENTS AND OTHER CURRENT ASSETS |
Prepayments and other current assets represent:
|
|
|
|
|
|
|
|
|
| |
|
December 31, |
|
| |
|
2013 |
|
|
2014 |
|
| |
|
RMB |
|
|
RMB |
|
| Amounts due from China Telecom Group |
|
|
1,037 |
|
|
|
818 |
|
| Amounts due from other telecommunications operators in the PRC |
|
|
472 |
|
|
|
414 |
|
| Prepayments in connection with construction work and equipment purchases |
|
|
1,213 |
|
|
|
1,895 |
|
| Prepaid expenses and deposits |
|
|
2,418 |
|
|
|
3,398 |
|
| Value-added tax recoverable |
|
|
359 |
|
|
|
1,072 |
|
| Other receivables |
|
|
2,070 |
|
|
|
2,984 |
|
|
|
|
|
|
|
|
|
|
|
|
|
7,569 |
|
|
|
10,581 |
|
|
|
|
|
|
|
|
|
|
F-22
CHINA TELECOM CORPORATION LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All Renminbi amounts in millions, except per share data and except otherwise stated)
| 8. |
PROPERTY, PLANT AND EQUIPMENT, NET |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Buildings and
improvements |
|
|
Telecommunications
network plant
and equipment |
|
|
Furniture, fixture,
motor
vehicles
and other
equipment |
|
|
Total |
|
| |
|
RMB |
|
|
RMB |
|
|
RMB |
|
|
RMB |
|
| Cost/Deemed cost: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance at January 1, 2013, |
|
|
92,521 |
|
|
|
791,159 |
|
|
|
26,909 |
|
|
|
910,589 |
|
| Additions |
|
|
560 |
|
|
|
1,367 |
|
|
|
955 |
|
|
|
2,882 |
|
| Transferred from construction in progress |
|
|
2,926 |
|
|
|
58,424 |
|
|
|
1,494 |
|
|
|
62,844 |
|
| Disposals |
|
|
(657 |
) |
|
|
(14,915 |
) |
|
|
(1,126 |
) |
|
|
(16,698 |
) |
| Reclassification |
|
|
61 |
|
|
|
(175 |
) |
|
|
114 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance at December 31, 2013 |
|
|
95,411 |
|
|
|
835,860 |
|
|
|
28,346 |
|
|
|
959,617 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Additions |
|
|
726 |
|
|
|
1,254 |
|
|
|
703 |
|
|
|
2,683 |
|
| Transferred from construction in progress |
|
|
2,661 |
|
|
|
57,880 |
|
|
|
1,497 |
|
|
|
62,038 |
|
| Disposals |
|
|
(642 |
) |
|
|
(74,688 |
) |
|
|
(1,670 |
) |
|
|
(77,000 |
) |
| Reclassification |
|
|
(2 |
) |
|
|
67 |
|
|
|
(65 |
) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance at December 31, 2014 |
|
|
98,154 |
|
|
|
820,373 |
|
|
|
28,811 |
|
|
|
947,338 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated depreciation and impairment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance at January 1, 2013, |
|
|
(36,248 |
) |
|
|
(481,932 |
) |
|
|
(18,628 |
) |
|
|
(536,808 |
) |
| Depreciation charge for the year |
|
|
(4,776 |
) |
|
|
(56,794 |
) |
|
|
(2,294 |
) |
|
|
(63,864 |
) |
| Written back on disposal |
|
|
540 |
|
|
|
13,819 |
|
|
|
1,037 |
|
|
|
15,396 |
|
| Reclassification |
|
|
(21 |
) |
|
|
44 |
|
|
|
(23 |
) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance at December 31, 2013 |
|
|
(40,505 |
) |
|
|
(524,863 |
) |
|
|
(19,908 |
) |
|
|
(585,276 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Depreciation charge for the year |
|
|
(4,735 |
) |
|
|
(55,687 |
) |
|
|
(2,266 |
) |
|
|
(62,688 |
) |
| Written back on disposal |
|
|
592 |
|
|
|
71,351 |
|
|
|
1,559 |
|
|
|
73,502 |
|
| Reclassification |
|
|
2 |
|
|
|
(7 |
) |
|
|
5 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance at December 31, 2014 |
|
|
(44,646 |
) |
|
|
(509,206 |
) |
|
|
(20,610 |
) |
|
|
(574,462 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net book value at December 31, 2014 |
|
|
53,508 |
|
|
|
311,167 |
|
|
|
8,201 |
|
|
|
372,876 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net book value at December 31, 2013 |
|
|
54,906 |
|
|
|
310,997 |
|
|
|
8,438 |
|
|
|
374,341 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 9. |
CONSTRUCTION IN PROGRESS |
|
|
|
|
|
| |
|
RMB |
|
| Balance at January 1, 2013, |
|
|
32,500 |
|
| Additions |
|
|
77,364 |
|
| Transferred to property, plant and equipment |
|
|
(62,844 |
) |
| Transferred to intangible assets |
|
|
(2,863 |
) |
|
|
|
|
|
| Balance at December 31, 2013 |
|
|
44,157 |
|
| Additions |
|
|
74,585 |
|
| Transferred to property, plant and equipment |
|
|
(62,038 |
) |
| Transferred to intangible assets |
|
|
(3,523 |
) |
|
|
|
|
|
| Balance at December 31, 2014 |
|
|
53,181 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, |
|
| |
|
2013 |
|
|
2014 |
|
| |
|
RMB |
|
|
RMB |
|
| Cost: |
|
|
|
|
|
|
|
|
| Goodwill arising from acquisition of CDMA business |
|
|
29,917 |
|
|
|
29,917 |
|
|
|
|
|
|
|
|
|
|
F-23
CHINA TELECOM CORPORATION LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All Renminbi amounts in millions, except per share data and except otherwise stated)
On October 1, 2008, the Group acquired the CDMA mobile communication business and
related assets and liabilities, which also included the entire equity interests of China Unicom (Macau) Company Limited (currently known as China Telecom (Macau) Company Limited) and 99.5% equity interests of Unicom Huasheng Telecommunications
Technology Company Limited (currently known as Tianyi Telecom Terminals Company Limited) (collectively the “CDMA business”) from China Unicom Limited and China Unicom Corporation Limited (collectively “China Unicom”). The
purchase price of the business combination was RMB43,800, which was fully settled as of December 31, 2010. In addition, pursuant to the acquisition agreement, the Group acquired the customer-related assets and assumed the customer-related
liabilities of CDMA business for a net settlement amount of RMB3,471 due from China Unicom. This amount was subsequently settled by China Unicom in 2009. The business combination was accounted for using the purchase method.
The goodwill recognized in the business combination is attributable to the skills and technical talent of the acquired business’s
workforce, and the synergies expected to be achieved from integrating and combining the CDMA mobile communication business into the Group’s telecommunications business.
For the purpose of goodwill impairment testing, the goodwill arising from the acquisition of CDMA business was allocated to the appropriate cash-generating unit of the Group, which is the Group’s
telecommunications business. The recoverable amount of the Group’s telecommunications business is estimated based on the value in use model, which considers the Group’s financial budgets covering a five-year period and a pre-tax discount
rate of 10.3% (2013: 10.6%). Cash flows beyond the five-year period are projected to perpetuity at annual growth rate of 1.5%. Management performed impairment tests for the goodwill and determined that goodwill was not impaired. Management believes
any reasonably possible change in the key assumptions on which the recoverable amount is based would not cause its recoverable amount to be less than carrying amount.
Key assumptions used for the value in use calculation model are the number of subscribers, average revenue per subscriber and gross margin. Management determined the number of subscribers, average revenue
per subscriber and gross margin based on historical trends and financial information and operational data.
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Computer
software |
|
|
Customer
relationships |
|
|
Total |
|
| |
|
RMB |
|
|
RMB |
|
|
RMB |
|
| Cost: |
|
|
|
|
|
|
|
|
|
|
|
|
| Balance at January 1, 2013 |
|
|
14,988 |
|
|
|
11,238 |
|
|
|
26,226 |
|
| Additions |
|
|
461 |
|
|
|
— |
|
|
|
461 |
|
| Transferred from construction in progress |
|
|
2,863 |
|
|
|
— |
|
|
|
2,863 |
|
| Disposals/written-off |
|
|
(221 |
) |
|
|
(11,238 |
) |
|
|
(11,459 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance at December 31, 2013 |
|
|
18,091 |
|
|
|
— |
|
|
|
18,091 |
|
| Additions |
|
|
378 |
|
|
|
— |
|
|
|
378 |
|
| Transferred from construction in progress |
|
|
3,523 |
|
|
|
— |
|
|
|
3,523 |
|
| Disposals |
|
|
(239 |
) |
|
|
— |
|
|
|
(239 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance at December 31, 2014 |
|
|
21,753 |
|
|
|
— |
|
|
|
21,753 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated amortization and impairment: |
|
|
|
|
|
|
|
|
|
|
|
|
| Balance at January 1, 2013 |
|
|
(7,458 |
) |
|
|
(9,554 |
) |
|
|
(17,012 |
) |
| Amortization charge for the year |
|
|
(2,787 |
) |
|
|
(1,684 |
) |
|
|
(4,471 |
) |
| Written back on disposal/written-off |
|
|
199 |
|
|
|
11,238 |
|
|
|
11,437 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance at December 31, 2013 |
|
|
(10,046 |
) |
|
|
— |
|
|
|
(10,046 |
) |
| Amortization charge for the year |
|
|
(2,923 |
) |
|
|
— |
|
|
|
(2,923 |
) |
| Written back on disposal |
|
|
200 |
|
|
|
— |
|
|
|
200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance at December 31, 2014 |
|
|
(12,769 |
) |
|
|
— |
|
|
|
(12,769 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net book value at December 31, 2014 |
|
|
8,984 |
|
|
|
— |
|
|
|
8,984 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net book value at December 31, 2013 |
|
|
8,045 |
|
|
|
— |
|
|
|
8,045 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-24
CHINA TELECOM CORPORATION LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All Renminbi amounts in millions, except per share data and except otherwise stated)
| 12. |
INTERESTS IN ASSOCIATES |
|
|
|
|
|
|
|
|
|
| |
|
December 31, |
|
| |
|
2013 |
|
|
2014 |
|
| |
|
RMB |
|
|
RMB |
|
| Unlisted equity investments, at cost |
|
|
229 |
|
|
|
3,219 |
|
| Share of post-acquisition changes in net assets |
|
|
877 |
|
|
|
887 |
|
|
|
|
|
|
|
|
|
|
|
|
|
1,106 |
|
|
|
4,106 |
|
|
|
|
|
|
|
|
|
|
The Group’s interests in associates are accounted for under the equity method and are individually
and in aggregate not material to the Group’s financial position or results of operations for all periods presented. Details of the Group’s principal associates are as follows:
|
|
|
|
|
|
|
| Name of company |
|
Attributable
equity
interest |
|
|
Principal activities |
| China Tower Corporation Limited |
|
|
29.9 |
% |
|
Construction, maintenance and operation of telecommunications towers as well as ancillary facilities |
| Shanghai Information Investment Incorporation |
|
|
24.0 |
% |
|
Provision of information technology consultancy services |
The above associates are established in the PRC and are not traded on any stock exchange.
Summarized financial information of the Group’s principal associates and reconciled to the carrying amounts in the Group’s consolidated
financial statements are disclosed below:
|
|
|
| |
|
China Tower
Corporation
Limited |
| |
|
2014 |
| |
|
RMB |
| Current assets |
|
9,676 |
| Non-current assets |
|
454 |
| Current liabilities |
|
244 |
| Non-current liabilities |
|
— |
|
|
| Operating revenues |
|
— |
| Loss for the year |
|
(114) |
| Other comprehensive income for the year |
|
— |
| Total comprehensive income for the year |
|
(114) |
|
|
| Dividend received from the associate |
|
— |
|
|
| Reconciled to the Group’s interests in the associate |
|
|
| Net assets of the associate |
|
9,886 |
| Non-controlling interests of the associate |
|
— |
| Group’s effective interest in the associate |
|
29.9% |
| Group’s share of net assets of the associate |
|
2,956 |
|
|
|
| Carrying amount of the associate in the consolidated financial statements of the Group |
|
2,956 |
|
|
|
China Tower Corporation Limited was set up in July 2014, so no comparative figures are presented.
F-25
CHINA TELECOM CORPORATION LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All Renminbi amounts in millions, except per share data and except otherwise stated)
| 12. |
INTERESTS IN ASSOCIATES (continued) |
|
|
|
|
|
|
|
|
|
| |
|
Shanghai Information
Investment Incorporation |
|
| |
|
2013 |
|
|
2014 |
|
| |
|
RMB |
|
|
RMB |
|
| Current assets |
|
|
5,721 |
|
|
|
6,309 |
|
| Non-current assets |
|
|
7,683 |
|
|
|
7,773 |
|
| Current liabilities |
|
|
4,795 |
|
|
|
4,887 |
|
| Non-current liabilities |
|
|
3,265 |
|
|
|
3,680 |
|
|
|
|
| Operating revenues |
|
|
3,772 |
|
|
|
3,740 |
|
| Profit for the year |
|
|
267 |
|
|
|
236 |
|
| Other comprehensive income for the year |
|
|
(1 |
) |
|
|
— |
|
| Total comprehensive income for the year |
|
|
266 |
|
|
|
236 |
|
|
|
|
| Dividend received from the associate |
|
|
8 |
|
|
|
10 |
|
|
|
|
| Reconciled to the Group’s interests in the associate |
|
|
|
|
|
|
|
|
| Net assets of the associate |
|
|
5,344 |
|
|
|
5,515 |
|
| Non-controlling interests of the associate |
|
|
(1,733 |
) |
|
|
(1,738 |
) |
| Group’s effective interest in the associate |
|
|
24.0 |
% |
|
|
24.0 |
% |
| Group’s share of net assets of the associate |
|
|
867 |
|
|
|
906 |
|
|
|
|
|
|
|
|
|
|
| Carrying amount of the associate in the consolidated financial statements of the Group |
|
|
867 |
|
|
|
906 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, |
|
| |
|
2013 |
|
|
2014 |
|
| |
|
RMB |
|
|
RMB |
|
| Available-for-sale equity securities |
|
|
999 |
|
|
|
945 |
|
| Other unlisted equity investments |
|
|
27 |
|
|
|
27 |
|
|
|
|
|
|
|
|
|
|
|
|
|
1,026 |
|
|
|
972 |
|
|
|
|
|
|
|
|
|
|
Other unlisted equity investments mainly represent the Group’s various interests in PRC private
enterprises which are mainly engaged in the provision of information technology services and Internet contents.
| 14. |
DEFERRED TAX ASSETS AND LIABILITIES |
The components of deferred tax assets and deferred tax liabilities recognized in the consolidated statement of financial position and the movements are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Assets |
|
|
Liabilities |
|
|
Net Balance |
|
| |
|
2014 |
|
|
2013 |
|
|
2014 |
|
|
2013 |
|
|
2014 |
|
|
2013 |
|
| |
|
RMB |
|
|
RMB |
|
|
RMB |
|
|
RMB |
|
|
RMB |
|
|
RMB |
|
| Provisions and impairment losses, primarily for doubtful debts |
|
|
1,156 |
|
|
|
1,071 |
|
|
|
— |
|
|
|
— |
|
|
|
1,156 |
|
|
|
1,071 |
|
| Property, plant and equipment |
|
|
1,788 |
|
|
|
1,431 |
|
|
|
(773 |
) |
|
|
(184 |
) |
|
|
1,015 |
|
|
|
1,247 |
|
| Deferred revenues and installation costs |
|
|
288 |
|
|
|
425 |
|
|
|
(189 |
) |
|
|
(270 |
) |
|
|
99 |
|
|
|
155 |
|
|
|
|
|
|
|
|
| Available-for-sale equity securities |
|
|
— |
|
|
|
— |
|
|
|
(163 |
) |
|
|
(177 |
) |
|
|
(163 |
) |
|
|
(177 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Deferred tax assets/(liabilities) |
|
|
3,232 |
|
|
|
2,927 |
|
|
|
(1,125 |
) |
|
|
(631 |
) |
|
|
2,107 |
|
|
|
2,296 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-26
CHINA TELECOM CORPORATION LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All Renminbi amounts in millions, except per share data and except otherwise stated)
| 14. |
DEFERRED TAX ASSETS AND LIABILITIES (continued) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Balance at
January 1,
2012 |
|
|
Recognized
in
consolidated
statement of
comprehensive
income |
|
|
Disposal
of a
subsidiary |
|
|
Balance
at
December 31,
2012 |
|
| |
|
RMB |
|
|
RMB |
|
|
RMB |
|
|
RMB |
|
| Provisions and impairment losses, primarily for doubtful debts |
|
|
1,011 |
|
|
|
19 |
|
|
|
(2 |
) |
|
|
1,028 |
|
| Property, plant and equipment |
|
|
720 |
|
|
|
293 |
|
|
|
— |
|
|
|
1,013 |
|
| Deferred revenues and installation costs |
|
|
352 |
|
|
|
(115 |
) |
|
|
— |
|
|
|
237 |
|
| Available-for-sale equity securities |
|
|
(130 |
) |
|
|
57 |
|
|
|
— |
|
|
|
(73 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net deferred tax assets |
|
|
1,953 |
|
|
|
254 |
|
|
|
(2 |
) |
|
|
2,205 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Balance at
January 1,
2013 |
|
|
Recognized
in
consolidated
statement of
comprehensive
income |
|
|
Disposal
of a
subsidiary |
|
|
Balance
at
December 31,
2013 |
|
| |
|
RMB |
|
|
RMB |
|
|
RMB |
|
|
RMB |
|
| Provisions and impairment losses, primarily for doubtful debts |
|
|
1,028 |
|
|
|
43 |
|
|
|
— |
|
|
|
1,071 |
|
| Property, plant and equipment |
|
|
1,013 |
|
|
|
238 |
|
|
|
(4 |
) |
|
|
1,247 |
|
| Deferred revenues and installation costs |
|
|
237 |
|
|
|
(82 |
) |
|
|
— |
|
|
|
155 |
|
| Available-for-sale equity securities |
|
|
(73 |
) |
|
|
(104 |
) |
|
|
— |
|
|
|
(177 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net deferred tax assets |
|
|
2,205 |
|
|
|
95 |
|
|
|
(4 |
) |
|
|
2,296 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Balance at
January 1,
2014 |
|
|
Recognized
in
consolidated
statement of
comprehensive
income |
|
|
Balance
at
December 31,
2014 |
|
| |
|
RMB |
|
|
RMB |
|
|
RMB |
|
| Provisions and impairment losses, primarily for doubtful debts |
|
|
1,071 |
|
|
|
85 |
|
|
|
1,156 |
|
| Property, plant and equipment |
|
|
1,247 |
|
|
|
(232 |
) |
|
|
1,015 |
|
| Deferred revenues and installation costs |
|
|
155 |
|
|
|
(56 |
) |
|
|
99 |
|
| Available-for-sale equity securities |
|
|
(177 |
) |
|
|
14 |
|
|
|
(163 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net deferred tax assets |
|
|
2,296 |
|
|
|
(189 |
) |
|
|
2,107 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 15. |
SHORT-TERM AND LONG-TERM DEBT AND PAYABLE |
Short-term debt comprises:
|
|
|
|
|
|
|
|
|
| |
|
December 31, |
|
| |
|
2013 |
|
|
2014 |
|
| |
|
RMB |
|
|
RMB |
|
| Loans from banks – unsecured |
|
|
5,443 |
|
|
|
5,399 |
|
| Super short-term commercial papers – unsecured |
|
|
— |
|
|
|
18,997 |
|
| Other loans – unsecured |
|
|
182 |
|
|
|
182 |
|
| Loans from China Telecom Group – unsecured |
|
|
22,062 |
|
|
|
19,398 |
|
|
|
|
|
|
|
|
|
|
| Total short-term debt |
|
|
27,687 |
|
|
|
43,976 |
|
|
|
|
|
|
|
|
|
|
The weighted average interest rate of the Group’s total short-term debt as of December 31, 2013
and 2014 was 4.7% per annum and 5.1% per annum, respectively. As of December 31, 2014, the loans from banks and other loans bear interest at rates ranging from 4.5% to 11.0% per annum and are repayable within one year; super
short-term commercial papers amounting to RMB7 billion bear interest at a fixed rate of 5.30% per annum and are repayable in March 2015 while two batches of RMB6 billion super short-term commercial papers bear interest at a fixed rate of
5.55% per annum and were repaid in January 2015; the loans from China Telecom Group bear interest at rate of 4.5% per annum and are repayable within one year.
F-27
CHINA TELECOM CORPORATION LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All Renminbi amounts in millions, except per share data and except otherwise stated)
| 15. |
SHORT-TERM AND LONG-TERM DEBT AND PAYABLE (continued) |
Long-term debt and payable comprises:
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
December 31, |
|
| |
|
Interest rates and final maturity |
|
2013 |
|
|
2014 |
|
| |
|
|
|
RMB |
|
|
RMB |
|
| Bank loans – unsecured |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Renminbi denominated |
|
Interest rates ranging from 3.60% to 7.04% per annum with maturities through 2020 |
|
|
10 |
|
|
|
10 |
|
|
|
|
|
| US Dollars denominated |
|
Interest rates ranging from 1.00% to 8.30% per annum with maturities through 2060 |
|
|
534 |
|
|
|
491 |
|
|
|
|
|
| Euro denominated |
|
Interest rate of 2.30% per annum with maturities through 2032 |
|
|
428 |
|
|
|
349 |
|
|
|
|
|
| Other currencies denominated |
|
|
|
|
20 |
|
|
|
15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
992 |
|
|
|
865 |
|
| Other loans – unsecured |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Renminbi denominated |
|
|
|
|
1 |
|
|
|
1 |
|
|
|
|
|
| Medium-term notes-unsecured (Note (i)) |
|
|
|
|
19,986 |
|
|
|
— |
|
|
|
|
|
| Amount due to China Telecommunications Corporation
- unsecured |
|
|
|
|
|
|
|
|
|
|
| Deferred consideration of
Mobile Network Acquisition
– Renminbi denominated
(Note (ii)) |
|
|
|
|
61,710 |
|
|
|
61,710 |
|
|
|
|
|
| Others |
|
|
|
|
— |
|
|
|
424 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total long-term debt and payable |
|
|
|
|
82,689 |
|
|
|
63,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Less: Current portion |
|
|
|
|
(20,072 |
) |
|
|
(82 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Non-current portion |
|
|
|
|
62,617 |
|
|
|
62,918 |
|
|
|
|
|
|
|
|
|
|
| (i) |
On December 28, 2009, the Group issued two batches of five-year, 10 billion RMB denominated medium-term notes with annual interest rate of 4.61% per annum.
These medium-term notes were repaid by the Company on December 29, 2014. |
| (ii) |
Represents the remaining balance of the deferred consideration payable to China Telecommunications Corporation in respect of the acquisition of certain CDMA network
assets and associated liabilities, which were held by China Telecommunications Corporation through network branches located in 30 provinces, municipalities and autonomous regions in the PRC on December 31, 2012 (hereinafter, referred to as the
“Mobile Network Acquisition”). The Group may, from time to time, pay all or part of the deferred payment at any time after the completion date without penalty until the fifth anniversary of the completion date of the Mobile Network
Acquisition. The Group pays interest on the deferred payment to China Telecommunications Corporation at half-yearly intervals and the interest accrues from the day following the completion of the Mobile Network Acquisition. The interest rate is set
at a 5 basis points premium to the yield of the 5-year super AAA rated Medium Term Notes most recently published by the National Association of Financial Market Institutional Investors before the completion date of the Mobile Network Acquisition and
will be adjusted once a year in accordance with the last yield of the 5-year super AAA rated Medium Term Notes most recently published by the National Association of Financial Market Institutional Investors at the end of each year. The interest
rates for 2014 and 2015 are 6.25% and 5.11%, respectively. |
If the amount is not paid when due, the Group is
required to pay the liquidated damages on such amount at a daily rate of 0.03% of the amount in arrears from the day following the applicable due date to the date that such amount has actually been paid in full.
F-28
CHINA TELECOM CORPORATION LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All Renminbi amounts in millions, except per share data and except otherwise stated)
| 15. |
SHORT-TERM AND LONG-TERM DEBT AND PAYABLE (continued) |
The aggregate maturities of the Group’s long-term debt and payable subsequent to
December 31, 2014 are as follows:
|
|
|
|
|
| |
|
RMB |
|
| 2015 |
|
|
82 |
|
| 2016 |
|
|
82 |
|
| 2017 |
|
|
61,792 |
|
| 2018 |
|
|
71 |
|
| 2019 |
|
|
71 |
|
| Thereafter |
|
|
902 |
|
|
|
|
|
|
|
|
|
63,000 |
|
|
|
|
|
|
The Group’s short-term and long-term debt and payable do not contain any financial covenants. As of
December 31, 2013 and 2014, the Group has unutilized committed credit facilities amounting to RMB157,694 and RMB130,488 respectively.
Accounts payable are analyzed as follows:
|
|
|
|
|
|
|
|
|
| |
|
December 31, |
|
|
December 31, |
|
| |
|
2013 |
|
|
2014 |
|
| |
|
RMB |
|
|
RMB |
|
| Third parties |
|
|
66,115 |
|
|
|
71,934 |
|
| China Telecom Group |
|
|
13,905 |
|
|
|
15,667 |
|
| Other telecommunications operators in the PRC |
|
|
1,112 |
|
|
|
857 |
|
|
|
|
|
|
|
|
|
|
|
|
|
81,132 |
|
|
|
88,458 |
|
|
|
|
|
|
|
|
|
|
Amounts due to China Telecom Group are payable in accordance with contractual terms which are similar to
those terms offered by third parties.
| 17. |
ACCRUED EXPENSES AND OTHER PAYABLES |
Accrued expenses and other payables represent:
|
|
|
|
|
|
|
|
|
| |
|
December 31, |
|
|
December 31, |
|
| |
|
2013 |
|
|
2014 |
|
| |
|
RMB |
|
|
RMB |
|
| Amounts due to China Telecom Group |
|
|
1,690 |
|
|
|
1,043 |
|
| Amounts due to other telecommunications operators in the PRC |
|
|
59 |
|
|
|
72 |
|
| Accrued expenses |
|
|
14,774 |
|
|
|
17,242 |
|
| Customer deposits and receipts in advance |
|
|
53,063 |
|
|
|
54,014 |
|
| Dividend payable |
|
|
47 |
|
|
|
71 |
|
|
|
|
|
|
|
|
|
|
|
|
|
69,633 |
|
|
|
72,442 |
|
|
|
|
|
|
|
|
|
|
F-29
CHINA TELECOM CORPORATION LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All Renminbi amounts in millions, except per share data and except otherwise stated)
Deferred revenues represent the unearned portion of installation fees for wireline services received from customers and the unused portion
of calling cards.
|
|
|
|
|
|
|
|
|
| |
|
December 31, |
|
| |
|
2013 |
|
|
2014 |
|
| |
|
RMB |
|
|
RMB |
|
| Balance at beginning of year |
|
|
3,445 |
|
|
|
2,431 |
|
| Additions for the year |
|
|
|
|
|
|
|
|
| — calling cards |
|
|
484 |
|
|
|
547 |
|
|
|
|
|
|
|
|
|
|
|
|
|
484 |
|
|
|
547 |
|
|
|
|
|
|
|
|
|
|
| Reductions for the year |
|
|
|
|
|
|
|
|
| — amortization of installation fees |
|
|
(860 |
) |
|
|
(586 |
) |
| — usage of calling cards |
|
|
(638 |
) |
|
|
(534 |
) |
|
|
|
|
|
|
|
|
|
| Balance at end of year |
|
|
2,431 |
|
|
|
1,858 |
|
|
|
|
|
|
|
|
|
|
| Representing: |
|
|
|
|
|
|
|
|
| — current portion |
|
|
1,202 |
|
|
|
1,060 |
|
| — non-current portion |
|
|
1,229 |
|
|
|
798 |
|
|
|
|
|
|
|
|
|
|
|
|
|
2,431 |
|
|
|
1,858 |
|
|
|
|
|
|
|
|
|
|
Included in other assets are primarily capitalized direct costs associated with the installation of
wireline services. As of December 31, 2013 and 2014, the unamortized portion of these costs was RMB1,172 and RMB818, respectively.
|
|
|
|
|
|
|
|
|
| |
|
December 31, |
|
| |
|
2013 |
|
|
2014 |
|
| |
|
RMB |
|
|
RMB |
|
| Registered, issued and fully paid |
|
|
|
|
|
|
|
|
| 67,054,958,321 ordinary domestic shares of RMB1.00 each |
|
|
67,055 |
|
|
|
67,055 |
|
| 13,877,410,000 overseas listed H shares of RMB1.00 each |
|
|
13,877 |
|
|
|
13,877 |
|
|
|
|
|
|
|
|
|
|
|
|
|
80,932 |
|
|
|
80,932 |
|
|
|
|
|
|
|
|
|
|
All ordinary domestic shares and H shares rank pari passu in all material respects.
F-30
CHINA TELECOM CORPORATION LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All Renminbi amounts in millions, except per share data and except otherwise stated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Capital
reserve |
|
|
Share
premium |
|
|
Statutory
reserves |
|
|
Other
reserves |
|
|
Exchange
reserve |
|
|
Retained
earnings |
|
|
Total |
|
| |
|
RMB |
|
|
RMB |
|
|
RMB |
|
|
RMB |
|
|
RMB |
|
|
RMB |
|
|
RMB |
|
| |
|
(Note (i)) |
|
|
|
|
|
(Note (iii)) |
|
|
(Note (ii)) |
|
|
|
|
|
|
|
|
|
|
| Balance as of January 1, 2012 |
|
|
17,000 |
|
|
|
10,746 |
|
|
|
64,316 |
|
|
|
283 |
|
|
|
(863 |
) |
|
|
83,753 |
|
|
|
175,235 |
|
| Acquisition of the Sixth Acquired Business (Note 1) |
|
|
(48 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(48 |
) |
| Contribution from non-controlling interests |
|
|
249 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
249 |
|
| Others |
|
|
(380 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(380 |
) |
| Dividends (Note 27) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(5,625 |
) |
|
|
(5,625 |
) |
| Appropriations (Note (iii)) |
|
|
— |
|
|
|
— |
|
|
|
1,413 |
|
|
|
— |
|
|
|
— |
|
|
|
(1,413 |
) |
|
|
— |
|
| Total comprehensive income for the year |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(171 |
) |
|
|
(2 |
) |
|
|
14,949 |
|
|
|
14,776 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance as of December 31, 2012 |
|
|
16,821 |
|
|
|
10,746 |
|
|
|
65,729 |
|
|
|
112 |
|
|
|
(865 |
) |
|
|
91,664 |
|
|
|
184,207 |
|
| Acquisition of the Seventh Acquired Company (Note 1) |
|
|
(278 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(278 |
) |
| Disposal of a subsidiary |
|
|
380 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
11 |
|
|
|
391 |
|
| Contribution from non-controlling interests |
|
|
141 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
141 |
|
| Dividends (Note 27) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(5,433 |
) |
|
|
(5,433 |
) |
| Appropriations (Note (iii)) |
|
|
— |
|
|
|
— |
|
|
|
1,663 |
|
|
|
— |
|
|
|
— |
|
|
|
(1,663 |
) |
|
|
— |
|
| Total comprehensive income for the year |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
315 |
|
|
|
(79 |
) |
|
|
17,545 |
|
|
|
17,781 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance as of December 31, 2013 |
|
|
17,064 |
|
|
|
10,746 |
|
|
|
67,392 |
|
|
|
427 |
|
|
|
(944 |
) |
|
|
102,124 |
|
|
|
196,809 |
|
| Dividends (Note 27) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(6,198 |
) |
|
|
(6,198 |
) |
| Appropriations (Note (iii)) |
|
|
— |
|
|
|
— |
|
|
|
1,680 |
|
|
|
— |
|
|
|
— |
|
|
|
(1,680 |
) |
|
|
— |
|
| Total comprehensive income for the year |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(43 |
) |
|
|
3 |
|
|
|
17,680 |
|
|
|
17,640 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance as of December 31, 2014 |
|
|
17,064 |
|
|
|
10,746 |
|
|
|
69,072 |
|
|
|
384 |
|
|
|
(941 |
) |
|
|
111,926 |
|
|
|
208,251 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note:
| (i) |
Capital reserve of the Group represents the sum of (a) the difference between the carrying amount of the Company’s net assets and the par value of the
Company’s shares issued upon its formation; and (b) the difference between the consideration paid by the Group for the entities acquired, other than the Fifth Acquired Group, from China Telecommunications Corporation as described in Note
1, which were accounted for as equity transactions as disclosed in Note 1 to the financial statements, and the historical carrying amount of the net assets of these acquired entities. |
The difference between the consideration paid by the Group and the historical carrying amount of the net assets of the Fifth Acquisition
was recorded as a deduction of retained earnings.
| (ii) |
Other reserves of the Group represent primarily the change in the fair value of available-for-sale equity securities and the deferred tax liabilities recognized due to
the change in fair value of available-for-sale equity securities. |
| (iii) |
The statutory reserves consist of statutory surplus reserve and discretionary surplus reserve. |
According to the Company’s Articles of Association, the Company is required to transfer 10% of its net profit, as determined in
accordance with the lower of the amount determined under the PRC Accounting Standards for Business Enterprises and the amount determined under IFRS, to the statutory surplus reserve until such reserve balance reaches 50% of the registered capital.
The transfer to this reserve must be made before distribution of any dividend to shareholders. For the year ended December 31, 2014, the Company transferred RMB1,680, being 10% of the year’s net profit determined in accordance with IFRS,
to this reserve. For the year ended December 31, 2013, the Company transferred RMB1,663, being 10% of the year’s net profit determined in accordance with the IFRS.
The Company did not transfer any discretionary surplus reserve for the years ended December 31, 2014 and 2013.
The statutory and discretionary surplus reserves are non-distributable other than in liquidation and can be used to make good of previous years’ losses, if any, and may be utilized for business
expansion or converted into share capital by issuing new shares to existing shareholders in proportion to their shareholdings or by increasing the par value of the shares currently held by them, provided that the remaining reserve balance after such
issue is not less than 25% of the registered capital.
F-31
CHINA TELECOM CORPORATION LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All Renminbi amounts in millions, except per share data and except otherwise stated)
Note: (continued)
| (iv) |
According to the Company’s Articles of Association, the amount of retained earnings available for distribution to shareholders of the Company is the lower of the
company the amount determined in accordance with the PRC Accounting Standards for Business Enterprises and the amount determined in accordance with IFRS. As of December 31, 2013 and 2014, the amount of retained earnings available for
distribution was RMB84,341 and RMB93,224 respectively, being the amount determined in accordance with IFRS. Final dividend of approximately RMB6,085 in respect of the financial year 2014 proposed after the end of the reporting period has not been
recognized as a liability at the end of the reporting period (Note 27). |
Operating revenues represent revenues from the provision of telecommunications services. The components of the Group’s operating
revenues are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
Year ended December 31, |
|
| |
|
Note |
|
|
2012 |
|
|
2013 |
|
|
2014 |
|
| |
|
|
|
|
RMB |
|
|
RMB |
|
|
RMB |
|
| Wireline voice |
|
|
(i |
) |
|
|
43,369 |
|
|
|
38,633 |
|
|
|
33,587 |
|
| Mobile voice |
|
|
(ii |
) |
|
|
49,166 |
|
|
|
58,217 |
|
|
|
54,673 |
|
| Internet |
|
|
(iii |
) |
|
|
87,662 |
|
|
|
99,394 |
|
|
|
112,431 |
|
| Value-added services |
|
|
(iv |
) |
|
|
31,137 |
|
|
|
36,230 |
|
|
|
38,419 |
|
| Integrated information application services |
|
|
(v |
) |
|
|
23,181 |
|
|
|
25,233 |
|
|
|
26,939 |
|
| Telecommunications network resource services and lease of network equipment |
|
|
(vi |
) |
|
|
15,737 |
|
|
|
17,586 |
|
|
|
17,332 |
|
| Others |
|
|
(vii |
) |
|
|
32,924 |
|
|
|
46,291 |
|
|
|
41,013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
283,176 |
|
|
|
321,584 |
|
|
|
324,394 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Before June 1, 2014, most
of the Group’s operating revenues were subject to business tax levied at rates of 3%, and relevant business tax was set off against operating revenues. Pursuant to the Notice on Covering Telecommunications Industries under the VAT Reform
(Caishui [2014] No.43) jointly issued by the Ministry of Finance and the State Administration of Taxation, from June 1, 2014, the pilot programme of replacing business tax with VAT is extended to cover the telecommunications industry. The VAT
rate for basic telecommunications services (including voice communication, lease or sale of network resources) is 11% while the VAT rate for value-added telecommunications services (including Internet access services, short and multimedia messaging
services, transmission and application service of electronic data and information) is 6%, and VAT is excluded from operating revenues. With effect from June 1, 2014, the Group is no longer required to pay business tax of 3% on
telecommunications services.
| (i) |
Represent the aggregate amount of monthly fees, local usage fees, domestic long distance usage fees, international, Hong Kong, Macau and Taiwan long distance usage
fees, interconnections fees and installation fees charged to customers for the provision of wireline telephony services. |
| (ii) |
Represent the aggregate amount of monthly fees, local usage fees, domestic long distance usage fees, international, Hong Kong, Macau and Taiwan long distance usage fees
and interconnections fees charged to customers for the provision of mobile telephony services. |
| (iii) |
Represent amounts charged to customers for the provision of Internet access services. |
| (iv) |
Represent the aggregate amount of fees charged to customers for the provision of value-added services, which comprise primarily caller ID services, short messaging
services, Color Ring Tone, Internet data center and Virtual Private Network services and etc. |
| (v) |
Represent primarily the aggregate amount of fees charged to customers for Best Tone information services and IT services and applications. |
| (vi) |
Represent primarily the aggregate amount of fees charged to customers for the provision of telecommunications network resource services and lease income from other
domestic telecommunications operators and enterprise customers for the usage of the Group’s telecommunications networks and equipment. |
| (vii) |
Represent primarily revenue from sale, and repair and maintenance of equipment as well as the resale of mobile services (MVNO). |
F-32
CHINA TELECOM CORPORATION LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All Renminbi amounts in millions, except per share data and except otherwise stated)
| 22. |
NETWORK OPERATIONS AND SUPPORT EXPENSES |
Included in the Group’s network operations and support expenses are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year ended December 31, |
|
| |
|
2012 |
|
|
2013 |
|
|
2014 |
|
| |
|
RMB |
|
|
RMB |
|
|
RMB |
|
| Operating and maintenance |
|
|
24,840 |
|
|
|
29,963 |
|
|
|
38,159 |
|
| Utility |
|
|
7,823 |
|
|
|
11,404 |
|
|
|
11,644 |
|
| Property rental and management fee |
|
|
5,141 |
|
|
|
7,284 |
|
|
|
9,224 |
|
| CDMA network capacity lease fee |
|
|
25,546 |
|
|
|
— |
|
|
|
— |
|
| Others |
|
|
2,629 |
|
|
|
4,451 |
|
|
|
9,624 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
65,979 |
|
|
|
53,102 |
|
|
|
68,651 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personnel expenses are attributable to the following functions:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year ended December 31, |
|
| |
|
2012 |
|
|
2013 |
|
|
2014 |
|
| |
|
RMB |
|
|
RMB |
|
|
RMB |
|
| Network operations and support |
|
|
28,392 |
|
|
|
30,551 |
|
|
|
32,855 |
|
| Selling, general and administrative |
|
|
14,465 |
|
|
|
16,172 |
|
|
|
17,798 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42,857 |
|
|
|
46,723 |
|
|
|
50,653 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 24. |
OTHER OPERATING EXPENSES |
Other operating expenses consist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
Year ended December 31, |
|
| |
|
Note |
|
|
2012 |
|
|
2013 |
|
|
2014 |
|
| |
|
|
|
|
RMB |
|
|
RMB |
|
|
RMB |
|
| Interconnection charges |
|
|
(i |
) |
|
|
14,129 |
|
|
|
15,916 |
|
|
|
12,483 |
|
| Cost of goods sold |
|
|
(ii |
) |
|
|
26,162 |
|
|
|
38,764 |
|
|
|
33,836 |
|
| Donations |
|
|
|
|
|
|
12 |
|
|
|
11 |
|
|
|
23 |
|
| Others |
|
|
(iii |
) |
|
|
64 |
|
|
|
69 |
|
|
|
1,176 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40,367 |
|
|
|
54,760 |
|
|
|
47,518 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note:
| (i) |
Interconnection charges represent amounts incurred for the use of other domestic and foreign telecommunications operators’ networks for delivery of voice and data
traffic that originate from the Group’s telecommunications networks. |
| (ii) |
Cost of goods sold primarily represents cost of telecommunications equipment sold. |
| (iii) |
Others mainly include other surcharges related to VAT. |
F-33
CHINA TELECOM CORPORATION LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All Renminbi amounts in millions, except per share data and except otherwise stated)
Net
finance costs comprise:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year ended December 31, |
|
| |
|
2012 |
|
|
2013 |
|
|
2014 |
|
| |
|
RMB |
|
|
RMB |
|
|
RMB |
|
| Interest expense incurred |
|
|
2,479 |
|
|
|
5,840 |
|
|
|
5,958 |
|
| Less: Interest expense capitalized* |
|
|
(325 |
) |
|
|
(329 |
) |
|
|
(308 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net interest expense |
|
|
2,154 |
|
|
|
5,511 |
|
|
|
5,650 |
|
| Interest income |
|
|
(591 |
) |
|
|
(361 |
) |
|
|
(304 |
) |
| Foreign exchange losses |
|
|
47 |
|
|
|
61 |
|
|
|
21 |
|
| Foreign exchange gains |
|
|
(48 |
) |
|
|
(58 |
) |
|
|
(76 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,562 |
|
|
|
5,153 |
|
|
|
5,291 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| * Interest expense was capitalized in construction in progress at the following rates per annum |
|
|
1.3% -6.2% |
|
|
|
4.5%-5.8% |
|
|
|
4.5% -6.0% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax in
the profit or loss comprises:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year ended December 31, |
|
| |
|
2012 |
|
|
2013 |
|
|
2014 |
|
| |
|
RMB |
|
|
RMB |
|
|
RMB |
|
| Provision for PRC income tax |
|
|
4,900 |
|
|
|
5,590 |
|
|
|
5,237 |
|
| Provision for income tax of other jurisdictions |
|
|
50 |
|
|
|
31 |
|
|
|
58 |
|
| Deferred taxation |
|
|
(197 |
) |
|
|
(199 |
) |
|
|
203 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,753 |
|
|
|
5,422 |
|
|
|
5,498 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A reconciliation of the expected tax expenses with the actual tax expense is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
Year ended December 31, |
|
| |
|
Note |
|
|
2012 |
|
|
2013 |
|
|
2014 |
|
| |
|
|
|
|
RMB |
|
|
RMB |
|
|
RMB |
|
| Earnings before income tax |
|
|
|
|
|
|
19,817 |
|
|
|
23,088 |
|
|
|
23,257 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Expected income tax expense at statutory tax rate of 25% |
|
|
(i |
) |
|
|
4,954 |
|
|
|
5,772 |
|
|
|
5,814 |
|
| Differential tax rate on PRC subsidiaries’ and branches’ income |
|
|
(i |
) |
|
|
(269 |
) |
|
|
(216 |
) |
|
|
(248 |
) |
| Differential tax rate on other subsidiaries’ income |
|
|
(ii |
) |
|
|
(23 |
) |
|
|
(31 |
) |
|
|
(31 |
) |
| Non-deductible expenses |
|
|
(iii |
) |
|
|
539 |
|
|
|
428 |
|
|
|
347 |
|
| Non-taxable income |
|
|
(iv |
) |
|
|
(162 |
) |
|
|
(120 |
) |
|
|
(243 |
) |
| Effect of change in tax rate |
|
|
(v |
) |
|
|
155 |
|
|
|
4 |
|
|
|
— |
|
| Others |
|
|
(vi |
) |
|
|
(441 |
) |
|
|
(415 |
) |
|
|
(141 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Actual income tax expense |
|
|
|
|
|
|
4,753 |
|
|
|
5,422 |
|
|
|
5,498 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note:
| (i) |
Except for certain subsidiaries and branches which are mainly taxed at preferential rate of 15%, the provision for mainland China income tax is based on a statutory
rate of 25% of the assessable income of the Company, its mainland China subsidiaries and branches as determined in accordance with the relevant income tax rules and regulations of the PRC. |
| (ii) |
Income tax provisions of the Company’s subsidiaries in Hong Kong and Macau Special Administrative Regions of the PRC, and in other countries are based on the
subsidiaries’ assessable income and income tax rates applicable in the respective tax jurisdictions which range from 12% to 35%. |
F-34
CHINA TELECOM CORPORATION LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All Renminbi amounts in millions, except per share data and except otherwise stated)
| 26. |
INCOME TAX (continued) |
Note: (continued)
| (iii) |
Amounts represent miscellaneous expenses in excess of statutory deductible limits for tax purposes. |
| (iv) |
Amounts represent miscellaneous income which are not subject to income tax. |
| (v) |
Certain branches with operations in the western region of the PRC gradually obtained approvals from tax authorities to adopt the preferential income tax rate of 15%.
Accordingly, deferred tax assets that were recovered and deferred tax liabilities were settled after obtaining the approvals from tax authorities were adjusted to reflect the change in tax rate. The overall effect of change in tax rate was charged
to the consolidated statement of comprehensive income. |
| (vi) |
Amounts primarily represent tax deduction on prior year research and development expenses and losses on disposal of property, plant and equipment approved by tax
authorities during the year. |
Pursuant to a
resolution passed at the Board of Directors’ meeting on March 18, 2015, a final dividend of equivalent to HK$0.095 per share totaling approximately RMB6,085 for the year ended December 31, 2014 was proposed for shareholders’
approval at the Annual General Meeting. The dividend has not been provided for in the consolidated financial statements for the year ended December 31, 2014.
Pursuant to the shareholders’ approval at the Annual General Meeting held on May 29, 2014, a final dividend of RMB0.076583 (equivalent to HK$0.095) per share totaling RMB6,198 in respect of the
year ended December 31, 2013 was declared and paid by July 18, 2014.
Pursuant to the shareholders’ approval at
the Annual General Meeting held on May 29, 2013, a final dividend of RMB0.067135 (equivalent to HK$0.085) per share totaling RMB5,433 in respect of the year ended December 31, 2012 was declared and paid by July 19, 2013.
| 28. |
BASIC EARNINGS PER SHARE |
The calculation of basic earnings per share for the years ended December 31, 2012, 2013 and 2014 is based on the profit attributable
to equity holders of the Company of RMB14,949, RMB17,545 and RMB17,680 respectively, divided by 80,932,368,321 shares.
The
amount of diluted earnings per share is not presented as there were no dilutive potential ordinary shares in existence for the periods presented.
| 29. |
COMMITMENTS AND CONTINGENCIES |
Operating lease commitments
The Group leases business premises and equipment through non-cancelable operating leases. These operating leases do not contain provisions for contingent lease rentals. None of the rental agreements
contain escalation provisions that may require higher future rental payments nor impose restrictions on dividends, additional debt and/or further leasing.
As of December 31, 2014, the Group’s future minimum lease payments under non-cancellable operating leases are as follows:
|
|
|
|
|
| |
|
RMB |
|
| 2015 |
|
|
2,635 |
|
| 2016 |
|
|
1,921 |
|
| 2017 |
|
|
1,389 |
|
| 2018 |
|
|
1,021 |
|
| 2019 |
|
|
678 |
|
| Thereafter |
|
|
1,495 |
|
|
|
|
|
|
| Total minimum lease payments |
|
|
9,139 |
|
|
|
|
|
|
Total rental expense in respect of operating leases charged to profit or loss for the years ended
December 31, 2012, 2013 and 2014 were RMB29,434, RMB6,057 and RMB7,779, respectively.
F-35
CHINA TELECOM CORPORATION LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All Renminbi amounts in millions, except per share data and except otherwise stated)
| 29. |
COMMITMENTS AND CONTINGENCIES (continued) |
Capital commitments
As of December 31, 2014, the Group had capital commitments as follows:
|
|
|
|
|
| |
|
RMB |
|
| Contracted for but not provided |
|
|
|
|
| - property |
|
|
422 |
|
| - telecommunications network plant and equipment |
|
|
6,743 |
|
|
|
|
|
|
|
|
|
7,165 |
|
|
|
|
|
|
| Authorized but not contracted for |
|
|
|
|
| - property |
|
|
466 |
|
| - telecommunications network plant and equipment |
|
|
6,361 |
|
|
|
|
|
|
|
|
|
6,827 |
|
|
|
|
|
|
Contingent liabilities
| (a) |
The Group was advised by their PRC lawyers that, no material contingent liabilities were assumed by the Group. |
| (b) |
As of December 31, 2013 and 2014, the Group did not have contingent liabilities in respect of guarantees given to banks in respect of banking facilities granted to
other parties, or other forms of contingent liabilities. |
Legal contingencies
The Group is a defendant in certain lawsuits as well as the named party in other proceedings arising in the ordinary course of business.
Management has assessed the likelihood of an unfavorable outcome of such contingencies, lawsuits or other proceedings and based on such assessment, believes that any resulting liabilities will not have a material adverse effect on the financial
position, operating results, or cash flows of the Group.
| 30. |
FINANCIAL INSTRUMENTS |
Financial assets of the Group include cash and cash equivalents, bank deposits, investments, accounts receivable, advances and other
receivables. Financial liabilities of the Group include short-term and long-term debts and payable, accounts payable, accrued expenses and other payables. The Group does not hold nor issue financial instruments for trading purposes.
(a) Fair Value Measurements
Based on IFRS 13, Fair Value Measurement, the fair value of each financial instrument is categorized in its entirety based on the lowest level of input that is significant to that fair value measurement.
The levels are defined as follows:
| |
• |
|
Level 1: fair values measured using quoted prices (unadjusted) in active markets for identical financial instruments |
| |
• |
|
Level 2: fair values measured using quoted prices in active markets for similar financial instruments, or using valuation techniques in which all
significant inputs are directly or indirectly based on observable market data |
| |
• |
|
Level 3: fair values measured using valuation techniques in which any significant input is not based on observable market data
|
The fair values of the Group’s financial instruments (other than long-term debt and payable and
available-for-sale equity investment securities) approximate their carrying amounts due to the short-term maturity of these instruments.
The Group’s available-for-sale equity investment securities are categorized as level 1 financial instruments. The fair value of the Group’s available-for-sale equity investment securities, which
amounted to RMB999 and RMB945 as of December 31, 2013 and 2014 respectively was based on quoted market price on a PRC stock exchange. The Group’s long-term investments, other than the available-for-sale equity investment securities, are
unlisted equity interests for which no quoted market prices exist in the PRC and because their fair values cannot be measured reliably, so their fair values were not disclosed.
F-36
CHINA TELECOM CORPORATION LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All Renminbi amounts in millions, except per share data and except otherwise stated)
| 30. |
FINANCIAL INSTRUMENTS (continued) |
(a) Fair Value Measurements (continued)
The fair values of long-term indebtedness are estimated by discounting future cash flows
using current market interest rates offered to the Group for debt with substantially the same characteristics and maturities. The fair value measurement of long-term indebtedness is categorized as level 2. The interest rates used by the Group in
estimating the fair values of long-term debt and payable, having considered the foreign currency denomination of the debt, ranged from 1.0% to 6.6% (2013: 1.0% to 6.8%). As of December 31, 2013 and 2014, the carrying amounts and fair values of
the Group’s long-term debt and payable were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
December 31, 2013 |
|
|
December 31, 2014 |
|
| |
|
Carrying
amount |
|
|
Fair value |
|
|
Carrying
amount |
|
|
Fair value |
|
| |
|
RMB |
|
|
RMB |
|
|
RMB |
|
|
RMB |
|
| Long-term debt and payable |
|
|
82,689 |
|
|
|
82,002 |
|
|
|
63,000 |
|
|
|
63,043 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the year, there were no transfers among instruments in level 1, level 2 or level 3.
(b) Risks
The Group’s financial instruments are exposed to three main types of risks, namely, credit risk, liquidity risk and market risk (which comprises of interest rate risk and foreign currency exchange
rate risk). The Group’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the Group’s financial performance. Risk management is carried out under
policies approved by the Board of Directors. The Board provides principles for overall risk management, as well as policies covering specific areas, such as liquidity risk, credit risk, and market risk. The Board regularly reviews these policies and
authorizes changes if necessary based on operating and market conditions and other relevant risks. The following summarizes the qualitative and quantitative disclosures for each of the three main types of risks:
(i) Credit risk
Credit risk refers to the risk that a counterparty will be unable to pay amounts in full when due. For the Group, this arises mainly from
deposits it maintains at financial institutions and credit it provides to customers for the provision of telecommunications services. To limit exposure to credit risk relating to deposits, the Group primarily places cash deposits only with large
state-owned financial institutions in the PRC with acceptable credit ratings. For accounts receivable, management performs ongoing credit evaluations of its customers’ financial condition and generally does not require collateral on accounts
receivable. Furthermore, the Group has a diversified base of customers with no single customer contributing more than 10% of revenues for the periods presented. Further details of the Group’s credit policy and quantitative disclosures in
respect of the Group’s exposure on credit risk for accounts receivable are set out in Note 5.
(ii) Liquidity risk
Liquidity risk refers to the risk that funds will not be available to meet liabilities as they fall due, and results from
timing and amount mismatches of cash inflow and outflow. The Group manages liquidity risk by maintaining sufficient cash balances and adequate amount of committed banking facilities to meet its funding needs, including working capital, principal and
interest payments on debts, dividend payments, capital expenditures and new investments for a set minimum period of between 3 to 6 months.
F-37
CHINA TELECOM CORPORATION LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All Renminbi amounts in millions, except per share data and except otherwise stated)
| 30. |
FINANCIAL INSTRUMENTS (continued) |
(b) Risks (continued)
(ii) Liquidity risk (continued)
The following table sets out the remaining contractual maturities at the end of the
reporting period of the Group’s financial liabilities, which are based on contractual undiscounted cash flows (including interest payments computed using contractual rates or, if floating, based on prevailing rates at the end of the reporting
period) and the earliest date the Group would be required to repay:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2013 |
|
| |
|
Carrying amount |
|
|
Total contractual undiscounted
cash flow |
|
|
Within 1 year or on demand |
|
|
More than 1
year but less than 2 years |
|
|
More than 2
years but less than 5 years |
|
|
More than 5 years |
|
| |
|
RMB |
|
|
RMB |
|
|
RMB |
|
|
RMB |
|
|
RMB |
|
|
RMB |
|
| Short-term debt |
|
|
27,687 |
|
|
|
28,279 |
|
|
|
28,279 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| Long-term debt and payable |
|
|
82,689 |
|
|
|
99,135 |
|
|
|
24,874 |
|
|
|
3,951 |
|
|
|
69,690 |
|
|
|
620 |
|
| Accounts payable |
|
|
81,132 |
|
|
|
81,132 |
|
|
|
81,132 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| Accrued expenses and other payables |
|
|
69,633 |
|
|
|
69,633 |
|
|
|
69,633 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| Finance lease obligations |
|
|
1 |
|
|
|
1 |
|
|
|
1 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
261,142 |
|
|
|
278,180 |
|
|
|
203,919 |
|
|
|
3,951 |
|
|
|
69,690 |
|
|
|
620 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2014 |
|
| |
|
Carrying amount |
|
|
Total contractual undiscounted
cash flow |
|
|
Within 1 year or on demand |
|
|
More than 1
year but less than 2 years |
|
|
More than 2
years but less than 5 years |
|
|
More than 5 years |
|
| |
|
RMB |
|
|
RMB |
|
|
RMB |
|
|
RMB |
|
|
RMB |
|
|
RMB |
|
| Short-term debt |
|
|
43,976 |
|
|
|
44,133 |
|
|
|
44,133 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| Long-term debt and payable |
|
|
63,000 |
|
|
|
72,517 |
|
|
|
3,243 |
|
|
|
3,243 |
|
|
|
65,107 |
|
|
|
924 |
|
| Accounts payable |
|
|
88,458 |
|
|
|
88,458 |
|
|
|
88,458 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| Accrued expenses and other payables |
|
|
72,442 |
|
|
|
72,442 |
|
|
|
72,442 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
267,876 |
|
|
|
277,550 |
|
|
|
208,276 |
|
|
|
3,243 |
|
|
|
65,107 |
|
|
|
924 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management believes that the Group’s current cash on hand, expected cash flows from operations and
available credit facilities from banks (Note 15) will be sufficient to meet the Group’s working capital requirements and repay its borrowings and obligations when they become due.
(iii) Interest rate risk
The Group’s interest rate risk exposure arises primarily from its short-term debts and long-term debts and payable. Debts carrying interest at variable rates and at fixed rates expose the Group to
cash flow interest rate risk and fair value interest rate risk respectively. The Group manages its exposure to interest rate risk by closely monitoring the change in the market interest rate.
The following table sets out the interest rate profile of the Group’s debt at the end of the reporting period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2013 |
|
|
2014 |
|
| |
|
Effective
interest
rate |
|
|
|
|
|
Effective
interest
rate |
|
|
|
|
| |
|
% |
|
|
RMB |
|
|
% |
|
|
RMB |
|
| Fixed rate debt: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Short-term debt |
|
|
4.7 |
|
|
|
26,807 |
|
|
|
5.0 |
|
|
|
43,156 |
|
| Long-term debt |
|
|
4.5 |
|
|
|
20,979 |
|
|
|
2.4 |
|
|
|
866 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47,786 |
|
|
|
|
|
|
|
44,022 |
|
| Variable rate debt: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Short-term debt |
|
|
5.5 |
|
|
|
880 |
|
|
|
5.6 |
|
|
|
820 |
|
| Deferred consideration due to China Telecommunications Corporation (as defined in Note 15) |
|
|
6.3 |
|
|
|
61,710 |
|
|
|
5.1 |
|
|
|
61,710 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62,590 |
|
|
|
|
|
|
|
62,530 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total debt |
|
|
|
|
|
|
110,376 |
|
|
|
|
|
|
|
106,552 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Fixed rate debt as a percentage of total debt |
|
|
|
|
|
|
43.3 |
% |
|
|
|
|
|
|
41.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-38
CHINA TELECOM CORPORATION LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All Renminbi amounts in millions, except per share data and except otherwise stated)
| 30. |
FINANCIAL INSTRUMENTS (continued) |
(b) Risks (continued)
(iii) Interest rate risk (continued)
As of December 31, 2013 and 2014, it is estimated that an increase of 100 basis
points in interest rate, with all other variables held constant, would decrease the Group’s net profit for the year and retained earnings by approximately RMB469 and RMB469 respectively.
The above sensitivity analysis has been prepared on the assumptions that the change of interest rate was applied to the Group’s debt
in existence at the end of the reporting period with exposure to cash flow interest rate risk. The analysis is prepared on the same basis for 2013.
(iv) Foreign currency exchange rate risk
Foreign currency exchange rate risk
arises on financial instruments that are denominated in a currency other than the functional currency in which they are measured. The Group’s foreign currency risk exposure relates to bank deposits and borrowings denominated primarily in US
dollars, Euros and Hong Kong dollars.
Management does not expect the appreciation or depreciation of the Renminbi against
foreign currencies will materially affect the Group’s financial position and result of operations because 93.1% (2013: 94.3%) of the Group’s cash and cash equivalents and 99.2% (2013: 99.1%) of the Group’s short-term and long-term
debt and payable as of December 31, 2014 are denominated in Renminbi. Details of bank loans denominated in other currencies are set out in Note 15.
The
Group’s primary objectives when managing capital are to safeguard the Group’s ability to continue as a going concern, so that it can continue to provide investment returns for shareholders and benefits for other stakeholders, by pricing
products and services commensurately with the level of risk and by securing access to finance at a reasonable cost.
Management regularly reviews and manages its capital structure to maintain a balance between the higher shareholder returns that might be
possible with higher levels of borrowings and the advantages and security afforded by a sound capital position, and makes adjustments to the capital structure in light of changes in economic conditions.
Management monitors its capital structure on the basis of total debt-to-total assets ratio. For this purpose the Group defines total debt
as the sum of short-term debt and long-term debt and deferred consideration due to China Telecommunications Corporation, and finance lease obligations. As of December 31, 2013 and 2014, the Group’s total debt-to-total assets ratio was
20.3% and 19.0% respectively, which is within the range of management’s expectation.
Neither the Company nor any of its
subsidiaries are subject to externally imposed capital requirements.
F-39
CHINA TELECOM CORPORATION LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All Renminbi amounts in millions, except per share data and except otherwise stated)
| 32. |
RELATED PARTY TRANSACTIONS |
| (a) |
Transactions with China Telecom Group |
The Group is a part of companies under China Telecommunications Corporation, a company owned by the PRC government, and has significant transactions and business relationships with members of China
Telecom Group.
The principal transactions with China Telecom Group which were carried out in the ordinary course of business
are as follows.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Year ended December 31, |
|
| |
|
Note |
|
2012 |
|
|
2013 |
|
|
2014 |
|
| |
|
|
|
RMB |
|
|
RMB |
|
|
RMB |
|
| Purchases of telecommunications equipment and materials |
|
(i) |
|
|
3,029 |
|
|
|
3,563 |
|
|
|
3,729 |
|
| Sales of telecommunications equipment and materials |
|
(i) |
|
|
2,685 |
|
|
|
3,885 |
|
|
|
3,089 |
|
| Construction and engineering services |
|
(ii) |
|
|
10,203 |
|
|
|
14,543 |
|
|
|
15,478 |
|
| Provision of IT services |
|
(iii) |
|
|
370 |
|
|
|
192 |
|
|
|
167 |
|
| Receiving IT services |
|
(iii) |
|
|
764 |
|
|
|
1,136 |
|
|
|
1,171 |
|
| Receiving community services |
|
(iv) |
|
|
2,652 |
|
|
|
2,826 |
|
|
|
2,885 |
|
| Receiving ancillary services |
|
(v) |
|
|
9,541 |
|
|
|
11,208 |
|
|
|
11,549 |
|
| Property lease income |
|
(vi) |
|
|
68 |
|
|
|
46 |
|
|
|
39 |
|
| Property lease expenses |
|
(vi) |
|
|
352 |
|
|
|
673 |
|
|
|
695 |
|
| Net transaction amount of centralized services |
|
(vii) |
|
|
570 |
|
|
|
616 |
|
|
|
246 |
|
| Interconnection revenues |
|
(viii) |
|
|
48 |
|
|
|
44 |
|
|
|
45 |
|
| Interconnection charges |
|
(viii) |
|
|
414 |
|
|
|
394 |
|
|
|
391 |
|
| Internet applications channel services |
|
(ix) |
|
|
— |
|
|
|
— |
|
|
|
366 |
|
| Interest on amounts due to and loans from China Telecom Group |
|
(x) |
|
|
24 |
|
|
|
3,912 |
|
|
|
4,431 |
|
| Lease of CDMA network facilities |
|
(xi) |
|
|
— |
|
|
|
157 |
|
|
|
193 |
|
| Lease of inter-provincial transmission optic fibres |
|
(xii) |
|
|
82 |
|
|
|
25 |
|
|
|
22 |
|
| Lease of land use rights |
|
(xiii) |
|
|
— |
|
|
|
16 |
|
|
|
15 |
|
| CDMA network capacity lease fee |
|
(xiv) |
|
|
25,546 |
|
|
|
— |
|
|
|
— |
|
| Reimbursement of capacity maintenance related costs of CDMA network |
|
(xv) |
|
|
2,519 |
|
|
|
— |
|
|
|
— |
|
| Mobile Network Acquisition |
|
(xvi) |
|
|
87,210 |
|
|
|
— |
|
|
|
— |
|
Note:
| (i) |
Represent the amount of telecommunications equipment and materials purchased from/sold to China Telecom Group and commission paid and payable for procurement services
provided by China Telecom Group. |
| (ii) |
Represent construction and engineering as well as design and supervisory services provided by China Telecom Group. |
| (iii) |
Represent IT services provided to and received from China Telecom Group. |
| (iv) |
Represent amounts paid and payable to China Telecom Group in respect of cultural, educational, health care and other community services. |
| (v) |
Represent amounts paid and payable to China Telecom Group in respect of ancillary services such as repairs and maintenance of telecommunications equipment and
facilities and certain customer services. |
| (vi) |
Represent amounts received and receivable from/paid and payable to China Telecom Group for mutual leasing of properties. |
| (vii) |
Represent net amount shared between the Company and China Telecom Group for costs associated with centralized services. The amount represents amounts received or
receivable for the net amount of centralized services. |
| (viii) |
Represent amounts received and receivable from/paid and payable to China Telecom Group for interconnection of local and domestic long distance calls.
|
| (ix) |
Represent amounts received and receivable from China Telecom Group in respect of Internet applications channel services, including the provision of telecommunications
channel and applications support platform and billing and deduction services, etc. |
| (x) |
Represent interest paid and payable to China Telecom Group with respect to the amounts due to China Telecommunications Corporation and loans from China Telecom Group
(Note 15). |
F-40
CHINA TELECOM CORPORATION LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All Renminbi amounts in millions, except per share data and except otherwise stated)
| 32. |
RELATED PARTY TRANSACTIONS (continued) |
| (a) |
Transactions with China Telecom Group (continued) |
Note: (continued)
| (xi) |
Represent amounts paid and payable to China Telecom Group primarily for lease of certain CDMA mobile telecommunications network (“CDMA network”) facilities
located in Xizang Autonomous Region. |
| (xii) |
Represent amounts paid and payable to China Telecom Group for lease of certain inter-provincial transmission optic fibres within its service regions.
|
| (xiii) |
Represent amounts received and receivable from/paid and payable to China Telecom Group for leases of land use rights. |
| (xiv) |
Represent amounts paid and payable to China Telecom Group for lease of CDMA network capacity. |
| (xv) |
Represent amounts shared between the Company and China Telecom Group for the capacity maintenance related costs in connection with the CDMA network capacity used by the
Company. |
| (xvi) |
Represent the final consideration of the Mobile Network Acquisition (Note 15). |
Amounts due from/to China Telecom Group are summarized as follows:
|
|
|
|
|
|
|
|
|
| |
|
December 31, |
|
| |
|
2013 |
|
|
2014 |
|
| |
|
RMB |
|
|
RMB |
|
| Accounts receivable |
|
|
391 |
|
|
|
329 |
|
| Prepayments and other current assets |
|
|
1,037 |
|
|
|
818 |
|
|
|
|
|
|
|
|
|
|
| Total amounts due from China Telecom Group |
|
|
1,428 |
|
|
|
1,147 |
|
|
|
|
|
|
|
|
|
|
| Accounts payable |
|
|
13,905 |
|
|
|
15,667 |
|
| Accrued expenses and other payables |
|
|
1,690 |
|
|
|
1,043 |
|
| Short-term debt |
|
|
22,062 |
|
|
|
19,398 |
|
| Long-term debt and payable |
|
|
61,710 |
|
|
|
61,710 |
|
|
|
|
|
|
|
|
|
|
| Total amounts due to China Telecom Group |
|
|
99,367 |
|
|
|
97,818 |
|
|
|
|
|
|
|
|
|
|
Amounts due from/to China Telecom Group, other than short-term debt and long-term debt and payable, bear
no interest, are unsecured and are repayable in accordance with contractual terms which are similar to those terms offered by third parties. The terms and conditions associated with short-term debt and long-term debt and payable due to China Telecom
Group are set out in Note 15.
As of December 31, 2013 and 2014, no material allowance for doubtful debts was recognized
in respect of amounts due from China Telecom Group.
| (b) |
Key management personnel compensation |
Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Group, directly or indirectly, including directors and
supervisors of the Group.
Key management personnel compensation of the Group is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year ended December 31, |
|
| |
|
2012 |
|
|
2013 |
|
|
2014 |
|
| |
|
RMB |
|
|
RMB |
|
|
RMB |
|
| |
|
thousands |
|
|
thousands |
|
|
thousands |
|
| Short-term employee benefits |
|
|
9,041 |
|
|
|
14,329 |
|
|
|
11,598 |
|
| Post-employment benefits |
|
|
704 |
|
|
|
794 |
|
|
|
1,069 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,745 |
|
|
|
15,123 |
|
|
|
12,667 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The above remuneration is included in personnel expenses.
F-41
CHINA TELECOM CORPORATION LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All Renminbi amounts in millions, except per share data and except otherwise stated)
| 32. |
RELATED PARTY TRANSACTIONS (continued) |
| (c) |
Contributions to post-employment benefit plans |
The Group participates in various defined contribution post-employment benefit plans organized by municipal, autonomous regional and provincial governments for its employees. Further details of the
Group’s post-employment benefit plans are disclosed in Note 33.
| (d) |
Transactions with other government-related entities in the PRC |
The Group is a government-related enterprise and operates in an economic regime currently dominated by entities directly or indirectly controlled by the People’s Republic of China through government
authorities, agencies, affiliations and other organizations (collectively referred to as “government-related entities”).
Apart from transactions with parent company and its fellow subsidiaries(Note 32(a)), the Group has transactions that are collectively but not individually significant with other government-related
entities, which include but not limited to the following:
| |
• |
|
rendering and receiving services, including but not limited to telecommunications services |
| |
• |
|
sales and purchases of goods, properties and other assets |
| |
• |
|
depositing and borrowing money |
| |
• |
|
use of public utilities |
These transactions are conducted in the ordinary course of the Group’s business on terms comparable to the terms of transactions with other entities that are not government-related. The Group prices
its telecommunications services and products based on government-regulated tariff rates, where applicable, or based on commercial negotiations. The Group has also established procurement policies and approval processes for purchases of products and
services, which do not depend on whether the counterparties are government-related entities or not.
The directors believe the
above information provides appropriate disclosure of related party transactions.
| 33. |
POST-EMPLOYMENT BENEFITS PLANS |
As stipulated by the regulations of the PRC, the Group participates in various defined contribution retirement plans organized by municipal, autonomous regional and provincial governments for its
employees. The Group is required to make contributions to the retirement plans at rates ranging from 14% to 22% of the salaries, bonuses and certain allowances of the employees. A member of the plan is entitled to a pension equal to a fixed
proportion of the salary prevailing at the member’s retirement date. Other than the above, the Group also participates in supplementary defined contribution retirement plans managed by independent external parties whereby the Group is required
to make contributions to the retirement plans at fixed rates of the employees’ salaries, bonuses and certain allowances. The Group has no other material obligation for the payment of pension benefits associated with these plans beyond the
annual contributions described above.
The Group’s contributions for the above plans for the years ended
December 31, 2012, 2013 and 2014 were RMB5,049 and RMB5,682 and RMB6,229 respectively.
The amount payable for
contributions to the above defined contribution retirement plans as of December 31, 2013 and 2014 was RMB707 and RMB669 respectively.
F-42
CHINA TELECOM CORPORATION LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All Renminbi amounts in millions, except per share data and except otherwise stated)
| 34. |
STOCK APPRECIATION RIGHTS |
The Group implemented a stock appreciation rights plan for members of its management to provide incentives to these employees. Under this
plan, stock appreciation rights are granted in units with each unit representing one H share. No shares will be issued under the stock appreciation rights plan. Upon exercise of the stock appreciation rights, a recipient will receive, subject to any
applicable withholding tax, a cash payment in RMB, translated from the Hong Kong dollar amount equal to the product of the number of stock appreciation rights exercised and the difference between the exercise price and market price of the
Company’s H shares at the date of exercise based on the applicable exchange rate between RMB and Hong Kong dollar at the date of the exercise. The Company recognizes compensation expense of the stock appreciation rights over the applicable
vesting period.
In 2005, the Company approved the granting of 560.0 million stock appreciation right units to eligible
employees. Under the terms of this grant, all stock appreciation rights had a contractual life of six years from date of grant and an exercise price of HK$2.78 per unit. A recipient of stock appreciation rights may not exercise the rights in the
first 24 months after the date of grant. As of each of the third, fourth, fifth and sixth anniversary of the date of grant, the total number of stock appreciation rights exercisable may not in aggregate exceed 25.0%, 50.0%, 75.0% and 100.0%,
respectively, of the total stock appreciation rights granted to such person.
In 2006, the Company approved the granting of
837.3 million stock appreciation right units to eligible employees. Under the terms of this grant, all stock appreciation rights had a contractual life of six years from date of grant and an exercise price of HK$2.85 per unit. A recipient of
stock appreciation rights may not exercise the rights in the first 24 months after the date of grant. As of each of the third, fourth, fifth and sixth anniversary of the date of grant, the total number of stock appreciation rights exercisable may
not in aggregate exceed 25.0%, 50.0%, 75.0% and 100.0%, respectively, of the total stock appreciation rights granted to such person.
In 2012, the Company approved the granting of 916.7 million stock appreciation right units to eligible employees. Under the terms of this grant, all stock appreciation rights had a contractual life
of five years from date of grant and an exercise price of HK$4.76 per unit. A recipient of stock appreciation rights may exercise the rights in stages commencing November 2013. As of each of the third, fourth and fifth anniversary of the date of
grant, the total number of stock appreciation rights exercisable may not in aggregate exceed 33.3%, 66.7% and 100.0%, respectively, of the total stock appreciation rights granted to such person.
During the years ended December 31, 2012, 2013 and 2014, no stock appreciation right units were exercised. For the year ended
December 31, 2014, compensation expense of RMB130 was recognized by the Group in respect of stock appreciation rights. For the year ended December 31, 2013, compensation expense of RMB39 was reversed by the Group in respect of stock
appreciation rights as a result of decline in share price of the Company. For the year ended December 31, 2012, compensation expense of RMB163 was recognized by the Group in respect of stock appreciation rights.
As of December 31, 2013 and 2014, the carrying amount of the liability arising from stock appreciation rights was RMB124 and RMB254
respectively. As of December 31, 2013, 305 million stock appreciation right units vested but were not exercised. The carrying amount of the corresponding liability was RMB41. As of December 31, 2014, 609 million stock
appreciation right units vested but were not exercised. The carrying amount of the corresponding liability was RMB183.
F-43
CHINA TELECOM CORPORATION LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All Renminbi amounts in millions, except per share data and except otherwise stated)
| 35. |
PRINCIPAL SUBSIDIARIES |
Details of the Company’s subsidiaries which principally affected the results, assets and liabilities of the Group as of
December 31, 2014 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
| Name of Company |
|
Type of
legal entity |
|
Date of incorporation |
|
Place of incorporation and
operation |
|
Registered /issued capital
(in RMB
millions unless
otherwise stated) |
|
|
Principal
activities
|
|
|
|
|
|
|
| China Telecom System Integration Co., Limited |
|
Limited
Company |
|
September 13, 2001 |
|
PRC |
|
|
392 |
|
|
Provision of system integration and consulting services |
|
|
|
|
|
|
| China Telecom Global Limited |
|
Limited Company |
|
February 25, 2000 |
|
Hong Kong Special Administrative Region of the PRC |
|
HK$ |
168 million |
|
|
Provision of international
value-added network services |
|
|
|
|
|
|
| China Telecom (Americas) Corporation |
|
Limited Company |
|
November 22, 2001 |
|
The United States of America |
|
US$ |
43 million |
|
|
Provision of telecommunications services |
|
|
|
|
|
|
| China Telecom Best Tone Information Service Co., Limited |
|
Limited Company |
|
August 15, 2007 |
|
PRC |
|
|
350 |
|
|
Provision of Best Tone
information services |
|
|
|
|
|
|
| China Telecom (Macau) Company Limited |
|
Limited Company |
|
October 15, 2004 |
|
Macau Special Administrative Region of the PRC |
|
|
MOP60 million |
|
|
Provision of telecommunications services |
|
|
|
|
|
|
| Tianyi Telecom Terminals Company Limited |
|
Limited Company |
|
July 1, 2005 |
|
PRC |
|
|
500 |
|
|
Sales of telecommunications terminals |
|
|
|
|
|
|
| China Telecom (Singapore) Pte. Limited |
|
Limited Company |
|
October 5, 2006 |
|
Singapore |
|
S$ |
1 |
|
|
Provision of international
value-added network services |
|
|
|
|
|
|
| E-surfing Pay Co., Ltd |
|
Limited Company |
|
March 3, 2011 |
|
PRC |
|
|
300 |
|
|
Provision of e-commerce service |
|
|
|
|
|
|
| Shenzhen Shekou Telecommunications Company Limited |
|
Limited Company |
|
May 5, 1984 |
|
PRC |
|
|
91 |
|
|
Provision of telecommunications services |
|
|
|
|
|
|
| China Telecom (Australia) Pty Ltd |
|
Limited Company |
|
January 10, 2011 |
|
Australia |
|
|
AUD1 million |
|
|
Provision of international value-added network services |
|
|
|
|
|
|
| China Telecom Korea Co., Ltd |
|
Limited Company |
|
May 16, 2012 |
|
South Korea |
|
|
KRW500
million |
|
|
Provision of international value-added network services |
|
|
|
|
|
|
| China Telecom (Malaysia) SDN BHD |
|
Limited Company |
|
June 26, 2012 |
|
Malaysia |
|
|
RM500,000 |
|
|
Provision of international value-added network services |
|
|
|
|
|
|
| China Telecom Information Technology (Vietnam) Co., Ltd |
|
Limited Company |
|
July 9, 2012 |
|
Vietnam |
|
|
VND6,300
million |
|
|
Provision of international value-added network services |
F-44
CHINA TELECOM CORPORATION LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All Renminbi amounts in millions, except per share data and except otherwise stated)
| 35. |
PRINCIPAL SUBSIDIARIES (continued) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Name of Company |
|
Type of
legal entity |
|
Date of incorporation |
|
Place of incorporation and
operation |
|
Registered /issued capital
(in RMB
millions unless
otherwise stated) |
|
|
Principal
activities
|
| iMUSIC Culture & Technology Co., Ltd. |
|
Limited Company |
|
June 9, 2013 |
|
PRC |
|
|
250 |
|
|
Provision of music production and related information services |
|
|
|
|
|
|
| China Telecom (Europe) Limited |
|
Limited Company |
|
March 2, 2006 |
|
The United Kingdom of Great Britain and Northern Ireland |
|
|
GBP16.15
million |
|
|
Provision of international value-added network services |
|
|
|
|
|
|
| Zhejiang Yixin Technology Co., Ltd. |
|
Limited Company |
|
August 19, 2013 |
|
PRC |
|
|
10 |
|
|
Provision of instant messenger service |
|
|
|
|
|
|
| Chengdu E-store Technology Co., Ltd |
|
Limited Company |
|
June 17, 2014 |
|
PRC |
|
|
45 |
|
|
Provision of software technology |
Except for Shenzhen Shekou Telecommunications Company Limited which is 51% owned by the Company and
Zhejiang Yixin Technology Co., Ltd. which is 73% owned by the Company, all of the above subsidiaries are directly or indirectly wholly owned by the Company. No subsidiaries of the Group have material non-controlling interest.
| 36. |
ACCOUNTING ESTIMATES AND JUDGMENTS |
The Group’s financial position and results of operations are sensitive to accounting methods, assumptions and estimates that underlie the preparation of the consolidated financial statements.
Management bases the assumptions and estimates on historical experience and on other factors that the management believes to be reasonable and which form the basis for making judgments about matters that are not readily apparent from other sources.
On an on-going basis, management evaluates its estimates. Actual results may differ from those estimates as facts, circumstances and conditions change.
The selection of significant accounting policies, the judgments and other uncertainties affecting application of those policies and the sensitivity of reported results to changes in conditions and
assumptions are factors to be considered when reviewing the consolidated financial statements. The significant accounting policies are set forth in Note 2. Management believes the following significant accounting policies involve the most
significant judgments and estimates used in the preparation of the consolidated financial statements.
Allowance for doubtful debts
Management estimates an allowance for doubtful debts resulting from the inability of the customers to make the required
payments. Management bases its estimates on the aging of the accounts receivable balance, customer credit-worthiness, and historical write-off experience. If the financial condition of the customers were to deteriorate, actual write-offs might be
higher than expected and could significantly affect the results of future periods.
F-45
CHINA TELECOM CORPORATION LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All Renminbi amounts in millions, except per share data and except otherwise stated)
| 36. |
ACCOUNTING ESTIMATES AND JUDGMENTS (continued) |
Impairment of long-lived assets
If circumstances indicate that the carrying amount of a long-lived asset may not be recoverable, the asset may be considered
“impaired”, and an impairment loss would be recognized in accordance with accounting policy for impairment of long-lived assets as described in Note 2(n). The carrying amounts of the Group’s long-lived assets, including property,
plant and equipment, intangible assets with finite useful lives and construction in progress are reviewed periodically to determine whether there is any indication of impairment. These assets are tested for impairment whenever events or changes in
circumstances indicate that their recorded carrying amounts may not be recoverable. For goodwill, the impairment testing is performed annually at the end of each reporting period. The recoverable amount of an asset or cash-generating unit is the
greater of its value in use and fair value less costs of disposal. When an asset does not generate cash flows largely independent of those from other assets, the recoverable amount is determined for the smallest group of assets that generates cash
inflows independently (i.e. a cash-generating unit). In determining the value in use, expected future cash flows generated by the assets are discounted to their present value. An impairment loss is recognized if the carrying amount of an asset or
its cash-generating unit exceeds its estimated recoverable amount. It is difficult to precisely estimate fair value of the Group’s long-lived assets because quoted market prices for such assets may not be readily available. In determining the
value in use, expected future cash flows generated by the asset are discounted to their present value, which requires significant judgment relating to level of revenue, amount of operating costs and applicable discount rate. Management uses all
readily available information in determining an amount that is a reasonable approximation of recoverable amount, including estimates based on reasonable and supportable assumptions and projections of revenue and amount of operating costs.
For the years ended December 31, 2012, 2013 and 2014, no provision for impairment loss was made against the carrying
value of property, plant and equipment (Note 8). In determining the recoverable amount of these equipment, significant judgments were required in estimating future cash flows, level of revenue, amount of operating costs and applicable discount rate.
Changes in these estimates could have a significant impact on the carrying value of the assets and could result in additional
impairment charge or reversal of impairment in future periods.
Depreciation and amortization
Property, plant and equipment and intangible assets are depreciated and amortized on a straight-line basis over the estimated useful lives
of the assets, after taking into account their estimated residual value. Management reviews the estimated useful lives and residual values of the assets annually in order to determine the amount of depreciation and amortization expense to be
recorded during any reporting period. The useful lives and residual values are based on the Group’s historical experience with similar assets and take into account anticipated technological changes. The depreciation and amortization expense for
future periods is adjusted if there are significant changes from previous estimates.
F-46
CHINA TELECOM CORPORATION LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(All Renminbi amounts in millions, except per share data and except otherwise stated)
| 37. |
POSSIBLE IMPACT OF AMENDMENTS, NEW STANDARDS ISSUED BUT NOT YET EFFECTIVE FOR THE ANNUAL ACCOUNTING PERIOD ENDED DECEMBER 31, 2014 |
Up to the date of issue of these financial statements, the IASB has issued the following amendments, new standards which are not yet
effective for the annual accounting period ended December 31, 2014:
|
|
|
| |
|
Effective for accounting
period
beginning on or after |
| Amendments to IAS 19, “Defined Benefit Plans: Employee Contributions” |
|
July 1, 2014 |
| Amendments to IFRSs, “Annual Improvements to IFRSs 2010-2012 Cycle” |
|
July 1, 2014 (with
limited exceptions.) |
| Amendments to IFRSs, “Annual Improvements to IFRSs 2011-2013 Cycle” |
|
July 1, 2014 |
| Amendments to IFRSs, “Annual Improvements to IFRSs 2012-2014 Cycle” |
|
January 1, 2016 |
| IFRS 14, “Regulatory Deferral Accounts” |
|
January 1, 2016 |
| Amendments to IAS 1, “Disclosure Initiative” |
|
January 1, 2016 |
| Amendments to IFRS 11, “Accounting for Acquisitions of Interests in Joint Operations” |
|
January 1, 2016 |
| Amendments to IAS 16 and IAS 38, “Clarification of Acceptable Methods of
Depreciation and Amortization” |
|
January 1, 2016 |
| Amendments to IAS 16 and IAS 41, “Agriculture: Bearer Plants” |
|
January 1, 2016 |
| Amendments to IAS 27, “Equity Method in Separate Financial Statements” |
|
January 1, 2016 |
| Amendments to IFRS 10 and IAS 28, “Sale or Contribution of Assets between an Investor and its Associate or Joint
Venture” |
|
January 1, 2016 |
| Amendments to IFRS 10, IFRS 12 and IAS 28, “Investment Entities: Applying the Consolidation Exception” |
|
January 1, 2016 |
| IFRS 15, “Revenue from Contracts with Customers” |
|
January 1, 2017 |
| IFRS 9, “Financial Instruments” |
|
January 1, 2018 |
The Group is in the process of making an assessment of the impact that will result from adopting the
amendments and new standards issued by the IASB which are not yet effective for the accounting period ended on December 31, 2014. Except for IFRS 15, “Revenue from Contracts with Customers”, so far the Group believes that the adoption
of these amendments and new standards is unlikely to have a significant impact on its financial position and the results of operations.
| 38. |
PARENT AND ULTIMATE HOLDING COMPANY |
The parent and ultimate holding company of the Group as of December 31, 2014 is China Telecommunications Corporation, a state-owned enterprise established in the PRC.
F-47
Exhibit 1.1
ARTICLES OF
ASSOCIATION
OF
CHINA TELECOM CORPORATION LIMITED
(The Articles of
Association was prepared in Chinese and the English translation is not an official version and for your reference only. In case of any inconsistencies and discrepancies between the Chinese and the English versions, the Chinese version shall prevail)
(Inclusive of alterations made up to 29 May 2014)
CONTENTS
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PAGE |
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CHAPTER 1: |
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GENERAL PROVISIONS |
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1 |
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CHAPTER 2: |
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THE COMPANY’S OBJECTIVES AND SCOPE OF BUSINESS |
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CHAPTER 3: |
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SHARES AND REGISTERED CAPITAL |
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CHAPTER 4: |
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REDUCTION OF CAPITAL AND REPURCHASE OF SHARES |
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CHAPTER 5: |
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FINANCIAL ASSISTANCE FOR THE ACQUISITION OF SHARES |
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10 |
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CHAPTER 6: |
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SHARE CERTIFICATES AND REGISTER OF SHAREHOLDERS |
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11 |
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CHAPTER 7: |
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SHAREHOLDERS’ RIGHTS AND OBLIGATIONS |
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16 |
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CHAPTER 8: |
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SHAREHOLDERS’ GENERAL MEETINGS |
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CHAPTER 9: |
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SPECIAL PROCEDURES FOR VOTING BY A CLASS OF SHAREHOLDERS |
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CHAPTER 10: |
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BOARD OF DIRECTORS |
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31 |
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CHAPTER 11: |
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SECRETARY OF THE BOARD OF DIRECTORS |
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36 |
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CHAPTER 12: |
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GENERAL MANAGER |
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39 |
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CHAPTER 13: |
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SUPERVISORY COMMITTEE |
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40 |
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CHAPTER 14: |
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THE QUALIFICATIONS AND DUTIES OF THE DIRECTORS, SUPERVISORS, GENERAL MANAGER AND OTHER SENIOR OFFICERS OF THE
COMPANY |
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43 |
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CHAPTER 15: |
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FINANCIAL AND ACCOUNTING SYSTEMS AND PROFIT DISTRIBUTION |
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50 |
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CHAPTER 16: |
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APPOINTMENT OF ACCOUNTANCY FIRM |
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53 |
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CHAPTER 17: |
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MERGER AND DIVISION OF THE COMPANY |
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56 |
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CHAPTER 18: |
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DISSOLUTION AND LIQUIDATION |
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57 |
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CHAPTER 19: |
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PROCEDURES FOR AMENDMENT OF THE COMPANY’S ARTICLES OF ASSOCIATION |
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60 |
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CHAPTER 20: |
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NOTICES |
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61 |
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CHAPTER 21: |
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DISPUTE RESOLUTION |
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62 |
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CHAPTER 22: |
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SUPPLEMENTARY |
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63 |
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ARTICLES OF ASSOCIATION OF
CHINA TELECOM CORPORATION LIMITED
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| CHAPTER 1: GENERAL PROVISIONS |
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| Article 1. |
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China Telecom Corporation Limited (the “Company”) is a joint stock limited company established in accordance with the Company Law of the People’s Republic
of China (the “Company Law”), the State Council’s Special Regulations Regarding the Issue of Shares Overseas and the Listing of Shares Overseas by Companies Limited by Shares (the “Special Regulations”) and other relevant
laws and regulations of the State. |
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The Company was established by way of promotion with the approval of the State Economic and Trade Commission of the People’s Republic of China, as evidenced by
approval document Guo Jing Mao Qi Gai [2002] no. 656. It is registered with and has obtained a business licence from the State Administration for Industry & Commerce of the People’s Republic of China on 10 September 2002. The
Company’s business licence number is: 1000001003712. |
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The promoter of the Company is: China Telecommunications Corporation. |
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| Article 2. |
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The Company’s registered Chinese name is:
The Company’s registered English name is: China Telecom Corporation Limited. |
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| Article 3. |
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The Company’s address |
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31 Jinrong Street |
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Xicheng District |
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Beijing |
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China |
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Postal code |
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100032 |
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Telephone number |
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6642-8166 |
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Facsimile number |
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6641-5280 |
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| Article 4. |
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The Company’s legal representative is the Chairman of the board of directors of the Company. |
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| Article 5. |
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The Company is a joint stock limited company which has perpetual existence. |
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The rights and liability of a shareholder of the Company is limited to his share in the share capital of the Company, while the Company undertakes all of its liabilities
with all of its assets. |
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The Company is an independent corporate legal person, and is subject to the jurisdiction of and protected by the laws and regulations of the People’s Republic of
China. |
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| Article 6. |
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The Company’s Articles of Association (the “Articles of Association” or “these Articles of Association”) are enacted in accordance with the
provisions of the Company Law, the Special Regulations and the Mandatory Provisions for Articles of Association of Companies to be Listed Overseas (the “Mandatory Provisions”) and relevant provisions under the other PRC laws and
administrative regulations. |
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| Article 7. |
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The original Articles of Association took effect from the date of incorporation of the Company. |
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These Articles of Association shall take effect after being adopted by a special resolution at the Company’s general meeting and upon approval by the authorities
that are authorized by the State Council to examine and approve companies. After these Articles of Association come into effect, the original articles of association shall be superseded by these Articles of Association. |
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| Article 8. |
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From the date on which the Company’s Articles of Association comes into effect, the Company’s Articles of Association constitute the legally binding document
that regulates the Company’s organization and activities, and the rights and obligations between the Company and each shareholder and among the shareholders. |
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| Article 9. |
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The Company’s Articles of Association are binding on the Company and its shareholders, directors, supervisors, general manager and other senior management
personnel, all of whom may, according to the Company’s Articles of Association, assert rights in respect of the affairs of the Company. |
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Subject to non-contradiction to Chapter 21 of these Articles of Association, a shareholder may sue and vice versa be sued by the Company pursuant to the Company’s
Articles of Association. A shareholder may also sue another shareholder, and may take action against the directors, supervisors, general manager and other senior officers of the Company pursuant to the Company’s Articles of
Association. |
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The suit referred to in the preceding paragraph include court proceedings and an application to an arbitration tribunal to commence arbitration
proceedings. |
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| Article 10. |
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The Company may invest in other limited liability companies or joint stock limited companies. The Company’s liabilities to an invested company shall be limited to
the amount of its capital contribution to the investee company. |
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The Company shall not be a shareholder with unlimited liabilities of any other organisations operating for
profits. The Company may, according to its operating and management needs,
operate as a holding company in accordance with the law. |
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| Article 11. |
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Subject to compliance with PRC laws and administrative regulations, the Company shall have the right to raise funds, including (but not limited to) loans and company
bonds, etc and shall have the right to charge or pledge its assets. |
| CHAPTER 2: THE COMPANY’S
OBJECTIVES AND SCOPE OF BUSINESS |
| Article 12. |
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The Company’s objectives are: comply with State laws and regulations, be market driven, actively adopt advanced communications technologies, and develop
telecommunications and information businesses; strengthen management and increase service quality; provide fast, convenient and accurate communication services to society and satisfy the needs of society; improve enterprise efficiency, increase
enterprise competitiveness and create profits for shareholders. |
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| Article 13. |
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The Company’s scope of business shall be consistent with and subject to the scope of business approved by the authority responsible for the registration of the
Company. |
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Basic telecommunications businesses include: engage in second generation 800MHz CDMA digital cellular mobile communications business and third generation CDMA2000
digital cellular mobile communications business in the People’s Republic of China; engage in local fixed telephone business (including local wireless ring circuit business), domestic fixed long-distance telephone business, international fixed
long-distance telephone business, IP telephone (limited to Phone-to-Phone) business, satellite international private line business, Internet data transfer business, international data communications business, public telegraph and subscriber
telegraph business, 26GHz wireless access business, domestic communications facilities servicing business in the twenty-one provinces, municipalities and autonomous regions of Beijing, Shanghai, Jiangsu, Zhejiang, Anhui, Fujian, Jiangxi, Hubei,
Hunan, Guangdong, Guangxi, Hainan, Chongqing, Sichuan, Guizhou, Yunnan, Shaanxi, Gansu, Qinghai, Ningxia and Xinjiang; engage in 3.5GHz wireless access business in Nanjing, Hefei, Kunming, Hubei, Hunan, Hainan, Sichuan, Guizhou and
Gansu. |
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Value-added telecommunications businesses include: engage in Type 2 basic telecommunications businesses, namely, domestic Very Small Aperture Terminal (VSAT)
communications business, domestic fixed data transfer business, wireless data transfer business, Customer Premises Network (CPN) business, network hosting business in the twenty-one provinces, municipalities
and autonomous regions of Beijing, Shanghai, Jiangsu, Zhejiang, Anhui, Fujian, Jiangxi, Hubei, Hunan, Guangdong, Guangxi, Hainan, Chongqing, Sichuan, Guizhou, Yunnan, Shaanxi, Gansu, Qinghai, Ningxia and Xinjiang; Type 1 value-added
telecommunications businesses, namely, online data processing and transaction processing business, domestic Internet virtual private network business, Internet data center business; Type 2 value-added telecommunications businesses, namely, voice
mailbox business, fax storage and forwarding business, X.400 email business, call centre business, Internet access services business and information services business (including fixed telephone information service business, Internet information
service business and mobile information service business) |
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Information services business (limited to mobile information services) in the ten provinces, municipalities and autonomous regions of Tianjin, Hebei, Shanxi, Inner
Mongolia, Liaoning, Jilin, Heilongjiang, Shandong, Henan and Tibet. |
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General businesses include: engage in system integration, technology development, technical services, technology consulting, information consulting, the manufacture,
sale, installation, design and construction of equipment, computer hardware and software in connection with communications and information businesses; leasing of properties; leasing of communications facilities; design, construction and repair of
safety technologies and security systems; advertising. Internet mapping services (licence is valid until 31 December 2014), and music entertainment products (including the issuance of online game virtual currency), art, drama performances (programs)
and animation products through information network, and to undertake the exhibitions and competition campaigns in relation to the network culture (licence is valid until 31 December 2014). |
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| Article 14. |
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The Company may, based on its business development needs, establish wholly-owned subsidiaries, controlled subsidiaries, branches, representative offices and other branch
organisations. |
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Based on its business development needs and upon approval of the relevant governmental authorities, the Company may adjust its scope of business and manner of operation
from time to time, and may establish branch organisations and/or representative offices (irrespective of whether controlled or owned by it) in the Hong Kong Special Administrative Region, the Macau Special Administrative Region and the Taiwan
Region. |
| CHAPTER 3: SHARES AND REGISTERED
CAPITAL |
| Article 15. |
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There must, at all times, be ordinary shares in the Company. The ordinary shares issued by the Company include domestic-invested shares and foreign-invested shares.
Subject to the approval by the authorities that are authorised by the State Council to examine and approve companies, the Company may, according to its requirements, create different classes of
shares. |
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| Article 16. |
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The shares issued by the Company shall each have a par value of Renminbi one (1.00) yuan.
“Renminbi” referred to in the previous paragraph means the legal currency
of the PRC. |
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| Article 17. |
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Subject to the approval of the securities authority of the State Council, the Company may issue shares to Domestic Investors and Foreign Investors. |
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“Foreign Investors” referred to in the previous paragraph mean those investors who subscribe for the shares issued by the Company and who are located in
foreign countries and in the regions of Hong Kong, Macau and Taiwan. “Domestic Investors” mean those investors who subscribe for the shares issued by the Company within the territory of the PRC who are located outside of the jurisdictions
mentioned above. |
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| Article 18. |
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Shares which the Company issues to Domestic Investors for subscription in Renminbi shall be referred to as “Domestic Shares”. Shares which the Company issues
to Foreign Investors for subscription in foreign currencies shall be referred to as “Foreign-Invested Shares”. Foreign-Invested Shares which are listed overseas are called “Overseas-Listed Foreign-Invested Shares”. Both holders
of Domestic Shares and holders of Overseas-Listed Foreign-Invested Shares are holders of ordinary shares, and have the same obligations and rights. |
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“Foreign currencies” mean the legal currencies (other than the RMB) of countries or districts outside the PRC which are recognised by the foreign exchange
authority of the State and which can be used to pay the share price to the Company. |
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| Article 19. |
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Foreign-Invested Shares issued by the Company and which are listed in Hong Kong shall be referred to as “H Shares”. H Shares are shares which have been
admitted for listing on The Stock Exchange of Hong Kong Limited (the “Stock Exchange”), the par value of which is denominated in Renminbi and which are subscribed for and traded in Hong Kong dollars. |
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| Article 20. |
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By the approval of the authorities that are authorised by the State Council to examine and approve companies, the Company issue a total of 80,932,368,321 ordinary
shares, of which 68,317,270,803 were issued to the promoter of the Company at the time when the Company was established, representing 84.41% of the issued ordinary share capital. |
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| Article 21. |
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All the 12,615,097,518 ordinary shares issued by the Company after its incorporation are the overseas-listed foreign-invested shares (H Shares). Pursuant to the
Provisional Measures on the Administration of the Reduction of the State-Owned Shares for Raising Social Security Funds, the number of overseas-listed foreign-invested shares (H Shares) converted from a reduction by holders of State-owned
shares of their shareholdings of the State-owned shares amounted to 1,262,312,482 shares. The total number of the overseas-listed foreign-invested shares (H Shares) issued by the Company shall be 13,877,410,000 shares, representing 17.15% of the
issued ordinary share capital of the Company. |
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The share capital structure of the Company is as follows: there are a total of 80,932,368,321 ordinary shares issued, of which 57,377,053,317 shares are held by the
promoter, China Telecommunications Corporation, representing 70.89% of the total of the ordinary shares issued by the Company. The other holders of the domestic shares are Guangdong Rising Assets Management Co., Ltd., who holds a total of
5,614,082,653 shares representing 6.94% of the total ordinary shares issued by the Company, Jiangsu Guoxin Investment Group Co., Ltd., who holds a total of 957,031,543 shares representing 1.18% of the total ordinary shares issued by the Company,
Zhejiang Financial Development Company, who holds a total of 2,137,473,626 shares representing 2.64% of the total ordinary shares issued by the Company and Fujian Investment & Development Group Co., Ltd, who holds a total of 969,317,182 shares
representing 1.20% of the total ordinary shares issued by the Company. A total of 13,877,410,000 shares are held by holders of Overseas-Listed Foreign- Invested Shares (H shares), representing 17.15% of the total ordinary shares issued by the
Company. |
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| Article 22. |
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The Company’s board of directors may take all necessary action for the issuance of Overseas-Listed Foreign-Invested Shares and Domestic Shares separately after
proposals for issuance of the same have been approved by the securities authority of the State Council. |
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The Company may implement its proposal to separately issue Overseas-Listed Foreign-Invested Shares and Domestic Shares pursuant to the preceding paragraph within fifteen
(15) months from the date of approval by the China Securities Regulatory Commission (the “CSRC”). |
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| Article 23. |
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Where the total number of shares stated in the proposal for the separate issuance of shares includes Overseas-Listed Foreign-Invested Shares and Domestic Shares, such
shares should be fully subscribed for at their respective offerings. If the shares cannot be fully subscribed for all at once due to special circumstances, the shares may, subject to the approval of the securities authority of the State Council, be
issued in separate Offerings. |
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| Article 24. |
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The registered capital of the Company is RMB 80,932,368,321. |
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| Article 25. |
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The Company may, based on its operating and development needs, authorize the increase of its capital pursuant to the Company’s Articles of
Association. |
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The Company may increase its capital in the following ways: |
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by offering new shares for subscription by unspecified investors; |
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by issuing new shares to its existing shareholders; |
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by allotting bonus shares to its existing shareholders; |
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by any other means which is permitted by law and administrative regulations. |
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After the Company’s increase of share capital by way of the issuance of new shares has been approved in accordance with the provisions of the Company’s
Articles of Association, the issuance thereof should be made in accordance with the procedures set out in the relevant State laws and administrative regulations. |
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| Article 26. |
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Except as otherwise provided for by law and administrative regulations, shares of the Company shall be without lien and be freely transferable. |
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| CHAPTER 4: REDUCTION OF CAPITAL AND
REPURCHASE OF SHARES |
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| Article 27. |
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According to the provisions of the Company’s Articles of Association, the Company may reduce its registered capital. |
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| Article 28. |
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The Company must prepare a balance sheet and an inventory of assets when it reduces its registered capital. |
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The Company shall notify its creditors within ten (10) days of the date of the Company’s resolution for reduction of capital and shall publish an announcement in a
newspaper at least three (3) times within thirty (30) days of the date of such resolution. A creditor has the right within thirty (30) days of receipt of the notice from the Company or, in the case of a creditor who does not receive such notice,
within ninety (90) days of the date of the first public announcement, to require the Company to repay its debts or to provide a corresponding guarantee for such debt. |
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The Company’s registered capital may not, after the reduction in capital, be less than the minimum amount prescribed by
law. |
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| Article 29. |
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The Company may, in accordance with the procedures set out in the Company’s Articles of Association and with the approval of the relevant governing authority of the
State, repurchase its issued shares under the following circumstances: |
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cancellation of shares for the purposes of reducing its capital; |
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merging with another company that holds shares in the Company; |
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other circumstances permitted by laws and administrative regulations. |
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The Company’s repurchase of its issued shares shall comply with the provisions of Articles 30 to 33. |
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| Article 30. |
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The Company may repurchase shares in one of the following ways, with the approval of the relevant governing authority of the State: |
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by making a general offer for the repurchase of shares to all its shareholders on a pro rata basis; |
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by repurchasing shares through public dealing on a stock exchange; |
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by repurchasing shares outside of the stock exchange by means of an agreement. |
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| Article 31. |
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The Company must obtain the prior approval of the shareholders in a general meeting (in the manner stipulated in the
Company’s Articles of Association) before it can repurchase shares outside of the stock exchange by means of an agreement. The Company may, by obtaining the prior approval of the shareholders in a general meeting in the same manner as described
above cancel, release, vary or waive its rights under an agreement which has been so entered into. An agreement for the repurchase shares referred to in the preceding paragraph includes (but is not limited to) an agreement to become liable to repurchase shares or an agreement to acquire the right to
repurchase shares. |
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The Company may not assign an agreement for the repurchase of its shares or any right contained in such an agreement. |
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| Article 32. |
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Shares which have been legally repurchased by the Company shall be cancelled within the period prescribed by law and administrative regulations, and the Company shall
apply to the original companies registration authority for registration of the change in its registered capital and make a public announcement. |
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The aggregate par value of the cancelled shares shall be deducted from the Company’s registered share
capital. |
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| Article 33. |
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Unless the Company is in the course of liquidation, it must comply with the following provisions in relation to the repurchase of its issued shares: |
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where the Company repurchases shares at par value, payment shall be made out of carrying amount of the distributable profits of the Company or out of proceeds of a new
issue of shares made for that purpose; |
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where the Company repurchases shares of the Company at a premium to the par value of its shares payment up to the par value may be made out of the carrying amount of the
distributable profits of the Company or out of the proceeds of a new issue of shares made for that purpose. Payment of the portion in excess of the par value shall be effected as follows: |
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if the shares being repurchased were issued at par value, payment shall be made out of the carrying amount of the distributable profits of the Company; |
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if the shares being repurchased were issued at a premium to their par value, payment shall be made out of the carrying amount of the distributable profits of the Company or out of
the proceeds of a new issue of shares made for that purpose, provided that the amount paid out of the proceeds of the new issue shall not exceed the aggregate amount of premiums received by the Company on the issue of the shares repurchased nor
shall it exceed the book value of the Company’s capital common reserve fund account (including the premiums on the new issue of shares) at the time of the repurchase; |
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Funds used by the Company for the following purposes should be paid out of the Company’s distributable profits: |
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payment for the acquisition of the right to repurchase the Company’s own shares; |
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payment for variation of any contract for the repurchase of the Company’s shares; |
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payment for the release of the Company’s obligation(s) under any contract for the repurchase of its shares; |
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after the Company’s registered capital has been reduced by the aggregate par value of the cancelled shares in accordance with the relevant provisions, the amount
deducted from the distributable profits of the Company for payment of the par value of shares which have been repurchased shall be transferred to the Company’s capital common reserve fund
account. |
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| CHAPTER 5: FINANCIAL ASSISTANCE FOR THE ACQUISITION OF SHARES
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| Article 34. |
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The Company or its subsidiaries shall not, at any time, provide any form of financial assistance to a person who is acquiring or intends to acquire shares in the
Company. Such persons aforementioned shall include those who directly or indirectly incur any obligation as a result of the acquisition of shares in the Company (the “Obligor”). |
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At no time shall the Company or its subsidiaries provide any form of financial assistance to the Obligor aforementioned for the purposes of reducing or discharging the
obligations assumed by him. |
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This Article shall not apply to the circumstances specified in Article 36 of this Chapter. |
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| Article 35. |
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For the purposes of this Chapter, “financial assistance” includes (without limitation) the following: |
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(1) |
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gift; |
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(2) |
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guarantee (including the assumption of liability by the guarantor or the provision of assets by the guarantor to secure the performance of Obligor’s obligations),
compensation (other than compensation payable by the Company’s due to its own default) or release or waiver of any rights; |
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(3) |
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provision of loans or entering into any agreement under which the obligations of the Company are to be performed prior to the obligations of another party, or the change
in parties to, or the assignment of rights under, such loan or agreement; |
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(4) |
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any other form of financial assistance given by the Company when the Company is insolvent or has no net assets or where its net assets would thereby be reduced to a
material extent. |
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For the purposes of this Chapter, “assumption of obligations” includes the assumption of obligations by way of contract or by way of arrangement (irrespective
of whether such contract or arrangement is enforceable or not and irrespective of whether such obligation is to be borne solely by the Obligor or jointly with other persons), or by any other means which results in a change in his financial
position. |
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| Article 36. |
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The following actions shall not be deemed to be activities prohibited by Article 34 of this Chapter: |
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(1) |
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the provision of financial assistance by the Company where the financial assistance is given in good faith in the interests of the Company, and the principal purpose of
such provision is not for the acquisition of shares in the Company, or the giving of the financial assistance is an incidental part of certain projects of the Company; |
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(2) |
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the lawful distribution of the Company’s assets by way of dividend; |
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(3) |
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the allotment of bonus shares as dividends; |
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(4) |
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a reduction of registered capital, a repurchase of shares of the Company or a reorganisation of the share capital structure of the Company effected in accordance with
the Company’s Articles of Association; |
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(5) |
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within its ordinary course of its business, where the lending of money is for the ordinary business activities of the Company (provided that the net assets of the
Company are not thereby reduced or that, to the extent that the assets are thereby reduced, the financial assistance is provided out of distributable profits); |
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(6) |
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contributions made by the Company to employee share ownership schemes (provided that the net assets of the Company are not thereby reduced or that, to the extent that
the assets are thereby reduced, the financial assistance is provided out of distributable profits). |
| CHAPTER 6: SHARE CERTIFICATES AND
REGISTER OF SHAREHOLDERS |
| Article 37. |
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Share certificates of the Company shall be in registered form. |
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The share certificate of the Company shall contain following main particulars: |
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(1) |
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the name of the Company; |
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(2) |
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the date of incorporation of the Company; |
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(3) |
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the class of shares, par value and number of shares it represents; |
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(4) |
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the share certificate number; |
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(5) |
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other matters required to be stated therein by the Company Law, Special Regulations and the stock exchange(s) on which the Company’s shares are
listed. |
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| Article 38. |
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Share certificates of the Company may be assigned, given as a gift, inherited or charged in accordance with relevant provisions of laws, administrative regulations and
these Articles of Association. |
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For assignment and transfer of shares, relevant registration of the share certificates shall be carried out with the share registration institution authorized by the
Company. |
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| Article 39. |
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Share certificates of the Company shall be signed by the Chairman of the Company’s board of directors. Where the stock exchange(s) on which the Company’s
shares are listed require other senior officer(s) of the Company to sign on the share certificates, the share certificates shall also be signed by such senior officer(s). The share certificates shall take effect after being imprinted with the seal
of the Company (including the securities seal of the Company). The share certificate shall be imprinted with the seal of the Company or the securities seal of the Company under the authorization of the board of directors. The signatures of the
Chairman of the board of directors or other senior officer(s) of the Company may be printed in mechanical form. |
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| Article 40. |
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The Company shall keep a register of shareholders, which shall contain the following particulars: |
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(1) |
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the name (title) and address (residence), the occupation or nature of each shareholder; |
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(2) |
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the class and quantity of shares held by each shareholder; |
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(3) |
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the amount of capital paid-up on or agreed to be paid-up on the shares held by each shareholder; |
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(4) |
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the share certificate number(s) of the shares held by each shareholder; |
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(5) |
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the date on which each person was entered in the register as a shareholder; |
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(6) |
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the date on which any shareholder ceased to be a shareholder. |
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Unless there is evidence to the contrary, the register of shareholders shall be sufficient evidence of the shareholders’ shareholdings in the
Company. |
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| Article 41. |
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The Company may, in accordance with the mutual understanding and agreements made between the securities authority of the State Council and overseas securities regulatory
organisations, maintain the register of shareholders of Overseas-Listed Foreign-Invested Shares overseas and appoint overseas agent(s) to manage such register of shareholders. The original register for holders of Overseas-Listed Foreign-Invested
Shares listed in Hong Kong shall be maintained in Hong Kong. |
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A duplicate register of shareholders for the holders of Overseas-Listed Foreign-Invested Shares shall be maintained at the Company’s registered address. The
appointed overseas agent(s) shall ensure consistency between the original and the duplicate register of shareholders at all times. |
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If there is any inconsistency between the original and the duplicate register of shareholders for the holders of Overseas-Listed Foreign-Invested Shares, the original
register of shareholders shall prevail. |
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| Article 42. |
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The Company shall have a complete register of shareholders which shall comprise the following parts: |
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(1) |
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the part of the register of shareholders which is maintained at the Company’s registered address (other than those share registers which are described in
sub-paragraphs (2) and (3) of this Article); |
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(2) |
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the part(s) of the register of shareholders in respect of the holders of Overseas-Listed Foreign-Invested Shares of the Company which are maintained in the same location
as the overseas stock exchange on which the shares are listed; and |
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(3) |
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the part(s) of the register of shareholders which are maintained in such other location as the board of directors considers necessary for the purposes of the listing of
the Company’s shares. |
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| Article 43. |
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Different parts of the register of shareholders shall not overlap. No transfer of any shares registered in any part of the register shall, during the continuance of that
registration, be registered in any other part of the register. |
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All Overseas-Listed Foreign-Invested Shares listed in Hong Kong which have been fully paid-up may be freely transferred in accordance with the Company’s Articles of
Association. However, unless such transfer complies with the following requirements, the board of directors may refuse to recognise any instrument of transfer and would not need to provide any reason therefor: |
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(1) |
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a fee of HK$2.50 per instrument of transfer or such higher amount agreed from time to time by the Stock Exchange for the registration of the instrument of transfer and
other documents relating to or which affect the right of ownership of the shares; |
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(2) |
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the instrument of transfer only relates to Overseas-Listed Foreign- Invested Shares listed in Hong Kong; |
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(3) |
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the stamp duty which is chargeable on the instrument of transfer has been duly paid; |
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(4) |
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the relevant share certificate(s) and any other evidence which the board of directors may reasonably require to show that the transferor has the right to transfer the
shares have been provided; |
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(5) |
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if it is intended that the shares be transferred to joint owners, the maximum number of joint owners shall not be more than four (4); and |
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(6) |
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the Company does not have any lien on the relevant shares. |
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The transfer of Overseas-Listed Foreign Invested Shares in the Company listed in Hong Kong shall be in writing on normal or standard instruments of transfer or on a form
acceptable to the Board of Directors; and such transfer instrument can be signed only by hand or, if the transferor or transferee is a securities clearing institution or its representative recognised in accordance with section 37 of the Securities
and Futures Ordinance (Hong Kong Law Chapter 571), signed by hand or signed in printed mechanical form. All the transfer instruments shall be maintained in the legal address of the Company or other place the Board of Directors may designate from
time to time. |
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Any change or correction to various parts of the register of shareholders shall be carried out in accordance with the law of the place where such parts of the register
of shareholders are maintained. |
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| Article 44. |
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No change may be made to the register of shareholders as a result of a transfer of shares within thirty (30) days prior to the date of a shareholders’ general
meeting or within five (5) days before the record date for the Company’s distribution of dividends. |
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| Article 45. |
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When the Company needs to determine the rights attaching to shares in the Company for the purposes of convening a shareholders’ meeting, for dividend distribution,
for liquidation or for any other purpose which requires such determination, the board of directors shall decide on a date for the determination of rights attaching to shares in the Company. The shareholders of the Company shall be such persons who
appear in the register of shareholders at the close of such determination date. |
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| Article 46. |
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Any person aggrieved and claiming to be entitled to have his name (title) entered in or removed from the register of shareholders may apply to a court of competent
jurisdiction for rectification of the register. |
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| Article 47. |
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Any person who is a registered shareholder or who claims to be entitled to have his name (title) entered in the register of shareholders in respect of shares in the
Company may, if his share certificate (the “original certificate”) relating to the shares is lost, apply to the Company for a replacement share certificate in respect of such shares (the “Relevant
Shares”). |
14
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Application by a holder of Domestic Shares, who has lost his share certificate, for a replacement share certificate shall be dealt with in accordance with the
requirements of the Company Law. |
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Application by a holder of Overseas-Listed Foreign Shares, who has lost his share certificate, for a replacement share certificate may be dealt with in accordance with
the law of the place where the original register of shareholders of holders of Overseas-Listed Foreign-Invested Shares is maintained, the rules of the stock exchange or other relevant regulations. |
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The issue of a replacement share certificate to a holder of H Shares, who has lost his share certificate, shall comply with the following requirements: |
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(1) |
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The applicant shall submit an application to the Company in a prescribed form accompanied by a notarial certificate or a statutory declaration, stating the grounds upon
which the application is made, the circumstances and evidence of the loss, and declaring that no other person is entitled to have his name entered in the register of shareholders in respect of the Relevant Shares. |
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(2) |
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The Company has not received any declaration made by any person other than the applicant declaring that his name shall be entered into the register of shareholders in
respect of such shares before it decides to issue a replacement share certificate to the applicant. |
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(3) |
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The Company shall, if it intends to issue a replacement share certificate, publish a notice of its intention to do so at least once every thirty (30) days within a
period of ninety (90) consecutive days in such newspapers as may be prescribed by the board of directors. |
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(4) |
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The Company shall, prior to publication of its intention to issue a replacement share certificate, deliver to the stock exchange on which its shares are listed, a copy
of the announcement to be published and may publish the announcement upon receipt of confirmation from such stock exchange that the announcement has been exhibited in the premises of the stock exchange. Such announcement shall be exhibited in the
premises of the stock exchange for a period of ninety (90) days. |
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In the case of an application which is made without the consent of the registered holder of the Relevant Shares, the Company shall deliver by mail to such registered
shareholder a copy of the announcement to be published. |
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(5) |
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If, by the expiration of the 90-day period referred to in paragraphs (3) and (4) of this Article, the Company has not received any objection from any person in respect
of the issuance of the replacement share certificate, it may issue a replacement share certificate to the applicant pursuant to his application. |
15
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(6) |
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Where the Company issues a replacement share certificate pursuant to this Article, it shall forthwith cancel the original share certificate and document the cancellation
of the original share certificate and issuance of a replacement share certificate in the register of shareholders accordingly. |
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(7) |
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All expenses relating to the cancellation of an original share certificate and the issuance of a replacement share certificate shall be borne by the applicant and the
Company is entitled to refuse to take any action until reasonable security is provided by the applicant therefor. |
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| Article 48. |
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Where the Company issues a replacement share certificate pursuant to the Company’s Articles of Association and a bona fide purchaser acquires such shares or where a
shareholder subsequently becomes a registered shareholder of the Relevant Shares (and such shareholder being a bona fide purchaser), his name (title) shall not be removed from the register of shareholders. |
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| Article 49. |
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The Company shall not be liable for any damages sustained by any person by reason of the cancellation of the original share certificate or the issuance of the
replacement share certificate unless the claimant is able to prove that the Company has acted in a deceitful manner. |
| CHAPTER 7: SHAREHOLDERS’ RIGHTS
AND OBLIGATIONS |
| Article 50. |
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A shareholder of the Company is a person who lawfully holds shares in the Company and whose name (title) is entered in the register of shareholders. |
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A shareholder shall enjoy rights and assume obligations according to the class and amount of shares held by him; shareholders who hold shares of the same class shall
enjoy the same rights and assume the same obligations. |
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In the case of the joint shareholders, if one of the joint shareholders is deceased, only the other existing shareholders of the joint shareholders shall be deemed as
the persons who have the ownership of the relevant shares. But the board of directors has the power to require them to provide a certificate of death acceptable to it for the purpose of modifying the register of shareholders. For joint shareholders
of any shares, only the joint shareholder whose name appears first in the register of shareholders shall have the right to receive certificates of the relevant shares, receive notices of the Company, and attend and vote at shareholders’ general
meetings of the Company. Any notice which is delivered to the shareholder shall be considered as all the joint shareholders of the relevant shares who have been delivered. |
16
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| Article 51. |
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The holders of ordinary shares of the Company shall enjoy the following rights: |
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(1) |
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the right to receive dividends and other distributions in proportion to the number of shares held; |
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(2) |
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the right to attend or appoint a proxy to attend shareholders’ general meetings and to vote thereat; |
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(3) |
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the right of supervisory management over the Company’s business operations and the right to present proposals or to raise queries; |
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(4) |
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the right to transfer shares in accordance with laws, administrative regulations and provisions of the Company’s Articles of Association; |
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(5) |
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the right to obtain relevant information in accordance with the provisions of the Company’s Articles of Association, including: |
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(i) |
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the right to obtain a copy of the Company’s Articles of Association, subject to payment of costs; |
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(ii) |
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the right to inspect and copy, subject to payment of a reasonable fee: |
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(a) |
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all parts of the register of shareholders; |
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(b) |
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personal particulars of each of the Company’s directors, supervisors, general manager and other senior officers, including: |
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(aa) |
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present and former name and alias; |
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(bb) |
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principal address (place of residence); |
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(cc) |
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nationality; |
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(dd) |
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primary and all other part-time occupations and duties; |
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(ee) |
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identification documents and the numbers thereof; |
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(c) |
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report on the state of the Company’s share capital; |
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(d) |
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reports showing the aggregate par value, quantity, highest and lowest price paid in respect of each class of shares repurchased by the Company since the end of the last
accounting year and the aggregate amount paid by the Company for this purpose; |
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(e) |
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minutes of shareholders’ general meetings; |
17
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(6) |
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in the event of the termination or liquidation of the Company, the right to participate in the distribution of surplus assets of the Company in accordance with the
number of shares held; |
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(7) |
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other rights conferred by laws, administrative regulations and the Company’s Articles of Association. |
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| Article 52. |
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The ordinary shareholders of the Company shall assume the following obligations: |
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(1) |
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to comply with the Company’s Articles of Association; |
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(2) |
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to pay subscription monies according to the number of shares subscribed and the method of subscription; |
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(3) |
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other obligations imposed by laws, administrative regulations and the Company’s Articles of Association. |
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Shareholders are not liable to make any further contribution to the share capital other than according to the terms which were agreed by the subscriber of the relevant
shares at the time of subscription. |
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| Article 53. |
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In addition to the obligations imposed by laws and administrative regulations or required by the listing rules of the stock exchange on which the Company’s shares
are listed, a controlling shareholder shall not exercise his voting rights in respect of the following matters in a manner prejudicial to the interests of all or part of the shareholders of the Company: |
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(1) |
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to relieve a director or supervisor of his duty to act honestly in the best interests of the Company; |
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(2) |
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to approve the expropriation by a director or supervisor (for his own benefit or for the benefit of another person) of the Company’s assets in any way, including
(but not limited to) opportunities which are beneficial to the Company; |
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(3) |
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to approve the expropriation by a director or supervisor (for his own benefit or for the benefit of another person) of the individual rights of other shareholders,
including (but not limited to) rights to distributions and voting rights (save pursuant to a restructuring which has been submitted for approval by the shareholders in a general meeting in accordance with the Company’s Articles of
Association). |
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| Article 54. |
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For the purpose of the above Article, a “controlling shareholder” means a person who satisfies any one of the following conditions: |
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(1) |
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a person who, acting alone or in concert with others, has the power to elect more than half of the board of directors; |
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(2) |
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a person who, acting alone or in concert with others, has the power to exercise or to control the exercise of 30% or more of the voting rights in the
Company; |
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(3) |
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a person who, acting alone or in concert with others, holds 30% or more of the issued and outstanding shares of the Company; |
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(4) |
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a person who, acting alone or in concert with others, has de facto control of the Company in any other way. |
| CHAPTER 8: SHAREHOLDERS’
GENERAL MEETINGS |
| Article 55. |
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The shareholders’ general meeting is the organ of authority of the Company and shall exercise its functions and powers in accordance with the law. |
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| Article 56. |
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The shareholders’ general meeting shall have the following functions and powers: |
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(1) |
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to decide on the Company’s operational policies and investment plans; |
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(2) |
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to elect and replace directors and to decide on matters relating to the remuneration of directors; |
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(3) |
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to elect and replace supervisors who represent the shareholders and to decide on matters relating to the remuneration of the relevant supervisors; |
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(4) |
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to examine and approve the board of directors’ reports; |
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(5) |
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to examine and approve the supervisory committee’s reports; |
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(6) |
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to examine and approve the Company’s annual financial budgets and final accounts; |
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(7) |
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to examine and approve the Company’s profit distribution plans and loss recovery plans; |
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(8) |
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to decide on the increase or reduction of the Company’s registered capital; |
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(9) |
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to decide on matters such as merger, division, dissolution and liquidation of the Company; |
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(10) |
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to decide on the issue of debentures by the Company; |
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(11) |
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to decide on the appointment, dismissal and non-reappointment of the accountancy firms of the Company; |
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(12) |
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to amend the Company’s Articles of Association; |
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(13) |
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to consider motions raised by shareholders who represent 5 % or more of the total number of voting shares of the Company; |
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(14) |
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to decide on other matters which, according to law, administrative regulation or the Company’s Articles of Association, need to be approved by shareholders in
general meetings; |
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The shareholders in a general meeting may authorize or delegate to the board of directors to carry out matters that are authorised by them or may delegate the
implementation of such matters to the board of directors. |
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| Article 57. |
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The Company shall not, without the prior approval of shareholders in a general meeting, enter into any contract with any person (other than a director, supervisor,
general manager and other senior officers) pursuant to which such person shall be responsible for the management and administration of the whole or the material part of the businesses of the Company. |
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| Article 58. |
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Shareholders’ general meetings consist of annual general meetings and extraordinary general meetings. Shareholders’ general meetings shall be convened by the
board of directors. Annual general meetings are held once every year and within six (6) months from the end of the preceding accounting year. |
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The board of directors shall convene an extraordinary general meeting within two (2) months of the occurrence of any one of the following events: |
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(1) |
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where the number of directors is fewer than the number required by the Company Law or less than two-thirds of the number of directors specified in the Company’s
Articles of Association; |
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(2) |
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where the unrecovered losses of the Company amount to one-third of the total amount of its share capital; |
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(3) |
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where shareholder(s) holding 10% or more of the Company’s issued and outstanding voting shares request(s) in writing for the convening of an extraordinary general
meeting; |
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(4) |
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whenever the board of directors deems necessary or the supervisory committee so requests; |
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(5) |
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whenever two or more independent directors so request. |
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| Article 59. |
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When the Company convenes a shareholders’ general meeting, written notice of the meeting shall be given forty-five (45) days before the date of the meeting
(inclusive of the day on which the meeting is held) to notify all of the shareholders whose names appear in the share register of the matters to be considered and the date and place of the meeting. A shareholder who intends to attend the meeting
shall deliver to the Company his written reply concerning his attendance at such meeting twenty (20) days before the date of the meeting. |
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| Article 60. |
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When the Company convenes a shareholders’ annual general meeting, shareholder(s) holding 5% or more of the total voting shares of the Company shall have the right
to propose new motions in writing, and the Company shall place such proposed motions on the agenda for such annual general meeting if they are matters falling within the functions and powers of shareholders in general meetings. |
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| Article 61. |
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The Company shall, based on the written replies that it receives from the shareholders twenty (20) days before the date of the shareholders’ general meeting,
calculate the number of voting shares represented by the shareholders who intend to attend the meeting. If the number of voting shares represented by the shareholders who intend to attend the meeting amounts to more than one-half of the
Company’s total voting shares, the Company may hold the meeting; if not, then the Company shall, within five (5) days, notify the shareholders by way of public announcement the matters to be considered at, and the place and date for, the
meeting. The Company may then hold the meeting after publication of such announcement. |
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A shareholders’ extraordinary general meeting shall not decide on any matter not stated in the notice for the meeting. |
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| Article 62. |
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A notice of a meeting of the shareholders of the Company shall satisfy the following criteria: |
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(1) |
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be in writing; |
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(2) |
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specify the place, date and time of the meeting; |
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(3) |
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state the matters to be discussed at the meeting; |
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(4) |
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provide such information and explanation as are necessary for the shareholders to make an informed decision on the proposals put before them. This principle shall apply
to (but not limited to) situations where a proposal is made for the merger of the Company with another, to repurchase the shares of the Company, to reorganize the Company’s share capital, or to restructure the Company in any other way. The
specific terms of the proposed transaction must be provided together with copies of the proposed agreement, if any, and the cause and effect of such proposal must be properly
explained; |
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(5) |
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contain a disclosure of the nature and extent, if any, of the material interests of any director, supervisor, general manager and other senior officers in the proposed
transaction, and where the effect which the proposed transaction will have on such persons in their capacity as shareholders is different from the effect on the interests of shareholders of the same class, an explanation shall be given on such
differences; |
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(6) |
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contain the full text of any special resolution to be proposed for adoption at the meeting; |
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(7) |
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contain a conspicuous statement that a shareholder entitled to attend and vote at such meeting is entitled to appoint one (1) or more proxies to attend and vote at such
meeting on his behalf and that such proxy(ies) need not be a shareholder; |
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(8) |
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specify the time and place for lodging proxy forms for the relevant meeting. |
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| Article 63. |
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Notice of shareholders’ general meetings shall be served on each shareholder (regardless of whether such shareholder is entitled to vote at the meeting), by
personal delivery or prepaid airmail to the address of the shareholder as shown in the register of shareholders. For the holders of Domestic Shares, notice of the meetings may also be issued by way of public announcement. |
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The public announcement referred to in the preceding paragraph shall be published in one (1) or more national newspapers designated by the securities authority of the
State Council within the interval of forty-five (45) days to fifty (50) days before the date of the meeting; after the publication of such announcement, the holders of Domestic Shares shall be deemed to have received the notice of the relevant
shareholders’ general meeting. |
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| Article 64. |
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The accidental omission to give notice of a meeting to, or the failure to receive the notice of a meeting by, any person entitled to receive such notice shall not
invalidate the meeting and the resolutions adopted thereat. |
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| Article 65. |
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Any shareholder who is entitled to attend and vote at a general meeting of the Company shall be entitled to appoint one (1) or more persons (such person(s) does not have
to be a shareholder) as his proxy(ies) to attend and vote on his behalf, and a proxy(ies) so appointed shall be entitled to exercise the following rights in accordance with the authorization from that shareholder: |
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(1) |
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the shareholders’ right to speak at the meeting; |
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(2) |
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the right to demand or join in demanding a poll; |
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(3) |
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the right to vote by hand or on a poll, but a proxy of a shareholder who has appointed more than one (1) proxy may only vote on a poll. |
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Where any member, under the Listing Rules, is required to abstain from voting on any particular resolution or is restricted to voting only for or only against any
particular resolution, any votes cast by or on behalf of such member in contravention of such requirement or restriction shall not be counted. |
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| Article 66. |
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The instrument appointing a proxy shall be in writing under the hand of the appointer or his attorney duly authorized in writing, or if the appointer is a legal entity,
such instrument shall be delivered either under seal or under the hand of a director or a duly authorized attorney. The letter of authorization shall contain the number of the shares to be represented by the proxy. If several persons are authorized
as the proxies of the shareholder, the letter of authorization shall specify the number of shares to be represented by each proxy. |
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| Article 67. |
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The instrument appointing a proxy and, if such instrument is signed by a person under a power of attorney or other authority on behalf of the appointer, a duly notarized
power of attorney for signing the proxy form or other documents evidencing such authority shall be deposited at the registered address of the Company or at such other place as is specified for that purpose in the notice convening the meeting, not
less than twenty-four (24) hours before either the time for holding the meeting at which the proxy propose to vote or the time appointed for the voting of the resolution. The proxy form shall have on it the date of its execution. |
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If the appointer is a legal person, its legal representative or such person as is authorized by a resolution of its board of directors or other governing body may attend
any meeting of shareholders of the Company as a representative of the appointer. |
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If the shareholder is a recognized clearing house (or its agent), such shareholder is entitled to appoint one or more persons as his proxies to attend on his behalf at a
general meeting or at any class meeting as it sees fit, but, if one or more persons have such authority, the letter of authorization shall contain the number and class of the shares in connection with such authorization. Such person can exercise the
right on behalf of the recognized clearing house (or its attorney) as if he is the individual shareholder of the Company. |
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| Article 68. |
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Any form issued to a shareholder by the directors for use by such shareholder for the appointment of a proxy to attend and vote at meetings of the Company shall be in a
form that enables the shareholder to freely instruct the proxy to vote in favour of or against the motions, with such instructions being individually given in respect of each matter to be voted on at the meeting. Such a form shall contain a
statement that, in the absence of specific instructions from the shareholder, the proxy may vote as he thinks fit. |
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| Article 69. |
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A vote given in accordance with the terms of a proxy shall be valid notwithstanding the death or loss of capacity of the appointer or revocation of the proxy or the
authority under which the proxy was executed or the transfer of the shares in respect of which the proxy is given, provided that the Company did not receive any written notice in respect of such matters before the commencement of the relevant
meeting. |
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| Article 70. |
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A proxy attending a shareholder’s general meeting shall present his proof of identity Save for shareholders who are recognized clearing houses (or its agent), if a
shareholder as a legal person appoints its legal representative to attend a meeting, such legal representative shall present his proof of identity and a duly notarized copy of the resolutions of such shareholder’s board of directors or other
documents evidencing such authority in respect of the appointment of the proxy or any other copy certified in a manner acceptable to the Company. |
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| Article 71. |
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Resolutions of shareholders’ general meetings shall be divided into ordinary resolutions and special resolutions. |
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An ordinary resolution must be passed by votes representing more than one-half of the voting rights represented by the shareholders (including proxies) present at the
meeting. |
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A special resolution must be passed by votes representing more than two-thirds of the voting rights represented by the shareholders (including proxies) present at the
meeting. |
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Shareholders (including proxies) shall expressly indicate whether they are in favour of or against any matter being voted on. Any abstention from voting or vote of
abstention shall not be regarded as valid votes when the Company counts the votes in respect of the relevant matter. |
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| Article 72. |
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A shareholder (including a proxy), when voting at a shareholders’ general meeting, may exercise such voting rights as are attached to the number of voting shares
which he represents. Each share shall have one (1) vote. |
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| Article 73. |
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At any shareholders’ general meeting, a resolution shall be decided on a show of hands unless a poll is demanded before or after a vote has been carried out by a
show of hands: |
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(1) |
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by the chairman of the meeting; |
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(2) |
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by at least two (2) shareholders present in person or by proxy entitled to vote thereat; |
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(3) |
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by one (1) or more shareholders (including proxies) representing 10 % or more of shares (held solely or in combination) carrying the right to vote at the
meeting. |
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Unless a poll is demanded, a declaration by the chairman that a resolution has been passed on a show of hands and the record of such in the minutes of the meeting shall
be conclusive evidence of the fact that such resolution has been passed. There shall be no requirement in providing evidence of the number or proportion of votes in favour of or against such resolution. |
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The demand for a poll may be withdrawn by the person who demands the same. |
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| Article 74. |
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A poll demanded on the election of the chairman of the meeting, or on a question of adjournment of the meeting, shall be taken forthwith. A poll demanded on any other
question shall be taken at such time as the chairman of the meeting directs, and the meeting may proceed to any other business pending the taking of the poll. The result of the poll shall be deemed to be a resolution of the meeting at which the poll
was demanded. |
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| Article 75. |
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On a poll taken at a meeting, a shareholder (including a proxy) entitled to two (2) or more votes need not cast his votes either all for or all against the
resolution. |
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| Article 76. |
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In the case of an equality of votes for and against a resolution, whether on a show of hands or on a poll, the chairman of the meeting shall have a casting
vote. |
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| Article 77. |
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The following matters shall be resolved by ordinary resolutions at shareholders’ general meetings: |
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(1) |
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work reports of the board of directors and the supervisory committee; |
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(2) |
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profit distribution plans and loss recovery plans formulated by the board of directors; |
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(3) |
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election or removal of members of the board of directors and members of the supervisory committee, remuneration and manner of payment of such members; |
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(4) |
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annual budgets and final accounts, balance sheets and profit and loss accounts and other financial statements of the
Company; |
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(5) |
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matters other than those which are required by the laws and administrative regulations or by the Company’s Articles of Association to be adopted by special
resolution. |
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| Article 78. |
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The following matters shall be resolved by a special resolution at a shareholders’ general meeting: |
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(1) |
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the increase or reduction in share capital and the issue of shares of any class, warrants and other securities of a similar nature; |
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(2) |
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the issue of debentures by the Company; |
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(3) |
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the division, merger, dissolution and liquidation of the Company; |
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(4) |
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amendment of the Company’s Articles of Association; |
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(5) |
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amendment to rights of shareholders of any class; and |
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(6) |
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any other matter resolved by way of an ordinary resolution by shareholders in general meeting which the shareholders consider may have a material impact on the Company
and should be adopted by a special resolution. |
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| Article 79. |
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Any resolution adopted by a shareholders’ general meeting shall comply with relevant provisions of PRC laws, administrative regulations and these Articles of
Association. |
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| Article 80. |
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Shareholders who request for the convening of an extraordinary general meeting or a class meeting shall comply with the following procedures: |
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(1) |
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Two (2) or more shareholders holding in aggregate 10% or more of the shares carrying the right to vote at the meeting sought to be held shall sign one (1) or more
written requisitions in the same format and with the same content, stating the proposed matters to be discussed at the meeting, and requiring the board of directors to convene a shareholders’ extraordinary general meeting or a class meeting
thereof. The board of directors shall as soon as possible proceed to convene the extraordinary general meeting of shareholders or a class meeting thereof after receipt of such written requisition(s). The shareholdings of such shareholders referred
to above shall be calculated as at the date of making the requisition(s). |
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(2) |
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If the board of directors fails to issue a notice of such a meeting within thirty (30) days from the date of receipt of the requisition(s), the shareholders who make the
requisitions(s) may themselves convene such a meeting (in a manner as similar as possible to the manner in which shareholders’ meetings are convened by the board of directors) within four (4) months from the date of receipt of the
requisition(s) by the board of directors. |
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Any reasonable expenses incurred by the shareholders who make the requisition(s) by reason of failure of the board of directors to duly convene a meeting shall be
reimbursed by the Company and any sum so reimbursed shall be set-off against sums owed by the Company to the defaulting directors. |
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| Article 81. |
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The Chairman of the board of directors shall convene and chair every shareholders’ general meeting. If the Chairman is unable to attend the meeting for any reason,
the vice-chairman of the board of directors shall convene and chair the meeting. If both the Chairman and the vice-chairman of the board of directors are unable to attend the meeting, then the board of directors may designate a director to convene
and chair the meeting. If no chairman of the meeting has been so designated, shareholders present shall choose one (1) person to act as the chairman of the meeting. If for any reason the shareholders fail to elect a chairman, then the shareholder
(including a proxy) holding the largest number of shares carrying the right to vote thereat shall be the chairman of the meeting. |
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| Article 82. |
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The chairman of the meeting shall be responsible for determining whether a resolution has been passed. His decision, which shall be final and conclusive, shall be
announced at the meeting and recorded in the minute book. |
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| Article 83. |
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If the chairman of the meeting has any doubt as to the result of a resolution which has been put to vote at a shareholders’ meeting, he may have the votes counted.
If the chairman of the meeting has not counted the votes, any shareholder who is present in person or by proxy and who objects to the result announced by the chairman of the meeting may, immediately after the declaration of the result, demand that
the votes be counted and the chairman of the meeting shall count the votes immediately. |
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| Article 84. |
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If votes are counted at a shareholders’ general meeting, the result of the count shall be recorded in the minute book. |
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The Company secretary shall prepare the record of the shareholders’ general meeting, which shall be signed by directors attending the meeting. |
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Resolutions adopted by a shareholders’ general meeting shall be included in the minutes of the meeting. The record and minutes of the meeting shall be in Chinese.
Such record and minutes, shareholders’ attendance lists and proxy forms shall be kept at the Company’s registered address. |
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| Article 85. |
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Copies of the minutes of proceedings of any shareholders’ meeting shall, during business hours of the Company, be open for inspection by any shareholder without
charge. If a shareholder requests for a copy of such minutes from the Company, the Company shall send a copy of such minutes to him within seven (7) days after receipt of reasonable fees by the
Company. |
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| CHAPTER 9: SPECIAL PROCEDURES FOR VOTING BY A CLASS OF SHAREHOLDERS |
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| Article 86. |
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Class shareholders are those shareholders who hold different classes of shares. |
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Class shareholders shall enjoy rights and assume obligations in accordance with laws, administrative regulations and the Company’s Articles of
Association. |
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| Article 87. |
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Rights conferred on any class of shareholders may not be varied or abrogated save with the approval of a special resolution of shareholders in a general meeting and by
holders of shares of that class at a separate meeting convened in accordance with Articles 89 to 93. |
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| Article 88. |
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The following circumstances shall be deemed to be variation or abrogation of the rights attaching to a particular class of shares: |
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(1) |
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to increase or decrease the number of shares of that class, or to increase or decrease the number of shares of a class having voting or equity rights or privileges equal
or superior to those of shares of that class; |
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(2) |
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to exchange all or part of the shares of that class for shares of another class, or to exchange or to create a right to exchange all or part of the shares of another
class for shares of that class; |
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(3) |
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to remove or reduce rights to accrued dividends or rights to cumulative dividends attached to shares of that class; |
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to reduce or remove preferential rights attached to shares of that class to receive dividends or to the distribution of assets in the event that the Company is
liquidated; |
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(5) |
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to add, remove or reduce conversion rights, election rights, voting rights, transfer or pre-emptive rights, or rights to acquire securities of the Company attached to
shares of that class; |
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(6) |
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to remove or reduce rights to receive payment payable by the Company in particular currencies attached to shares of that class; |
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(7) |
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to create a new class of shares having voting or equity rights or other privileges equal or superior to those of the shares of that
class; |
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(8) |
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to restrict the transfer or ownership of shares of that class or to increase the types of restrictions attaching thereto; |
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(9) |
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to allot and issue rights to subscribe for, or to convert the existing shares into, shares in the Company of that class or another class; |
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(10) |
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to increase the rights or privileges of shares of another class; |
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(11) |
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to restructure the Company in such a way so as to result in the disproportionate distribution of obligations between the various classes of
shareholders; |
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(12) |
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to vary or abrogate the provisions of this Chapter. |
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| Article 89. |
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Shareholders of the affected class, regardless of whether having the right to vote or not at shareholders’ general meetings, have the right to vote at class
meetings in respect of matters concerning sub-paragraphs (2) to (8), (11) and (12) of Article 88, but interested shareholder(s) shall not be entitled to vote at such class meetings. |
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“(An) interested shareholder(s)”, as such term is used in the preceding paragraph: |
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in the case of a repurchase of shares by way of a general offer to all shareholders of the Company in the same proportion for all shareholders or by way of public
dealing on a stock exchange pursuant to Article 30, an “interested shareholder” refers to a controlling shareholder within the meaning of Article 54 herein; |
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(2) |
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in the case of a repurchase of shares by an off-market agreement pursuant to Article 30, an “interested shareholder” refers to a shareholder to whom the
proposed agreement relates; |
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(3) |
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in the case of a restructuring of the Company, an “interested shareholder“ refers to a shareholder who assumes a relatively lower proportion of obligation than
the obligations imposed on shareholders of that class under the proposed restructuring or who has an interest in the proposed restructuring different from the general interests of the shareholders of that class. |
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| Article 90. |
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Resolutions of a class of shareholders shall be passed by votes representing more than two-thirds of the voting rights of shareholders of that class represented at the
relevant meeting who, according to Article 89, are entitled to vote thereat. |
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| Article 91. |
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Written notice of a class meeting shall be despatched to all shareholders who are registered as holders of that class in the register of shareholders forty-five (45)
days (inclusive of the day of the class meeting) before the date of the class meeting. Such notice shall give such shareholders notice of the matters to be considered at such meeting, the date and the place of the class meeting. A shareholder who
intends to attend the class meeting shall deliver his written reply to the Company twenty (20) days before the date of the class meeting. |
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If the shareholders who intend to attend such class meeting represent more than half of the total number of shares of that class which have the right to vote at such
meeting, the Company may hold the class meeting; if not, the Company shall within five (5) days give the shareholders further notice of the matters to be considered, the date and the place of the class meeting by way of public announcement. The
Company may then hold the class meeting after such public announcement has been made. |
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| Article 92. |
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Notice of class meetings need only be served on shareholders entitled to vote thereat. |
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To the extent possible class meetings shall be conducted in a manner similar to shareholders’ general meetings. The provisions of the Company’s Articles of
Association relating to the conduct of shareholders’ general meetings shall also apply to class meetings. |
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| Article 93. |
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Apart from the holders of other classes of shares, the holders of the Domestic Shares and holders of Overseas-Listed Foreign-Invested Shares shall be deemed to be
holders of different classes of shares. |
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The special procedures for approval by a class of shareholders shall not apply in the following circumstances: |
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(1) |
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where the Company issues, upon the approval by special resolution of its shareholders in a general meeting once every twelve (12) months, either separately or
concurrently, issue not more than 20% of each of its existing issued Domestic Shares and Overseas-Listed Foreign-Invested Shares that has been issued; or |
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(2) |
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where the Company’s plan to issue Domestic Shares and Overseas-Listed Foreign-Invested Shares at the time of its establishment is carried out within fifteen (15)
months from the date of approval of the securities authority of the State Council. |
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| CHAPTER 10: BOARD OF DIRECTORS |
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| Article 94. |
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The Company shall have a board of directors. The board of directors shall consist of twelve (12) directors, of which four (4) shall be independent (non-executive)
directors (meaning directors who are independent from the Company’s shareholders and do not hold positions within the Company). |
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The board of directors shall have one (1) Chairman. |
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Where necessary, the board of directors may establish audit, remuneration, nomination and other specialised committees. |
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| Article 95. |
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Directors shall be elected at the shareholders’ general meeting for a term of three (3) years. At the expiry of a director’s term, the director may stand for
re-election and reappointment for further term. |
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The minimum period during which written notice given to the Company of the intention to propose a person for election as a director, and during which written notice to
the Company by such person of his willingness to be elected may be given, will be at least 7 days. Such period will commence no earlier than the day after the despatch of the notice of the meeting for the purpose of considering such election and
shall end no later than 7 days prior to the date of such meeting. |
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Nine (9) members of the first session of the board of directors shall be nominated by the promoters of the Company and elected at the Company’s inaugural meeting.
The number of directors elected for each subsequent session of the board of directors shall not be less than that stipulated in Article 94 or more than the maximum determined at the shareholders’ general meeting by an ordinary resolution. Where
the number of directors elected by voting exceeds the maximum number of directors proposed, directors who are elected within the maximum number so determined shall be those who get the largest number of votes and appointed in the sequence starting
with those with the largest number of votes. |
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Subject to compliance with all relevant laws and administrative regulations, the shareholders’ general meeting may by ordinary resolution remove any director prior
to the expiration of such director’s term of office. However, such director’s right to claim for damages pursuant to any contract due to his loss of office shall not be affected. |
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The Chairman shall be elected and removed by more than one-half of all of the members of the board of directors. The term of office of each of the Chairman is three (3)
years. The Chairman may stand for re-election and may be elected for further term. |
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The external directors shall have sufficient time and necessary knowledge and ability to perform their duties. When an external director performs his duties, the Company
must provide necessary information and independent (non-executive) directors may directly report to the shareholders’ meeting, the securities regulatory authority under the State Council and other relevant
departments. |
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The executive directors shall handle matters as authorized by the board of directors. |
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The directors shall not be required to hold shares in the Company. |
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| Article 96. |
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The board of directors is accountable to the shareholders in general meeting and exercises the following functions and powers: |
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(1) |
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to be responsible for the convening of the shareholders’ general meetings and to report on its work to the shareholders in general meeting; |
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(2) |
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to implement the resolutions passed by the shareholders in general meeting; |
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(3) |
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to determine the Company’s business plans and investment proposals; |
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(4) |
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to formulate the Company’s annual financial budgets and final accounts; |
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(5) |
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to formulate the Company’s profit distribution proposal and loss recovery proposal; |
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(6) |
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to formulate the Company’s debt and financial policies, proposals for the increase or reduction of the Company’s registered capital and for the issuance of the
Company’s debentures; |
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(7) |
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to draw up the Company’s material acquisition and disposal proposals and plans for the merger, division or dissolution of the Company; |
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(8) |
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to decide on the Company’s internal management structure; |
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(9) |
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to appoint or remove the Company’s general manager and to appoint or remove the deputy general managers, and financial deputy general manager of the Company based
on the recommendations of the general manager; to appoint or remove the secretary of the board of directors, and to decide on their remuneration; |
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(10) |
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to decide on the establishment of the Company’s branch organisations; |
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(11) |
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to formulate proposals for amendment of the Company’s Articles of Association; |
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(12) |
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to formulate the basic management structure of the Company; |
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(13) |
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except matters that the Company Law and these Articles of Association require to be resolved by the shareholders in general meeting, to decide on other material and
administrative matters of the Company and to execute other material agreements; |
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(14) |
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to perform any other functions or exercise any other powers conferred by the shareholders in general meeting or these Articles of Association. |
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Other than the board of directors’ resolutions in respect of the matters specified in sub-paragraphs (6), (7) and (11) of this Article, which shall be passed by the
affirmative vote of more than two-thirds of all the directors, the board of directors’ resolutions in respect of all other matters may be passed by the affirmative vote of a simple majority of the directors. |
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Resolutions made by the board of directors on the Company’s connected transactions shall come into effect only after they are signed by the independent
(non-executive) directors. |
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| Article 97. |
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The board of directors shall not, without the prior approval of shareholders in a general meeting, dispose or agree to dispose of any fixed assets of the Company where
the aggregate of the amount or value of the consideration for the proposed disposition, and the amount or value of the consideration for any such disposition of any fixed assets of the Company that has been completed in the period of four (4) months
immediately preceding the proposed disposition, exceeds 33% of the value of the Company’s fixed assets as shown in the latest balance sheet which was tabled at a shareholders’ general meeting. |
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For the purposes of this Article, a “disposition” includes an act involving the transfer of an interest in assets but does not include the pledging of fixed
assets as guarantee. |
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The validity of a disposition by the Company shall not be affected by any breach of the first paragraph of this
Article. Before the board of directors makes a decision on market
development, merger and acquisition, investment in new areas, etc., in relation to projects involving an investment amount or asset value of the acquisition or merger amounting to more than 10% of the total assets of the Company, an independent
consulting agency shall be engaged to provide its professional opinions which shall form an important basis of the decisions of the board of directors. |
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| Article 98. |
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The Chairman of the board of directors shall exercise the following powers: |
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(1) |
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to preside over shareholders’ general meetings and to convene and preside over meetings of the board of directors; |
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(2) |
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to organise the implementation of the duties of the board of directors and to check on the implementation status of resolutions passed by the board of directors at its
meetings; |
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(3) |
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to sign the securities certificates issued by the Company; |
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(4) |
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to exercise other powers conferred by the board of directors. |
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When the Chairman is unable to exercise his powers, such powers shall be exercised by the executive director who has been designated by the Chairman to exercise such
powers on his behalf. |
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| Article 99. |
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Meetings of the board of directors shall be held at least twice every year and shall be convened by the Chairman of the board of directors. All of the directors should
be notified about the meeting ten (10) days beforehand. Where there is an urgent matter, an extraordinary meeting of the board of directors may be held if it is so requested by six (6) of the directors, the Chairman of the board of directors or the
Company’s general manager. Such extraordinary meeting shall not be subject to the provisions of Article 100 on notice of the meetings. |
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| Article 100. |
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Notice of meetings of the board of directors shall be delivered as follows: |
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(1) |
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For regular meetings of the board of directors of which the time and venue have been stipulated by the board of directors beforehand, no notice of the convening of such
meetings will be needed. |
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(2) |
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For meetings of the board of directors of which the time and venue have not been decided by the board of directors beforehand, the Chairman of the board of directors
shall notify the directors of the time and venue of such meeting 10 days in advance by telex, by telegram, by facsimile, by express courier service or by registered mail or in person, unless otherwise provided for in Article 99. |
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(3) |
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Notice of meetings may be served in Chinese, with an English translation attached thereto when necessary, and in each case accompanied by a meeting agenda. A director
may waive his right to receive notice of a board meeting. |
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| Article 101. |
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In strict compliance with the required procedures, all executive and external directors must be notified about the material matters that must be decided by the board of
directors within the time limit stipulated in Article 100, and sufficient materials must be provided at the same time. Directors may request for supplementary information. If more than one-fourth of the total number of directors or more than two
external directors consider that the materials provided are not sufficient or the supporting arguments are not clear, they may jointly propose to postpone the meeting or postpone the discussion of certain matters on the agenda of the meeting and the
board of directors shall accept such proposal. |
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Notice of a meeting shall be deemed to have been given to any director who attends the meeting and does not protest against, before or at its commencement, any lack of
notice. |
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Any regular or extraordinary meeting of the board of directors may be held by way of telephone conferencing or with the assistance of similar communication equipment so
long as all directors participating in the meeting can hear and communicate with each other clearly. All such directors shall be deemed to be present in person at the meeting. |
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| Article 102. |
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A board of directors meeting shall only be convened if more than half of the board of directors are present (including any directors appointed pursuant to Article 103 to
attend the meeting as the representatives of other directors). Each director has one vote. All resolutions require the affirmative votes of more than half of all the board of directors in order to be passed. In the case of equal number of votes for
and against a resolution the Chairman of the board of directors is entitled to a casting vote. |
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| Article 103. |
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Directors shall attend the meetings of the board of directors in person. Where a director is unable to attend a meeting for any reason, he may by a written power of
attorney appoint another director to attend the meeting on his behalf. The power of attorney shall set out the scope of the authorization. |
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A Director appointed as the representative of another director to attend the meeting shall exercise the rights of a director within the scope of authority conferred by
the appointing director. Where a director is unable to attend a meeting of the board of directors and has not appointed the representative to attend the meeting on his behalf, he shall be deemed to have waived his right to vote at the
meeting. |
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Expenses incurred by a director for attending a meeting of the board of directors shall be paid by the Company. These expenses include the costs of transportation
between the premises of the director and the venue of the meeting in different cities and accommodation expenses during the meeting. Rent of the meeting place, local transportation costs and other reasonable out-of-pocket expenses shall be paid by
the Company. |
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| Article 104. |
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The board of directors may accept a written resolution in lieu of a board meeting provided that a draft of such written resolution shall be delivered to each director in
person, by mail, by telegram or by facsimile. If the board of directors has delivered such proposed written resolution to all the directors and the directors who signed and approved such resolution have reached the required quorum, and the same has
been delivered to the secretary of the board of directors, such resolution shall become a board resolution and a board meeting need not be convened. |
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| Article 105. |
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The board of directors shall keep minutes of matters considered and resolutions passed at meetings of the board of directors in Chinese. Opinions of the independent
(non-executive) directors shall be clearly stated in the resolutions of the board of directors. The minutes of each board meeting shall be provided to all the directors promptly. Directors who wish to amend or supplement the minutes shall submit the
proposed amendments to the Chairman in writing within one week after receipt of the meeting minutes. After the minutes have been finalized, they shall be signed by the directors present at the meeting and by the person who recorded the minutes. The
minutes of board meetings shall be kept at the registered address of the Company in the PRC and a complete copy of the minutes shall be promptly sent to each director. |
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The directors shall be liable for the resolutions of the board of directors. If a resolution of the board of directors violates the laws, administrative regulations or
the Company’s Articles of Association and the Company suffers serious losses as a result, the directors who participated in the passing of such resolution are liable to compensate the Company therefore such losses. However, if it has been
proven that a director expressly objected to the resolution when the resolution was voted on, and that such objection was recorded in the minutes of the meeting, such director may be released from such liability. |
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| CHAPTER 11: SECRETARY OF THE BOARD OF DIRECTORS |
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| Article 106. |
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The Company shall have one (1) secretary of the board of directors. The secretary shall be a senior officer of the Company. |
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Where necessary, the board of directors may establish a secretarial office of the board of directors. |
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| Article 107. |
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The secretary of the Company’s board of directors shall be a natural person who has the requisite professional knowledge and experience, and shall be appointed by
the board of directors. |
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The main tasks of the secretary of the board of directors include: |
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(1) |
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to assist the directors in the day-to-day work of the board of directors, to continuously
provide the directors with, to remind the directors of and to ensure that the directors understand the regulations, policies and requirements of the foreign and domestic regulatory authorities on the operation of the Company, to assist the directors
and the general manager to effectively implement relevant foreign and domestic laws, regulations, the Company’s Articles of Association and other relevant regulations when carrying out their duties; |
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(2) |
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to be responsible for the organization and preparation of documents for board meetings and shareholders’ meetings, to take proper meeting minutes, to ensure that
the resolutions passed at the meetings comply with statutory procedures and to be knowledgeable about the implementation of the resolutions of the board of directors; |
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(3) |
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to be responsible for the organization and coordination of information disclosure, to coordinate the relationship with investors and to increase transparency of the
Company; |
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(4) |
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to participate in the structuring of financing through the capital markets; |
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(5) |
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to deal with intermediaries, regulatory authorities and media, and to maintain good public relations. |
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Duties of the secretary of the board of directors include: |
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(1) |
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to organise and prepare for the board meetings and shareholders’ meetings, to prepare documents for the meetings, to make relevant arrangements for the meetings, to
be responsible for taking meeting minutes, to ensure the accuracy of the records, to keep meeting documents and minutes and to take proactive steps to become knowledgeable about the implementation of relevant resolutions; to report to and advise the
board of directors on important issues during implementation of the resolutions. |
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(2) |
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to ensure that material decisions of the board of directors are implemented in strict compliance with the required procedures; upon request by the board of directors, to
participate in, and to organize the consultation and analysis of matters to be decided by the board of directors and provide relevant advice and recommendations thereon; to carry out the day-to-day work of the board of directors and its relevant
committees upon delegation. |
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(3) |
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to act as a contact point between the Company and securities regulatory authorities, to be responsible for the organisation of the preparation and timely submission of
documents required by the regulatory authorities, responsible for carrying out the tasks given by the regulatory authorities and organising their accomplishment. |
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(4) |
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to be responsible for coordinating and organizing the Company’s information disclosure, to set up a sound information disclosure system, to participate in all the
meetings of the Company in relation to information disclosure, to timely obtain important business decisions and the relevant information. |
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(5) |
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to be responsible for keeping price sensitive information of the Company confidential and to formulate an effective system of maintaining confidentiality and related
measures; to take necessary remedial actions in the event of the unintended disclosure for whatever reason of any price sensitive information of the Company; and to make prompt explanations and clarifications and notify the regulatory authority of
the overseas listing place and CSRC thereof. |
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(6) |
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to be responsible for the coordination and organisation of market promotions, to coordinate visits to the Company, to deal with relationship with investors, to maintain
communication with investors, intermediaries and media, to be responsible for coordinating and answering questions raised by the public, and to ensure that the investors promptly obtain the information disclosed by the Company; to organise and
prepare for marketing and promotion activities outside and in the PRC, to draw up summary reports on market promotion activities and important visits to the Company and to organise the reporting of the same to CSRC. |
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(7) |
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to be responsible for administering and keeping the register of the members of the Company, the register of the directors of the Company, the shareholding of major
shareholders and directors and list of the holders of the outstanding debentures of the Company in issue. |
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(8) |
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to assist the directors and the general manager in complying with foreign and domestic laws, regulations, the Company’s Articles of Association and other relevant
regulations in exercising their powers. After becoming aware that any resolutions made or likely to be made by the Company are in breach of relevant regulations, the secretary is obliged to give prompt warnings and shall have the right to report
such facts to the CSRC and other regulatory authorities. |
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(9) |
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to coordinate the provision of necessary information required by the Company’s supervisory committee and other examination body for their supervisory functions, and
assist them in their investigation on the relevant financial officer, directors of the Company and general manager on whether they have satisfied their responsibility for
trust–worthiness. |
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(10) |
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to exercise other powers and duties authorized by the board of directors and other powers and duties required in the overseas listing jurisdiction. |
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| Article 108. |
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A director or other senior officer of the Company may also act as the secretary of the board of directors. Accountants of the accountancy firm which has been appointed
by the Company to act as its auditors shall not act as the secretary of the board of directors. |
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Where the office of secretary is held concurrently by a director, and an act is required to be done by a director and a secretary separately, the person who holds the
office of director and secretary may not perform the act in a dual capacity. |
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| Article 109. |
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The secretary of the board of directors shall diligently exercise his duties in accordance with the relevant provisions of these Articles of
Association. |
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The secretary of the board of directors shall assist the Company in complying with the relevant PRC laws and the rules of the securities exchange on which the shares of
the Company are listed. |
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| CHAPTER 12: GENERAL MANAGER |
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| Article 110. |
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The Company shall have a general manager who shall be appointed or dismissed by the board of directors. |
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The Company shall have several deputy general managers, and financial deputy general manager who shall assist the general manager. The deputy general managers and
financial deputy general manager shall be nominated by the general manager and appointed or dismissed by the board of the directors. |
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A member of the board of directors may act concurrently as the general manager or deputy general manager. |
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| Article 111. |
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The general manager shall be accountable to the board of directors and shall exercise the following functions and powers: |
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(1) |
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to be in charge of the Company’s production, operation and management and to organise the implementation of the resolutions of the board of
directors; |
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(2) |
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to organise the implementation of the Company’s annual business plan and investment proposal; |
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(3) |
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to devise the establishment of the Company’s internal management structure; |
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(4) |
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to draft plans for the establishment of the Company’s branch organisations; |
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(5) |
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to devise the Company’s basic management system; |
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(6) |
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to formulate basic rules and regulations of the Company; |
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(7) |
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to propose the appointment or dismissal of the deputy general managers and financial deputy general manager of the Company; |
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(8) |
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to appoint or dismiss management personnel other than those required to be appointed or dismissed by the board of directors; |
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(9) |
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other powers conferred by the Company’s Articles of Association and the board of directors. |
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| Article 112. |
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The general manager who is not a director shall be entitled to attend meetings of the board of directors and receive the notice of meeting and the relevant documents.
The general manager who is not a director does not have any voting rights at board meetings. |
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| Article 113. |
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In performing their duties and exercising their powers, the general manager, the deputy general managers and the financial deputy general manager shall not depart from
the resolutions of the shareholders’ general meetings or the board of directors, or exceed their respective authority. |
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| Article 114. |
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In performing their duties and powers, the general manager, the deputy general managers and the financial deputy general manager shall act honestly and diligently and in
accordance with laws, administrative regulations and the Company’s Articles of Association. |
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| Article 115. |
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The general manager, the deputy general managers, the financial deputy general manager and other senior officers who wish to resign shall give a three-month written
notice to the board of directors. Department managers who wish to resign shall give a two-month written notice to the general manager. |
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| CHAPTER 13: SUPERVISORY COMMITTEE |
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| Article 116. |
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The Company shall have a supervisory committee. The supervisory committee is a permanent supervisory body of the Company responsible for supervising the board of
directors and its members, the general manager, deputy general managers, financial deputy general manager and other senior officers of the Company to prevent them from abusing their powers and infringing the legitimate rights and interests of the
shareholders, the Company and its employees. |
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| Article 117. |
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The supervisory committee shall compose of five (5) supervisors including one external supervisor (hereinafter meaning supervisors who do not hold office in the
Company). |
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The supervisory committee shall have one (1) chairman. Each supervisor shall serve for a term of three (3) years, which term is renewable upon re-election and
re-appointment. |
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The election or removal of the chairman of the supervisory committee shall be determined by the affirmative votes of two-thirds or more of the members of the supervisory
committee. |
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The chairman of the supervisory committee shall organise the implementation of the duties of the supervisory committee. |
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| Article 118. |
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The supervisory committee shall comprise three (3) supervisors who represent the shareholders (hereinafter including those qualified as external supervisors) and two (2)
supervisors who shall represent the employees. Supervisors who represent the shareholders shall be elected or removed by the shareholders in general meetings, and the supervisor who represents employees shall be elected or removed by the employees
democratically. |
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Where necessary, the supervisory committee may establish an office responsible for the day-to-day work of the supervisory committee. |
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| Article 119. |
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The directors, the general manager, the deputy general managers and the financial deputy general manager of the Company shall not act concurrently as
supervisors. |
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| Article 120. |
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Meetings of the supervisory committee shall be held at least twice every year, and shall be convened by the chairman of the supervisory committee. |
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| Article 121. |
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The supervisory committee shall be accountable to the shareholders in general meeting and shall exercise the following functions and powers in accordance with the
law: |
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(1) |
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to review the Company’s financial position; |
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(2) |
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to supervise the directors, general manager, deputy general managers, financial controller and other senior officers to ensure that they do not act in contravention of
any law, administrative regulation or the Company’s Articles of Association; |
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(3) |
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to require any director, general manager, deputy general manager, financial controller or other senior officer who acts in a manner which is harmful to the
Company’s interest to rectify such behaviour; |
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(4) |
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to check the financial information such as the financial report, business report and plans for distribution of profits to be submitted by the board of directors to the
shareholders’ general meetings and to authorize, in the Company’s name, publicly certified accountants and practising auditors to assist in the re-examination of such information should any doubt
arise in respect thereof; |
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(5) |
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to propose to convene an extraordinary general meeting; |
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(6) |
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to represent the Company in negotiations with or in bringing actions against a director; |
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(7) |
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other functions and powers specified in the Company’s Articles of Association. |
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The supervisory committee may provide its opinions on the appointment of accountancy firm by the Company, and may appoint another accountancy firm in the name of the
Company when necessary to independently examine financial affairs of the Company, and may directly report relevant information to the securities supervisory and management authorities of the State Council and other relevant
authorities. |
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External supervisors shall report independently to the shareholders’ meeting on whether the senior officers have performed their duties honestly and
diligently. |
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Supervisors shall attend meetings of the board of directors as observers. |
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| Article 122. |
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Resolutions of the supervisory committee shall be passed by the affirmative vote of more than two-thirds of all of its members. |
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| Article 123. |
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All reasonable fees incurred in respect of the employment of professionals (such as lawyers, certified public accountants and practising auditors) for the exercise of
the supervisory committee’s functions and powers shall be borne by the Company. |
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| Article 124. |
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A supervisor shall carry out his duties honestly and faithfully in accordance with laws, administrative regulations and the Company’s Articles of
Association. |
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| CHAPTER 14: THE QUALIFICATIONS AND DUTIES OF THE DIRECTORS, SUPERVISORS, GENERAL MANAGER AND OTHER SENIOR OFFICERS OF THE COMPANY |
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| Article 125. |
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A person may not serve as a director, supervisor, general manager or any other senior officer of the Company if any of the following circumstances
apply: |
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(1) |
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a person who does not have or who has limited capacity for civil conduct; |
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(2) |
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a person who has been sentenced for corruption, bribery, infringement of property rights or misappropriation of property or other crimes which disrupt the social
economic order, where less than a term of five (5) years has lapsed since the sentence was fully served, or a person who has been deprived of his political rights and not more than five (5) years have lapsed since the sentence was fully
served; |
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(3) |
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a person who is a former director, factory manager or manager of a company or enterprise which has been dissolved or put into liquidation as a result of mismanagement
and who was made personally liable for such dissolution or liquidation, and where less than three (3) years have lapsed since the date of completion of the insolvent liquidation of the company or enterprise; |
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(4) |
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a person who is a former legal representative of a company or enterprise the business licence of which was revoked due to violation of law and who are personally liable
therefor, where less than three (3) years have elapsed since the date of the revocation of the business licence; |
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(5) |
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a person who has a relatively large amount of debts which have become overdue; |
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(6) |
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a person who is currently undergoing investigation by judicial organs for violation of criminal law; |
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(7) |
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a person who, according to laws and administrative regulations, cannot act as a leader of an enterprise; |
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(8) |
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a person other than a natural person; |
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(9) |
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a person who has been convicted by the competent authority for violation of relevant securities regulations and such conviction involves a finding that such person has
acted fraudulently or dishonestly, and where less than five (5) years have lapsed from the date of such conviction. |
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| Article 126. |
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The validity of an act carried out by a director, the general manager, and other senior officers of the Company on behalf of the Company as against a bona fide third
party acting in good faith, shall not be affected by any irregularity in his office, his election or any defect in his qualification. |
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| Article 127. |
|
In addition to the obligations imposed by laws, administrative regulations or the listing rules of the stock exchange on which shares of the Company are listed, each of
the Company’s directors, supervisors, general manager and other senior officers owes a duty to each shareholder, in the exercise of the functions and powers entrusted to him by the Company: |
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(1) |
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not to cause the Company to exceed the scope of business stipulated in its business licence; |
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(2) |
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to act honestly and in the best interests of the Company; |
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(3) |
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not to expropriate the Company’s property in any way, including (but not limited to) usurpation of opportunities which benefit the Company; |
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(4) |
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not to expropriate the individual rights of shareholders, including (but not limited to) rights to distribution and voting rights, save and except pursuant to a
restructuring of the Company which has been submitted to the shareholders for approval in accordance with the Company’s Articles of Association. |
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| Article 128. |
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Each of the Company’s directors, supervisors, general manager and other senior officers owes a duty, in the exercise of his powers and in the discharge of his
duties, to exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances. |
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| Article 129. |
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Each of the Company’s directors, supervisors, general manager and other senior officers shall exercise his powers or perform his duties in accordance with the
fiduciary principle, and shall not put himself in a position where his duty borne and his personal interest may conflict. This principle shall mean (without limitation) discharging the following obligations: |
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(1) |
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to act honestly and in the best interests of the Company; |
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(2) |
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to act within the scope of his powers and not to exceed such powers; |
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(3) |
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to exercise the discretion vested in him personally and not to allow himself to act under the control of another and, unless and to the extent permitted by laws,
administrative regulations or with the informed consent of shareholders given in a general meeting, not to delegate the exercise of his discretion; |
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(4) |
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to treat shareholders of the same class equally and to treat shareholders of different classes fairly; |
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(5) |
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unless otherwise provided for in the Company’s Articles of Association or except with the informed consent of the shareholders given in a general meeting, not to
enter into any contract, transaction or arrangement with the Company; |
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(6) |
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not to use the Company’s property for his own benefit unless with the informed consent of the shareholders given in a general meeting; |
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(7) |
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not to exploit his position by accepting bribes or other illegal income or expropriate the Company’s property in any way, including (but not limited to)
opportunities which benefit the Company; |
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(8) |
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not to accept commissions in connection with the Company’s transactions unless with the informed consent of the shareholders given in a general
meeting; |
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(9) |
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to comply with the Company’s Articles of Association, to perform his official duties faithfully, to protect the Company’s interests and not to exploit his
position and power in the Company to advance his own interests; |
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(10) |
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not to compete with the Company in any way unless with the informed consent of the shareholders given in a general meeting; |
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(11) |
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not to misappropriate the Company’s funds or to lend such funds to any other person, not to use the Company’s assets to set up deposit accounts in his own name
or in any other name or to use such assets to guarantee the debts of a shareholder of the Company or any other personal liabilities; |
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(12) |
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not to release any confidential information which he has obtained during his term of office unless with the informed consent of the shareholders in a general meeting;
nor shall he use such information in any other way other than for the Company’s benefit, save that disclosure of such information to the court or other governmental authorities is permitted if: |
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(i) |
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disclosure is made under compulsion of law; |
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(ii) |
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public interests so warrants; |
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(iii) |
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the interests of the relevant director, supervisor, general manager or other senior officer so requires. |
45
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| Article 130. |
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Each director, supervisor, general manager and other senior officer of the Company shall not direct the following persons or institutions (“associates”) to act
in a manner which he is prohibited from so acting: |
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(1) |
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the spouse or minor child of the director, supervisor, general manager or other senior officer; |
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(2) |
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the trustee of the director, supervisor, general manager or other senior officer or of any person described in sub-paragraph (1) above; |
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(3) |
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the partner of that director, supervisor, general manager or other senior officer or any person referred to in sub-paragraphs (1) and (2) of this
Article; |
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(4) |
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a company in which that director, supervisor, general manager or other senior officer, whether alone or jointly with one (1) or more of the persons referred to in
sub-paragraphs (l), (2) and (3) of this Article and other directors, supervisors, general manager and other senior officers, has de facto controlling interest; |
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(5) |
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the directors, supervisors, general manager and other senior officers of a company which is being controlled in the manner set out in sub-paragraph (4)
above. |
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| Article 131. |
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The fiduciary duties of the directors, supervisors, general manager and other senior officers of the Company do not necessarily cease with the termination of their
tenure. The duty of confidentiality in respect of trade secrets of the Company survives the termination of their tenure. Other duties may continue for such period as the principle of fairness may require depending on the amount of time which has
lapsed between the termination and the act concerned and the circumstances and the terms under which the relationship between the relevant director, supervisor, general manager and other senior officer on the one hand and the Company on the other
hand was terminated. |
46
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| Article 132. |
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A director, supervisor, general manager or other senior officer of the Company may be relieved of his liability for specific breaches of his duty with the informed
consent of the shareholders given at a general meeting, but this shall not apply for the matters set out in Article 53 of these Articles of Association. |
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| Article 133. |
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Where a director, supervisor, general manager or other senior officer of the Company is in any way, either directly or indirectly, materially interested in a contract,
transaction or arrangement or proposed contract, transaction or arrangement with the Company (other than his contract of service with the Company), he shall declare the nature and extent of his interests to the board of directors at the earliest
opportunity, whether or not the contract, transaction or arrangement or proposal is ordinarily subject to the approval of the board of directors. |
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If a director or his associate (as defined in the Rules Governing the Listing of Securities of The Stock Exchange of Hong Kong Limited) has a material interest in any
contract, transaction, arrangement or other matters that requires the approval of the board of directors, the relevant director shall not vote for the relevant matter at the meeting of the board of directors, and shall not be counted towards the
quorum of the meeting. |
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Unless the interested director, supervisor, general manager or other senior officer has disclosed his interests in accordance with the preceding sub-paragraph of this
Article, and he has neither been counted as part of the quorum nor participated in voting for such matter the Company may annul such contract, transaction or arrangement , except as against a bona fide party thereto who does not have notice of the
breach of duty by the interested director, supervisor, general manager or other senior officer. |
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A director, supervisor, general manager or other senior officer of the Company is deemed to be interested in a contract, transaction or arrangement in which his
associate is interested. |
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| Article 134. |
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Where a director, supervisor, general manager or other senior officer of the Company gives to the board of directors a notice in writing stating that, by reason of the
facts specified in the notice, he is interested in contracts, transactions or arrangements which may subsequently be made by the Company, that notice shall be deemed for the purposes of the preceding Article to be a sufficient declaration of his
interests, so far as the content stated in such notice is concerned, provided that such written notice is given before the date on which the question of entering into the relevant contract, transaction or arrangement is first taken into
consideration by the Company. |
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| Article 135. |
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The Company shall not pay taxes for or on behalf of a director, supervisor, general manager or other senior officer in any
manner. |
47
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| Article 136. |
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The Company shall not directly or indirectly make a loan to or provide any guarantee in connection with the making of a loan to a director, supervisor, general manager
or other senior officer of the Company or of the Company’s holding company or any of their respective associates. |
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The foregoing prohibition shall not apply to the following circumstances: |
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(1) |
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the provision by the Company of a loan or a guarantee in connection with the making of a loan to its subsidiary: |
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(2) |
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the provision by the Company of a loan or a guarantee in connection with the making of a loan or any other funds available to any of its directors, supervisors, general
manager and other senior officers to meet expenditure incurred or to be incurred by him for the purposes of the Company or for the purpose of enabling him to perform his duties properly, in accordance with the terms of a service contract approved by
the shareholders in a general meeting; |
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(3) |
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if the ordinary course of business of the Company includes the lending of money or the giving of guarantees, the Company may make a loan to or provide a guarantee in
connection with the making of a loan to any of the relevant directors, supervisors, general manager and other senior officers or their respective associates in the ordinary course of its business on normal commercial terms. |
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| Article 137. |
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Any person who receives funds from a loan which has been made by the Company acting in breach of the preceding Article shall, irrespective of the terms of the loan,
forthwith repay such funds. |
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| Article 138. |
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A guarantee for the repayment of a loan which has been provided by the Company acting in breach of Article 136(1) shall not be enforceable against the Company, save in
respect of the following circumstances: |
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(1) |
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the guarantee was provided in connection with a loan which was made to an associate of any of the directors, supervisors, general manager and other senior officers of
the Company or of the Company’s holding company and the lender of such funds did not know of the relevant circumstances at the time of the making of the loan; or |
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(2) |
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the collateral which has been provided by the Company has already been lawfully disposed of by the lender to a bona fide purchaser. |
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| Article 139. |
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For the purposes of the foregoing provisions of this Chapter, a “guarantee” includes an undertaking of responsibility or property provided by the guarantor to
secure the obligor’s performance of his obligations. |
48
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| Article 140. |
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In addition to any rights and remedies provided by the laws and administrative regulations, where a director, supervisor, general manager or other senior officer of the
Company breaches the duties which he owes to the Company, the Company has the right: |
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(1) |
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to demand such director, supervisor, general manager or other senior officer to compensate it for losses sustained by it as a result of such breach; |
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(2) |
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to rescind any contract or transaction which has been entered into between the Company and such director, supervisor, general manager or other senior officer or between
the Company and a third party (where such third party knows or should have known that such director, supervisor, general manager other senior officer representing the Company has breached his duties owed to the Company); |
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(3) |
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to demand such director, supervisor, general manager or other senior officer to account for profits made as result of the breach of his duties; |
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(4) |
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to recover any monies which should have been received by the Company and which was received by such director, supervisor, general manager or other senior officer
instead, including (without limitation) commissions; and |
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(5) |
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to demand repayment of interest earned or which may have been earned by such director, supervisor, general manager or other senior officer on monies that should have
been paid to the Company. |
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| Article 141. |
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The Company shall, with the prior approval of shareholders in a general meeting, enter into a contract in writing with a director or supervisor wherein his emoluments
are stipulated. The aforesaid emoluments include: |
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(1) |
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emoluments in respect of his service as director, supervisor or senior officer of the Company; |
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(2) |
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emoluments in respect of his service as director, supervisor or senior officer of any subsidiary of the Company; |
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(3) |
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emoluments in respect of the provision of other services in connection with the management of the affairs of the Company and any of its subsidiaries; |
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(4) |
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payment by way of compensation for loss of office, or as consideration for or in connection with his retirement from office. |
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No proceedings may be brought by a director or supervisor against the Company for anything due to him in respect of the matters mentioned in this Article except pursuant
to the contract mentioned above. |
49
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| Article 142. |
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The contract concerning the emoluments between the Company and its directors or supervisors should provide that in the event that the Company is being acquired, the
Company’s directors and supervisors shall, subject to the prior approval of shareholders in a general meeting, have the right to receive compensation or other payment in respect of his loss of office or retirement. For the purposes of this
paragraph, the acquisition of the Company includes any of the following: |
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(1) |
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an offer made by any person to the all shareholders; |
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(2) |
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an offer made by any person with a view to the offeror becoming a “controlling shareholder” within the meaning of Article 54 hereof. |
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If the relevant director or supervisor does not comply with this Article, any sum so received by him shall belong to those persons who have sold their shares as a result
of such offer. The expenses incurred in distributing such sum on a pro rata basis amongst such persons shall be borne by the relevant director or supervisor and shall not be paid out of such sum. |
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| CHAPTER 15: FINANCIAL AND ACCOUNTING SYSTEMS AND PROFIT DISTRIBUTION |
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| Article 143. |
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The Company shall establish its financial and accounting systems in accordance with laws, administrative regulations and PRC accounting standards formulated by the
finance regulatory department of the State Council. |
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| Article 144. |
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The fiscal year of the Company shall be on the basis of the Gregorian calendar beginning on 1 January and ending on 31 December of each year. |
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The Company shall use Renminbi as its standard unit of account. The accounts shall be prepared in Chinese. |
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At the end of each fiscal year, the Company shall prepare a financial report which shall be examined and verified in a manner prescribed by law. |
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| Article 145. |
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The board of directors of the Company shall place before the shareholders at every annual general meeting such financial reports which the relevant laws, administrative
regulations and directives promulgated by competent regional and central governmental authorities require the Company to prepare. Such reports must be verified and certified. |
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| Article 146. |
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The Company’s financial reports shall be made available for shareholders’ inspection at the Company twenty (20) days before the date of every
shareholders’ annual general meeting. Each shareholder shall be entitled to obtain a copy of the financial reports referred to in this Chapter. |
50
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The Company shall deliver or send to each shareholder of Overseas-Listed Foreign-Invested Shares by prepaid mail at the address registered in the register of
shareholders the said reports not later than twenty-one (21) days before the date of every annual general meeting of the shareholders. |
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| Article 147. |
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The financial statements of the Company shall, in addition to being prepared in accordance with PRC accounting standards and regulations, be also prepared in accordance
with either international accounting standards, or the accounting standard of the place outside the PRC where the Company’s shares are listed. If there is any material difference between the financial statements prepared respectively in
accordance with the two accounting standards, such difference shall be specifically stated in the financial statements. In distributing its after-tax profits for the relevant fiscal year, the lower of the two amounts shown in the two financial
statements shall be distributed. |
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| Article 148. |
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Any interim results or financial information published or disclosed by the Company must also be prepared and presented in accordance with PRC accounting standards and
regulations, and also in accordance with either international accounting standards or the accounting standard of the place overseas where the Company’s shares are listed. |
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| Article 149. |
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The Company shall publish its financial reports twice every fiscal year, that is, the interim financial report shall be published within sixty (60) days after the
expiration of the first six (6) months of each fiscal year; the annual financial report shall be published within one hundred and twenty (120) days after the expiration of each fiscal year. |
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| Article 150. |
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The Company shall not keep accounts other than those required by law. |
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| Article 151. |
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When distributing its after-tax profits in a given year, the Company shall allocate 10% of such profits to the Company’s statutory common reserve fund. Where the
accumulated amount of the statutory common reserve fund reaches 50% or more of the registered capital of the Company, no further allocation is required. |
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Where the statutory common reserve fund is insufficient to make up for the losses of the Company in the previous year, before making contribution to the statutory common
reserve fund, the profits made in the current year shall be used to make up for the losses first. |
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After making contribution to the statutory common reserve fund from its after-tax profits, the Company may, subject to resolutions adopted at a shareholders’
general meeting, make contributions to discretionary common reserve fund. |
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After making up for the losses and making contributions to the common reserve fund, any remaining profits shall be distributed to the shareholders in proportion to their
respective shareholdings. |
51
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| Article 152. |
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The Company shall not allocate dividends or carry out other allocations in the form of bonuses before it has made up for its losses and made allocations to the statutory
common reserve fund. Dividends paid by the Company shall not carry any interest except where the Company has failed to pay the dividends to the shareholders on the date on which such dividends become payable. |
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Any amount paid up in advance of calls on any share shall carry interest, but shall not entitle the holder of the share to receive, by way of advance payment, the
dividend declared and distributed thereafter. |
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| Article 153. |
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Capital surplus reserve fund includes the following items: |
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(1) |
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premium on shares issued at a premium price; |
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(2) |
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any other income designated for the capital surplus reserve fund by the regulations of the finance regulatory department of the State Council. |
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| Article 154. |
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The common reserve funds of the Company shall be applied for making up for losses, expanding the Company’s production and operation or capitalisation. However, the
capital surplus reserve fund shall not be applied for making up losses of the Company. |
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If a general meeting of the Company resolves to capitalise any common reserve fund, the Company shall issue new shares to the existing shareholders in proportion to
their respective shareholdings or increase the par value of each share provided that when capitalising the statutory common reserve fund, the balance of such fund shall not be less than 25% of the registered capital. |
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| Article 155. |
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The Company may distribute dividends in the form of: |
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(1) |
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cash; |
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(2) |
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shares. |
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| Article 156. |
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The Company shall declare and pay cash dividends and other amounts which are payable to holders of Domestic Shares in Renminbi. The Company shall calculate and declare
cash dividends and other payments which are payable to holders of Overseas-Listed Foreign-Invested Shares in Renminbi, and shall pay such amounts in Hong Kong dollars. The foreign exchange required by the Company to pay cash dividends and other
amounts to holders of Overseas-Listed Foreign-Invested Shares shall be obtained in accordance with the relevant foreign exchange administrative regulations of the State. |
52
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| Article 157. |
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Unless otherwise provided for in relevant laws and administrative regulations, where cash dividends or other amounts are to be paid in Hong Kong dollars, the applicable
exchange rate shall be the average offer rate for the relevant foreign currency announced by the Peoples’ Bank of China during the calendar week prior to the declaration of payment of dividend and other amounts. |
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| Article 158. |
|
Subject to Article 56(2) and 96(14) of these Articles of Associations, the board of directors may decide to distribute interim or special dividends. |
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| Article 159. |
|
When distributing dividends to its shareholders, the Company shall withhold and pay on behalf of its shareholders the taxes levied on the dividends in accordance with
the provisions of the PRC tax law. |
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| Article 160. |
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The Company shall appoint receiving agents for holders of the Overseas-Listed Foreign-Invested Shares. Such receiving agents shall receive dividends which have been
declared by the Company and all other amounts which the Company should pay to holders of Overseas-Listed Foreign-Invested Shares on such shareholders’ behalf. |
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The receiving agents appointed by the Company shall meet the relevant requirements of the laws of the jurisdiction at which the Company’s shares are listed or the
relevant regulations of such stock exchange. |
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The receiving agents appointed for holders of Overseas-Listed Foreign- Invested Shares listed in Hong Kong shall each be a company registered as a trust company under
the Trustee Ordinance of Hong Kong. |
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| CHAPTER 16: APPOINTMENT OF ACCOUNTANCY FIRM |
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| Article 161. |
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The Company shall appoint an independent firm of accountants which is qualified under the relevant regulations of the State to audit the Company’s annual report and
review the Company’s other financial reports. |
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The first auditors of the Company may be appointed before the first annual general meeting of the Company at the inaugural meeting. Auditors so appointed shall hold
office until the conclusion of the first annual general meeting. |
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If the inaugural meeting does not exercise the powers under the preceding paragraph, those powers shall be exercised by the board of directors. |
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| Article 162. |
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The accountancy firm appointed by the Company shall hold office from the conclusion of the annual general meeting of shareholders at which they were appointed until the
conclusion of the next annual general meeting of shareholders. |
53
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| Article 163. |
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The accountancy firm appointed by the Company shall enjoy the following rights: |
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(1) |
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a right to review to the books, records and vouchers of the Company at any time, and the right to require the directors, general manager and other senior officers of the
Company to supply relevant information and explanations; |
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(2) |
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a right to require the Company to take all reasonable steps to obtain from its subsidiaries such information and explanation as are necessary for the discharge of its
duties; |
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(3) |
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a right to attend shareholders’ general meetings and to receive all notices of, and other information relating to, any shareholders’ general meeting which any
shareholder is entitled to receive, and to speak at any shareholders’ general meeting in relation to matters concerning its role as the Company’s accountancy firm. |
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| Article 164. |
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If there is a vacancy in the position of accountant of the Company, the board of directors may appoint an accountancy firm to fill such vacancy before the convening of
the shareholders’ general meeting. Any other incumbent accountancy firm which has been appointed by the Company may continue to act during the period where such vacancy subsists. |
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| Article 165. |
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The shareholders in a general meeting may by ordinary resolution remove the Company’s accountancy firm before the expiration of its term of office, irrespective of
the provisions in the contract between the Company and the Company’s accountancy firm. However, the accountancy firm’s right to claim for damages which arise from its removal shall not be affected. |
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| Article 166. |
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The remuneration of an accountancy firm or the manner in which such firm is to be remunerated shall be determined by the shareholders in a general meeting. The
remuneration of an accountancy firm appointed by the board of directors shall be determined by the board of directors. |
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| Article 167. |
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The Company’s appointment, removal or non-renewal of appointment of an accountancy firm shall be resolved by the shareholders in a general meeting. Such resolution
shall be filed with the securities authority of the State Council. |
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Where a resolution at a general meeting of shareholders is passed to appoint an accountancy firm other than an incumbent accountancy firm to fill any casual vacancy in
the office of accountancy firm, to re-appoint a retiring accountancy firm that was appointed by the board of directors to fill a casual vacancy, or to dismiss an accountancy firm before the expiration of its term of office, the following provisions
shall apply: |
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(1) |
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A copy of the appointment or removal proposal shall be sent (before notice of meeting is given to the shareholders) to the accountancy firm proposed to be appointed or
proposing to leave its post or the firm which has left its post in the relevant fiscal year (leaving includes leaving by removal, resignation and retirement). |
54
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(2) |
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If the accountancy firm leaving its post makes representations in writing and requests the Company to give the shareholders notice of such representations, the Company
shall (unless the representations have been received too late) adopt the following measures: |
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(a) |
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in any notice of the resolution given to shareholders, state the fact of the representations having been made; and |
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(b) |
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attach a copy of the representations to the notice and deliver it to the shareholders in the manner stipulated in the Company’s Articles of Association. |
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(3) |
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If the Company fails to send out the accountancy firm’s representations in the manner set out in sub-paragraph (2) above, such accountancy firm may require that the
representations be read out at the meeting and may make further appeals to the meeting. |
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(4) |
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An accountancy firm which is leaving its post shall be entitled to attend the following shareholders’ general meetings: |
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(a) |
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the general meeting at which its term of office would otherwise have expired; |
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(b) |
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the general meeting at which it is proposed to fill the vacancy caused by its removal; and |
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(c) |
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the general meeting which is convened as a result of its resignation, |
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and to receive all notices of, and other information relating to, any such meeting, and to speak at any such meeting which concerns it as a former accountancy firm of
the Company. |
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| Article 168. |
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Prior notice should be given to the accountancy firm if the Company decides to remove such accountancy firm or not to renew its appointment. Such accountancy firm shall
be entitled to make representations at the shareholders’ general meeting. Where the accountancy firm resigns from its position, it shall make clear to the shareholders in a general meeting whether there has been any impropriety on the part of
the Company. |
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An accountancy firm may resign its office by depositing at the Company’s registered address a resignation notice which shall become effective on the date of such
deposit or on such later date as may be stipulated in such notice. Such notice shall contain the following statements: |
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(1) |
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a statement to the effect that there are no circumstances connected with its resignation which it considers should be brought to the notice of the shareholders or
creditors of the Company; or |
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(2) |
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a statement of any of the foregoing circumstances. |
55
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The Company shall, within fourteen (14) days after receipt of the notice referred to in the preceding paragraph, send a copy of the notice to the relevant regulatory
authority. If the notice contains a statement under the preceding sub-paragraph (2), a copy of such statement shall be placed at the Company for shareholders’ inspection. The Company should also send a copy of such statement by prepaid mail to
every shareholder of Overseas- Listed Foreign Shares at the address registered in the register of shareholders. |
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Where the accountancy firm’s notice of resignation contains a statement in respect of the above, it may require the board of directors to convene a
shareholders’ extraordinary general meeting for the purpose of receiving an explanation of the circumstances connected with its resignation. |
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| CHAPTER 17: MERGER AND DIVISION OF THE COMPANY |
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| Article 169. |
|
In the event of the merger or division of the Company, a plan shall be presented by the Company’s board of directors and shall be approved in accordance with the
procedures stipulated in the Company’s Articles of Association. The Company shall then undertake the relevant approval process in a manner prescribed by law. A shareholder who objects to the plan of merger or division shall have the right to
demand the Company or the shareholders who consent to the plan of merger or division to acquire such dissenting shareholders’ shareholding at a fair price. |
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The contents of the resolution of merger or division of the Company shall be compiled into special documents which shall be available for inspection by the shareholders
of the Company. Such special documents shall be sent by post to holders of Overseas-Listed Foreign-Invested Shares. |
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| Article 170. |
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The merger of the Company may take the form of either merger by absorption or merger by the establishment of a new company. |
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In the event of a merger, the merging parties shall execute a merger agreement and prepare a balance sheet and an inventory of assets. The Company shall notify its
creditors within ten (10) days of the date of the Company’s resolution approving the merger and shall publish a public notice in a newspaper at least three (3) times within thirty (30) days of the date of the Company’s resolution approving
the merger. |
56
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Upon the merger, receivables and indebtedness of each of the merger parties shall be assumed by the company which survives the merger or the newly established
company. |
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| Article 171. |
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Where there is a division of the Company, its assets shall be divided up accordingly. |
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In the event of division of the Company, the parties to such division shall execute a division agreement and prepare a balance sheet and an inventory of assets. The
Company shall notify its creditors within ten (10) days of the date of the Company’s resolution approving the division and shall publish a public announcement in a newspaper at least three (3) times within thirty (30) days of the date of the
Company’s resolution approving the division. |
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Debts of the Company prior to division shall be assumed by the companies which exist after the division in accordance with the agreement of the parties. |
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| Article 172. |
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The Company shall, in accordance with law, apply for change in its registration particulars with the companies registration authority where a change in any item in its
registration arises as a result of any merger or division. Where the Company is dissolved, the Company shall apply for cancellation of its registration in accordance with law. Where a new company is established, that company shall apply for
registration in accordance with the law. |
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| CHAPTER 18: DISSOLUTION AND LIQUIDATION |
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| Article 173. |
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The Company shall be dissolved and liquidated in accordance with the law upon the occurrence of any of the following events: |
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(1) |
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a resolution for dissolution is passed by shareholders at a general meeting; |
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(2) |
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dissolution is necessary due to a merger or division of the Company; |
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(3) |
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the Company is declared insolvent in accordance with the law due to its failure to repay debts as they become due; and |
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(4) |
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the Company is ordered to wind-up because of its violation of laws and administrative regulations. |
57
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| Article 174. |
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A liquidation committee shall be set up within fifteen (15) days of the Company being dissolved pursuant to sub-paragraph (1) of the preceding Article, and the
composition of the liquidation committee of the Company shall be determined by an ordinary resolution of shareholders in a general meeting. If the Company fails to set up the liquidation committee within the above time limit, the creditors may apply
to the People’s Court for appointment of relevant persons to form a liquidation committee and conduct the liquidation. |
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Where the Company is dissolved under sub-paragraph (3) of the preceding Article, the People’s Court shall in accordance with the provisions of relevant laws
organise the shareholders, the relevant organisations and the relevant professional personnel to establish a liquidation committee to carry out the liquidation. |
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Where the Company is dissolved under sub-paragraph (4) of the preceding Article, the relevant governing authorities shall organise the shareholders, the relevant
organisations and professional personnel to establish a liquidation committee to carry out the liquidation. |
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| Article 175. |
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Where the board of directors proposes to liquidate the Company for any reason other than the Company’s declaration of its own insolvency, the board shall include a
statement in its notice convening a shareholders’ general meeting to consider the proposal to the effect that, after making full inquiry into the affairs of the Company, the board of directors is of the opinion that the Company will be able to
pay its debts in full within twelve (12) months from the commencement of the liquidation. |
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Upon the passing of the resolution by the shareholders in a general meeting for the liquidation of the Company, all functions and powers of the board of directors shall
immediately cease. |
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The liquidation committee shall act in accordance with the instructions of the shareholders’ general meeting to make a report at least once every year to the
shareholders’ general meeting on the committee’s income and expenses, the business of the Company and the progress of the liquidation, and to present a final report to the shareholders’ general meeting on completion of the
liquidation. |
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| Article 176. |
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The liquidation committee shall, within ten (10) days of its establishment, send notices to the Company’s creditors and shall, within sixty (60) days of its
establishment, publish a public announcement in a newspaper at least three (3) times. |
58
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| Article 177. |
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During the liquidation period, the liquidation committee shall exercise the following functions and powers: |
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(1) |
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to put in order the Company’s assets and prepare a balance sheet and an inventory of assets respectively; |
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(2) |
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to notify the creditors or to publish public announcements; |
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(3) |
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to handle of and liquidate any outstanding businesses of the Company; |
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(4) |
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to pay all outstanding taxes; |
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(5) |
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to settle claims and debts; |
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(6) |
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to deal with the surplus assets remaining after the Company’s debts have been repaid; |
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(7) |
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to represent the Company in any civil proceedings. |
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| Article 178. |
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After the liquidation committee has put in order the Company’s assets and prepared the balance sheet and an inventory of assets, the liquidation committee shall
formulate a liquidation plan and present it to a shareholders’ general meeting or to the relevant governing authority for confirmation. |
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After the payment of liquidation expenses with priority, the Company’s assets shall be distributed in accordance with the following sequence: (i) salaries and
labour insurance expenses of employees of the Company; (ii) outstanding taxes; (iii) bank loans, debentures of the company and other debts of the Company. |
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Any surplus assets of the Company remaining after payment referred to in the preceding paragraph shall be distributed to its shareholders according to the class of
shares and the proportion of shares held in the following sequence: |
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(1) |
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In the case of preferential shares, distribution shall be made to holders of such preferential shares according to the par value thereof; if the surplus assets are not
sufficient to repay the amount of preferential shares in full, the distribution shall be made to holders of such shares in proportion to their respective shareholdings. |
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(2) |
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In the case of ordinary shares, distribution shall be made to holders of such shares in proportion to their respective shareholdings. |
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During the liquidation period, the Company shall not commence any new business activities. |
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| Article 179. |
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If after putting the Company’s assets in order and preparing a balance sheet and an inventory of assets in connection with the liquidation of the Company, the
liquidation committee discovers that the Company’s assets are insufficient to repay the Company’s debts in full, the liquidation committee shall immediately apply to the People’s Court for a declaration of
insolvency. |
59
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After a Company is declared insolvent by a ruling of the People’s Court, the liquidation committee shall transfer all matters arising from the liquidation to the
People’s Court. |
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| Article 180. |
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Following the completion of the liquidation, the liquidation committee shall prepare a liquidation report, a statement of income and expenses received and made during
the liquidation period and a financial report, which shall be verified by a Chinese registered accountant and submitted to the shareholders’ general meeting or the relevant governing authority for confirmation. |
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The liquidation committee shall, within thirty (30) days after such confirmation, submit the documents referred to in the preceding paragraph to the companies
registration authority and apply for cancellation of registration of the Company, and publish a public announcement relating to the termination of the Company. |
|
| CHAPTER 19: PROCEDURES FOR AMENDMENT OF THE COMPANY’S ARTICLES OF ASSOCIATION |
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| Article 181. |
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The Company may amend its Articles of Association in accordance with the requirements of laws, administrative regulations and the Company’s Articles of
Association. |
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| Article 182. |
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Save as otherwise specified in Articles 60 and 80 of these Articles of Association, the following procedure shall be followed when amending the these Articles of
Association: |
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(1) |
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The board of directors shall adopt a resolution thereon in accordance with these Articles of Associations and prepare a proposal for amendment of the Articles; or the
shareholders may present a motion for amendment of the Articles; |
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(2) |
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The foregoing proposal shall be furnished to the shareholders and a shareholders’ meeting shall be convened for voting on it; |
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(3) |
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The amendments presented to the shareholders’ meeting shall be adopted through a special resolution. |
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| Article 183. |
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Amendment of the Company’s Articles of Association which involves the contents of the Mandatory Provisions of Overseas-Listed Companies’ Articles of
Association shall become effective upon receipt of approvals by the authorities that are authorised by the State Council to examine and approve Companies. |
60
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| Article 184. |
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Where amendment of the Articles of Association involves the registered particulars of the Company, procedures for alteration of registration shall be handled in
accordance with the law. |
|
| CHAPTER 20: NOTICES |
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| Article 185. |
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Subject to the proper compliance of all the applicable laws, rules and regulations (including but not limited to the rules of the designated stock exchanges) and
obtaining all the required consent (if any), any notice or document published by the Company (including but not limited to the “Corporate Communication” as defined by the rules of the designated stock exchanges) could be delivered by the
following methods: |
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(1) by hand; |
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(2) by post; |
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(3) by sending it to the facsimile number or other number of electronic communication (including but not limited to email address) or website as provided by the
addressee to the Company for the said purpose; |
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(4) by public announcement; |
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(5) by uploading the notice or document to the website of the Company or the Hong Kong Stock Exchange and issuing a notice to the addressee for notifying him/her on the
availability of such notice or document on such website (the “Availability Notice”). The Company shall deliver the Availability Notice to the holders of overseas listed foreign shares by hand or by pre-paid post; |
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(6) by any other methods as agreed between the Company and the addressee or as accepted by the addressee after the notice is received; or |
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(7) by any other methods as authorized by the relevant regulatory body of the place of listing of the Company or as stipulated by the Articles of
Association. |
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In case of joint holders of shares, all the notices or documents shall be delivered to the holder whose name stands first in the register of members and such notices or
documents delivered thereby shall be deemed duly delivered to and received by all such joint holders. |
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Unless as otherwise provided for in these Articles of Association, all the notices, materials or written statements issued by the Company to holders of Overseas-Listed
Foreign-Invested Shares shall be delivered by hand or by pre-paid post to the registered address of each holder of such shares. |
61
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Any notice or document shall be: |
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| Article 186. |
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(1) Deemed issued when the envelope containing such notice was put into post-box, and deemed duly received after 48 hours thereafter if it was delivered by post,
provided that the address was clearly written, postage fee was pre-paid and the said notice was put inside such envelope. |
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(2) Deemed delivered on the receiving date (i.e. the sending date) if it was sent by facsimile, in such case the receiving date shall be the date shown on the facsimile
transmission report. If it was sent as an electronic message, it shall be deemed delivered on the date when the message was transmitted from the server of the Company or its agent. |
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(3) Deemed delivered on the date when the availability notice is deemed delivered to the shareholder if the notice or document was uploaded onto the website of the
Company. |
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(4) Deemed delivered on the date when the notice or document is published for the first time if it is published as a public announcement, provided that such announcement
shall be published on newspaper provided for the relevant rules. |
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(5) Deemed delivered at the time it is delivered by hand or (as the case may be) at the time of such delivery is deemed delivered if the notice or document is sent or
delivered by any other methods as stipulated in the Articles of Association. |
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| Article 187. |
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If the listing rules in the listing place require the Company to dispatch, mail, distribute, issue or otherwise provide the relevant document of the Company in English
and in Chinese, the Company shall be allowed to deliver either the English or the Chinese version in accordance with the choice of the shareholder, provided that the Company has made appropriate arrangement to confirm whether the shareholders would
like to receive either the English or the Chinese version and subject to and to the extent as permitted by the applicable laws and regulations. |
|
| CHAPTER 21: DISPUTE RESOLUTION |
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| Article 188. |
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The Company shall abide by the following principles for dispute resolution: |
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(1) Whenever any disputes or claims arise between: holders of the Overseas-Listed Foreign-Invested Shares and the Company; holders of the Overseas-Listed
Foreign-Invested Shares and the Company’s directors, supervisors, general manager or other senior officers; or holders of the Overseas-Listed Foreign-Invested Shares and holders of Domestic Shares, in respect of any rights or obligations
arising from these Articles of Association, the Company Law or any rights or obligations conferred or imposed by the Company Law and other relevant laws and administrative regulations concerning the affairs of the Company, such disputes or claims
shall be referred by the relevant parties to arbitration. |
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Where a dispute or claim of rights referred to in the preceding paragraph is referred to arbitration, the entire claim or dispute must be referred to arbitration, and
all persons who have a cause of action based on the same facts giving rise to the dispute or claim or whose participation is necessary for the resolution of such dispute or claim, shall, where such person is the Company, the Company’s
shareholders, directors, supervisors, general manager, or other senior officers of the Company, shall comply with the arbitration award. Disputes in respect of the definition of shareholders and disputes in relation to the register of shareholders
need not be resolved by arbitration. |
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(2) A claimant may elect for arbitration to be carried out at either the China International Economic and Trade Arbitration Commission in accordance with its Rules or
the Hong Kong International Arbitration Centre in accordance with its Securities Arbitration Rules. Once a claimant refers a dispute or claim to arbitration, the other party must submit to the jurisdiction of arbitral body elected by the
claimant. |
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If a claimant elects for arbitration to be carried out at Hong Kong International Arbitration Centre, any party to the dispute or claim may apply for a hearing to take
place in Shenzhen in accordance with the Securities Arbitration Rules of the Hong Kong International Arbitration Centre. |
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(3) If any disputes or claims of rights are arbitrated in accordance with sub-paragraph (1) of this Article, the laws of the PRC shall apply, save as otherwise provided
in the laws and administrative regulations. |
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(4) The award of an arbitral body shall be final and conclusive and binding on all parties. |
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| CHAPTER 22: SUPPLEMENTARY |
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| Article 189. |
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The newspapers required by these Articles of Association for the publication of announcements shall be those designated or required by the relevant State laws and
administrative regulations. If it is necessary to make an announcement to holders of Overseas-Listed Foreign-Invested Shares as required by these Articles of Association, the relevant announcement shall at the same time be published in the
newspapers designated by the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited in accordance with the provisions for “press announcements” set out
therein. |
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| Article 190. |
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The board of directors of the Company shall be responsible for the interpretation of these Articles of Association, and the shareholders in general meeting shall have
the right to amend the Articles of Association. |
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| Article 191. |
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These Articles of Association are written in Chinese. If there is any discrepancy between the Chinese version and any other translated versions, the Chinese version
shall prevail. |
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| Article 192. |
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In these Articles of Association, reference to “accountancy firm” shall have the same meaning as “auditor”. |
64
Exhibit 4.58
China Communications Facility Service Corporation Limited
Promoter Agreement
July 11, 2014
CONTENT
|
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| Chapter I |
|
The Corporation |
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2 |
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| Chapter II |
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Scope of Business |
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2 |
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| Chapter III |
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Corporation Stock Shares and Registered Capital |
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2 |
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| Chapter IV |
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Promoters’ Rights and Obligations |
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3 |
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| Chapter V |
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Promoters’ Statements and Commitments |
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3 |
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| Chapter VI |
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Promoters’ Liabilities for Breach of Contract |
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3 |
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| Chapter VII |
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Miscellaneous |
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4 |
|
China Communications Facility Service Corporation Limited
Promoter Agreement
This
Agreement was entered into in Beijing on July 11, 2014 by and between the following parties (collectively, “Parties”, “Promoters” or “Shareholders”):
| (1) |
China Mobile Communication Company Limited, a limited liability company duly incorporated under the laws of China whose registered address is No. 29 Financial Street, Xicheng District, Beijing with Xi Guohua as its
legal representative; |
| (2) |
China United Network Communications Co., Ltd, a limited liability company duly incorporated under the laws of China whose registered address is No. 21 Financial Street, Xicheng District, Beijing with Chang Xiaobing
as its legal representative; |
| (3) |
China Telecom Corporation Limited, a limited company duly incorporated under the laws of China whose registered address is No. 31 Financial Street, Xicheng District, Beijing with Wang Xiaochu as its legal
representative; |
Each party to this Agreement is hereinafter referred to as the “Party”.
Whereas:
| |
(1) |
In order to reduce repeated efforts in communications facility construction and improve efficiency in the use of such, the Parties agree to set up China Communications Facility Service Corporation Limited (hereinafter
referred to as “the Corporation”) by mean of promoters who would contribute in cash; |
| |
(2) |
This Agreement was entered into by and between promoters based on The Company Law of the People’s Republic of China and other relevant laws and regulations so as to specify the rights and obligations of promoters.
|
1
Upon friendly negotiation, the Parties have agreed to the following:
Chapter I The Corporation
| 1.1 |
Name of the company: China Communications Facility Service Corporation Limited |
Registered
address: No. 28 Financial Street, Xicheng District, Beijing
| 1.2 |
The company shall be a limited company in permanent existence. |
| 1.3 |
The Corporation shall have independent legal personality and shall be liable for its debts with all its property. |
| 1.4 |
As the promoter shareholder, the Parties shall be liable for the Corporation to the extent of the shares they have subscribed and shall share profits and risks based on the shares they hold. |
| 1.5 |
The Parties have agreed that the organization structure of the Corporation shall be provided by the Articles of Association of China Communications Facility Service Corporation Limited accepted by all Parties.
|
Chapter II Scope of Business
| 2.1 |
The scope of business of the Corporation shall be as follows (as is approved by the competent Administration of Industry and Commerce): construction, maintenance and operation of towers as the main business and other
business would include construction, maintenance and operation of base station equipment rooms, power systems, air conditioning and other complementary facilities as well as indoor distribution system together with commissioned maintenance of base
station equipment. |
Chapter III Corporation Stock Shares and Registered Capital
| 3.1 |
All capital of the Corporation shall be divided into shares of equal value. |
| 3.2 |
The registered capital of the Corporation shall be 10 billion RMB. |
| 3.3 |
The Corporation shall have a total of 10 billion shares of stock, each with a par value of 1 RMB, making a total of 10 billion RMB worth of shares. |
| 3.4 |
The amount of stock subscription and shareholding of promoters of the Corporation are listed below: |
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| No. |
|
Promoter |
|
Shares
Subscribed
(10,000
shares) |
|
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Shareholding |
|
| 1 |
|
China Mobile Communication Company Limited |
|
|
400,000 |
|
|
|
40 |
% |
| 2 |
|
China United Network Communications Co., Ltd |
|
|
301,000 |
|
|
|
30.1 |
% |
| 3 |
|
China Telecom Corporation Limited |
|
|
299,000 |
|
|
|
29.9 |
% |
|
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|
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|
|
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|
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Total |
|
|
1,000,000 |
|
|
|
100 |
% |
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| 3.5 |
Promoters shall pay their contribution according to deadlines below after signing when this Agreement comes into effect: |
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| Company Name |
|
By July 31, 2014
(yuan) |
|
|
By September 30,
2014 (yuan) |
|
|
By December 31,
2014 (yuan) |
|
| China Mobile Communication Company Limited |
|
|
1.34 billion |
|
|
|
1.34 billion |
|
|
|
1.32 billion |
|
| China United Network Communications Co., Ltd |
|
|
1.01 billion |
|
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1 billion |
|
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1 billion |
|
| China Telecom Corporation Limited |
|
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1 billion |
|
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1 billion |
|
|
|
0.99 billion |
|
The Corporation shall keep a record of its shareholders, giving names, addresses and contribution of all
shareholders according to the contribution from each of them.
2
Chapter IV Promoters’ Rights and Obligations
| 4.1 |
Promoters shall enjoy the following rights to: |
| |
(1) |
Subscribe and acquire stock shares of the Corporation; |
| |
(2) |
Claim compensation from the breaching Party when the breach by other promoters has caused its loss; |
| |
(3) |
Attend or delegate agents to attend the inaugural meeting to discuss and determine the Articles of Association and other issues to be adopted by voting during the meeting; |
| |
(4) |
Other rights that promoters and shareholders deserve to enjoy according to laws and regulations as well as the Articles of Association after the incorporation by law. |
| 4.2 |
Promoters shall bear the following obligations: |
| |
(1) |
Contribute to subscribe shares of the Corporation based on terms and conditions of this Agreement; |
| |
(2) |
Compensate non-breaching Parties upon failure to fulfill the contribution obligation based on agreed deadline and capital amount; |
| |
(3) |
Provide in a timely manner all documents and certificates necessary to apply for the establishment of the Corporation and its registration so as to provide all kinds of services and facilitation for its incorporation;
|
| |
(4) |
Bear liabilities to the Corporation or other promoters for damage to the rights of such during the incorporation of the Corporation; |
| |
(5) |
Other due obligations of promoters and shareholders provided in relevant laws and regulations as well as the Articles of Association after the incorporation by law. |
Chapter V Promoters’ Statements and Commitments
| 5.1 |
Each promoter states to other promoters that: |
| |
(1) |
It has the right and legal capacity to sign and execute this Agreement, which would not breach any agreement or arrangement that it is involved in; |
| |
(2) |
It has taken actions provided by laws and regulations to attain permits granted by relevant authorities (if any) to sign and execute this Agreement; |
| |
(3) |
The signing and execution of this Agreement does not breach any terms and conditions of Articles of Association (if any) of the promoter or any applicable laws and regulations or any government rules or any agreement or
arrangement engaging this promoter. |
| 5.2 |
Each promoter commits to other promoters that: |
| |
(1) |
It will execute and comply with terms and conditions of this Agreement; |
| |
(2) |
It will take all necessary actions to guarantee the fulfillment of all terms and conditions under this Agreement in an all-round manner; |
| |
(3) |
During the incorporation process, any Party shall be obliged to keep confidential establishment-related documents, materials, trade secrets of the Corporation and other promoters’ trade secrets that the Party could
possibly have knowledge of. |
Chapter VI Promoters’ Liabilities for Breach of Contract
| 6.1 |
Promoters of the Corporation shall, based on the principle of honesty and credibility, execute this Agreement conscientiously. If a Promoter fails to fulfill its obligations under this Agreement and causes failure to
realize objectives provided hereby, other promoters of the Corporation shall be entitled to claims against the breaching Party. |
3
| 6.2 |
In the event when the breach by one Party has caused failure to execute this Agreement fully or partially, the breaching Party shall bear the liabilities. If more than one Party breach the contract, they shall be liable
based on their actual faults respectively. |
| 6.3 |
If one Promoter’s fault has caused failure to establish the Corporation, non-breaching Parties shall be entitled to claims against the breaching Party after each Promoter has taken its external responsibilities
under this Agreement jointly and severally. |
Chapter VII Miscellaneous
| 7.1 |
Expenses incurred during the incorporation process shall be under strict control and used reasonably and after the establishment of the Corporation, such expense shall be accounted as the incorporation expense; if the
Corporation cannot be established, then such expense shall be borne by promoters according to the proportion of their proposed subscription of shares of the Corporation (if the failure in establishment is due to the breach by one or more than more
Party, such expense shall be borne by the breaching Party) and promoters shall take their external responsibilities jointly and severally. |
| 7.2 |
This Agreement shall come into effect since the date on which legal representatives or duly authorized persons of the promoters had this Agreement signed and sealed. |
| 7.3 |
This Agreement shall be governed by and interpreted according to the laws of China. |
| 7.4 |
In event of disputes relevant to this Agreement, the Parties shall first resort to negotiations in good faith. If no settlement is made within twenty (20) working days from the day when any Party asks in writing
for a negotiation, any Party could submit the dispute to China International Economic and Trade Arbitration Commission for an arbitration based on the then-current rules at the time of arbitration. The venue of arbitration shall be in Beijing and it
shall be performed in Chinese. Judgment made by the arbitration shall be final and binding to all Parties. |
| 7.5 |
This Agreement is written and entered into in Chinese in six copies, each having equal legal effect. |
| 7.6 |
If any terms and conditions of this Agreement is deemed as invalid by courts or any authority whose jurisdiction this Agreement falls into, it shall not impede the effectiveness of other terms and conditions of this
Agreement. |
(No more of the main body of this Agreement is written below this page)
(No more of the main body is written in this page. This page is just for signatures and seals for the Promoter Agreement of China
Communications Facility Service Corporation Limited)
|
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| China Mobile Communication Company Limited |
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| (seal) |
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| Legal or authorized representative: |
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| /s/ Xue Taohai |
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(No more of the main body is written in this page. This page is just for signatures and seals for the Promoter
Agreement of China Communications Facility Service Corporation Limited)
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| China United Network Communications Co., Ltd |
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| (seal) |
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| Legal or authorized representative: |
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| /s/ Li Fushen |
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4
(No more of the main body is written in this page. This page is just for signatures and seals for
the Promoter Agreement of China Communications Facility Service Corporation Limited)
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| China Telecom Corporation Limited |
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| (seal) |
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| Legal or authorized representative: |
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| /s/ Wu Andi |
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5
Exhibit 8.1
List of Subsidiaries
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|
|
| Name |
|
Jurisdiction of Incorporation |
|
|
| China Telecom Group Yellow Pages Information Company Ltd. |
|
The People’s Republic of China |
|
|
| China Telecom Global Limited (formerly known as China Telecom (Hong Kong) International Limited) |
|
Hong Kong Special Administrative Region |
|
|
| China Telecom (Europe) Ltd. |
|
London, United Kingdom |
|
|
| China Telecom System Integration Co., Limited |
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The People’s Republic of China |
|
|
| China Telecom (Americas) Corporation |
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Delaware, United States of America |
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| China Telecom Best Tone Information Service Co., Limited |
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The People’s Republic of China |
|
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| Zhejiang Yixin Technology Co., Ltd. |
|
The People’s Republic of China |
|
|
| China Telecom (Macau) Company Limited (formerly known as China Unicom (Macau) Company Limited) |
|
Macau Special Administrative Region |
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| Tianyi Telecom Terminals Company Limited (formerly known as Unicom Huasheng Telecommunications Technology Company Limited) |
|
The People’s Republic of China |
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| E-surfing Pay Co., Ltd. (formerly known as Bestpay Co., Ltd.) |
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The People’s Republic of China |
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|
| Shenzhen Shekou Telecommunications Company Limited |
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The People’s Republic of China |
|
|
| iMUSIC Culture & Technology Co., Ltd. |
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The People’s Republic of China |
|
|
| Chengdu E-store Technology Co., Ltd. |
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The People’s Republic of China |
Exhibit 12.1
Certification
I, Wang
Xiaochu, certify that:
1. I have reviewed this annual report on Form 20-F of China Telecom Corporation Limited (the “Company”);
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all
material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this annual report;
4. The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this annual report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this annual report based on such evaluation; and
d) Disclosed in this annual report any change in the Company’s internal control over financial reporting that occurred
during the period covered by this annual report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting; and
5. The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the Company’s auditors and the audit committee of the Company’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
Company’s internal control over financial reporting.
Date: April 28, 2015
|
|
|
| /s/ Wang Xiaochu |
| Name: |
|
Wang Xiaochu |
| Title: |
|
Chief Executive Officer |
Exhibit 12.2
Certification
I, Ke
Ruiwen, certify that:
1. I have reviewed this annual report on Form 20-F of China Telecom Corporation Limited (the “Company”);
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all
material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this annual report;
4. The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this annual report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this annual report based on such evaluation; and
d) Disclosed in this annual report any change in the Company’s internal control over financial reporting that occurred
during the period covered by this annual report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting; and
5. The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the Company’s auditors and the audit committee of the Company’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
Company’s internal control over financial reporting.
Date: April 28, 2015
|
|
|
| /s/ Ke Ruiwen |
| Name: |
|
Ke Ruiwen |
| Title: |
|
Executive Director and Executive Vice President (performing the functions of the principal financial officer) |
Exhibit 13.1
Certification
Pursuant
to 18 U.S.C. § 1350, the undersigned officer of China Telecom Corporation Limited (the “Company”), hereby certifies, to his knowledge, that the Company’s Annual Report on Form 20-F for the year ended December 31, 2014 (the
“Report”) fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934 and that the information contained in the Report fairly presents, in all material respects, the financial
condition and results of operations of the Company.
Date: April 28, 2015
|
|
|
| /s/ Wang Xiaochu |
| Name: |
|
Wang Xiaochu |
| Title: |
|
Chief Executive Officer |
The foregoing certification is being furnished solely pursuant to 18 U.S.C. § 1350 and is not being
filed as part of the Report or as a separate disclosure document.
Exhibit 13.2
Certification
Pursuant
to 18 U.S.C. § 1350, the undersigned officer of China Telecom Corporation Limited (the “Company”), hereby certifies, to her knowledge, that the Company’s Annual Report on Form 20-F for the year ended December 31, 2014 (the
“Report”) fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934 and that the information contained in the Report fairly presents, in all material respects, the financial
condition and results of operations of the Company.
Date: April 28, 2015
|
|
|
| /s/ Ke Ruiwen |
| Name: |
|
Ke Ruiwen |
| Title: |
|
Executive Director and Executive Vice President (performing the functions of the principal financial officer) |
The foregoing certification is being furnished solely pursuant to 18 U.S.C. § 1350 and is not being
filed as part of the Report or as a separate disclosure document.
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