Major Shareholder:

• China Telecommunications Corporation ¡V 69.5% interest

The Group is the leading provider of wireline telephone, data and Internet and leased line services in four of the most economically developed regions in china. the service regions consist of Shanghai Municipality, Guangdong Province, Jiangsu Province and Zhejiang Province. Until the mid-1990s. The Group was the sole provider of wireline telecommunications services in the service regions. As the Chinese government has implement a series of measures to restructure the telecommunication industry in China in order to encourage fair and orderly competition,

The Group offers a full range of wireline telecommunication services in the service regions, including local telephone, long distance telephone, data Internet and leased line services. The Group contains the largest wireline telephone customer base in the service regions with 53.2 million access lines in service as of June 30, 2002. The Group provides long distance services over public switched telephone networks and voice over Internet protocol networks, and these services have grown steadily in terms of usage. The Group is also the leading provider of Internet services in terms of the number of subscribers, with rapid growth in broadband subscribers since the introduction of broadband Internet service in 2000.

The Group owns and operates an extensive and advanced backbone network system, as well as substantially all of the local access networks, in the service regions. The backbone and local network systems, together with the network systems of China Telecom Group, from an advanced, integrated and reliable nationwide network system that is the largest in China.

The Directors believe that the Group has the following competitive advantages:

• Leading market position and extensive customer base;
• Full range of wireline telecommunication services;
• Extensive reliable, advanced and integrated network infrastructure and ownership of local access network resources
• Strong financial position;
• Leading brand name;
• Experienced and market oriented management team;

• The Group faces increasing competition, which may adversely affect the business growth and results of operations;
• The uncertainties that may arise from the agreements to be entered into between China Telecom Group and China Netcom Group in connection with the restructuring of China Telecom Group could have an adverse impact on the business and operation;
• If the Group could not able to respond successfully to technological or industry developments, the business may be adversely affected.
• Extensive government regulation of the telecommunication industry may limit the flexibility in responding to market conditions, competition or changes in the cost structure.

The Group continues to increase the number of access lines in service to capture new customers in high demand areas. The Group will also seek to maintain the existing customer base through tailored service offerings, bonus and loyalty programs and the provision of virtual private network, or VPN, services and central exchange, or CENTREX, services to enterprise customers. In addition, the Group begun to provide VoIP services to attract subscribers of mobile communication services.

The Group intends to increase the market share and revenue of the Internet services by taking advantage of the extensive coverage of the existing wireline networks and by providing customers with flexible and convenient access to the Internet. The Group will further develop co-marketing arrangements with the third party manufacturers, such as computer manufacturers, and content and service providers.

To further enhance the operational efficiency and lower the operating costs, the group will continue to centralize the financial management, budgeting process, equipment procurement, billing process, network resource allocation and network maintenance at the provincial level. Also, the Group will continue to maintain and develop bilateral and multilateral collaboration with international telecommunication operators in order to provide seamless and integrated cross border telecommunications services to multinational corporations, and also explore alliance and partnership opportunities with leading companies worldwide.

The net proceeds from the Placing, after deducting the related expenses, are estimated to amount to approximately HK$23,267 million (based on the offer price HK$1.58 per share). The Group at present intends to apply the net proceeds as follows: