As of or for the year ended December 31,
		2006(1)			2007(1)			2008(1)			2009			2009
		RMB			RMB			RMB			RMB			US$
		(in millions, except share, per share and per ADS information)
Consolidated Balance Sheet Data:
Working capital(4)		28,489			49,916			56,611			77,550			11,361
Cash and cash equivalents		71,167			78,859			87,426			78,894			11,558
Deposits with banks		82,294			109,685			130,833			185,613			27,192
Accounts receivable, net		7,153			6,985			6,913			6,405			938
Property, plant and equipment, net		218,274			257,170			327,783			360,075			52,751
Total assets		495,436			564,169			658,427			751,368			110,076
Bonds(5)		12,937			9,949			9,920			9,918			1,453
Deferred consideration payable(6)		23,633			23,633			23,633			23,633			3,462
Total liabilities		177,714			192,020			217,776			243,734			35,707
Share capital		2,130			2,136			2,138			2,139			313
Shareholders’ equity		317,351			371,661			440,022			506,748			74,239
Other Financial Data:
Capital expenditures and land lease prepayments(7)		77,566			99,551			122,814			116,675			17,093
Net cash generated from operating activities		149,346			168,612			193,647			207,123			30,344
Net cash used in investing activities		(118,841	)		(123,039	)		(139,026	)		(165,927	)		(24,308	)
Net cash used in financing activities		(23,587	)		(37,276	)		(45,684	)		(49,774	)		(7,292	)
Dividend declared or proposed		31,156			39,883			48,364			49,544			7,258
Dividend declared per share (RMB)		1.566			2.000			2.415			2.471			0.36
Dividend declared per share (HK$)		1.542			2.098			2.743			2.804			0.36

Exchange Rate Information

We publish our consolidated financial statements in Renminbi. Solely for the convenience of the reader, this annual report on Form 20-F contains translations of certain Renminbi and Hong Kong dollar amounts into U.S. dollars and vice versa at RMB6.8259RMB6.6000 = US$1.00 and HK$7.75367.7810 = US$1.00, the noon buying rates in New York City for cable transfers as certified for customs purposes by the Federal Reserve Bank of New York on December 31, 2009.30, 2010. These translations should not be construed as representations that the Renminbi or Hong Kong dollar amounts could actually be converted into U.S. dollars at such rates or at all.

The noon buying rates in New York City for cable transfers as certified for customs purposes by the Federal Reserve Bank of New York were RMB6.8305RMB6.4920 = US$1.00 and HK$7.78507.7669 = US$1.00, respectively, on May 28, 2010.April 21, 2011. The following table sets forth the high and low noon buying rates between Renminbi and U.S. dollars and between Hong Kong dollars and U.S. dollars for each month during the previous six months:

Noon Buying Rate

The following table sets forth the average noon buying rates between Renminbi and U.S. dollars and between Hong Kong dollars and U.S. dollars in 2005, 2006, 2007, 2008, 2009 and 2009,2010, calculated by averaging the noon buying rates on the last day of each month during the relevant year.

Average Noon Buying Rate

Risk Factors

We wish to caution readers that the following important factors, and those important factors described in other reports submitted to, or filed with, the SEC, among other factors, could affect our actual results and could cause our actual results to differ materially from those expressed in any forward-looking statements made by us or on our behalf, and that such factors may have a material adverse effect on our business, financial condition, results of operations and prospects as well as our ordinary shares and ADSs.

Risks Relating to Our Business

We may not be able to achieve a highmaintain the same level of growth due to, among other things,as we have experienced over the increase in the mobile penetration rate in Mainland Chinapast decade, which could have a material adverse effect on our financial condition and the effectsresults of the restructuring of the telecommunications industry in Mainland China.operations as well as our profitability.

We have experienced significant growth over the past few years,decade, measured by the increase in both our customer base and our revenue. However, our rate of growth as measured by our revenue has been decreasing over the past five years, due in part to the continued increase in the mobile penetration rate and competition among mobile telecommunication operators in Mainland China. We cannot assure you however, that we will be able to achieve a high level of growth in the future. In particular, according to data published by the Ministry of Industry and Information Technology, or the MIIT, mobile penetration rate in Mainland China reached 56.3%64.4% as of December 31, 2009, and the mobile telecommunications markets in some of the larger cities of Mainland China have begun showing signs of saturation.2010. Moreover, the effects of the restructuring of the telecommunications industry in 2008 that has significantly changed the competitive landscape in the telecommunications industry in Mainland China have begun to emerge, and have principally resulted in further intensified competition. See “— Competition from other telecommunications services providers and competitors in other related industries may further increase, which may reduce our market share and decrease our profit margin, and we cannot assure you that any potential change in the competitive landscape of the telecommunications industry in Mainland China would not have a material adverse effect on our business, financial condition and results of operations.” In addition, changes in the macroeconomic environment arising from the global financial crisis have had an adverse impact on Mainland China as well as its telecommunications industry in 2009. All of these factors, among others, have contributed to a slowdown in the growth in demand for our telecommunications services in Mainland China. As a result, our customer base grew at a lower rate in 20092010 than in prior years. We had 65.0more net additions to our customer base than our competitors and added 61.7 million new customers in 2009, representing2010, which represented a 26.0%5.1% decrease from the number of new customers that we added for 2008.2009. Furthermore, our operating revenue grew by 9.8%7.3% in 20092010 as compared to 15.2%9.8% in 2008.2009. Our efforts to achieve growth could be hampered if we are unable to compete effectively with other telecommunications services providers in Mainland China. We cannot assure you that we will be successful in our efforts to achieve a high level of customer growth or to increase the utilization of our telecommunications services. If we are unable to sustain our growth, our financial condition and results of operations as well as our profitability may be materially and adversely affected.

Competition from other telecommunications services providers and competitors in other related industries may further increase, which may reduce our market share and decrease our profit margin, and we cannot assure you that any potential change in the competitive landscape of the telecommunications industry in Mainland China would not have a material adverse effect on our business, financial condition and results of operations.

We compete withcontinue to face increasing competition from other telecommunications services providers in allMainland China. In May 2008, the MIIT, the National Development and Reform Commission, or the NDRC, and the Ministry of Finance, or the MOF, jointly announced a policy initiative to further reform the PRC telecommunications industry. See “Item 4. Information on the Company — The History and Development of the thirty-one provinces, autonomous regionsCompany — Industry Restructuring and directly-administered municipalitiesChanges in Our Shareholding Structure.” Upon completion of the industry restructuring in January 2009, principal participants in the telecommunications industry in Mainland China. TheChina include United Network Communications Group Company Limited, or China Unicom, China Telecommunications Corporation, or China Telecom, and us, with both China Telecom and China Unicom becoming full-service telecommunications services providers that operate both fixed-line telecommunications networks and mobile telecommunications networks. See “Item 4. Information on the Company — Business Overview — Competition.” In addition, the PRC government encourages orderly competition in the telecommunications industry in Mainland China and has in the past extended favorable regulatory policies to some of our competitors in order to help them become more viable competitors. See “— Risks Relating to the Telecommunications Industry in Mainland China — Current or future asymmetrical and other regulatory measures adopted by the PRC regulatory authorities could materially harm our competitive position.”

We continueare also subject to face increasing competition from new technologies and business models, including new Internet-based telecommunications technologies as well as competition from competitors from other telecommunications services providers. In May 2008, in order to optimize the allocation of telecommunications resourcesindustries, such as Internet service providers, mobile device manufacturers and mobile software developers, who compete against us in the PRCarea of value-added businesses by offering mobile Internet access and improve the competitive landscape, the MIIT, the National Developmentother mobile services and Reform Commission and the Ministry of Finance jointly announced a policy initiative to further reform the PRC telecommunications industry by encouraging the formation of three telecommunications services providers of comparable scale and standing, each with nationwide network resources, full-service capabilities and competitive strength, by way of a series of restructuring transactions. See “Item 4. Information on the Company — The History and Developmentare taking up an increasing share of the Company — Industry Restructuring andvalue chain of the telecommunications industry. See “— Changes in Our Shareholding Structure.” Following the announcement of the policy initiative, China United Telecommunications Corporation, formerlytechnology and business models may render our largest competitor, combined with China Network Communications Group Corporation to form China United Network Communications Group Company Limited, or China Unicom, while China Telecommunications Corporation, or China Telecom, acquired the Code Division Multiple Access, or CDMA,current technologies and business previously ownedmodel absolute and operated by China United Telecommunications Corporationthus affect our business and became a new mobile telecommunications services provider that directly competes with us. Both of these developments resulted in more competitive pressures on us. In addition, under the PRC government’s policy initiative announced in May 2008, China Telecom and China Unicom have each become full-service telecommunications services providers that operate both fixed-line telecommunications networks and mobile telecommunications networks. See “Item 4. Information on the Company — Business Overview — Competition.market position.” Further increased competition could reduce the rate at which we add new customers to our network and decrease our market share as customers choose to receive mobile telecommunications services from other providers. Our customer base grew at a lower rate in 20092010 than in prior years. Furthermore, our market share wasdecreased slightly to approximately 70.6%69.3% as of December 31, 2009, as compared to 72.4% as of December 31, 2008.2010. We cannot assure you that we will not experience increases in churn rates as competition intensifies, which may materially reduce our profitability as we may incur significant additional selling expenses to replaceretain and attract new customers. Furthermore, we cannot assure you that any potential change, and in particular, any further restructuring in the competitive landscape of the telecommunications industry in Mainland China would not have a material adverse effect on our business, financial condition and results of operations.

The TD-SCDMA industry chain is still at a developing stage. As a result, we have encountered and may continue to encounter challenges in the deployment of our 3G services, which could have a material adverse effect on our financial condition and results of operations.

We are committed to pursuing our 3G business based on the Time Division Synchronous Code Division Multiple Access, or TD-SCDMA, technology. As a result, our ability to deploy and deliver our 3G services depends, to a large extent, on the TD-SCDMA technology. IfThe TD-SCDMA industry chain has undergone substantial development in 2010. However, if the evolution of the TD-SCDMA technologyindustry chain does not continue to perform satisfactorily,meet the requirements of the operation of our 3G business, we may not be able to effectively and economically deliver our 3G services based on this technology. Furthermore, we face intense competition in the delivery of TD-SCDMA based 3G services from our competitors, which are delivering 3G services using Wideband Code Division Multiple Access, or WCDMA, and Code Division Multiple Access 2000, or CDMA2000, technologies, both of which are perceived to be more mature 3G technologies that have been used widely in western Europe and the United States and may offer more effective global roaming or other services to customers. If the TD-SCDMA technology proves not to be widely adopted, or if this technology does not otherwise perform satisfactorily, our ability to attract and retain customers or offer services to our customers may be limited, our business and prospects will suffer and our revenues and profitability could be materially and adversely affected.

The TD-SCDMA industry chain, including companies that manufacture, or conduct research and development activities relating to, TD-SCDMA systems, terminals, chipsets and instruments, has undergone significant growth, but remained at a development stage, in 2009, with the related technologies and products lacking in sophistication and maturity. As a result, we continued to experience challenges in the deployment of our 3G services. For example, TD-SCDMA handsets currently available on the market still lack variety and may be comparatively more expensive. We may not be able to successfully overcome our current challenges, including gaining sufficient popularity among potential customers, and may encounter new challenges in the development of our 3G business, and the deployment of our 3G services may not proceed according to anticipated schedules.

In addition, we have made substantial investments and incurred significant expenses in the development of our 3G services, including the leasing of network capacity from our parent company, China Mobile Communications Corporation, or CMCC, and the development of our 3G market. As of December 31, 2009, our 3G network covered 238 cities in Mainland China, which represent more than 70% of all prefecture-level cities nationwide, and we are in the process of further expanding the coverage of our 3G services. As of April 30, 2010, approximately 8.4 million of our customers used 3G terminals. We expect to continue making significant investments in the construction of our core mobile telecommunications network and related systems and facilities, which will be used for both our 2G and 3G services. Accordingly, the amount of our capital expenditures in future years could remain high. See “Item 5. Operating and Financial Review and Prospects — Liquidity and Capital Resources — Capital Expenditures” for more information on our expected capital expenditures. If the deployment of our 3G services dobusiness does not gain sufficient popularity among potential customers,reach anticipated scale, or if we encounter other challenges in the provision of our 3G services, our ability to realize benefits from our significant capital investment in our networks and 3G services will be limited, which could have a material adverse effect on our financial condition and results of operations.

Extensive government regulationFailure to capitalize on new business opportunities may limitsubstantially reduce our flexibility to respond to changes in market conditions or competition.growth potential.

The MIIT, which was createdWe may pursue acquisitions or otherwise make investments in March 2008 to assume, among other things, the functions of the MII, regulates, among other things, the following areas of the telecommunications industry in the PRC under the leadership of the State Council:

Other PRC government authorities also take part in regulating the telecommunications industry in areas such as tariff policies and foreign investment. The regulatory framework within which we operate may limit our flexibility to respond to changes in market conditions or competition, including changes in our cost structure. Moreover, we cannot predict when or if changes in tariff policies or rates may occur. Future adverse changes in tariff policies and rates could significantly decrease our revenues and materially reduce our profitability.

We operate our businesses with approvals granted by the State Council and under licenses granted by the MIIT. We also have arrangements with CMCC, our parent company, under which we operate a 3G telecommunications business based on a 3G license granted to CMCC by the MIIT. If these approvals or licenses are revoked or suspended, or if the conditions or other obligations relating to these approvals or licenses are amended in a manner that is detrimental to us, our business and operations could be materially and adversely affected.

Current or future asymmetrical and other regulatory measures adopted by the PRC regulatory authorities could materially harm our competitive position.

The PRC government has in the past extended favorable regulatory policies to some of our competitors in order to help them become more viable competitors to us. Under the restructuring initiatives relating to the telecommunications industry in Mainland China announced in May 2008, the PRC government may also implement necessary asymmetrical regulatory measures over a period of time, in order to optimize the allocation of telecommunications resources in the PRC and improve the competitive landscape. In particular, under the restructuring initiatives announced in May 2008, the PRC government encourages the offering of roaming services across different mobile telecommunications networks, and the prices at which the mobile telecommunications services providers may settle for these inter-network roaming services would be initially set by the PRC regulatory authorities. In addition, the PRC government may implement other asymmetrical regulatory measures, such as the mobile number portability policies that have been under trial implementation in Hainan Province and Tianjin, which could allow customers to switch to another mobile telecommunications operator while being able to retain their existing mobile numbers.opportunities arise. We cannot predict at this point in time the impact, if any,assure you that such offering of roaming services or other measures may have on our business and prospects. The implementation of asymmetrical regulatory measures could materially harm our competitive position, which could in turn significantly reduce our revenues and profitability.

We may be affected by the enactment of a new telecommunications law and the promulgation of new telecommunications regulations.

To provide a uniform regulatory framework for the orderly development of the telecommunications industry, the MIIT, under the direction of the State Council, has been preparing a draft telecommunications law. It has been reported that the draft telecommunications law, which has been included in the legislative agenda of the State Council for 2010, is currently under review by the State Council. If and when the telecommunications law is adopted by the National People’s Congress, it is expected to become the fundamental telecommunications statute and the legal basis for telecommunications regulations in Mainland China. In 2000, the State Council promulgated a set of telecommunications regulations, or the Telecommunications Regulations, that apply in the interim period prior to the adoption of the telecommunications law. Although we expect that the telecommunications law will positively affect the overall development of the telecommunications industry in Mainland China, we do not fully know what will be its nature and scope. The telecommunications law and other new telecommunications regulations or rules may contain provisions that could have a material adverse effect our business, financial condition and results of operations.

The PRC government may require major operators, including us, to provide universal services with specified obligations, and we may not be compensated adequately for providing these services.

Under the Telecommunications Regulations, telecommunications operators in Mainland China are required to fulfill universal service obligations in accordance with relevant regulations to be promulgated by the PRC government, and the MIIT has the authority to delineate the scope of these service obligations. The MIIT, together with other PRC governmental authorities, is also responsible for formulating administrative rules relating to the establishment of a universal service fund and compensation schemes for universal services. These rules have not yet been promulgated, and there are currently no specific regulatory requirements relating to the provision of universal services in Mainland China.

While the scope of specific universal services obligations is not yet clear, we believe that these services may include mandatory provision of basic mobile telecommunications services in less economically developed areas in Mainland China and mandatory contribution to a universal service fund. In addition, as part of the transitional measures prior to the formalization of a universal service obligation framework, the MIIT has required major telecommunications services providers in Mainland China, including CMCC, to participate in a project to provide basic telecommunications services in remote villages in Mainland China.

We cannot predict whether we will be requiredsuccessful in pursuing such acquisitions or investments or will otherwise be able to provide universal services insuccessfully integrate any acquired business into our existing operations. Our ability to capture new business opportunities may also depend on the future and, if so, whether we will be adequately compensated by the government or by the universal service fund. We also cannot assure you whether we will be required to make contribution to the universal service fund. Anyavailability of these events may materially and adversely affect our financial condition and results of operations,sufficient financing from internal as well as our profitability.

We are controlled by CMCC, whichexternal sources. Any failure to capitalize on new business opportunities may not always act in our best interest.

As of April 30, 2010, CMCC indirectly owned approximately 74.22% of our outstanding shares. Accordingly, CMCC is, and will be, able to:

The interests of CMCC as our ultimate controlling person may conflict with the interests of our minority shareholders. In particular, CMCC may pursue business and other initiatives that may not be in our best interest or may otherwise conflict with our interests and the interests of our minority shareholders.

In addition, CMCC provides our operating subsidiaries in Mainland China with services that are necessary for our business activities, including:

Furthermore, we operate our 3G business pursuant to arrangements with CMCC, which was granted a license by the PRC government to operate a 3G business based on the TD-SCDMA technology.

The interests of CMCC as the provider of these services to our operating subsidiaries in Mainland China may conflict with our interests. Furthermore, the State-Owned Assets Supervision and Administration Commission, or the SASAC, an agency of the State Council established in 2003, functions as the investor of state-owned assets on behalf of the PRC government and promulgates rules, regulations and policies from time to time that govern, among other things, the supervision, reform and management of state-owned enterprises, including CMCC. Actions taken by the SASAC may indirectly have a material adverse effect on our business, financial condition and results of operations, and may conflict with the interests of our minority shareholders.

The limited frequency spectrum allocated to us may constraincompetitive position, as well as materially reduce our future network capacityprofitability and growth.

A mobile telecommunications network’s capacity is to a certain extent limited byIn October 2010, we, through our wholly-owned subsidiary China Mobile Group Guangdong Co., Ltd., or Guangdong Mobile, acquired 20% of the enlarged share capital of SPD Bank for an aggregate amount of frequency spectrum available for its use. SinceRMB39.5 billion (approximately US$6.0 billion). In connection with this acquisition, we entered into a strategic cooperation agreement with SPD Bank in November 2010, pursuant to which we will cooperate with SPD Bank in the MIIT controlsareas of mobile finance and mobile e-Commerce businesses such as mobile payment which includes on-site payment and remote payment as well as in the allocationsharing of frequency spectrumcustomers services and channels resources. See “Item 4. Information on the Company — Business Overview — Investment in, and strategic cooperation with, SPD Bank.” SPD Bank’s profitability is impacted to mobile telecommunications operatorssome extent by macroeconomic conditions and changes in monetary and fiscal policies in Mainland China, and we cannot assure you that our investment in SPD Bank will achieve the capacitydesired level of return. In addition, any strategic cooperation may not produce the intended benefits due to a number of factors, some of which are beyond our control, including the lack of a well-developed consumer market for mobile telecommunications network is limited by the amount of spectrume-Commerce in Mainland China. Moreover, we cannot assure you that the MIIT allocates to our parent company, CMCC. For our GSM network,banking regulatory authorities of the MIIT has allocated a totalPRC would not require any approvals in connection with any of 40 MHz of spectrum to be used for transmissionthe mobile communications, mobile finance and reception nationwide, respectively,e-Commerce products that we may develop in the 900 MHz and 1800 MHz frequency bands to our parent company, CMCC. In connection with our 3G business, the MIIT has allocated to CMCC a total of 35 MHz of spectrum to be used for nationwide coverage, and an additional 50 MHz of spectrum to be used for indoor coverage. Under the existing agreement between CMCC and us,future or that we have the exclusive rights among mobile telecommunications services providers to use the allocated frequency spectrum in Mainland China.

We believe that our current spectrum allocation is sufficient for anticipated customer growth in the near term. However, we may need additional spectrum to accommodate future customer growth or to develop mobile telecommunications services using new wireless telecommunications technologies. Moreover, we, as well as CMCC, may notwill be able to obtain additional spectrumall necessary approvals in order for us to achieve the expected benefits from our cooperation with SPD Bank. If we encounter difficulties in carrying out our cooperation with SPD Bank, the MIIT. Our network expansion plansprospects of the mobile finance and mobile e-Commerce businesses contemplated to be jointly developed by us and SPD Bank may be affected if we are unable to obtain additional spectrum. This could in turn constrain our future network capacity growth and materially and adversely affectaffected. Furthermore, expected benefits from our businessinvestment in networks, licenses and prospects as well as our financial condition and results of operations.new technologies may not be realized.

We may be unable to obtain sufficient financing to fundIn March 2011, we, through our substantialwholly-owned subsidiary China Mobile Communication Co., Ltd., or CMC, acquired from CMCC, ZTE Corporation, or ZTE, Eastern Communications Co., Ltd., Beijing Digital China Limited, Ningbo Bird Co., Ltd. and Shenzhen Huawei Investment & Holding Co., Ltd. all of the share capital requirements, which could limit our growth potentialof Topssion, a mobile handsets and future prospects.

We estimate that we will require approximately RMB301.4 billiondevices sales and distribution company in Mainland China, for an aggregate purchase price of RMB237,070,000 (approximately US$44.2 billion) for capital expenditures from 2010 through the end of 2012 for a range of projects and other expenditures, including, among others, the construction of our core mobile telecommunications networks and related systems and facilities, the construction of our 2G wireless network and the development of new technologies and new businesses. 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. We may require additional funds to the extent we have underestimated our capital requirements or overestimated our future cash flows from operations. In addition, a significant feature of our business strategy is to continue exploring opportunities in developing new technologies and new businesses in the telecommunications industry, which may require additional capital resources.35.9 million). We cannot assure you that any financing we may need will always be availableable to us on commercially acceptable terms or on a timely basis. In addition, any future issuancesuccessfully integrate the business of equity securities, including securities convertibleTopssion into or exchangeable for or that representour value chain and achieve the right to receive equity securities, may require approval from the relevant government authorities. If adequate capital is not available, our growth potential and future prospects could be materially and adversely affected.expected benefits of this acquisition.

Changes in technology and business models may render our current technologies and business model obsolete and thus affect our business and market position.

The telecommunications industry is characterized by rapidly changing and increasingly complex technologies. Accordingly, although we strive to keep our technologies up to international standards, the mobile telecommunications technologies that we currently employ including the TD-SCDMA technology, may become obsolete orobsolete. We are also subject to increasing competition from new technologies in the future,and business models, including new Internet-based telecommunications technologies. In addition,technologies as well as competition from competitors from other industries, such as Internet service providers, mobile device manufacturers and mobile software developers, who compete against us in the area of value-added businesses by offering mobile Internet access and other mobile services and are taking up an increasing share of the value chain of the telecommunications industry. The intensified competitive landscape requires us to implement new technologies and develop new businesses in order to maintain our share of the value chain of the telecommunications industry and to adapt to the evolving value chain.

Moreover, there has been a significant increase in recent years in the use of mobile phones by our customers to access the Internet, which has caused an unprecedented increase in data traffic. The substantial increase in data traffic significantly strains the existing capacity of our telecommunications network infrastructure. The development and application of new technologies involves time, substantial costs and risks. We may encounter unexpected technological difficulties or risks in developing and implementing new technologies, including any next generation mobile technology, such as the TDD mode long-term evolution, or TD-LTE, technology, and as a result may incur substantial cost or service disruptions, which could have a material adverse effect on our business, financial condition, results of operations and prospects.

Failure to capitalize on new business opportunities may substantially reduce In addition, our growth potential.

We intend to pursue new growth opportunities in the broader telecommunications industry. Ourfuture success will depend in large partpartly on our ability to offer services that address the market demand arising from these opportunities. In addition, our ability to deploy and deliver these services depends,new growth opportunities in many instances, on new and unproven technologies. In particular, any new wirelessthe broader telecommunications technologies deployed by us may not perform as expected.industry. We may also not be able to successfully develop or obtain new technologies to effectively and economically deliver these services. Furthermore, we may not be able to compete successfully in the delivery of telecommunications services based on new technologies. Moreover, we may pursue acquisitions from time to time, and we cannot assure you that we will be successful in pursuing such acquisitions or will otherwise be able to successfully integrate any acquired companies or assets into our existing operations. Any failure to capitalize on new business opportunities may have a material adverse effect on our competitive position, future profitability and growth prospects.

Actual or perceived health risks associated with the use of mobile devices could impair our ability to retain and attract customers, reduce wireless telecommunications usage or result in litigation.

There continues to be public speculation about possible health risks to individuals from exposure to electromagnetic fields from base stations and from the use of handsets. While a substantial amount of scientific research conducted to date by various independent research bodies has shown that radio signals, at levels within the limits prescribed by public health authority safety standards and recommendations, present no adverse effect to human health, we cannot be certain that future studies, irrespective of their relative reliability or trustworthiness, will not impute a link between electromagnetic fields and adverse health effects. Research into these issues is ongoing by government agencies, international health organizations and other scientific bodies in order to develop a better scientific understanding and public awareness of these issues. In addition, several wireless industry participants were the targets of lawsuits alleging various health consequences as a result of wireless phone usage or seeking protective measures. While we are not aware of any scientific studies or objective evidence which substantiates such alleged health risks, we cannot assure you that the actual, or perceived, risks associated with radio wave transmission will not impair our ability to retain customers and attract new customers, reduce wireless telecommunications usage or result in litigation.

Any failure to achieve and maintain effective internal controls could have a material adverse effect on our reputation, business, results of operations and the market prices of our shares and ADSs.

Effective internal controls are necessary for us to provide reasonable assurance with respect to our financial reports and to prevent fraud. We are required to comply with various Hong Kong and U.S. laws, rules and regulations on internal controls, including the Sarbanes-Oxley Act of 2002. In particular, Section 404 of the Sarbanes-Oxley Act of 2002 requires that we include a report of management on our internal control over financial reporting in our annual reports on Form 20-F that contains an assessment by our management of the effectiveness of our internal control over financial reporting. In addition, our independent registered public accounting firm must issue an auditor’s report on the effectiveness of our internal control over financial reporting.

Internal controls may not prevent or detect misstatements because of their inherent limitations, including the possibility of human error, the circumvention or overriding of controls, or fraud. In addition, projections of any evaluation of the effectiveness of our internal control over financial reporting to future periods are subject to the risk that controls may become inadequate because of changes in operating conditions or a deterioration in the degree of compliance with our policies or procedures. As a result, even effective internal controls can provide only reasonable assurance with respect to the preparation and fair presentation of financial statements. If we fail to maintain the adequacy of our internal control over financial reporting, our management may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting. Moreover, even if our management concludes that our internal control over financial reporting is effective, our independent registered public accounting firm may disagree. If our independent registered public accounting firm is not satisfied with our internal control over financial reporting or the level at which our controls are designed or operated, or if the independent registered public accounting firm interprets the requirements, rules or regulations differently from us, it may decline to express an opinion on the effectiveness of our internal control over financial reporting or may issue a negative opinion. Any of these possible outcomes could result in a loss of investor confidence in the reliability of our consolidated financial statements, which could cause the market prices of our ordinary shares and ADSs to decline significantly. In addition, any deficiency in our internal control over financial reporting could expose us to increased risk of fraud or misuse of corporate assets and subject us to potential delisting from the New York Stock Exchange, regulatory investigations and civil or criminal sanctions.

We are controlled by CMCC, which may not always act in our best interest.

As of March 31, 2011, CMCC indirectly owned approximately 74.20% of our outstanding shares. Accordingly, CMCC is, and will be, able to:

The interests of CMCC as our ultimate controlling person may conflict with the interests of our minority shareholders. In particular, CMCC may take actions with respect to our business that may not be in our other shareholders’ best interest.

In addition, CMCC provides our operating subsidiaries in Mainland China with services that are necessary for our business activities. See “Item 5. Operating and Financial Review and Prospects—Overview of Our Operations—Our Operating Arrangements with CMCC Have Affected and May Continue to Affect Our Financial Results.” Furthermore, we operate our 3G business pursuant to arrangements with CMCC, which was granted a license by the PRC government to operate a 3G business based on the TD-SCDMA technology. The interests of CMCC as the provider of these services to our operating subsidiaries in Mainland China may conflict with the interests of us or our other shareholders.

We may conduct a public offering and listing of our shares in Mainland China, which may result in increased regulatory scrutiny and compliance costs as well as increased fluctuations in the prices of our ordinary shares and ADSs listed in overseas markets.

We may conduct a public offering and listing of our shares on a stock exchange in Mainland China. The offering may take the form of an offering of a separate class of our ordinary shares denominated in Renminbi and listed on the International Board of the Shanghai Stock Exchange. We have not set a specific timetable or decided on any specific form for an offering in the PRC. The precise timing of the offering and listing of our shares in Mainland China would depend on a number of factors, including the receipt of relevant regulatory approvals and market conditions. In particular, the rules applicable to the potential offering and listing shares in Mainland China of the International Boardcompanies incorporated outside of the Shanghai Stock ExchangeChina are currently being promulgated by the Shanghai Stock Exchange.yet to be promulgated. If our public offering in Mainland China is completed, we would become subject to the applicable laws, rules and regulations governing public companies listed in Mainland China, in addition to the various laws, rules and regulations that we are currently subject to in Hong Kong and the United States. The listing and trading of our securities in multiple jurisdictions and multiple markets may lead to increased compliance costs for us, and we face the risk of significant intervention by regulatory authorities in these jurisdictions and markets.

In addition, under the current PRC laws, rules and regulations, our ordinary shares listed on the Hong Kong Stock Exchange will not be interchangeable or fungible with any shares we decide to list on a Mainland China stock exchange, and there is no trading or settlement between these two markets. Furthermore, these two markets have different trading characteristics and investor bases, including different levels of retail and institutional participation. As a result of these differences, the trading prices of our ordinary shares listed on the Hong Kong Stock Exchange may not be the same as the trading prices of any shares we decide to list on a Mainland China stock exchange. The issuance of a separate class of shares and fluctuations in its trading price may also lead to increased volatility in, and may otherwise materially and adversely affect, the prices of our ordinary shares and ADSs listed in overseas markets.

ChangesOur future network capacity growth may be constrained by the frequency spectrum available to us.

A mobile telecommunications network’s capacity is to a certain extent limited by the amount of frequency spectrum available for its use. Since the MIIT controls the allocation of frequency spectrum to mobile telecommunications operators in Mainland China, the capacity of our mobile telecommunications network is limited by the amount of spectrum that the MIIT allocates to our parent company, CMCC. For our GSM network, the MIIT has allocated a total of 45 MHz of spectrum to be used for transmission and reception, respectively, to our parent company, CMCC. Of the 45 MHz of spectrum allocated to us, 40 MHz in the 900 MHz and 1800 MHZ frequency bands is allocated for use nationwide, and 5 MHz in the 1800 MHz frequency band is allocated for use in the cities of Beijing, Shanghai and Chengdu and Guangdong province. In connection with our 3G business, the MIIT has allocated to CMCC a total of 35 MHz of spectrum to be used for nationwide coverage, and an additional 50 MHz of spectrum to be used for indoor coverage. Under the existing agreement between CMCC and us, we have the exclusive rights among mobile telecommunications services providers to use the allocated frequency spectrum in Mainland China.

We believe that our current spectrum allocation is sufficient for anticipated customer growth in the near term. However, we may need additional spectrum to accommodate future customer growth or to develop mobile telecommunications services using new wireless telecommunications technologies, and, we may not be able to obtain additional spectrum from the MIIT. Our network expansion plans may be affected if we are unable to obtain additional spectrum. This could in turn constrain our future network capacity growth and materially and adversely affect our business and prospects as well as our financial condition and results of operations.

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, profitability and leased line arrangements may increase our operating expenses and reduce our profitability.growth.

Our mobile telecommunications services depend, in large part, upon our interconnection arrangements and access to other networks. Interconnection is necessary in the case of all local calls between our customers and customers of other networks. Interconnection and leased line arrangements are also necessary for international and certain domestic calls. We have entered into interconnection and transmission line leasing agreements with other operators. We cannot assure you that increasing usageAny disruption on our interconnection with the networks of the other networks would not resultoperators with which we interconnect due to technical or competitive reasons may affect our operations, service quality and customer satisfaction, and in additional strain on its switching capacity, or that theturn our business and results of operations. In addition, any obstacles in existing quality of the other networks will remain adequate.

The terms of our interconnection arrangements and leased line arrangements have a material impact on our operating revenue and expenses. In addition, our business and operations may be materially and adversely affected, and our profitability severely reduced, if we are unable to enter into future interconnection and leased line agreements on commercially acceptableor any change in their terms, or on a timely basis.

We may not be able to successfully integrate, and achieve the benefits we expect from, our proposed investment in and strategic cooperation with SPD Bank due to a number of factors, some of which are beyond our control.

In March 2010, we, through our wholly-owned subsidiary China Mobile Group Guangdong Co., Ltd., or Guangdong Mobile, entered into a share subscription agreement with SPD Bank, pursuant to which Guangdong Mobile would acquire 20% of the enlarged share capital of SPD Bank for an aggregate amount of RMB39,801.4 million (approximately US$5,831 million), subject to customary closing conditions, including the obtaining of all necessary regulatory approvals. Concurrent with the share subscription agreement, Guangdong Mobile and we also entered into a memorandum of understanding on strategic cooperation with SPD Bank with the intention of entering into a strategic cooperation agreement within three months after the completion of the share subscription. See “Item 4. Information on the Company — Business Overview — Proposed investment in, and cooperation with, SPD Bank.” It is contemplated under the memorandum of understanding on strategic cooperation that we and SPD Bank will closely cooperate in the joint development of mobile finance and mobile e-Commerce businesses in Mainland China. Our investment in SPD Bank may not yield our desired level of return. In addition, any strategic cooperation may not produce the intended benefits due to a number of factors, some of which are beyond our control, including the lack of a well-developed consumer market for mobile e-Commerce in Mainland China. Moreover, we cannot assure you that no approvals from the banking regulatory authorities of the PRC would be required in connection with any of the mobile communications, mobile finance and e-Commerce products that we may develop in the future or that we will be able to obtain all necessary approvals in order for us to achieve the expected benefits from our cooperation with SPD Bank. We also cannot assure you that we will not be subject to any form of supervision or regulation of the PRC banking regulatory authorities, such as the China Banking Regulatory Commission, as a result of any ofnatural events, accidents, or for regulatory, technological, competitive or other reasons, could lead to temporary service disruptions and increased costs that can severely jeopardize our future cooperation arrangements with SPD Bank. If we encounter difficulties in carrying outoperations and materially decrease our cooperation with SPD Bank, we could be exposed to business risksprofitability and the prospects of the mobile finance and mobile e-Commerce businesses contemplated to be jointly developed by us and SPD Bank may be materially and adversely affected.growth.

Risks Relating to the Telecommunications Industry in Mainland China

We are subject to extensive government regulation and may be materially affected by any change in the regulatory environment, especially in the telecommunications industry, in the PRC.

As a telecommunications operator in China, we are subject to regulation by, and under the supervision of, the MIIT, the primary regulator of the telecommunications industry in China. Other PRC government authorities also take part in regulating the telecommunications industry in areas such as tariff policies and foreign investment. The regulatory framework within which we operate may limit our flexibility to respond to changes in market conditions or competition, including changes in our cost structure. For instance, we cannot predict when or if changes in tariff policies or rates may occur. Future adverse changes in tariff policies and rates could significantly decrease our revenues and materially reduce our profitability.

The MIIT, under the direction of the State Council, has been preparing a draft telecommunications law, which, once adopted, will become the fundamental telecommunications statute and the legal basis for telecommunications regulations in Mainland China. In 2000, the State Council promulgated a set of telecommunications regulations, or the Telecommunications Regulations, that apply in the interim period prior to the adoption of the telecommunications law. Although we expect that the telecommunications law will positively affect the overall development of the telecommunications industry in Mainland China, we do not fully know what will be its nature and scope. The telecommunications law and other new telecommunications regulations or rules may contain provisions that could have a material adverse effect on our business, financial condition and results of operations.

We operate our businesses with approvals granted by the State Council and under licenses granted by the MIIT. We also have arrangements with CMCC, our parent company, under which we operate a 3G telecommunications business based on a 3G license granted to CMCC by the MIIT. If the conditions or other obligations relating to these approvals or licenses are amended in a manner that is detrimental to us, our business and operations could be materially and adversely affected.

Current or future asymmetrical and other regulatory measures adopted by the PRC regulatory authorities could materially harm our competitive position.

The PRC government has in the past extended favorable regulatory policies to some of our competitors in order to help them become more viable competitors to us. Under the restructuring initiatives relating to the telecommunications industry in Mainland China announced in May 2008, the PRC government may also implement necessary asymmetrical regulatory measures over a period of time, in order to optimize the allocation of telecommunications resources in the PRC and improve the competitive landscape. In particular, the PRC government encourages the offering of roaming services across different mobile telecommunications networks, and the prices at which the mobile telecommunications services providers may settle for these inter-network roaming services would be initially set by the PRC regulatory authorities. We cannot predict at this point in time the impact, if any, such offering of roaming services or other measures may have on our business and prospects. In addition, the PRC government may implement other asymmetrical regulatory measures. For example, a one-way mobile number portability policy is currently under trial implementation in Hainan Province, which allows our 2G customers to switch to services of China Unicom or China Telecom while being able to retain their existing mobile numbers. A two-way mobile number portability policy is also under trial implementation in Tianjin, which allows our 2G customers, as well as the 2G and 3G customers of China Unicom and China Telecom, to switch to services of another telecommunications services provider while being able to retain their existing mobile numbers. The implementation of asymmetrical regulatory measures could materially harm our competitive position, which could in turn significantly reduce our revenues and profitability, and our financial condition and results of operations may be materially and adversely affected.

The PRC government may require major operators, including us, to provide universal services with specified obligations, and we may not be compensated adequately for providing these services.

Under the Telecommunications Regulations, telecommunications operators in Mainland China are required to fulfill universal service obligations in accordance with relevant regulations to be promulgated by the PRC government, and the MIIT has the authority to delineate the scope of these service obligations. The MIIT, together with other PRC governmental authorities, is also responsible for formulating administrative rules relating to the establishment of a universal service fund and compensation schemes for universal services. These rules have not yet been promulgated, and there are currently no specific regulatory requirements relating to the provision of universal services in Mainland China.

While the scope of specific universal services obligations is not yet clear, we believe that these services may include mandatory provision of basic mobile telecommunications services in less economically developed areas in Mainland China and mandatory contribution to a universal service fund. In addition, as part of the transitional measure prior to the formalization of a universal service obligation framework, the MIIT has required major telecommunications services providers in Mainland China, including CMCC, to participate in a project to provide basic telecommunications services in remote villages in Mainland China.

We cannot predict whether we will be required to provide universal services in the future and, if so, whether we will be adequately compensated by the government or by the universal service fund. We also cannot assure you whether we will be required to make contribution to the universal service fund. Any of these events could reduce our revenues and/or net income.

Our share price has been and may continue to be volatile in response to conditions in the global securities markets generally and in the telecommunications and technology sectors in particular.

Our share price has been subject to significant volatility, due in part to highly volatile securities markets, particularly for telecommunications companies’ shares, as well as variations in our sales and profit from operations. Factors other than our results of operations that may affect our share price include, among other things, overall market conditions and performance, market expectations of our performance, projected growth in the mobile telecommunications market in Mainland China and adverse changes in our brand value. In addition, our share price may be affected by factors such as the level of business activity or perceived growth (or the lack thereof) in the telecommunications market in general, the performance of other telecommunications companies, announcements by or the results of operations of our competitors, customers and suppliers the success of 3G mobile networks and new technologies, products and services. See “Item 9. The Offer and Listing” for information regarding the trading price history of our ordinary shares and ADSs.

Actual or perceived health risks associated with the use of mobile devices could impair our ability to retain and attract customers, reduce wireless telecommunications usage or result in litigation.

There continues to be public speculation about possible health risks to individuals from exposure to electromagnetic fields from base stations and from the use of mobile devices. While a substantial amount of scientific research conducted to date by various independent research bodies has shown that radio signals, at levels within the limits prescribed by public health authority safety standards and recommendations, present no adverse effect to human health, we cannot be certain that future studies, irrespective of their relative reliability or trustworthiness, will not impute a link between electromagnetic fields and adverse health effects. Research into these issues is ongoing by government agencies, international health organizations and other scientific bodies in order to develop a better scientific understanding and public awareness of these issues. In addition, several wireless industry participants were the targets of lawsuits alleging various health consequences as a result of wireless phone usage or seeking protective measures. While we are not aware of any scientific studies or objective evidence which substantiates such alleged health risks, we cannot assure you that the actual, or perceived, risks associated with radio wave transmission will not impair our ability to retain customers and attract new customers, reduce wireless telecommunications usage or result in litigation.

Risks Relating to Mainland China

An economic slowdown in Mainland China may reduce the demand for our services and have a material adverse effect on our financial condition, results of operations and business prospects.

We conduct most of our business and generate substantially all our revenues in Mainland China. As a result, economic, political and legal developments in Mainland China have a significant effect on our financial condition and results of operations, as well as our future prospects. In recent years, Mainland China has been one of the world’s fastest growing economies in terms of gross domestic product, or GDP, growth. If China’s economic growth slows down, there will be reduced business activities reduced voice traffic, and reduced demand for our services, which could materially and adversely affect our business, as well as our financial condition and results of operations.

The Renminbi is not a freely convertible currency, which could limit the ability of our subsidiaries in Mainland China to obtain sufficient foreign currencies to satisfy their foreign currency requirements or pay dividends to us.

Substantially all of our revenues, operating expenses and capital expenditures are denominated in Renminbi, while a portion of our indebtedness are denominated in foreign currencies, such as U.S. dollars and Hong Kong dollars. The Renminbi is currently freely convertible under the “current account”, which includes dividends, trade and service-related foreign currency transactions, but not under the “capital account”, which includes foreign direct investment, unless prior approval of the State Administration of Foreign Exchange of the PRC is obtained.

Our operating subsidiaries are foreign invested enterprises. Currently, they may purchase foreign currency without the approval of the State Administration of Foreign Exchange for settlement of “current account transactions”, including payment of dividends, by providing commercial documents evidencing these transactions. They may also retain foreign exchange in their current accounts (subject to a cap approved by the State Administration of Foreign Exchange) to satisfy foreign currency liabilities or to pay dividends. However, the relevant PRC government authorities may limit or eliminate our operating subsidiaries’ ability to purchase and retain foreign currencies in the future. In addition, our subsidiaries incorporated in Mainland China may not be able to obtain sufficient foreign currencies to satisfy their foreign currency requirements or pay dividends to us for our use in making any future dividend payments or in meeting our other foreign currency payment requirements. Foreign currency transactions under the capital account are still subject to limitations and require approvals from the State Administration of Foreign Exchange. This could affect our subsidiaries’ ability to obtain foreign currencies through debt or equity financing, including by means of loans or capital contributions from us.

The PRC legal system contains uncertainties which could limit the legal protections available to our shareholders.

Most of our operating subsidiaries are organized under the laws of the PRC and are subject to laws, rules and regulations applicable to foreign-invested enterprises in China. The PRC legal system is a civil law system based on written statutes. Unlike common law systems, it is a system in which decided legal cases may be cited for reference but have littlelimited precedential value. Since the late 1970s,1979, the PRC government has been promulgating a comprehensive system ofpromulgated laws, rules and regulations dealing with economic matters, such as foreign investment, corporate organization and governance, commerce, property, taxation and trade. However, because these laws and regulations governing economic mattersare relatively new, and because of the relatively limited volume of published cases and their non-binding nature, interpretation and/or enforcement of these laws, rules and regulations involves uncertainties, which may limit the remedies available to our investors and to us in general. Legislation since then has significantly enhancedthe event of any claims or disputes with third parties. In addition, any litigation in the PRC may be protracted and result in substantial costs and diversion of resources and management attention. Consequently, the protection affordedprovided by the PRC legal system may not be the same as the legal protection available to foreign investmentinvestors in Mainland China. Our existing subsidiariesthe United States or elsewhere. Furthermore, various uncertainties involved in Mainland China are “wholly foreign-owned enterprises”, which are enterprises incorporated in Mainland China and wholly-owned by Hong Kong, Macau, Taiwan or foreign investors, and subject to the laws and regulations applicable to foreign investment in Mainland China. However, therulemaking, interpretation and enforcement process of some of thesethe laws, rules and regulations and other legal requirements involve uncertaintiesin the PRC that could limit the legal protections availableare related to our shareholders.business and operations, particularly those relating to telecommunications and enterprise income tax, may also materially and adversely affect our financial condition, result of operations and prospects.

Natural disasters and health hazards in China 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. For example, in early 2008, parts of Mainland China experienced what was reportedly the most severe winter weather in the country in half a century. Our base stations in the areas affected by such severe winter weather suffered power failures and our network equipment sustained other significant damages due to this severe winter weather. In addition, a major earthquake registering 8.0 on the Richter scale struck Sichuan Province and certain other parts of Mainland China in May 2008. Our network equipment, including our base stations, in the affected areas sustained extensive damages in the earthquake,some of these natural disasters, leading to service stoppage and other disruptions in our operations in those areas. Moreover, certain countries and regions, including China, have encountered incidents of the H5N1 strain of bird flu, or avian flu, and the severe acute respiratory syndrome, or SARS, as well as the outbreak of influenza A(H1N1) in recent years. 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 China may have a material adverse effect on our financial condition and results of operations.

Item 4. Information on the Company.

We provide a full range of mobile telecommunications services in all 31 provinces, autonomous regions and directly-administered municipalities in Mainland China as well as in the Hong Kong Special Administrative Region of the People’s Republic of China, or Hong Kong. As of December 31, 2009,2010, the total population residing in Mainland China was approximately 1.3 billion. Based on publicly available information, we are the leading provider of mobile telecommunications services in Mainland China and the largest provider of mobile telecommunications services in the world as measured by total number of customers as of December 31, 2009.2010. As of the same date, our total number of customers was approximately 522.3reached 584 million, representing approximately 70.6%69.3% of all mobile customers in Mainland China. As of April 30, 2010,March 31, 2011, our total number of customers reached approximately 544.2600.8 million.

Recent Developments

In March, 2010, we, through our wholly-owned subsidiary Guangdong Mobile, entered into a share subscription agreement with SPD Bank, pursuant to which Guangdong Mobile would acquire 20% of the enlarged issued share capital of SPD Bank, subject to customary closing conditions, including the obtaining of all necessary regulatory approvals. See “Item 4. Information on the Company — Business Overview — Proposed investment in, and cooperation with, SPD Bank.”

Concurrent with the share subscription agreement, Guangdong Mobile and we also entered into a memorandum of understanding on strategic cooperation with SPD Bank with the intention of entering into a strategic cooperation agreement in the near future. It is contemplated under the memorandum of understanding on strategic cooperation that we and SPD Bank will closely cooperate in the joint development of mobile finance and mobile e-Commerce businesses in Mainland China, including the joint development of mobile phone payments business, mobile bank cards business, mobile funds transfer business and other forms of mobile finance and mobile e-Commerce businesses.

The History and Development of the Company

We were incorporated under the laws of Hong Kong on September 3, 1997 as a limited liability company under the name “China Telecom (Hong Kong) Limited”. We changed our name to “China Mobile (Hong Kong) Limited” on June 28, 2000 and to “China Mobile Limited” on May 29, 2006 after obtaining the approval of our shareholders.

We completed our initial public offering in October 1997. Our ordinary shares are listed on the Hong Kong Stock Exchange, and our American Depositary Shares, or ADSs, each currently representing the right to receive five ordinary shares, are listed on the New York Stock Exchange.

Expansion Through Acquisitions

Our initial mobile telecommunications operations included those in Guangdong Province and Zhejiang Province, conducted by Guangdong Mobile Communication Company Limited (currently known as China Mobile Group Guangdong Co., Ltd.) and Zhejiang Mobile Communication Company Limited (currently known as China Mobile Group Zhejiang Co., Ltd.), or Zhejiang Mobile, respectively. As part of the restructuring in preparation for our initial public offering in 1997, the former Ministry of Posts and Telecommunications transferred to us a 100% equity interest in Guangdong Mobile and a 99.63% equity interest in Zhejiang Mobile. We subsequently increased our shareholding in Zhejiang Mobile to 100%.

We carried out a series of acquisitions between 1998 and 2004, through which we acquired from CMCC, our indirect controlling shareholder, mobile telecommunications operations conducted by its other regional subsidiaries. As a result, we significantly expanded the geographical coverage of our operations to all 31 provinces, autonomous regions and directly-administered municipalities in Mainland China.

In addition, we acquired all of the issued and outstanding shares of China Resources Peoples Telephone Company Limited (currently known as China Mobile Hong Kong Company Limited, or Hong Kong Mobile), a mobile telecommunications services provider based in Hong Kong, on March 28, 2006 for a total purchase price of approximately HK$3,384 million (US$436 million). As a result, Hong Kong Mobile became our wholly-owned subsidiary.

In March 2011, we, through our wholly-owned subsidiary, CMC, acquired from CMCC, ZTE, Eastern Communications Co., Ltd., Beijing Digital China Limited, Ningbo Bird Co., Ltd. and Shenzhen Huawei Investment & Holding Co., Ltd. all of the share capital of Topssion, a company primarily engaged in the business of sales of mobile phone handsets and devices, for an aggregate purchase price of RMB237,070,000 (approximately US$35.9 million). As a result, Topssion became our wholly-owned subsidiary.

These acquisitions have significantly enlarged our customer base and expanded the geographical coverage of our business. The integration of these acquired operations has also enabled us to realize synergies and economies of scale.

Industry Restructuring and Changes in Our Shareholding Structure

Prior to 1993, all public telecommunications networks and services in Mainland China were controlled and operated by the former Ministry of Posts and Telecommunications through the former Directorate General of Telecommunications, provincial telecommunications administrations and their city and county level bureaus.

As partBetween 1993 and 2008, the telecommunication industry of Mainland China underwent significant reforms and restructuring that resulted in improved competitive environment and enhanced regulation of the PRC government’s restructuring of the telecommunications industry, the MII was formed in March 1998 to assume, among others, the responsibilities of the former Ministry of Posts and Telecommunications. One of the principal objectives of the restructuring was to separate the government’s regulatory function from its business management functions in respect of state-owned enterprises. In the first half of 2000, the PRC government substantially completed the industry restructuring. As a result, the MII ceased to have an indirect controlling interest in us, and no longer exercised control over telecommunications operations, but continued in its capacity as industry regulator providing industry policy guidance as well as exercising regulatory authority over all telecommunications services providers in Mainland China.

As part of the restructuring, the telecommunications operations previously controlled by the former Ministry of Posts and Telecommunications were separated along four business lines: fixed-line telecommunications, mobile telecommunications, paging and satellite telecommunications. As part of this separation, CMCC was established in July 1999 as a state-owned company to hold and operate the mobile telecommunications business nationwide, which obtained the approximately 57% holding of voting shares and economic interest in China Mobile (Hong Kong) Group Limited, our indirect controlling shareholder, previously held by Telpo Communications (Group) Limited, an entity 100% controlled by the former Ministry of Posts and Telecommunications. The remaining 43% interest in China Mobile (Hong Kong) Group Limited previously held by the Directorate General of Telecommunications was transferred to CMCC in May 2000. As a result, CMCC became the owner of all voting shares and economic interest in China Mobile (Hong Kong) Group Limited and thus all of the PRC government’s interest in us. As of April 30, 2010, CMCC indirectly owned approximately 74.22% of all our outstanding shares, including shares represented by ADSs.

As a state-owned company, the former China Telecommunications Corporation owned and operated fixed-line telephone and data telecommunications networks. In November 2001, the State Council formally approved the restructuring of the former China Telecommunications Corporation, China Netcom Corporation Limited and Jitong Network Communications Company Limited. Under the restructuring plan, China Netcom was formed in May 2002, which consisted of ten regional telecommunications companies that were originally owned by the former China Telecommunications Corporation in Beijing, Tianjin, seven provinces and one autonomous region, China Netcom Corporation Limited and Jitong Network Communications Company Limited. China Telecom retained the telecommunications companies originally owned by the former China Telecommunications Corporation in the remaining provinces, autonomous regions and directly-administered municipalities.industry.

In March 2008, the MIIT was created to assume, among other things, the functions of the MII and becameas the industry regulator providing industry policy guidance and exercising regulatory authority over all telecommunications services providers in Mainland China, including, among others, formulating and enforcing industry policy, standards and regulations, granting telecommunications licenses and permits, formulating interconnection and settlement standards for implementation between telecommunications networks, formulating tariff and service charge standards for certain telecommunications services together with other relevant regulatory authorities, supervising the operations of telecommunications services providers, promoting fair and orderly market competition among operators, and allocating and administering public telecommunications resources.

On May 24, 2008, the MIIT, the National Development and Reform CommissionNDRC and the Ministry of FinanceMOF issued a joint announcement relating to the further reform of the telecommunications industry in Mainland China. AccordingChina, which led to a future restructuring of the joint announcement, the principal objectives of such further reform include, among others:then-existing telecommunication services providers. The restructuring resulted in: (i) supporting the formation of three telecommunications services providers of comparable scale and standing, each with nationwide network resources, full-service capabilities and competitive strength, in order to help optimize the allocation of telecommunications resources and foster market competition; (ii) promoting homegrown innovation by telecommunications services providers; and (iii) enhancing the service capabilities and quality of, and the regulatory framework governing, the telecommunications industry. To achieve these objectives, the three ministries encouraged the following restructuring transactions: (a) the acquisition by China Telecom of the CDMA network (including both assets and customer base) then owned by China United Telecommunications Corporation; (b)Corporation in July 2008; (ii) the merger between China United Telecommunications Corporation and China Netcom; (c)Netcom to form China Unicom in January 2009; (iii) the transfer of the basic telecommunications services business then operated by China Satellite into China Telecom; and (d)(iv) the consolidation of China Tietong Telecommunications Corporation, or China Tietong, into CMCC. The joint announcement required that detailed implementation plans relating to these restructuring transactions be formulated by the relevant parties involved, subject to, in each case, agreement on terms among the relevant parties and approvals by applicable PRC government authorities, and carried out, as applicable, in accordance with customary practices in the domestic and international capital markets.

Following the joint announcement, China Telecom acquired the CDMA network (including both assets and customer base) formerly owned by China United Telecommunications CorporationCMCC in July 2008, and China United Telecommunications Corporation and China Netcom completed their merger to form China Unicom in January 2009. China Tietong became a wholly-owned subsidiary of CMCC on July 31, 2008.

On January 7, 2009, the MIIT issued a CDMA 2000 3G license to China Telecom, a WCDMA 3G license to China Unicom and a TD-SCDMA 3G license to CMCC, our parent company.

As a result of the industry restructuring in 2008 and early 2009, principal participants in the telecommunications industry in Mainland China, other than China Tietong and us, currently also include China Telecom and China Unicom. China Telecom and China Unicom currently operate both mobile and fixed-line telecommunications services. We currently operate only mobile telecommunications services, while China Tietong currently operates fixed-line telecommunications services.

Organizational Structure

As of April 30, 2010,March 31, 2011, CMCC, a company incorporated in China, owned 74.22%74.20% equity interest in us through intermediate holding companies. We operate in all thirty-one provinces, autonomous regions and directly-administered municipalities throughout Mainland China and in Hong Kong. As of April 30, 2010,March 31, 2011, we owned, directly or through intermediate holding companies, 100% equity interests in the following companies:

In addition, we own a 66.41% equity interest in Aspire Holdings Limited, or Aspire, a company incorporated in the Cayman Islands. As of April 30, 2010, we owned 25% equity interests in JIL B.V., or JIL, a private limited liability company incorporated in the Netherlands.

General Information

Our principal executive offices are located at 60th Floor, The Center, 99 Queen’s Road Central, Hong Kong, China; telephone: 852-3121-8888. We also maintain a regional headquarters in each of our regional mobile telecommunications companies in Mainland China and Hong Kong. Our web site address is www.chinamobileltd.com. The information on our web site is not a part of this annual report on Form 20-F.

Business Overview

We offer mobile telecommunications services principally using the Global System for Mobile Communications, or GSM, standard. GSM is a pan-European mobile telecommunications system based on digital transmission and mobile telecommunications network architecture with roaming capabilities. Our GSM networks reach virtually all cities and counties and major roads and highways, as well as a substantial part of rural areas, throughout Mainland China and, through the network of Hong Kong Mobile, a substantial part of Hong Kong.

Starting from January 7, 2009, we also offer mobile telecommunications services using the TD-SCDMA standard. We operate our 3G business based on a core mobile telecommunications network that is shared by both our 2G and 3G businesses and TD-SCDMA wireless network capacity leased from CMCC. See “— Mobile Telecommunications Networks” below. CMCC’s TD-SCDMA wireless network covered 238656 cities in Mainland China as of December 31, 2009, which represented more than 70% of2010, representing almost all prefecture-levelcounty-level or above cities nationwide.

In addition, we complement our network with, and provide our customers with high-speed Internet access through, wireless local area networks, or WLAN, at our WLAN hotspots located in major cities in Mainland China. As of December 31, 2010, we had 56,500 WLAN hotspots at such locations as airports, hotels, conference centers, schools and exhibition centers in major cities in Mainland China. We believe that our WLAN network effectively carries part of the data traffic in connection with our data value-added services and helps alleviate the strain on our network.

Our Business Strategy

As a pioneer and the market leader in the world’s largest mobile telecommunications market, we intend to enhance our businesses in the mobile telecommunications market by innovatively developing new customers and new voice usage and value-added business opportunitiesopportunities.

We intend to further penetrate into the individual customer market by enhancing our mobile Internet services as well asa media, further expandingpromoting the multi-functionalities of mobile handsets and better integrating mobile handsets into our individual customers’ daily lives.

In the corporate arena, we plan to strengthen our efforts in exploringdeveloping applications for the rural“Internet of Things,” which is a network of objects equipped with identifying devices, such as SIM cards, sensors and corporate customer markets.two-dimensional codes, and connected to a wireless network that is capable of enabling information exchange between objects. We intend to continue enhancing our competitive advantages in termsbelieve the “Internet of scaleThings” will further enhance the informatization of operations, networks, support systems, brands, marketingthe manufacturing industry, the service industry, government functions and sales channelsother sectors of the society and services, and strengthening our ability to innovate in terms of services, businesses, technologies and management, so as to further develop our multi-media communications services and become the leader in providing mobile information. economy.

Moreover, we will continue to expand both the geographic coverage and the service offerings of our 3G services and to accelerate the development of the long-term evolution, or LTE,TD-LTE technology, which is a mainstream standard for the evolution of existing 3G technologies.

We believe the mobile telecommunications market in Mainland China will continue to expand, and we have designed our business strategy to achieve sustainable growth. Our business strategy includes the following key elements:

Customers and Usage

Our customer base has grown substantially from approximately 457.3 million at the end of 2008 to approximately 522.3 million at the end of 2009.2009 to approximately 584.0 million at the end of 2010. As of December 31, 2009,2010, we had a market share of approximately 70.6%69.3% in Mainland China. As of April 30, 2010,March 31, 2011, our total number of customers reached approximately 544.2600.8 million, and approximately 8.427.0 million of our customers used 3G terminals. Our customer growth is primarily attributable to a number of factors, including:

We continued to experience growth in our corporate customer base in 2009.2010. As of December 31, 2009,2010, the total number of our corporate accounts reached 2.82.93 million, withand the number of individual customers served under corporate accounts reaching 184.8 million, representing 35.4%reached 36.1% of our total customer base.

Nearly half of our customer growth in 2009 came from rural areas. Our participation in the PRC government’s Home Appliance to the Countryside Program, which is a nationwide program that supply subsidized household electronics to rural areas, has helped promote our sales and grow our customer base in the rural areas of Mainland China. Capitalizing on our first-mover advantage in rural markets, we were able to continue developing our customer base in the rural areas in 2009.

However, our customer base grew at a lower rate in 20092010 than in prior years. WithDue to the increasing mobile telecommunications markets in some of the larger cities of Mainland China becoming saturatedpenetration rate and intensified competition among mobile telecommunications operators intensifying,and from competitors in other related industries, our customer base may not continue to grow as fast as it has been over the past few years, if at all.

Our total voice usage volume reached 2,918.73,461.6 billion minutes in 2009,2010, representing an increase of approximately 19.6%18.6% from 2008.2009. As of December 31, 2009,2010, the number of our value-added business userscustomers reached 463.4523.4 million, which was an increase of approximately 10.4%12.9% compared to December 31, 2008. Furthermore, our2009. Our SMS usage volume reached 681.2711.0 billion messages in 2009,2010, representing an increase of approximately 12.2%4.4% from 2008.2009. Furthermore, Mobile Internet Access usage reached 103.1 billion megabytes in 2010, representing an increase of approximately 112.3% from 2009.

The following table sets forth selected historical information about our customer base and customer usage as of or for the periods indicated.

Businesses

Our businesses primarily consist of voice business and value-added business.

Voice Business. Our voice business focuses on enabling our customers make and receive calls with a mobile phone at any point within the coverage area of our mobile telecommunications networks. The services include local calls, domestic long distance calls, international long distance calls, domestic roaming and international roaming. Our voice business has continued to grow, and total voice usage volume increased approximately 19.6%18.6% in 20092010 compared to 2008.2009.

Value-Added Business. Our value-added business includes voice value-added services, short message services, or SMS, Mobile Internet Access business and non-SMSother data business.businesses.

Our voice value-added services mainly include caller identity display, caller restrictions, call waiting, call forwarding, call holding, voice mail, conference calls and othersother services.

Our SMS mainly includes customer-to-customer messages, corporate SMS, “Monternet”–based short messages and others.

Our non-SMS data business mainly includes, HandsetMobile Internet Access “Color Ring”,business is a service provided by us to our customers that enables wireless access to the Internet through mobile phones and data cards.

Our other data businesses mainly include Wireless Music Mobile Paper,(including “Color Ring”), multimedia messaging service (including Mobile Paper), or MMS, “139 Mailbox”, “Fetion”, “12580 Integrated Information Service Line”, Mobile Market,Reading, Mobile Reading,Gaming, “139 Mailbox”, “139 Community”, Mobile Video, Mobile Payment/Wallet, Mobile Gaming,TV, Mobile Map, “139 Community”Market and Internet Data Center, or IDC.

We believe that value-added business, in particular data business, will continue to be one of the fastest growing segments of the telecommunications market in Mainland China over the next several years. In 2009,2010, we increased the promotion of our value-added business by providing customers with diversified and personalized services. Revenue from our value-added business increased to RMB131,434RMB151,435 million in 2009,2010, representing an increase of 16.0%15.2% from 2008.2009. As a percentage of operating revenue, revenue generated from value-added business increased to 31.2% in 2010 from 29.1% in 2009 from 27.5% in 2008.2009. As of December 31, 2009,2010, the number of our value-added business users reached 463.4523.4 million, which represented a 10.4%12.9% increase compared to 419.8463.4 million users as of December 31, 2008.2009. We continued to maintain a leading position in value-added business in Mainland China during 2009.2010, in terms of revenue from value-added business.

We plan to continue developingour expansion into regions with lower penetration rate and the development of new applications and functions for SMS, “Color Ring” and MMS to further stimulate the growth of the SMS business.these businesses. In addition, we seek to continue driving the growth momentum of our more mature data products, such as HandsetMobile Internet Access, “Color Ring”Wireless Music, Mobile Paper, “Fetion” and “12580 Integrated Information Service Line”, MMS and to focus on expanding the customer base for our other key data products, such as Wireless Music, Mobile Paper,Reading, Mobile Gaming, “139 Mailbox”, “139 Community”, Mobile Video, Mobile Payment/Wallet and “Fetion”.Mobile TV. At the same time, we expect to continue optimizing our products and applications and offering new businesses, such as Mobile Market, Mobile Reading, Mobile Video, Mobile Wallet and Mobile Gaming, to a wider customer base.businesses.

We also plan to continue promoting industry-specific applications of value-added business to corporate customers to further enhance the penetration and utilization of value-added business. During 2009,2010, we further strengthened and broadened the scope of key industry-specific application solutions to cover major sectors of the society and the economy. These efforts, coupled with our efforts to enhance service quality and improve customer relationship, led to an expansion of our customer base among multi-provincial and multi-national corporations. We also expanded our M2M and Mobile e-Commerce businesses in different areas involving our corporate customers. As of December 31, 2009,2010, the total number of our corporate accounts reached 2.82.93 million.

SMS. SMS refers to services that employ the existing resources of GSM networks and the corresponding functions of mobile telecommunications terminals to deliver and receive text messages, including customer-to-customer messages, “Monternet”-based short messages and others. SMS offers convenience and multi-functionality to our customers, and this business has grown rapidly in recent years. In particular, short message usage volume reached 681,225 million messages in 2009 from 607,129 million messages in 2008, and revenue generated from SMS business reached RMB53,557 million in 2009 compared to RMB50,318 million in 2008.

HandsetMobile Internet AccessAccess.. Handset Internet Access is We experienced a service provided by us to our customers enabling wireless access to the Internet (including both wireless application protocol, or WAP, and world wide web, or WWW, websites). We continued to experiencesignificant growth in our HandsetMobile Internet Access businessesbusiness in 2010, with our Mobile Internet Access usage reaching 103.1 billion megabytes in 2010, representing a 112.3% increase compared to 2009. Revenue generated from HandsetMobile Internet Access services reached RMB18,338RMB30,530 million in 20092010, compared to RMB12,977RMB20,435 million in 2008.2009.

“ColorWireless Music (including “Color Ring”). Wireless Music refers to a service that provides music services to customers through mobile telecommunications networks. “Color Ring” refers to the service where customers can customize the answer ring tone from a wide selection of songs, melodies, sound effects or voice recordings to replace the monotonous ring connecting tone that the caller would hear. We continued to experience growth in our Color Ring business in 2009. Revenue generated from our Color Ring business reached RMB15,413 million in 2009 compared to RMB14,357 million in 2008.

Wireless Music. Wireless Music refers to a service that provides music services to customers through mobile telecommunications networks. In 2009,2010, we continued our efforts in business model innovation and strengthened our cooperation with the music media to stimulate and direct customers to try out, use and get accustomed to wireless music products based on “Color Ring”, “IVR for Wireless Music” and “Ringtone Download”. We recorded 82213 million times of music downloads in 2010. Revenue generated from our Wireless Music (including “Color Ring”) business reached RMB20,345 million in 2010, compared to RMB18,512 million in 2009.

MMS (including Mobile PaperPaper).. MMS is a technology that allows users to exchange multimedia communications, such as graphics, animated color pictures, sound files and short text messages, over wireless networks. Mobile Paper is a business that we have developed in cooperation with mainstream media in Mainland China and elsewhere, which provides customers with updated information services (including contents such as news, sports, entertainment, cultural activities and lifestyle) through MMS, HandsetMobile Internet Access and other types of service. Theservices. Revenue generated from MMS (including Mobile Paper) business reached RMB3,540 million in 2010, compared to RMB3,306 million in 2009. As of December 31, 2010, the number of payingregistered customers of Mobile Paper reached 49.12was approximately 72.8 million (including 41.5 million paying customers who subscribed to Mobile Paper via our central platform for information broadcasted nationwide, compared to 49.1 million as of December 31, 2009).

SMS. SMS refers to services that employ the existing resources of GSM networks and the corresponding functions of mobile telecommunications terminals to deliver and receive text messages, including customer-to-customer messages, corporate SMS, “Monternet”-based short messages and others. SMS offers convenience and multi-functionality to our customers. Our short message usage reached 711.0 billion messages in 2010 from 681.2 billion messages in 2009, and revenue generated from our SMS business reached RMB52,615 million in 2010, compared to 41.49 million as of December 31, 2008.

MMS. MMS is a technology that allows users to exchange multimedia communications, such as graphics, animated color pictures, sound files and short text messages, over wireless networks. Revenue generated from MMS business reached RMB3,306RMB53,557 million in 2009 compared to RMB2,873 million in 2008.

“139 Mailbox”. “139 Mailbox” provides customers with typical Internet based mailbox functions and enables them to send and receive as well as manage their emails using SMS, MMS and Handset Internet Access. The number of active customers of “139 Mailbox” reached 23.75 million as of December 31, 2009.

“Fetion”.. “Fetion”“Fetion” enables mobile customers to communicate instantly through various means, including SMS, for chatting, dating or interactive entertainment. Our “Fetion” business continued to grow significantly in 2009.2010. The number of active customers of “Fetion” reached 62.5678.4 million as of December 31, 2009, as2010, compared to 37.2462.6 million as of December 31, 2008.2009.

WeOur other value-added businesses, including “12580 Integrated Information Service Line”, Mobile Reading, Mobile Gaming, “139 Mailbox”, “139 Community”, Mobile Video, Mobile Payment/Wallet and Mobile TV, also experienced rapid growth in 2010, and we have also strengthened our efforts with respect toin developing other new products and applications in our value-added business. We have launchedAs of December 31, 2010, the cumulative number of registered accounts of Mobile Market providing customersreached 35 million, with an open platform that enables convenientthe number of application downloads from Mobile Market reaching 110 million. As of mobileDecember 31, 2010, the cumulative number of software and applications. We have also launcheddevelopers for our proprietary OMS platform, an intelligent mobile terminal software platform. Jointly workingMobile Market reached 1.10 million, with handset vendors,the number of applications of various types available on Mobile Market reaching 50,000. With the total number of our M2M terminals exceeding 6.9 million in 2010, we have launched OPhone handsets and provided an end-to-end mobile Internet user experience. We believe that these new products and applications have enhanced our value-added business.

We willare determined to continue to develop and promote the application of the “Internet of Things”, which is a network of objects equipped with identifying devices, such as SIM cards, sensors. We believe that all these new products and two-dimensional codes,applications have enhanced, and connectedwill continue to a wireless network that is capable of enabling information exchange between objects.enhance, our value-added business.

Tariffs

The tariffs payable by our customers include primarily usage charges, monthly fees (if applicable) and service fees for voice value-added services and data services. Effective on January 1, 2010, when not using roaming services, our customers incur usage charges in the form of either local usage charges or, for outgoing domestic and international long distance calls, domestic and international long distance charges. When using domestic roaming services, our customers incur either domestic roaming usage charges or, for outgoing international long distance calls, international long distance charges. When using international roaming services, our customers incur charges based on tariffs that vary depending on whether it is an incoming call or an outgoing call and on the destination of the call. We also have flexible long distance tariff plans distinguishing between day time and night time usage, and offer tailored service plans based upon customer requirements as well as our network resources.

Our tariffs are subject to regulation by various government authorities, including the MIIT, the National Development and Reform Commission and the relevant price regulatory authorities in Mainland China. As a general matter, the actual price range in each service area is proposed by a network operator in that service area and must be approved by the relevant price regulatory authorities in that service area. In addition, base usage charges, monthly fees, maximum domestic roaming usage charges and maximum applicable long distance tariffs (other than tariffs for Internet Protocol, or IP, phone calls) are also determined generally by the MIIT in consultation with the National Development and Reform Commission. In August 2005, the MII amended its tariff regulations relating to certain telecommunications services, which resulted in network operators having more flexibility in setting, among other things, their domestic and international long distance tariffs and domestic roaming usage charges, provided that these tariffs and charges do not exceed the respective maximum tariffs it determined in consultation with the National Development and Reform Commission and that the tariff plans are filed with the MII (and, currently, with the MIIT) and the National Development and Reform Commission or, in some cases, the relevant price regulatory authorities at the provincial level.

The MIIT has continued encouraging mobile telecommunications operators in Mainland China to implement the caller-party-pays regime and mobile telecommunications operators, including us, have been implementing the caller-party-pays regime. All of the new calling plan packages that we have been offering in the PRC since the beginning of 2007 are based on tariffs substantially equivalent to the caller-party-pays regime. We expect decreases in tariffs to generally result in usage volume increases.

In March 2008, the MII reduced the maximum domestic roaming usage charges that a mobile telecommunications services provider may charge on roaming services. In December 2009, the PRC regulators further promulgated policies to eliminate domestic roaming usage charges on outgoing international long distance calls when domestic roaming services are used, and to eliminate local usage charges on outgoing domestic and international long distance calls when roaming services are not used.

We offer our customers a variety of tariff packages that have differentvaried monthly fees, levels ofcharges, minimum charges for basic usage, and charges for usage exceeding the covered basic usage, fixed charges for selected features and functions, as well as charges for voice value-added services,services. We also offer different tariff packages with respect to SMS, Mobile Internet Access and each of the other data services and other features. In general, the higher the monthly fee of a tariff package, the greater the price concession we offer.

businesses. Given the rapid growth in mobile penetration rates and increased competition, in order to remain competitive in terms of price and performance with other mobile telecommunications operators, we provide certain discounts and promotional offers in and during certain service areas and call periods targeting various customers. These discounts and promotional offers mainly include rewards for the pre-payment of fees, free trials of voice value-added services or data services, tariff discounts during off-peak hours and in low-traffic areas, and tariff discounts for specified call recipients.

The level and categorization of most of our current tariffs are subject to regulation by various government authorities. The MIIT has gradually liberalized the tariff level by allowing telecommunications service providers to set tariffs below certain tariff ceilings and permitting them to group their products and services, which could essentially lower the actual price for certain products and services included in the plan. The MIIT has also been encouraging mobile telecommunications operators in Mainland China to implement the caller-party-pays regime. See “— Regulation — Tariff Setting” included elsewhere under this Item. We generally expect usage volume to increase as a result of decreases in tariffs.

Interconnection

Interconnection refers to various arrangements that permit the connection of our networks to other mobile or fixed-line networks. These agreements provide for the sharing and settlement of revenues from the local usage charges and, if applicable, roaming usage charges and domestic and international long distance charges.

Our networks interconnect with the networks of other operators, which enables our customers to communicate with the customers of those operators and to make and receive local, domestic and international long distance calls. Each of our operating subsidiaries has interconnection agreements with those operators in its service area. The economic terms of these agreements are standardized from province to province.

Roaming

We provide roaming services to our customers, which allow them to access mobile telecommunications services while they are physically outside of their registered service area or in the coverage areas of other mobile telecommunications networks in other countries and regions with which we have roaming arrangements. As of December 31, 2009,2010, our GSM global roaming services covered 237 countries and regions, while our general packet radio service, or GPRS, global roaming services coverage was extended to 182186 countries and regions.

A mobile customer using domestic roaming services is charged at our per-minute roaming usage charges or, for outgoing international long distance calls, international long distance charges. A mobile customer using international roaming services incur charges based on tariffs that vary depending on whether it is an incoming call or an outgoing call and on the destination of the call. In recent years, our international and domestic roaming usage charges have generally declined, resulting in lower average revenue per minute from roaming services. In March 2008, the PRC regulators reduced the maximum rate at which a mobile telecommunications services provider may charge on domestic roaming services. In December 2009, the PRC regulators further promulgated policies to eliminate domestic roaming usage charges on outgoing international long distance calls when domestic roaming services are used. We believe that the decrease in roaming usage charges helped drive growth in voice volume usage and that growth in voice volume usage helped partially offset the negative impact of the decline in roaming usage charges.

Research and Development

Our research and development efforts, undertaken jointly by our research institute and other relevant departments and business units, primarily focus on:

SOFTBANK Corp., Vodafone International Holdings B.V., Cellco Partnership (doing business as Verizon Wireless) and we jointly invested in JIL to promote the development of new mobile technologies, applications and services, particularly the rapidly growing area of mobile Internet services.

We have applied for a number of patents in Mainland China. Moreover, we have submitted to international standardization organizations a number of contributions, many of which have been accepted. In light of the increasingly competitive and rapidly evolving telecommunications market in Mainland China, we expect to continue to devote resources to the research and development of new products, services and technology applications.

Sales and Customer Services

Sales Channels. We offer our services through an extensive network of proprietary sales outlets, retail outlets and retail outlets.online and telephone sales and marketing channels. In addition to providing retail sales and network connection services, most of our proprietary sales outlets also offer differentiated services to customers under different service brands, including billing information and payment collection, services consultation, handset repair and other customer services. Furthermore, most of our proprietary sales outlets provide training and service demonstrations to retail outlets. The retail outlets offer our services according to agency agreements with us. In connection with these sales, all applicable fees payable after initial connection are paid to us. Moreover, we offer certain online services to our customers, including, among others, subscription of voice value-added services, change of tariff plans, credit loading for pre-paid services and certain wireless data services, and redemption of “GoTone” points. Sales effected through our online and telephone sales and marketing channels have increased consistently in recent years. Furthermore, we have enhanced our service capabilities through the expansion and optimization of our proprietary sales channels, the expansion of online and telephone sales and marketing channels and the integration of the resources relating to sales and marketing channels in the community. The number of our proprietary sales outlets totaled approximately 53,000 as of December 31, 2009, as compared to 47,000 as of December 31, 2008.channels. We are able to establish sales and service networks at lower cost by utilizing existing resources in rural areas to serve and expand our customer base in these areas. We have also established concept stores in major cities within Mainland China to showcase our services and products, particularly our wireless data services, and to facilitate certain sales and marketing activities.

Market Segmentation StrategyStrategy.. As customers’ demands for mobile telecommunications become more varied and complex, we have conducted research on market segmentation and have launched brands and products which cater to the specific needs of different customer groups. We mainly promote three brands, each with a different focus. “GoTone” targets high to middle-end customers, “Easy own” targets the mass market and the “M-Zone” brand targets the young user group through the integration of voice and data services, in each case supported by a series of tailored service packages.

Moreover, we provide differentiated applications and services to our corporate customers under customized service contracts. As of December 31, 2009,2010, we had signed service contracts with approximately 2.82.93 million corporate customers,accounts, and individual customers served under these service contracts with corporate accounts accounted for approximately 35.4%36.1% of our total customers. With the expansion of our corporate customer base, we also seek to provide customized total solutions to these corporate customers in response to their particular requirements.

Furthermore, we have developed customized products and service packages in response to the unique consumption characteristics of rural areas, such as the “Easy own Village-only Card”, small denomination top-ups, over-the-air recharging and the Agricultural Information Service, and have developed advertising and distribution channels unique to the rural markets to promote and expand our business in the rural areas. We have also encouraged handset producers to introduce inexpensive handsets with moderate functions to lower the barrier of using mobile phones in the rural areas.

Strategies Relating to 3G ServicesServices..In 2009, we commenced the operation of our 3G services by leasing wireless network capacity from CMCC. We have been focusing on the integration of the core components of our 2G and 3G networks by employing new mechanisms, new standards and new measurements and by promoting the integration of networks, businesses and applications, which have enabled our 2G customers to upgrade to our 3G services without changing their mobile telephone numbers or SIM cards or requiring re-registration. In addition, we have enhanced our efforts to market new 3G businesses, products and applications, including through our voice, broadband data and value-added businesses, to individuals, families, corporations and those in need of industry information products. CMCC has also created an incentive fund to promote the joint research and development of TD-SCDMA terminals and chipsets with relevant manufacturers, which has contributed to the development of the TD-SCDMA industry chain. We intend to further expand our 3G services by, among other things, leveraging the support from the PRC government in terms of land use, frequency resources and construction of wireless cities. We also intend to continue to partner with organizationspromoting the TD-LTE standard within and outside the PRC onand furthering the synchronized development and compatibility of TD-LTE.TD-LTE and FDD LTE technologies. For example, we assisted CMCC in demonstrating the TD-LTE network at the World Expo 2010 Shanghai and the 16th Asian Games held in Guangzhou in 2010, preparing for large-scale trial implementation of the TD-LTE network in six cities in Mainland China and constructing a demonstration TD-LTE network in Beijing.

Customer ServicesServices..Our customer support service centers offer 24-hour staff-answering and automatic-answering service hotlines in Mainland China, dealing with customer enquiries regarding services and billing, as well as handling customer complaints. In order to retain high-value and corporate customers and enhance customer satisfaction, we offer a series of personalized and differentiated services targeted at high-value and corporate customers, including dedicated account executives, on-site visits and systems for collecting comments and handling complaints.

In 2009,2010, we continued to optimize our customer service processes through efforts such as optimizing the design of fee packages and actively promoting electronic sales channels to remove service bottlenecks, resulting in sustainedbottlenecks. We have also launched campaigns to improve service quality, including shortening the waiting time at sales outlets, improving the connection rate of our 10086 hotline and tightening our spam filtering measures. In addition, we implemented service measures such as alert before debiting, centralized inquiry and un-subscription function for value-added services to ensure our customers would be fully informed of the payments they would make. Our continued improvement in customer services and achieving broadresulted in broader customer satisfaction.satisfaction in 2010.

Customer RetentionRetention.. Due to increasing competition, we place great emphasis on customer retention. Our strategy is to attract and retain high-value customers by providing high quality services. We have implemented a “Customer Point Reward Program”, which is a bonus point-based scheme that rewards customers according to their service consumption, loyalty and payment history. This represents an important measure by us to retain high-value customers. Customers are identified and grouped as “GoTone Diamond”, “GoTone Gold” and “GoTone Silver” card members according to their respective value contribution and points accrued. Different levels of membership entitle members to different privileges. Customers in these classifications are eligible to receive targeted rewards, including some of our own products and services, as well as those of our business partners. In 2009,2010, we further differentiated our “GoTone” service and enhanced customer loyalty of our “GoTone” service through the targeted allocation of marketing resources. In addition, we offer special services to our “GoTone” members, including cross-region services, airport VIP services, hospital VIP services, golf clubs and handset service clubs.

In developing our “M-Zone” brand, we focused on expanding our customer base, offering new services and gaining recognition as symbol of youth culture. We enhanced our brand image and the number of customers increased as a result of our increased advertising efforts and expansion of new businesses, including the launch of brand alliances and the implementation of product and service upgrades.

In addition, we further enhanced customer loyalty through a series of efforts in 20092010 including, among others, developingentering into long-term contracts with our portfolio of products, increasingmid to high-end customers, offering customized services packages and industry penetration, selectively providing handset subsidies, allocating more resources to the fast-growing new businesses and optimizing management systems and procedures.improving customer services.

Churn ManagementManagement.. We have devised internal monitoring systems to detect customers who are prone to discontinue their subscriptions. In particular, our churn alert system prompts customer service representatives to proactively approach those customers, and customers who have recently discontinued their service, to improve customer relations and minimize churn.

Credit ControlControl.. We have implemented customer registration procedures, such as identity checks for individual customers and information checks for corporate customers, to assist in credit control. In certain situations, we require our customers to pay an advance deposit representing a pre-determined amount of usage charges before certain telecommunications services are activated. The actual usage charges incurred are verified against the balance of the amount deposited at regular intervals on a daily basis and, if there are unusual circumstances, additional measures will be implemented. Direct debit services are available in each geographical area. The accounts of contract customers are required to be settled on a monthly basis, and a late payment fee is imposed on each customer whose account balance is not settled by the monthly due date. If the customer’s account remains overdue, the customer’s services will be deactivated and such customer must pay all overdue amounts, including applicable late payment fees, to reactivate services. To further control credit risk, we have expanded our service offerings that require customers to pre-pay for services. As a result, a majority of our existing customers pre-pay for our services.services, we have limited credit risk exposure to our customers. We make an allowance for doubtful accounts based on our assessment of the recoverability of accounts receivable.

Corporate Social Responsibility and Sustainability Development.. We are committed to fulfilling our responsibility to the community. We have focused on energy conservation and environmental protection by implementing a “Green Action Plan” in many aspects of our operations. We have also strived to build an “informatized”“informatization” society, help eliminatenarrow the perceived digital divide, care for the underprivileged and proactively support public welfare initiatives.philanthropic activities. We provided reliable telecommunications network support and services for the World Expo 2010 Shanghai and the 16th Asian Games held in Guangzhou. When natural disasters such as the severe snow stormsearthquakes in Yushu, Qinghai province and earthquakesthe mudslide in Zhouqu, Gansu province hit Mainland China in 2008,2010, we reacted with timely and effective telecommunications support and services and relief efforts. In 2008,2010, we becamewere recognized for the first and only company from Mainland China to be listed onthird consecutive year by the Dow Jones Sustainability Indexes, or DJSI, a recognition of our corporate social responsibility performance, and were againbeing the only company from Mainland China listed on DJSI. In 2010, we were also selected as a constituent of the DJSInewly launched Hang Seng Corporate Sustainability Index Series that are aimed at further raising awareness about corporate sustainability and serving increasing international interest in 2009.sustainability investment. We have startedbeen issuing the Sustainability Report (formerly known as the Corporate Social Responsibility ReportsReport) since 2007.

Information Systems

Our information systems primarily consist of a network management system, a business operation support system and a management information system. The network management system collects and processes the operating data from each network, and manages, supervises and controls our networks for safe and efficient operation. The business operation support system provides day-to-day operational support to each business unit, and is a unified and comprehensive system that enables the sharing of information resources. This system standardizes and integrates each of our sales, billing, settlement, customer service and network failure handling databases in a centralized and orderly manner. The management information system collects and processes our management information and provides support to our management personnel. In addition, this system has computerized and automated our management in finance, inventory, procurement and human resources. Furthermore, we have an internal communications network, which consists of our office automation system, our internal computer network, video conference system, telephone system and others, the combination of which supports our internal communications.

Trademark

We market our services under the “CHINA MOBILE” trademark, which is the trademark we use throughout Mainland China. “CHINA MOBILE” is a registered trademark in the PRC owned by our parent company, CMCC. On January 1, 2008, we entered into a new trademark license agreement to replace the then existing trademark license agreements with CMCC. Under the new trademark license agreement, we and our operating subsidiaries have a non-exclusive right to use the “CHINA MOBILE” trademark in Mainland China and Hong Kong. No license fee is payable by us to CMCC under the agreement until December 31, 2012.

In addition, the “CHINA MOBILE” name has been registered as a trademark by CMCC in Australia, Brunei, Canada, Hong Kong, India, Indonesia, Macau, New Zealand, South Korea, Taiwan, Thailand, the United States, Vietnam, South Africa and Yemen. Furthermore, CMCC has filed applications to register the “CHINA MOBILE” name and logo as a trademark in Malaysia and Pakistan, in connection with certain goods and services. CMCC has also registered the “CHINA MOBILE” name and logo as a trademark under the Protocol Relating to the Madrid Agreement Concerning the International Registration of Marks.

Mobile Telecommunications Networks

Prior to January 7, 2009, we offered mobile telecommunications services using the GSM standard. Each of our GSM networks consists of:

Starting from January 7, 2009, in addition to offering mobile telecommunications services using the GSM standard, or the 2G standard, we also offer mobile telecommunications services using the TD-SCDMA standard, or the 3G standard. Our 3G business shares a core mobile telecommunications network with our 2G business. Over the past several years, we have performed a number of technological improvements and upgrading to our core mobile telecommunications network, which has evolved into an integrated network that is capable of supporting transmissions using both the 2G standard and the 3G standard. Our core mobile telecommunications network is capable of IP-based soft switching, which makes it possible to evolve into a network that supports the next generation technology. Other key network components for our 3G business include Node Bs, which contain radio transmitters and receivers that communicate directly with mobile terminals, and radio network controllers, which carry out radio resources management and are responsible for controlling the Node Bs that are connected to them.

In addition, we provide our customers with access to broadband internet connection through WLAN, which is based on the IEEE 802.11 standard, at any of our hotspots in Mainland China, where access point, or AP, devices in the network transmit and receive radio frequencies for wireless enabled devices, such as mobile phones, to communicate with.

Network Capacity Expansion and Optimization Plans. Our customers currently use our 2G services, our 3G services, or both. We intend to continue our network expansion and optimization with an emphasis on improving network utilization and operating efficiency, facilitating a smooth transition between, and integration of, our 2G and 3G services, and expanding the coverage and capacity of our integrated network. Our network expansion and optimization plans depend to a large extent upon the availability of sufficient spectrum.

SpectrumSpectrum.. A mobile telecommunications network’s capacity is to a certain extent limited by the amount of frequency spectrum available. For our GSM network, the MIIT has allocated a total of 4045 MHz of spectrum to be used for transmission and reception, nationwide, respectively, to our parent company, CMCC. Of the 45 MHz of spectrum allocated to us, 40 MHz of spectrum in the 900 MHz and 1800 MHz frequency bands to our parent company, CMCC.is used nationwide, and 5 MHz of spectrum in the 1800 MHz frequency band, is used in the cities of Beijing, Shanghai and Chengdu and Guangdong Province. In connection with our 3G business, the MIIT has allocated to CMCC a total of 35 MHz of spectrum to be used for nationwide coverage, and an additional 50 MHz of spectrum to be used for indoor coverage.

Transmission InfrastructureInfrastructure.. The physical infrastructure linking our network components and interconnecting our networks to other networks consists of transmissions lines, which provide the backbone infrastructure through which voice and data traffic is carried.

Leased LinesLines..Transmission lines constructed by us reached a sizeable scale through the continuous optimization of our network structure in recent years. In addition to our own transmission lines, we also lease intra-provincial and local transmission lines from other operators and pay them fees based on tariff schedules stipulated by the relevant regulatory authorities after adjusting for the discounts that we have negotiated. For the inter-provincial transmission lines we leased through CMCC from other providers, CMCC collects leasing fees from us and pays fees to the relevant transmission line providers.

Network Operations and MaintenanceMaintenance.. We believe that we have considerable network operation and maintenance experience and technical expertise. Day-to-day traffic management, troubleshooting, system maintenance and network optimization are conducted by our experienced team of engineers and technicians. Technical staffs are available for emergency repair work 24 hours a day and we employ specialist teams for central maintenance of the networks. Currently, mostMost technical difficulties relating to the networks are resolved by our staff althoughand the maintenance service providers with which we have business relationships, while our equipment suppliers also provide back-up maintenance and technical support.

Base StationsStations.. In urban areas, our base stations are located mostly on existing structures, typically at the top of tall buildings. In rural areas, masts are often constructed for locating base stations. Typically, base stations are of limited size, as base station equipment does not generally require significant space. As of the end of 2009, we had more than 460,0002010, the number of our 2G base stations.stations reached 554,000, compared to 460,000 in 2009. We anticipate that we will need a significant number of new base stations in connection with the expansion of our mobile telecommunications networks. We cannot assure you that we will be able to obtain the requisite number of base station sites on reasonable commercial terms.

In connection with the 3G wireless network capacity that we lease from CMCC, CMCC had over 80,000the number of CMCC’s 3G base stations in operation reached 135,000 as of the end of 2010, compared to 80,000 as of the end of 2009.

Equipment Suppliers. We select our principal suppliers from leading international and domestic manufacturers of mobile telecommunications equipment and in accordance with technical standards set by the MIIT. In 2009,2010, we purchased our networks equipment primarily from Huawei Technologies, Ericsson, Nokia, ZTE and Motorola.Fiberhome.

Strategic AllianceCooperation with Vodafone

We haveentered into a strategic alliancecooperation framework agreement, on a non-exclusive and non-binding basis, with Vodafone Group Plc, or Vodafone, in February 2011, which provides for a number of cooperation arrangements between us and Vodafone, including:

Under the agreement, Vodafone is our preferred partner in the above mentioned areas, and we are Vodafone’s sole strategic partner in China for all areas of potential cooperation within the scope of the strategic alliance. As part of the alliance, an executive officer of Vodafone has served as a Non-Executive Director of our company since August 2003. Mr. Nicholas Jonathan Read, Vodafone’s Regional Chief Executive Officer for Asia Pacific and Middle East Region, currently serves as a Non-Executive Director of our company, having joined our board of directors in March 2009. See “Item 6. Directors, Senior Management and Employees.” As of April 30, 2010, Vodafone heldacquired approximately 3.20% of our outstanding shares.shares in 2000 and 2002, and disposed of its entire shareholding in our company in September 2010.

We believe that the strategic alliance with Vodafone has enhanced our strengths in the telecommunications market in Mainland China and will better position us to pursue further expansion opportunities globally. In particular, this alliance has enabled us to have frequent and broad exchanges of expertise and market information. Moreover, this strategic alliance will enable Vodafone and us to share information and establish benchmarks to better assess and enhance each other’s performance, thereby better positioning both parties in the global telecommunications market.

Strategic Alliance Agreement with PhoenixPhoenixTV and Memorandum of Understanding with News Corporation and STAR Group Limited

On June 8, 2006, we entered into a strategic alliance agreement with Phoenix Satellite Television Holdings Limited, or Phoenix,PhoenixTV, a leading satellite television operator broadcasting into Mainland China, pursuant to which we and PhoenixPhoenixTV will cooperate in, among other areas, the joint development, marketing and delivery of innovative wireless content, products, services and applications. We currently have a number of cooperation initiatives underway with Phoenix.PhoenixTV.

In addition, we entered into a memorandum of understanding with News Corporation and STAR Group Limited on June 8, 2006 relating to a potential long-term wireless media strategic partnership as well as the exploring of various areas of cooperation, which may include the aggregation, development and marketing of multimedia content and other wireless value-added services, by combining the strength and experience of one of the largest media companies in the world and one of the largest mobile telecommunications companies in the world. We are currently working with News Corporation and STAR Group Limited on a number of cooperation initiatives.

Proposed Investment in, and Strategic Cooperation with, Far EasTone

On April 29, 2009, we entered into a share subscription agreement with Far EasTone Telecommunications Co., Ltd., or Far EasTone, one of the major mobile telecommunications operators in Taiwan, pursuant to which we would acquire 12% of the enlarged issued share capital of Far EasTone for an aggregate amount of approximately 17,773.6 million New Taiwan dollars (approximately RMB3,797.2RMB4,025.5 million or US$556.3609.9 million, based on the respective exchange rate of 4.68074.4152 New Taiwan dollars = RMB1.00 or 31.9529.1400 New Taiwan dollars = US$1.00 as of December 31, 2009)30, 2010), subject to certain adjustments. Completion of the share subscription is subject to certain conditions, including the obtaining of all necessary regulatory approvals.

Concurrent with the share subscription agreement, we also entered into a strategic cooperation agreement with Far EasTone, which would become effective upon the completion of the share subscription. Pursuant to the strategic cooperation agreement, we and Far EasTone would pursue long-term broad-based cooperation for the purpose of our mutual strategic development in a number of areas, including joint purchases, roaming, data and value-added businesses and network and technology advancement. We believe our strategic cooperation with Far EasTone would facilitate the expansion of our business in Mainland China, Hong Kong and Taiwan and help us expand the range of our services to individuals that travel between, and businesses that operate in, Mainland China and Taiwan. The strategic cooperation would also enable us to accumulate advanced technological and operational expertise in areas such as 3G and next generation technology.

Proposed Investment in, and Strategic Cooperation with, SPD Bank

On March 10,In October 2010, Guangdong Mobile, our wholly-owned subsidiary, entered into a share subscription agreement with SPD Bank, pursuant to which Guangdong Mobile would acquirecompleted its acquisition of 20% of the enlarged issued share capital of SPD Bank for an aggregate amount of RMB39,801.4 millionapproximately RMB39.5 billion (approximately US$5,831 million)6.0 billion). Completion of the share subscription is subject to customary closing conditions, including the obtaining of all necessary regulatory approvals. SPD Bank is a joint-stock commercial bank incorporated in the PRC, with its shares listed on the Shanghai Stock Exchange.

ConcurrentIn connection with the share subscription agreement,acquisition, we and Guangdong MobileSPD Bank also entered into a memorandum of understanding on strategic cooperation with SPD Bank with the intention of entering into a strategic cooperation agreement within three months after the completion of the share subscription. It is contemplated under the memorandum of understanding on strategic cooperation thatin November 2010, pursuant to which we Guangdong Mobile and SPD Bank will closely cooperate in the joint developmentareas of mobile finance and mobile e-Commerce businesses in Mainland China.China, such as mobile payment, including on-site payment and remote payment, as well as in the sharing of customers services and channels resources. The term of cooperation is five years, which will be automatically renewed for successive one-year terms unless terminated. The scope of cooperation will include, but will not be limited to, the joint development of mobile phone payments business, mobile bank cards business, mobile funds transfer business and other forms of mobile finance and mobile e-Commerce businesses, the joint research and development of the bundling of other forms of mobile communications and finance products as well as the joint in-depth research and development of new technologies and new products of future mobile finance software and mobile e-Commerce businesses.security technologies. The parties agree to jointly explore cooperation in mobile fund transfer business. The parties also agree to promote their cooperation in the areas of basic banking services and basic telecommunications services, and leverage on their respective competitive advantages to bring synergies in terms of branding, customers, channels and network platform resources into full play.

Competition

We compete with other telecommunications services providers. We are one of the three licensed mobile telecommunications services providers in Mainland China. The PRC government encourages orderly and fair competition in the telecommunications industry in Mainland China. In particular, the PRC government has extended favorable regulatory policies to some of our competitors in order to help them become more viable competitors to us. We may also face intense competition from existing operators from time to time. Our competitors launch, from time to time, promotional offers, such as handset subsidies and tariff packages, to attract customers.

In May 2008, in order to optimize the allocation of telecommunications resources in the PRC and improve the competitive landscape, the MIIT, the National Development and Reform CommissionNDRC and the Ministry of FinanceMOF jointly announced a policy initiative to further reform the PRC telecommunications industry by encouraging the formation of three telecommunications services providers of comparable scale and standing, each with nationwide network resources, full-service capabilities and competitive strength, by way of a series of restructuring transactions. See “Item 4. Information on the Company — The History and Development of the Company — Industry Restructuring and Changes in Our Shareholding Structure.”

After completion of the industry restructuring in January 2009, China Telecom and China Unicom, each of which is now operating a mobile telecommunications network, have been benefiting from, among other things, broader customer bases, more extensive networks, greater financial and other resources and more comprehensive technological capabilities, as compared to their customer bases, networks, resources and technological capabilities prior to the industry restructuring. These factors have intensified, and could further intensify, competition. Our market share was approximately 70.6%69.3% as of December 31, 2009, as compared to 72.4% as of December 31, 2008.2010. In addition, pursuant to the policy initiative announced in May 2008, China Telecom and China Unicom have each become full-service telecommunications services providers that operate both fixed-line telecommunications networks and mobile telecommunications networks. We cannot predict at this point in time the precise impact that the formation of full-service telecommunications services providers may have on our business and prospects. Our competitors may also benefit from any asymmetrical regulatory measures that may be adopted by the PRC government from time to time. See “Risk Factors — Risks Relating to Our Business — Competition from other telecommunications services providers and competitors in other related industries may further increase, which may reduce our market share and decrease our profit margin, and we cannot assure you that any potential change in the competitive landscape of the telecommunications industry in Mainland China would not have a material adverse effect on our business, financial condition and results of operations” and “Risk Factors — Risks Relating to Our Businessthe Telecommunications Industry in Mainland China — Current or future asymmetrical and other regulatory measures adopted by the PRC regulatory authorities could materially harm our competitive position.”

Nonetheless, given the customer growth potential in the central and western regions of Mainland China, as well as in the small and medium-sized cities and rural areas, we believe there is substantial growth potential for our mobile telecommunications business. In particular, we believe that the industry restructuring that commenced in 2008 will help optimize the allocation of telecommunications resources and help create a fair, orderly, transparent and healthy telecommunications market. Despite existing and future competition, we believe the following factors have contributed to our customer quality compared to that of our existing competitors and we seek to continue developing our competitive advantages on the basis of these factors:

World Trade Organization

The People’s Republic of China officially joined the WTO on December 11, 2001. Under the Protocol on the Accession of the People’s Republic of China, dated as of November 11, 2001, China agreed to gradually open various segments and regions of its telecommunications market to foreign investment. Pursuant to this accession protocol, both the percentage of ownership of Sino-foreign joint ventures offering telecommunications services in China and the regions where those joint ventures are permitted to offer telecommunications services have been gradually expanded over a period of six years. Under the accession protocol, the telecommunications market is divided into fixed-line services, mobile voice and data services, paging services and value-added services. Value-added services include electronic mail, voice mail and online information and database retrieval. By December 11, 2004, foreign investors were permitted to own up to 49% of joint ventures that offer mobile voice and data services in 17 cities in Mainland China. By December 11, 2006, such joint ventures were permitted to offer mobile voice and data services in Mainland China without any geographic restrictions.

Regulation

The mobile telecommunications industry in Mainland China is highly regulated. Regulations issued or implemented by the State Council, the MIIT and other relevant government authorities including the National Development and Reform CommissionNDRC and the Ministry of Commerce, which consolidated the functions of the former Ministry of Foreign Trade and Economic Cooperation, encompass all key aspects of mobile telecommunications network operations, including entry into the telecommunications industry, scope of permissible business, interconnection and transmission line arrangements, technology and equipment standards, tariff standards, capital investment priorities, foreign investment policies and spectrum and numbering resources allocation.

The MIIT, under the leadershipsupervision of the State Council, is responsible for among other things:

In order to provide a uniform regulatory framework to encourage the orderly development of the telecommunications industry, the MIIT, under the direction of the State Council, has been preparing a draft telecommunications law. It has been reported that the draft telecommunications law, which has been included in the legislative agenda of the State Council for 2010, is currently under review by the State Council. We expect that, if and when the telecommunications law is adopted by the National People’s Congress, it will become the basic telecommunications statute and the legal source of telecommunications regulations in Mainland China. In addition, the State Council promulgated a set of telecommunications regulations on September 25, 2000. These regulations apply in the interim period prior to the adoption of the telecommunications law. Although we expect that the telecommunications law will have a positive effect on the overall development of the telecommunications industry in Mainland China, we cannot predict what the ultimate nature and scope of the telecommunications law will be.

Entry into the IndustryIndustry.. Under the current regulations, operators of mobile telecommunications networks, providers of other basic telecommunications services such as local and long distance fixed-line telephone services, and value-added service providers whose telecommunications services cover two or more provinces, directly-administered municipalities or autonomous regions in Mainland China must apply for specific permits from the MIIT in order to provide such services. Granting of permits for providing basic telecommunications services will be through a tendering process. In addition to us, China Telecom and China Unicom are currently also authorized to provide mobile telecommunications services in all provinces, directly-administered municipalities and autonomous regions in China.

On December 11, 2001, China officially joined the WTO. To implementPursuant to China’s commitments under the WTO and the Provisions on the Administration of Foreign-Funded Telecommunications Enterprises, which became effective on January 1, 2002, permitting foreign investmentinvestors may invest in joint ventures that provide telecommunications services in Mainland China. However, these investments will presumably bear no direct relation to the issuance of licenses to providers of telecommunications services in Mainland China, as the issuance of new licenses by the relevant authority is governed by a separate set of rules and regulations. Pursuant to the Provisions on the Administration of Foreign-Funded Telecommunications Enterprises, as amended in September 2008, foreign ownership in a telecommunications enterprise may be gradually increased to 49% if such enterprise provides basic telecommunications services and 50% if such enterprise provides value-added telecommunications services (including radio paging services).

The MIIT has promulgated the Administrative Measures for the Licensing of Telecommunication 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.

Spectrum UsageUsage.. In coordination with the relevant provincial authorities, the MIIT regulates the allocation of radio frequency. The frequency assigned to an entity is not allowed to be leased or, without approval of the MIIT, transferred by the entity to any other third party. In accordance with a joint circular from the National Development and Reform CommissionNDRC and the Ministry of Finance,MOF, CMCC has entered into an agreement with us that specifies the amount of fees to be paid to the MIIT for spectrum usage by each mobile telecommunications network operator based on the bandwidth of the frequency used and the number of base stations within the relevant operator’s networks.

Spectrum usage fees for GSM networks are currently charged at the annual rate of RMB17 million per MHz for the 900 MHz frequency band and RMB15 million per MHz for the 1800 MHz frequency band. Spectrum usage fees are charged on the basis that upward and downward frequencies are separately charged. The relevant regulatory authorities in China may review these fee arrangements in the future.

Numbering ResourcesResources.. The MIIT is responsible for the administration of the telecommunications numbering resources within Mainland China, including the telecommunications network numbers and customer numbers. The use of numbering resources by any telecommunications operator is subject to the approval by the MIIT. In January 2003, the former Ministry of Information Industry, or the MII, issued the Measures on Administration of Telecommunications Network Numbering Resources. In accordance with these measures, the telecommunications network numbering resources are owned by the state, and a user of numbering resources is required to pay a usage fee to the state starting March 1, 2003. The measures also provide for procedures for application for the use, upgrade and adjustment of numbering resources by telecommunications operators. In December 2004, the MII, the Ministry of FinanceMOF and the National Development and Reform CommissionNDRC jointly issued the Provisional Administrative Measures with respect to the Collection of the Usage Fee of Telecommunications Network Numbering Resources, under which telecommunications companies are required to pay a usage fee to the PRC government by the 10th day of the first month of each quarter. Moreover, under these provisional measures, mobile telecommunications companies are required to pay an annual usage fee of RMB12 million for each network number.

Tariff SettingSetting..Our tariffs are subject to regulation by various government authorities, including the MIIT, the National Development and Reform CommissionNDRC and the relevant price regulatory authorities in Mainland China. Under the current telecommunications regulations, telecommunications tariffs are categorized into market based tariffs, government guidance tariffs and government standard tariffs. As a general matter, the actual price range in each service area is proposed by a network operator in that service area, and must be approved by the relevant price regulatory authorities in that service area. In addition, local usage charges, monthly fees, maximum domestic roaming usage charges and maximum domestic long distance tariffs (other than tariffs for IP phone calls) are also determined generally by the MIIT in consultation with the National Development and Reform Commission.NDRC. In August 2005, the MII amended its tariff regulations relating to certain telecommunications services, which resulted ingave network operators having more flexibility in setting, among other things, their domestic and international long distance tariffs and domestic roaming usage charges, provided that these tariffs and charges do not exceed the respective maximum tariffs it determined in consultation with the National Development and Reform CommissionNDRC and that the tariff plans are filed with the MII (and, currently, with the MIIT) and the National Development and Reform CommissionNDRC or, in some cases, the relevant price regulatory authorities at the provincial level. See “Item 4. Information on the Company — Business Overview — Tariffs.”

The MIIT has continued encouraging mobile telecommunications operators in Mainland China to implement the caller-party-pays regime, and mobile telecommunications operators, including us, have been implementing the caller-party-pays regime. AllIn particular, all of the new calling plan packages that we have been offering in the PRCMainland China since the beginning of 2007 are based on tariffs substantially equivalent to the caller-party-pays regime.

In March 2008, the MII reduced the maximum domestic roaming usage charges that a mobile telecommunications services provider may charge on roaming services. In December 2009, the PRC regulators further promulgated policies to eliminate domestic roaming usage charges on outgoing international long distance calls when domestic roaming services are used, as well as eliminate local usage charges on outgoing domestic and international long distance calls when roaming services are not used.

Our international roaming usage charges are set in accordance with agreements between CMCC and the relevant foreign mobile operators. Under the current telecommunications regulations, tariffs for those telecommunications businesses that are considered fully competitive may be set by the service providers as market based tariffs.

Interconnection Arrangements and Lease Line ArrangementsArrangements.. Under the current telecommunications regulations, parties seeking interconnection must enter into an interconnection agreement and file such agreement with the MIIT. In addition, major telecommunications services providers that have control over essential telecommunications infrastructure and possess significant market share must allow interconnection to their networks by other operators. These telecommunications services providers must also establish interconnection rules and procedures based on the principles of non-discrimination and transparency and submit such rules and procedures to the MIIT for approval. The termination of any interconnection arrangements will require prior approval by the MIIT.

The applicable regulations provide that interconnection related equipment must conform to the technical standards approved by the MIIT. See “— Technical Standards” below. The MIIT also determines the standard lease tariffs to be paid by telecommunications operators with respect to the leasing of transmission lines that facilitate interconnection between telecommunications networks.

Technical StandardsStandards.. Certain regulatory authorities in Mainland China, including the MIIT, set technical standards and control the type and quality of mobile telecommunications equipment used in or connected to public networks, all radio telecommunications equipment and all interconnection related equipment.

The establishment of base stations requires the approval of the relevant provincial regulatory authorities. We have not experienced and do not expect to experience material difficulty in obtaining permission to establish additional sites.

Capital InvestmentInvestment.. We may be required to obtain approvals from relevant regulatory authorities in Mainland China with respect to some of our major investment projects, including mobile telecommunications network development projects.

Sharing of Telecommunications InfrastructureInfrastructure.. In September 2008, the MIIT and the SASAC jointly issued a Notice on Promoting Joint Construction and Sharing of Telecommunications Infrastructure, which stipulates that the telecommunications operators in Mainland China must share existing transmission towers and masts and jointly construct future transmission towers and masts. The joint notice also requires the telecommunications operators to share and jointly construct base station facilities and transmission lines to the extent feasible, and prohibits exclusive arrangements in the leasing of third-party sites and premises. CMCC, China Unicom and China Telecom have subsequently entered into an agreement to set out the framework under which they will jointly construct and share relevant telecommunications infrastructure.

Convergence of Telecom, Broadcasting and Internet BusinessesBusinesses..In January 2010, the PRC government announced a policy decision, or the Three-Network-Convergence Policy, to accelerate the advancement of the convergence of television and radio broadcasting, telecommunications and Internet access businesses in order to realize interconnection and resource sharing between 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 between 2010 and 2012 and further implemented on a larger scale in 2013 through 2015. The PRC government may amend the relevant regulations or promulgate new regulations in order to implement the Three-Network Convergence Policy. The new policy decision is expected to enhance the development of information industries, satisfy consumers’ diverse demands, promote domestic consumption and form new areas for economic growth.

Employees

As of December 31, 2007, 2008, 2009 and 2009,2010, we had 127,959, 138,368, 145,954 and 145,954164,336 employees, respectively. Substantially all of our employees are located in Mainland China. The employees as of December 31, 2009 are2010 were classified in the following table. Approximately 84.0%85.2% of our permanent employees have college or graduate degrees. Set forth below is a breakdown of our employees by function as of December 31, 2010.

We provide benefits to certain employees, including housing, retirement benefits and hospital, maternity, disability and dependent medical care benefits. Most of our employees are members of a labor association. We have not experienced any strikes, slowdowns or labor disputes that have interfered with our operations to date, and we believe that our relations with our employees are good.

The number of workers sourced by third parties that provided services to us reached 281,306313,143 as of December 31, 2009.2010.

Properties, Plants and Equipment

We own, lease or have usage rights in various properties which consist of land and buildings for offices, administrative centers, staff quarters, retail outlets and technical facilities. We believe that all of our owned and leased properties are well maintained and are suitable and adequate for their present use.

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 consolidated financial statements, together with the related notes, included elsewhere in this annual report on Form 20-F.

Overview of Our Operations

The following table sets forth selected information about our operations for the periods indicated.

In 2007, 2008, 2009 and 2009,2010, our customer base and voice usage volume continued to experience significantconsiderable growth. Our averagetotal net increase in number of customers exceeded 5.461.73 million per month during 20092010 and our total customer base reached 522.3584.0 million as of December 31, 2009.2010. Our total voice usage volume increased by 34.2%19.6% from 1,818.9 billion minutes in 20072008 to 2,441.3 billion minutes in 2008,2009, and by 19.6% to 2,918.7 billion minutes18.6% in 2009.2010. As a result, our total operating revenue increased by 15.2%9.8% from RMB357,477 million in 20072008 to RMB411,810 million in 2008,2009, and by 9.8% to RMB452,103 million (US$66,233 million)7.3% in 2009.2010. Our value-added business continued to grow, accounting for 27.5%29.1% and 29.1%31.2% of our total operating revenue in 20082009 and 2009,2010, respectively. Our total operating expenses increased by 15.3%13.2% from RMB233,764 million in 20072008 to RMB269,415 million in 2008,2009, and by 13.2% to RMB305,095 million (US$44,697 million)9.6% in 2009.2010. Our profit attributable to equity shareholders increased by 30.0%2.3% from RMB86,623 million in 20072008 to RMB112,627 million in 2008,2009, and by 2.3%3.9% in 2010.

The PRC economy continued to RMB115,166 million (US$16,872 million)grow in 2009.

In 2009, the Chinese economy began to recover from the aftermathterms of the global financial crisis. The global financial crisis, however, had an adverse impact on the demandGDP by more than 10% in 2010, which provided a favorable environment for our telecommunications services, in particular during the first half of 2009. Furthermore,continued business development. However, following the restructuring of the telecommunications industry and the issuance of the 3G licenses, market competition in the telecommunications industry in Mainland China has intensified. As the mobile penetration rate in Mainland China reached 56.3%64.4% as of December 31, 2009,2010, the mobile telecommunications markets in some economically developed regions of Mainland China also began to show signs of saturation. As a result, our customer base and operating revenue grew at a slower pace in 20092010 than in prior years. We intend to continue to cope with market and industry challenges that may arise from time to time by leveraging our customer base, network quality, brand name and execution capabilities, among other things.capabilities. Moreover, givenalthough the overall mobile penetration rate in Mainland China and particularlyis increasing, the mobile penetration rate in rural areas weremains relatively low. We believe that there remains potential for continued growth in our customer base and our business.

We have been a mobile telecommunications services provider in China since our inception in 1997, with our operations initially concentrated in Guangdong and Zhejiang provinces. Between 1998 and 2004, we significantly expanded the geographic coverage of operations to all 31 provinces, autonomous regions and directly-administered municipalities in Mainland China by acquiring various mobile telecommunications operations from CMCC. Furthermore, we1997. We acquired all of the issued and outstanding shares of Hong Kong Mobile in 2006, which enabled us to expand into the Hong Kong mobile telecommunications market. These acquisitions have significantly expanded our customer base, increased the usage of our services and greatly enlarged the size of our target markets, and have materially increased our operating revenue and expenses as well as materially affected our financial condition and results of operations. See “Item 4. Information on the Company — The History and Development of the Company — Expansion Through Acquisitions.”

We operate in an extensively regulated environment and our operations and financial performance are significantly affected by the PRC government’s regulation of the telecommunications industry. These regulations and policies may affect, among other things, our interconnection and transmission line leasing arrangements,tariffs, technology and equipment standards and capital investment, as described in more detail under “Item 4. Information on the Company — Business Overview — Regulation.” In addition, we believe that the industry restructuring that took place pursuant to the PRC government’s policy initiative to further reform the telecommunications industry announced in May 2008 has had, and will continue to have, a significant impact on the competitive landscape of the telecommunications industry in Mainland China, and competition from other telecommunications services providers may intensify. See “Risk Factors — Risks Relating to Our Business — Competition from other telecommunications services providers and competitors in other related industries may further increase, which may reduce our market share and decrease our profit margin, and we cannot assure you that any potential change in the competitive landscape of the telecommunications industry in Mainland China would not have a material adverse effect on our business, financial condition and results of operations” and “Risk Factors — Risks Relating to Our Businessthe Telecommunications Industry in Mainland China — Current or future asymmetrical and other regulatory measures adopted by the PRC regulatory authorities could materially harm our competitive position.” Our financial performance is also subject to the economic and social conditions in Mainland China. See “Risk Factors — Risks Relating to Mainland China — An economic slowdown in Mainland China may reduce the demand for our services and have a material adverse effect on our financial condition, results of operations and business prospects.”

Operating Arrangements We Entered Into Over the Last Several Years Have Materially Impacted Our Financial Results

Our current organizational structure was established pursuant to the restructuring completed in September 1997 in preparation for our initial public offering and our subsequent acquisitions of regional mobile telecommunications companies and other telecommunications assets in Mainland China and Hong Kong. In connection with these transactions, we entered into various operating arrangements to facilitate the transfer of the operations to us, to integrate these operations within our operating structure and to improve our overall operational efficiency. These arrangements included:

The original terms of our agreements relating to interconnection, leased lines and roaming have been revised as a result of tariff adjustments by the government and/or commercial negotiation with the relevant parties.

Our financial results reflect the impact of the above arrangements as of the dates they became effective. These arrangements and changes have had a material impact on our overall results of operations.

Our Operating Arrangements with CMCC Have Affected and May Continue to Affect Our Financial Results

Following the completion of our acquisition of the telecommunications assets from CMCC in July 2004, the domestic roaming arrangements between CMCC and us were terminated and we no longer lease any inter-provincial transmission lines from CMCC. Moreover, weWe have entered into an agreementagreements with CMCC on July 1, 2004 with respect to, among other things, inter-provincial interconnection and roaming, international interconnection and roaming and inter-provincial and international transmission lines leasing. Pursuant to this agreement,these agreements, for the inter-provincial transmission lines we leased from other providers through CMCC, CMCC maintains its existing inter-provincial transmission line leasing arrangements with the relevant transmission line providers, and collects leasing fees from us and pays fees to the relevant transmission line providers. Moreover, under this agreement,these agreements, CMCC: (i) maintains its existing settlement arrangements with respect to international interconnection and roaming with the relevant telecommunications services providers in foreign countries and regions; and (ii) collects the relevant usage fees and other fees from us or the relevant telecommunications services providers in foreign countries and regions and pays fees to the relevant mobile telecommunications services providers in foreign countries and regions or us, as the case may be. In addition, under this agreement, with respect to the inter-provincial interconnection with the relevant telecommunications services providers in Mainland China, CMCC maintains its existing inter-provincial interconnection arrangements with the relevant telecommunications services providers in Mainland China, and collects the relevant usage fees and other fees from us and pays fees to the relevant telecommunications services providers in Mainland China.

On November 6, 2009, weWe have also entered into a telecommunications services cooperation agreement with CMCC, pursuant to which we and CMCC would provide customer development services to each other by utilizing our respective sales channels and resources, and would cooperate in the provision of basic telecommunications services and value-added telecommunications services to customers of each other.

In addition, we have entered into a network capacity leasing agreement with CMCC, pursuant to which we and our operating subsidiaries lease TD-SCDMA network capacity from CMCC and pay leasing fees to CMCC.

Tariff Adjustments

The tariffs charged by PRC government has introduced a wide range of tarifftelecommunications operators are subject to adjustment by the PRC government. Recent adjustments since 2001, which include, among other things, the shortening of the billing unit for long distance charges (other than for IP-based long distance call services), the general reduction in domestic and international long distance call rates, the elimination of various surcharges and connection fees charged to new customers and, a general reduction in leased line tariffs.tariffs and the elimination of certain domestic roaming charges and local usage charges on long distance calls. See “Item 4. Information on the Company — Business Overview — Regulation — Tariff Setting.” Moreover, we are allowed to offer our customers a variety of tariff packages which have different monthly fees,charges, levels of basic usage and charges for usage exceeding the covered basic usage, voice value-added services, data services and other features. The tariff packages often include complimentary voice value-added services and data services packages. See “Item 4. Information on the Company — Business Overview — Tariffs.”

Our average revenue per minute has generally decreased in recent years as tariffs have also generally decreased. However, the growth in voice usage volume that has resulted from the general decline in tariffs has helped partially offset the adverse effect of tariff decreases on our revenue.

Our ARPU Has Declined and May Further Decline in the Future

Our ARPU decreased from RMB83 in 2008 to RMB77 in 2009 to RMB73 in 2010, primarily due to the fact that nearly halfa significant number of our new customers are from less affluent rural areas and mostusers with relatively low usage of them are relatively low-usage users.mobile telecommunications services. This decline was also due to the gradual implementation of the tariff adjustments.adjustments that generally resulted in declines in tariffs. As we continue to expand in the rural areas,our customer base, and with the continued implementation of the tariff adjustments, we expect that our ARPU will further decline.

Critical Accounting Policies and Estimates

The following discussion and analysis is based on our consolidated financial statements, which have been prepared in accordance with IFRS for the years ended December 31, 2007, 2008, 2009 and 2009.2010. The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and revenues and expenses during the years reported. Estimates are also used when accounting for certain items such as revenue recognition, provision for customer point reward program, allowance for doubtful accounts, depreciation, amortization of other intangible assets, impairment of property, plant and equipment, goodwill and other intangible assets arising from acquisitions and fair value of share options granted.acquisitions. Actual results may differ from those estimates under different assumptions or conditions.

We believe that the following critical accounting estimates and related assumptions and uncertainties inherent in our accounting policies have a more significant impact on our consolidated financial statements, either because of the significance of the financial statement elements to which they relate or because they require judgment and estimation.

Revenue Recognition

Revenue is measured at the fair value of the consideration received or receivable. If it is probable that the economic benefits will flow to us and the revenue and costs, if applicable, can be measured reliably, revenue is recognized in our profit or loss as follows:

(i) usage fees, value-added services fees and other operating revenue are recognized as revenue when the service is rendered;

(ii) monthly fees are recognized as revenue in the month during which the service is rendered;

(iii) deferred revenue from prepaid services is recognized as revenue when the mobile telecommunications services are delivered based upon actual usage by customers;

(iv) sales of SIM cards and handsets are recognized on delivery of goods to the customers and such amount, net of cost of goods sold, is included in other net income due to its insignificance;

(v) interest income is recognized as it accrues using the effective interest method; and

(vi) revenue from fixed price contracts is recognized using the percentage of completion method.

Provision for Customer Point Reward Program

We invite our customers to participate in a customer point reward program, or the Reward Program, which provides customers the option of electing to receive free telecommunications services or other non-cash gifts. The level of bonus points earned under the Reward Program varies depending on the customers’ service consumption, loyalty and payment history.

In prior years, we accounted for the obligation to provide free or discounted services or goods offered to our customers under the Reward Program using the incremental costs method. The estimated incremental cost to provide free or discounted services or goods was recognized as expenses and accrued as a current liability when customers were entitled to bonus points. When customers redeemed awards or their entitlements expired, the incremental cost liability was reduced accordingly to reflect the outstanding obligations.

Starting from January 1, 2009, as a result of the adoption of IFRIC Interpretation 13, we accounted for the reward points as a separately identifiable component of the sales transactions in which the points are granted. We allocate the consideration received with respect to a sales transaction to reward points by reference to the estimated fair value of the points and defer the revenue recognition until such reward points are redeemed by the customer or the points expire. Detailed information about IFRIC Interpretation 13 and its impact on our financial reporting are set forth in note 2(ii) to our consolidated financial statements included elsewhere in this annual report on Form 20-F.

Allowance for Doubtful Accounts

We maintain allowances for doubtful accounts based upon evaluation of the recoverability of the accounts receivable and other receivables at each balance sheet date. We base our estimates on the aging of our accounts receivable and other receivable balances and our historical write-off experience, net of recoveries. If the financial condition of our customers were to deteriorate, additional allowances may be required.

Depreciation

Depreciation is based on the estimated useful lives of items of property, plant and equipment, less their estimated residual value, if any, to write off the cost of these items using the straight-line method over their estimated useful lives. We review the estimated useful lives and residual values of our assets annually. The useful lives and residual values of each class of our telecommunications assets are reviewed periodically and, if there has been a significant change in the expected pattern of consumption of the future economic benefits embodied in the asset, the method is changed to reflect the changed pattern. The depreciation expense for future period is adjusted if there are significant changes from previous estimates. We determine the useful life and residual values of our telecommunications assets based on our historical experience with similar assets, expected usage of the assets and anticipated technological changes with respect to those assets. Estimates and assumptions used in setting depreciable lives require both judgment and estimation. Our policies regarding accounting for these assets are set forth in note 1(h) to our consolidated financial statements included elsewhere in this annual report on Form 20-F. In 2007, in order to cope with our increasing business demand, we commenced a full scale investment in soft switching center equipment that enables us to carry out more efficient network management, which triggered a change in useful lives of relevant equipment. As a result, we revised the estimated useful lives of our switching center equipment (excluding soft switching center equipment) from seven years to five years in 2007, which was estimated to increase our depreciation expense by approximately RMB6,516 million in 2007. We did not revise the estimated useful lives of our property, plant and equipment in 2008 or 2009.

Amortization of Other Intangible Assets

Amortization of other intangible assets is calculated to write off the cost of items of other intangible assets using the straight-line method over their estimated useful lives unless such lives are indefinite. We review the estimated useful lives of other intangible assets annually in order to determine the amount of amortization expense to be recorded during any reporting period. The useful lives are based on the estimated period over which future economic benefits will be received by us and taking into account any unexpected adverse changes in circumstances or events. The amortization expense for future periods is adjusted if there are significant changes from previous estimates. We did not revise the estimatedIntangible assets with indefinite useful lives are tested for impairment annually either individually or at the level of otherthe cash-generating unit. Such intangible assets in 2007, 2008 or 2009.are not amortized. Our policies regarding accounting for these assets are set forth in note 1(f) to our consolidated financial statements included elsewhere in this annual report on Form 20-F.

Impairment of Property, Plant and Equipment, Goodwill and Other Intangible Assets

Our property, plant and equipment, consisting primarily of telecommunications transceivers, switching centers, transmission and other network equipment, comprise a significant portion of our total assets. Changes in technology or industry conditions may cause the estimated period of use or the value of these assets to change. Property, plant and equipment and other intangible assets subject to amortization, are reviewed for impairment at least annually or whenever events or changes in circumstances have indicated that their carrying amounts may not be recoverable. If any such indication exists, the asset’s recoverable amount is estimated. In addition, for goodwill and other intangible assets that have indefinite useful lives, the recoverable amount is estimated annually whether or not there is any indication of impairment.

The recoverable amount of an asset is the greater of its fair value less costs to sell and its value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset, which requires significant judgment relating to level of revenue and amount of operating costs. We use all readily available information in determining an amount that is a reasonable approximation of the recoverable amount, including estimates based on reasonable and supportable assumptions and projections of revenue and operating costs. Changes in these estimates could have a significant impact on the carrying value of the assets and could result in additional impairment charges or reversal of impairment in future periods. No impairment of property, plant and equipment, goodwill and other intangible assets was recorded in 2007, 2008, 2009 or 2009.2010.

Estimates and assumptions used in testing for recoverability require both judgment and estimation. Our policies regarding accounting for these assets and assessing their recoverability are set forth in note 1(j) to our consolidated financial statements included elsewhere in this annual report on Form 20-F.

Fair Value of Share Options Granted

The fair value of share options granted to our employees is recognized as an employee cost with a corresponding increase in a capital reserve within equity and is measured based on a binomial lattice model. In applying the model, we estimate the expected volatility based on the historical volatility of our share price (calculated based on the weighted average remaining life of the share option), adjusted for any expected changes (based on publicly available information) to future volatility. We also estimate expected dividends based on our historical dividends and planned dividend payout ratio, if any. Changes in the subjective input assumptions could materially affect the fair value estimate of share options. No share options were granted by us in 2007, 2008 or 2009.

Results of Operations

The following table sets forth selected consolidated statements of comprehensive income data for the years indicated:

		Year Ended December 31,
		2008				2009				2010
		(in millions of RMB)
Operating revenue:
Usage and monthly fees			278,608				300,632				312,349
Value-added services fees			113,288				131,434				151,435
Other operating revenue			19,914				20,037				21,447
Total operating revenue			411,810				452,103				485,231
Operating expenses:
Leased lines			2,641				3,006				3,897
Interconnection			22,264				21,847				21,886
Depreciation			71,509				80,179				86,230
Personnel			19,960				21,480				24,524
Other operating expenses			153,041				178,583				197,940
Total operating expenses			269,415				305,095				334,477
Profit from operations			142,395				147,008				150,754
Other net income			2,159				1,780				2,336
Non-operating net income			517				359				685
Interest income			6,002				5,940				5,658
Finance costs			(1,550	)			(1,243	)			(902	)
Share of profit of associate			—				—				558
Share of loss of jointly controlled entity			—				(8	)			(18	)
Profit before taxation			149,523				153,836				159,071
Taxation			(36,735	)			(38,413	)			(39,047	)
Profit for the year			112,788				115,423				120,024
Attributable to:
Equity shareholders			112,627				115,166				119,640
Non-controlling interests			161				257				384
Profit for the year			112,788				115,423				120,024

Year Ended December 31, 20092010 Compared to Year Ended December 31, 20082009

Operating RevenueRevenue.. Our operating revenue is mainly derived from usage fees,and monthly fees and value-added services fees. Usage and monthly fees mainly include standard local usage fees for airtime and applicable domestic and international long distance charges receivable from customers for the use of our mobile telecommunications networks and facilities, and fees in respect of roaming out calls made by our customers outside their registered service areas. Value-added services fees are mainly derived from voice value-added services, SMS, Mobile Internet Access business and non-SMSother data business.businesses. Other operating revenue mainly represents interconnection revenue.

Operating revenue increased 7.3% from RMB452,103 million in 2009 to RMB485,231 million (US$73,520 million) in 2010. This increase was primarily due to the continued expansion in our customer base, the continued growth in voice usage volume and rapid growth of value-added businesses. Our total number of customers was approximately 584.0 million as of December 31, 2010, compared to approximately 522.3 million as of December 31, 2009.

Revenue from usage and monthly fees increased 3.9% from RMB300,632 million in 2009 to RMB312,349 million (US$47,326 million) in 2010. This increase principally resulted from the continued expansion in our customer base and the further increase in our voice usage volume during 2010. Although our average revenue per minute reflected a downward trend from RMB0.155 in 2009 to RMB0.140 in 2010, this decline was partially offset by higher growth in our voice usage volume in 2010. With the intensified market competition following the restructuring of the telecommunications industry and with further declines in tariffs, our average revenue per minute may continue to decline in future periods. However, we expect our voice usage volume to grow as the tariff declines, which we expect to help partially offset the impact of these developments on our operating revenue. As a percentage of operating revenue, usage and monthly fees decreased from 66.5% in 2009 to 64.4% in 2010.

Set forth below is a table summarizing certain results of our value-added services for the periods indicated.

Revenue from value-added services increased 15.2% from RMB131,434 million in 2009 to RMB151,435 million (US$22,945 million) in 2010. This increase was mainly due to our continued efforts in product innovation and business development. Our value-added services include voice value-added services, SMS, Mobile Internet Access business and other data businesses. Revenue generated from SMS was RMB52,615 million in 2010, compared to RMB53,557 million in 2009, representing a decrease of 1.8%, primarily due to both the development of Internet instant messaging applications and declines in voice usage tariffs, which caused our customers to choose Internet instant messaging applications or voice services over SMS, and the high penetration rate of our SMS services after years of continued growth. In addition, revenue generated from Mobile Internet Access grew substantially by 49.4% to RMB30,530 million in 2010, as compared to RMB20,435 million in 2009. The rapid growth of our other data businesses, including Wireless Music, MMS, “Fetion”, “139 Mailbox” and “12580 Integrated Information Service Line”, was an additional growth driver for our value-added services. As a percentage of operating revenue, value-added services fees increased from 29.1% in 2009 to 31.2% in 2010. We expect our value-added business, in particular Mobile Internet Access business and other data businesses, to continue to grow.

Other operating revenue increased by 7.0% from RMB20,037 million in 2009 to RMB21,447 million (US$3,250 million) in 2010. As a percentage of operating revenue, other operating revenue remained stable at 4.4% in 2009 and 2010.

Operating Expenses. Operating expenses include leased line expenses, interconnection expenses, depreciation expenses relating to our mobile telecommunications network and other property, plant and equipment, personnel expenses and other operating expenses. Other operating expenses primarily consist of selling and promotion expenses, operating lease charges, network maintenance expenses, impairment loss for doubtful accounts, write-off of property, plant and equipment that have been demolished and disconnected from our existing network, labor service expenses, administration and other miscellaneous expenses.

Operating expenses increased 9.6% from RMB305,095 million in 2009 to RMB334,477 million (US$50,678 million) in 2010. This increase, notably in other operating expenses, particularly in selling and promotion expenses and maintenance expenses, was generally in line with the continued growth in our customer base and usage volume and our ongoing efforts to deliver better quality services and to cope with intensified competition. Our operating expenses increased at a lower rate in 2010 as compared to 2009, reflecting our increased economies of scale and our continued efforts to control our operating expenses in 2010.

Leased line expenses increased 29.6% from RMB3,006 million in 2009 to RMB3,897 million (US$590 million) in 2010. This increase reflected an increase in payment of RMB356 million to CMCC in connection with the lease of its TD-SCDMA network capacity and the increase in leasing fees of Internet ports paid to other telecommunications operators as a result of the rapid development of our Internet related businesses. As a percentage of operating expenses, leased line expenses increased slightly from 1.0% in 2009 to 1.2% in 2010.

Interconnection expenses increased slightly by 0.2% from RMB21,847 million in 2009 to RMB21,886 million (US$3,316 million) in 2010. Our continuing marketing strategy to reorganize and re-route traffic volume has led to a lower proportion of inter-network traffic volume. Interconnection expenses as a percentage of operating expenses decreased from 7.2% in 2009 to 6.5% in 2010.

Depreciation expense increased 7.5% from RMB80,179 million in 2009 to RMB86,230 million (US$13,065 million) in 2010. This increase was mainly due to our continuous capital expenditures for the construction of our mobile telecommunications networks, support systems, transmission and structural facilities and the development of new technologies and new businesses to better support the growth of customer base and voice usage and to meet an unprecedented increase in demand in mobile Internet access. As a percentage of operating expenses, depreciation expense decreased from 26.3% in 2009 to 25.8% in 2010.

Personnel expenses increased 14.2% from RMB21,480 million in 2009 to RMB24,524 million (US$3,716 million) in 2010. This increase was primarily due to an increase in headcount from 145,954 at the end of 2009 to 164,336 at the end of 2010. As a percentage of operating expenses, personnel expenses increased from 7.0% in 2009 to 7.3% in 2010.

Other operating expenses increased 10.8% from RMB178,583 million in 2009 to RMB197,940 million (US$29,991 million) in 2010. This increase was primarily due to increased selling and promotion expenses in 2010 as a result of our efforts in responding to market competition, developing new customers and retaining our existing customers, in particular customers with high usage of mobile telecommunications services. Our selling and promotion expenses may further increase if industry competition continues to intensify and adversely affects our customer growth and retention, and leads to higher customer acquisition and retention costs. The increase in other operating expenses was also due to an increase in maintenance expenses from RMB28,109 million in 2009 to RMB31,390 million in 2010, and an increase in operating lease charges from RMB8,751 million in 2009 to RMB9,839 million in 2010, incurred principally as a result of our continued investments in our network equipment and facilities, and an increase in labor service expenses for services provided by third parties from RMB13,577 million in 2009 to RMB15,649 million in 2010. In addition, other operating expenses were partially offset by a decrease in impairment loss for doubtful accounts from RMB4,503 million in 2009 to RMB4,019 million in 2010 and a decrease in write-off of property, plant and equipment from RMB4,493 million in 2009 to RMB2,763 million in 2010. As a percentage of operating expenses, other operating expenses increased from 58.5% in 2009 to 59.2% in 2010. For more information on our other operating expenses, see note 5 to our consolidated financial statements included elsewhere in this annual report on Form 20-F.

Profit from Operations. As a result of the foregoing, profit from operations increased 2.5% from RMB147,008 million in 2009 to RMB150,754 million (US$22,842 million) in 2010, and operating margin (profit from operations as a percentage of operating revenue) decreased from 32.5% in 2009 to 31.1% in 2010.

Other Net Income. Other net income represents primarily net sales from SIM cards and handsets and revenue from construction contracts. These items are included in other net income due to their insignificance. Other net income increased 31.2% from RMB1,780 million in 2009 to RMB2,336 million (US$354 million) in 2010. This increase was principally due to an increase in revenue from construction contracts, which was partially offset by the decrease in net sales from sales of SIM cards and handsets.

Non-Operating Net Income. Non-operating net income increased by 90.8% from RMB359 million in 2009 to RMB685 million (US$104 million) in 2010, mainly due to a write back of accounts payable. Non-operating net income is mainly comprised of penalty income and other miscellaneous non-operating income.

Interest Income. Interest income decreased 4.7% from RMB5,940 million in 2009 to RMB5,658 million (US$857 million) in 2010. The lower interest income in 2010 was primarily due to the lower interest rate in 2010 and the decrease in our bank deposits as a result of the cash consideration paid in connection with our acquisition of an equity interest in SPD Bank.

Finance Costs. Finance costs decreased 27.4% from RMB1,243 million in 2009 to RMB902 million (US$137 million) in 2010. This decrease was primarily due to the lower interest rate in 2010. In 2010, the average interest rate that we paid on our outstanding borrowings was approximately 2.68%, compared to 3.70% in 2009.

Share of Profit of Associate. We had a share of profit of associate of RMB558 million (US$85 million) in 2010, which was attributable to our shareholding of 20% of the enlarged issued share capital of SPD Bank, compared to nil in 2009. Our share of profit of associate has been adjusted to reflect the amortization of the proportionate fair value of SPD Bank’s identifiable net assets as of the date of our investment in excess of our cost of investment.

Profit before Taxation. As a result of the foregoing, profit before tax increased 3.4% from RMB153,836 million in 2009 to RMB159,071 million (US$24,102 million) in 2010.

Taxation. Our income tax expense increased 1.7% from RMB38,413 million in 2009 to RMB39,047 million (US$5,916 million) in 2010. This increase was mainly due to an increase in our profit before taxation. Our effective tax rate was 25.0% in 2009 and 24.5% in 2010, respectively.

Profit Attributable to Equity Shareholders. As a result of the foregoing and after taking into account non-controlling interests, profit attributable to equity shareholders increased 3.9% from RMB115,166 million in 2009 to RMB119,640 million (US$18,127 million) in 2010. Net profit margin (profit attributable to equity shareholders as a percentage of operating revenue) decreased from 25.5% in 2009 to 24.7% in 2010.

Year Ended December 31, 2009 Compared to Year Ended December 31, 2008

Operating Revenue. Our operating revenue is mainly derived from usage and monthly fees and value-added services fees. Usage and monthly fees mainly include standard local usage fees for airtime and applicable domestic and international long distance charges receivable from customers for the use of our mobile telecommunications networks and facilities, and fees in respect of roaming out calls made by our customers outside their registered service areas. Value-added services fees are mainly derived from voice value-added services, SMS, Mobile Internet Access business and other data businesses. Other operating revenue mainly represents interconnection revenue.

Operating revenue increased 9.8% from RMB411,810 million in 2008 to RMB452,103 million (US$66,233 million) in 2009. This increase was primarily due to the continued expansion in our customer base, notably in rural areas in Mainland China, and the continued growth in voice usage volume and value-added businesses. Our total number of customers was approximately 522.3 million as of December 31, 2009, compared to approximately 457.3 million as of December 31, 2008.

Revenue from usage and monthly fees increased 9.8%7.9% from RMB260,542RMB278,608 million in 2008 to RMB285,971RMB300,632 million (US$41,895 million) in 2009. This increase principally resulted from the continued expansion in our customer base and the further increase in our voice usage volume during 2009. Although our average revenue per minute reflected a downward trend from RMB0.169 in 2008 to RMB0.155 in 2009, this decline was partially offset by higher growth in our voice usage volume in 2009. With the intensified market competition following the restructuring of the telecommunications industry and with further declines in tariffs, our average revenue per minute may continue to decline in future periods, but we currently expect that growth in our voice usage volume will help partially offset the impact of these developments on our operating revenue. As a percentage of operating revenue, usage fees remained stable at 63.3% in 2008 and 2009.

Revenue from monthly fees decreased 18.8% from RMB18,066 million in 2008 to RMB14,661 million (US$2,148 million) in 2009. This decrease was mainly due to the fact that most of our customers subscribed to our service packages, which generally did not have a monthly fee component. As a percentage of operating revenue, monthly fees decreased from 4.4%67.7% in 2008 to 3.2%66.5% in 2009.

Set forth below is a table summarizing the results of our value-added services for the periods indicated.

Revenue from value-added services increased 16.0% from RMB113,288 million in 2008 to RMB131,434 million (US$19,255 million) in 2009. This increase was mainly due to our continued efforts in providing customers with diversified and personalized value-added services to meet their preferences and needs. Our value-added services include voice value-added services, SMS, Mobile Internet Access business and non-SMSother data business.businesses. Revenue generated from SMS reached RMB53,557 million in 2009, as compared to RMB50,318 million in 2008, representing an increase of 6.4%. Revenue generated from the Mobile Internet Access business grew substantially by 46.0% to RMB20,435 in 2009, as compared to 2008. In addition, revenue generated from “Color Ring” and Handset Internet Access,, which form part of our non-SMSother data business,businesses, grew substantially by 7.4% and 41.3% to RMB15,413 million and RMB18,338 million, respectively in 2009, as compared to the previous year.2008. The expansion of our customer base was an additional growth driver for our value-added services. As a percentage of operating revenue, value-added services fees increased from 27.5% in 2008 to 29.1% in 2009. We expect our value-added business to continue to grow, in particular SMSMobile Internet Access business and non-SMSother data business, over the next several years.businesses.

Other operating revenue increased slightly by 0.6% from RMB19,914 million in 2008 to RMB20,037 million (US$2,935 million) in 2009. As a percentage of operating revenue, other operating revenue decreased from 4.8% in 2008 to 4.4% in 2009.

Our ARPU decreased from RMB83 in 2008 to RMB77 in 2009, primarily due to the fact that nearly half of our new customers are from less affluent rural areas and most of them are relatively low-usage users of mobile telecommunications services. This decline was also due to the gradual implementation of the tariff adjustments.

Operating ExpensesExpenses.. Operating expenses include leased line expenses, interconnection expenses, depreciation expenses relating to our mobile telecommunications network and other property, plant and equipment, personnel expenses and other operating expenses. Other operating expenses primarily consist of selling and promotion expenses, operating lease charges, maintenance expenses, impairment loss for doubtful accounts, disposal and write-off of property, plant and equipment that have been demolished and disconnected from our existing network, spectrum charges and numbering resources fees, labor service expenses, amortization of other intangible assets and other miscellaneous expenses.

Operating expenses increased 13.2% from RMB269,415 million in 2008 to RMB305,095 million (US$44,697 million) in 2009. This increase, notably in other operating expenses, particularly in selling and promotion expenses and maintenance expenses, was generally in line with the continued growth in our customer base and our ongoing efforts to deliver better quality services and to cope with intensified competition. Our operating expenses increased at a lower rate in 2009 as compared to 2008, reflecting our continued efforts to control our operating expenses in 2009.

Leased line expenses increased 13.8% from RMB2,641 million in 2008 to RMB3,006 million (US$440 million) in 2009. This increase reflected payments of RMB222 million to CMCC in connection with the lease of its TD-SCDMA network capacity. As a percentage of operating expenses, leased line expenses remained stable at 1.0% in 2008 and 2009.

Interconnection expenses decreased 1.9% from RMB22,264 million in 2008 to RMB21,847million (US$3,201 million) in 2009. This decrease was mainly due to our marketing strategy to reorganize and re-route traffic volume, which led to a lower proportion of inter-network traffic volume. Interconnection expenses as a percentage of operating expenses decreased from 8.3% in 2008 to 7.2% in 2009.

Depreciation expense increased 12.1% from RMB71,509 million in 2008 to RMB80,179 million (US$11,746 million) in 2009. This increase was mainly due to our continuous capital expenditures for the construction of our mobile telecommunications networks, support systems, transmission and structural facilities and the development of new technologies and new business. As a percentage of operating expenses, depreciation expense decreased from 26.5% in 2008 to 26.3% in 2009.

Personnel expenses increased 7.6% from RMB19,960 million in 2008 to RMB21,480 million (US$3,147 million) in 2009. This increase was primarily due to an increase in headcount from 138,368 at the end of 2008 to 145,954 at the end of 2009. As a percentage of operating expenses, personnel expenses slightly decreased from 7.4% in 2008 to 7.0% in 2009.

Other operating expenses increased 16.7% from RMB153,041 million in 2008 to RMB178,583 million (US$26,163 million) in 2009. This increase was primarily due to increased selling and promotion expenses in 2009 as a result of our continued efforts in promoting brand development, rewarding and retaining our existing and high-value customers, and improving customer service quality with an aim towards enhancing customer loyalty. Our selling and promotion expenses may further increase if industry competition continues to intensify and adversely affects our customer growth and customers retention, and increases our customer acquisition and retention costs. The increase in other operating expenses was also due to an increase in maintenance expenses and operating lease charges incurred in 2009, principally as a result of our continued investments in our network equipment and facilities. In addition, other operating expenses included impairment loss for doubtful accounts of RMB4,503 million in 2009 compared to RMB4,385 million in 2008, operating lease charges of RMB8,751 million in 2009 compared to RMB8,314 million in 2008, write-off of property, plant and equipment of RMB4,493 million in 2009 compared to RMB3,250 million in 2008, and labor service expenses for services provided by third parties of RMB13,577 million in 2009 compared to RMB10,156 million in 2008. As a percentage of operating expenses, other operating expenses increased from 56.8% in 2008 to 58.5% in 2009. For more information on our other operating expenses, see note 5 to our consolidated financial statements included elsewhere in this annual report on Form 20-F.

Profit from OperationsOperations.. As a result of the foregoing, profit from operations increased 3.2% from RMB142,395 million in 2008 to RMB147,008 million (US$21,537 million) in 2009, and operating margin (profit from operations as a percentage of operating revenue) slightly decreased from 34.6% in 2008 to 32.5% in 2009.

Other Net IncomeIncome.. Other net income represents primarily gross profit from sales of SIM cards and handsets. Other net income decreased 17.6% from RMB2,159 million in 2008 to RMB1,780 million (US$261 million) in 2009. This decrease was principally due to the declining sales of SIM cards and handsets.

Non-Operating Net IncomeIncome.. Non-operating net income decreased by 30.6% from RMB517 million in 2008 to RMB359 million (US$53 million) in 2009. Non-operating net income is mainly comprised of penalty income and other miscellaneous non-operating income.

Interest IncomeIncome.. Interest income decreased 1.0% from RMB6,002 million in 2008 to RMB5,940 million (US$870 million) in 2009. The lower interest income in 2009 was primarily due to the lower interest rate in 2009. See also “Item 5. Operating and Financial Review and Prospects — Liquidity and Capital Resources — Liquidity.”

Finance CostsCosts.. Finance costs decreased 19.8% from RMB1,550 million in 2008 to RMB1,243 million (US$182 million) in 2009. This decrease was primarily due to a decrease in average interest rate for deferred consideration payable, which represented the balance of the purchase consideration payable to our immediate holding company in connection with our acquisitions of eight regional mobile telecommunications companies in 2002 and ten regional mobile telecommunications companies and other telecommunications assets in 2004. The average interest rate for deferred consideration payable decreased in July 2008 from 5.41% to 3.28% and remained at 3.28% throughout 2009. In addition, the interest rate for bonds bearing interest at a floating rate decreased in June 2009 from 5.89% to 4.00%. In 2009, the average interest rate that we paid on our outstanding borrowings was approximately 3.70%, as compared to 4.61% in 2008.

Profit before TaxationTaxation.. As a result of the foregoing, profit before tax increased 2.9% from RMB149,523 million in 2008 to RMB153,836 million (US$22,537 million) in 2009.

TaxationTaxation.. Our income tax expense increased 4.6% from RMB36,735 million in 2008 to RMB38,413 million (US$5,628 million) in 2009. This increase was mainly due to an increase in our profit before taxation and the phase-out of certain tax benefits enjoyed by some of our subsidiaries. Our effective tax rate was 24.6% in 2008 and 25.0% in 2009, respectively.

Profit attributableAttributable to equity shareholdersEquity Shareholders.. As a result of the foregoing and after taking into account minoritynon-controlling interests, profit attributable to equity shareholders increased 2.3% from RMB112,627 million in 2008 to RMB115,166 million (US$16,872 million) in 2009. Net profit margin (profit attributable to equity shareholders as a percentage of operating revenue) decreased from 27.3% in 2008 to 25.5% in 2009.