Item 4 .  Information on the Company

A.                                     History and Development of the Company

Industry Restructuring and Grant of New Licenses

Since 1993, the Chinese government has implemented a number of measures to restructure and introduce competition in the telecommunications industry.  Prior to June 1994, China Telecom was the sole provider of telecommunications services in China.  In June 1994, Unicom Group was established in accordance with the State Council’s approval to introduce competition in the telecommunications industry.

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Since then, the Chinese government has approved Jitong Network Communications Company Limited, or Jitong, and China Netcom Corporation Ltd., or CNCL, to provide IP telephony, Internet and data services.  It has also approved China Railcom to provide most telecommunications services other than cellular services.

In 1999, the State Council approved a plan to restructure the former China Telecom along four business lines: fixed line, cellular, paging and satellite communications.  As a result of the restructuring, China Telecom retained the fixed line, data and Internet businesses, while China Mobile assumed the cellular business previously operated by China Telecom.  In 2002, the Chinese government further separated China Telecom into two companies, with the southern company retaining the name of China Telecom and assets and businesses in 21 provinces in southern and western China and the northern company retaining assets and businesses in 10 provinces in northern China and merging with CNCL and Jitong to form China Netcom.  As a result of the Chinese government’s efforts to introduce competition in the telecommunications industry, there is currently more than one service provider in most of the sectors within the telecommunications industry.  See “Competition” under Item 4.

History of Unicom Group

As part of its efforts to introduce orderly competition to the telecommunications sector in China, the State Council approved the establishment of Unicom Group in December 1993 and authorized it to build and operate cellular networks and local and long distance networks.  Unicom Group first developed a nationwide cellular network using GSM technology and a nationwide long distance telephony network.

In May 1997, the State Council granted approval to Unicom Group to provide data services.  The MII licensed Unicom Group to begin to provide Internet services in July 1999 and IP telephony services on a trial basis in 12 cities in April 1999 and on a nationwide basis in March 2000.  Unicom Group also offers local telephony services in the municipalities of Chengdu, Chongqing and Tianjin.  It offers satellite transmission services through its subsidiary, China United Telecommunications Satellite Communication Co. Ltd., or Unisat.

China-China-Foreign Arrangements of Unicom Group

Following its formation, Unicom Group commenced cooperation with foreign companies to develop its nationwide cellular network.  A financing structure widely known as China-China-Foreign, or CCF arrangements , was developed and used by Unicom Group and its foreign partners.  Under a typical CCF structure, the foreign partner first established a joint venture with a Chinese enterprise.  The joint venture then provided financing and technical support to a project of Unicom Group through a project cooperation contract.  In return, the joint venture obtained the right to receive a percentage of the cash flow generated by the project for a fixed number of years.  Altogether, Unicom Group adopted this CCF structure for more than 40 projects in a number of provinces and municipalities.

In August 1999, the MII officially announced that the CCF structure had contravened existing Chinese government policies and regulations and required that all CCF cooperation contracts be rectified and terminated.  All CCF contracts related to GSM cellular networks in our service areas have been terminated.

As part of the termination of CCF contracts by Unicom Group, other parties to the CCF contracts received cash payments in an amount representing their original funding plus an agreed amount of compensation.  In addition, we granted some of these parties or their designees warrants to purchase our shares.  The aggregate number of shares issuable upon exercise of these warrants was approximately 313

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million shares.  The exercise period for all warrants terminated on June 22, 2001 and none was exercised prior to termination of the exercise period.

The Restructuring of Unicom Group and Our Initial Public Offering in 2000

We are a company limited by shares incorporated under the Companies Ordinance of Hong Kong on February 8, 2000.  Our registered office and principle executive offices are located at 75th Floor, The Center, 99 Queen’s Road Central, Hong Kong (telephone number: 852-2126-2018).

Under a reorganization agreement, dated April 21, 2000, between Unicom Group and CUCL, Unicom Group transferred to CUCL all of its assets, rights and liabilities in connection with the following telecommunications businesses:

•                                           its cellular businesses in 12 provinces and municipalities, including Guangdong, Jiangsu, Zhejiang, Fujian, Liaoning, Shandong, Hebei, Hubei and Anhui provinces and Beijing, Shanghai and Tianjin municipalities,

•                                           its 99.67% shareholding interest in Guoxin Paging,

•                                           its nationwide long distance telephony business, including its IP telephony business, and

•                                           its nationwide data and Internet businesses.

Under an equity transfer agreement, dated April 21, 2000, among us, Unicom Group, China Unicom (Hong Kong) Group Limited and China Unicom (BVI) Limited, or Unicom BVI, Unicom Group transferred to us its 100% equity interest in CUCL, which became our wholly-owned operating subsidiary in China.  In return, we issued 9,725 million shares to Unicom BVI, then an indirect wholly-owned subsidiary of Unicom Group.

We subsequently purchased the remaining 0.33% interest in Guoxin Paging from its minority shareholders, raising our ownership interest in Guoxin Paging to 100%.

In June 2000, we successfully completed our initial public offering of shares, or IPO, raising approximately US$5.65 billion.  Upon completion of our IPO, our shares became listed and traded on the Hong Kong Stock Exchange and ADSs representing our shares became listed and traded on the New York Stock Exchange.

Further Restructuring of Unicom Group and Initial Public Offering of the A Share Company in 2002

After our IPO, Unicom BVI, which was a wholly-owned subsidiary of China Unicom (Hong Kong) Group Limited, or Unicom HK, a wholly-owned subsidiary of Unicom Group, directly held 77.47% of our outstanding shares.  In October 2002, Unicom Group completed an internal restructuring of its shareholding in our company.  Unicom HK transferred the total issued capital of Unicom BVI held by it to Unicom Group and Unicom BVI became a direct wholly-owned subsidiary of Unicom Group.   Unicom Group then transferred 51% of its equity interest in Unicom BVI to the A Share Company, a newly established holding company and subsidiary of Unicom Group.  The A Share Company’s business is limited to indirectly holding the equity interest of our company without any other direct business operations.

Following the restructuring, Unicom Group successfully completed the IPO of the A Shares of the A Share Company in mainland China and the listing of the A Shares on the Shanghai Stock Exchange.

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After the IPO of the A Share Company, the A Share Company transferred all of its net offering proceeds to Unicom Group in return for an additional 22.84% equity interest in Unicom BVI.  Unicom Group currently holds a 74.60% equity interest in the A Share Company.  The A Share Company in turn holds 73.84% of the total equity interest in Unicom BVI, with the remaining 26.16% held directly by Unicom Group.  Unicom BVI continues to hold 77.42% of our outstanding shares and Unicom Group remains our ultimate controlling shareholder.  See also “Acquisition of Unicom New World and the Sale of Guoxin Paging” below for the current shareholding structure of our company.

In accordance with the articles of association of the A Share Company and Unicom BVI, before Unicom BVI votes on a certain proposal at our shareholders’ meeting, the A Share Company must first convene its shareholders’ meeting to consider the same proposal and has the right to direct Unicom BVI to vote the shares in our company indirectly held by the A Share Company through Unicom BVI.  Unicom Group can similarly direct the voting in respect of its direct equity interest in Unicom BVI.  This mechanism for voting is designed to allow public shareholders of the A Share Company to indirectly participate in our shareholders’ meeting.

The voting mechanism described above, however, will not apply to the approval process for any connected transactions between us or our subsidiaries and Unicom Group or its subsidiaries, on which Unicom BVI will not be permitted to vote under the Listing Rules of the Hong Kong Stock Exchange.  Instead, our significant connected transactions would require the separate approvals of the public shareholders both of our company and of the A Share Company.  According to the two-step voting arrangements we and the A Share Company have established, each connected transaction between us or our subsidiaries and Unicom Group or its subsidiaries will consist of an initial agreement and a further agreement.  The initial agreement would be entered into by Unicom Group or its subsidiaries (excluding the A Share Company and its subsidiaries) and the A Share Company or Unicom BVI.  This agreement would contain the following terms:

•                                           the closing of the initial agreement would be subject to the (i) successful transfer of all rights and obligations of the A Share Company or Unicom BVI under the initial agreement to us or our subsidiaries, and (ii) the approval of the further agreement by our independent shareholders, and

•                                           Unicom Group or its subsidiaries (excluding the A Share Company and its subsidiaries) would agree and acknowledge that all rights and obligations under the initial agreement can be transferred to us or our subsidiaries without any further consent requirements.

The initial agreement will constitute a connected transaction of the A Share Company and, if certain thresholds are met, will require the approval of the public or independent shareholders of the A Share Company under the rules of the Shanghai Stock Exchange.  The further agreement would be entered into by the A Share Company or Unicom BVI and us or our subsidiaries, and would provide for the transfer of all rights and obligations of the A Share Company or Unicom BVI under the initial agreement to us or our subsidiaries.  The further agreement will constitute a connected transaction of our company and, if certain thresholds are met, will require the approval of our public or independent shareholders under the Listing Rules of the Hong Kong Stock Exchange.  This two-step structure will be used in all future connected transactions between us and Unicom Group and will effectively require the separate approvals of the public or independent shareholders both of our company and of the A Share Company for such connected transactions.

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Restructuring and Acquisition of Unicom New Century

On December 31, 2002, in accordance with the two-step approach outlined above, we successfully completed the acquisition from Unicom Group of Unicom New Century, which holds cellular telecommunications businesses (including GSM assets and businesses and CDMA businesses) in the following nine provinces, autonomous regions and municipalities in China:  Jilin, Heilongjiang, Jiangxi, Henan, Shaanxi and Sichuan provinces, Guangxi Zhuang Autonomous Region, Xinjiang Uygur Autonomous Region and Chongqing municipality.  The total purchase price was HK$4,523,181,304 (approximately RMB4.8 billion), payable in cash.

Acquisition of Unicom New World and the Sale of Guoxin Paging

On December 31, 2003, we successfully completed the acquisition from Unicom Group of Unicom New World, which holds cellular telecommunications businesses (including GSM assets and businesses and CDMA businesses) in the following nine provinces and autonomous regions in China: Shanxi, Hunan, Hainan, Yunnan, Gansu and Qinghai provinces and Inner Mongolia, Ningxia Hui and Xizang autonomous regions.  The total purchase price was HK$3,014,886,000 (approximately RMB3.2 billion), payable in cash.  On the same date, we also completed the sale of the entire equity interests of Guoxin Paging to Unicom Group for a total sale price of HK$2,590,917,656 (approximately RMB2.75 billion), and such proceeds were applied to our general working capital.  Both the acquisition of Unicom New World and the sale of Guoxin Paging were completed in accordance with the two-step approach outlined above.

Set forth below is our shareholding structure and principal operating subsidiaries after the completion of the acquisition of Unicom New World and sale of Guoxin Paging.

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•                                           the satellite transmission networks operated through Unisat, and

•                                           the paging networks operated through Unicom Paging and Guoxin Paging.

Unicom Group holds the licenses required for our telecommunications businesses and we derive our rights to operate our businesses from our status as a majority owned subsidiary of Unicom Group.  Under the respective reorganization agreements entered into by CUCL, Unicom New Century and Unicom New World with Unicom Group referred to above, Unicom Group undertook to hold and maintain all licenses received from the MII in connection with our businesses solely for our benefit during the term of the licenses and at no cost to us.  In addition, Unicom Group undertook to take all actions necessary to obtain and maintain for our benefit such governmental licenses or approvals as we shall require to continue to operate our businesses.  Unicom Group also agreed not to engage in any business which competes with our businesses except for the then-existing competing businesses of Unicom Group and to grant us a right of first refusal in relation to any government authorization, license or permit, or other business opportunity to develop any new telecommunications technology, product or service.  Finally, Unicom Group also gave us an undertaking not to seek an overseas listing for any of its businesses or the businesses of its subsidiaries in which we are engaged or may engage in the future, except through us.

In connection with the restructuring of Unicom Group and the acquisitions of Unicom New Century and Unicom New World, we entered into a number of agreements with Unicom Group pursuant to the two-step process described in “Further Restructuring of Unicom Group and the Initial Public Offering of A Shares” above.  These include arrangements for interconnection and roaming services between the telecommunications networks owned by us and Unicom Group and for the provision or sharing of telecommunications and ancillary services and facilities between us and Unicom Group.  Unicom Group also retains its interests in its other subsidiaries that provide ancillary services to us, including the procurement of telecommunications equipment and the supply of SIM cards and calling cards.  See “B. Related Party Transactions” under Item 7.

Unicom Group has constructed nationwide cellular networks based on CDMA technology. The first phase of the construction was completed at the end of 2001.  We entered into lease agreements with Unicom Group to lease a portion of the network capacity and began to offer CDMA cellular services on an exclusive basis in our cellular service areas in early 2002.  In March 2003, Unicom Group substantially completed the second phase of the CDMA network construction, which included the upgrade of the network to CDMA 1X technology.  Wireless data services that utilize CDMA 1X technology have been introduced throughout our service areas.  Unicom Group operates its CDMA networks outside of our cellular service areas, in Guizhou province.  We also have an option to acquire the CDMA networks from Unicom Group.  See “B. Related Party Transactions – Leasing of CDMA Network Capacity – Lease of CDMA Network Capacity” under Item 7.

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Capital Expenditures and Divestitures

See “Liquidity and Capital Resources - Capital Expenditures” under Item 5 for information concerning our principal capital expenditures for the previous three years and those planned for 2004.  We have not undertaken any significant divestitures.

B.                                     Business Overview

General

We are a n integrated telecommunications operator in China, offering a wide range of telecommunications services, including cellular, international and domestic long distance, data, Internet and, until December 31, 2003, paging services all of which are based on our advanced, uniform nationwide network system.

Prior to the acquisition of Unicom New Century on December 31, 2002, w e offer ed cellular communications services based on both GSM and CDMA technologies in 12 provinces and municipalities in China through our wholly-owned operating subsidiary CUCL.  After the acquisition of Unicom New Century and until our acquisition of Unicom New World on December 31, 2003, our cellular service area encompassed a total of 21 provinces, autonomous regions and municipalities.   See “A.  History and Development of the Company – Restructuring and Acquisition of Unicom New Century” above.  After the acquisition of Unicom New World, our cellular service area encompassed a total of 30 provinces, autonomous regions and municipalities (i.e., all provinces, autonomous regions and municipalities in China except for Guizhou province).   See “A.  History and Development of the Company – Acquisition of Unicom New World and the Sale of Guoxin Paging” above and “Cellular Services – Cellular Services of Unicom New World and of the Combined Group” below under this Item 4.

We and China Mobile are the two cellular service providers in our cellular service areas.  We had a total of 63.92 million GSM cellular subscribers in the cellular service areas of CUCL and Unicom New Century at the end of 2003, representing a 19.54% increase from 53.47 million subscribers at the end of 2002.  Our GSM cellular business is our largest business, having contributed 60.9% of our total operating revenue in the year ended December 31, 2003.  We began to offer CDMA services in January 2002 and had approximately 16.91 million subscribers in the cellular service areas of CUCL and Unicom New Century as of December 31, 2003.  During 2003, we increased our market share from 33.1% to 34.6% in the cellular service areas of CUCL and Unicom New Century, attracting approximately 39.3% of net subscriber additions in those service areas.

We provide traditional public switched and IP telephony international and domestic long distance, data and Internet services nationwide in China.  All of these services were launched in 2000, with the exception of our IP telephony long distance service, which was launched in 1999.  These businesses currently represent a relatively small portion of our overall business, but are growing in absolute terms and relative to the market.  Our long distance, data and Internet businesses contributed 8.4% of our total operating revenue in 2003, compared to 13.7% in 2002.

Outgoing public switched and IP telephony long distance calls totaled 8.44 billion and 11.39 billion minutes, respectively, in 2003, compared to 6.37 billion and 6.88 billion minutes, respectively, in 2002.  Our market share increased from approximately 11.6% in 2002 to 14.0% in terms of total outgoing long distance call minutes in 2003.  Our incoming international long distance calls (including incoming calls from Hong Kong, Macau and Taiwan) totaled 1.91 billion minutes in 2003, up from 1.47 billion minutes in 2002.

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Our data and Internet business expanded rapidly in 2003.  Total leased bandwidth of our data services increased from 1466x2 Mbps in 2002 to 7194x2 Mbps in 2003, and our Internet subscribers reached 12.43 million from 7.29 million in 2002.

Our fiber optic transmission network continued to expand in 2003.  As of December 31, 2003, the total cable length of our transmission network reached 569,000 km, including 115,000 km for our backbone transmission network, representing an increase of 17.1% and 4.7%, respectively, from the end of 2002.

Recent Developments

As of March 31, 2004, the total number of our GSM subscribers in all of our cellular service areas, including those of CUCL, Unicom New Century and Unicom New World, has increased to 75.67 million, including 40.03 million post-paid subscribers and 35.64 million pre-paid subscribers.  As of March 31, 2004, we also had a total of 21.62 million subscribers to our CDMA services.  Average minutes of usage, or MOU, for GSM services in the combined service areas of CUCL, Unicom New Century and Unicom New World were 186.5 minutes for the three months ended March 31, 2004.  Average MOU for CDMA services in the combined service areas of CUCL, Unicom New Century and Unicom New World were 295.2 minutes for the three months ended March 31, 2004.  ARPU for GSM services in the combined service areas of CUCL, Unicom New Century and Unicom New World was RMB53 for the three months ended March 31, 2004.  ARPU for CDMA services in the combined service areas of CUCL, Unicom New Century and Unicom New World was RMB93.7 for the three months ended March 31, 2004.

For the three months ended March 31, 2004, outgoing public switched long distance calls totaled 2.281 billion minutes, including 2.248 billion minutes of domestic long distance calls and 0.034 billion minutes of international long distance calls (including calls to Hong Kong, Macau and Taiwan).  Outgoing IP telephony long distance calls totaled 3.072 billion minutes for the first three months of 2004, including 3.042   billion minutes of domestic long distance calls and 0.031 billion minutes of international long distance calls (including calls to Hong Kong, Macau and Taiwan).  As of March 31, 2004, our Internet subscribers reached 12.82 million.

Cellular Services

Our cellular business is our largest business, with our GSM and CDMA businesses together having contributed 88.4% of our total operating revenue in 2003.  Prior to the acquisition of Unicom New World, we offered cellular services in Guangdong, Jiangsu, Zhejiang, Fujian, Liaoning, Shandong, Anhui, Hebei, Hubei, Jilin, Heilongjiang, Jiangxi, Henan, Shaanxi and Sichuan provinces, Guangxi Zhuang Autonomous Region, Xinjiang Uygur Autonomous Region and Beijing, Shanghai, Tianjin and Chongqing municipalities.  These cellular service areas hosted approximately 30.1% of China’s total cellular subscriber population at the end of 2003 and are economically more developed and generally more prosperous than other areas in China.  After the acquisition of Unicom New World, effective on December 31, 2003, our cellular service areas expanded to include Shanxi, Hunan, Hainan, Yunnan, Gansu and Qinghai provinces and Inner Mongolia, Ningxia Hui and Xizang autonomous regions.  These areas hosted approximately 34.1% of China’s total cellular subscriber population at the end of 2003.  See “A. History and Development of the Company –Acquisition of Unicom New World and the Sale of Guoxin Paging” above and “– Cellular Services – Cellular Services of Unicom New World and of the Combined Group” below under this Item 4.

We offer both GSM and CDMA cellular services.  We began to offer GSM cellular services in 1995 and currently most of our existing cellular users subscribe to our GSM cellular services.  We began to offer CDMA cellular services in January 2002.  After a trial period of three months, we launched our CDMA services in April 2002.   In August 2003, we introduced pre-paid CDMA services, which are currently provided in 17 cellular service areas.  With such advantages as better voice quality, better security, lower

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handset radio transmitting power and, in the case of CDMA 1X services, high data transmission rates, we have positioned our CDMA services as “enterprise, infotainment, health-conscious and trendy” services.  We have positioned our GSM services as “price-sensitive and mass market” services.  We also offer GSM international roaming services in conjunction with 165 operators in 80 countries and regions and CDMA international roaming services in conjunction with 15 operators in 10 countries and regions.

We also offer SMS and a number of other value-added services to our cellular subscribers, including CDMA 1X wireless data services and GSM wireless data services under the service brand of “U-Max” and sub-brand of “Uni-Info”.

In 2003, our market share in the cellular service areas of CUCL and Unicom New Century continued to grow, from 33.1% in 2002 to 34.6% in 2003.  The continued growth is due to the following reasons:

•                                           the expansion of our network service areas, improvements in service quality and network quality,

•                                           continued introduction of new technologies and new services, and

•                                           effective marketing strategies.

GSM Cellular Services

We centrally plan and oversee our provincial GSM cellular businesses, which are operated by provincial branches of our operating subsidiaries, CUCL, Unicom New Century and, after December 31, 2003, Unicom New World.  We centrally manage the key aspects of network construction such as network planning and design and selection of major equipment.  We also centrally devise the overall business strategies to be carried out by the provincial operating branches.

We have enhanced the quality of our GSM networks through optimization and improved network management . Our GSM cellular networks reach all cities, county centers, major highways and railways in our cellular service areas.  We continue to selectively deploy GSM systems that operate in the 1800 MHz frequency band in high-density population centers to supplement our GSM networks operating in the 900 MHz frequency band.  In 2003, we focused on ensuring the operational security and stability of our GSM networks, and will continue to manage our GSM networks to support the development of our various cellular services.

Post-paid Services and Pre-paid Services

We offer two main categories of GSM cellular services:  post-paid and pre-paid services that target different consumer segments.  We began to offer pre-paid services in 1999.  Generally, we promote our pre-paid services to migrant population and temporary residents as well as low-end subscribers and target our post-paid services at long-term residents and mid-end subscribers in our cellular service areas.

To subscribe for our post-paid services, a customer generally needs to produce proof of local residency or a guarantee from a local resident and sign a service contract.  A post-paid subscriber pays a monthly fee and per-minute usage and roaming charges.  In many of our cellular service areas, we require most post-paid subscribers to pay a deposit directly to us or to give a direct debit authorization to one of the commercial banks that collect service charges for us.

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To subscribe for our pre-paid services, a customer simply purchases a SIM card with a pre-paid amount of service charges.  The customer can add to the pre-paid balance by purchasing recharge cards.  A customer of pre-paid services does not need to register with us.  Pre-paid services are therefore more suitable than post-paid services for migrant population and temporary residents in a cellular service area.  In addition, pre-paid services do not have monthly fees, but carry higher per-minute usage and roaming charges.  This fee structure is generally more attractive to lower-usage subscribers.

We and Unicom Group provide pre-paid services under the service brand of “Ru Yi Tong”.  These services are generally supported by intelligent networks built by us.  The intelligent networks enable us to offer nationwide roaming services and monitor in real time the account balance of pre-paid subscribers.  We also offer pre-paid services in some service areas that are based on the local billing systems and use local service brands.

Subscribers and Usage

The following table sets forth selected historical information about our GSM cellular operations and our subscriber base for the periods indicated.

(1)                   Market share in a given area is determined by dividing the number of our GSM subscribers in the area by the total number of cellular subscribers in the area.  Source :  Ministry of Information Industry.

(2)                   Average churn rate is the rate of subscriber disconnections from our GSM cellular network, which we have determined by dividing the sum of voluntary and involuntary deactivations during the period by the average of the number of our GSM subscribers during the period.

(3)                   Average minutes of usage per subscriber per month is calculated by dividing the total minutes of usage during the period by the average of the number of our GSM subscribers during the period, and dividing the result by the number of months in the relevant period.

(4)                   Average revenue per subscriber per month, or ARPU, is calculated by dividing the sum of GSM cellular services revenue during the relevant period by the average of the number of our GSM subscribers during the period, and dividing the result by the number of months in the period.

(5)                   CUCL only.

Subscriber Increase:   Our subscriber count continued to grow rapidly.  As of December 31, 2003, the total number of GSM subscribers in the cellular service areas of CUCL and Unicom New Century increased to 63.92 million, including 32.46 million post-paid subscribers and 31.47 million pre-paid subscribers.  Our share of the cellular market in terms of total cellular subscribers in the cellular service areas of CUCL and Unicom New Century was 27.4% as of December 31, 2003.  We attracted 19.4% of the

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net cellular subscriber additions in those service areas during 2003.  We believe that this growth was attributable to a number of factors, including:

•                                           continued growth of the Chinese cellular telecommunications market, driven by economic growth and reduction in the cost of cellular handsets and services,

Pre-paid Subscribers:   The rate of increase in our pre-paid subscribers continues to exceed the rate of increase in our post-paid subscribers.  As of December 31, 2003, we had 31.47 million pre-paid subscribers in the cellular service areas of CUCL and Unicom New Century, representing 49.2% of our total subscriber base, up from 44.4% at the end of 2002.  Pre-paid subscribers represented 73.8% of our net subscriber additions in the cellular service areas of CUCL and Unicom New Century during 2003.

MOU and ARPU:   Our total minutes of usage, or MOU, and average revenue per subscriber per month, or ARPU, were 123.39 billion minutes and RMB56.7, respectively, in 2003.  The average MOU per subscriber per month was 173.7 minutes in 2003, an increase from 165.5 minutes in 2002.  The increase in MOU was attributable to increased tariff competition with our competitor, which resulted in the provision of more free minutes to subscribers.  The decreasing tariffs as a result of such competition also spurred higher usage among subscribers.  Our ARPU continued to decline in 2003 as the cellular penetration in our cellular service areas increased.  The decline in ARPU was attributable to intensified market competition and regional promotional activities that led to a decline in effective tariffs.  Our pre-paid subscribers in general have lower MOUs and ARPUs compared to our post-paid subscribers.  For the year ended December 31, 2003, the average MOU and ARPU were 108.0 minutes and RMB46.0, respectively, for our pre-paid subscribers, compared to 231.8 minutes and RMB66.2, respectively, for our post-paid subscribers.

Churn Rate:   For the year ended December 31, 2003, the churn rate for GSM services in the cellular service areas of CUCL and Unicom New Century increased from 15.5% in 2002 to 29.1%.  Our calculation of churn rate reflects those subscribers who switch to services of other operators and those whose services we disconnect as a result of account inactivity or payment delinquency.  The churn rate also includes those subscribers who switched among our cellular services and, as a result, obtained a new phone number.  For example, the calculation of the churn rate includes those subscribers who switched between our pre-paid and post-paid services and between our GSM and CDMA services.

The increase in the churn rate for GSM services was attributable to the following reasons:

•                                           the revocation of one-time connection fees, which lowered the cost of switching networks for cellular subscribers;

•                                           due to high competition from “Little Smart” services in the low-end user market, cellular operators have responded by lowering prices for cellular services, thereby facilitating the frequent switching of networks by cost-sensitive subscribers; and

•                                           the growth in pre-paid services, which is characterized by frequent changes in phone numbers by the same customer, with each change contributing to the churn rate.

The Chinese government eliminated connection fees in 2001 and, as competition continues to intensify, our churn rate from subscribers voluntarily discontinuing our services may increase in the future.  The churn rate for our pre-paid services is generally higher than that for our post-paid services because of

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the migrant and temporary nature of most pre-paid subscribers.  It is also difficult for us to develop and maintain customer relationships with pre-paid subscribers from whom we do not require registration.

Payment Delinquency:   Payment delinquency in general is on the rise due to intensifying competition.  As of December 31, 2003, the doubtful debt ratio for GSM cellular services in the cellular service areas of CUCL and Unicom New Century, calculated as the amount of provision for doubtful debt divided by revenue from GSM cellular services, is 2.8%, compared to 2.9% at the end of 2002 for CUCL.  In some of our cellular service areas we require our post-paid subscribers to deposit service charges and maintain a certain level of account balances with us or with commercial banks that collect service fees for us.  We classify the creditworthiness of our subscribers into various levels and have adopted other credit control measures.  We also closely manage payment delinquencies through confirmation of customer address and other registration information, expansion of collection channels, advance notification of inadequate deposits, close monitoring of call patterns and account balances and prompt termination of services.

Tariffs

Generally we charge our post-paid cellular subscribers the following categories of tariffs:  basic monthly fees, usage charges for both incoming and outgoing calls, roaming charges, long-distance call charges and charges for value-added services.  Pre-paid subscribers do not pay monthly fees but pay higher per-minute usage and roaming charges.

The cellular tariffs are subject to regulation by various government authorities, including the MII, the National Development and Reform Commission and provincial price regulatory authorities.  The following table summarizes the present State guidance tariff rates for post-paid and pre-paid cellular services:

Source:   MII.

Intense competition in our cellular service areas has resulted in tariff discounts and service promotions offered by both us and our main competitor from time to time, which may lower effective tariffs.  These discounts and promotions have taken many forms, including promotional tariff rates, free call minutes, off-peak discounts or discounts for high-usage subscribers and package service plans with fixed monthly fees.  While various features of our package service plans are coordinated on a nationwide basis, the tariff structure of the various plans are determined by our provincial and local branches based on the local competitive environment.  See “Risks Relating to the Overall Telecommunications Industry in China – New regulations or regulatory changes relating to telecommunications tariffs and other matters may adversely affect our results of operations” under Item 3.

We have introduced a number of package service plans in our cellular service areas.  Under these plans, subscribers pay a fixed monthly fee for a specified number of call minutes.  The plans vary in the level of the fixed monthly fee, the number of specified call minutes and the tariff rates for call minutes in

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excess of the specified call minutes.  The terms of these plans also vary depending on the local markets and generally offer some price discounts to similar plans of our main competitor.  We have also introduced in selected cities promotional plans for certain qualified subscribers, which allow such subscribers to receive incoming calls without incurring per-minute usage charges in exchange for a fixed monthly fee.

In 1997, the Chinese government granted us preferential treatment by allowing us to reduce our tariffs by up to 10% below the State guidance tariff rates.  In the past, this preferential treatment has helped us capture a significant number of cellular subscribers by allowing us to market our cellular services at discounted rates.  As we and our competitor, China Mobile, introduced various package service plans and other promotional programs, the tariff structure has become more complex.  While we continue to maintain tariff levels that are generally lower than those of our main competitor, the more complex tariff structure has, to some extent, made our price advantages less obvious to subscribers compared to previous tariff schemes that were largely based on simple per-minute charges.  In 2003, as we continued to offer package service plans in our service areas, we increased the variety of such plans in order to offer our subscribers more choices and stopped offering service plans that:

•                                           did not include settlement fees,

•                                           permitted unlimited usage,

•                                           were characterized as low usage, and

•                                           were not profitable.

CDMA Cellular Services

Our controlling shareholder, Unicom Group, currently has the exclusive license to offer CDMA cellular services in China.  It has constructed CDMA networks nationwide through its wholly-owned subsidiary, Unicom Horizon.  It completed construction of the initial phase of its CDMA network at the end of 2001.  We, including CUCL, Unicom New Century and Unicom New World, have leased capacity on the network and operate the CDMA network in our cellular service areas.  After a trial period of three months, we formally launched our CDMA services in April 2002.  In March 2003, Unicom Group substantially completed the second phase of the CDMA network construction, which included the upgrade of the network to CDMA 1X technology, and we introduced wireless data services that utilize CDMA 1X technology.  In August 2003, we introduced pre-paid CDMA services, which are currently available in 17 cellular service areas.  Although our CDMA business over all recorded a loss for the year ended December 31, 2003, in the third quarter of 2003, our CDMA business recorded profit for the first time.

Unicom Group’s Construction of CDMA Networks

In May 2001, through Unicom Horizon, Unicom Group awarded supply contracts to a number of foreign and domestic equipment suppliers, and began to build CDMA networks nationwide.  The networks are expected to be expanded in phases.  The number and size of each phase will depend upon actual and forecast CDMA subscriber growth and anticipated capacity requirements.  In the first phase of the construction, which was completed by the end of 2001, the networks achieved a nationwide coverage of approximately 330 cities in China, with a total capacity of 15.81 million subscribers.  The portion of this network within the combined cellular service areas of CUCL, Unicom New Century and Unicom New World has a total capacity of approximately 15.62 million subscribers.

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Through a competitive bidding process, Unicom Group was able to obtain highly attractive terms for its CDMA equipment supply contracts.  The construction of the first phase of its CDMA networks utilized to a significant extent the existing GSM infrastructure, such as base stations, switching centers and transmission capacity.

In March 2003, Unicom Group substantially completed the second phase of the CDMA network construction, which included the upgrade of the network to CDMA 1X technology.  The second phase of the construction also added capacity for 20.69 million additional subscribers, bringing the total capacity of the nationwide CDMA networks to approximately 36.50 million subscribers.  The portion of the CDMA networks within the combined cellular service areas of CUCL, Unicom New Century and Unicom New World has a capacity of approximately 20.38 million subscribers.  In addition, the second phase of the construction focused on improving the depth of network coverage, by deepening coverage to the level of almost all of the county-level towns and cities and increasing indoor coverage.

Our Lease of CDMA Networks from Unicom Group

Our wholly-owned operating subsidiary, CUCL, entered into a lease agreement with Unicom Group and its subsidiary Unicom Horizon, dated November 22, 2001, which sets forth the principal terms of the network capacity leasing arrangement between us and Unicom Group.  Unicom New Century and Unicom New World have also entered into lease agreements, dated November 20, 2002 and November 20, 2003, respectively, with Unicom Group and Unicom Horizon on similar terms and conditions.  We lease network capacity from Unicom Group and operate these CDMA networks in our cellular service areas on an exclusive basis and receive all revenue generated from the operation.  We may terminate the lease arrangements upon giving at least six months’ prior notice to Unicom Group.

The term of each lease is for an initial period of one year and may be renewed for further one-year terms at our option.  We leased network capacity in our cellular service areas on a quarterly basis during the first year and, thereafter, will lease network capacity on an annual basis, with the ability to request to (i) lease additional lease capacity for any initial or additional lease term and (ii) reduce lease capacity for any additional lease term.  See “B. Related Party Transactions – Leasing of CDMA Network Capacity – Lease of CDMA Network Capacity” under Item 7. We have leased capacity for 26.05 million, subscribers in the cellular service areas of CUCL, Unicom New Century and Unicom New World, for the first half of 2004.

Under these leasing arrangements, we are required to make quarterly lease payments to Unicom Group for the actual amount of network capacity we lease.  The lease fee is charged on a per line basis and determined so as to enable Unicom Group to recover its total investment in constructing the network in seven years, if the full network capacity is leased, together with a rate of return on its investment of 8%.  To the extent that we have not leased or do not lease in the future the full capacity of the CDMA network in the particular period, we do not have to compensate Unicom Group for unused capacities not leased by us.  The quarterly lease fee for the first phase of the CDMA networks in the cellular service areas of CUCL and Unicom New Century was RMB56.4 per subscriber line leased in 2003.  The quarterly lease fee for the second phase of the CDMA network in our combined cellular service areas is RMB61.5 per subscriber line leased.

In addition to leasing network capacity, we will also have the option, exercisable at any time during the lease period and for an additional year thereafter, but not later than seven years following the commencement of the lease, to purchase the CDMA network in our cellular service areas.  The acquisition price will be negotiated between Unicom Group and us.  It will be based on the determination of an independent asset appraiser in accordance with applicable PRC laws and regulations and take into account the then prevailing market conditions and other factors.  However, the purchase price will not exceed an amount which will, taking into account all lease fee payments made by us to Unicom Horizon and lease fee

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discounts as a result of delay of delivery, enable Unicom Horizon to recover its total network construction costs, together with an internal rate of return of 8%.  The exercise of the purchase option will be subject to the relevant provisions of the listing rules of the Hong Kong Stock Exchange governing connected transactions, including approvals of our minority shareholders.  Also see “B. Related Party Transactions  -  Leasing of CDMA Network Capacity - Lease of CDMA Network Capacity” under Item 7.

Services

The CDMA services we offer in our cellular service areas include basic voice and value added services such as call forwarding and voicemail, caller identity display, SMS services and CDMA 1X data services.  In addition to post-paid CDMA services, we launched pre-paid CDMA services under the service brand of “Ru Yi 133” in 17 cellular service areas in August 2003.  The features of our pre-paid and post-paid CDMA services are similar to pre-paid and post-paid GSM services.  See “B. Business Overview – Cellular Services – GSM Cellular Services – Post-paid Services and Pre-paid Services” under this Item 4.  We have begun operations of the CDMA 1X networks in all of the major cities in our cellular service areas.

Subscriber Base

The following table sets forth selected historical information about our CDMA cellular operations and our subscriber base for the periods indicated.

(1)                   Market share in a given area is determined by dividing the number of our CDMA subscribers in the area by the total number of cellular subscribers in the area.  Source :  Ministry of Information Industry.

(2)                   Average churn rate is the rate of subscriber disconnections from our CDMA cellular network, which we have determined by dividing the sum of voluntary and involuntary deactivations during the period by the average of the number of our CDMA subscribers during the period.

(3)                   Average minutes of usage per subscriber per month is calculated by dividing the total minutes of usage during the period by the average of the number of our CDMA subscribers during the period, and dividing the result by the number of months in the relevant period.

(4)                   Average revenue per subscriber per month, or ARPU, is calculated by dividing the sum of CDMA cellular services revenue during the relevant period by the average of the number of our CDMA subscribers during the period, and dividing the result by the number of months in the period.

(5)                   No CDMA services.

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As of December 31, 2003, our total CDMA subscriber base in the cellular service areas of CUCL and Unicom New Century reached 16.91 million, including 16.05 million post-paid subscribers and 0.86 million pre-paid subscribers.  Pre-paid subscribers represented 5.1% of the total number of CDMA subscribers in 2003.  We believe the rapid growth in our CDMA subscriber base was primarily attributable to:

•                                           the advantages of the CDMA technology, including the lower radio transmitting power of CDMA handsets as compared to GSM handsets, better voice quality and enhanced security,

•                                           increased brand awareness,

•                                           our promotions and marketing efforts, which include our handset promotional packages begun in 2002 (the use of which was reduced in 2003), and encouraging the active involvement of our agents in CDMA handset sales in order to facilitate the marketing of our CDMA services, and

•                                           the launch of “U-Max” services in an effort to use CDMA 1X value-added services to facilitate CDMA subscriber growth.

MOU, ARPU and Churn Rate

In 2003, MOU for our CDMA services was 43.70 billion minutes, an increase from 8.278 billion minutes in 2002, and ARPU for our CDMA services was RMB128.4, a decrease from RMB172.2 in 2002.  Average MOU for our CDMA services was 337.5 minutes, 45.6% higher than the average MOU of 231.8 minutes for GSM post-paid services, while our CDMA ARPU was 94.0% higher than the ARPU of RMB66.2 for our post-paid GSM subscribers.  The reasons for the increase in MOU and the decrease in ARPU for our CDMA services in 2003 are similar to the reasons for similar trends in GSM services.  See “B. Business Overview – Cellular Services – GSM Cellular Services – MOU and ARPU” under this Item 4.

The churn rate for our CDMA services is calculated in the same way as the churn rate for our GSM services and was 11.5% in 2003, higher than the 0.8% in 2002, but significantly lower than the 29.1% churn rate for our GSM services.  Loss of CDMA subscribers was primarily attributable to the following reasons:

•                                           increased competition as the focus of growth gradually shifts from new subscribers to increased usage;

•                                           the termination of some CDMA subscribers at the end of their contract periods under the CDMA handset rental programs we began in 2002; and

•                                           the introduction of pre-paid CDMA services, which are characterized by a higher churn rate than post-paid services and led to some subscribers switching from post-paid services to pre-paid services.

Payment Delinquency

As of December 31, 2003, the doubtful debt ratio for CDMA cellular services in the cellular service areas of CUCL and Unicom New Century, calculated as the amount of provision for doubtful debt divided by revenue from CDMA cellular services, is 2.4%, compared to 1.4% in 2002 for CDMA cellular services in the cellular service areas of CUCL.  We have taken various measures to control payment delinquency for our CDMA services, which measures are similar to the ones taken to control payment delinquency for our

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GSM services.  See “B. Business Overview – Cellular Services – GSM Cellular Services – Payment Delinquency” under this Item 4.

Tariffs and Promotion

The tariff rates for our CDMA services are generally the State guidance rates for cellular services without the 10% discount we are permitted to adopt for GSM services.  However, we have adopted other promotional programs.  Generally we charge our post-paid cellular subscribers the following categories of tariffs:  basic monthly fees, usage charges for both incoming and outgoing calls, roaming charges, long-distance call charges and charges for value-added services.  Pre-paid subscribers do not pay monthly fees but pay higher per-minute usage and roaming charges.

To accelerate the growth in our CDMA subscriber base, we began offering special handset promotional packages in the second half of 2002.  We and Unicom Group purchased CDMA handsets directly from several suppliers, or through Unicom Guomai Communications Co., Ltd., (or Guomai, a company listed on the Shanghai Stock Exchange which was an indirect, non-wholly-owned subsidiary of our company prior to our sale of Guoxin Paging to Unicom Group).  Under the handset promotional packages, CDMA mobile handsets purchased by us from handset suppliers were given to certain CDMA subscribers for their use at no additional cost during specified contract periods, ranging from 6 months to 2 years. In return, subscribers were required to incur a minimum amount of service fees during the contract period. If the contractual subscribers can fulfill the minimum contract spending amounts, they will not need to repay the remaining costs of the CDMA handsets. To secure contract performance, these subscribers were also required to (1) prepay certain non-refundable amounts of service fees or deposits, (2) maintain a bank deposit in designated commercial banks to secure their minimum contract amounts, or (3) provide a guarantor who will compensate us for any loss in the event of the subscribers’ non-performance of contract obligations.

Due to the high cost of the handset promotional packages, we stopped the use of such packages in the second half of 2003, and concentrated on alternative promotional programs to develop our CDMA services.  We focused on expanding the distribution network for our CDMA services by significantly increasing the number of sales agents.  We also launched several marketing campaigns in the second half of 2003, which included increased advertising for our CDMA services, promotion of various customized package service plans that gave subscribers more choices, and promotion of our CDMA 1X value-added services.

See “Risk Factors - Risks Relating to Our Business - Our new CDMA services may fail to gain sufficient market share” under Item 3.

SMS Services

We began to offer SMS services in 2000.  SMS volume has been increasing rapidly.  A total number of 25.03 billion short messages were transmitted by GSM subscribers and 6.23 billion short messages by our CDMA subscribers in the cellular service areas of CUCL and Unicom New Century in 2003.  Our SMS services are offered under a uniform service brand of “Uni-Info” and mainly include the following services: SMS transmission and receipt through handsets, operator-assisted SMS, automated SMS platform, voice SMS, stock quotes, weather, flight information.  We continue to promote the use of SMS as a convenient and cost effective method of business and personal communication.  The SMS platform of our GSM network and the SMS platform of our CDMA network are interconnected with each other and with China Mobile’s GSM network.

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