Offering Circular (The ‘‘Offering Circular’’)

IMPORTANT NOTICE

NOT FOR DISTRIBUTION TO ANY PERSON OR ADDRESS IN THE UNITED STATES, THIS OFFERING IS AVAILABLE ONLY TO INVESTORS WHO ARE ADDRESSEES OUTSIDE OF THE UNITED STATES.

IMPORTANT: You must read the following disclaimer before continuing. The following disclaimer applies to the attached offering circular (the ‘‘Offering Circular’’). You are advised to read this disclaimer carefully before accessing, reading or making any other use of the attached Offering Circular. In accessing the attached Offering Circular, you agree to be bound by the following terms and conditions, including any modifications to them from time to time, each time you receive any information from us as a result of such access.

Confirmation of Your Representation: This Offering Circular is being sent to you at your request and by accepting the e-mail and accessing the attached Offering Circular, you shall be deemed to represent to Proven Honour Capital Limited (the ‘‘Issuer’’), Huawei Investment & Holding Co., Ltd. (the ‘‘Guarantor’’) and each of Australia and New Zealand Banking Group Limited, Bank of China (Hong Kong) Limited, DBS Bank Ltd., ING Bank N.V., Singapore Branch and Standard Chartered Bank as joint lead managers and joint bookrunners (together the ‘‘Joint Lead Managers’’) that (1) you and any customers you represent are not located in the United States (as defined in Regulation S under the United States Securities Act of 1933, as amended (the ‘‘Securities Act’’)) and the e-mail address that you gave us and to which this e-mail has been delivered is not located in the United States, and (2) you consent to delivery of the attached Offering Circular and any amendments or supplements thereto by electronic transmission.

The attached Offering Circular has been made available to you in electronic form. You are reminded that documents transmitted via this medium may be altered or changed during the process of transmission and consequently none of the Issuer, the Guarantor or any of the Joint Lead Managers or any of their respective affiliates, directors, officers, employees, representatives, agents and each person who controls the Issuer, the Guarantor, the Joint Lead Managers or any of their respective affiliates accepts any liability or responsibility whatsoever in respect of any discrepancies between the document distributed to you in electronic format and the hard copy version. We will provide a hard copy version to you upon request.

NOTHING IN THIS ELECTRONIC TRANSMISSION CONSTITUTES AN OFFER OF SECURITIES FOR SALE IN THE UNITED STATES OR ANY OTHER JURISDICTION WHERE IT IS UNLAWFUL TO DO SO. THE SECURITIES HAVE NOT BEEN, AND WILL NOT BE, REGISTERED UNDER THE SECURITIES ACT, OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR OTHER JURISDICTION AND THE SECURITIES MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES. THIS OFFERING IS MADE SOLELY OUTSIDE OF THE UNITED STATES IN OFFSHORE TRANSACTIONS PURSUANT TO REGULATION S UNDER THE SECURITIES ACT.

Nothing in this electronic transmission constitutes an offer or an invitation by or on behalf of any of the Issuer, the Guarantor of the securities or the Joint Lead Managers to subscribe for or purchase any of the securities described therein, and access has been limited so that it shall not constitute in the United States or elsewhere a general solicitation or general advertising (as those terms are used in Regulation D under the Securities Act) or directed selling efforts (within the meaning of Regulation S under the Securities Act). If a jurisdiction requires that the offering be made by a licensed broker or dealer and the Joint Lead Managers or any of their respective affiliates is a licensed broker or dealer in that jurisdiction, the offering shall be deemed to be made by it or such affiliate on behalf of the Issuer and the Guarantor in such jurisdiction.

You are reminded that you have accessed the attached Offering Circular on the basis that you are a person into whose possession this Offering Circular may be lawfully delivered in accordance with the laws of the jurisdiction in which you are located and you may not nor are you authorised to deliver this document, electronically or otherwise, to any other person. If you have gained access to this transmission contrary to the foregoing restrictions, you are not allowed to purchase any of the securities described in the attached.

Actions that You May Not Take: If you receive this document by e-mail, you should not reply by e-mail to this announcement, and you may not purchase any securities by doing so. Any reply e-mail communications, including those you generate by using the ‘‘Reply’’ function on your e-mail software, will be ignored or rejected.

YOU ARE NOT AUTHORISED TO AND YOU MAY NOT FORWARD OR DELIVER THE ATTACHED OFFERING CIRCULAR, ELECTRONICALLY OR OTHERWISE, TO ANY OTHER PERSON OR REPRODUCE SUCH OFFERING CIRCULAR IN ANY MANNER WHATSOEVER. ANY FORWARDING, DISTRIBUTION OR REPRODUCTION OF THE ATTACHED OFFERING CIRCULAR IN WHOLE OR IN PART IS UNAUTHORISED. FAILURE TO COMPLY WITH THIS DIRECTIVE MAY RESULT IN A VIOLATION OF THE SECURITIES ACT OR THE APPLICABLE LAWS OF OTHER JURISDICTIONS.

You are responsible for protecting against viruses and other destructive items. If you receive this document by e- mail, your use of this e-mail is at your own risk and it is your responsibility to take precautions to ensure that it is free from viruses and other items of a destructive nature. PROVEN HONOUR CAPITAL LIMITED (incorporated with limited liability in the British Virgin Islands)

US$1,000,000,000 4.125 PER CENT. GUARANTEED BONDS DUE 2025 Unconditionally and Irrevocably Guaranteed by

HUAWEI INVESTMENT & HOLDING CO., LTD. (incorporated with limited liability in the People’s Republic of China)

ISSUE PRICE: 99.006 per cent.

The 4.125 per cent. guaranteed bonds due 2025 in the aggregate principal amount of US$1,000,000,000 (the ‘‘Bonds’’) will be issued by Proven Honour Capital Limited (the ‘‘Issuer’’) and will be unconditionally and irrevocably guaranteed (the ‘‘Guarantee’’) by Huawei Investment & Holding Co., Ltd. (the ‘‘Guarantor’’). The Issuer is a wholly-owned subsidiary of the Guarantor. The Bonds will constitute direct, unconditional, unsubordinated and (subject to the provisions of Condition 5) unsecured obligations of the Issuer and (subject to stated above) rank and will rank pari passu, without any preference among themselves, with all other outstanding unsecured and unsubordinated obligations of the Issuer, present and future, but, in the event of insolvency, only to the extent permitted by applicable laws relating to creditors’ rights. The obligations of the Guarantor under the Guarantee constitute direct, unconditional, unsubordinated and (subject to the provisions of Condition 5) unsecured obligations of the Guarantor and (subject as stated above) rank and will rank pari passu with all other outstanding unsecured and unsubordinated obligations of the Guarantor, present and future, but, in the event of insolvency, only to the extent permitted by applicable laws relating to creditors’ rights. The Bonds will bear interest on their outstanding principal amount from and including 19 May 2015 (the ‘‘Issue Date’’) at the rate of 4.125 per cent. per annum payable semi-annually in arrear in equal instalments on 19 May and 19 November in each year (each an ‘‘Interest Payment Date’’). Payments on the Bonds will be made free and clear of, and without withholding or deduction for, or on account of, any present or future taxes, duties, assessments or governmental charges of whatever nature imposed or levied by or on behalf of the British Virgin Islands or the PRC (as defined herein) to the extent described under ‘‘Conditions of the Bonds – Taxation’’. The Bonds mature on 19 May 2025 at their principal amount. The Bonds are subject to redemption, all but not some only, at their principal amount, together with accrued interest, at the option of the Issuer at any time in the event of certain changes affecting taxes of the British Virgin Islands or the PRC. See ‘‘Conditions of the Bonds – Redemption and Purchase – Redemption for Taxation Reasons’’. All, or some only, of a Bondholder’s Bonds may also be redeemed on the Put Settlement Date (as defined in the terms and conditions of the Bonds (the ‘‘Conditions of the Bonds’’)) at the option of such Bondholder, following the occurrence of a Relevant Event (as defined in the Conditions of the Bonds), at (i) 101 per cent. of their principal amount (in the case of a redemption for a Change of Control (as defined in the Conditions of the Bonds)) or (ii) 100 per cent. of their principal amount (in the case of a redemption for a No Registration Event (as defined in the Conditions of the Bonds)), together, in each case, with accrued interest to the Put Settlement Date. See ‘‘Conditions of the Bonds – Redemption and Purchase – Redemption upon Relevant Event’’.The Bonds may also be redeemed at the option of the Issuer in whole or in part at any time at a price equal to their Make Whole Amount together with accrued interest but unpaid to the date fixed for redemption (collectively, the ‘‘Make Whole Redemption Price’’) on the Issuer giving not less than 30 nor more than 60 days notice to the Bondholders. See ‘‘Conditions of the Bonds – Redemption and Purchase – Redemption at the option of the Issuer’’. The Guarantor undertakes that it will (a) register or cause to be registered with SAFE (as defined in the Conditions of the Bonds) the Guarantee in accordance with, and within the time period prescribed by, the Foreign Exchange Administration Rules on Cross-border Security（跨境擔保外匯管理規定）(the ‘‘Cross-border Security Registration’’), (b) use all reasonable endeavours to complete the Cross-border Security Registration and obtain a registration record from SAFE (or any other document evidencing the completion of registration issued by SAFE) on or before the Registration Deadline (being the day falling 90 days after the Issue Date) and (c) comply with all applicable PRC laws and regulations in relation to the Guarantee. Application will be made to The Stock Exchange of Hong Kong Limited (the ‘‘Hong Kong Stock Exchange’’) for the listing of, and permission to deal in, the Bonds by way of debt issues to professional investors (as defined in the Securities and Futures Ordinance (Cap. 571) of Hong Kong) only and such permission is expected to become effective on or about 20 May 2015. Investing in the Bonds involves certain risks. See ‘‘Risk Factors’’ beginningonpage16foradiscussionofcertainfactorstobeconsideredin connection with an investment in the Bonds. The Bonds and the Guarantee have not been and will not be registered under the United States Securities Act of 1933, as amended (the "Securities Act") and, subject to certain exceptions, may not be offered or sold within the United States (as defined in Regulation S under the Securities Act ("Regulation S")). The Bonds are being offered only outside the United States in reliance on Regulation S. For a description of these and certain further restrictions on offers and sales of the Bonds and the distribution of this Offering Circular, see ‘‘Subscription and Sale’’. The Bonds have not been and will not be rated. The Bonds will be issued in registered form in denominations of US$200,000 and integral multiples of US$1,000 in excess thereof. The Bonds will be represented by beneficial interests in a global certificate (the ‘‘Global Certificate’’) in registered form which will be registered in the name of a nominee of, and shall be deposited on or about the Issue Date with, a common depositary for Euroclear Bank S.A./N.V.(‘‘Euroclear’’)and Clearstream, Banking, société anonyme (‘‘Clearstream, Luxembourg’’, and together with Euroclear, the ‘‘Clearing Systems’’). Beneficial interests in the Global Certificate will be shown on, and transfers thereof will be effected only through, records maintained by Euroclear and Clearstream, Luxembourg. Except as described herein, definitive certificates for Bonds will not be issued in exchange for interests in the Global Certificate.

Joint Lead Managers and Joint Bookrunners

Bank of China Standard ANZ (Hong Kong) DBS Bank Ltd. ING Chartered Bank

Offering Circular dated 12 May 2015 NOTICE TO INVESTORS

Each of the Issuer and the Guarantor, having made all reasonable enquiries, confirms that (i) this Offering Circular contains all material information with respect to the Issuer, the Guarantor and its subsidiaries (collectively, the ‘‘Group’’), the Bonds and the Guarantee (including all information which, according to the particular nature of the Issuer, the Guarantor, the Group, the Bonds and the Guarantee, is necessary to enable investors to make an informed assessment of the assets and liabilities, financial position, profits and losses and prospects of the Issuer, the Guarantor and the Group and of the rights attaching to the Bonds and the Guarantee), (ii) the statements contained in this Offering Circular relating to the Issuer, the Guarantor and the Group are in every material respect true and accurate and not misleading, (iii) the statements of intention, opinion, belief or expectation contained in this Offering Circular with regard to the Issuer, the Guarantor and the Group are honestly and reasonably made or held, (iv) there are no other facts in relation to the Issuer, the Guarantor, the Group, the Bonds or the Guarantee the omission of which would in the context of the issue of the Bonds make any statement in this Offering Circular misleading and (v) all reasonable enquiries have been made by the Issuer and the Guarantor to ascertain such facts and to verify the accuracy of all such statements.

This Offering Circular has been prepared by the Issuer and the Guarantor solely for use in connection with the proposed offering of the Bonds described in this Offering Circular. The distribution of this Offering Circular and the offering of the Bonds in certain jurisdictions may be restricted by law. Persons into whose possession this Offering Circular comes are required by the Issuer, the Guarantor and the Joint Lead Managers (as defined herein) to inform themselves of and to observe any such restrictions. No action is being taken to permit a public offering of the Bonds or the distribution of this Offering Circular in any jurisdiction where action would be required for such purposes. There are restrictions on the offer and sale of the Bonds and the circulation of documents relating thereto in certain jurisdictions including the United States, the United Kingdom, Singapore, Hong Kong, the PRC and the British Virgin Islands, and to persons connected therewith. For a description of certain further restrictions on offers, sales and resales of the Bonds and distribution of this Offering Circular, see ‘‘Subscription and Sale’’. This Offering Circular is personal to each offeree and does not constitute an offer to any other person or to the public generally to subscribe for or otherwise to acquire the Bonds. Distribution of this Offering Circular to any other person other than the investors and any person retained to advise such investors with respect to their purchase is unauthorised. Each investor, by accepting delivery of this Offering Circular, agrees to the foregoing and to make no photocopies of this Offering Circular or any documents referred to in this Offering Circular.

This Offering Circular includes particulars given in compliance with the Rules Governing the Listing of Securities on the Hong Kong Stock Exchange (the ‘‘Listing Rules’’) for the purpose of giving information with regard to the Issuer, the Guarantor and the Group. The Issuer and the Guarantor accept full responsibility for the accuracy of the information contained in this Offering Circular and confirm, having made all reasonable enquiries, that to the best of their knowledge and belief there are no other facts the omission of which would make any statement herein misleading.

Hong Kong Exchanges and Clearing Limited and the Hong Kong Stock Exchange take no responsibility for the contents of this Offering Circular, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this Offering Circular.

No person has been or is authorised to give any information or to make any representation concerning the Issuer, the Guarantor, the Group, the Bonds or the Guarantee other than as contained herein and, if given or made, any such other information or representation should not be relied upon as having been authorised by the Issuer, the Guarantor, the Joint Lead Managers, the Trustee (as defined in the Conditions of the Bonds), the Agents (as defined in the Conditions of the Bonds) or their respective affiliates. Neither the delivery of this Offering Circular nor any offering, sale or delivery made in connection with the issue of the Bonds shall, under any circumstances, constitute a representation that there has been no change or development reasonably likely to involve a change in the affairs of the

i Issuer, the Guarantor, the Group or any of them since the date hereof or create any implication that the information contained herein is correct as at any date subsequent to the date hereof. This Offering Circular does not constitute an offer of, or an invitation by or on behalf of the Issuer, the Guarantor, the Joint Lead Managers, the Trustee, the Agents or their respective affiliates to subscribe for or purchase any of the Bonds and may not be used for the purpose of an offer to, or a solicitation by, anyone in any jurisdiction or in any circumstances in which such offer or solicitation is not authorised or is unlawful.

This Offering Circular may not be copied or reproduced in whole or in part. It may be distributed only to and its contents may be disclosed only to the prospective investors to whom it is provided. By accepting delivery of this Offering Circular each investor agrees to these restrictions.

This Offering Circular is being furnished by the Issuer and the Guarantor in connection with the offering of the Bonds exempt from registration under the Securities Act solely for the purpose of enabling a prospective investor to consider purchasing the Bonds. Investors must not use this Offering Circular for any other purpose, make copies of any part of this Offering Circular or give a copy of it to any other person, or disclose any information in this Offering Circular to any other person. The information contained in this Offering Circular has been provided by the Issuer, the Guarantor and other sources identified in this Offering Circular. Any reproduction or distribution of this Offering Circular, in whole or in part, and any disclosure of its contents or use of any information herein for any purpose other than consideringaninvestmentintheBondsofferedbythis Offering Circular is prohibited. Each offeree of the Bonds, by accepting delivery of this Offering Circular, agrees to the foregoing.

No representation or warranty, express or implied, is made or given by the Joint Lead Managers, the Trustee, the Agents or any of their respective affiliates as to the accuracy, completeness or sufficiency of the information contained in this Offering Circular, and nothing contained in this Offering Circular is, or shall be relied upon as a promise, representation or warranty by the Joint Lead Managers, the Trustee, the Agents or any of their respective affiliates. To the fullest extent permitted by law, the Joint Lead Managers, the Trustee, the Agents and their respective affiliates do not accept any responsibility for the contents of this Offering Circular or for any other statement, made or purported to be made by or on behalf of the Joint Lead Managers, the Trustee, the Agents or any of their respective affiliates in connection with the Issuer, the Guarantor, the Group, the Guarantee or the issue and offering of the Bonds. Each of the Joint Lead Managers, the Trustee, the Agents and their respective affiliates accordingly disclaim all and any liability whether arising in tort or contract or otherwise which they might otherwise have in respect of this Offering Circular or any such statement. None of the Joint Lead Managers, the Trustee, the Agents or any of their respective affiliates undertakes to review the financial condition or affairs of the Issuer, the Guarantor or the Group after the date of this Offering Circular nor to advise any investor or potential investor in the Bonds of any information coming to the attention of the Joint Lead Managers, the Trustee, the Agents or any of their respective affiliates. None of the Joint Lead Managers, the Trustee, the Agents or any of their respective affiliates has independently verified any of the information contained in this Offering Circular and can give no assurance that this information is accurate, true or complete. This Offering Circular is not intended to provide the basis of any credit or other evaluation nor should it be considered as a recommendation by any of the Issuer, the Guarantor, the Joint Lead Managers, the Trustee, the Agents or any of their respective affiliates that any recipient of this Offering Circular should purchase the Bonds. Each potential purchaser of the Bonds should determine for itself the relevance of the information contained in this Offering Circular and its purchase of the Bonds should be based upon such investigations with its own tax, legal and business advisers as it deems necessary.

In making an investment decision, investors must rely on their own examination of the Issuer, the Guarantor, the Group and the terms of the offering, including the merits and risks involved. See ‘‘Risk Factors’’ for a discussion of certain factors to be considered in connection with an investment in the Bonds.

ii Each person receiving this Offering Circular acknowledges that such person has not relied on the Joint Lead Managers, the Trustee, the Agents or any of their respective affiliates in connection with its investigation of the accuracy of such information or its investment decision.

Investors are advised to read and understand the contents of this Offering Circular before investing. If in doubt, investors should consult their advisers.

IN CONNECTION WITH THE ISSUE OF THE BONDS, ANY OF THE JOINT LEAD MANAGERS APPOINTED AND ACTING IN ITS CAPACITY AS STABILISING MANAGER (THE ‘‘STABILISING MANAGER’’) (OR PERSONS ACTING ON BEHALF OF THE STABILISING MANAGER) MAY, TO THE EXTENT PERMITTED BY APPLICABLE LAWS AND DIRECTIVES, OVER‑ALLOT THE BONDS OR EFFECT TRANSACTIONS WITH A VIEW TO SUPPORTING THE MARKET PRICE OF THE BONDS AT A LEVEL HIGHER THAN THAT WHICH MIGHT OTHERWISE PREVAIL. HOWEVER, THERE IS NO ASSURANCE THAT THE STABILISING MANAGER (OR PERSONS ACTING ON BEHALF OF THE STABILISING MANAGER) WILL UNDERTAKE STABILISATION ACTION. ANY STABILISATION ACTION MAY BEGIN ON OR AFTER THE DATE ON WHICH ADEQUATE PUBLIC DISCLOSURE OF THE TERMS OF THE OFFER OF THE BONDS IS MADE AND SUCH STABILISING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME AND MUST BE BROUGHT TO AN END AFTER A LIMITED PERIOD.

Listing of the Bonds on the Hong Kong Stock Exchange is not to be taken as an indication of the merits of the Issuer, the Guarantor, the Group or the Bonds.

All non-company specific statistics and data relating to the Group’s industry or the economies of pertinent jurisdictions, such as the PRC, have been extracted or derived from publicly available information and various government sources. The Guarantor believes that the sources of this information are appropriate for such information and the Guarantor has taken reasonable care in extracting and reproducing such information. The Guarantor has no reason to believe that such information is false or misleading or that any fact has been omitted that would render such information false or misleading. However, this information has not been independently verified by the Issuer, the Guarantor, the Joint Lead Managers, the Trustee, the Agents or any of their respective affiliates and none of the Issuer, the Guarantor, the Joint Lead Managers, the Trustee, the Agents or any of their respective affiliates make any representation as to the correctness, accuracy or completeness of that information. In addition, third party information providers may have obtained information from market participants and such information may not have been independently verified. Accordingly, such information should not be unduly relied upon.

iii CERTAIN DEFINITIONS, CONVENTIONS AND CURRENCY PRESENTATION

In this Offering Circular, unless otherwise specified or the context otherwise requires, all references to the ‘‘Group’’ and words of similar import are to Huawei Investment & Holding Co., Ltd. itself and its subsidiaries, as the context requires. All references in this Offering Circular to ‘‘China’’ or the ‘‘PRC’’ are to the People’s Republic of China and, for the purpose of this Offering Circular only, excluding Hong Kong, the Macau Special Administrative Region of the PRC and Taiwan, ‘‘US’’ or the ‘‘United States’’ are to the United States of America and all references to ‘‘Hong Kong’’ are to the Hong Kong Special Administrative Region of China.

Solely for the sake of convenience, this Offering Circular contains translations of certain Renminbi amounts into US dollar amounts. Unless otherwise specified or the context requires, references herein to ‘‘CNY’’, ‘‘RMB’’ or ‘‘Renminbi’’ are to the lawful currency of the PRC, references herein to ‘‘USD’’, ‘‘US dollars’’, ‘‘U.S. dollars’’, ‘‘US$’’ or ‘‘U.S.$’’ are to the lawful currency of the United States of America and references herein to ‘‘EUR’’, ‘‘€’’ or ‘‘euro’’ are to the official currency of the Eurozone. For convenience and unless otherwise noted, all translations in this Offering Circular of Renminbi amounts into US dollar amounts have been made at the rate of RMB6.1958 to US$1.00, being the median rates set by the People’s Bank of China, the central bank of the PRC (the ‘‘PBOC’’) for foreign exchange transactions prevailing on 31 December 2014.

The English names of the PRC nationals, entities, departments, facilities, laws, regulations, certificates, titles and the like are translations of their Chinese names and are included for identification purposes only.

iv PRESENTATION OF FINANCIAL INFORMATION

Huawei’s consolidated financial statements as at and for the years ended 31 December 2013 and 2014, which are included elsewhere in this Offering Circular, have been audited by KPMG Huazhen. The consolidated financial statements of Huawei as at and for the years ended 31 December 2013 and 2014 have been prepared in accordance with IFRS.

Certain comparative amounts with respect to the year ended 31 December 2012 included in Huawei’s consolidated financial statements as at and for the year ended 31 December 2013 (‘‘2013 Financial Statements’’) have been restated to reflect the adoption of the revised International Accounting Standards 19, Employee benefits (‘‘Revised IAS 19’’). The change in accounting policy arising from Revised IAS19 is the only change which has had a material impact on the comparative periods as set out in 2013 Financial Statements. This change in accounting policy has been applied retrospectively by restating the opening balances at 1 January 2012 and 2013, with consequential adjustments to comparatives for the year ended 31 December 2012. Therefore the consolidated financial information as at and for the year ended 31 December 2012 contained in Huawei’s 2013 Financial Statements which are contained herein are not directly comparable with the comparative financial information for the year ended 31 December 2013 contained in Huawei’s 2013 Financial Statements contained herein. The details of the change in accounting policy resulting from the adoption of the Revised IAS19 have been set out in note 4 to the consolidated financial statements for the year ended 31 December 2013.

Certain comparative amounts with respect to the year ended 31 December 2013 included in Huawei’s consolidated financial statements as at and for the year ended 31 December 2014 (‘‘2014 Financial Statements’’) have been restated. In 2014, the management of Huawei had determined that certain operating support activities in Huawei’s selling organisation, previously recorded as selling expenses, would be more appropriately presented as administrative expenses, and that the product management activities for product divisions, previously presented as selling expenses, should be changed to research and development expenses to more accurately reflect their function. The management of Huawei also further determined that certain cash received from customers would be more appropriately presented as advances received within other payables, rather than being offset against the receivables due from the same customers. Huawei’s senior management also adjusted the segment reporting solution based on the development of the business. The comparatives as at and for the year ended 31 December 2013 have been represented to comply with the presentation in 2014. These changes in presentation have had no impact on reported operating profit or net assets. For more details, please see note 40 to Huawei’s2014 Financial Statements included elsewhere in this Offering Circular. Huawei’s financial information as at and for the year ended 31 December 2012 which is included in this Offering Circular has not been restated to reflect such reclassifications, restatements or amendments. Therefore the consolidated financial information as at and for the year ended 31 December 2012 are not directly comparable to Huawei’s consolidated financial information as at and for the years ended 31 December 2013 and 2014 contained in Huawei’s 2014 Financial Statements contained herein. For more details, please see the section entitled ‘‘Risk Factors – Risks relating to Huawei’s Business and Industry – Huawei’s financial information as at and for the year ended 31 December 2012 regarding certain aspects has not been restated and may not be comparable to Huawei’s financial information as at and for the years ended 31 December 2013 and 2014 contained in Huawei’s 2014 Financial Statements’’.

In this Offering Circular, where information has been presented in thousands or millions of units, amounts may have been rounded up or down. Accordingly, totals of columns or rows of numbers in tables may not be equal to the apparent total of the individual items and actual numbers may differ from those contained herein due to rounding. References to information in billions of units are to the equivalent of a thousand million units.

v INDUSTRY DATA

Market data and certain industry forecasts and statistics in this Offering Circular have been obtained from both public and private sources, including market research, publicly available information and industry publications. Although this information is believed to be reliable, it has not been independently verified by the Issuer and the Guarantor, the Joint Lead Managers and their respective directors and advisors, and neither the Issuer, the Guarantor, the Joint Lead Managers nor their respective directors and advisors make any representation as to the accuracy or completeness of that information. Such information may not be consistent with other information compiled within or outside the PRC. In addition, third party information providers may have obtained information from market participants and such information may not have been independently verified. In making an investment decision, each investor must rely on its own examination of the Issuer and the Guarantor and the terms of the offering and the Bonds, including the merits and risks involved.

All statements in this Offering Circular attributable to Gartner, IDC, Strategy Analytics or Infonetics Research represent Huawei’s interpretation of data, research opinion or viewpoints published as part of a syndicated subscription service by Gartner, IDC, Strategy Analytics or Infonetics Research and have not been reviewed by Gartner, IDC, Strategy Analytics or Infonetics Research. Each of Gartner’s, IDC’s, Strategy Analytics’s or Infonetics Research’s publication speaks as of its original publication date and not as of the date of this Offering Circular. The opinions expressed in Gartner’s, IDC’s, Strategy Analytics’s or Infonetics Research’s publications are not representations of fact and are subject to change without notice.

vi FORWARD-LOOKING STATEMENTS

The Issuer and the Guarantor have made forward-looking statements in this Offering Circular regarding, among other things, Huawei’s financial conditions, future expansion plans and business strategy. These forward-looking statementsarebasedonHuawei’s current expectations about future events, and are based on numerous assumptions regarding its present and future business strategies and the environment in which Huawei will operate in the future. Although the Issuer and the Guarantor believe that these expectations and projections are reasonable, such forward-looking statements are inherently subject to risks, uncertainties and assumptions, including, among other things:

• risks associated with general political, social and economic conditions globally, in the PRC and related to the industry;

• Huawei’s ability to manage working capital and operations-related expenditure requirements;

• Huawei’s ability to achieve its business strategies and plans of operation;

• Huawei’s ability to expand its sales and services network and the Group’scustomerbase;

• Huawei’s ability to innovate, develop, execute and commercialise new technologies, products and services;

• expectations regarding market developments and structural changes;

• expectations and targets regarding Huawei’s industry volumes, market share, prices, net sales and margins of products and services;

• expectations and targets regarding Huawei’s operational priorities and results of operations;

• expectations and targets regarding collaboration and partnering arrangements;

• foreign exchange controls and fluctuations in exchange rates and interest rates;

• certain government regulations, policies and other factors beyond Huawei’s control; and

• other factors, including those other risks identified in the ‘‘Risk Factors’’ section of this Offering Circular.

The words ‘‘anticipate’’, ‘‘believe’’, ‘‘estimate’’, ‘‘expect’’, ‘‘intend’’, ‘‘plan’’ and similar expressions are intended to identify a number of these forward-looking statements. However, these words are not the exclusive means of identifying forward-looking statements. Additional factors that could cause actual performance or achievements to differ materially include, but are not limited to, those discussed under ‘‘Risk Factors’’ and elsewhere in this Offering Circular. The Issuer and the Guarantor undertake no obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this Offering Circular might not occur and the Guarantor’sandtheGroup’sactual results could differ materially from those anticipated in these forward-looking statements. Accordingly, investors are cautioned not to place undue reliance on these forward-looking statements.

These forward-looking statements speak only as at the date of this Offering Circular. The Issuer and the Guarantor expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statement contained herein to reflect any change in the Group’s expectations with regard thereto or any change of events, conditions or circumstances, on which any such statement was based. All forward-looking statements contained in this Offering Circular are qualified by reference to the cautionary statements in this section.

vii CONTENTS

Page

GLOSSARY ...... 1

SUMMARY ...... 5

THEISSUE ...... 8

SELECTED FINANCIAL INFORMATION ...... 12

RISKFACTORS ...... 16

CONDITIONSOFTHEBONDS ...... 41

SUMMARY OF PROVISIONS RELATING TO THE BONDS IN GLOBAL FORM ...... 61

USEOFPROCEEDS ...... 62

EXCHANGE RATE INFORMATION ...... 63

INDUSTRY OVERVIEW ...... 64

CAPITALISATIONANDINDEBTEDNESS ...... 83

DESCRIPTIONOFTHEISSUER ...... 84

DESCRIPTIONOFTHEGROUP ...... 85

DIRECTORS AND MANAGEMENT ...... 117

THEGUARANTEE ...... 130

THE SHAREHOLDING STRUCTURE OF THE GUARANTOR ...... 131

TAXATION ...... 132

SUBSCRIPTIONANDSALE ...... 137

GENERALINFORMATION ...... 141

INDEX TO FINANCIAL STATEMENTS ...... F-1

viii GLOSSARY

In this Offering Circular, unless the context indicates otherwise, the following terms have the respective meanings set forth below.

‘‘2012 Bonds’’ CNY1,000,000,000 5.30 per cent. bonds due 2015 issued on 18 May 2012

‘‘2014 Bonds’’ CNY1,600,000,000 4.55 per cent. guaranteed bonds due 2017 issued on 23 September 2014

‘‘2G’’ Second generation mobile wireless telecommunications technology

‘‘3G’’ Third generation mobile wireless telecommunications technology

‘‘4G’’ Fourth generation mobile wireless telecommunications technology

‘‘5G’’ Fifth generation mobile wireless telecommunications technology

‘‘AC’’ Audit Committee

‘‘Alternative Clearing Any clearing system other than Euroclear, Clearstream and Luxembourg System’’

‘‘Amending Directive’’ The Council Directive formally adopted by the Council of the European Unionon24March2014

‘‘BCGs’’ Business Conduct Guidelines

‘‘BDII’’ Business-driven ICT infrastructure

‘‘BOD’’ The Board of Directors

‘‘BSSs’’ Business Support Systems

‘‘BVI’’ The British Virgin Islands

‘‘BYOD’’ Bring Your Own Device

‘‘CAGR’’ Compound Annual Growth Rate

‘‘CDMA’’ Code Division Multiple Access 2000

‘‘Commission’’ United States International Trade Commission

‘‘Commission’sProposal’’ The proposal published on 14 February 2013 by the European Commission for a Directive for a common financial transactions tax in Belgium, Germany, Estonia, Greece, Spain, France, Italy, Austria, Portugal, Slovenia and Slovakia

‘‘COO’’ chief operating officer

‘‘CPE’’ Customer Premises Equipment

‘‘CRDU’’ Central Research & Development Unit

‘‘CSP’’ Communication Services Provider

1 ‘‘D&P’’ Development and Pilot

‘‘EC’’ European Commission

‘‘EIT Law’’ The PRC Enterprise Income Tax Law

‘‘EMT’’ Executive Management Team

‘‘EPC’’ Evolved Packet Core

‘‘EVP’’ Executive Vice President

‘‘FC’’ Finance Committee

‘‘FSMA’’ Financial Services and Markets Act 2000

‘‘Futurewei’’ Futurewei Technologies Inc.

‘‘Gartner’’ Gartner, Inc., a leading information technology research and advisory company based in the United States

‘‘GDP’’ Gross Domestic Product

‘‘GPOs’’ Global Process Owners

‘‘GSM’’ Global System for Mobile Communications

‘‘HCIEs’’ Huawei Certified Internetwork Experts

‘‘Huawei’’ or ‘‘Group’’ Huawei Investment & Holding Co., Ltd. and its subsidiaries

‘‘Huawei Tech’’ Huawei Technologies Co., Ltd.

‘‘ICT’’ Information and Communication Technology

‘‘IDC’’ InterDigital Corporation

‘‘IFRS’’ International Financial Reporting Standards

‘‘Infonetics’’ Infonetics Research, an international market research and consulting firm

‘‘IoT’’ Internet of Things

‘‘IPCC’’ IP Contact Centre

‘‘ISS’’ Industry Standard Servers

‘‘IT’’ Information Technology

‘‘ITU’’ International Telecommunication Union

‘‘LTE’’ Long Term Evolution, a standard for wireless communication of high- speed data for mobile phones and data terminals

‘‘M2M’’ Machine-to-Machine

2 ‘‘OSSs’’ Operations Support Systems

‘‘OTN’’ Optical Transport Network

‘‘R&D’’ Research and Development

‘‘Representatives’’ Representatives of shareholding employees

‘‘SAFE’’ State Administration of Foreign Exchange of China or its local counterpart

‘‘SAFE Notice’’ Notice of the Promulgation of the Administrative Regulations on Cross- border Foreign Exchange Guarantees issued by the State Administration of Foreign Exchange（國家外匯管理局關于發布《跨境擔保外匯管理規定》的通知）on 12 May 2014

‘‘Scheme’’ Employee Shareholding Scheme

‘‘SDC’’ Strategy & Development Committee

‘‘SDN’’ Software-defined networking

‘‘SDPs’’ Service Delivery Platforms

‘‘SFA’’ Securities and Futures Act

‘‘SFO’’ Securities and Futures Ordinance of Hong Kong

‘‘SMBs’’ Small and Midsize Businesses

‘‘SPRS’’ Services Provider Routers & Switches

‘‘Strategy Analytics’’ Strategy Analytics, a global organisation conducting primary research and managing consulting projects

‘‘SZMG’’ Shenzhen Media Group

‘‘TBUs’’ Time-based units

‘‘TD-SCDMA’’ Time Division Synchronous Code Division Multiple Access

‘‘TPL’’ Technology Properties Limited LLC

‘‘TUP’’ Time-based Unit Plan

‘‘TVB’’ Television Broadcasts Limited

‘‘UC&C’’ Unified Communications and Collaboration

‘‘Union’’ The union of Huawei Investment & Holding Co., Ltd.

‘‘UMTS’’ Universal Mobile Telecommunication System

‘‘UPS’’ Uninterruptable Power Supply

3 ‘‘USA Device’’ Huawei Device USA Inc.

‘‘USITC’’ United States International Trade Commission

‘‘VoLTE’’ Voice over Long Term Evolution

‘‘VGS’’ Value Growth Solution

‘‘VMs’’ Virtual Machines

‘‘WCDMA’’ Wideband Code Division Multiple Access

‘‘WDM’’ Wavelength Division Multiplexing

‘‘WLAN’’ Wireless Local Area Network

4 SUMMARY

The summary below is only intended to provide a limited overview of information described in more detail elsewhere in this Offering Circular. As it is a summary, it does not contain all of the information that may be important to investors and terms defined elsewhere in this Offering Circular shall have the same meanings when used in this summary. Prospective investors should therefore read this Offering Circular in its entirety.

Overview Huawei is a global leader of information and communications technology (‘‘ICT’’) solutions. Continuously innovating based on customer needs, Huawei is committed to enhancing customer experiences and creating maximum value for telecom carriers, enterprises and consumers. Huawei’s telecom network equipment, IT products and solutions and smart devices are used in 170 countries and regions, serving over one-third of the world’s population. Huawei was ranked No. 285 among the Fortune Global 500 in 2014 and employed approximately 170,000 people worldwide as at 31 December 2014.

Huawei is committed to building a better connected world. By leveraging its experience and expertise in the ICT sector, Huawei helps bridge the digital divide by providing opportunities to enjoy broadband services, regardless of geographic location.

Huawei currently operates in the following three business segments:

• Carrier Business: Develops and manufactures a wide range of wireless networks, fixed networks, global services, carrier software, core networks and network energy solutions for telecommunication operators;

• Enterprise Business: Develops integratable ICT products and solutions including enterprise network infrastructure, cloud-based green data centres, enterprise information security, unified communication and collaboration and delivers these solutions to vertical industries such as governments and public utilities, enterprises, energy, power, transportation and finance; and

• Consumer Business: Develops and manufactures mobile broadband devices, home devices, smartphones as well as the applications on these devices and delivers them to consumers and businesses.

While Huawei offers comprehensive products and services to the three distinct customer groups, it manages and controls its main research, manufacturing, procurement, IT systems and administration on a centralised basis. Huawei has set up 16 research and development (‘‘R&D’’) centres in countries such as Germany, Sweden, the United States, India, Japan, Canada and China. As at 31 December 2014, Huawei had approximately 76,000 R&D specialists, approximately 45% of its total workforce worldwide. To contribute to the sustainable development of society, the economy and the environment, Huawei has created a wide range of green solutions that enable consumers to reduce power consumption, carbon emissions and resource costs.

Huawei has experienced sustainable growth over the years and its revenue increased from RMB239,025 million in 2013 to RMB288,197 million in 2014, representing a year-on-year growth of 20.6%. Huawei also achieved steady profit growth in recent years and its net profit amounted to RMB21,003 million and RMB27,866 million in 2013 and 2014, respectively.

5 Shareholding Structure The following chart sets forth a simplified corporate and shareholding structure of Huawei as at 31 December 2014:

Notes:

(1) Refers to the shareholding in Huawei held by Mr. Ren Zhengfei as an individual shareholder.

(2) Entities shaded in grey refer to the principal subsidiaries of Huawei.

Competitive Strengths Huawei believes that its continuous business success is largely attributable to the following unique competitive strengths:

• a global leading innovator with world-class R&D capabilities and cutting-edge technologies;

• a leading ICT solutions provider with global scale and leadership in multiple product segments;

• strong brand awareness with diversified and high-quality customer and supplier base;

• experienced and stable management team and highly motivated staff leading to continuous operational efficiency improvement;

• global resources with local focus to rationalise cost structure and to successfully penetrate into both emerging and developed economies around the world; and

• robust credit profile and strong liquidity position supported by prudent risk management.

6 Strategies Huawei is committed to strengthening its market position as the leading global ICT infrastructure supplier and solutions provider through the following strategies:

• focus on ‘‘Pipe Strategy’’ and manage business portfolio with effective growth;

• extend technological leadership through demand-driven innovations sustained by effective processes and management systems;

• continue to enhance operational efficiency through management improvement;

• implement ‘‘Glocalised’’ operations to fully combine the advantages of its global value chain with local innovation capabilities;

• building strategic alliances, cooperating with industry players and joining standards and open source organisations to establish mutually beneficial collaboration and achieve sustainable industry development

• maintain a prudent and strong risk management policy;

• maintain a strong focus on corporate governance;

• place cyber security and user privacy protection above Huawei’sbusinessinterests;and

• continue to attract, incentivise and retain employees.

7 THE ISSUE

The following contains summary information about the Bonds and is qualified in its entirety by the remainder of this Offering Circular. Some of the terms described below are subject to important limitations and exceptions. Words and expressions defined in ‘‘Conditions of the Bonds’’ and ‘‘Summary of Provisions relating to the Bonds in Global Form’’ shall have the same meanings in this summary. For a more complete description of the terms of the Bonds, see ‘‘Conditions of the Bonds’’.

Issuer Proven Honour Capital Limited

Guarantor Huawei Investment & Holding Co., Ltd.

Principal amount of US$1,000,000,000 aggregate principal amount of 4.125 per cent. the Bonds guaranteed bonds due 2025.

Issue Price 99.006 per cent. of the principal amount.

Form and Denomination The Bonds will be issued in registered form in denominations of US$200,000 and integral multiples of US$1,000 in excess thereof.

Interest The Bonds will bear interest at a rate of 4.125 per cent. per annum.

Interest Payment Dates The Bonds will bear interest on their outstanding principal amount from and including 19 May 2015, payable semi-annually in arrear in equal instalmentson19Mayand19Novemberineachyear,commencingon19 November 2015.

Issue Date 19 May 2015.

Maturity Date 19 May 2025.

Status of the Bonds The Bonds are direct, unconditional, unsubordinated and (subject to the provisions of Condition 5 of the Conditions of the Bonds) unsecured obligations of the Issuer and (subject as stated above) rank and will rank pari passu, without any preference among themselves, with all other outstanding unsecured and unsubordinated obligations of the Issuer, present and future, but, in the event of insolvency, only to the extent permitted by applicable laws relating to creditors’ rights.

The Guarantee The Guarantor will in the trust deed to be dated 19 May 2015 to be entered into between the Issuer, the Guarantor and the Trustee (the ‘‘Trust Deed’’) unconditionally and irrevocably guarantee the payment of the principal, premium and interest in respect of the Bonds and all other moneys expressed to be payable by the Issuer under the Bonds and the Trust Deed. The Guarantee constitutes direct, unconditional, unsubordinated and (subject to the provisions of Condition 5 of the Conditions of the Bonds) unsecured obligations of the Guarantor and (subject as stated above) rank and will rank pari passu with all other outstanding unsecured and unsubordinated obligations of the Guarantor, present and future, but, in the event of insolvency, only to the extent permitted by applicable laws relating to creditors’ rights.

See ‘‘Conditions of the Bonds – Guarantee’’.

8 Negative Pledge The Bonds will contain certain negative pledge provisions as further described in ‘‘Conditions of the Bonds – Covenants – Negative Pledge’’.

Events of Default Upon the occurrence of certain events described under ‘‘Conditions of the Bonds – Events of Default’’, the Trustee at its discretion may, and if so requested in writing by holders of at least one-quarter in principal amount of the Bonds then outstanding or if so directed by an Extraordinary Resolution of the Bondholders shall (subject in each case to the Trustee having been indemnified and/or secured and/or pre-funded to its satisfaction) give notice to the Issuer and the Guarantor that the Bonds are, and they shall accordingly forthwith become, immediately due and repayable at their principal amount, together with accrued interest.

Taxation All payments in respect of the Bonds by or on behalf of the Issuer or the Guarantor shall be made free and clear of, and without withholding or deduction for, or on account of, any present or future taxes, duties, assessments or governmental charges of whatever nature (‘‘Taxes’’) imposed or levied by or on behalf of the British Virgin Islands or the PRC or any political subdivision or any authority therein or thereof having power to tax, unless the withholding or deduction of such Taxes is required by law. In that event, the Issuer or (as the case may be) the Guarantor shall pay such additional amounts as may be necessary in order that the net amounts received by the Bondholders after the withholding or deduction shall equal the respective amounts which would have been receivable in respect of the Bonds in the absence of the withholding or deduction, subject to certain exceptions. As at the date of this Offering Circular, payments of premium (if any) and interest on the Bonds by the Guarantor under the Guarantee are subject to a withholding tax at a rate up to 10 per cent. in the PRC, in respect of which the Guarantor will pay additional amounts so that after deducting or withholding such taxes, Bondholders will receive the amounts of premium (if any) and interest which would otherwise have been receivable in the absence of such deduction or withholding. The Guarantor will account directly to the PRC authorities with respect to such taxes.

See ‘‘Conditions of the Bonds – Taxation’’.

Redemption for Taxation The Bonds may be redeemed at the option of the Issuer in whole, but not Reasons some only, at their principal amount and premium (if any) together with accrued interest, in the event that the Issuer or the Guarantor would be required to pay additional amounts as provided or referred to in Condition 8.2 of the Conditions of the Bonds in respect of the Bonds as a result of any change in, or amendment to, the laws or regulations of the British Virgin Islands or the PRC or any political subdivision or any authority therein or thereof having power to tax, or any change in, or amendment to, the application or official interpretation thereof, which change or amendment becomes effective on or after 12 May 2015. For the avoidance of doubt, the additional amounts provided or referred to in Condition 9 of the Conditions of the Bonds which are to be paid as a result of withholding or deduction in respect of PRC enterprise income tax at a rate of up to 10 per cent. in respect of payments of premium (if any) and interest on the Bonds by the Guarantor under the Guarantee shall not constitute additional amounts for the purposes of Condition 8.2 of the Conditions of the Bonds.

9 See ‘‘Conditions of the Bonds – Redemption and Purchase – Redemption for Taxation Reasons’’.

Redemption upon Following the occurrence of a Relevant Event, the holder of each Bond Relevant Event will have the right, at such holder’s option, to require the Issuer to redeem all, or some only, of its Bonds on the Put Settlement Date at (i) 101 per cent. of their principal amount (in the case of a redemption for a Change of Control) or (ii) 100 per cent. of their principal amount (in the case of a redemption for a No Registration Event), together in each case with accrued interest to the Put Settlement Date. See ‘‘Conditions of the Bonds – Redemption and Purchase – Redemption upon Relevant Event’’.

Redemption at the option The Bonds may be redeemed at the option of the Issuer in whole or in of the Issuer part at any time at a price equal to their Make Whole Amount together with interest accrued but unpaid to the date fixed for redemption, on the Issuer giving not less than 30 nor more than 60 days’ notice to the Bondholders. See ‘‘Conditions of the Bonds – Redemption and Purchase – Redemption at the option of the Issuer’’.

Further Issues The Issuer is at liberty from time to time without the consent of the Bondholders to create and issue further notes or bonds (whether in bearer or registered form) either (a) ranking pari passu in all respects (or in all respects save for the first payment of interest thereon) and so that the same shall be consolidated and form a single series with the outstanding bonds or securities of any series (including the Bonds) constituted by the Trust Deed or any supplemental deed or (b) upon such terms as to ranking, interest, conversion, redemption and otherwise as the Issuer may determine at the time of the issue. Any further bonds or securities which are to form a single series with the outstanding bonds or securities of any series (including the Bonds) constituted by the Trust Deed or any supplemental deed shall, and any other further bonds or securities may (with the consent of the Trustee), be constituted by a deed supplemental to the Trust Deed. The Trust Deed contains provisions for convening a single meeting of the Bondholders and the holders of bonds or securities of other series in certain circumstances where the Trustee so decides. See ‘‘Conditions of the Bonds – Further Issues’’.

Clearing Systems The Bonds will be represented by the beneficial interests in a Global Certificate in registered form which will be registered in the name of a nominee of, and shall be deposited on or about the Issue Date with, a common depositary for Euroclear and Clearstream, Luxembourg. Beneficial interests in the Global Certificate will be shown on and transfers thereof will be effected only through records maintained by Euroclear and Clearstream, Luxembourg. Except as described in the Global Certificate, individual certificates for Bonds will not be issued in exchange for interests in the Global Certificate.

Clearance and Settlement The Bonds have been accepted for clearance by Euroclear and Clearstream, Luxembourg under the following codes:

ISIN: XS1233275194 Common Code: 123327519

Governing Law English law.

10 Trustee DB Trustees (Hong Kong) Limited

Registrar Deutsche Bank Luxembourg S.A.

Principal Paying Agent Deutsche Bank AG, Hong Kong Branch and Transfer Agent

Rating The Bonds have not been and will not be rated.

Listing Application will be made to the Hong Kong Stock Exchange for the listing of, and permission to deal in, the Bonds on the Hong Kong Stock Exchange by way of debt issues to professional investors (as defined in the Securities and Futures Ordinance (Cap. 571) of Hong Kong) only and such permission is expected to become effective on or about 20 May 2015.

Use of Proceeds The net proceeds of the issue of the Bonds will be used for general corporate purposes. See ‘‘Use of Proceeds’’.

Selling Restrictions The Bonds will not be registered under the Securities Act and are being offered only outside the United States in reliance on Regulation S of the Securities Act. There are restrictions on the offer and sale of the Bonds in certain jurisdictions including the United States, the United Kingdom, Singapore, Hong Kong, the PRC and the British Virgin Islands, and to persons connected therewith. See ‘‘Subscription and Sale’’.

11 SELECTED FINANCIAL INFORMATION

The following tables set forth the selected financial information of Huawei as at and for the years ended 31 December 2013 and 2014. The selected financial information as at and for the years ended 31 December 2013 and 2014 set forth below has been derived from Huawei’s 2014 Financial Statements. The selected financial information should be read in conjunction with, and is qualified in its entirety by reference to, Huawei’s relevant consolidated financial statements, including the notes thereto, included elsewhere in this Offering Circular. Huawei’s consolidated financial statements are prepared and presented in accordance with IFRS.

Certain comparative amounts with respect to the year ended 31 December 2013 included in Huawei’s 2014 Financial Statements have been restated. In 2014, the management of Huawei had determined that certain operating support activities in Huawei’s selling organisation, previously recorded as selling expenses, would be more appropriately presented as administrative expenses, and that the product management activities for product divisions, previously presented as selling expenses, should be changed to research and development expenses to more accurately reflect their function. The management of Huawei also further determined that certain cash received from customers would be more appropriately presented as advances received within other payables, rather than being offset against the receivables due from the same customers. Huawei’s senior management also adjusted the segment reporting solution based on the development of the business. The comparatives as at and for the year ended 31 December 2013 have been restated to comply with the presentation in 2014. These changes in presentation have had no impact on reported operating profit or net assets. For more details, please see note 40 to Huawei’s 2014 Financial Statements included elsewhere in this Offering Circular.

Consolidated Income Statement Data As at 31 December 2013(1) 2014 2014 (restated) (RMB’000) (RMB’000) (US$’000) Revenue...... 239,025,010 288,197,429 46,514,966 Costofsales...... (141,005,320) (160,746,505) (25,944,431) Gross profit...... 98,019,690 127,450,924 20,570,535 Otherincome...... 2,064,542 1,724,398 278,317 Researchanddevelopmentexpenses...... (31,562,698) (40,844,786) (6,592,334) Sellingexpenses...... (24,323,873) (28,750,390) (4,640,303) Administrativeexpenses...... (13,727,766) (18,717,593) (3,021,013) Otherexpenses...... (1,341,457) (6,656,979) (1,074,434) Operating profit before financing costs ...... 29,128,438 34,205,574 5,520,768 Financeincome...... 1,946,010 3,242,624 523,358 Financeexpenses...... (5,888,762) (4,697,974) (758,251) Net finance expenses ...... (3,942,752) (1,455,350) (234,893) Share of associates’ results...... 4,073 332,172 53,612 Share of joint ventures’ results...... (27,990) (28,997) (4,680) Profit before taxation ...... 25,161,769 33,053,399 5,334,807 Incometax...... (4,158,752) (5,186,985) (837,177) Profit for the year ...... 21,003,017 27,866,414 4,497,630 Attributable to: Equity holders of the Company ...... 20,919,275 27,850,733 4,495,099 Non-controlling interests ...... 83,742 15,681 2,531 Profit for the year ...... 21,003,017 27,866,414 4,497,630

12 As at 31 December 2013(1) 2014 2014 (restated) (RMB’000) (RMB’000) (US$’000) Profit for the year ...... 21,003,017 27,866,414 4,496,630

Other comprehensive income for the year (after tax and reclassification adjustments) Items that will not be reclassified subsequently to profit or loss: Remeasurement of defined benefit obligations ...... (618,227) (166,063) (26,803) Items that will or may be reclassified subsequently to profit or loss: Net change in the fair value of available-for-sale securities ...... 164,957 (200,040) (32,286) Exchange differences on translation of financial statements of foreignoperations...... 229,573 173,658 28,028 394,530 (26,382) (4,258) Other comprehensive income for the year ...... (223,697) (192,445) (31,061) Total comprehensive income for the year...... 20,779,320 27,673,969 4,466,569 Attributable to: Equity holders of the Company ...... 20,693,494 27,663,609 4,464,897 Non-controlling interests ...... 85,826 10,360 1,672 Total comprehensive income for the year...... 20,779,320 27,673,969 4,466,569

Consolidated Statement of Financial Position As at 31 December 2013(1) 2014 2014 (restated) (RMB’000) (RMB’000) (US$’000) Assets Goodwill...... 3,342,717 307,325 49,602 Intangibleassets...... 2,410,305 2,290,415 369,672 Property,plantandequipment...... 22,209,029 27,247,616 4,397,756 Long-termleaseholdprepayments...... 2,761,112 3,349,232 540,565 Interestinassociates...... 269,736 548,401 88,512 Interestinjointventures...... 210,869 107,249 17,310 Otherinvestments...... 583,874 540,090 87,170 Deferredtaxassets...... 11,576,567 14,916,223 2,407,473 Tradereceivables...... 335,603 445,969 71,979 Othernon-currentassets...... 987,821 2,915,673 470,589 Non-current assets ...... 44,687,633 52,668,193 8,500,628 Inventories...... 24,928,931 46,575,920 7,517,338 Trade and bills receivable...... 78,005,307 79,579,628 12,844,125 Othercurrentassets...... 14,525,125 24,912,638 4,020,891 Short-terminvestments...... 8,544,966 27,988,664 4,517,361 Cashandcashequivalents...... 73,398,640 78,047,655 12,596,865 Assetsheldforsale...... ––– Current assets ...... 199,402,969 257,104,505 41,496,580 Total assets ...... 244,090,602 309,772,698 49,997,208 Equity Paid-incapital...... 12,088,632 12,813,950 2,068,167 Capitalsurplus...... 38,550,545 41,930,527 6,767,573 Reserves...... 15,676,022 18,720,029 3,021,406 Retainedearnings...... 19,891,507 26,475,000 4,273,056 Equity attributable to equity holders of the Company...... 86,206,706 99,939,506 16,130,202 Non-controllinginterests...... 59,410 45,571 7,355 Total equity...... 86,266,116 99,985,077 16,137,557

13 As at 31 December 2013(1) 2014 2014 (restated) (RMB’000) (RMB’000) (US$’000) Liabilities Interest-bearingloansandborrowings...... 19,989,460 17,576,885 2,836,903 Long-termemployeebenefits...... 9,608,257 9,731,333 1,570,634 Deferred government grants ...... 2,746,397 2,656,019 428,681 Deferredtaxliabilities...... 475,744 320,488 51,727 Provisions...... 781,688 964,028 155,594 Non-current liabilities ...... 33,601,546 31,248,753 5,043,539 Interest-bearingloansandborrowings...... 3,043,280 10,529,847 1,699,514 Incometaxpayable...... 4,034,410 5,947,493 959,923 Trade and bills payable ...... 31,980,480 45,898,550 7,408,010 Otherpayables...... 80,447,144 108,818,033 17,563,193 Provisions...... 4,717,626 7,344,945 1,185,472 Current liabilities...... 124,222,940 178,538,868 28,816,112 Total liabilities...... 157,824,486 209,787,621 33,859,651 Total equity and liabilities ...... 244,090,602 309,772,698 49,997,208

Note:

(1) Huawei’s consolidated financial statements as at and for the year ended 31 December 2012, which are included elsewhere in this Offering Circular, have not been restated to reflect the abovementioned reclassifications, restatements or amendments. Therefore the consolidated financial information as at and for the year ended 31 December 2012 are not directly comparable to Huawei’s consolidated financial information as at and for the years ended 31 December 2013 and 2014 contained in Huawei’s 2014 Financial Statements contained herein. For more details, please see the section entitled ‘‘Risk Factors – Risks relating to Huawei’s Business and Industry – Huawei’s financial information as at and for the year ended 31 December 2012 has not been restated and may not be comparable to Huawei’s financial information as at and for the years ended 31 December 2013 and 2014 contained in Huawei’s 2014 Financial Statements.’’ Potential investors must exercise caution when using such financial information as at and for the year ended 31 December 2012 to evaluate Huawei’s financial condition and results of operations.

Other Financial and Operating Data 2013 2014 2014 (restated) (RMB in (RMB in (US$ in millions) millions) millions) EBITDA(1) ...... 35,380 42,611 6,877 Total debt/EBITDA(2) ...... 0.7x 0.7x 0.7x EBITDA/Interest expenses(3) ...... 19.9x 20.2x 20.2x Free cash flow/Total debt(4) ...... 125.3% 124.8% 124.8% Total debt/Total capitalisation(5) ...... 21.1% 21.9% 21.9% Cash and cash equivalent/Total debt...... 318.7% 277.7% 277.7% EBITDA margin(6) ...... 14.8% 14.8% 14.8%

Notes:

(1) EBITDA equals to the sum of operating profit before financing costs, depreciation and amortisation and impairment losses.

2013 2014 2014 (restated (RMB in (RMB in (US$ in EBITDA millions) millions) millions) Operatingprofitbeforefinancingcosts...... 29,128 34,205 5,521 Depreciationandamortisation...... 4,281 4,574 738 Impairmentlosses...... 1,971 3,832 618 EBITDA ...... 35,380 42,611 6,877

(2) Total debt equals to the sum of interest bearing loans and borrowings (non current portion) and interest bearing loans and borrowings (current portion).

14 (3) Interest expenses equals to the sum of interest expense and bank charges.

(4) Free cash flow equals EBITDA minus acquisition of property plant and equipment, acquisition of intangible assets and long term leasehold prepayments, acquisition of subsidiaries and investment in an associate.

(5) Total capitalisation equals to the sum of total debt and total equity.

(6) EBITDA margin equals EBITDA divided by revenue.

15 RISK FACTORS

Prior to making any investment decision, investors should consider carefully all of the information in this Offering Circular, including the risks and uncertainties described below. The business, financial condition or results of operations of Huawei could be materially adversely affected by any of these risks. The Issuer and the Guarantor believe that the following factors may affect the ability of the Issuer and the Guarantor to fulfil their obligations under the Bonds and the Guarantee, respectively. All of these factors are contingencies which may or may not occur and neither the Issuer nor the Guarantor is in a position to express a view on the likelihood of any such contingency occurring. Factors which the Issuer or the Guarantor believes may be material for the purpose of assessing the market risks associated with the Bonds and the Guarantee are also described below.

The Issuer and the Guarantor believe that the factors described below represent the principal risks inherent in investing in the Bonds, but the inability of the Issuer or the Guarantor to pay principal, interest (if any), premium or other amounts or fulfil other obligations on or in connection with the Bonds may occur for other reasons and neither the Issuer nor the Guarantor represents that the statements below regarding the risks of holding the Bonds are exhaustive.

RisksrelatingtoHuawei’sBusinessandIndustry Demand for Huawei’s products and services is sensitive to global economic conditions. Challenging economic conditions worldwide have from time to time contributed, and may continue to contribute, to slowdown in the communications and networking industries at large. Adverse economic conditions could cause telecommunications carriers, which Huawei’s carrier segment is dependent on, to postpone investments or initiate other cost-cutting initiatives to improve their financial position. This could result in significantly reduced expenditures for network infrastructure and services, in which case Huawei’s operating results would suffer.

Huawei’s fast-growing enterprise and consumer market segments are also sensitive to worldwide economic conditions and are dependent significantly on demand from retail and commercial customers as well as the performance of distributors and retailers that sell Huawei’s products. Macroeconomic factors that influence consumer confidence and spending behaviour include the level of inflation and unemployment, fluctuations in energy prices and conditions in the real estate markets. An actual or anticipated deterioration of economic conditions in any of Huawei’s major markets may depress consumer confidence and spending, resulting in a decline in consumption that would have a negative impact on demand for Huawei’s products and the prices at which they can be sold.

The potential adverse effects of an economic downturn on Huawei include:

• reduced demand for its products and services, resulting in increased price competition or deferrals of purchases, with costs reduction not being sufficient to compensate its reduced revenue fully;

• risks of excess and obsolete inventories and excess manufacturing capacity;

• risks of financial difficulties or failure among Huawei’s suppliers, commercial customers and other business partners of Huawei. These entities may also experience deterioration in their businesses during global economic downturns due to reduced end-user demand, cash flow shortages and difficulty in obtaining financing. This could have a number of adverse effects on Huawei’s business, including the insolvency or financial instability of Huawei’s suppliers or commercial customers that could impact their ability to fulfil their contractual obligations to provide Huawei with components or to purchase Huawei’s products;

• risks of a significant deterioration in the global financial markets making it more difficult for customers to obtain credit to finance purchases of Huawei’s products, which could result in further pressure on Huawei’sprofitmargins;

16 • increased demand for customer finance, difficulties in collection of accounts receivable and increased risk of counterparty failure; and

• increased difficulties in forecasting sales and financial results as well as increased volatility in Huawei’s reported results.

The global macroeconomic environment and recovery from the downturn has been challenging and unstable. Volatility in the global credit markets (such as the Eurozone debt crisis), the impact of uncertainty regarding the United States federal budget, the volatility in the geopolitical environment in many parts of the world and other disruptions may continue to put pressure on global economic conditions. If economic conditions in Huawei’s key markets remain uncertain or deteriorate further, Huawei may experience a material impact on its business, operating results and financial condition.

Huawei operates in a competitive industry and its failure to successfully compete would adversely affect its market position and business. The markets for Huawei’s products and services are highly competitive and Huawei faces intense global competition. Huawei competes in the networking, communications equipment and mobile communications markets, providing products and services for transporting data, voice, and video traffic across intranets, extranets, and the Internet. These markets are characterised by rapid changes, converging technologies, erosion of average selling prices, frequent product enhancements and relatively short product lifecycles. These factors represent both an opportunity and a competitive threat to Huawei. Due to the fact that Huawei operates through several business segments in different industries with many product and service categories, it faces a broad range of existing and new competitors ranging from large multinational companies to highly specialised entities that focus on a limited number of business lines. Also, the identity and composition of competitors may change as Huawei enters into new markets or businesses. As Huawei continues to expand globally, it may experience new competition in different geographic regions.

The principal competitive factors in the markets in which Huawei presently competes and may compete in the future include:

• the ability to lead through critical technological cycles with new products, including products with technical and price-performance advantages;

• technology leadership;

• market share and business scale;

• long-term relationships with, and deep knowledge of, its customers;

• participation and influence in setting industry standards;

• end-to-end solution capabilities that meet telecommunications carriers’ comprehensive technical, financial and other requirements;

• breadth and depth of products and services;

• effective end-to-end cost management, including research and development, production, service delivery, procurement, functional and operational support; and

• brand name.

Huawei faces competition from a growing number of participants in different user segments, price points and geographical markets. Some of these competitors may have greater resources in certain business segments or geographic markets than Huawei does. This may make it more difficult for Huawei to

17 compete successfully with differentiated offerings across the whole market against more specialised competitors. It may also limit Huawei’s ability to leverage effectively its scale and other traditional strengths, such as its brand, research and development and intellectual property, manufacturing and logistics, distribution, and strategic sourcing, to achieve significant advantages compared to its competitors. Huawei’s competitors may implement new technologies before it does, offer more attractively priced or enhanced products, services or solutions, or they may offer other incentives that Huawei does not provide. Rapid technological change also results in shorter lifecycles for products, increasing risks in all product investments. Constant price erosion is a symptom of this rapid technological change and Huawei must counteract this by introducing new products to the market and by continuously enhancing functionality while reducing the cost of new and existing products.

Huawei’s success depends on its ability to develop new products in a timely and cost-effective manner that addresses rapidly evolving customer preferences and advancements in technology. The markets for Huawei’s products and services, especially consumer electronics products and mobile communications devices, are characterised by rapidly changing technology, evolving industry standards, new products and solutions, the introduction of evolving methods of building and operating networks and continuous improvements in performance characteristics and product features, which result in short product cycles, frequent introduction of new products and price erosion of existing products. Advances in technology typically lead to rapid declines in sales volumes for products made with older technologies and lead to certain products becoming less competitive in the marketplace, or even obsolete. A short product cycle could also intensify market competition and reduce customer retention. There can be no assurance that Huawei will not incur substantial charges in the future as a result of product obsolescence. Accordingly, Huawei’s success depends greatly on its ability to anticipate and respond to emerging customer preferences and demands by ensuring continuing and timely development of new products, as well as enhancements to existing products and services. In particular, sales of new consumer products, including smartphone and tablet devices, have accounted for an increasing portion of Huawei’s total revenue and operating income in recent years. Huawei must continue to bring to market mobile phones that feature differentiated hardware, localised services and applications as well as competitive pricing in order to continue to attract new and existing users.

Huawei may not be able to ensure its competitiveness in the market as a result of a variety of factors, including failure to anticipate consumer trends and needs; insufficient executioninHuawei’s research and product development processes; or an inability to secure necessary components or software assets from suppliers in sufficient quantities on a timely basis. Failure of or delays in understanding or anticipating market trends or delays in innovation, product development and execution may also result in a suboptimal portfolio of products and services, gaps in certain price points or an uncompetitive offering. This in turn may lead to a negative effect on Huawei’s market share, net sales and profitability, but may also erode its brand by disappointing customers in the carrier, enterprise and consumer market segments. If Huawei fails in launching new products and services, has insufficient breadth of available applications or content, provides inadequate or unsuccessful updates to such new products and services or there are other defects or quality issues with its telecommunications devices, this may cause customer retention and engagement with Huawei’s products to deteriorate.

In addition, Huawei has made, and will continue to make, significant investments in research and development of new technologies, products and services. The research and development of new technologies and products is a complex process that requires high levels of innovation and expenditures as well as the accurate anticipation of market trends and customer preferences. Huawei’s total research and development expenses were RMB31,563 million in 2013 and RMB40,845 million in 2014. There can be no assurance that Huawei will succeed in focusing its research and development efforts on technologies that eventually become widely accepted, or on products that are timely released or commercially viable. In addition, there can be no assurance that Huawei will be able to keep pace with technological changes in the marketplace and continue to develop new technologies and products in a timely and cost-effective manner.

18 Huawei’s carrier business depends on a limited number of telecommunications carriers. Huawei derives most of its revenue from long-term framework agreements with a limited number of telecommunications carriers. A loss of or a reduced role with any key customer could have a significant adverse impact on revenue, profit and market share for an extended period.

The business operations of these telecommunications carriers and their capital expenditure used to purchase these products and related services have a direct impact on Huawei’s sales revenue. The level of activities in the telecommunications industry fluctuates and such fluctuation has a distinct feature of regionality. Huawei intends to continue to focus on the international market to mitigate the negative impact on the domestic telecommunications industry caused by any industry fluctuation. In addition, telecommunications carriers may adjust their purchase focus on products and solutions according to technology evolution and market demands due to the rapidly changing technology, evolving industry standards, changing regulatory requirements in different jurisdictions and new product introductions, which may also influence Huawei’s sales and in turn have an adverse material effect on Huawei’s business, financial condition and results of operations.

In recent years, telecommunications carriers have undergone significant consolidation, resulting in an increased number of carriers with activities in several countries. This trend is expected to continue, and intra-country consolidation is also likely to accelerate as a result of competitive pressure. A market with fewer and larger operators will increase Huawei’s reliance on key customers and may negatively impact Huawei’s bargaining position and profit margins. Moreover, if the combined companies operate in the same geographic market, networks may be shared and less network equipment and associated services will be required. Customer consolidation may also result in a delay in network investments pending negotiations of, for example, merger and acquisition agreements, securing necessary approvals, or integration of their businesses. Recently, telecommunications carriers have started to share parts of their network infrastructure through cooperation agreements rather than legal consolidations, which may adversely affect demand for network equipment.

In addition, long-term framework agreements that Huawei entered into with telecommunications carriers are typically awarded on a competitive bidding basis. In some cases, such agreements also include commitments to future price reductions. In order to maintain Huawei’s gross margin in the face of such price reductions, Huawei continuously strives to reduce the costs of its products through design improvements, negotiation of better purchase prices, allocation of more production to low-cost countries and increasing production efficiency. However, there can be no assurance that the action to reduce costs will be sufficient to maintain the gross margin of Huawei under its long-term framework agreements.

The telecommunications industry is subject to extensive government regulation which is still evolving. Telecommunications is an industry subject to specific regulation in most jurisdictions. Regulatory changes affect both Huawei’scustomers’ and its own operations. In certain countries where Huawei operates, the authorities have broad discretion and authority to regulate all aspects of the telecommunications and information technology industries, including arranging the setting of network equipment specifications and standards, approving equipment for access to telecommunications networks, supervising the tender process for telecommunications infrastructure projects and formulating policies and regulations related to the telecommunications industry. In addition, the telecommunications regulatory framework in certain countries is still in the process of being developed. Changes in regulatory requirements, tariffs and other trade barriers, price or exchange controls or other governmental policies in the countries where Huawei operates could also limit its operations, affect Huawei’s opportunities to work with specific telecommunications carriers and make the repatriation of profits difficult.

Huawei may also be exposed to difficulties and costs relating to compliance with the different commercial and legal requirements of the overseas markets, such as licensing and certification requirements, import regulatory procedures, taxes and other restrictions and expenses. Due to different requirements under different local regulatory systems, Huawei may encounter potential service

19 interruptions of its services due to national security laws or policies in the international markets in which Huawei operates. Although Huawei seeks to comply with all such regulations in the jurisdictions where it operates, even unintentional violations could have a material adverse effect on its business, operational results and brand.

Huawei is subject to claims of infringement of intellectual property rights by third parties, which if determined adversely to Huawei, could cause Huawei to lose significant rights, pay significant damages or suspend the sale of certain products. Huawei’s wide range of products and services includes increasingly complex technologies, some of which have been developed by Huawei or licensed to Huawei by third parties. Huawei is dependent on such technologies. As the amount and complexity of such proprietary technologies and the number of parties claiming intellectual property rights continue to increase, technology-driven companies, including Huawei and many of its competitors, are frequently involved in litigation based on allegations of patent infringement or other violations of intellectual property rights. In addition, patent holding entities may seek to monetise patents they have purchased or otherwise obtained. As a result, Huawei faces the risk of litigation and regulatory proceedings relating to infringement of intellectual property rights in various countries in which it operates. Given the existence of a large number of patents and intellectual property rights in telecommunication, networking, semi-conductor and consumer electronic fields, the confidentiality of some pending patents and the rapid issuance of new patents, it is not economically practicable or even possible for Huawei to determine in advance whether a product or any of its components infringes or will infringe the patent rights of others.

In addition, many key aspects of telecommunications and data network technology are governed by industry-wide standards usable by all market participants. Since all technology standards, including those Huawei uses and relies on, contain certain intellectual property rights, Huawei cannot fully avoid the risks of a claim for infringement of such rights due to its reliance on such standards. Not all intellectual property owners agree on the principle that such intellectual property rights declared or found to be essential to a given standard carry with them an obligation to be licensed on fair, reasonable and non-discriminatory terms and thus costly and time-consuming litigation over such issues has occurred and may continue to appear in the future. Huawei is currently subject to various patent litigations that have not been fully resolved and additional claims may arise in the future. See ‘‘Description of the Group’’. Regardless of the scope or validity of disputed patents or the merits of any infringement claims by potential or actual litigants, Huawei may have to engage in protracted litigation. The defence and prosecution of intellectual property suits, patent proceedings and related legal and administrative proceedings can be both costly and time-consuming and may significantly divert the efforts and resources of Huawei’s technical and management personnel. An adverse determination in any such litigation or proceedings could subject Huawei to pay substantial damages to third parties, require Huawei to seek licences from third parties and pay ongoing royalties, or redesign certain products, or even subject Huawei to injunctions prohibiting the manufacture and sale of its products or the use of technologies in certain jurisdictions. Protracted litigation could also discourage Huawei’s industrial customers from purchasing its component products until resolution of such litigation. The occurrence of any of the foregoing could have a material adverse effect on Huawei’s reputation, business, results of operations and financial condition.

The occurrence or perception of a breach of Huawei’s security measures resulting in inappropriate disclosure or leakage of personally identifiable and other confidential information and data handled by Huawei or its products could harm Huawei’s reputation and its business. As part of Huawei’s business, personally identifiable and other confidential information and data from end-users may be collected, stored and transmitted by or through Huawei’s products and services, such as its smartphones, software applications and online streaming services. Operating systems, software and applications that Huawei procures from third parties may contain defects in design or manufacture, including ‘‘bugs’’ and other problems that could unexpectedly interfere with the operation of the system or present previously unidentified security risks. Although Huawei endeavours to develop products that

20 adhere to strict security standards and devotes significant resources to network security, data encryption and other security measures, Huawei and its products may be subject to hacking, viruses, worms and other malicious software, unauthorised modifications or illegal activities that cause potential security risks. In addition, governmental authorities may use Huawei’s products and services to access the personal data of individuals without Huawei’s involvement or knowledge. In the event that its security measures are breached, Huawei may be unable to protect sensitive data, resulting in an unauthorised release or leakage of confidential information, potentially exposing Huawei to litigation or regulatory action that could result in significant liability or other sanctions. Even if Huawei is not held liable, a security breach or inappropriate disclosure of confidential information could harm Huawei’s reputation and negatively impact the sale of Huawei’s products, which could have an adverse effect on Huawei’s business, results of operations and financial condition.

The costs to Huawei to eliminate or address the foregoing security risks are likely to increase as it expands its enterprise and consumer businesses. Huawei’s remedial efforts may not be successful and could result in interruptions, delays, or cessation of service, and loss of existing or potential customers that may impede its sales, manufacturing, distribution, or other critical functions.

Cyber security and privacy-related laws are complex, variable and ever-changing. Such laws may be implemented in different ways or there might be different interpretations of the same laws or related codes, standards and international controls, which add a further layer of complexity and risk to a supplier and a business. Complying with these various laws could cause Huawei to incur substantial costs or require Huawei to change its business practices and could have a material and adverse effect on Huawei’s business, future results of operations and prospects.

Huawei’s competitive position may be undermined if it does not adequately protect its intellectual property rights, and litigation to protect its intellectual property rights may be costly and may not be resolved in its favour. Huawei depends heavily on its intellectual property and proprietary technologies to maintain its competitive position. Huawei owns significant intellectual property, including a large number of patents, trade marks, copyrights and trade secrets and its success depends, to a significant extent, on its ability to obtain and enforce intellectual property rights worldwide. Huawei seeks to protect its intellectual property and proprietary rights primarily through intellectual property laws, relying on a combination of patents, trade secrets, trade marks and copyrights and similar protections, as well as through contractual restrictions in its licensing arrangements. With respect to proprietary know-how that is not patentable, Huawei relies on trade secret protections and confidentiality agreements to safeguard its interests. Although Huawei has been granted numerous patents, and has other patent applications pending currently, there can be no assurance that any rights will be granted or any future patents or other intellectual property rights will be enforceable or sufficiently broad to protect its technology and provide a competitive advantage for Huawei.

Steps taken by Huawei to protect its intellectual property and proprietary information may not be adequate to prevent misappropriation of its technology, as the existence of laws or contracts prohibiting such actions may not always serve as sufficient deterrents, and policing unauthorised use of Huawei’s intellectual property may be expensive and time-consuming. Any patents or other intellectual property rights that are granted to Huawei may be challenged, invalidated or circumvented, and may become subject to dispute which could be resolved against Huawei. If any of Huawei’s key patents are invalidated, or if the scope of the claims in any of these patents is limited by a court decision, it could be prevented from using such patent as a basis for product differentiation or from licensing the invalidated or limited portion of its intellectual property rights, or it could lose part of the leverage it has in terms of its own intellectual property rights portfolio. Reverse engineering, unauthorised copying or other misappropriation of Huawei’s intellectual property and proprietary technologies could enable third parties to benefit from Huawei’s technologies without paying Huawei for doing so, and Huawei may be unable to determine the extent of any unauthorised use of its intellectual property.

21 In order to protect its intellectual property rights and maintain its competitive advantage, Huawei has filed in the past and may continue to initiate legal proceedings against parties that it believes infringe its intellectual property. Such litigation may divert management’sattentionaswellasexpendHuawei’s resources away from the operation of its business. Huawei may also have to bring legal action in foreign jurisdictions and effective patent, copyright and trade secret protection may be unavailable or limited in some foreign countries in which Huawei conducts business. In addition, depending on the jurisdiction, statutory differences in patentable subject matter may limit the protection Huawei can obtain under a patent. Although Huawei is not dependent on any individual patent or group of patents for particular segments of its business, if it is unable to adequately protect its intellectual property rights, Huawei’s competitive position may be undermined, which may have a material adverse effect on Huawei’s business, results of operations and financial condition.

Huawei’s results of operations depend in part on the quality, performance and availability of software provided by third-party business partners. Huawei believes that decisions made by customers to purchase their electronics products, in particular smartphone and tablet devices, depend in part on the quality, performance and availability of third-party software applications and services that run on the products. For example, a significant number of Huawei’s latest smartphone and tablet devices operate on Google’s Android operating system. In addition, Huawei’s other products that may be sold in the future may also rely on, or operate in conjunction with, software developed by third parties. To the extent that the functionality and performance of third-party software that run on Huawei’s products are not competitive with the alternative options offered in the market, consumers may choose not to purchase Huawei’s products, which would adversely affect Huawei’s business, results of operations and financial condition.

The availability of open-source software platforms, such as Google’s Android operating system, could make entry and expansion in certain markets, including the smartphone and tablet device markets, easier for mobile communications and media device manufacturers. Since such software platforms would be available equally to other competitors, product differentiation could become more challenging for Huawei, which in turn could potentially lead to increased commoditisation of such products in the market and increased downward pricing pressures. In addition, in the event that the software companies elect to restrict their open-source software platforms, Huawei may be required to pay software licence fees, spend additional capital on research and development activities or make acquisitions to address its software needs.

Huawei relies on access to third-party technology or intellectual property which may not be available to Huawei on commercially reasonable terms or at all. Many of Huawei’s products, including mobile phones, tablets and network products, are designed to include, or manufactured using, technology licensed from third parties. Huawei has entered into technology licensing agreements with various third parties for the use of intellectual property rights, some of which are integral in manufacturing Huawei’s products, for which Huawei makes periodic licence fee payments. Huawei also has cross-licence agreements with various other third parties that provide those parties with the right to use patents and technologies developed by it, as well as enable Huawei to use patents and other technologies developed by them.

There is no assurance that the necessary licences can be obtained or renewed on acceptable terms or at all. Failure to obtain or renew its technology licensing arrangements on commercially reasonable terms, or at all, could preclude Huawei from selling certain products or otherwise may have a material adverse impact on its business, results of operations and financial condition.

22 If Huawei fails to maintain and enhance its brand recognition, or if it incurs excessive expenses in this effort, Huawei’s business, future results of operations and prospects could be materially and adversely affected. It is critical for Huawei to maintain and develop its brands so as to effectively expand its user base, maintain and increase its business partnerships, and grow its revenue. Well-recognised brands such as the Honor and Ascend series for smartphone models are critical to increasing the number and engagement of Huawei’s users and, in turn, enhancing its attractiveness to advertisers. Since Huawei operates in a highly competitive market, maintaining and enhancing its brands directly affects its ability to maintain its market position. Huawei’s main competitors also have established brands and are continuing to take steps to increase their brand recognition and Huawei must continue to maintain and enhance the recognition and value of its brands in this highly competitive market. In order to attract and retain users, Huawei may need to substantially increase its expenditures for creating and maintaining brand loyalty. As a result, Huawei’s sales and marketing expenses may increase significantly, which may impact its profitability. In addition, the use of words or branding similar to Huawei’s brands by third parties in other industries could dilute the brand recognition for its brands. If Huawei is unable to maintain and enhance its brand recognition, its business, future results of operations and prospects could be materially and adversely affected.

Problems with product quality and defects could result in a loss of customers as well as increased warranty and product liability claims which may adversely affect Huawei’s business. Huawei’s products are becoming increasingly sophisticated and complex due to rapid advancements in technologies and increasing demand from customers for additional functionalities, and defects in their design, manufacture and associated hardware, software and content have occurred and may occur in the future. While Huawei employs strict quality assurance procedures at key manufacturing stages to identify and resolve quality issues, the products may contain undetected defects or otherwise fail to perform as expected, especially when new products using the latest technologies are first introduced to the market. These defects could cause Huawei to incur significant re-engineering costs, divert the attention of engineering personnel from product development efforts or lead to returns of Huawei’s products, which could adversely affect Huawei’s customer relations and business reputation. Due to the high production volumes of many of Huawei’s products, even a single defect in their design, manufacture or associated hardware, software and content may have a material adverse effect on its business. Furthermore, Huawei’s product portfolio is subject to continuous renewal which, particularly during periods of significant portfolio renewals, may increase the risk of quality issues related to its products.

Defects and other quality issues may result from, among other things, failure in Huawei’s own product and service creation and delivery, as well as manufacturing processes; failure of its suppliers to comply with its supplier requirements or failure in products and services created jointly with collaboration partners or other third parties where the development and manufacturing process is not fully in its control. In case of issues affecting a product’s safety, regulatory compliance including but not limited to, privacy or security, Huawei may be subject to damages due to product liability, and defective products, components or service offerings may need to be replaced or recalled. With respect to Huawei’s services, quality issues may relate to the challenges in having the services fully operational at the time they are made available to its customers and consumers and maintaining them on an ongoing basis.

Under Huawei’s general terms and conditions of sale and in accordance with industry practice, Huawei typically provides a limited warranty on its products that is usually limited to repair or replacement of defective items or return of, or a credit with respect to, amounts paid for such items. Under limited circumstances, Huawei also provides more extensive limited warranty coverage. Huawei currently carries limited insurance coverage for product liability claims brought against it. Huawei generally makes provisions for warranty to cover future costs of warranty claims by its customers, based on its historical experience, terms of warranty programmes and best estimates of amounts necessary to settle existing and future warranty claims. However, there can be no assurance that the amounts determined to be payable

23 by Huawei for product warranty claims will not exceed Huawei’s estimated warranty provisions. Widespread product failure that results in liabilities in excess of its insurance coverage and provision estimates could have a material adverse effect on Huawei’s reputation, results of operations and financial condition.

Huawei depends on third-party suppliers for key raw materials, components and manufacturing equipment, and disruption in their supply or significant increase in their prices would negatively affect Huawei’s business. Huawei’s business operations depend on its ability to obtain adequate supplies of suitable quality raw materials and components, as well as a substantial portion of its manufacturing equipment, on a timely basis from external suppliers located in China and abroad. The raw materials and components Huawei uses to manufacture its products include final products, printed circuit board assembly and optic components, as well as servers and accessories.

Huawei manages its inventory of raw materials and components based on rolling forecasts of customer demand and orders raw materials and components in advance of product announcements and shipments based on such forecasts. Shortages of raw materials and components may result in a reduction or suspension of production or an increase in the production costs. Accordingly, Huawei maintains close and long-term relationships with its suppliers in order to ensure a stable supply of raw materials and components. In order to reduce its dependence on any one supplier for key raw materials and components, Huawei maintains a general policy of relying on multiple suppliers for the most essential items and is continuing to expand its supply sources in an effort to improve quality and minimise costs. However, from time to time, Huawei may experience disruption in the supply of raw materials or components that may impair Huawei’s ability to manufacture its products. Although Huawei strives to avoid single-source supplier solutions, in some cases a particular component is available only from one supplier or a limited number of suppliers. In addition, Huawei’s dependence on third-party suppliers has increased in recent years as a result of its strategic decision to outsource most of its manufacturing needs. For example, most of the manufacture of printed circuit board assembly is outsourced to Flextronics and Foxconn. Suppliers may from time to time extend lead times, limit supplies, change their partner preferences, increase prices or be unable to increase supplies to meet increased demand due to capacity constraints or other factors, which could adversely affect Huawei’s ability to deliver its products on a timely basis. If Huawei fails to anticipate customer demand properly, an oversupply or undersupply of components and production capacity could occur. In many cases, some of Huawei’s competitors utilise the same contract manufacturers. When there are capacity constraints, these could limit Huawei’s ability to supply its customers or increase its costs. Huawei also commits to certain capacity levels or component quantities which, if unused, will result in charges for unused capacity or scrapping costs.

There could be significant disruption in the supply of raw materials, components or manufacturing equipment due to various reasons, including work stoppage, strike or other labour-related disruption at Huawei’s key suppliers or disruption in their production resulting from natural disasters. Failure of a key supplier to supply raw materials, components or manufacturing equipment that meet Huawei’s quality, quantity and cost requirements in a timely manner, failure to maintain Huawei’s relationships with key suppliers, or Huawei’s inability to obtain these materials from alternative sources on a timely basis or on commercially reasonable terms could impair Huawei’s ability to manufacture its products or increase its production costs, which could have a material adverse effect on Huawei’s business, results of operations and financial condition.

Huawei’sConsumerBusinessdependsontheperformanceof carriers, distributors and other resellers. Huawei distributes its consumer products through network carriers, retailers and resellers, many of whom distribute products from competing manufacturers. Huawei also sells its products in many of its major markets through its online and retail stores.

24 Carriers providing cellular network services for Huawei’s mobile phones typically subsidise users’ purchases of the device. There is no assurance that such subsidies will be continued at all or in the same amounts upon renewal of Huawei agreements with these carriers or when Huawei enters into agreements with new carriers.

Many distributors and resellers of Huawei’s consumer products have narrow operating margins and have been adversely affected by weak economic conditions in the past. Some distributors and resellers have perceived the expansion of Huawei’s direct sales as conflicting with their business interests as distributors and resellers of Huawei’s products. Such a perception could discourage them from investing resources in the distribution and sale of Huawei’s consumer products or lead them to limit or cease distribution of those products. Huawei has invested and will continue to invest in programmes to enhance reseller sales. These programmes could require a substantial investment while providing no assurance of return or incremental revenue. The financial condition of these resellers could weaken, or these resellers could stop distributing Huawei’s products, or uncertainty regarding demand for Huawei’s products could cause resellers to reduce their ordering and marketing of Huawei’s consumer products.

Huawei is exposed to credit risk on its trade receivables and this risk increases during periods when economic conditions worsen. As at 31 December 2013 and 2014, Huawei’s trade receivables amounted to RMB72,352 million and RMB75,845 million, respectively. A substantial portion of Huawei’s outstanding trade receivables are not covered by collateral or credit insurance. Huawei’s exposure to credit and collection risk on its trade receivables is higher in certain international markets and its ability to mitigate such risks may be limited. A significant portion of Huawei’s trade receivables was concentrated within network carriers and the portion of its trade receivables from distributors and corporate customers has been increasing rapidly during recent years. While Huawei has procedures to monitor and limit exposure to credit risk on its trade receivables, there can be no assurance that such procedures will entirely eliminate its credit risk and avoid losses.

In addition, during the period of recession or economic downturn, Huawei saw an increase in the number of its customers who experienced financial difficulties, especially in many emerging markets where its customers were affected not only by economic conditions, but also by depreciation of local currencies and a lack of credit. Further, for certain international markets, uncertainties in the legal system or an undeveloped legal system for protection of creditors’ rights may increase Huawei’scredit risk, which could result in a lower recovery rate for trade receivables. If customers fail to meet their payment obligations, Huawei may experience reduced cash flows and losses, which could materially adversely affect its results of operations and financial condition.

Huawei’s global operations are subject to various business, economic, political, regulatory and legal risks. Huawei conducts business globally and is subject to the effects of general global economic conditions as well as conditions unique to a specific country or region. Huawei conducts business in over 170 countries and regions, with a significant proportion of sales to markets in Europe, the Middle East, Africa, Asia Pacific, and China. Sales to such markets will represent an increasing portion of total sales, as developing nations and regions around the world increase their investments in telecommunications. Huawei already has extensive operations in many of these countries, which involve certain risks, such as volatility in gross domestic product, civil disturbances, economic and political instability, nationalisation of private assets and the imposition of exchange controls. In addition, the uncertainty of the legal environment in some regions could limit Huawei’s ability to enforce its rights.

Huawei is required to obtain various permits or licences from different regulatory authorities in order to provide services. Failure to comply with the terms and conditions of such permits and licences or any potential changes to regulatory requirements by regulatory authorities in different countries may subject Huawei to monetary penalties or jeopardise its ability to qualify for new permits and licences or to renew required permits and licences upon the expiration of the current terms. There can be no assurance

25 that Huawei will be able to renew such permits, licences or other certificates upon their expiration. If Huawei fails to obtain, renew or maintain any of the required permits or approvals and it continues to conduct such business, Huawei may be subject to various penalties, including fines and restrictions on, or the discontinuation of, its operations. Any such disruption in its business operations could materially and adversely affect the business, results of operations, financial condition and prospects of Huawei.

Huawei’s liquidity and its ability to meet its working capital requirements depend on access to available short-term and long-term capital. If Huawei does not generate sufficient amounts of capital to support its operations, service its debt and continue its research and development and customer finance programmes, or if sufficient amounts of capital cannot be raised at the times and on the terms required by Huawei, its business is likely to be adversely affected. Access to short-term funding may decrease or become more expensive as a result of Huawei’s operational and financial condition and market conditions or due to a deterioration of lenders’ perception of Huawei’s credit quality. To provide liquidity and meet its working capital requirements, Huawei is party to certain credit facilities and has arranged for other committed and uncommitted credit lines. Huawei’s ability to draw upon those resources is dependent upon a variety of factors, including compliance with existing covenants, the absence of any event of default and, with respect to uncommitted credit lines, the lenders’ perception of Huawei’s credit quality. There can be no assurance that Huawei will be able to comply with its existing covenants in the future. Any failure to comply with the covenants under any of its existing credit facilities may constitute a default under its other credit facilities and credit lines. There can be no assurance that Huawei would be able to obtain a waiver from default, to renegotiate its credit facilities, to raise additional financing from existing or new shareholders or to repay or refinance its borrowings on acceptable terms. If a significant number of those sources of liquidity were to be unavailable, or cannot be refinanced when they mature, this could have a material adverse effect on Huawei’s business, results of operations and financial condition.

Enforcement of various types of regulations, sanctions and trade policies as well as changes in such regulations, sanctions and policies in countries around the world could have a material adverse effect on Huawei’s business and results of operations. Huawei conducts substantial operations in various countries around the world. Each regional headquarters manages its regional sales and production subsidiaries as well as coordinates overall business activities in its geographic region. Huawei’s overseas subsidiaries engage in local sales and marketing activities as well as product support. Huawei develops many of its products and solutions based on existing regulations and technical standards, its interpretation of unfinished technical standards or there may be an absence of applicable regulations and standards. As a result, changes in various types of regulations in each of those countries, their application and trade policies applicable to current or new technologies or products may have a material adverse effect on the local business and results of operations, which in turn may adversely affect Huawei’s business and results of operations.

Huawei’s global operations expose Huawei to a number of risks, including:

• fluctuations in foreign currency exchange rates;

• increased costs associated with maintaining the ability to understand the local markets and follow their trends, as well as develop and maintain effective marketing and distribution presence;

• employee misconduct;

• providing efficient customer service and support in markets abroad;

• high costs relating to compliance with the commercial and legal requirements of the overseas markets, including those relating to labour, environment and industry-specific regulations;

• difficulty in obtaining or enforcing intellectual property rights;

26 • strict foreign exchange controls and cash repatriation restrictions;

• unanticipated changes in prevailing economic conditions and regulatory requirements;

• political instability and civil unrest, cultural and religious conflicts, and acts of terrorism;

• difficulties in enforcing agreements and collecting overdue receivables through local legal systems; and

• trade barriers such as export requirements, tariffs and other restrictions and expenses.

Huawei’s overall success as a global business depends, in part, on its ability to succeed in managing such risks. The likelihood of the risks being realised and their potential impact on Huawei or its business partners vary from country to country and are difficult to predict with any degree of accuracy. Huawei may not be able to develop and implement policies and strategies that will be effective in each country where it conducts business, and there can be no assurance that Huawei’s exposure to such risks, which may become greater as it expands its international operations, will not adversely affect Huawei’s business, results of operations and financial condition in the future.

In addition, Huawei’s business is subject to regulations in each of the countries in which it, the companies with which Huawei works and its customers do business. Export control, tariffs or other fees or levies imposed on Huawei’s products and environmental, product safety and security and other regulations in each of those countries that may have an adverse effect on the export, import, pricing or costs of Huawei’s products could also have a material adverse effect on its sales and results of operations, which in turn may adversely affect Huawei’s business and results of operations. Any new or increased levies and duties could result in costs which lead to higher prices for Huawei’s products, which may in turn impair their demand. In addition, changes in various types of regulations or their application with respect to taxation or other fees collected by governments or governmental agencies may result in unexpected payments to be made by Huawei. Licence fees, environmental, health and safety, privacy and other regulatory changes, in general, or particular to Huawei’s industry, may increase costs and restrict operations for telecommunications carriers or Huawei.

Huawei also engages in activities in countries that are subject to economic sanctions imposed by certain other countries. Such sanctions vary over time and it is difficult for Huawei to predict the interpretation, implementation or enforcement of governmental policies or sanctions with respect to Huawei’s activities, currently or in the future. There is no assurance that the activities by Huawei in these countries will not result in negative media which may affect investors’ perception of Huawei. Further, Huawei’s business and results of operations may also be materially and adversely affected by regulation and trade policies favouring local industry participants, as well as other measures with potentially protectionist objectives which host governments may take, particularly in response to difficult global economic conditions.

Huawei’s strategic acquisitions, joint ventures, investments or diversification efforts or intra-group reorganisation, amalgamation, consolidation or merger could disrupt its ongoing business and may not produce successful results. Huawei engages in acquisitions, joint ventures and other strategic investments or diversification (intra- group or otherwise) from time to time to acquire new technologies and enhance its competitiveness. Huawei may also, from time to time, undertake reorganisation, amalgamation, consolidation or merger within the Group to streamline its business operations and product offerings. Such endeavours may involve significant risks and uncertainties, including distraction of the management from current operations, incurrence of significant integration expenses, inadequate return on capital investments and other issues not previously anticipated by Huawei.

27 In the case of joint ventures, because results from these activities are largely dependent on industry trends as well as the financial condition and performance of partner companies, weak trends or disappointing performance of such partners may adversely affect the success of these activities. The success of joint ventures or alliances may also be adversely affected by the inability of Huawei and its partners to successfully define their common objectives and address their potential conflicts of interests. If Huawei’s partnering arrangements fail to perform as expected, the ability to work with these partners or develop new products and solutions may be constrained and this may harm Huawei’s competitive position in the market. Additionally, the share of any losses from, or commitments to contribute additional capital to, such partnerships may adversely affect Huawei’s results of operations or its financial position.

Huawei’s margins and profitability may be adversely affected by increasing labour costs in China. Huawei faces continuing pressure to reduce production costs. The production processes of Huawei’s business rely to a large extent on its employees. Historically, labour costs in China have been significantly lower than those in developed countries for technical personnel with comparable skills. However, labour costs in China are increasing. Huawei may be unable to generate sufficient production cost savings from labour costs in the future to offset price reductions. In addition, any reduction in consumer demand for Huawei’s products may result in decreased sales, which in turn could result in its margins and profitability being materially and adversely affected.

Huawei is exposed to foreign exchange currency risk. Huawei operates its business in over 170 countries and regions around the world. Accordingly, Huawei is exposed to foreign exchange risks arising from various currency positions. While a substantial portion of Huawei’s revenue is denominated in US dollars, euro and other foreign currencies, most of its costs, expenses, capital expenditure and dividends are incurred in Renminbi, its functional currency. As a result, any significant appreciation of the Renminbi against the US dollar, euro or other foreign currencies could result in a material adverse effect on Huawei’s profitability and cash flow and may result in foreign exchange losses. However, there is no assurance that the Renminbi will not further appreciate against major foreign currencies. In addition, various government and monetary authorities in different countries and regions may impose (as some have done so in the past) exchange controls that could adversely affect an applicable exchange rate.

An unfavourable outcome of litigation could have a material adverse effect on Huawei’s business, results of operations and financial condition. Huawei is a party to lawsuits in the normal course of its business. Litigation can be expensive, lengthy, and disruptive to normal business operations and divert the attention of Huawei’s management. Moreover, the results of complex legal proceedings are difficult to predict. An unfavourable resolution of a particular lawsuit could have a material adverse effect on Huawei’s business, results of operations and financial condition. Where there are lawsuits among market players, while Huawei may not be directly involved in such lawsuits, an unfavourable resolution of a particular lawsuit could adversely affect other market participants like Huawei, which in turn affects Huawei’s business, results of operations and financial condition.

Huawei records provisions for pending litigation when it determines that an unfavourable outcome is probable and the amount of loss can be reasonably estimated. Due to the inherent uncertainties of litigation, the ultimate outcome or actual cost of settlement may vary materially from estimates. Huawei believes that its provisions for pending litigation are appropriate. The ultimate outcome, however, may differ from the provisions made, which could have a positive or negative impact on Huawei’s results of operations and financial condition.

28 Huawei may not have sufficient insurance coverage. Huawei has obtained insurance to cover certain potential risks and liabilities, such as properties and fixed assets, plant and equipment, inventory and transportation, and third-party liability. However, insurance companies in China offer limited business insurance products. As a result, Huawei may not be able to acquire any insurance for certain types of risks such as business liability or service disruption insurance for its operations in China, and its coverage may not be adequate to compensate for all losses that may occur, particularly with respect to loss of business or operations. Huawei does not maintain business interruption insurance or key-man life insurance, and its product liability insurance may not be sufficient to cover the product liabilities that it is exposed to. This could leave Huawei exposed to potential claims and losses. Any business disruption, litigation, regulatory action, outbreak of epidemic disease or natural disaster could also expose Huawei to substantial costs and diversion of resources. There is no assurance that Huawei’s insurance coverage is sufficient to prevent it from any loss or that it will be able to successfully claim its losses under its current insurance policy on a timely basis, or at all. If Huawei incurred any loss that is not covered by its insurance policies, or the compensated amount is significantly less than its actual loss, its results of operations and financial condition could be materially and adversely affected.

Huawei may be unable to retain, motivate, develop and recruit properly skilled employees, which may hamper its ability to implement its strategies, particularly its strategy to become more customer- centric. Huawei’s business model is premised on having dedicated employees as its foundation. Huawei’s success is dependent on its ability to retain, motivate, develop through constant competence training, and recruit properly skilled employees with a comprehensive understanding of its current and future businesses, technologies, software and products. This is particularly important for achieving the key objective of Huawei’s business, which is to continue to be customer-centric, and the successful implementation of Huawei’s business strategy where it needs highly skilled, innovative and solutions- oriented personnel with strong capabilities. The implementation of Huawei’s business strategy is expected to have a significant impact on its personnel. Competition for highly skilled and innovative personnel in the telecommunications industry remains intense and Huawei’s employees may be targeted aggressively by its competitors, and some employees may be receptive to such offers, leading to the loss of key personnel. Accordingly, Huawei is continuously assessing and adjusting its compensation and benefits policies, and taking other measures to attract, retain and motivate skilled personnel aligned with its mode of working and the culture needed to implement its business strategies successfully. This will require significant time, attention and resources of Huawei’s senior management and others within the organisation and may result in increased costs. However, there is no assurance that Huawei will be successful in attracting and retaining employees with appropriate skills, which may hamper its ability to implement its strategies and materially harm its business and results of operations.

Huawei’s operations rely on the efficient and uninterrupted operation of complex and centralised information technology systems and networks. Huawei’s business operations rely on complex operations and communications networks, which are vulnerable to damage or disturbance from a variety of sources. Regardless of Huawei’s protection measures, essentially all IT systems and communications networks are susceptible to disruption due to failure, vandalism, computer viruses, security breaches, natural disasters, power outages and other events. Huawei also has a concentration of operations on certain sites, for example, for research and development, production, network operation centres, logistic centres and shared services centres, where business interruptions could cause material damage and costs. Transport of goods from suppliers, and to customers, could also be hampered for the reasons stated above. Although Huawei has assessed these risks, implemented controls, performed business continuity planning and selected reputable companies for outsourced services, there can be no assurance that interruptions will not occur and if such interruptions were to occur, Huawei’s financial position and results of operations may be materially and adversely affected. In addition, Huawei does not carry any business interruption insurance, which is not required under PRC law. Accordingly, Huawei would not be covered or compensated by insurance in

29 respect of losses, damages, claims and liabilities arising from or in connection with incidents or third party liability, which losses, damages, claims or liabilities could have a material adverse effect on its business and results of operations.

There may be less publicly available information about Huawei than is available for listed companies. Huawei is not a listed company. There may be less publicly available information about Huawei than is regularly made available by publicly listed companies in Hong Kong and other countries. Corporate governance rules and internal control measures required of a listed company complying with applicable listing rules are not mandatorily applied to Huawei. As such, in making an investment decision, investors must rely upon their own examination of Huawei, the terms of the offering and the financial information in this Offering Circular.

Huawei’s financial information as at and for the year ended 31 December 2012 regarding certain aspects has not been restated and may not be comparable to Huawei’s financial information as at and for the years ended 31 December 2013 and 2014 contained in Huawei’s 2014 Financial Statements. Certain comparative amounts with respect to the year ended 31 December 2013 included in Huawei’s 2014 Financial Statements have been restated. In 2014, the management of Huawei determined that certain operating support activities in Huawei’s selling organisation, previously recorded as selling expenses, would be more appropriately presented as administrative expenses, and that the product management activities for product divisions, previously presented as selling expenses, should be changed to research and development expenses to more accurately reflect their function. The management of Huawei also further determined that certain cash received from customers would be more appropriately presented as advances received within other payables, rather than being offset against the receivables due from the same customers. Huawei’s senior management also adjusted the segment reporting solution based on the development of the business. The comparatives as at and for the year ended 31 December 2013 have been represented to comply with the presentation in 2014. These changes in presentation have had no impact on reported operating profit or net assets. For more details, please seenote40toHuawei’s 2014 Financial Statements included elsewhere in this Offering Circular.

Huawei’s financial information as at and for the year ended 31 December 2012 which is included in this Offering Circular has not been restated to reflect such reclassifications, restatements or amendments. Therefore, the consolidated financial information as at and for the year ended 31 December 2012 are not directly comparable to Huawei’s consolidated financial information as at and for the years ended 31 December2013and2014containedinHuawei’s 2014 Financial Statements contained herein. Potential investors must exercise caution and make their own assessments when using Huawei’s financial information as at and for the year ended 31 December 2012 to evaluate Huawei’s financial condition and results of operations and the perceived risk associated with an investment in the Bonds.

Potential health risks related to electromagnetic fields. The mobile telecommunications industry is subject to claims that mobile handsets and other devices that generate electromagnetic fields expose users to health risks. At present, a substantial number of scientific studies conducted by various independent research bodies have indicated that electromagnetic fields, at levels within the limits prescribed by public health authority safety standards and recommendations, cause no adverse effects to human health. However, any perceived risk or new scientific findings of adverse health effects of mobile communication devices and equipment could adversely affect Huawei through a reduction in sales of its consumer devices or through liability claims.

Although Huawei’s products are designed to comply with all current safety standards and recommendations regarding electromagnetic fields, Huawei cannot guarantee that it will not become the subject of product liability claims or be held liable for such claims or be required to comply with future regulatory changes that may have an adverse effect on its business.

30 RisksrelatingtothePRC Huawei’s business, financial condition and results of operations may be affected by PRC economic, political and social conditions and PRC government policies. A material portion of Huawei’s business, assets and operations is located in the PRC. Accordingly, its financial condition, results of operations and business outlook are, to a significant degree, subject to economic, political, legal and social conditions and developments in the PRC. Many of the production sites of Huawei’s suppliers are also located in the PRC. In the event that the PRC is generally affected by adverse conditions that disrupt production and/or deliveries from any of Huawei’s suppliers, this could adversely affect Huawei’s ability to deliver its products on a timely basis, which may materially adversely affect its business and results of operations.

The PRC economy differs from that of developed countries in many aspects, including government involvement, level of development, growth rate, foreign exchange control and allocation of resources.

Although the PRC’s economy has been transitioning from a planned economy to a more market-oriented economy for more than three decades, a substantial portion of productive assets in China is still owned by the PRC government. The PRC government also exercises significant control over China’seconomic growth by allocating resources, setting monetary policy and providing preferential treatment to particular industries or companies. Although the PRC government has implemented economic reform measures to introduce market forces and establish sound corporate governance in business enterprises, such economic reform measures may be adjusted, modified or applied inconsistently from industry to industry or across different regions of the country. As a result, Huawei may not benefit from certain of such measures.

The PRC has been one of the fastest-growing economies in the world, as measured by GDP growth, in recent years. However, there is no assurance that the PRC economy will continue to grow at such rates. The PRC government has the power to implement macroeconomic control measures to regulate the PRC economy. Emerging from the peak of the global financial crisis, some countries have started to withdraw the stimulus packages previously executed and implement more moderate monetary policies. The PRC withdrew its economic stimulus plan implemented during the financial crisis and returned to its general policy directions. The withdrawal of the economic stimulus plan and other supportive economic policies may cause interest rates to increase which would in turn increase Huawei’s costs of financing and impede some of its investment plans. In addition, the PRC government has implemented stricter controlling measures on the real estate market and resumed reform of the Renminbi exchange rate. As the PRC government continues to regulate the economy by using monetary and fiscal policies, Huawei’s business, financial condition and results of operations could be adversely affected, which in turn may adversely affect the Issuer’s ability to service the Bonds and to satisfy its other obligations under the Bonds, and the ability of Huawei to perform its obligations under the Guarantee.

The PRC legal system may have inherent uncertainties that could limit the legal protections available to or against Huawei. Huawei conducts part of its operations under PRC laws, and Huawei and some of Huawei’ssubsidiaries are organised under PRC laws. The PRC legal system is based on written statutes. Since the late 1970s, the PRC has promulgated laws and regulations dealing with legal relations in respect of such economic matters as foreign investment, corporate organisation and governance, commerce, taxation and trade, with a view towards developing a comprehensive system of commercial law. However, as many of these laws and regulations are relatively new and continue to evolve, these laws and regulations may be subject to different interpretations and inconsistently enforced. In addition, there is only a limited volume of published court decisions, which may be cited for reference but are not binding on subsequent cases and have limited precedential value. These uncertainties relating to the interpretation and implementation of the PRC laws and regulations may adversely affect the legal protections and remedies that are available to Huawei in its operations and to Bondholders.

31 Particularly, any change in the income tax rate in China may have a negative impact on Huawei’s results of operations. The rate of income tax chargeable on the subsidiaries of Huawei in China may vary depending on the availability of preferential tax treatment. The PRC Enterprise Income Tax Law (the ‘‘EIT Law’’) that became effective on 1 January 2008 sets a uniform tax rate of 25% for all enterprises, provided that a high-tech enterprise may enjoy the preferential income tax rate of 15% after completing certain procedures with relevant PRC tax authorities. Some of Huawei’s subsidiaries are entitled to the preferential income tax rate of 15% based on their qualification as a high-tech enterprise. However, there can be no assurance that their high-tech enterprise qualification status will be renewed and the preferential income tax rate will be granted by the relevant PRC tax authorities upon the expiration of such status.

As the PRC legal system develops, there can be no assurance that changes in such laws and regulations, including but not limited to the EIT Law regarding the preferential tax rate, or the interpretation or enforcement of such laws and regulations, will not have a material adverse effect on Huawei’s business, financial condition and results of operations.

Huawei is subject to the PRC government’s controls on currency conversion and future movements in foreign currency exchange rates. A majority of Huawei’s revenues are denominated in Renminbi and they may need to be converted into other currencies to meet its foreign currency obligations. The value of Renminbi against the US dollar and other currencies fluctuates and is affected by many factors, such as changes in political and economic conditions in the PRC and globally. Starting from 1994, the conversion of Renminbi into foreign currencies, including Hong Kong dollars and US dollars, was based on rates set daily by PBOC based on the previous business day’s inter-bank foreign exchange market rates and the current exchange rates on the world financial markets. For more than 10 years, the official exchange rate for conversion of Renminbi to US dollars was generally stable. On 21 July 2005, the PRC government introduced a managed floating exchange rate system to allow the value of Renminbi to fluctuate within a regulated band based on market supply and demand and by reference to a basket of currencies. On the same day, the value of Renminbi appreciated by approximately 2% against the US dollar.

In July 2008, the PRC government announced that its exchange rate regime would change to a managed floating mechanism based on market supply and demand. Given domestic and overseas economic developments, PBOC decided to further adjust the RMB exchange rate regime in April 2012 to enhance the flexibility of the RMB exchange rate. On 17 March 2014, PBOC continued to expand the floating range of the RMB against the US dollar. The PRC government may make further adjustments to the exchange rate system in the future. Any appreciation of Renminbi against the US dollar or any other foreign currency may result in a decrease in the value of Huawei’s foreign currency-denominated assets.

Conversely, any devaluation of Renminbi may adversely affect the value of Huawei’s assets in Renminbi terms.

In addition, Huawei is required to obtain approval from SAFE before converting foreign currencies into Renminbi for non-current account transactions. All these factors could materially and adversely affect Huawei’s business, financial condition and results of operations.

There can be no assurance of the accuracy or comparability of certain facts, forecasts and statistics contained in this Offering Circular with respect to Huawei, the PRC, its economy or its telecommunications industry. Certain facts, forecasts and statistics in this Offering Circular relating to the PRC, its economy, its telecommunications industries and Huawei’s market share and ranking are derived from various official and other publicly available sources which are generally believed to be reliable. However, Huawei cannot guarantee the quality and reliability of such source materials. In addition, these facts, forecasts and statistics have not been independently verified by Huawei or any of their respective directors, employees, representatives, affiliates or advisers and, therefore, none of them makes any representation

32 as to the accuracy or fairness of such facts, forecasts and statistics, which may not be consistent with other information compiled within or outside the PRC and may not be complete or up to date. Huawei has taken reasonable care in reproducing or extracting the information from such sources.

However, because of possibly flawed or ineffective methodologies underlying the published information or discrepancies between the published information and market practice and other problems, these facts, forecasts and other statistics may be inaccurate or may not be comparable from period to period or be comparable to facts, forecasts or statistics produced for other economies and should not be unduly relied upon.

Any force majeure events, including the outbreak, or threatened outbreak, of any severe communicable diseases in Hong Kong or the PRC, could materially and adversely affect Huawei’s business, financial condition and results of operations. Any force majeure events, including the outbreak, or threatened outbreak, of any severe communicable disease (such as severe acute respiratory syndrome or avian influenza) in Hong Kong or the PRC, could materially and adversely affect the overall business sentiment and environment in the PRC, particularly if such outbreak is inadequately controlled. This, in turn, could materially and adversely affect domestic consumption, labour supply and, possibly, the overall gross domestic product (‘‘GDP’’)growthofthe PRC. Any labour shortages on contraction or slowdown in the growth of domestic consumption in the PRC could materially and adversely affect Huawei’s business, financial condition and results of operations. In addition, if any of Huawei’s employees are affected by any severe communicable disease, it could adversely affect or disrupt production levels and operations at the relevant plants and materially and adversely affect Huawei’s business, financial condition and results of operations, which may also involve a closure of Huawei’s facilities to prevent the spread of the disease. The spread of any severe communicable disease in the PRC may also affect the operations of Huawei’s customers and suppliers, which could materially and adversely affect Huawei’s business, financial condition and results of operations.

It may be difficult to effect service of process upon Huawei or its Directors, Supervisors or senior management who reside in the PRC, or to enforce against them or Huawei in the PRC any judgments obtained from non-PRC courts. Most of Huawei’s Directors, Supervisors and senior management reside within the PRC. The PRC does not have treaties providing for the reciprocal recognition and enforcement of judgments of courts with the United States, the United Kingdom, Japan and many other countries. As a result, it may not be possible for investors to effect service of process upon Huawei or those persons in the PRC, or to enforce against Huawei or those persons in the PRC, any judgments obtained from non-PRC courts. In addition, recognition and enforcement in the PRC of judgments of a court of any other jurisdiction in relation to any matter not subject to a binding arbitration provision may be difficult or impossible.

Risks relating to the Bonds and the Guarantee The Bonds and the Guarantee are unsecured obligations. The Bonds and the Guarantee are unsecured obligations of the Issuer and the Guarantor respectively. The repayment of the Bonds and payment under the Guarantee may be adversely affected if:

• the Issuer or the Guarantor enters into bankruptcy, liquidation, reorganisation or other winding-up proceedings;

• there is a default in payment under the Issuer’s or the Guarantor’s future secured indebtedness or other unsecured indebtedness; or

• there is an acceleration of any of the Issuer’s or the Guarantor’s indebtedness.

33 If any of these events were to occur, the Issuer’s or the Guarantor’s assets may not be sufficient to pay amounts due on the Bonds.

The Issuer is a special purpose vehicle with no business activities of its own and will be dependent on funds from its affiliates to make payments under the Bonds. The Issuer is a wholly-owned indirect subsidiary of the Guarantor formed for the sole purpose of issuing the Bonds or other debt securities and will on-lend the entire proceeds from the issue of the Bonds to its affiliates for general corporate purposes. The Issuer does not and will not have any net assets other than such on-lent loans and its ability to make payments under the Bonds depends on timely payments under such loans. In the event that the affiliates of the Issuer do not make such payments due to limitation in such loans or other agreements, lack of available cash flow or other factors, the Issuer’s ability to make payments under the Bonds could be adversely affected.

Claims by holders of the Bonds are structurally subordinated to claims by creditors of the subsidiaries of the Guarantor. The Guarantor is primarily a holding company and its ability to make payments in respect of the Bonds depends largely upon the receipt of dividends, distributions, interests or advances from its subsidiaries. The ability of the subsidiaries of the Guarantor to pay dividends and other amounts to the Guarantor may be subject to their profitability, restrictions contained in the debt instruments of such subsidiaries and the applicable laws. In addition, if any of the subsidiaries of the Guarantor raise capital by issuing equity securities to third parties, dividends declared and paid with respect to such shares would not be available to the Guarantor to make payments on the Bonds. These restrictions could reduce the amounts that the Guarantor receives from its subsidiaries, which would restrict its ability to perform the payment obligations under the Guarantee. Payments under the Guarantee, and therefore the Bonds, are structurally subordinated to all existing and future liabilities and obligations of each of the subsidiaries of the Guarantor. Claims of creditors of such companies will have priority as to the assets of such companies over the Guarantor and its creditors, including holders of the Bonds.

The Issuer or the Guarantor may be unable to redeem the Bonds. On certain dates, including the occurrence of any of the events set out in ‘‘Conditions of the Bonds – Redemption upon Relevant Event’’, and upon maturity of the Bonds, the Issuer, failing which the Guarantor may, and at maturity will, be required to redeem all of the Bonds. If such an event were to occur, the Issuer or, as the case may be, the Guarantor may not have sufficient cash on hand and may not be able to arrange financing to redeem the Bonds in time, or on acceptable terms, or at all. Failure to repay or redeem tendered Bonds by the Issuer or the Guarantor would constitute an event of default under the Bonds, which may also constitute a default under the terms of other indebtedness of the Guarantor.

Changes in interest rates may have an adverse effect on the price of the Bonds. The Bondholders may suffer unforeseen losses due to fluctuations in interest rates. Generally, a rise in interest rates may cause a fall in the prices of the Bonds, resulting in a capital loss for the Bondholders. However, the Bondholders may reinvest the interest payments at higher prevailing interest rates. Conversely, when interest rates fall, the prices of the Bonds may rise. The Bondholders may enjoy a capital gain but interest payments received may be reinvested at lower prevailing interest rates.

Investment in the Bonds is subject to exchange rate risks. Investment in the Bonds is subject to exchange rate risks. The value of the US dollar against the Renminbi and other foreign currencies fluctuates and is affected by changes in the United States and international political and economic conditions and by many other factors. All payments of interest and principal with respect to the Bonds will be made in US dollars. As a result, the value of these US dollar

34 payments may vary with the prevailing exchange rates in the marketplace. If the value of the US dollar depreciates against the Renminbi or other foreign currencies, the value of a Bondholder’s investment in Renminbi or other applicable foreign currency terms will decline.

There may not be a liquid market for the Bonds, and holders may not be able to sell their Bonds at an attractive price or at all. The Bonds are a new issue of securities for which there is currently no trading market. If the Bonds are traded after they are issued, they may trade at a discount from their initial offering price, depending on many factors, including prevailing interest rates, the market for similar securities, general economic conditions and the Guarantor’s financial condition, performance and prospects. If an active trading market for the Bonds does not develop or continue, the market price and liquidity of the Bonds may be adversely affected. The Issuer has been advised that the Joint Lead Managers intend to make a market in the Bonds, but the Joint Lead Managers are not obligated to do so and may discontinue such market- making activity at any time at the sole discretion of the Joint Lead Managers.

There may be uncertainties relating to the performance of the Guarantor’s obligations under the Guarantee. Under the Guarantee, the Guarantor will unconditionally and irrevocably guarantee the due payment in full of all sums expressed to be payable by the Issuer under the Bonds. The obligations of the Guarantor under the Guarantee will be contained in a trust deed to be entered into on or about the Issue Date (the ‘‘Date of Guarantee’’). Pursuant to the Notice of the Promulgation of the Administrative Regulations on Cross-border Foreign Exchange Guarantees issued by the State Administration of Foreign Exchange（國家外匯管理局關於發布《跨境擔保外匯管理規定》的通知）on 12 May 2014 (the ‘‘SAFE Notice’’), where the guarantor is a non-financial institution or enterprise (hereinafter referred to as a ‘‘non- banking institution’’), registration shall be made with the local foreign exchange authority within 15 business days after the execution of the guarantee in relation to an offshore lending guaranteed internally by onshore entities. Any such registration so filed by the guarantor as a non-banking institution shall be subject to a procedural review by the local foreign exchange authority for authenticity and regulatory compliance before such registration is effected. Failure on the part of the guarantor to complete such registration procedures as required by law shall not prejudice the validity of the guarantee. The Guarantor is required to register the Guarantee with the Shenzhen Branch of SAFE within 15 business days after its execution pursuant to the SAFE Notice. The Issuer’s PRC legal counsel has advised that the failure to register the Guarantee will not affect the legal, valid and binding effect of the Guarantee on the Guarantor under PRC law. Pursuant to the SAFE Notice, a guarantor which is a non-banking institution may approach a bank directly for the purchase and payment of the foreign exchange as required under the guarantee to the external party on presentation of the registered guarantee documentation. Where an obligation under the guarantee is triggered in respect of an offshore lending which is guaranteed by onshore entities, an onshore guarantor becoming a creditor of an external debt shall register its right as a creditor as required by law. If the Guarantee has not been registered with the Shenzhen Branch of SAFE within 15 business days after its execution, SAFE may, pursuant to the SAFE Notice, impose punishment on the Guarantor under the Regulations of the People’s Republic of China on Foreign Exchange Control（中華人民共和國外匯管理條例）.Ifthe Guarantor fails to register the Guarantee within the prescribed timeframe at the time of making payments under the Guarantee, the Guarantor will not be able to purchase or remit foreign currency in order for the Guarantor to fulfil its payment obligations under the Guarantee. Upon the performance or discharge of the obligations of the Guarantor, the Guarantor shall go through the registration procedures as required in accordance with the applicable PRC laws and regulations. The Guarantor intends to register the Guarantee as soon as practicable and in any event before the prescribed timeframe (being 15 business days after its execution). In the opinion of the Issuer’s PRC legal counsel, there is no material legal impediment to complete such registration subject to procedural requirements as set forth in applicable provisions of PRC laws.

35 Under the EIT Law, the Issuer may be classified as a PRC tax resident enterprise. Such classification could result in unfavourable tax consequences to the Issuer and its Bondholders. Pursuant to the EIT Law and its implementation regulations, enterprises that are established under the laws of foreign countries and regions (including Hong Kong, Macau and Taiwan) but whose ‘‘de facto management bodies’’ are within the territory of China will be treated as PRC tax resident enterprises for the purpose of the EIT Law and they are required to pay enterprise income tax at the rate of 25% in respect of their income sourced from both within and outside China. The implementing rules of the EIT Law define ‘‘de facto management’’ as ‘‘substantial and overall management and control over the production and operations, personnel, accounting, and properties’’ of the enterprise. However, it is still unclear how the PRC tax authorities will determine whether an entity will be classified as a ‘‘PRC tax resident enterprise’’. If the relevant PRC tax authorities decide, in accordance with applicable tax rules and regulations, that the ‘‘de facto management body’’ of the Issuer is within the territory of the PRC, the Issuer may be held to be a PRC tax resident enterprise for the purpose of the EIT Law and be subject to enterprise income tax at the rate of 25% for its income sourced from both within and outside the PRC. As confirmed by the Issuer, as at the date of this Offering Circular, the Issuer has not been given notice or informed by the PRC tax authorities that it is considered as a PRC tax resident enterprise for the purpose of the EIT Law. Furthermore, as described in ‘‘Taxation – PRC’’, in the event the Issuer is deemed to be a PRC tax resident enterprise by the PRC tax authorities in the future, interest payable to ‘‘non-resident enterprise’’ holders of the Bonds and capital gains realised by ‘‘non-resident enterprise’’ holders of Bonds may be treated as income derived from sources within China and be subject to PRC withholding tax at a rate of 10% or a lower rate for holders who qualify for the benefits of a double-taxation treaty with China. If the Issuer is required under the EIT Law to withhold PRC tax on interest payable to non-resident Bondholders who are ‘‘non-resident enterprises’’, the Issuer will be required to pay such additional amounts as will result in receipt by a holder of a Bond of such amounts as would have been received by the holder had no such withholding been required. The requirement to pay additional amounts will increase the Issuer’s cost of servicing interest payments on the Bonds, and could have a material adverse effect on the Issuer’s ability to pay interest on, and repay the principal amount of, the Bonds, as well as the Issuer’s profitability and cashflow.

Gains from the Bonds may become subject to income taxes under PRC tax laws. Under the PRC Enterprise Income Tax Law, the PRC Individual Income Tax Law and the relevant implementing rules, as amended from time to time, any gain realised on the transfer of the Bonds by a non-PRC resident enterprise or individual holders may be subject to PRC EIT or PRC individual income tax (‘‘IIT’’) if such gain is income derived from sources within the PRC. However, uncertainty remains as to whether the gain realised from the transfer of the Bonds by a non-PRC resident enterprise or individual holders would be treated as income derived from sources within the PRC and be subject to the EIT or IIT. This will depend on how the PRC tax authorities interpret, apply or enforce the PRC Enterprise Income Tax Law, the PRC Individual Income Tax Law and the relevant implementing rules. According to the arrangement between the PRC and Hong Kong for the avoidance of double taxation, Bondholders who are residents of Hong Kong, including enterprise holders and individual holders, will not be subject to the PRC EIT or IIT on capital gains derived from a sale or exchange of the Bonds.

In addition, as the Guarantor is a resident enterprise, if the Issuer is not able to make payments under the Bonds and the Guarantor fulfils the payment obligations of the Guarantees, the Guarantor must withhold PRC income tax on payments with respect to the Bonds to non-PRC resident enterprise holders at the rate of 10% and to non-resident individual holders at a rate of 20%. Applicable tax treaties may provide for lower tax rates.

Therefore, if a non-PRC resident enterprise or individual resident holders are required to pay PRC income tax on gains derived from the Bonds (such EIT is currently levied at the rate of 10% of gains realised and such IIT is currently levied at the rate of 20% of gains realised (with deduction of reasonable expenses), unless there is an applicable tax treaty between the PRC and the jurisdiction in

36 which such non-PRC resident enterprise or individual resident holders of the Bonds reside that reduces or exempts the relevant EIT or IIT), the value of their investment in the Bonds may be materially and adversely affected.

A tax for withholding may be payable under the United States Foreign Account Tax Compliance Act if an investor or custodian of the Bonds is unable to receive payments free of withholding. While the Bonds are in global form and held within the Clearing Systems, in all but the most remote circumstances, it is not expected that the United States Foreign Account Tax Compliance Act (‘‘FATCA’’) will affect the amount of any payment received by the Clearing Systems (see ‘‘Taxation – FATCA’’). However, FATCA may affect payments made to custodians or intermediaries in the subsequent payment chain leading to the ultimate investor if any such custodian or intermediary generally is unable to receive payments free of FATCA withholding. It also may affect payment to any ultimate investor that is a financial institution that is not entitled to receive payments free of withholding under FATCA, or an ultimate investor that fails to provide its broker (or other custodian or intermediary from which it receives payment) with any information, forms, other documentation or consents that may be necessary for the payments to be made free of FATCA withholding. Investors should choose the custodians or intermediaries with care (to ensure each is compliant with FATCA or other laws or agreements related to FATCA), provide each custodian or intermediary with any information, forms, other documentation or consents that may be necessary for such custodian or intermediary to make a payment free of FATCA withholding. Investors should consult their own tax adviser to obtain a more detailed explanation of FATCA and how FATCA may affect them. The Issuer’s and the Guarantor’s obligations under the Bonds and the Guarantee of the Bonds are discharged once they have made payments to, or to the order of, the common depositary for the Clearing Systems (as registered holder of the Bonds) and the Issuer and the Guarantor have therefore no responsibility for any amount thereafter transmitted through the Clearing Systems and custodians or intermediaries. Further, foreign financial institutions in a jurisdiction which has entered into an intergovernmental agreement with the United States (an ‘‘IGA’’) are generally not expected to be required to withhold under FATCA or an IGA (or any law implementing an IGA) from payments they make.

TheBondsareredeemableintheeventofcertain withholding taxes being applicable. No assurances are made by the Issuer or the Guarantor as to whether or not payments in respect of the Bonds shall be made free and clear of, and without withholding or deduction for, or on account of, any present or future taxes, duties, assessments or governmental charges of whatever nature imposed or levied by or on behalf of the British Virgin Islands or the PRC or any political subdivision or any authority therein or thereof having power to tax. Although pursuant to the Conditions of the Bonds, the Issuer and the Guarantor are required to gross up payments on account of any such withholding taxes or deductions, the Issuer also has the right to redeem the Bonds at any time in the event the Issuer or the Guarantor has or will become obliged to pay additional amounts on account of any present or future taxes, duties, assessments or governmental charges of whatever nature imposed or levied by or on behalf the British Virgin Islands or the PRC (only where such tax or withholding is in excess of 10 per cent.) or any political subdivision or any authority therein or thereof having power to tax as a result of any change in, or amendment to, the laws or regulations of the British Virgin Islands or the PRC or any political subdivision or any authority therein or thereof having power to tax, or any change in, or amendment to, the application or official interpretation of such laws or regulations, which change or amendment becomes effective on or after 12 May 2015.

The Bonds will be represented by a Global Certificate and holders of a beneficial interest in a Global Certificate must rely on the procedures of the Clearing Systems. The Bonds will be represented by beneficial interests in the Global Certificate. The Global Certificate will be deposited with a common depositary for Euroclear and Clearstream, Luxembourg. Except in the limited circumstances described in the Global Certificate, investors will not be entitled to receive definitive certificates. The Clearing System will maintain records of the beneficial interests in the Global Certificate. While the Bonds are represented by the Global Certificate, investors will be able to trade

37 their beneficial interests only through the Clearing Systems. While the Bonds are represented by the Global Certificate, the Issuer, failing which, the Guarantor, will discharge its payment obligations under the Bonds by making payments to the relevant Clearing System for distribution to their account holders. A holder of a beneficial interest in the Global Certificate must rely on the procedures of the relevant Clearing System to receive payments under the Bonds. Neither the Issuer nor the Guarantor has any responsibility or liability for the records relating to, or payments made in respect of, beneficial interests in the Global Certificate. Holders of beneficial interests in the Global Certificate will not have a direct right to vote in respect of the Bonds. Instead, such holders will be permitted to act only to the extent that they are enabled by the relevant Clearing System to appoint appropriate proxies.

IftheIssuerortheGuarantorisunabletocomplywith the restrictions and covenants contained in its debt agreements, including the Bonds, an event of default could occur under the terms of such agreements, which could cause repayment of such debt to be accelerated. If the Issuer or the Guarantor is unable to comply with its current or future debt and other agreements, there could be a default under the terms of these agreements. In the event of a default under these agreements, the holders of the debt could terminate their commitments to lend to the Issuer or the Guarantor, accelerate the debt and declare all amounts borrowed due and payable or terminate the agreements, whichever the case may be. Furthermore, some of the Issuer’sortheGuarantor’sdebt agreements may contain cross-acceleration or cross-default provisions. As a result, the Issuer’sorthe Guarantor’s default under one debt agreement may cause the acceleration of debt, including the Bonds, or result in a default under other debt agreements of the Issuer or the Guarantor. If any of these events occur, there can be no assurance that the Issuer’s or the Guarantor’s assets and cashflow will be sufficient to repay in full all of its indebtedness, or that the Issuer or the Guarantor will be able to find alternative financing. Even if the Issuer or the Guarantor can obtain alternative financing, there can be no assurance that such financing would be on terms that are favourable or acceptable to the Issuer or the Guarantor.

The bankruptcy laws of the British Virgin Islands and the PRC may differ from those of other jurisdictions with which the holders of the Bonds are familiar. The Issuer and the Guarantor are incorporated under the laws of the British Virgin Islands and the PRC, respectively. Any bankruptcy proceeding relating to the Issuer and the Guarantor, even if brought in other jurisdictions, would likely involve British Virgin Islands or PRC bankruptcy laws, the procedural and substantive provisions of which may differ from comparable provisions of the local insolvency laws of jurisdictions with which the holders of the Bonds are familiar.

The liquidity and price of the Bonds following the offering may be volatile. The price and trading volume of the Bonds may be highly volatile. Factors such as variations in the Issuer’s or the Guarantor’s turnover, earnings and cashflows, proposals for new investments, strategic alliances or acquisitions, changes in interest rates, fluctuations in price for comparable companies, government regulations and changes thereof applicable to the telecommunications industry and general economic conditions nationally or internationally could cause the price of the Bonds to change. Any such developments may result in large and sudden changes in the trading volume and price of the Bonds. There is no assurance that these developments will not occur in the future.

The Bonds have a limited upside. The Bonds carry a fixed interest rate which is paid in US dollars semi-annually in arrear. Upon maturity, the Issuer will pay investors the principal amount of the Bonds plus any unpaid accrued interest. The maximum return on an investment in the Bonds is limited to these interest payments in US dollars. As the Bonds are fixed income securities which are structured to provide investors with returns primarily through regular interest payments thereon, investors who hold the Bonds through to maturity or who dispose of the Bonds in the secondary market may not realise any capital gain.

38 The Trustee may request Bondholders to provide an indemnity, security and/or pre-funding to its satisfaction. In certain circumstances, including without limitation the giving of notice pursuant to Condition 11.1 of the Conditions of the Bonds and taking enforcement steps pursuant to Condition 12 of the Conditions of the Bonds, the Trustee may, at its sole discretion, request Bondholders to provide an indemnity, security and/or pre-funding to its satisfaction before it takes actions on behalf of Bondholders. The Trustee shall not be obliged to take any such actions if not indemnified, secured and/or pre-funded to its satisfaction. Negotiating and agreeing to an indemnity, security and/or pre-funding can be a lengthy process and may impact on when such actions can be taken. The Trustee may not be able to take actions, notwithstanding the provision of an indemnity, security and/or pre-funding to it, in breach of the terms of the Trust Deed or the Conditions of the Bonds and in such circumstances, or where there is uncertainty or dispute as to the applicable laws or regulations, to the extent permitted by the agreements and the applicable laws and regulations, it will be for the Bondholders to take such actions directly.

The Bonds may not be a suitable investment for all investors. The Bonds are complex financial instruments and may be purchased as a way to reduce risk or enhance yield with an understood, measured, appropriate addition of risk to an investor’s overall investment portfolio. A potential investor should not invest in the Bonds unless it has the expertise (either alone or with the help of a financial adviser) to evaluate how the Bonds will perform under changing conditions, the resulting effects on the value of such Bonds and the impact this investment will have on the potential investor’s overall investment portfolio.

Each potential investor in the Bonds must determine the suitability of such an investment in light of its own circumstances. In particular, each potential investor should:

(i) have sufficient knowledge and experience to make a meaningful evaluation of the Bonds, the merits and risks of investing in the Bonds or any applicable supplement;

(ii) have access to, and knowledge of, appropriate analytical tools to evaluate, in the context of its particular financial situation, an investment in the Bonds and the impact such investment will have on its overall investment portfolio;

(iii) have sufficient financial resources and liquidity to bear all of the risks of an investment in the Bonds;

(iv) understand thoroughly the terms of the Bonds and be familiar with the behaviour of any relevant indices and financial markets; and

(v) be able to evaluate (either alone or with the help of a financial adviser) possible scenarios for economic, interest rate and other factors that may affect its investment and its ability to bear the applicable risks.

Additional procedures may be required to be taken to bring English law governed matters or disputes to the Hong Kong courts and the Bondholders would need to be subject to the exclusive jurisdiction of the Hong Kong courts. There is also no assurance that the PRC courts will recognise and enforce judgments of the Hong Kong courts in respect of English law governed matters or disputes. The Conditions of the Bonds and the transaction documents are governed by English law, whereas parties to these documents have submitted to the exclusive jurisdiction of the Hong Kong courts. In order to hear English law governed matters or disputes, Hong Kong courts may require certain additional procedures to be taken. Under the Arrangement on Reciprocal Recognition and Enforcement of Judgments in Civil and Commercial Matters by the Courts of the Mainland and of the Hong Kong Special Administrative Region Pursuant to Choice of Court Agreements between Parties Concerned（關於內地與香港特別行政區法院相互認可和執行當事人協議管轄的民商事案件判決的安排）, judgments

39 of Hong Kong courts are likely to be recognised and enforced by the PRC courts where the contracting parties to the transactions pertaining to such judgments have agreed to submit to the exclusive jurisdiction of Hong Kong courts. However, recognition and enforcement of a Hong Kong court judgment could be refused if the PRC courts consider that the enforcement of such judgment is contrary to the social and public interest of the PRC or meets other circumstances specified by the Arrangement on Reciprocal Recognition and Enforcement of Judgments in Civil and Commercial Matters by the Courts of the Mainland and of the Hong Kong Special Administrative Region Pursuant to Choice of Court Agreements between Parties Concerned. While it is expected that the PRC courts will recognise and enforce a judgment given by Hong Kong courts governed by English law, there can be no assurance that the PRC courts will do so for all such judgments as there is no established practice in this area. Compared to other similar debt securities issuances in the international capital markets where the relevant holders of the debt securities would not typically be required to submit to an exclusive jurisdiction, the Bondholders will be deemed to have submitted to the exclusive jurisdiction of the Hong Kong courts, and thus the Bondholders’ ability to initiate a claim outside of Hong Kong will be limited.

The Issuer may issue additional Bonds in the future. The Issuer may, from time to time, and without prior consultation of the holders of the Bonds create and issue further Bonds (See ‘‘Conditions of the Bonds – Further Issues’’) or otherwise raise additional capital through such means and in such manner as it may consider necessary. There can be no assurance that such future issuance or capital raising activity will not adversely affect the market price of the Bonds.

Decisions that may be made on behalf of all holders of the Bonds may be adverse to the interests of individual holders of the Bonds. The Conditions of the Bonds contain provisions for calling meetings of holders of the Bonds to consider matters affecting their interests generally. These provisions permit defined majorities to bind all holders of the Bonds including holders who did not attend and vote at the relevant meeting and holders who voted in a manner contrary to the majority. Furthermore, there is a risk that the decision of the majority of holders of the Bonds may be adverse to the interests of the individual Bondholders.

Modifications and waivers may be made in respect of the Conditions of the Bonds and the Trust Deed by the Trustee or less than all of the holders of the Bonds. The Conditions of the Bonds provide that the Trustee may, without the consent of Bondholders, agree to any modification of the Trust Deed, the Conditions of the Bonds and/or the Agency Agreement which in the opinion of the Trustee will not be materially prejudicial to the interests of Bondholders and to any modification of the Trust Deed, the Conditions of the Bonds and/or the Agency Agreement which in the opinion of the Trustee is of a formal, minor or technical nature or is to correct a manifest error or an error which in the opinion of the Trustee is proven.

In addition, the Trustee may, without the consent of the Bondholders, waive or authorise any breach or proposed breach of the Trust Deed, the Conditions of the Bonds and/or the Agency Agreement (other than a proposed breach, or a breach relating to the subject of certain reserved matters) if, in the opinion of the Trustee, the interests of the Bondholders will not be materially prejudiced thereby.

40 CONDITIONS OF THE BONDS

The following terms and conditions (the ‘‘Conditions’’) of the Bonds (subject to amendment and except for the sentences in italics) will be endorsed on the Certificates issued in respect of the Bonds.

The U.S.$1,000,000,000 4.125 per cent. Guaranteed Bonds due 2025 (the ‘‘Bonds’’, which expression shall in these Conditions, unless the context otherwise requires, include any further bonds issued pursuant to Condition 18 and forming a single series with the Bonds) of Proven Honour Capital Limited (the ‘‘Issuer’’) are constituted by a trust deed (the ‘‘Trust Deed’’) dated 19 May 2015 (the ‘‘Issue Date’’) made between the Issuer, Huawei Investment & Holding Co., Ltd. (the ‘‘Guarantor’’)as guarantor and DB Trustees (Hong Kong) Limited (the ‘‘Trustee’’, which expression shall include its successor(s)) as trustee for the holders of the Bonds (the ‘‘Bondholders’’).

The statements in these Conditions include summaries of, and are subject to, the detailed provisions of and definitions in the Trust Deed. Copies of the Trust Deed and an agency agreement dated 19 May 2015 (the ‘‘Agency Agreement’’) made between the Issuer, the Guarantor, Deutsche Bank AG, Hong Kong Branch as principal paying agent (the ‘‘Principal Paying Agent’’, and together with other paying agents appointed under the Agency Agreement, the ‘‘Paying Agents’’) and as transfer agent (the ‘‘Transfer Agent’’) and Deutsche Bank Luxembourg S.A. as the registrar (the ‘‘Registrar’’, together with the Transfer Agents and the Paying Agents, the ‘‘Agents’’), and the Trustee are available for inspection during normal business hours by the Bondholders at the principal office for the time being of the Trustee, being at the date of issue of the Bonds at Level 52, International Commerce Centre, 1 Austin Road West, Kowloon, Hong Kong and at the specified office of the Principal Paying Agent. The Bondholders are entitled to the benefit of, are bound by, and are deemed to have notice of, all the provisions of the Trust Deed and those provisions of the Agency Agreement applicable to them.

The owners shown in the records of Euroclear Bank S.A./N.V. (‘‘Euroclear’’) and Clearstream Banking, société anonyme (‘‘Clearstream, Luxembourg’’) of book-entry interests in Bonds are entitled to the benefit of, are bound by, and are deemed to have notice of, all the provisions of the Trust Deed and those provisions of the Agency Agreement applicable to them.

1. FORM, DENOMINATION AND TITLE

1.1 Form and Denomination The Bonds are issued in registered form in denominations of U.S.$200,000 and integral multiples of U.S.$1,000 in excess thereof (referred to as the ‘‘Authorised Denomination’’ of a Bond). A bond certificate (each a ‘‘Certificate’’) will be issued to each Bondholder in respect of its registered holding of Bonds. Each Certificate will be numbered serially with an identifying number which will be recorded on the relevant Certificate and in the register of Bondholders (the ‘‘Register’’) which the Issuer will procure to be kept by the Registrar and at the registered office of the Issuer.

Upon issue, the Bonds will be represented by a global certificate (the ‘‘Global Certificate’’) representing Bonds registered in the name of a nominee of, and deposited with, the common depositary for Euroclear and Clearstream, Luxembourg. The Conditions are modified by certain provisions contained in the Global Certificate. Except in the limited circumstances described in the Global Certificate, owners of interests in Bonds represented by the Global Certificate will not be entitled to receive definitive Certificates in respect of their individual holdings of Bonds.

1.2 Title Title to the Bonds passes only by registration in the Register. The holder of any Bond will (except as otherwise required by law) be treated as its absolute owner for all purposes (whether or not it is overdue and regardless of any notice of ownership, trust or any interest

41 or any writing on, or the theft or loss of, the Certificate issued in respect of it) and no person will be liable for so treating the holder. In these Conditions, a ‘‘Bondholder’’ and (in relation to a Bond) ‘‘holder’’ means the person in whose name a Bond is registered in the Register.

2. TRANSFERS OF BONDS AND ISSUE OF CERTIFICATES

2.1 Transfers Subject to paragraphs 2.4 and 2.5 below, a Bond may be transferred by depositing the Certificate issued in respect of that Bond, with the form of transfer on the back duly completed and signed, at the specified office of the Registrar or any of the Agents.

Transfers of interests in the Bonds evidenced by the Global Certificate will be effected in accordance with the rules of the relevant clearing systems.

2.2 Delivery of new Certificates Each new Certificate to be issued upon transfer of Bonds will, within five business days of receipt by the Registrar or the relevant Agent of the duly completed form of transfer endorsed on the relevant Certificate, be mailed by uninsured mail at the risk of the holder entitled to the Bond to the address specified in the form of transfer. For the purposes of this Condition 2.2, ‘‘business day’’ shall mean a day on which banks are generally open for business in the city in which the specified office of the Agent with whom a Certificate is deposited in connection with a transfer is located.

Except in the limited circumstances described herein (see ‘‘Summary of Provisions Relating to the Bonds in Global Form’’ in this Offering Circular), owners of interests in the Bonds will not be entitled to receive physical delivery of the Certificates.

Where some but not all of the Bonds in respect of which a Certificate is issued are to be transferred, a new Certificate in respect of the Bonds not so transferred will, within five business days of receipt by the Registrar or the relevant Agent of the original Certificate, be mailed by uninsured mail at the risk of the holder of the Bonds not so transferred to the address of such holder appearing on the Register or as specified in the form of transfer.

2.3 Formalities free of charge Registration of transfer of Bonds will be effected without charge by or on behalf of the Issuer or any Agent but upon payment (or the giving of such indemnity and/or security as the Issuer or any Agent may reasonably require) in respect of any tax or other governmental charges which may be imposed in relation to such transfer.

2.4 Closed Periods No Bondholder may require the transfer of a Bond to be registered (i) during the period of 15 days ending on (and including) the due date for any payment of principal, premium or interest on that Bond (ii) during the period of 15 days ending on (and including) any date on which Bonds may be called for redemption by the Issuer pursuant to Condition 8.2 or 8.4 and (iii) after a Put Exercise Notice has been delivered in respect of the relevant Bonds in accordance with Condition 8.3.

2.5 Regulations All transfers of Bonds and entries on the Register will be made subject to the detailed regulations concerning transfer of Bonds scheduled to the Trust Deed. The regulations may be changed by the Issuer with the prior written approval of the Registrar and the Trustee. A copy of the current regulations will be mailed (free of charge) by the Registrar to any Bondholder who requests one.

42 3. STATUS OF THE BONDS

The Bonds are direct, unconditional, unsubordinated and (subject to the provisions of Condition 5) unsecured obligations of the Issuer and (subject as stated above) rank and will rank pari passu, without any preference among themselves, with all other outstanding unsecured and unsubordinated obligations of the Issuer, present and future, but, in the event of insolvency, only to the extent permitted by applicable laws relating to creditors’ rights.

4. GUARANTEE

4.1 Guarantee The payment of the principal, premium and interest in respect of the Bonds and all other moneys expressed to be payable by the Issuer under or pursuant to the Trust Deed has been unconditionally and irrevocably guaranteed by the Guarantor (the ‘‘Guarantee’’)intheTrust Deed.

4.2 Status of the Guarantee The obligations of the Guarantor under the Guarantee constitute direct, unconditional, unsubordinated and (subject to the provisions of Condition 5) unsecured obligations of the Guarantor and (subject as stated above) rank and will rank pari passu with all other outstanding unsecured and unsubordinated obligations of the Guarantor, present and future, but, in the event of insolvency, only to the extent permitted by applicable laws relating to creditors’ rights.

5. COVENANTS

5.1 Negative Pledge So long as any Bond remains outstanding (as defined in the Trust Deed), the Issuer and the Guarantor will not, and the Guarantor will procure that none of its Principal Subsidiaries will, directly or indirectly, create, or have outstanding any mortgage, charge, pledge, lien or other form of encumbrance or security interest (each a ‘‘Security Interest’’) upon the whole or any part of its present or future undertaking, assets or revenues (including any uncalled capital) to secure any Relevant Indebtedness unless, at the same time or prior thereto, it takes any and all action necessary to ensure that (a) all amounts payable by it under the Bonds or, as the case may be, the Guarantee are secured by the Security Interest equally and rateably with the Relevant Indebtedness or (b) such other Security Interest or other arrangement (whether or not it includes the giving of a Security Interest) is provided as is approved by an Extraordinary Resolution (as defined in the Trust Deed) of the Bondholders.

5.2 Provision of Financial Statements etc. For so long as any of the Bonds remains outstanding, the Guarantor will furnish to the Trustee:

(a) a Compliance Certificate (on which the Trustee may rely as to such compliance) within 30 days from request by the Trustee and at the time of the despatch to the Trustee of the Guarantor Audited Financial Reports;

(b) as soon as they are available, but in any event within 180 calendar days after the end of each Relevant Period, copies of the relevant Guarantor Audited Financial Reports audited by KPMG Huazhen (Special General Partnership) or another internationally recognised firm of independent accountants; and

43 (c) as soon as they are available, but in any event within 120 calendar days after the end of each Relevant Period, copies of the relevant Guarantor Unaudited Management Accounts,

provided that if such financial statements shall be in the Chinese language, together with an English translation of the same translated by (A) KPMG Huazhen (Special General Partnership) or another internationally recognised firm of independent accountants or (B) a professional translation service provider, provided further that if at any time the ordinary shares of the Guarantor are listed for trading on a recognised stock exchange, the Guarantor shall make available to the Trustee, as soon as they are available but in any event not more than 14 days after any financial or other reports of the Guarantor are filed with the exchange on which the Guarantor’s ordinary shares is at such time listed for trading, true and correct copies of any financial or other report filed with such exchange in lieu of the statements and the reports identified in this Condition 5.2.

5.3 Undertakings relating to the Guarantee The Guarantor undertakes that it will (a) register or cause to be registered with SAFE, the Guarantee in accordance with, and within the time period prescribed by, the Foreign Exchange Administration Rules on Cross‑border Security（跨境擔保外匯管理規定）(the ‘‘Cross‑border Security Registration’’), (b) use all reasonable endeavours to complete the Cross‑border Security Registration and obtain a registration record from SAFE (or any other document evidencing the completion of registration issued by SAFE) on or before the Registration Deadline and (c) comply with all applicable PRC laws and regulations in relation to the Guarantee.

5.4 Interpretation For the purposes of these Conditions (unless otherwise defined):

‘‘Compliance Certificate’’ means a certificate signed by an authorised signatory of the Guarantor to effect that, having made all due and careful enquiries, to the best of the knowledge, information and belief of the Guarantor, as at a date not more than seven days before delivering such certificate (the ‘‘Certification Date’’) there did not exist and had not existed since the Certification Date of the previous certificate any Event of Default provided for in Condition 11.1 or any condition, event or act which, with the lapse of time and/or the issue, making or giving of any notice, certification, declaration, demand, determination and/ or request and/or the taking of any similar action and/or the fulfilment of any similar condition, would constitute an Event of Default (or if such exists or existed specifying the same) and that during the period from and including the Certification Date of the last such certificate to and including the Certification Date of such certificate each of the Issuer and the Guarantor has complied with all its obligations contained in the Trust Deed or (if such is not the case) specifying the respects in which it has not complied;

‘‘control’’ (including the terms controlling, controlled by and under common control with) means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise;

‘‘guarantee’’ means, in respect of any indebtedness or obligation of any Person, any guarantee, indemnity and/or similar assurance against loss provided by another Person in respect of such indebtedness or obligation;

44 ‘‘Guarantor Audited Financial Reports’’ means the annual audited consolidated statement of income, consolidated balance sheet, consolidated statement of changes in equity and consolidated statement of cash flows together with any statements, reports (including any directors’ and auditors’ reports) and notes attached to or intended to be read with any of them;

‘‘Guarantor Unaudited Management Accounts’’ means the interim unaudited and unreviewed management accounts comprising the consolidated statement of income, consolidated balance sheet and consolidated statement of cash flows;

‘‘Hong Kong’’ means the Hong Kong Special Administrative Region of the PRC;

‘‘Person’’ means any individual, corporation, partnership, limited liability company, joint venture, trust, unincorporated organisation or government or any agency or political subdivision thereof;

‘‘Principal Subsidiary’’ means any Subsidiary of the Guarantor:

(a) whose gross revenues (consolidated in the case of a Subsidiary which has Subsidiaries) attributable to the Guarantor, as shown by its latest audited income statement are at least 10 per cent. of the consolidated gross revenues of the Guarantor and its consolidated Subsidiaries as shown by the latest published audited income statement of the Guarantor and its consolidated Subsidiaries; or

(b) whose gross assets (consolidated in the case of a Subsidiary which itself has Subsidiaries) attributable to the Guarantor, as shown by its latest audited balance sheet, are at least 10 per cent. of the consolidated gross assets of the Guarantor and its consolidated Subsidiaries as shown by the latest published audited consolidated balance sheet of the Guarantor and its consolidated Subsidiaries, including the investment of the Guarantor and its consolidated Subsidiaries in each Subsidiary whose accounts are not consolidated with the consolidated audited accounts of the Guarantor and of associated companies and after adjustment for minority interests, provided that, in relation to paragraphs (a) and (b) above:

(i) in the case of a corporation or other business entity becoming a Subsidiary after the end of the financial period to which the latest consolidated audited accounts of the Guarantor relate, the reference to the then latest consolidated audited accounts of the Guarantor and its Subsidiaries for the purposes of the calculation above shall, until consolidated audited accounts of the Guarantor for the financial period in which the relevant corporation or other business entity becomes a Subsidiary are published be deemed to be a reference to the then latest consolidated audited accounts of the Guarantor and its Subsidiaries adjusted to consolidate the latest audited accounts (consolidated in the case of a Subsidiary which itself has Subsidiaries) of such Subsidiary in such accounts;

(ii) if at any relevant time in relation to the Guarantor or any Subsidiary which itself has Subsidiaries no consolidated accounts are prepared and audited, gross revenues or gross assets of the Guarantor and/or any such Subsidiary shall be determined on the basis of pro forma consolidated accounts prepared for this purpose by the Guarantor for the purposes of preparing a certificate thereon to the Trustee;

45 (iii) if at any relevant time in relation to any Subsidiary, no accounts are audited, its gross assets (consolidated, if appropriate) shall be determined on the basis of pro forma accounts (consolidated, if appropriate) of the relevant Subsidiary prepared for this purpose by the Guarantor for the purposes of preparing a certificate thereontotheTrustee;and

(iv) if the accounts of any Subsidiary (not being a Subsidiary referred to in proviso (i) above) are not consolidated with those of the Guarantor, then the determination of whether or not such Subsidiary is a Principal Subsidiary shall be based on a pro forma consolidation of its accounts (consolidated, if appropriate) with the consolidated accounts (determined on the basis of the foregoing) of the Guarantor, or

(c) to which is transferred the whole or substantially the whole of the assets of a Subsidiary which immediately prior to such transfer was a Principal Subsidiary, provided that the Principal Subsidiary which so transfers its assets shall forthwith upon such transfer cease to be a Principal Subsidiary and the Subsidiary to which the assets are so transferred shall cease to become a Principal Subsidiary at the date on which the first published audited accounts (consolidated, if appropriate) of the Guarantor prepared as of a date later than such transfer are issued unless such Subsidiary would continue to be a Principal Subsidiary on the basis of such accounts by virtue of the provisions of paragraph (a) or (b) above;

‘‘PRC’’ means the People’s Republic of China which, for the purpose of these Conditions, shall exclude Hong Kong, the Macau Special Administrative Region of the People’s Republic of China and Taiwan;

‘‘Registration Deadline’’ means the day falling 90 days after the Issue Date;

‘‘Relevant Indebtedness’’ means (a) any present or future indebtedness (whether being principal, premium, interest or other amounts) for or in respect of notes, bonds, debentures, debenture stock, loan stock, certificates of deposit or other securities which for the time being are, or are intended to be or capable of being, quoted, listed or dealt in or traded on any stock exchange or over-the-counter or other securities market and (b) any guarantee (as defined in this Condition 5.4) of any such indebtedness; which, for the avoidance of doubt, shall exclude securities where payments made under such securities are serviced primarily by the cash flows of receivables and which are commonly regarded as asset-backed securities;

‘‘Relevant Period’’ means (a) in relation to the Guarantor Audited Financial Reports, each period of twelve months ending on the last day of its financial year (currently being 31 December of that financial year) and (b) in relation to the Guarantor Unaudited Management Accounts, each period of six months ending on the last day of its first half financial year (currently being 30 June of that financial year);

‘‘SAFE’’ means the State Administration of Foreign Exchange of the PRC or its local counterpart; and

‘‘Subsidiary’’ means, in relation to any Person, means, any company (a) in which that Person owns or controls (either directly or through one or more other Subsidiaries) more than 50 per cent. of the issued share capital or other ownership interest having ordinary voting power to elect directors, managers or trustees of such company or (b) which at any time has its accounts consolidated with those of that Person or which, under the law, regulations or generally accepted accounting principles of the jurisdiction of incorporation of such Person from time to time, should have its accounts consolidated with those of that Person.

46 6. INTEREST

6.1 Interest Rate and Interest Payment Dates The Bonds bear interest on their outstanding principal amount from and including 19 May 2015 at the rate of 4.125 per cent. per annum, (the ‘‘Rate of Interest’’)payablesemi- annually in arrear in equal instalments on 19 May and 19 November in each year (each an ‘‘Interest Payment Date’’). The first payment (representing a full six months’ interest) (for the period from and including 19 May 2015 to but excluding 19 November 2015) shall be made on 19 November 2015.

6.2 Interest Accrual Each Bond will cease to bear interest from and including its due date for redemption unless, upon due presentation or surrender, payment of principal or premium in respect of the Bond is improperly withheld or refused or unless default is otherwise made in respect of payment in which event interest will continue to accrue (both before and after any judgment) at the rate aforesaid from and including the date of such withholding, refusal or default up to and including the date on which (upon further presentation of the relevant Bond, if required) payment of the full amount (including interest as aforesaid) payable in respect of such Bond is made or (in respect of the payment of the principal amount and if earlier) the seventh day after notice is given to the relevant Bondholder (either individually or in accordance with Condition 14) that the full amount (including interest as aforesaid) payable in respect of such Bond is available for payment, provided that, upon further presentation thereof being duly made, such payment is made.

6.3 Calculation of Interest The amount of interest payable on each Interest Payment Date shall be U.S.$4,125 in respect of each Bond of U.S.$200,000 denomination and U.S.$20.63 in respect of each U.S.$1,000 principal amount of the Bonds. If interest is required to be paid in respect of a Bond on any other date, it shall be calculated by applying the Rate of Interest to the Calculation Amount, multiplying the product by the relevant Day Count Fraction, rounding the resulting figure to the nearest cent (half a cent being rounded upwards) and multiplying such rounded figure by a fraction equal to the Authorised Denomination of such Bond divided by the Calculation Amount, where ‘‘Calculation Amount’’ means U.S.$1,000 and ‘‘Day Count Fraction’’ means, in respect of any period, the number of days in the relevant period divided by 360 (the number of days to be calculated on the basis of a year of 360 days with 12 30-day months).

7. PAYMENTS

7.1 Method of payment Payment of principal, premium (if any) and interest due on the Bonds will be made by transfer to the registered account of the Bondholder or by U.S. dollar cheque drawn on a bank that process payments in U.S. dollars mail to the registered address of the Bondholder if it does not have a registered account. Payment of principal, premium (if any) and payments of interest due otherwise than on an Interest Payment Date will only be made against surrender of the relevant Certificate at the specified office of any Agent. Interest on Bonds due on an Interest Payment Date will be paid on the due date for the payment of interest to the holder shown on the Register at the close of business on the fifth Payment Business Day (as defined in Condition 7.6) before the payment of interest (the ‘‘Interest Record Date’’). Payment of all other amounts will be made as provided in these Conditions.

If an amount which is due on the Bonds is not paid in full, the Registrar will annotate the Register with a record of the amount (if any) in fact paid.

47 Notwithstanding the foregoing, so long as the Global Certificate is held on behalf of Euroclear, Clearstream or any other clearing system, each payment in respect of the Global Certificate will be made to the person shown as the holder in the Register at the close of business of the relevant clearing system on the Clearing System Business Day before the due date for such payments, where ‘‘Clearing System Business Day’’ means a weekday (Monday to Friday, inclusive) except 25 December and 1 January.

7.2 Registered accounts For the purposes of this Condition 7, a Bondholder’s ‘‘registered account’’ means the U.S. dollar account maintained by or on behalf of it with a bank that processes payments in U.S. dollars, details of which appear on the Register at the close of business on the fifth Payment Business Day before the due date for payment.

7.3 Payment initiation Where payment is to be made by transfer to a registered account, payment instructions (for value on the due date or, if that is not a Payment Business Day, for value on the first following day which is a Payment Business Day) will be initiated and, where payment is to be made by cheque, the cheque will be mailed, on the due date for payment (or, if it is not a Payment Business Day, the immediately following Payment Business Day) or, in the case of a payment of principal or premium (if any) or a payment of interest due otherwise than on an Interest Payment Date, if later, on the Payment Business Day on which the relevant Certificate is surrendered at the specified office of an Agent.

7.4 Payments subject to fiscal laws All payments are subject in all cases to (i) any applicable fiscal or other laws and regulations in the place of payment, but without prejudice to the provisions of Condition 9 and (ii) any withholding or deduction required pursuant to an agreement described in Section 1471(b) of the U.S. Internal Revenue Code of 1986 (the ‘‘Code’’) or otherwise imposed pursuant to Sections 1471 through 1474 of the Code, any regulations or agreements thereunder, any official interpretations thereof, or (without prejudice to the provisions of Condition 9) any law implementing an intergovernmental approach thereto. No commissions or expenses will be charged to the Bondholders in respect of such payments.

7.5 Delay in payment Bondholders will not be entitled to any interest or other payment for any delay after the due date in receiving the amount due if the due date is not a Payment Business Day or if the Bondholder is late in surrendering its Certificate (if required to do so) or if a cheque mailed in accordance with this Condition 7 arrives after the due date for payment.

7.6 Payment Business Day In this Condition 7 ‘‘Payment Business Day’’ means a day (other than a Saturday or Sunday) on which commercial banks are generally open for business in Hong Kong and New York City and, in the case of the surrender of a Certificate, in the place where the relevant Certificate is surrendered.

7.7 Agents The initial Agents and their initial specified offices are listed below. The Issuer and the Guarantor reserve the right, subject to the prior written approval of the Trustee, at any time to vary or terminate the appointment of any Agent and appoint additional or other Agents, provided that it will at all times maintain (a) a Principal Paying Agent, (b) a Registrar who will maintain the Register outside of the United Kingdom in all circumstances and (c) as

48 necessary, a Paying Agent in a Member State of the European Union that is not obliged to withhold or deduct tax pursuant to European Council Directive 2003/48/EC or any law implementing or complying with, or introduced in order to conform to, such Directive.

8. REDEMPTION AND PURCHASE

8.1 Redemption at Maturity Unless previously redeemed or purchased and cancelled as provided below, the Issuer will redeem the Bonds at their principal amount on 19 May 2025 (the ‘‘Maturity Date’’), subject as provided in Condition 7 (Payments).

8.2 Redemption for Taxation Reasons If the Issuer satisfies the Trustee immediately before the giving of the notice referred to below in this Condition 8.2 that:

(a) as a result of any change in, or amendment to, the laws or regulations of a Relevant Jurisdiction (as defined in Condition 9), or any change in, or amendment to, the application or official interpretation of the laws or regulations of a Relevant Jurisdiction, which change or amendment becomes effective on or after 12 May 2015 either (i) the Issuer would be required to pay additional amounts as provided or referred to in Condition 9 or (ii) the Guarantor would be unable for reasons outside its control to procure payment by the Issuer and in making payment itself would be required to pay such additional amounts; and

(b) the requirement cannot be avoided by the Issuer or, as the case may be, the Guarantor taking reasonable measures available to it,

the Issuer may at its option, having given not less than 30 nor more than 60 days’ notice to the Bondholders in accordance with Condition 14 (which notice shall be irrevocable), redeem all the Bonds, but not some only, at any time at their principal amount and premium (if any) together with accrued interest, provided that no such notice of redemption shall be given earlier than 90 days prior to the earliest date on which the Issuer or, as the case may be, the Guarantor would be obliged to pay such additional amounts, were a payment in respect of the Bonds then due. Prior to the publication of any notice of redemption pursuant to this Condition 8.2, the Issuer shall deliver to the Trustee (i) a certificate signed by any authorised representative of the Issuer or, as the case may be, the Guarantor stating that the requirement referred to in (a) above will apply and cannot be avoided by the Issuer or, as the case may be, the Guarantor taking reasonable measures available to it and (ii) an opinion of independent legal or tax advisers of recognised standing to the effect that the Issuer or, as the case may be, the Guarantor has or will become obliged to pay such additional amounts as a result of such change or amendment, and the Trustee shall be entitled to accept the certificate and opinion as sufficient evidence of the satisfaction of the conditions precedent set out above in this Condition 8.2, in which event they shall be conclusive and binding on the Bondholders.

8.3 Redemption upon Relevant Event Following the occurrence of a Relevant Event (as defined below in this Condition 8.3), the holder of each Bond will have the right (the ‘‘Relevant Event Put Right’’), at such holder’s option, to require the Issuer to redeem all, or some only, of that holder’s Bonds on the Put Settlement Date (as defined below in this Condition 8.3) at 101 per cent. (in the case of a redemption for a Change of Control, as defined below in this Condition 8.3) or 100 per cent. (in the case of a redemption for a No Registration Event, as defined below in this Condition 8.3) of their principal amount together, in each case, with accrued interest to the Put

49 Settlement Date. To exercise such right, the holder of the relevant Bond must complete, sign and deposit at the specified office of any Paying Agent a duly completed and signed notice of redemption, in the form for the time being current, obtainable from the specified office of any Paying Agent (the ‘‘Put Exercise Notice’’) together with the Certificate evidencing the Bonds to be redeemed by not later than 30 days following a Relevant Event, or, if later, 30 days following the date upon which notice thereof is given to Bondholders by the Issuer or the Guarantor in accordance with Condition 14.

The ‘‘Put Settlement Date’’ shall be the fourteenth day (in the case of a redemption for a Change of Control) or the fifth day (in the case of a redemption for a No Registration Event) after the expiry of such period of 30 days after the later of a Relevant Event or the date upon which notice of a Relevant Event is given to Bondholders by the Issuer or the Guarantor in accordance with Condition 14 as referred to above.

A Put Exercise Notice, once delivered, shall be irrevocable and the Issuer shall redeem the Bonds that are the subject of Put Exercise Notices delivered as aforesaid on the Put Settlement Date.

The Issuer, failing whom the Guarantor, shall give notice to the Bondholders and the Trustee in accordance with Condition 14 by not later than 14 days (in the case of a Change of Control) or five days (in the case of a No Registration Event) following the first day on which it becomes aware of the occurrence of a Relevant Event, which notice shall specify the procedure for exercise by holders of their rights to require redemption of the Bonds pursuant to this Condition 8.3 and shall give brief details of the Relevant Event. Neither the Trustee nor any of the Agents shall be required to take any steps to ascertain whether a Relevant Event or any event which could lead to the occurrence of a Relevant Event has occurred and shall be entitled to rely conclusively upon any notice of Relevant Event provided by the Issuer or the Guarantor in accordance with this Condition 8.3.

Within 10 days after satisfaction of the Registration Conditions, the Issuer shall provide notices thereof to Bondholders.

For the purposes of this Condition 8.3:

‘‘Control’’ means (i) the ownership or control of more than 50 per cent. of the voting rights of the issued share capital of the Guarantor or (ii) the right to appoint and/or remove the majority of the members of the Guarantor’s board of directors or other governing body, whether obtained directly or indirectly, and whether obtained by ownership of share capital, the possession of voting rights, contract or otherwise; a ‘‘Change of Control’’ occurs when:

(a) the Huawei Union ceases to Control the Guarantor; or

(b) the Guarantor consolidates with or merges into or sells or transfers all or substantially all of the Guarantor’s assets to any other Person, unless the consolidation, merger, sale or transfer will not result in the other Person or Persons acquiring Control over the Guarantor or the successor entity;

‘‘Huawei Union’’ means the Union of Huawei Investment & Holding Co., Ltd, which has been awarded the legal person status of a social group pursuant to the General Principles of Civil Law and Trade Union Law of the PRC; a ‘‘No Registration Event’’ occurs when the Registration Conditions are not satisfied on or before the Registration Deadline (as defined in Condition 5.4);

50 ‘‘Person’’ includes any individual, company, corporation, firm, partnership, joint venture, undertaking, association, organisation, trust, state or agency of a state (in each case whether or not being a separate legal entity) but does not include the Guarantor’s board of directors or any other governing board and does not include the Guarantor’s wholly-owned direct or indirect subsidiaries;

‘‘Registration Conditions’’ means the receipt by the Trustee of: (i) a certificate signed by any director or authorised officer of the Guarantor confirming the completion of the registration of the Guarantee with SAFE in accordance with the Foreign Exchange Administration Rules on Cross-border Security（跨境擔保外匯管理規定）and(ii)acopyof the relevant SAFE registration certificate relating to such registration with SAFE in (i) above of this definition; and

‘‘Relevant Event’’ will be deemed to occur if:

(a) there is a Change of Control; or

(b) there is a No Registration Event.

8.4 Redemption at the option of the Issuer The Bonds may be redeemed at the option of the Issuer in whole or in part at any time at a price equal to their Make Whole Amount together with interest accrued but unpaid to the date fixed for redemption (collectively, the ‘‘Make Whole Redemption Price’’), on the Issuer’s giving not less than 30 nor more than 60 days’ notice to the Bondholders (which notice shall be irrevocable and shall oblige the Issuer to redeem the relevant Bonds on the relevant date fixed for redemption at the Make Whole Redemption Price) (a ‘‘Make Whole Redemption Notice’’).

For the purposes of this Condition 8.4:

‘‘Comparable Treasury Issue’’ means the United States Treasury security selected by the Independent Investment Bank as having a maturity comparable to the remaining term of the Bonds from the relevant date fixed for redemption to the Maturity Date, that would be utilised, at the time of selection and in accordance with customary financial practice, in pricing new issues of corporate debt securities of a maturity most nearly equal to the Maturity Date;

‘‘Comparable Treasury Price’’ means, with respect to any redemption date for the Bonds, the average of three, or such lesser number as is obtained by the Independent Investment Bank, Reference Treasury Dealer Quotations for such redemption date of the Bonds;

‘‘Independent Investment Bank’’ means an independent investment bank of international repute, appointed by the Issuer (and notice thereof is given to the Trustee in writing and to Bondholders by the Issuer in accordance with Condition 14 (Notices)) for the purposes of performing any of the functions expressed to be performed by it under these Conditions;

‘‘Make Whole Amount’’ means, in respect of each Bond at the relevant date fixed for redemption, (i) the principal amount of such Bond or, if this is higher (ii) the amount equal to the sum of the present value of the principal amount of such Bond, together with the present values of the interest payable in the relevant interest periods from the relevant redemption date to the Maturity Date, in each case, discounted to such redemption date on a semi-annual compounded basis at the U.S. Treasury Rate plus 0.50 per cent., all as determined by the Independent Investment Bank;

51 ‘‘Make Whole Determination Business Day’’ means a day, other than a Saturday, Sunday or public holiday, on which commercial banks and foreign exchange markets are open for general business in Hong Kong and New York City;

‘‘Reference Treasury Dealer’’ means each of the three nationally recognised investment banking firms selected by the Independent Investment Bank that are primary U.S. Government securities dealers;

‘‘Reference Treasury Dealer Quotations’’ means, with respect to each Reference Treasury Dealer and any redemption date for the Bonds, the average, as determined by the Independent Investment Bank, of the bid and asked prices for the Comparable Treasury Issue, expressed in each case as a percentage of its principal amount, quoted in writing to the Independent Investment Bank by such Reference Treasury Dealer at 5:00 p.m., New York City time on the third Make Whole Determination Business Day immediately preceding the issue of the Make Whole Redemption Notice; and

‘‘U.S. Treasury Rate’’ means either (i) the rate per annum equal to the yield, under the heading that represents the average for the week immediately preceding the third Make Whole Determination Business Day prior to the issue of the Make Whole Redemption Notice, appearing in the most recently published statistical release designated ‘‘H.15(519)’’ or if such release is not published any successor publication that is published weekly by the Board of Governors of the Federal Reserve System and that establishes yields on actively traded United States Treasury securities adjusted to constant maturity under the caption ‘‘Treasury Constant Maturities’’ for the maturity corresponding to the Comparable Treasury Issue (if no maturity is within three months before or after the Maturity Date, yields for the two published maturities most closely corresponding to the Comparable Treasury Issue shall be determined and the U.S. Treasury Rate shall be interpolated or extrapolated from such yields on a straight line basis, rounding to the nearest month) or (ii) if such release (or any successor release) is not published during the week preceding the third Make Whole Determination Business Day prior to the issue of the Make Whole Redemption Notice or does not contain such yields, the rate per annum equal to the semi-annual equivalent yield to maturity of the Comparable Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Treasury Price for such redemption date, in each case calculated on the third Make Whole Determination Business Day immediately preceding the issue of the Make Whole Redemption Notice.

8.5 Purchases The Issuer, the Guarantor or any of the Guarantor’s other Subsidiaries (as defined above in Condition 5.4) may at any time purchase Bonds in any manner and at any price.

8.6 Cancellations All Bonds which are (a) redeemed or (b) purchased by or on behalf of the Issuer, the Guarantor or any of the Guarantor’s other Subsidiaries will forthwith be cancelled, and accordingly may not be held, reissued or resold.

8.7 Notices Final Upon the expiry of any notice as is referred to in Conditions 8.2, 8.3 and 8.4, the Issuer shall be bound to redeem the Bonds to which the notice refers in accordance with the terms of such Condition.

52 9. TAXATION

As of the date of this Offering Circular, payments of premium (if any) and interest on the Bonds by the Guarantor under the Guarantee are subject to a withholding tax at a rate up to 10 per cent. in the PRC, in respect of which the Guarantor will pay additional amounts so that after deducting or withholding such taxes, Bondholders will receive the amounts of premium (if any) and interest which would otherwise have been received in the absence of such deduction or withholding. The Guarantor will account directly to the PRC authorities with respect to such taxes. See ‘‘Taxation – PRC Taxation’’. Bondholders are advised to consult local tax counsel with regard to the tax consequences of their holdings in the Bonds.

9.1 Payment without Withholding All payments in respect of the Bonds by or on behalf of the Issuer or the Guarantor shall be made free and clear of, and without withholding or deduction for, or on account of, any present or future taxes, duties, assessments or governmental charges of whatever nature (‘‘Taxes’’) imposed or levied by or on behalf of any of the Relevant Jurisdictions, unless the withholding or deduction of the Taxes is required by law. In that event, the Issuer or, as the case may be, the Guarantor will pay such additional amounts as may be necessary in order that the net amounts received by the Bondholders after the withholding or deduction shall equal the respective amounts which would have been receivable in respect of the Bonds in the absence of the withholding or deduction; except that no additional amounts shall be payable in relation to any payment in respect of any Bond:

(a) presented for payment by or on behalf of a holder who is liable to the Taxes in respect of the Bond by reason of his having some connection with any Relevant Jurisdiction other than the mere holding of the Bond; or

(b) where such withholding or deduction is imposed on a payment to an individual and is required to be made pursuant to European Council Directive 2003/48/EC or any law implementing or complying with, or introduced in order to conform to, such Directive; or

(c) if the Certificate in respect of such Bond is presented for payment by or on behalf of a holder who would have been able to avoid such withholding or deduction by presenting the relevant Bond to another Paying Agent in a Member State of the European Union; or

(d) if the Certificate in respect of such Bond is presented for payment more than 30 days after the Relevant Date (as defined below) except to the extent that a holder would have been entitled to additional amounts on presenting the same for payment on the last day of the period of 30 days assuming (whether or not such is in fact the case) that day to have been a Payment Business Day (as defined in Condition 7).

9.2 Interpretation In these Conditions:

(a) ‘‘Relevant Date’’ means the date on which the payment first becomes due but, if the full amount of the money payable has not been received by an Agent or the Trustee on or before the due date, it means the date on which, the full amount of the money having been so received, notice to that effect has been duly given to the Bondholders by the Issuer in accordance with Condition 14; and

53 (b) ‘‘Relevant Jurisdiction’’ means the British Virgin Islands or the PRC or any political subdivision or any authority therein or thereof having power to tax to which the Issuer or the Guarantor becomes subject in respect of payments made by it of principal, premium and interest on the Bonds.

9.3 Additional Amounts (a) Any reference in these Conditions to any amounts in respect of the Bonds shall be deemed to refer to any additional amounts which may be payable under this Condition 9 or under any undertakings given in addition to, or in substitution for, this Condition 9 pursuant to the Trust Deed provided that the additional amounts provided or referred to in this Condition 9 which are to be paid as a result of withholding or deduction in respect of PRC enterprise income tax at a rate of up to 10 per cent. in respect of payments of premium (if any) and interest on the Bonds by the Guarantor under the Guarantee shall not constitute additional amounts for the purposes of Condition 8.2.

(b) If the Issuer or the Guarantor becomes subject at any time to any taxing jurisdiction other than any of the Relevant Jurisdictions, references in these Conditions to the Relevant Jurisdiction shall be construed as references to such other jurisdiction.

10. PRESCRIPTION

Claims in respect of principal, premium and interest will become prescribed unless made within 10 years (in the case of principal and premium) and five years (in the case of interest) from the Relevant Date, as defined in Condition 9.

11. EVENTS OF DEFAULT

11.1 Events of Default The Trustee at its discretion may, and if so requested in writing by the holders of at least one-quarter in principal amount of the Bonds then outstanding or if so directed by an Extraordinary Resolution of the Bondholders shall (subject in each case to being indemnified and/or secured and/or pre-funded to its satisfaction) give notice to the Issuer and the Guarantor that the Bonds are, and they shall accordingly forthwith become, immediately due and repayable at their principal amount, together with accrued interest as provided in the Trust Deed, in any of the following events (‘‘Events of Default’’):

(a) if default is made in the payment of any principal or premium due in respect of the Bonds and the default continues for a period of three Business Days or if default is made in the payment of any interest due in respect of the Bonds and the default continues for a period of 14 days; or

(b) if the Issuer or the Guarantor fails to perform or observe any of its other obligations under these Conditions or the Trust Deed (other than those the breach of which would give rise to a redemption pursuant to Condition 8.3 (Redemption upon Relevant Event) and (except in any case where the Trustee considers the failure to be incapable of remedy, when no continuation or notice as is hereinafter mentioned will be required) the failure continues for the period of 30 days (or such longer period as the Trustee may permit) following the service by the Trustee on the Issuer or the Guarantor (as the casemaybe)ofnoticerequiringthesametoberemedied;or

(c) (i) if the principal of any Indebtedness for Borrowed Money (as defined below) of the Issuer, the Guarantor or any of the Guarantor’s Subsidiaries is not paid upon final maturity (after giving effect to the expiration of any applicable grace period therefor); (ii) the acceleration of the maturity of any Indebtedness for Borrowed Money of the

54 Issuer, the Guarantor or any of the Guarantor’sSubsidiariesbyreasonofaneventof default (however described); (iii) the failure to pay any amount payable by the Issuer, the Guarantor or any of the Guarantor’s Subsidiaries under any guarantee (as defined in Condition 5.4) given by it in relation to any Indebtedness for Borrowed Money of any other person; provided that no event described in this subparagraph 11.1(c) shall constitute an Event of Default unless the Indebtedness for Borrowed Money or other relative liability due and unpaid, either alone or when aggregated (without duplication) with other amounts of Indebtedness for Borrowed Money and/or other liabilities due and unpaid relative to all (if any) other events specified in (i) through (iii) inclusive above which have occurred and are continuing, amounts to at least U.S.$100,000,000 (or the equivalent thereof in any other currency); or

(d) if any order is made by any competent court (from which no further appeal or judicial review is permissible under the applicable law) or resolution is passed for the winding up or dissolution of the Issuer, the Guarantor or any of the Guarantor’sPrincipal Subsidiaries, save that (i) a reorganisation, amalgamation, consolidation or merger of a Guarantor’s Principal Subsidiary whereby all or substantially all the assets or undertaking of such Principal Subsidiary are transferred or continue to be otherwise vested in the Issuer, the Guarantor or other Subsidiaries (the ‘‘Reorganisation’’)inany combination or (ii) a solvent voluntary winding up or dissolution of a Guarantor’s Principal Subsidiary, shall not constitute an Event of Default; or

(e) if the Issuer, the Guarantor or any of the Guarantor’s Principal Subsidiaries ceases to carry on the whole or a substantial part of its business save for the purposes of, pursuant to or followed by a Reorganisation of a Guarantor’s Principal Subsidiary or the Issuer, the Guarantor or any of the Guarantor’s Principal Subsidiaries stops payment of, or is unable to pay, all or a material part of its Indebtedness for Borrowed Money as they fall due, or is adjudicated or found bankrupt or insolvent; or

(f) if (i) proceedings are initiated against the Issuer, the Guarantor or any of the Guarantor’s Principal Subsidiaries under any applicable liquidation, insolvency, composition, reorganisation or other similar laws or an administrative or other receiver, manager, administrator or other similar official is appointed, in relation to the Issuer, the Guarantor or any of the Guarantor’s Principal Subsidiaries, in each case, in relation to the whole or a material part of the undertaking or assets of any of them and save for the purposes of, pursuant to or followed by a Reorganisation of a Guarantor’sPrincipal Subsidiary or, an encumbrancer takes possession of the whole or a material part of the undertaking or assets of any of them, or a distress, execution, attachment, sequestration or other process is levied, enforced upon, sued out or put in force against the whole or a material part of the undertaking or assets of any of them, and (ii) in any such case (other than the appointment of an administrator) not discharged within 60 days; or

(g) if the Guarantee ceases to be, or is claimed by the Guarantor not to be, in full force and effect; or

(h) if the Issuer ceases to be a subsidiary wholly-owned and controlled, directly or indirectly, by the Guarantor; or

(i) if the Bonds, the Guarantee or the Trust Deed is or becomes unenforceable or invalid; or

55 (j) if any regulation, decree, consent, approval, licence or other authority necessary to enable the Issuer or the Guarantor to perform its obligations under the Bonds, the Guarantee or the Trust Deed or for the validity or enforceability thereof expires or is withheld, revoked or terminated or otherwise ceases to remain in full force and effect or is modified; or

(k) if any event occurs which, under the laws of any relevant jurisdiction, has or may have, in the Trustee’s opinion, an analogous effect to any of the events referred to in subparagraphs (d) to (j) above.

Notwithstanding the issue of the notice to the Issuer and the Guarantor that the Bonds are immediately due and repayable at their principal amount together with accrued interest (the ‘‘Acceleration Notice’’) but before a judgment or decree for payment of money has been obtained by the Trustee, the Bondholders holding a majority of the Bonds then outstanding, may waive all past defaults and rescind and annul such Acceleration Notice on the terms as such holders deem fit.

11.2 Interpretation For the purposes of this Condition 11:

‘‘Business Day’’ means a day (other than a Saturday or Sunday) on which commercial banks are generally open for business in Hong Kong and the PRC; and

‘‘Indebtedness for Borrowed Money’’ means any indebtedness (whether being principal, premium, interest or other amounts) for or in respect of any notes, bonds, debentures, debenture stock, loan stock or other securities or any borrowed money or any liability under or in respect of any acceptance or acceptance credit.

12. ENFORCEMENT

12.1 The Trustee may at any time, at its discretion and without notice, take such proceedings and/ or other steps or action (including lodging an appeal in any proceedings) against or in relation to the Issuer and/or the Guarantor as it may think fit to enforce the provisions of the Trust Deed and the Bonds, but it shall not be bound to take any such proceedings or any other steps or action in relation to the Trust Deed or the Bonds unless (a) it shall have been so directed by an Extraordinary Resolution of the Bondholders or so requested in writing by the holders of at least one-quarter in principal amount of the Bonds then outstanding, and (b) it has been indemnified and/or secured and/or pre-funded to its satisfaction.

12.2 The Trustee may refrain from taking any action in any jurisdiction if the taking of such action in that jurisdiction would, in its opinion based upon legal advice in the relevant jurisdiction, be contrary to any law or regulation of that jurisdiction. Furthermore, the Trustee mayalsorefrainfromtakingsuchactionifitwould otherwise render it liable to any person in that jurisdiction or if, in its opinion based upon such legal advice, it would not have the power to do the relevant thing in that jurisdiction by virtue of any applicable law or regulation in that jurisdiction or if it is determined by any court or other competent authority in that jurisdiction that it does not have such power.

12.3 No Bondholder shall be entitled to (a) take any steps or action against the Issuer or the Guarantor to enforce the performance of any of the provisions of the Trust Deed or the Bonds or (b) take any other proceedings (including lodging an appeal in any proceedings) in respect of or concerning the Issuer or the Guarantor, in each case unless the Trustee, having become bound so to take any such action, steps or proceedings, fails so to do within a reasonable period and the failure shall be continuing.

56 13. REPLACEMENT OF CERTIFICATES

If any Certificate is lost, stolen, mutilated, defaced or destroyed it may be replaced at the specified office of the Registrar upon payment by the claimant of the expenses incurred in connection with the replacement and on such terms as to evidence and indemnity as the Issuer and the Registrar may reasonably require. Mutilated or defaced Certificates must be surrendered before replacements will be issued.

14. NOTICES

All notices to the Bondholders will be valid if mailed to them at their respective addresses in the Register maintained by the Registrar or published in a leading newspaper having general circulation in Asia Pacific or, if such publication shall not be practicable, in a daily newspaper with general circulation in Asia Pacific approved by the Trustee. It is expected that such publication will normally be made in the Asia Wall Street Journal. Any notice shall be deemed to have been given on the second day after being so mailed or on the date of publication or, if so published more than once or on different dates, on the date of the first publication.

So long as the Bonds are represented by the Global Certificate and the Global Certificate is held on behalf of Euroclear or Clearstream, Luxembourg or any other clearing system, notices to Bondholders may be given by delivery of the relevant notice to Euroclear or Clearstream, Luxembourg or that other clearing system, for communication by it to entitled accountholders in substitution for notification as required by the Conditions.

15. SUBSTITUTION

The Trustee may, without the consent of the Bondholders, agree with the Issuer and the Guarantor to the substitution in place of the Issuer (or of any previous substitute under this Condition 15) as the principal debtor under the Bonds, the Agency Agreement and the Trust Deed with the Guarantor or any of its other Subsidiaries subject to:

(a) except in the case of the substitution with the Guarantor, the Bonds being unconditionally and irrevocably guaranteed by the Guarantor;

(b) the Trustee being satisfied that the interests of the Bondholders will not be materially prejudiced by the substitution; and

16. MEETINGS OF BONDHOLDERS, MODIFICATION, WAIVER AND AUTHORISATION

16.1 Meetings of Bondholders The Trust Deed contains provisions for convening meetings of the Bondholders to consider any matter affecting their interests, including without limitation the modification or abrogation by Extraordinary Resolution of any of these Conditions or any of the provisions of the Trust Deed. The quorum at any meeting for passing an Extraordinary Resolution will be one or more persons present holding or representing more than 50 per cent. in principal amount of the Bonds for the time being outstanding, or at any adjourned such meeting one or more persons present whatever the principal amount of the Bonds held or represented by him or them, except that, at any meeting the business of which includes the modification or abrogation of certain of the provisions of these Conditions and certain of the provisions of the Trust Deed, the necessary quorum for passing an Extraordinary Resolution will be one or more persons present holding or representing not less than two-thirds, or at any adjourned such meeting not less than one quarter, of the principal amount of the Bonds for the time

57 being outstanding. An Extraordinary Resolution passed by the Bondholders will be binding on all Bondholders, whether or not they are present at the meeting and whether or not they voted on the resolution.

In addition, a resolution in writing signed by or on behalf of the holders of not less than 90 per cent. of the Bonds then outstanding will take effect as if it were a duly passed Extraordinary Resolution. Such a resolution in writing may be contained in one document or several documents in like form, each signed by or on behalf of one or more Bondholders. An Extraordinary Resolution also includes consent given by way of electronic consents through the relevant Clearing System(s) (as defined in the Trust Deed) (in a form satisfactory to the Trustee) by or on behalf of the holders of the Bonds holding not less than 90 per cent. of the Bonds for the time being outstanding.

16.2 Modification, Waiver, Authorisation and Determination The Trustee may agree, without the consent of the Bondholders, to any modification of, or to the waiver or authorisation of any breach or proposed breach of, any of these Conditions or any of the provisions of the Trust Deed or the Agency Agreement, or determine, without any such consent as aforesaid, that any Event of Default shall not be treated as such (provided that, in any such case, it is not, in the opinion of the Trustee, materially prejudicial to the interests of the Bondholders) or may agree, without any such consent as aforesaid, to any modification which, in its opinion, is of a formal, minor or technical nature or to correct a manifest error or an error which, in the opinion of the Trustee, is proven.

16.3 Trustee to have Regard to Interests of Bondholders as a Class In connection with the exercise by it of any of its trusts, powers, authorities and discretions (including, without limitation, any modification, waiver, authorisation, determination or substitution), the Trustee shall have regard to the general interests of the Bondholders as a class but shall not have regard to any interests arising from circumstances particular to individual Bondholders (whatever their number) and, in particular but without limitation, shall not have regard to the consequences of any such exercise for individual Bondholders (whatever their number) resulting from their being for any purpose domiciled or resident in, or otherwise connected with, or subject to the jurisdiction of, any particular territory or any political sub-division thereof and the Trustee shall not be entitled to require, nor shall any Bondholder be entitled to claim, from the Issuer, the Guarantor, the Trustee or any other person any indemnification or payment in respect of any tax consequence of any such exercise upon individual Bondholders except to the extent already provided for in Condition 9 and/or any undertaking given in addition to, or in substitution for, Condition 9 pursuant to the Trust Deed.

16.4 Notification to the Bondholders Any modification, abrogation, waiver, authorisation, determination or substitution pursuant to Conditions 15 and 16 shall be binding on the Bondholders and, unless the Trustee agrees otherwise, shall be notified by the Issuer to the Bondholders as soon as practicable thereafter in accordance with Condition 14.

17. INDEMNIFICATION AND PROTECTION OF THE TRUSTEE AND ITS CONTRACTING WITH THE ISSUER AND THE GUARANTOR

17.1 Indemnification and Protection of the Trustee The Trust Deed contains provisions for the indemnification of the Trustee and for its relief from responsibility and liability towards the Issuer, the Guarantor and the Bondholders, including (a) provisions relieving it from taking action unless indemnified and/or secured and/or pre-funded to its satisfaction and (b) provisions limiting or excluding its liability in

58 certain circumstances. The Trust Deed provides that, when determining whether an indemnity or any security or pre-funding is satisfactory to it, the Trustee shall be entitled (a) to evaluate its risk in any given circumstance by considering the worst-case scenario and (b) to require that any indemnity or security or pre-funding given to it by the Bondholders or any of them be given on a joint and several basis and be supported by evidence satisfactory to it as to the financial standing and creditworthiness of each counterparty and/or as to the value of the security and an opinion as to the capacity, power and authority of each counterparty and/or the validity and effectiveness of the security.

17.2 Trustee Contracting with the Issuer and the Guarantor The Trust Deed also contains provisions pursuant to which the Trustee is entitled, inter alia, (a) to enter into business transactions with the Issuer and/or the Guarantor and/or any of the Guarantor’s other Subsidiaries and to act as trustee for the holders of any other securities issued or guaranteed by, or relating to, the Issuer and/or the Guarantor and/or any of the Guarantor’s other Subsidiaries, (b) to exercise and enforce its rights, comply with its obligations and perform its duties under or in relation to any such transactions or, as the case may be, any such trusteeship and (c) to retain and not be liable to account for any profit made or any other amount or benefit received thereby or in connection therewith.

18. FURTHER ISSUES

The Issuer is at liberty from time to time without the consent of the Bondholders to create and issue further notes or bonds (whether in bearer or registered form) either (a) ranking pari passu in all respects (or in all respects save for the first payment of interest thereon) and so that the same shall be consolidated and form a single series with the outstanding bonds or securities of any series (including the Bonds) constituted by the Trust Deed or any supplemental deed or (b) upon such terms as to ranking, interest, conversion, redemption and otherwise as the Issuer may determine at the time of the issue. Any further bonds or securities which are to form a single series with the outstanding bonds or securities of any series (including the Bonds) constituted by the Trust Deed or any supplemental deed shall, and any other further bonds or securities may (with the consent of the Trustee), be constituted by a deed supplemental to the Trust Deed. The Trust Deed contains provisions for convening a single meeting of the Bondholders and the holders of bonds or securities of other series in certain circumstances where the Trustee so decides.

19. GOVERNING LAW AND SUBMISSION TO JURISDICTION

19.1 Governing Law The Trust Deed (including the Guarantee) and the Bonds and any non-contractual obligations arising out of or in connection with the Bonds and the Trust Deed are governed by, and will be construed in accordance with, English law.

19.2 Jurisdiction of Hong Kong Courts Each of the Issuer and the Guarantor has, in the Trust Deed, irrevocably agreed for the benefit of the Trustee and the Bondholders that the courts of Hong Kong are to have exclusive jurisdiction to settle any disputes which may arise out of or in connection with the Trust Deed or the Bonds (including any non-contractual obligation arising out of or in connection with the Trust Deed or the Bonds) and accordingly has submitted to the exclusive jurisdiction of the Hong Kong courts.

Each of the Issuer and the Guarantor has, in the Trust Deed, waived any objection to the courts of Hong Kong on the grounds that they are an inconvenient or inappropriate forum.

59 19.3 Appointment of Process Agent Each of the Issuer and the Guarantor has, in the Trust Deed, irrevocably and unconditionally appointed Huawei Tech. Investment Co., Limited at 9/F., Tower 6, The Gateway, No. 9 Canton Road, Tsimshatsui, Kowloon as its agent for service of process in Hong Kong in respect of any suit, action or proceeding arising out of or in connection with the Trust Deed or the Bonds respectively (together referred to as ‘‘Proceedings’’) and have undertaken that in the event of such agent ceasing so to act it will promptly appoint such other person as the Issuer and/or the Guarantor may select as its agent for that purpose and will provide the Trustee with a copy of such other person’s acceptance of its appointment as process agent within 30 days of such cessation.

19.4 Immunity Each of the Issuer and the Guarantor has in the Trust Deed irrevocably and unconditionally waived and agreed not to raise with respect to the Trust Deed and the Bonds any right to claim any immunity from jurisdiction or execution and any similar defence, and has irrevocably and unconditionally consented to the giving of any relief or the issue of any process, including, without limitation, the making, enforcement or execution against any property whatsoever (irrespective of its use or intended use) of any order or judgment made or given in connection with any Proceedings.

20. RIGHTS OF THIRD PARTIES

No rights are conferred on any person under the Contracts (Rights of Third Parties) Act 1999 to enforce any term of this Bond, but this does not affect any right or remedy of any person which exists or is available apart from that Act.

60 SUMMARY OF PROVISIONS RELATING TO THE BONDS IN GLOBAL FORM

The Global Certificate contains provisions which apply to the Bonds while they are in global form, some of which modify the effect of the Conditions of the Bonds set out in this Offering Circular. The following is a summary of certain of those provisions.

The Bonds will be represented by the Global Certificate which will be registered in the name of BT Globenet Nominees Limited as nominee for, and deposited with, a common depositary for Euroclear and Clearstream, Luxembourg.

Under the Global Certificate, the Issuer, for value received, will promise to pay the amount payable upon redemption under the Conditions of the Bonds in respect of the Bonds represented by the Global Certificate to the Bondholder in such circumstances as the same may become payable in accordance with the Conditions of the Bonds.

The Global Certificate will become exchangeable in whole, but not in part, for Definitive Certificates if (a) Euroclear or Clearstream, Luxembourg is closed for business for a continuous period of 14 days (other than by reason of legal holidays) or announces an intention to permanently cease business or (b) any of the circumstances described in Condition 11 of the Conditions of the Bonds occurs.

Whenever the Global Certificate is to be exchanged for Definitive Certificates, such Definitive Certificates will be issued in an aggregate principal amount equal to the principal amount of the Global Certificate within five business days of the delivery, by or on behalf of the registered Bondholder of the Global Certificate, Euroclear and/or Clearstream, Luxembourg to the Registrar of such information as is required to complete and deliver such Definitive Certificates (including, without limitation, the names and addresses of the persons in whose names such Definitive Certificates are to be registered and the principal amount of each such person’s holding) against the surrender of the Global Certificate at the specified office of the Registrar. Such exchange will be effected in accordance with the provisions of the Agency Agreement and the regulations concerning the transfer and registration of Bonds scheduled thereto and, in particular, shall be effected without charge to any Bondholder or the Trustee, but against such indemnity as the Registrar may require in respect of any tax or other duty of whatsoever nature which may be levied or imposed in connection with such exchange.

In addition, the Global Certificate will contain provisions that modify the Conditions of the Bonds as they apply to the Bonds evidenced by the Global Certificate. The following is a summary of certain of those provisions:

Payment Record Date: Each payment made in respect of the Global Certificate will be made to the person shown as the Bondholder in the Register at the close of business (in the relevant Clearing System) on the Clearing System Business Day before the due date for such payment (the ‘‘Record Date’’)where‘‘Clearing System Business Day’’ means a weekday (Monday to Friday, inclusive) except 25 December and 1 January. Exercise of put option: In order to exercise the option contained in Condition 8.3 of the Conditions of the Bonds (the ‘‘Put Option’’), the Bondholder must, within the period specified in the Conditions of the Bonds for the deposit of the relevant Bond Certificate and put notice, give written notice of such exercise to the Principal Paying Agent specifying the principal amount of Bonds in respect of which the Put Option is being exercised. Any such notice shall be irrevocable and may not be withdrawn. Notices: Notwithstanding Condition 14 of the Conditions of the Bonds, so long as the Global Certificate is held on behalf of Euroclear, Clearstream, Luxembourg or any other clearing system (an ‘‘Alternative Clearing System’’), notices to Bondholders represented by the Global Certificate may be given by delivery of the relevant notice to Euroclear, Clearstream, Luxembourg or (as the case may be) such Alternative Clearing System.

61 USE OF PROCEEDS

The net proceeds from this offering will be approximately US$988.2 million after deducting the commission to be charged by the Joint Lead Managers and estimated offering expenses, and will be used for general corporate purposes.

62 EXCHANGE RATE INFORMATION

The PBOC sets and publishes daily a base exchange rate with reference primarily to the supply and demand of Renminbi with reference to a basket of currencies in the market during the prior day. The PBOC also takes into account other factors such as general conditions existing in the international foreign exchange markets.

Since 1994, the conversion of Renminbi into foreign currencies, including Hong Kong dollars and US dollars, has been based on rates set by the PBOC, which are set daily based on the previous day’s interbank foreign exchange market rates and current exchange rates in the world financial markets. From 1994 to July 2005, the official exchange rate for the conversion of Renminbi to US dollars was generally stable. Although PRC governmental policies were introduced in 1996 to reduce restrictions on the convertibility of Renminbi into foreign currency for current account items, conversion of Renminbi into foreign exchange for capital items, such as foreign direct investment, loans or securities, requires the approval of the SAFE and other relevant authorities. On 21 July 2005, the PRC government introduced a managed floating exchange rate system to allow the value of the Renminbi to fluctuate within a regulated band based on market supply and demand and by reference to a basket of currencies. The PRC government has since made and in the future may make further adjustments to the exchange rate system. The PBOC authorised the China Foreign Exchange Trading Centre, effective since 4 January 2006, to announce the central parity exchange rate of certain foreign currencies against the Renminbi at 9:15 AM each business day. This rate is set as the central parity for the trading against the Renminbi in the inter-bank foreign exchange spot market and the over the counter exchange rate for that business day. On 18 May 2007, the PBOC enlarged, effective on 21 May 2007, the floating band for the trading prices in the inter-bank foreign exchange spot market of Renminbi against the US dollar from 0.3 per cent. to 0.5 per cent. around the central parity rate. This allows the Renminbi to fluctuate against the US dollar by up to 0.5 per cent. above or below the central parity rate published by the PBOC. On 20 June 2010, the PBOC announced that it intended to further reform the Renminbi exchange rate regime by allowing greater flexibility in the Renminbi exchange rate and on 16 April 2012, the band was expanded to 1.0 per cent. Such floating band was further enlarged from 1.0 per cent. to 2.0 per cent., effective from 17 March 2014, as announced by the PBOC on 15 March 2014. More adjustments may be made to the exchange rate system by the PRC government in the future. Currently, the PROC announces the closing price of a foreign currency traded against Renminbi in the inter-bank foreign exchange spot market after the closing of the market on each business day, and makes it the central parity for the following business day.

The following table sets forth the noon buying rates for US dollars in New York City for cable transfers payable in Renminbi as certified by the Federal Reserve Bank of New York for customs purposes for and as at the periods indicated as set forth in the H.10 statistical release of the Federal Reserve Board.

Noon Buying Rate Low Average(1) High Period End (RMB per US$1.00) 2010 ...... 6.6000 6.7603 6.8330 6.6000 2011 ...... 6.2939 6.4475 6.6364 6.2939 2012 ...... 6.2221 6.2990 6.3879 6.2301 2013 ...... 6.0537 6.1478 6.2438 6.0537 2014 ...... 6.0402 6.1704 6.2591 6.2046 2015 January ...... 6.1870 6.2181 6.2535 6.2495 February ...... 6.2399 6.2518 6.2695 6.2695 March ...... 6.1955 6.2386 6.2741 6.1990 April (through 24 April 2015) ...... 6.1927 6.2000 6.2152 6.1930

Note:

(1) Averages are calculated by averaging the rates on the last business day of each month during the relevant year. Monthly averages are calculated by averaging the daily rates during the relevant monthly period.

On 24 April 2015, the noon buying rate for US dollars in New York City for cable transfers in Renminbi was US$1.00 to RMB6.1930 as set forth in the H.10 statistical release of the Federal Reserve Board.

63 INDUSTRY OVERVIEW

The information and statistics set out in this section have been derived, in part, from various government publications and databases. This information has not been independently verified by the Issuer, the Guarantor, the Group, the Joint Lead Managers, the Trustee, the Agents or their respective directors and advisers or any of their respective affiliates or any other party involved in this Offering. The information and statistics set out in this section may not be consistent with other information and statistics compiled within or outside the PRC.

Carrier Business According to the Communication Services Providers (‘‘CSP’’) Operational Technology report by Gartner1, total revenue from the global carrier networks in 2014 amounted to US$171.0 billion. The breakdown of revenue by the three segments of CSP Operational Technology, namely, CSP-OT Network, CSP-OT Software and CSP-OT Services amounted to US$84.2 billion, US$17.7 billion and US$69.1 billion, respectively. The overall market is forecast to reach US$216.9 billion by 2018, growing at 6.1% CAGR during the period.

The following chart sets forth the actual global CSP Operational Technology vendor revenue worldwide from 2012 to 2014 and the forecast from 2015 to 2018:

Global CSP Operational Technology Vendor Revenue, Worldwide (US$ billion)

216.9 207.0 194.8 181.7 171.0 158.8 163.3

2012 2013 2014 2015 2016 2017 2018

Source: Gartner ‘‘Forecast: Communications Service Provider Operational Technology, Worldwide, 2011-2018, 4Q14 Update’’ 09 January 2015. Chart created by Huawei based on Gartner research.

According to the CSP Operational Technology report by Gartner published in 20152,Huaweiwasthe second-largest vendor in terms of total carrier revenue. Among the three segments of CSP Operational Technology, Huawei was the largest vendor in the CSP-OT Network segment and the second-largest vendor in both CSP-OT Software and CSP-OT Services segments in 2014 globally.

1 Gartner ‘‘Forecast: Communications Service Provider Operational Technology, Worldwide, 2011-2018, 4Q14 Update’’ 09 January 2015. 2 Gartner ‘‘Market Share: Communications Service Provider Operational Technology, Worldwide, 2011-2018, 4Q14 Update’’ 09 January 2015.

64 The following chart sets forth the CSP market share by vendor revenue worldwide in 2014:

CSP Market Share by Vendor Revenue, Worldwide

40.0% 2014 Market Share (2014 total market size: US$ 170.97 billion) 35.7% 35.0%

30.0%

25.0%

20.0% 17.7% 16.1% 15.0%

10.0% 8.7% 8.2% 5.6% 5.1% 5.0% 2.7%

0.0% Ericsson Huawei Alcatel-Lucent Nokia Networks Cisco ZTE NEC Others

Source: Gartner ‘‘Market Share: Communications Service Provider Operational Technology, Worldwide, 2011-2018, 4Q14 Update’’ 09 January 2015. Chart created by Huawei based on Gartner research.

CSP-OT Network Segment The CSP-OT Network segment includes services for designing, building, operating and supporting CSP networks. This market is dominated by large equipment providers such as Huawei that supply the underlying network infrastructure. This segment requires massive scale and sophisticated technology. As such, the barriers to entry are high and market changes are slow.

According to Gartner3, worldwide CSP-OT Network revenue increased year-on-year by 4.7% to US$84.2 billion in 2014 and is forecast to grow further at a CAGR of 7.2% between 2014 and 2018 to reach US$111.1 billion by 2018. The CSP-OT Network segment is further divided into four sub- segments of (i) Fixed Access, (ii) Service Provider Routers and Switches (‘‘SPRS’’) and Optical Transport, (iii) Mobile Infrastructure and (iv) Other Network.

3 Gartner ‘‘Forecast: Communications Service Provider Operational Technology, Worldwide, 2011-2018, 4Q14 Update’’ 09 January 2015.

65 The following chart sets forth the actual CSP-OT Network vendor revenue worldwide from 2012 to 2014 and the forecast from 2015 to 2018:

CSP-OT Network Vendor Revenue, Worldwide (US$ billion)

111.1 104.9 97.5 90.2 84.2 79.2 80.4

2012 2013 2014 2015 2016 2017 2018

Source: Gartner ‘‘Forecast: Communications Service Provider Operational Technology, Worldwide, 2011-2018, 4Q14 Update’’ 09 January 2015. Chart created by Huawei based on Gartner research.

After years of consolidation, the industry is dominated by a limited number of telecommunications equipment manufacturers such as Huawei, Alcatel Lucent, Cisco, Ericsson, NSN and ZTE, which enjoy economies of scale, substantial research and development resources, international distribution channels and established relationships with a concentrated base of major telecommunications carriers. According to Gartner, the top three players in the telecommunications infrastructure industry collectively accounted for 48.9% of global market share in 2014, with the top 10 vendors having an aggregate market share of 83.5% in 2014.

The underlying driver of the growth in the telecommunications infrastructure industry is the demand for network bandwidth which was resulted from the proliferation of internet video and social media content, data intensive wireless devices and a widespread migration towards a more virtualised network environment.

66 The following chart sets forth the CSP Operational Technology Network Infrastructure market share by vendor revenue worldwide in 2014:

CSP Operational Technology Network Infrastructure Market Share by Vendor Revenue, Worldwide

2014 Market Share (2014 total market size: US$ 84.20 billion)

20.5%

16.5% 16.5%

11.9% 8.9% 8.3% 7.8%

3.2% 2.4% 2.2% 2.0%

Huawei Ericsson Alcatel- Cisco ZTE Nokia Samsung Juniper Ciena Fujitsu Others Lucent Networks Networks

Source: Gartner ‘‘Market Share: Communications Service Provider Operational Technology, Worldwide, 2014’’ 30 March 2015 Chart created by Huawei based on Gartner research.

For the sub-segments of the CSP-OT Network segment, Huawei is the largest vendor in Fixed Access and the second-largest vendor in Mobile Infrastructure and SPRS and Optical Transport in 2014 globally.

Fixed Network Infrastructure The Fixed Network Infrastructure market, which includes Fixed Access and SPRS and Optical Transport, has experienced healthy growth globally. Huawei, together with Cisco, Alcatel-Lucent, ZTE and Juniper, are the top five vendors in this market. According to Gartner4, total vendor revenue for Fixed Access and SPRS and Optical Transport was US$38.8 billion in 2014, which is forecast to have a CAGR of 5.9% to reach US$48.9 billion in 20185.

A large part of this growth will be a result of end-user demand for broadband connectivity which has helped to partially offset the decline in the consumer voice market. As a response to this trend, telecom carriers are expected to continue expanding network capacity to support the growth of data demand.

4 Gartner ‘‘Market Share: Communications Service Provider Operational Technology, Worldwide, 2014’’ 30 March 2015. 5 Gartner ‘‘Forecast: Communications Service Provider Operational Technology, Worldwide, 2011-2018, 4Q14 Update’’ 09 January 2015.

67 The following chart sets forth the actual Fixed Network Infrastructure vendor revenue worldwide from 2012 to 2014 and the forecast from 2015 to 2018:

Fixed Network Infrastructure Vendor Revenue, Worldwide (US$ billion)

48.9 46.6 44.0 41.4 38.8 34.8 36.7

2012 2013 2014 2015 2016 2017 2018

Source: Gartner ‘‘Forecast: Communications Service Provider Operational Technology, Worldwide, 2011-2018, 4Q14 Update’’ 09 January 2015. Chart created by Huawei based on Gartner data (based on total vendor revenue of Fixed Access and SPRS and Optical Transport).

The following table sets forth the SPRS and Optical Transport and Fixed Access market share worldwide in 2014:

SPRS and Optical Transport and Fixed Access Market Share, Worldwide SPRS and Optical Transport, Worldwide, 2014 % Cisco...... 22.9% Huawei...... 18.8% Alcatel-Lucent...... 14.8% Juniper...... 7.5% Ciena...... 6.9% ZTE...... 5.7% Fujitsu ...... 3.6% Ericsson...... 1.8% Others...... 18.0% Total...... 100.0%

Fixed Access, Worldwide, 2014 % Huawei...... 26.1% Alcatel-Lucent...... 15.3% ZTE...... 11.4% Cisco...... 4.8% Others...... 42.4% Total...... 100.0%

Source: Gartner ‘‘Market Share: Communications Service Provider Operational Technology, Worldwide, 2014’’ 30 March 2015

68 Mobile Infrastructure The Mobile Infrastructure market currently consists of 2G (GSM), 3G (WCDMA, TD-SCDMA and CDMA2000) and 4G (LTE). The Mobile Infrastructure market is facing a paradigm shift of increasing demand for mobile traffic and speed. Mobile Infrastructure market revenue reached US$40.1 billion in 2014 and is forecast to reach US$56.0 billion in 2018 (CAGR of 8.7%). Industry analysts believe that the majority of this growth will come from 3G and 4G networks to support growing data demand from mobile data devices.

The following chart sets forth the actual Mobile Infrastructure vendor revenue worldwide from 2012 to 2014 and the forecast from 2015 to 2018:

Mobile Infrastructure Vendor Revenue, Worldwide (US$ billion)

56.0 52.3 47.7 43.4 39.1 38.6 40.1

2012 2013 2014 2015 2016 2017 2018

Source: Gartner ‘‘Forecast: Communications Service Provider Operational Technology, Worldwide, 2011-2018, 4Q14 Update’’ 09 January 2015. Chart created by Huawei based on Gartner research.

Similar to the overall telecommunications infrastructure industry, the Mobile Infrastructure market is also dominated by a small number of vendors. According to Gartner6, the top three leading Mobile Infrastructure suppliers accounted for a combined 65.8% of market share in 20147.Huaweiwasastrong No. 2 player whose market share increased by more than 2% year-on-year to 20.9% in 2014.

6 Gartner ‘‘Market Share: Communications Service Provider Operational Technology, Worldwide, 2014’’ 30 March 2015. 7 Gartner ‘‘Market Share: Communications Service Provider Operational Technology, Worldwide, 2014’’ 30 March 2015.

69 The following chart sets forth the Mobile Infrastructure market share by vendor revenue worldwide in 2014:

Mobile Infrastructure Market SharebyVendorRevenue,Worldwide

2014 Market Share (2014 total market size: US$ 40.14 billion)

30.4%

20.9%

14.5% 10.1% 9.4% 5.9% 5.9% 2.9%

Ericsson Huawei NokiaAlcatel- ZTE Samsung NEC Others Networks Lucent

Source: Gartner ‘‘Market Share: Communications Service Provider Operational Technology, Worldwide, 2014’’ 30 March 2015 Chart created by Huawei based on Gartner research.

CSP-OT Software CSPs such as telecommunications carriers and content and applications service providers depend on the CSP-OT Software to run and support their networks and IT resources, as well as the management of their business operations activities. The CSP-OT Software market can be categorised into Operations Support Systems (‘‘OSSs’’), Business Support Systems (‘‘BSSs’’) and Service Delivery Platforms (‘‘SDPs’’), as well as technical support and maintenance related to software.

CSPs are expected to continue their investments in infrastructure and application software solutions. This is driven by their transformation programs and customer experience initiatives in developed markets, and by the need for agile subscriber growth management in developing markets.

According to Gartner, the CSP-OT Software segment had total worldwide sales revenue of US$17.7 billion in 2014, which is forecast to have a CAGR of 4.8% to reach US$21.3 billion in 2018.

70 The following chart sets forth the actual CSP-OT Software vendor revenue worldwide from 2012 to 2014 and the forecast from 2015 to 2018:

CSP-OT Software Vendor Revenue, Worldwide (US$ billion)

21.3 20.4 19.5 18.5 17.0 17.7 15.6

2012 2013 2014 2015 2016 2017 2018

Source: Gartner ‘‘Forecast: Communications Service Provider Operational Technology, Worldwide, 2011-2018, 4Q14 Update’’ 09 January 2015. Chart created by Huawei based on Gartner research.

The competition landscape in the CSP-OT Software segment is similar to the Mobile Infrastructure segment with the top 5 players accounting for 38.0% of total market revenue in 2014.

The following chart sets forth the CSP-OT Software market share by vendor revenue worldwide in 2014:

CSP-OT Software Market Share by Vendor Revenue, Worldwide

2014 Market Share (2014 total market size: US$17.68 billion)

11.0% 9.9%

6.7% 5.9% 4.5% 4.3% 3.9% 3.2% 3.0% 2.9% 2.3%

Ericsson Huawei IBM Amdocs Oracle NEC Nokia Alcatel- HP Accenture ZTE Networks Lucent

Source: Gartner ‘‘Market Share: Communications Service Provider Operational Technology, Worldwide, 2014’’ 30 March 2015. Chart created by Huawei based on Gartner research.

71 CSP-OT Services CSP-OT Services can be categorised into CSP-OT Software Services and CSP Network Infrastructure Services. The former encompasses services as part of wider transformation efforts and integration services and enhancements of existing legacy environments across multiple technologies covering large heterogeneous systems, applications and infrastructure, while the latter encompasses services related to CSP networks including consulting, network planning and design, network integration and testing.

The CSP service expenditure growth is fueled by LTE rollouts and CSPs’ digital transformation programs. As CSPs accelerate their network transformation including Software-Defined Networking (‘‘SDN’’) and Network Functions Virtualisation (‘‘NFV’’), operations strategy and transformation design services will be in higher demand.

According to Gartner, the CSP-OT Services segment had total sales revenue worldwide of US$69.1 billion in 2014, which is forecast to have a CAGR of 5.2% to reach US$84.5 billion in 20188.

The following chart sets forth the actual CSP-OT Services vendor revenue worldwide from 2012 to 2014 and the forecast from 2015 to 2018:

CSP-OT Services Vendor Revenue, Worldwide (US$ billion)

81.7 84.5 77.8 73.0 69.1 64.1 65.9

2012 2013 2014 2015 2016 2017 2018

Source: Gartner ‘‘Forecast: Communications Service Provider Operational Technology, Worldwide, 2011-2018, 4Q14 Update’’ 09 January 2015. Chart created by Huawei based on Gartner research.

8 Gartner ‘‘Forecast: Communications Service Provider Operational Technology, Worldwide, 2011-2018, 4Q14 Update’’ 09 January.

72 The following chart sets forth the CSP-OT Services market share by vendor revenue worldwide in 2014:

CSP-OT Services Market Share by Vendor Revenue, Worldwide

2014 Market Share (2014 total market size: US$69.09 billion)

21.1%

12.1% 10.0%

6.1% 4.0% 3.4% 2.9% 2.8% 2.7%

Ericsson Huawei Nokia Alcatel- Accenture NEC IBM Cisco Amdocs Networks Lucent

Source: Gartner ‘‘Market Share: Communications Service Provider Operational Technology, Worldwide, 2014’’ 30 March 2015. Chart created by Huawei based on Gartner research.

Enterprise Business As the influence of innovative ICT technologies such as cloud computing, Big Data, IoT and mobility on traditional industries continues to increase, the enterprises’ value creation approach and business models are evolving fast. The exponential increase in the volume of data being handled by enterprise networks has elevated requirements for more flexible and automated network environments at a lower cost. Companies are faced with a digital reconfiguration typical of the information age and ICT has become both a production system and core competency driving business transformation and innovation.

Traditional static network architecture is no longer suited for adapting to the dynamic, scalable service requirements of mobile, data intensive and interactive enterprise applications. New network architectures incorporating SDN and NFV are helping to create smart and flexible network and product architecture. Network hardware is being decoupled from software to allow optimum configuration of network resources, unified hardware platforms and flexible resources sharing, allowing networks to automate and scale up operations based on services volume.

Applying IT technologies to enterprise networks requires placing cloud data centres at the heart of the network architecture. As a result, data centres will become the core of ICT infrastructure as opposed to disparate servers and storage equipment deployed by enterprises in the past.

The Enterprise Hardware and Solutions market can be broadly classified into the categories below:

• Enterprise Network Equipment: This segment includes the building blocks of networking including Routers, Ethernet Switches, WLAN equipment and Network Security Equipment such as firewalls and secure routers;

• Data Centre/Cloud Equipment: This segment comprises enterprise-grade servers and storage equipment, which provide the computing, data processing and data repository functionalities in Enterprise ICT architecture; and

73 • Unified Communications and Collaboration (‘‘UC&C’’): This segment includes technologies and solutions geared towards enterprise communication and collaboration applications such as telepresence and videoconferencing, VoIP, customer premise equipment and hosted contact centres.

Enterprise equipment vendors typically overlay the equipment or solutions above with ICT infrastructure services including technical support and maintenance, network planning, consulting and network optimisation.

According to Gartner9, the total Enterprise IT spending across industry verticals stood at US$2,731 billion in 2014 and is forecast to reach US$3,079 billion by 2018, at a 3.0% CAGR. Banking and Securities, Manufacturing and Natural Resources, Government, Communications and Media and Services constituted 67.5% of the total spending in 2014 and are expected to remain similarly large constituents over the next four to five years.

The following chart sets forth the actual Enterprise IT spending by vertical industry market worldwide for 2014 and the forecast from 2015 to 2018:

Enterprise IT Spending by Vertical Industry Market, Worldwide 2014 (US$ billion)

Source: Gartner ‘‘Forecast: Enterprise IT Spending by Vertical Industry Market, Worldwide, 2012-2018, 4Q14 Update’’ 22 January 2015 Chart created by Huawei based on Gartner research.

Huawei emphasises open collaboration and constant innovation in offering Enterprise ICT infrastructure solutions and seeks to partner with other industry players in offering innovative, customised products and solutions that provide its customers with a leading edge.

9 Gartner ‘‘Forecast: Enterprise IT Spending by Vertical Industry Market, Worldwide, 2012-2018, 4Q14 Update’’ 22 January 2015.

74 Enterprise Network Equipment According to Gartner, the global vendor revenue for Enterprise Network Equipment stood at US$37.8 billion in 2014, and is expected to stay stable with a 0.8% CAGR reaching US$39.0 billion by 201810, which Huawei believes is driven by the twin trends of virtualisation and product commoditisation. Increasing demand for converged and customised solutions at a lower cost are providing players such as Huawei with opportunities to gain market share from historically dominant players. According to Gartner, Huawei expanded its revenue market share in the Enterprise Network Equipment market to 3.5% in 2014 and was ranked No.3 after Cisco and HP.

The following chart sets forth the actual global vendor revenue for Enterprise Network Equipment from 2013 to 2014 and the forecast from 2015 to 2018:

Global Vendor Revenue for Enterprise Network Equipment (US$ billion)

39.3 39.4 39.1 39.0

37.8

36.1

2013 2014 2015 2016 2017 2018

Source: Gartner ‘‘Forecast: Enterprise Network Equipment by Market Segment, Worldwide, 4Q14 and 2014’’ 24 March 2015. Chart created by Huawei based on Gartner research.

Among the various segments of the market, Ethernet Switches comprised approximately 55.7% of vendor revenue as at 2014, followed by Network Security Equipment (18.8%), WLAN equipment (11.0%) and Traditional Routers (7.6%) according to Gartner estimates.

Switches Ethernet Switches serve the function of creating a network by connecting devices and managing dataflow via packet switching to receive, process and forward data to a destination device. Ethernet Switches represented approximately 84% of the enterprise LAN equipment spending, while WLAN accounted for the balance. Ethernet Switches are segmented by bandwidth (such as 100Mbps, 1,000 Mbps and 10Gbps) as well as by location (campus switches comprise 60% of global vendor revenue, while data centre switches comprise the remaining 40%) according to Gartner11.

Huawei was listed as the fastest-growing provider in the global data centre switch market in 2014 with a growth rate of 137%, according to IDC Worldwide Quarterly Datacentre Networks Qview. Huawei’s S12700 Series Agile Switches was awarded the 2014 Interop Tokyo Enterprise Networking Special Prize and the SDN Solution award from the United States-based Network World.

10 Gartner, ‘‘Forecast: Enterprise Network Equipment by Market Segment, Worldwide, 2012-2019, 1Q15 Update’’ 31 March 2015. 11 Gartner ‘‘Market Share: Enterprise Network Equipment by Market Segment, Worldwide, 4Q14 and 2014’’ 24 March 2015.

75 Routers Enterprise Traditional Routers serve as a gateway and dispatcher for connecting and routing data across multiple networks. Within the Routers sub-segment, Huawei was the second-largest vendor worldwide in 2014 with a 15.3% market share according to Gartner12.

WLAN Wireless LAN equipment connects multiple devices on a network using wireless distribution protocols within a limited area. The WLAN market has been one of the fastest growing markets in networking, driven by increasing demand for connecting multiple devices to the Internet in workplaces, replacing legacy wired infrastructure with Wi-Fi access points as well as complex business requirements such as secure guest access and policy enforcement driven by enterprise Bring Your Own Device (‘‘BYOD’’) adaptations. WLAN equipment includes stand-alone access points, coordinated access points, controllers and enhancement products, which accounted for 4%, 61%, 19% and 16% of the segment spending in 2014, respectively13. According to Gartner’s Magic Quadrant for the Wired and Wireless LAN Access Infrastructure report, Huawei is positioned in the Challengers quadrant14.

Security Network Security Equipment includes firewall equipment, specialised IPS equipment and secure routers, which accounted for 74%, 17% and 9% of the segment spending in 2014, respectively according to Gartner estimates15.

Servers According to Gartner16, the total global market volume for Servers vendor revenue is forecast to increase from around US$50.6 billion in 2014 to US$52.5 billion in 2018. Among the different types of CPU servers, the most common are Industry Standard Servers (‘‘ISS’’),commonlyreferredtoasx86 servers, which comprised approximately 81% of the overall Servers market by vendor revenue in 2014. According to Gartner17, the x86 servers segment is forecast to expand at a 2.1% CAGR over 2014 to 2018 to reach US$44.9 billion in market size by 2018. The overall vendor revenue in the global Servers market is forecast to grow at a slower 0.9% CAGR according to Gartner estimates. Huawei believes that global vendor revenue continues to be pressured by the ongoing trends of weak end-market demand, server virtualisation, infrastructure convergence and availability of reliable and scalable ISS servers at lower price points.

12 Gartner ‘‘Market Share: Enterprise Network Equipment by Market Segment, Worldwide, 4Q14 and 2014’’ 24 March 2015. 13 Gartner ‘‘Market Share: Enterprise Network Equipment by Market Segment, Worldwide, 4Q14 and 2014’’ 24 March 2015. 14 Gartner ‘‘Magic Quadrant for the Wired and Wireless LAN Access Infrastructure’’ Tim Zimmerman et al, 26 June 2014. Gartner does not endorse any vendor, product or service depicted in its research publications, and does not advise technology users to select only those vendors with the highest ratings or other designation. Gartner research publications consist of the opinions of Gartner’s research organization and should not be construed as statements of fact. Gartner disclaims all warranties, expressed or implied, with respect to this research, including any warranties of merchantability or fitness for a particular purpose. 15 Gartner ‘‘Market Share: Enterprise Network Equipment by Market Segment, Worldwide, 4Q14 and 2014’’ 24 March 2015. 16 Gartner ‘‘Forecast: Servers, All Countries, 2012-2019, 1Q15 Update’’ 20 March 2015. 17 Gartner ‘‘Forecast: Servers, All Countries, 2012-2019, 1Q15 Update’’ 20 March 2015.

76 The following chart sets forth the actual global vendor revenue for Servers by form factor from 2013 to 2014 and the forecast from 2015 to 2018:

Global Vendor Revenue for Servers by Form Factor (US$ billion)

x86 Servers (All CPU)

52.49 50.21 50.59 49.69 50.95 51.83 43.78 44.91 41.30 41.09 42.43 38.72

2013 2014 2015 2016 2017 2018

Source: Gartner ‘‘Forecast: Servers, All Countries, 2012-2019, 1Q15 Update’’ 20 March 2015. Chart created by Huawei based on Gartner research.

According to Gartner, Huawei was the fifth largest player globally in terms of x86 global server shipments among branded server OEMs, behind HP, Dell, IBM and Lenovo18.

Storage Enterprise Storage Equipment provides centralised repositories for data backup, access and recovery. External Controller-Based Disk Storage comprises the bulk of this market and stood at US$22.9 billion in global vendor revenue in 2014 as per Gartner estimates19.

While global end-market demand has continued to stay suppressed over the last few years, next- generation data centres have also spurred trends such as storage virtualisation, web-scale public cloud as an alternative storage architecture and software-defined storage. These trends will continue to reshape the Enterprise storage segment in coming years, providing opportunities for storage vendors who can provide innovative, customised and integrated ICT solutions. Gartner forecasts the vendor revenue in the global market to grow at 1.4% CAGR over 2014 to 2018 to reach US$24.2 billion by 201820.InChina, Huawei was ranked No.1 in terms of revenue, number of units and capacity and market share in 2014. In addition, Huawei was listed as a challenger for the first time in Gartner’s General Purpose Disk Array Magic Quadrant in 201421.

18 Gartner ‘‘Quarterly Statistics: Servers, Worldwide, 4Q14 Update’’ 02 March 2015. 19 Gartner ‘‘Forecast: External Controller-Based Storage, Worldwide, All Countries, 2015-2019, 1Q15 Update’’ 25 March 2015. 20 Gartner ‘‘Forecast: External Controller-Based Storage, Worldwide, All Countries, 2015-2019, 1Q15 Update’’ 25 March 2015. 21 Gartner “Magic Quadrant for General-Purpose Disk Arrays” Stanley Zaffos et al, 20 November 2014. Gartner does not endorse any vendor, product or service depicted in its research publications, and does not advise technology users to select only those vendors with the highest ratings or other designation. Gartner research publications consist of the opinions of Gartner’s research organisation and should not be construed as statements of fact. Gartner disclaims all warranties, expressed or implied, with respect to this research, including any warranties of merchantability or fitness for a particular purpose.

77 The following chart sets forth the actual global vendor revenue for External Controller-Based Disk Storage from 2013 to 2014 and the forecast from 2015 to 2018:

Global Vendor Revenue for External Controller-Based Disk Storage (US$ billion)

24.2 23.9 23.6 23.2 22.9 22.5

2013 2014 2015 2016 2017 2018

Source: Gartner ‘‘Forecast: External Controller-Based Storage, Worldwide, All Countries, 2014-2019, 1Q15 Update’’ 25 March 2015. Chart created by Huawei based on Gartner research.

Unified Communications and Collaboration The global market is transitioning from legacy telephony and messaging platforms to new UC&C platforms and solutions. Industry trends such as targeted lower cost solutions, BYOD and browser based Real-Time Communications are making UC&C applications appealing to Small and Midsize Businesses (‘‘SMBs’’). IDC has identified Huawei as a major player in the Unified Communications and Collaboration segments. Gartner has also placed Huawei among the ‘‘Challengers’ in the Gartner Magic Quadrant for contact centre infrastructure worldwide.

Consumer Business Consumer Business targets retail customers who are looking for a broad range of entertainment, communications and information experiences through the application and use of modern mobile devices, including smartphones, mobile broadband devices and home networking devices.

Smartphones The global smartphone industry is seeing robust growth, especially amid surging demand in the emerging markets. The advent of high-performance and affordable Android-based smartphones is a key catalyst in driving smartphone adoption. According to a report by Strategy Analytics, global smartphone sales grew from approximately 990 million units in 2013 to approximately 1,250 million units in 2014. Sales are forecast to reach approximately 1,766 million units in 2020, representing a CAGR of 5.9%.

78 The following chart sets forth the actual global Smartphone sales from 2011 to 2014 and the forecast from 2015 to 2020:

Global Smartphone Sales (million of units)

1,711 1,766 1,584 1,651 1,501 1,394 1,250 990

700 491

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Source: Strategy Analytics

China’s smartphone industry benefits from the increasing spending power of Chinese consumers. According to Strategy Analytics, the number of smartphones sold in China surged from approximately 320.4 million units in 2013 to approximately 421.8 million units in 2014. The sales are forecast to further increase to approximately 527.0 million units in 2020, representing a CAGR of 3.8%. China first overtook the United States in smartphone sales in the third quarter of 2011 as the largest smartphone market globally and the two countries are expected to retain their first and second positions respectively through 2018.

Strategy Analytics forecasts that global smartphone sales will grow at a better rate of 11.5% in 2015, comfortably offsetting the slowdown in featurephone volumes. However, the current growth rate for smartphones worldwide is below the 45% average annual rate seen in the period from 2011 to 2014 as penetration in several regions starts to plateau. In many developed markets such as North America and Western Europe, smartphones already comprised the majority of all handsets sold and the growth rate of sales is moderating, although growth remains rapid in developing markets such as India, led by the boom in lower-priced Android, Android One and Firefox models. India is expected to overtake the United States for second place in smartphone sales in 2019.

Asia Pacific will remain the primary driver of global smartphone sales growth in 2015 with a growth rate of 13.1% and will account for 54.9% of global sales. Asia Pacific contains three of the top 10 global smartphone countries in 2014. While Strategy Analytics forecasts that Asia Pacific’s share of the global market may saturate, it continues to recommend that smartphone vendors prioritise the region for its scale and potential growth.

With Asia Pacific’s share of the global smartphone market reaching a plateau in the next three years, Strategy Analytics forecasts that substantial parts of the new growth will come from Central and Latin America and the Africa and Middle East region. Africa and Middle East’s global share is expected to increase to 9.6% in 2020, up from 6.6% in 2014. Major nations, such as South Africa, Nigeria and Saudi Arabia, will be launching 3G or 4G networks and rolling out greater volumes of smartphones in the coming years.

79 The following table sets forth the actual Smartphone sales for the Asia Pacific region from 2011 to 2014 and the forecast from 2015 to 2020:

Asia Pacific Smartphone Sales (million of units) 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 China ...... 87.6 173.4 320.4 421.8 465.5 491.0 504.0 512.1 520.1 527.0 India ...... 10.9 20.5 49.8 84.8 106.0 125.5 146.0 164.0 181.1 199.6 Indonesia ...... 9.0 10.0 11.7 23.4 34.0 38.4 42.0 44.2 46.0 47.3 Japan...... 24.9 36.5 42.9 42.8 42.9 43.2 43.4 43.7 43.9 44.1 South Korea ...... 17.5 30.7 24.0 22.0 22.8 23.5 24.2 24.7 25.1 25.4 Vietnam ...... 2.5 4.0 7.4 11.8 14.0 15.7 17.0 18.4 19.5 20.4 Philippines ...... 5.0 6.5 7.9 10.4 12.0 13.7 15.3 16.7 17.9 19.0 Thailand...... 4.4 5.3 7.5 10.8 12.3 13.5 14.5 15.5 16.2 17.0 Others ...... 28.1 32.8 39.1 49.0 55.7 62.6 68.7 74.2 79.1 84.1 Total...... 189.9 319.7 510.7 676.8 765.2 827.1 875.1 913.5 948.9 983.9

Source: Strategy Analytics

According to Strategy Analytics, the more mature markets of North America and Western Europe will see their global shares decrease due to high penetration rates and slower growth rates. North America will account for approximately 11.4% of worldwide smartphone sales in 2015, which is forecast to dip to approximately 10.0% in 2020. Similarly, Western Europe’s share will likely fall from approximately 10.5% in 2015 to approximately 9.6% in 2020. Central and Eastern Europe’s share of the global market is forecast to hold steady around the 5.0% level through 2020, led by Russia and Poland.

The following table sets forth the actual percentage of global Smartphone sales for each region from 2011 to 2014 and the forecast from 2015 to 2020:

Global Smartphone Sales by Regions Global Smartphone Sales: % of Total 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 North America 22.2% 17.7% 14.1% 12.0% 11.4% 11.0% 10.7% 10.4% 10.2% 10.0% Western Europe 19.6% 17.1% 13.9% 11.3% 10.5% 10.2% 10.0% 9.9% 9.8% 9.6% Asia Pacific 38.7% 45.7% 51.6% 54.1% 54.9% 55.1% 55.3% 55.3% 55.5% 55.7% Central & Latin America 7.4% 8.5% 9.8% 11.0% 10.7% 10.6% 10.5% 10.4% 10.3% 10.2% Central & Eastern Europe 6.0% 5.8% 5.2% 5.0% 5.0% 4.9% 4.9% 4.9% 4.8% 4.8% Africa&MiddleEast 6.1%5.2%5.4%6.6%7.5%8.2%8.7%9.1%9.4%9.6% Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

Source: Strategy Analytics

According to Strategy Analytics, Huawei is the third largest smartphone vendor globally in terms of total shipment and shipped a robust 74.1 million smartphones worldwide in 2014, representing 47.0% year-on-year growth as compared to 201322. Huawei significantly outperformed the market. In 2014, Huawei distributed approximately 63.4% of its total smartphones in the Asia Pacific collectively and increased its market share to approximately 6.9% in the region according to IDC. China remains Huawei’s core focus due to a strong presence in the TD-SCDMA and CDMA markets and improved volumes in the LTE segment. In Western Europe, Huawei maintains strong growth as its market share increased to over 4.2% in 2014 due to its improving international expansion strategy, including localised management teams and continuing investment in R&D facilities across Europe. In Africa and the Middle East, Huawei is growing strongly as a result of low-cost Android models. Huawei distributed approximately 13.4% of its total smartphones in the region and increased its market share to over 8.9%

22 Lenovo’s shipments and Motorola’s shipments are counted separately without combined together as for ranking.

80 in 2014. Huawei shipped approximately 10.2% of its total smartphones to Latin America and increased its market share to approximately 5.6% in 2014. Huawei also distributes its smartphones in North America as well as Central and Eastern Europe.

The following table sets forth the global smartphone vendor shipments of the leading smartphone vendors from 2011 to 2014:

Highlights of Leading Smartphone Vendors Global Smartphone Vendor Shipments (million of units) 2011 2012 2013 2014 Samsung...... 97.4 213.0 319.8 317.2 Apple...... 93.0 135.8 153.4 192.7 Huawei...... 16.8 30.2 50.4 74.1 Xiaomi...... – 5.7 18.7 61.1 LG...... 20.2 26.3 47.6 59.2 Lenovo(1) ...... – 23.5 45.8 59.0 Others...... 263.1 265.6 354.3 520.2 Total...... 490.5 700.1 990.0 1,283.5

Source: Strategy Analytics

Note:

(1) Figures do not include global smartphone vendor shipments of Motorola, which totaled 18.6 million, 19.1 million, 16.3 million and 33.7 million units for 2011, 2012, 2013 and 2014 respectively.

Mobile Broadband Devices Mobile broadband devices, consisting mainly of mobile modules and data cards which provide connectivity, convenience and efficiency, have become increasingly popular in modern society. Investment in deploying higher-speed networks has driven strong growth in the number of mobile broadband connections in recent years.

Mobile broadband is device agnostic and covers a range of technologies including CDMA 2000, EV-DO, WCDMA HSPA, TD SCDMA, WiMAX and LTE. Mobile broadband offers consumers a viable substitute for a fixed broadband connection, especially in those markets where fixed broadband penetration is relatively low or where fixed broadband networks have not been fully upgraded to offer higher data speeds.

There is an ongoing technology shift in the global connection base, driven by improving coverage of higher-speed networks and the increased affordability of more advanced handsets and devices. The increase in 4G connections reflects the acceleration in LTE deployments in many countries across the world. Currently, the United States, Japan, and South Korea are leaders in terms of LTE connections. Going forward, the focus will shift towards Asia, with the growth being led by China.

Huawei is a global leader and focuses on developing innovative features in its mobile broadband devices. In 2014, the total global shipments of Huawei’s mobile broadband modules and data cards reached approximately 5.1 million sets and 28.1 million sets respectively.

Home Devices Home networking devices include a wide range of products for home internet and home media, such as tablets, routers, TV set-top-boxes and other accessories. Huawei is a key innovator of stylish home devices and delivered approximately 26.6 million units to families all over the world in 2014.

81 According to a report by Gartner, global tablet shipments in 2014 amounted to approximately 226 million units while worldwide tablet shipments will reach approximately 237 million units in 2015, representing a 5% year-on-year increase23. While the overall growth rate has been moderating from double digits as seen before, Huawei believes that the demand for tablets continues to be strong in China driven by under-penetration and the continued shift from PC to mobile. In addition, recent technological advancements, including improved visual experience, superior performance and cost- saving features have enhanced the adoption of tablets in China.

CPE devices including routers, switches and residential gateways are core elements of the smart family ecosystem and provide traffic gateways for family internet. In 2014, according to Infonetics Research, Huawei was the largest provider of DSL CPE devices globally in 2014, with shipments of 17.2 million units, capturing an approximately 18.5% market share.

The TV set-top-box provides a one-stop-shop home entertainment platform. Its sales grow steadily driven by upgrades and increased adoption. The market for accessories is fragmented. Companies invest in developing accessories to extend the ecosystem of the core consumer brand and to strengthen customer loyalty. Huawei makes strategic investments into smart wearables and smart home domains. Huawei’s first wearable TalkBand B1 was launched globally in 2014 and was rapidly recognised in the market for its unique innovative architecture.

23 Gartner ‘‘Forecast: PCs, Ultramobiles and Mobile Phones, Worldwide, 2012-2019, 1Q15 Update’’ 16 March 2015.

82 CAPITALISATION AND INDEBTEDNESS

The following table sets forth the Guarantor’s consolidated capitalisation and indebtedness as at 31 December 2014 and as adjusted to give effect to the issue of the Bonds. This table should be read in conjunction with the Guarantor’s consolidated financial statements as at and for the year ended 31 December 2014 and the accompanying notes included in this Offering Circular.

The as adjusted information in the following table below is illustrative only and does not take into account any changes in the Guarantor’s capitalisation and borrowings after 31 December 2014, other than to give effect to the issue of the Bonds and the receipt of the proceeds from the offering before deducting the commissions and estimated offering expenses. The translations from RMB to US$ were made at the rate of RMB6.1958 to US$1.00, being the median rates set by the PBOC for foreign exchange transactions prevailing on 31 December 2014.

As at 31 December 2014 Actual As adjusted (RMB’000) (US$’000) (RMB’000) (US$’000) Cash and cash equivalents ...... 78,047,655 12,596,865 78,047,655 12,596,865 Short term loans and borrowings(1) ...... 10,529,847 1,699,514 10,529,847 1,699,514 Long-term interest-bearing borrowings Long-term interest-bearing borrowings ...... 17,576,885 2,836,903 17,576,885 2,836,903 Bonds to be issued(2) ...... ––6,195,800 1,000,000 Total long-term interest-bearing borrowings ...... 17,576,885 2,836,903 23,772,685 3,836,903 Total interest-bearing borrowings...... 28,106,732 4,536,417 34,302,532 5,536,417 Total equity(3) ...... 99,985,077 16,137,557 99,985,077 16,137,557 Total capitalisation(4) ...... 128,091,809 20,673,974 134,287,609 21,673,974

(1) Short term loans and borrowings include the current portion of long term interest bearing borrowings.

(2) Refers to the aggregate principal amount of the Bonds of US$1,000,000,000 before deducting the commissions and estimated offering expenses.

(3) Total equity includes paid-in capital, capital surplus, reserves and retained earnings.

(4) Total capitalisation equals to the sum of total interest-bearing borrowings and total equity.

Except as described above and in ‘‘Description of the Group – Indebtedness’’, there has not been any material change in the Guarantor’s capitalisation and indebtedness since 31 December 2014.

83 DESCRIPTION OF THE ISSUER

Formation Proven Honour Capital Limited is a limited liability company incorporated under the BVI Business Companies Act, 2004 (as amended) (Company Number: 1697091). It was incorporated in the British Virgin Islands on 22 February 2012. The Issuer is a wholly-owned subsidiary of the Guarantor.

Business Activity The Issuer was established for the purpose of issuing the Bonds, the CNY1,000,000,000 5.30 per cent. bonds due 2015 issued on 18 May 2012 (the ‘‘2012 Bonds’’) and the CNY1,600,000,000 4.55 per cent. guaranteed bonds due 2017 issued on 23 September 2014 (the ‘‘2014 Bonds’’). The Issuer has not engaged, since the date of its incorporation, in any other material activities other than those relating to the issue of the 2012 Bonds, the 2014 Bonds, the proposed issue of the Bonds and the on-lending of the proceeds thereof to the Guarantor and/or any other subsidiary of the Guarantor and the authorisation of documents and agreements referred to in this Offering Circular to which it is or will be a party.

Financial Statements Under British Virgin Islands law, the Issuer is not required to publish interim or annual financial statements. The Issuer has not published, and does not propose to publish, any financial statements. The Issuer is, however, required to keep proper books of account as are necessary to give a true and fair view of the state of the Issuer’s affairs and to explain its transactions.

Directors and Officers The directors of the Issuer as at the date of this Offering Circular are Guo Ping and Meng Wanzhou. The Issuer has no employees.

Share Capital The Issuer is authorised under its memorandum of association to issue a maximum of 50,000 shares of US$1.00 par value each and 10,000 shares have been issued to, and are held by, Huawei Tech. Investment Co., Ltd. The register of members of the Issuer is maintained at its registered office in the British Virgin Islands at P.O. Box 957, Offshore Incorporations Centre, Road Town, Tortola, British Virgin Islands. No part of the equity securities of the Issuer is listed or dealt on any stock exchange and no listing or permission to deal in such securities is being or is proposed to be sought. As at the date of this Offering Circular, the Issuer does not have any debt outstanding other than the 2012 Bonds and the 2014 Bonds.

Capitalisation and Indebtedness of the Issuer The following table sets out the capitalisation and indebtedness of the Issuer as at 31 December 2014 and as adjusted to give effect to the issue of the Bonds and the receipt by the Issuer of the proceeds from the offering before deducting commissions and estimated offering expenses. The translations from RMB to US$ were made at the rate of RMB6.1958 to US$1.00, being the median rates set by the PBOC for foreign exchange transactions prevailing on 31 December 2014:

As at 31 December 2014 Actual Actual As adjusted As adjusted (RMB’000) (US$’000) (RMB’000) (US$’000) Borrowings Bonds payable ...... 2,580,752 416,532 2,580,752 416,532 Bonds to be issued(1) ...... ––6,195,800 1,000,000 Totalequity...... (4,230) (683) (4,230) (683) Total capitalisation(2) ...... 2,576,522 415,849 8,772,322 1,415,849

(1) Refers to the aggregate principal amount of the Bonds of US$1,000,000,000 before deducting the commission and estimated offering expenses.

(2) Total capitalisation equals to the sum of total interest-bearing borrowings and total equity.

84 DESCRIPTION OF THE GROUP

Overview Huawei is a global leader of ICT solutions. Continuously innovating based on customer needs, Huawei is committed to enhancing customer experiences and creating maximum value for telecom carriers, enterprises and consumers. Huawei’s telecom network equipment, IT products and solutions and smart devices are used in over 170 countries and regions, serving over one-third of the world’s population. Huawei was ranked No. 285 among the Fortune Global 500 in 2014 and employed approximately 170,000 people worldwide as at 31 December 2014.

Huawei currently operates in the following three business segments:

• Consumer Business: Develops and manufactures mobile broadband devices, home devices, smartphones as well as the applications on these devices and delivers them to consumers and businesses.

While Huawei offers comprehensive products and services to the three distinct customer groups, it manages and controls its main research, manufacturing, procurement, IT systems and administration on a centralised basis. Huawei has set up 16 R&D centres in countries such as Germany, Sweden, the United States, India, Japan, Canada and China. As at 31 December 2014, Huawei had approximately 76,000 R&D specialists, approximately 45% of its total workforce worldwide. To contribute to the sustainable development of society, the economy and the environment, Huawei has created a wide range of green solutions that enable consumers to reduce power consumption, carbon emissions and resource costs.

Huawei has experienced sustainable growth over the years and its revenue increased from RMB239,025 million in 2013 to RMB288,197 million in 2014, representing a year-on-year growth of 20.6%. Huawei has also achieved steady profit growth in recent years and its net profit amounted to RMB21,003 million and RMB27,866 million in 2013 and 2014, respectively.

Geographical Distribution The following table sets forth Huawei’s revenue by geographic location for the years indicated:

Year ended 31 December 2013 2014 (RMB in (RMB in millions) % millions) % China...... 82,785 34.6 108,881 37.8 EMEA...... 84,006 35.1 100,990 35.0 AsiaPacific(excludingChina)...... 38,691 16.2 42,424 14.7 Americas...... 29,346 12.3 30,852 10.7 Others...... 4,197 1.8 5,050 1.8 Total...... 239,025 100.0 288,197 100.0

85 Organisation Huawei is a private company wholly-owned by its employees. Shareholders of Huawei are the union of Huawei Investment & Holding Co., Ltd. (the ‘‘Union’’) and Mr. Ren Zhengfei.

Through the Union, the company implements an Employee Shareholding Scheme (the ‘‘Scheme’’), which involved 82,471 employees as at 31 December 2014. This Scheme effectively aligns employee contributions with the company’s long-term development, fostering Huawei’s continued success. See ‘‘The Shareholding Structure of the Guarantor’’ for further information on the Scheme. Mr. Ren Zhengfei is the individual shareholder of the company and also participates in the Scheme. As at 31 December 2014, Mr. Ren Zhengfei’s investments (including those held directly by himself and through the Union) accounted for nearly 1.4% of Huawei’s total share capital.

The following chart sets forth a simplified corporate and shareholding structure of the Group as at 31 December 2014:

Notes:

(1) Refers to the shareholding in Huawei held by Mr. Ren Zhengfei as an individual shareholder.

(2) Entities shaded in grey refer to the principal subsidiaries of Huawei.

Below is a brief description of the principal subsidiaries of Huawei:

• Huawei Technologies Co., Ltd. is engaged in the development, manufacture and sale of telecommunication products and the technical support and maintenance of electrical equipment and spare parts.

• Huawei International Pte. Ltd. is incorporated in Singapore and is engaged in the trading of telecommunication equipment.

• Huawei Device Co., Ltd. is engaged in the development, manufacture and sale of mobile communication products and electrical parts.

86 • Huawei Device (Dongguan) Co., Ltd. is engaged in the design, development, manufacture and sale of telecommunication and information products, auxiliary parts and the provision of consulting and after-sale services. It also engages in the design, development, manufacture and sale of satellite TV receiving antennas, tuners, digital satellite TV receivers and the import and export business.

• Huawei Tech. Investment Co., Limited is incorporated in Hong Kong and is engaged in the trading of imported materials, sale of overseas devices (excluding the United States) and overseas machinery.

• Huawei Technologies Coöperatief U.A. is incorporated in the Netherlands and invests in overseas subsidiaries.

Corporate History 1987: Founded by Mr. Ren Zhengfei and several other investors with an investment of US$3,500 as a reseller of PBX switches under the name of Hong Kong Hong Nian Company.

1992: Developed HJD analog switches that supported 48 ports.

1993: Developed C&C08 digital switches, which were primarily deployed in rural areas.

1997: Started engaging global top consulting firms for management transformation.

1999: Established the first international R&D centre in Bangalore, India.

2000: Made significant progress in developing countries such as Uzbekistan.

2005: Became a preferred supplier for top carriers such as BT and Vodafone. Revenue from Asia-Pacific, the Americas and EMEA exceeded that of the domestic market for the first time.

2009: Deployed the world’s first LTE network in Northern Europe.

2010: Transformed from a CT company to an ICT company and established three BGs.

2011: Established the future-facing 2012 Laboratories, which focuses on next-generation network technologies, including 5G, NG-PON and next-generation Internet.

2012: Introduced SoftCOM to help streamline operator networks and IT resources and reconstruct the telecommunications industry in terms of architecture, networks, services and operations.

2013: Launched the world’s first service and user experience-centric agile network architecture, along with the first-of-its-kind agile switch S12700.

2014: To adapt to the ICT convergence trend, established the Products & Solutions department by integrating R&D platforms to reduce operating costs and provide customers with more competitive solutions.

87 Competitive Strengths Huawei believes that its continuous business success is largely attributable to the following unique competitive strengths:

A global leading innovator with world-class R&D capabilities and cutting-edge technologies Huawei is globally acclaimed for its innovation and invention. In 2014, Huawei was:

• No. 50 most innovative company in Boston Consulting Group’s The Most Innovative Companies 2014. Huawei was one of the four Chinese companies on the list; and

• 2014 Top 100 Global Innovators by Thomson Reuters

R&D is a core pillar of Huawei’s continuous success. Huawei has set up 16 R&D centres in countries such as Germany, Sweden, the United States, India, Japan, Canada and China. As at 31 December 2014, Huawei had approximately 76,000 R&D specialists, approximately 45% of its total workforce worldwide. In 2013 and 2014, Huawei’s R&D expenses totalled RMB31,563 million and RMB40,845 million, respectively, accounting for 13.2% and 14.2%, respectively, of its total revenue, among the highest ratios in the ICT industry.

Huawei’s R&D capabilities are also evident from the significant amount of intellectual property that it has developed. Huawei is the company with the largest number of patents in China, one of the top 50 holders of patents granted in the United States and one of the top 10 holders of patents granted in Europe. Huawei has been dedicated to driving the development of LTE standards and filed in 2014, a total of 665 accepted proposal have been submitted in this area to 3GPP, which is the largest number in the industry. As at 31 December 2014, Huawei had filed 48,719 patent applications in China and 23,917 outside China, of which 38,825 patents have been granted.

Huawei continuously invests in building future-oriented technological advances to stay at the forefront of the industry. Huawei actively collaborates with other key industry players to define 5G standards jointly. Huawei co-established the 5G Innovation Centre in the UK and conducts joint research with over 20 top universities. Huawei also pioneers efforts to research and design radio link technology for 5G air interfaces in the project METIS. In late 2014, Huawei worked with industry partners to build the world’s first 5G testbed to accelerate 5G research. By the end of 2014, Huawei had established nine 5G research laboratories with over 300 experts specialising in 5G technology.

A leading ICT solutions provider with global scale and leadership in multiple product segments Huawei is a global leader in providing advanced ICT solutions and products to carriers, enterprises and consumers around the world. Huawei’s in-depth understanding of its customers’ specific demands and challenges allows it to incorporate innovative features into its products and services, customised according to its customers’ needs. Huawei strives to build broader global connectivity. With the accelerated rollout of 4G mobile ultra-broadband networks, Huawei commercially deployed 174 long- term evolution (‘‘LTE’’) networks in more than 100 capital cities, nine financial centres and 132 evolved packet core (‘‘EPC’’) networks worldwide. With its established track record, Huawei has also constructed 186 commercial networks worldwide powered by its 400G core routers to help leading corporate customers across the globe take up the challenges presented by the increasingly massive data traffic.

Over the past 28 years of robust growth, Huawei has developed a diverse and well-balanced product portfolio. In 2014, Huawei had top leading positions in terms of largest market share globally in the following segments:

• No. 1 in network infrastructure in 2014;

88 • No. 1 in fixed access in 2014;

• No. 2 in mobile infrastructure in 2014;

• No. 2 in service provider routers and switches and optical transport network in 2014;

• No. 2 in operational technology software in 2014;

• No. 2 in operational technology services in 2014;

• No. 2 in enterprise routers in 2014; and

• No. 3 in smartphones in 2014.

Strong brand awareness with diversified and high-quality customer and supplier base Huawei’s high-quality customer base is evident in its long-term partnership with leading telecommunications carriers in the world. To date, Huawei has established long-term business relationships with top telecommunications carriers in the world, such as China Mobile, China Telecom, China Unicom, T-Mobile, Etisalat, Telefónica, SingTel, British Telecom and Vodafone. Huawei has entered into 5 to 15 year long-term framework supply agreements with a majority of these top telecommunications carriers. This high-quality customer base has allowed Huawei to expand product and service offerings and drive revenue growth. It has also given Huawei a considerable advantage in understanding market and technology trends to better guide its R&D strategy for future market development. Huawei has continually offered training programmes and industry update seminars through its 45 training centres worldwide to improve the professional skills of customers to remain up-to-date with changing technology.

Due to the long sales cycle of telecommunications network infrastructure and its need for continuous vendor support during operations, telecommunications carriers generally select their vendors based on a stringent and professional certification and audit process to prove their long-term technical and financial viability. Huawei’s brand is known globally to governments, corporations and individual customers. A recent consumer survey by IPSOS, a market research firm, which covered 32 countries, revealed that Huawei’s brand awareness rose from 52% in 2013 to 65% in 2014, representing a year-on-year increase of 25%. In the Chinese market, awareness of the Huawei brand increased to 90%. Huawei is among the top three brands in terms of Brand Momentum according to IPSOS. Huawei is also the first Chinese company to be successfully listed on Interbrand’s 2014 Top 100 Best Global Brands list.

Huawei adopts a multiple-supplier strategy to diversify its sources of supply. For a particular component that is available only from one supplier or a limited number of suppliers, Huawei typically enters into a guaranteed product supply arrangement with such suppliers. This gives Huawei the right to receive supplies on a priority basis and to claim compensation or other remedies if such supplier fails to meet its quality or quantity requirements. Huawei’s key suppliers comprise well-established global technology and manufacturing companies, such as Foxconn, Qualcomm, IBM, Microsoft, Matsunichi, O-film, Intel, Broadcom, Hynix, TSMC and BYD.

Experienced and stable management team and highly motivated staff leading to continuous operational efficiency improvement Huawei’s success is critically-hinged on the sound leadership and vision of its directors and senior management as well as its highly motivated and proficient staff.

Most members of Huawei’s senior management have been with Huawei since the early 1990s and have served Huawei for over 15 years. The average length of service of 23 years provides Huawei with stable management, a continuous platform to drive through management’s initiatives and promotes operational excellence. With its well-defined strategy and prudent management, Huawei has navigated through

89 various technological reforms, economic cycles and industry developments over 28 years. Huawei’s management has strong execution capabilities which successfully led the company to launch, among others, a globally leading smartphone business within a short time-frame. The management team is open to learning advanced management systems from other leading companies and to integrating the industry’s best practices with Huawei’s existing advantages. This enables Huawei to continuously improve its management and operational efficiency. In addition, the management has had the vision to expand Huawei’s business globally, entrenching Huawei in different local industries in the global markets.

Huawei’s corporate culture and shareholding structure promote innovation and entrepreneurship and Huawei has a highly motivated and proficient professional workforce. Huawei implements an employee shareholding scheme, under which high-performing employees can make a cash contribution to share in Huawei’s success by receiving dividend and capital appreciation. The scheme effectively aligns employees’ personal goals with Huawei’s long-term development, fostering Huawei’s continuing success.

In 2014, to encourage Huawei’s employees to strive for excellence, Huawei raised salaries and incentives for field units and high-performers. Huawei fully implemented the ‘‘Contribute and Share’’ bonus mechanism. Regarding long-term incentives, Huawei rolled out the Time-based Unit Plan (‘‘TUP’’) globally for all outstanding employees to share in more of the profits of Huawei’s long-term development. TUP is a profit-sharing and bonus plan based on employee performance for all eligible employees (‘‘recipients’’) in the Group. Under TUP, time-based units (‘‘TBUs’’)aregrantedtothe recipients, which entitle the recipients to receive cash incentives calculated based on the annual profit- sharing amount and the cumulative end-of-term gain amount. Both of the annual profit-sharing and the end-of-term gain amount are determined at the discretion of the Group.

Huawei is on LinkedIn’s 2014 list of the World’s 100 Most In Demand Employers. As at 31 December 2014, Huawei employed from about 170 countries and regions across six continents, creating a truly global and vibrant working environment.

Global resources with local focus to rationalise cost structure and to successfully penetrate into both emerging and developed economies around the world Huawei’s global business has operations in over 170 countries and regions. Huawei fully integrates the best available resources to build a global value chain which is shared with customers around the world in order to grow with them symbiotically. Through working with local industry leaders, Huawei fully combines the advantages of its global value chain with local innovation capabilities, enabling local innovations amplify their strength to reach the global market. This strategy effectively helps Huawei to successfully penetrate both the developing and developed markets.

Huawei has established 16 R&D centres, over 40 centres of expertise and over 30 shared service centres around the world to consolidate innovation capabilities and to interact directly with customers in different regions. In addition, shared logistics and accounting centres and centralised IT, procurement and production platforms have enabled Huawei to improve operating efficiency while maximising synergy among different business groups. Huawei outsources most of its manufacturing needs to contractors and has a streamlined process for supply, distribution and sales to fully benefit from the economies of scale that its global operations bring. Huawei’s European Logistics Centres, for example the centre based in Hungary, fully utilises regional resources and covers Europe, Central Asia, the Middle East and Africa which represent huge growth potential for Huawei’s products and solutions.

Robust credit profile and strong liquidity position supported by prudent risk management Huawei has experienced continuous growth in its profits and cash flows. Huawei’s operating profit increased from RMB29,128 million in 2013 to RMB34,205 million in 2014, representing a year-on-year growth of 17.4%. Similarly, Huawei’s cash flow from operating activities grew from RMB22,554 million in 2013 to RMB41,755 million in 2014, representing a year-on-year growth of 85.1%. Rising

90 profits and strong liquidity reflect Huawei’s efficient cost management and sound business strategies. This strong profitability allows Huawei to comfortably meet its financial obligations and fund growth plans.

Huawei has access to various sources of capital to further support its already strong liquidity position. Huawei has cultivated a long-term relationship with a number of reputable domestic and international banks. As at 31 December 2014, Huawei had obtained committed facilities from syndicated loans of approximately RMB35,209 million in aggregate, out of which RMB21,549 million was utilised. Huawei also participates in the debt capital market and issued CNH bonds with principal amounts of RMB1,000 million and RMB1,600 million in 2012 and 2014 respectively. As at 31 December 2014, Huawei had a net cash surplus of RMB49,941 million and an interest coverage ratio of 20.2x24.

Huawei adopts a set of comprehensive policies and guidelines to ensure a prudent and sustainable expansion of its business. Huawei closely monitors and controls its indebtedness levels and relevant financial ratios to lower its risks of defaults through managing the maturity dates of indebtedness level and currencies. Huawei has set up its Financial Risk Control Centre in London to manage global financial risk and to ensure that its financial operations remain efficient, secure and compliant. Huawei has also centralised cash management to increase the efficiency of cash utilisation and to lower financing costs.

Strategies Huawei is committed to strengthening its market position as the leading global ICT infrastructure supplier and solutions provider through the following strategies:

Focus on ‘‘Pipe Strategy’’ and manage business portfolio with effective growth Huawei focuses on products, services and solutions for transmitting, processing, storing and presenting information as part of its ‘‘Pipe Strategy’’, a core strategy and key area of focus for Huawei. Huawei will continue to invest and develop its pipe system to achieve effective growth and long-term returns.

Based on the operational characteristics of its Carrier, Enterprise and Consumer segments, Huawei reorganised its business into three distinct customer-driven groups to deliver innovative, differentiated and leading solutions in 2011. In order to adapt further to the increasing convergence of IT and CT technologies, Huawei established the Products & Solutions department in 2014 to maintain its edge in innovation through an integrated ICT portfolio.

Huawei intends to further strengthen its market-leading position in the global telecommunications industry by leveraging its diverse and substantial customer base in over 170 countries and regions. Huawei also plans to expand its strategic partnership with key customers in the Carrier Business by providing a full suite of value-added software and services in addition to network infrastructure to increase customer loyalty and revenue growth opportunities. Promotion of the continuous evolution of LTE, strengthening its research in 5G technology and building an enterprise cloud service platform to explore opportunities with other carriers are some of the operational strategies that Huawei will undertake to build on its present strengths.

A present objective is to expand its Enterprise Business and Consumer Business to a point where Huawei can leverage its core competency in the Carrier Business to pursue growth and diversification. Huawei intends to optimise its regional organisation and accelerate the pace of delegating authority to field units.

The growth of Huawei’s products in areas such as smartphones will allow Huawei to build a consumer- centric brand name.

24 See ‘‘Selected Financial Information – Other Financial and Operating Data’’.

91 Extend technological leadership through demand-driven innovations sustained by effective processes and management systems Huawei strives to enhance its presence in key standards-setting organisations worldwide to maintain its vision and sustain its position as one of the industry leaders on technology evolution. Huawei plans to continue investing approximately 10% of its revenue into R&D each year. Huawei’s first-class worldwide R&D network is comprised of 16 strategically positioned R&D centres that can quickly deliver Huawei’s industry-leading offerings, such as its aesthetics and graphic chip design in France and its microwave technology in Italy, while benefiting from economies of scale. Huawei’s technological innovations are driven by two core principles: customer needs and a relentless exploration into the latest technological advancements worldwide. These two core principles underpin Huawei’s execution of a successful customer-driven technological innovation framework. Huawei also strives to attract and retain the best talent, and continuously integrates and optimises transformative projects across different functions, processes and departments at its representative offices.

Continue to enhance operational efficiency through management improvement Huawei will continue to collaborate with leading consultancies such as IBM, Accenture, the Hay Group, PricewaterhouseCoopers, Fraunhofer-Gesellschaft and Boston Consulting Group to improve management capability and efficiency in major elements of Huawei’s operations from R&D to manufacturing, distribution and support. Huawei’s key initiatives include:

• in R&D, enhancing the integrated product development process to improve productivity further and shorten the development cycle. This ensures that technical innovations have clear customer relevance and can be commercialised in a shortperiodwithareasonablerateofreturn;

• in sales and services, promoting project-centred operations, and piloting pre-sales and post-sales alignment at the project level. Huawei’s goal is to change from a ‘‘function first, project second’’ matrix to a strong ‘‘project first, function second’’ matrix structure. In addition, Huawei will enhance major management processes to ensure that cross-functional sales and service delivery efforts are properly scheduled to achieve higher customer satisfaction and revenue assurance;

• in supply chain management, continuing to streamline the supply chain management process to enhance cross-platform coordination, maximise cost synergy and ensure increasing cash-flow; and

• in operations, extending its integrated transformation pilot project to other selected countries. Huawei intends to delegate more responsibility and authority to field units to achieve faster and more efficient customer response and turn-around time. The target for Huawei’s management transformation is to achieve ‘‘complete integration within two years’’ in the ICT infrastructure network business, and to lay the foundation for achieving CIAG (Consistency of Inventory Accounts and Goods) within three years and the ‘‘Five Ones’’ (One Network, One Platform, One Process, One Team and One SLA Management) within five years. Through central management and supervision at the back offices while empowering field offices with authority and delegation of responsibility, Huawei seeks to further streamline its operational efficiency and maintain quality of service.

Implement ‘‘Glocalised’’ operations to fully combine the advantages of its global value chain with local innovation capabilities As a global company that operates in over 170 countries and regions, Huawei integrates the best resources from around the world to build a global value chain to allow it to successfully penetrate into both emerging and developed economies around the world. Huawei’s localised operations will enable Huawei to contribute to socioeconomic development as well as enable local innovations to reach the global market. Huawei is committed to being a responsible corporate citizen, an innovative enabler for the information society and a collaborative industry contributor. Huawei has also established 16 R&D centres, over 40 centres of expertise and over 30 shared service centres around the world to strengthen

92 innovation capabilities and to directly interact with customers in different regions. Huawei outsources most of its manufacturing needs to contractors and has a streamlined process for supply, distribution and sales to benefit fully from the economies of scale that its global operations bring.

Building strategic alliances, cooperating with industry players and joining standards and open source organisations to establish mutually beneficial collaboration and achieve sustainable industry development Huawei strives to build a robust industry ecosystem primarily through three methods, (i) establishing strategic alliances, (ii) cooperating with industry players and (iii) joining standards and open source organisations.

In terms of establishing strategic alliances, Huawei focuses on collaborating with large industry leaders to develop its differentiated capabilities, which allows Huawei to provide strong and competitive solutions through joint cooperation, thereby creating increased value for its customers. As an example, Huawei and SAP have launched SAP HANA, an x86 server that uses the SAP HANA in-memory database to improve system performance. Huawei and Accenture have also developed an enterprise private cloud (‘‘EPC’’) solution.

To enhance collaboration with industry players, Huawei has developed and implemented strategies for driving industry development and integrating into vertical industries. To address new market opportunities, Huawei has collaborated with partners to develop industry standards, policies, spectrum allocation and end-to-end solutions. At present, Huawei has made significant progress in several industry alliances covering eLTE, FusionSphere and millimetric waves. Adhering to its strategy of integration, Huawei has sought to integrate with key industries in government, transportation, energy and finance. Huawei has also worked with independent software vendors (‘‘ISVs’’)andsystem integrators (‘‘Sis’’) to develop and sell industry-specific solutions and has further aligned its horizontal infrastructure solutions with the needs of various industries.

In terms of joining standards and open source organisations, Huawei has made significant contributions to developing industry standards and building an open source ecosystem and its heavy involvement has reinforced Huawei’s position as a trusted industry leader. As a result of the fast advancing information industry, ‘‘Open Cooperation’’ has become a core strategy of Huawei, which has placed increasing emphasis on such open cooperation with its partners. Working more closely with its partners mutually amplifies and complements the strength of Huawei and its partners and creates increased value, building a healthy ‘‘win-win’’ ecosystem.

Maintain a prudent and strong risk management policy Huawei believes that a prudent and robust risk management system can reduce operational risks and help achieve long-term sustainable growth. Huawei will continue to implement and enhance a prudent risk management system with well-defined policies and guidelines in key areas of enterprise risks facing Huawei including, among others:

• stringent legal risk management that emphasises full compliance with legal, regulatory and governmental requirements, particularly in countries and regions with higher compliance risks;

• comprehensive operational risk management which allows Huawei to reduce concentration risk in raw materials, technologies, suppliers, countries and currencies, and particularly, strategic inventory buffers for key materials and components to mitigate the risk of supply chain disruptions;

• systematic measures to control customer credit risk including periodic reviews of each customer’s credit profile based on internally generated credit scores; and

93 • well-managed hedging policy, which promotes natural hedges to mitigate interest rate and foreign exchange risk.

Maintain a strong focus on corporate governance Huawei’s business structure focuses on three dimensions – customers, products, and regions – and has been delegating more authority to the field. Accordingly, Huawei strives to enhance the operations and capabilities of the board of directors in its major subsidiaries to better supervise compliance with local laws, regulations, and business practices. At the corporate level, Huawei has a clear strategic goal to become the leader in the ICT industry and build a ‘‘Better Connected World’’. Huawei also regularly evaluates the performance of board of directors members to ensure better guidance for corporate strategy execution and business operations.

Place cyber security and user privacy protection above Huawei’s business interests Ubiquitous networks are changing the way the world works and lives. While this presents many opportunities, it also poses new challenges to global security. Huawei is committed to protecting customers’ information assets and user privacy and strives to adopt every possible means to provide higher levels of assurance to ensure the security and stable operations of its customer networks. As part of its corporate social responsibility, Huawei is committed to honouring user privacy protection in accordance with local laws and regulations. Huawei frequently shares its cyber security management practices with all stakeholders, including customers, industry players, governments and the media. These practices include an end-to-end cyber security assurance system, a management approach that is oriented towards built-in processes and its ‘‘Assume nothing, Believe nobody, Check everything’’ philosophy.

Continue to attract, incentivise and retain employees Huawei’s success, to a large extent, depends on its employee shareholding scheme. In order to maintain its competitive advantage in the ICT industry, Huawei intends to:

• continue to implement its employee shareholding scheme to motivate highly qualified personnel;

• continue to support and recognise the importance of a market-driven compensation system that rewards performance and results, including rolling out the TUP as a long-term incentive globally for all outstanding employees, especially those at the junior and middle levels, to share in more of the benefits of Huawei’s long-term development;

• continue to develop a sound learning and development platform for employees through organising product knowledge and professional skills training, participating in international professional forums, offering global job rotation opportunities and providing a comprehensive management skills training system; and

• continue to extend the range of its non-monetary incentives, including commendations such as the ‘‘Whiz Kids’’ and the ‘‘Future Stars’’. Huawei provides high-performing employees with access to fast-track promotions in terms of position and job level, providing such employees with more development opportunities and rewards.

94 Products and Services Huawei’s three principal business segments comprise the (i) Carrier Business, (ii) Enterprise Business and (iii) Consumer Business. The following table sets forth a breakdown of its revenue by segment and expressed as a percentage of its total revenue for the years indicated:

Year ended 31 December 2013 2014 (RMB in (RMB in millions) % millions) % CarrierBusiness...... 164,947 69.0 192,073 66.6 EnterpriseBusiness...... 15,238 6.4 19,391 6.7 Consumer Business ...... 56,618 23.7 75,100 26.1 Others...... 2,222 0.9 1,633 0.6 Total...... 239,025 100.0 288,197 100.0

Carrier Business Huawei’s Carrier Business is the core strength of Huawei and accounts for a substantial part of Huawei’s revenue. In 2013 and 2014, revenue from the Carrier Business amounted to RMB164,947 million and RMB192,073 million respectively, accounting for 69.0% and 66.6% respectively of Huawei’stotal revenue.

In a Better Connected World, carriers constantly face pressure from more devices, content, and application scenarios. To help carriers address these challenges, Huawei focuses on information transmission, processing, storage, and presentation and provides integrated products, services, and business solutions to help carriers build networks capable of delivering an optimal experience and cope with the challenges presented by ICT transformation.

It is Huawei’s general strategy to help carriers build ubiquitous broadband networks that deliver an optimal experience, operate efficiently, and enable agile business innovation. As carriers’ most trusted partner, Huawei has empowered carriers to develop the key capabilities required for ICT transformation. These key capabilities include building efficient infrastructure, enabling smart pipes, aggregating digital content, opening up networks, exploring vertical industries, and conducting ICT-oriented architecture transformation. In the future, Huawei aims to help carriers bring more value to end users in a Better Connected World in the future.

Wireless Networks With large-scale worldwide LTE deployment, Huawei steadily expanded its presence in the global LTE market, having also commercially deployed 174 LTE networks and 132 EPC networks for carriers. LTE networks constructed by Huawei now serve approximately half of all LTE subscribers around the world.

In China, Huawei has become the most important strategic partner of China Mobile, China Telecom, and China Unicom in the area of LTE construction.

Huawei maintained its leadership position in the Universal Mobile Telecommunications System (‘‘UMTS’’)/High Speed Packet Access Plus (‘‘HSPA+’’) market and deployed a total of 304 commercial UMTS networks worldwide, accounting for 53% of the world’s total. Out of these, 123 were upgraded to 42 Mbit/s Dual Carrier HSPA+ networks. During the development of 700 MHz, 450 MHz, and 3.5 GHz, Huawei partnered with carriers, device and chip makers, and research institutes to establish industry alliances that promote the healthy and sustainable development of the entire mobile industry. Huawei proposed the first 4.5G solution for smooth LTE evolution,whichraisednetworkspeedandconnections and shortened latency. The solution is expected to be commercially deployed in 2016.

Mobile connectivity has shattered the limits of time and space and is changing the way people work and live. New operating models have been created for traditional industries. Mobile office, mobile shopping, and mobile payments have become part of everyday life. Mobile IoT will be the next step in the

95 evolution of mobile broadband. 5G is not just the next-generation mobile communications standard after 4G; it also represents the basic framework for the future digital world. Huawei has developed global partnerships with multiple research institutes, universities, and carriers, and plans to start to deploy commercial 5G networks in 2020.

Fixed Networks With the development of cloud computing, IoT, and 4K video industry chains, the fixed broadband industry has entered a new round of rapid development. Carriers have put full-service operations, 4K ultra-HD video, and SDN at the core of their business strategies. Globally, fixed broadband has become a focal point for investment in the ICT industry.

In the construction of ultra-broadband networks, full-service operations featuring Fixed Mobile Convergence (‘‘FMC’’) have become a business strategy for many carriers and end users seek an inspired experience. As a result, carriers have not only improved their competitiveness and customer loyalty, but also achieved sustainable and profitable growth through content control.

In the face of future trends, Huawei achieved the following in the SDN field. It:

• joined forces with industry partners to establish SDN alliances. This aims to accelerate the process of translating SDN technologies into commercial applications, advance research on SDN technologies, drive industry development, and build integrated interoperability test platforms for multi-vendor interoperability testing.

• led commercial SDN application efforts. For example, Huawei partnered with China Telecom to complete the world’s first commercial deployment of carrier SDN in Beijing and Transport-SDN (‘‘T-SDN’’) in Fujian. Huawei also worked with leading carriers such as Telefonica to jointly drive the application of SDN in multiple scenarios such as mobile bearer networks, data centres, backbone networks, and smart pipes for Metropolitan Area Networks (‘‘MANs’’).

Huawei was rated as the top supplier for SDN and NFV solutions for the second consecutive year by world-leading carriers in a 2014 survey conducted by the consulting firm Current Analysis and selected as the Best T-SDN Solution Supplier in 2014. Huawei’s virtual Data Centre (‘‘vDC’’) solution also won the award for Best Virtualisation Innovation at the Broadband InfoVision Awards, which was part of the World Broadband Forum 2014.

In 2014, Huawei’s innovative fixed network products and solutions as well as outstanding services gained recognition from more customers from around the world. Huawei has constructed 186 commercial networks powered by its 400G core routers, becoming the world’s largest supplier for commercial 400G core routers.

Global Services Huawei continued to increase investment in developing its capabilities in service solutions and platforms, having already established complete local service delivery organisations and platforms around the world.

The HUAWEI SmartCare® Customer Experience Management (‘‘CEM’’) solution delivered verifiable business value to carriers in the areas of service quality management and customer experience analysis. Huawei actively participated in setting industry standards for CEM. Specifically, it was involved in developing 531 KQIs relating to customer experience at the TM Forum, and in setting the baseline value for indicators at the QuEST Forum. In 2014, Huawei’s Consistency of Inventory Accounts and Goods (‘‘CETC’’) won the award for CEM Innovation of the Year from Telecom Asia.

96 In the managed services domain, Huawei is committed to maximising network efficiency for customers. Huawei increased investment in the Managed Services Unified Platform (‘‘MSUP’’) and Global Network Operation Centers (‘‘GNOCs’’), and expanded the delivery scope of centralised and standardised services. While continuing to improve its global O&M efficiency and quality, Huawei helped carriers achieve operational excellence.

Huawei’s Quality Brand Mobile Broadband (‘‘MBB’’) solution continuously improves capabilities in precise planning and optimisation. In 2014, the Quality Brand MBB solution helped more than 100 networks worldwide significantly boost their rankings in network quality, service quality, and branding. By the end of 2014, Huawei had provided mobile network planning and design services for more than 500 carriers worldwide with its mobile network integration services. For Huawei’s In-building Solution (‘‘IBS’’) integration services, it had constructed more than 32,000 hotspots for 117 carriers in 65 countries. A total of 45 of the world’s top 50 carriers have adopted our site integration services.

With the rapid development of video services, the bandwidth requirements of fixed networks are expected to increase by eight to ten times over the next five years, which means tremendous opportunities for the development of Huawei’s fixed network integration services. In 2014, Huawei’s fixed network integration services covered 186 400G networks around the world. With its customer support services, Huawei provided secured, reliable, and efficient network assurances to customers in more than 170 countries, serving one-third of the world’s population. Also, in 2014, Huawei provided assurances for more than 150 major global events such as Hajj and the 2014 World Cup in Brazil. Moreover, Huawei offered carriers in 149 countries training services to help them boost their capabilities.

In 2014, Huawei experienced rapid growth in IT consulting and system integration services and has:

• utilised its data centre integration services to help customers across the globe construct more than 480 data centres, and provided data centre consolidation and service migration services, enabling it to achieve rapid growth in data centre integration services;

• provided IT managed services to more than 20 carriers across the globe, widely demonstrating Huawei’s capabilities in this domain industry-wide;

• won a framework contract from Telefonica for OSS services;

• became a major partner of the TM Forum (formerly known as TeleManagement Forum and the Network Management Forum) for developing Operations Support System (‘‘OSS’’) standards for the Zero-touch Orchestration, Operations and Management (‘‘ZOOM’’)project;

• named the Asia-Pacific Business Support System (‘‘BSS’’)/OSS Vendor of the Year in 2014 by Frost & Sullivan; and

• collaborated closely with industry organisations in the NFV/SDN integration domain to build up multi-vendor integration and network evolution capabilities and help develop a sound industry ecosystem. In 2014, Huawei successfully helped a world-leading carrier construct the industry’s first commercial Voice over Long Term Evolution VoLTE office, acting as the prime NFV integrator for the project.

Carrier Software As the telecom industry continues to develop, Huawei centres on the management of carriers’ customer assets and two business domains: digital services and operations support. Huawei developed integrated solutions including Value Growth Solution (‘‘VGS’’), Machine-to-Machine (‘‘M2M’’), Universe, and Customer Value Management (‘‘CVM’’) to create value for customers by leveraging the market opportunities arising from carriers’ digital transformation.

97 In the digital service domain, the Huawei Digital inCloud solution provides a unified Partner Alliance Programme and an open platform to help carriers build a digital ecosystem, accelerate the transformation of their digital services, and support Huawei’spartners’ business success. In 2014, Huawei’s Service Delivery Platform (‘‘SDP’’) solution helped carriers achieve business success in areas like communications, charging, Big Data, and traffic trading. Huawei’s digital home services focus on video, and improved its core competencies in multi-screen experience, video distribution, and devices. They are widely adopted in the high-end markets in Europe and Latin America. Huawei’s VAS Cloud solution helped carriers transform their service networks and develop NFV architecture. The solution was widely deployed by top carriers for their high-value subsidiaries. Huawei became the industry leader in integrating service networks and opening up communications capabilities. As the cornerstone of transforming carriers’ traffic monetisation strategy, VGS – service control gateway (‘‘SCG’’), continued to improve user experience and network efficiency and support traffic monetisation.

In the BSS domain, Huawei built up digital operation transformation capabilities and the next-generation operation enabling platform. By opening up telecom operation capabilities and monetising data assets, Huawei expanded its operation ecosystem and customer base, and offered the ROADS (‘‘Real-time, On- demand, All-online, DIY, and Social’’) customer experience. Huawei’s BSS solution increased its global market share. Huawei’s Convergent Billing Solution (‘‘CBS’’) served 1.5 billion subscribers globally, with 320 million subscribers migrated in 18 months. Huawei’s next-generation CBS R5 won 34 commercial contracts, maintaining its leadership position in the industry. The Huawei Customer Care & Customer Relationship Management (‘‘CRM’’) system served 800 million subscribers in the global telecom market and 15 new commercial contracts were signed in 2014, which consolidated Huawei’s leading position in the market. Huawei’s Next Generation Business Support System (‘‘NGBSS’’) solution contributed to operational transformations, helping carriers achieve business success in BSS network modernisation.

In 2014, Huawei fully utilised its advantages in coordinating pipes with the two areas of the carrier software domain: digital services and operations support. Moreover, Huawei developed integrated solutions for customer asset management. Huawei’s MBB VGS spearheaded the monetisation of the mobile broadband traffic, serving carriers in West Europe, the Southern Pacific, China, and Latin America through new business models. Huawei also worked with carriers across the globe to effectively explore and develop – among other areas – Big Data, M2M, and CVM. The Universe Big Data analytics platform is commercially deployed in over 10 sites worldwide. It won the award for Most Innovative Tool for Driving Real-Time Intelligence at the Broadband Traffic Management & Telco Big Data Summit.

Huawei’s M2M platform solution was commercially verified at multiple sites. It helps carriers rapidly expand their M2M subscriber base.

Core Networks To face a new wave of transformation in the ICT industry, Huawei’s efforts in the core network domain focus on evolution towards 4G converged communications, NFV, and convergent data to meet carriers’ fundamental needs. By improving users’ communications experience, opening up communications capabilities, and moving network infrastructure to the cloud, Huawei helps carriers with their transformation towards future networks.

In the IP multimedia subsystem (‘‘IMS’’) and circuit switched domain, Huawei implemented a number of initiatives. It:

• pioneered in the areas of VoLTE/VoWiFi, NFV, IMS-based fixed network modernisation, and network capability exposure;

• delivered a complete set of solutions ranging from network technology to integration services;

98 • provided support for 35 VoLTE networks across the globe, and became the strategic partner of many world-leading carriers in 2014;

• enabled Hong Kong’s PCCW-HKT to become the first carrier to commercially deploy VoLTE with the Enhanced Single Radio Voice Call Continuity (‘‘eSRVCC’’) solution;

• received the award for Best VoLTE Product at the 2014 IMS World Forum;

• received recognition as the Top-Notch Session Border Controller (‘‘SBC’’) for its SE2900 by Miercom – a global leader in performance and security product testing in the US; and

• provided the world’s only convergent signalling solution that supports DRA/STP/SSR with Huawei’s SPS. This solution helps carriers construct stable and reliable 4G signalling networks and ensures smooth evolution of traditional signalling networks.

Besides supporting the development of mobile networks, Huawei’scorenetworksalsoplaysan important role in modernising fixed networks. With its leading IMS-based Fixed Network Modernisation solution, Huawei provides carriers’ fixed networks with equipment upgrade and reconstruction services, helping them reduce operating costs, improve network efficiency, transform towards future network architecture, and increase revenue.

In the NFV domain, Huawei continues to play an important role in standards and open source organisations. Huawei works with world-leading carriers and partners to keep driving industry development. In addition, Huawei builds cloud-aware architectures to help carriers reduce operating costs, accelerate service launch, speed up business innovation, and jointly create a favourable ecosystem. Huawei has deployed the world’s first Cloud IMS commercial networkbasedonNFVarchitecturein Europe, and provides cloud-based IMS/VoLTE services for multiple world-leading carriers.

In the convergent data domain, Huawei achieved accomplishments in the following fields. It:

• became the industry leader in user data management and unified policy control solutions, and steered industry development and built the digital ecosystem in the areas of Big Data and IoT connectivity;

• delivered 3.9 billion lines of its Single-SDB solution by the end of 2014, providing secure and stable services for one-third of the world’s population, and worked with world-leading carriers to innovate in the area of SDM;

• achieved rapid growth with its SmartPCC solution in 2014. According to a survey by Infonetics, Huawei’s Policy and Charging Rules Function (‘‘PCRF’’) solution was carriers’ top choice. The SmartPCC solution retained the highest market share globally according to Infonetics, and ranked first in terms of technology influence according to Current Analysis;

• ranked first in terms of technology influence according to Current Analysis;

• ranked first in terms of technology in carriers’ data assets with Huawei’s DaaS solution, a key component of Huawei’s Big Data portfolio. With Open Data Bus, this solution gains insights into User Profile, ensures data openness management and security, and protects privacy, helping customers reduce operating risks and significantly increase revenue. The solution has been successfully deployed in the Big Data project of China Unicom Shanghai. Huawei also jointly innovated with Telkomsel in Indonesia to promote the mature commercial application of Big Data technologies; and

• helped over 300 carriers worldwide with its convergent data solutions, and developed converged user data solutions in the fully-connected era.

99 These efforts were aimed at helping carriers monetise user data by fully converging databases, adopting unified control policies, and improving data security and openness, to satisfy user expectations on an inspired experience.

IT With convergence as its IT strategy and cloud computing as a strong catalyst for IT and CT restructuring and convergence, Huawei focuses on cloud data centre solutions to help carriers reshape their ICT business and operating models.

Huawei has greatly improved its IT products and solutions, which have been extensively adopted by carriers from around the world. Huawei’s innovative, differentiated, and leading IT products and solutions are increasingly recognised by its customers. By December 2014, Huawei had helped customers across the globe build more than 480 data centres, including 160 cloud data centres.

Huawei released its unique IT and CT convergence solutions in the following areas: cloud-based development of telecom services, public cloud, and cloud data centre integration. These solutions successfully helped the world’s top 50 carriers achieve ICT transformation using cloud data centres. BasedonHuawei’s distributed cloud data centre architecture, China Telecom, through its international public cloud project, built a resource pool that covered more than 20 countries and regions, and realised centralised management on its global resources.

Huawei worked with more partners in promoting the healthy development of the industry chain. It:

• cooperated with Red Hat to develop OpenStack-based cloud solutions to meet carriers’ requirements for NFV;

• actively promoted OpenStack’s global development based on its position as a gold member and strong supporter of the organisation;

• conducted cooperation with the IT hosting leader LeaseWeb, focusing on joint server innovation; and

• helped expand the membership of the Huawei-initiated FusionSphere user alliance to 150, bringing together strong players from the cloud computing industry chain.

In the future, Huawei will focus on cloud computing and Big Data technologies. Through continuous innovation and mutually beneficial partnerships, it will work with carrier customers to embrace the trend of Internetisation and market challenges from over the top, comprehensively optimise and restructure telecom services, and transform digital services.

Network Energy Based on the profound understanding of ICT domain and customer’s demands and requirements, Huawei provides a full range of network energy solutions, including telecom energy, data centre energy, board mounted power and customised power and inverter. Huawei Network Energy is dedicated to providing high-efficiency, high-reliability and seamless evolution energy solutions for carrier and industry customers and protecting their investment in the long term.

MBB/fixed broadband (‘‘FBB’’) and cloud computing have resulted in network traffic surges, a dramatic increase in data volume, and the need to conserve energy and reduce emissions. By keeping pace with these trends, Huawei leveraged its advantages in ICT and network energy, and integrated IT with electricity and electronics technologies. Acting on the innovative concepts of digitalisation, interconnection, and intelligence, Huawei focused its energy solutions on telecom energy, data centre energy, and smart PV plants to develop simple, efficient, and reliable intelligent network energy solutions.

100 With the rapid development of MBB/FBB, Huawei launched the MTS new-generation intelligent telecom energy solution to meet carriers’ requirements for easy site acquisition, minimal maintenance, high energy efficiency, and easy management. With software-defined power and modular designs, this solution supports integrated deployment, site-level efficiency, and intelligent management of telecom sites. Huawei deployed more than 1.6 million telecom energy systems in 170 countries and regions, and enjoyed the largest share in the global incremental market.

Huawei has entered the US, Australian, Japanese, and South Korean markets. Huawei’s products are highly energy efficient; for example, Huawei’s rectifier module has an efficiency of up to 98%, ranking top in the industry. In 2014, Huawei won the 2014 Frost & Sullivan Global Product Leadership Award for the Direct Current (‘‘DC’’) Power Systems Market.

In the area of energy consumption, Huawei established partnerships with leading carriers such as China Mobile, China Telecom, China Unicom, China Towercom, Telefonica, Vodafone, BT, KPN, KDDI, STC, and Etisalat. By improving energy and operating efficiency, Huawei helped minimise customers’ end-to-end operating costs. Telefonica named Huawei exclusively as their Best Energy Partner.

The explosive growth of Internet applications and cloud computing has brought data centres into a new round of development, requiring shorter construction periods and lower power consumption. Huawei had many achievements with data centres in 2014:

• Huawei’s Intelligent DC solution addressed difficulties in the planning, construction, and O&M of data centres, and maximised return on investment and operating efficiency.

• Huawei partnered with world-leading carriers to deploy data centres on a large scale to meet the increasing requirements of the ISP industry for IDC.

• Huawei’s Intelligent DC solution won multiple awards, including the award for Outstanding Data Centre Solutions.

• Intelligent DC solution won multiple ranked first globally in terms of shipments in 2014, and won the award for Data Centre Innovation of the Year from Telecom Asia.

• Huawei delivered a container data centre for Telenor in Myanmar, which became the world’sfirst large outdoor data centre.

Huawei also provides a full range of efficient, high-frequency modular UPS products to meet the needs for uninterruptible small-, medium- and large-capacity power supply. In 2014, Huawei won the largest share in China Mobile’s centralised procurement of Uninterruptible Power Supply (‘‘UPS’’) products. Huawei’s UPS product penetrated high-end industries across the globe on a large scale, including the transportation, finance, and government sectors.

Huawei launched its Smart PV Plant solution by integrating information, Internet, and photovoltaic technologies to address customer needs. This solution ensures efficient power generation, smart O&M, security, and reliability in PV plants full lifecycle. In 2014, Huawei achieved the following:

• Huawei’s Smart PV Plant solution was deployed on a large scale globally, steering industry development.

• Huawei’s commercial products led the industry in terms of both efficiency and power generation capacity.

• Huawei was the first vendor in the world to pass undervoltage ride through tests at power plants.

101 • Huawei teamed up with Yellow River Upper Reach Hydropower Development, a subsidiary of China Power Investment Corporation, and constructed the world’s largest cutting-edge smart PV plant with a capacity of 130 MW.

• Huawei established partnerships with China’s top 50 PV plants and made inroads into European and Japanese markets.

Huawei believes that its efforts have provided strong support for customers’ business success and the large-scale adoption of clean energy.

Enterprise Business Huawei’s Enterprise Business Group offers a wide range of Enterprise ICT solutions and related services that cater to the networking, communication, computing and storage requirements of global vertical industry and enterprise customers across government and public sectors, finance, transportation, energy/ power, communications/media and SMBs worldwide. Each of these verticals has unique ICT infrastructure requirements ranging from robust security to strong wireless expertise as sources of competitive differentiation.

Huawei’s strategy for Enterprise Business is centered around a business-driven ICT infrastructure (‘‘BDII’’) approach, which focuses on close cooperation and joint innovation with partners in the areas of technology, hardware, software and services to deliver customer-centric ICT solutions and services. Enterprise offerings are broadly segmented across the domains of enterprise networking, cloud computing and data centre (including servers and storage solutions), UC&C and enterprise infrastructure services.

In 2013 and 2014, revenue from the Enterprise Business amounted to RMB15,238 million and RMB19,391 million, respectively. By the end of 2014, Huawei had more than 6,000 channel partners and 300 solution partners supporting the Enterprise Business worldwide.

Enterprise Networking Huawei’s enterprise networking business offers a wide range of networking products and solutions, including Enterprise routers, Ethernet Switches, WLANs, access equipment, Network Security Gateways, agile controllers as well as related applications and software.

Huawei’s share in the traditional enterprise router market was ranked by Gartner25 as the second-largest worldwide in 2014. In 2013, Huawei was selected by Technology Business Research as the fastest- growing company in the global data centre networking market for the second year. According to statistics released by IDC in 2013, Huawei ranked first in the combined firewall and UTM market in China.

According to statistics released by IDC, Huawei ranked No. 3 globally in the Ethernet Switch market andNo.2inRoutersin2014.

Huawei’s enterprise networking products and solutions have been deployed in numerous large projects globally across various key industry verticals. Below are some highlights of Huawei’s recent successes in specific industry-vertical domains:

• Transportation: Huawei’s Digital Railway Solution has now covered a total length of approximately 87,000 km of railway globally, equivalent to twice the circumference of the Earth. In China, Huawei has helped Shuo Huang Railway operate 25,000 ton heavy-haul trains. Outside of China, Huawei has partnered with Bombardier to deploy Africa’s first ERTMS Regional railway in Zambia and joined Alstom in completing the live testing of the Communication-based Train

25 Gartner ‘‘Market Share: Enterprise Network Equipment by Market Segment, Worldwide, 4Q14 and 2014’’ 24 March 2015.

102 Control (‘‘CBTC’’) system powered by LTE. Zhengzhou Metro Line 1 is the world’sfirsturban rail transit line to adopt 4G LTE technology. Huawei’s eLTE broadband trunking solution provided the Passenger Information System and vehicle-mounted video surveillance services on this line. Huawei’s GSM-R solution has been widely deployed by customers in Russia, South Africa, Turkey, Morocco and Serbia.

• Government/Public Sector: Huawei’s Smart City, e-Government, Emergency Command, e-Education and Healthcare solutions have been integrated by more than 200 partners and supported 64 key projects worldwide including China’s National e-Government Network. Huawei has worked with partners to develop the Safe City Solution by leveraging the next-generation eLTE mobile broadband trunking system and visualised command platform. This solution has been widely applied to more than 100 cities globally.

• Energy: In the energy domain, Huawei has served 14 of the world’s 20 largest energy companies (including China’s State Grid), covering more than 100,000 substations and 38,000 km of oil and gas pipelines. In 2014, Huawei’s fully connected grid solution helped the Provincial Electricity Authority of Thailand construct high-speed and secure production networks, ensuring comprehensive construction of smart grids.

• Finance: Huawei’s Omni-Channel Banking Solution has been put into commercial use in more than 300 financial services organisations around the world, including Standard Chartered, Hang Seng Bank of Hong Kong and Sberbank (Russia’s largest commercial bank). Huawei’senterprise networking solutions have been successfully deployed on a large scale by the Industrial and Commercial Bank of China, Agricultural Bank of China, Bank of China and China Construction Bank.

• Other examples of Huawei’s enterprise solution deployments include supporting the backbone network of Alibaba, Borussia Dortmund Stadium in Germany, IB-RED wireless network services in Spain and Baidu’s Data Centre. Huawei’s carrier firewalls have been applied in backbone networks of most of the world’s top 50 carriers, including China Mobile, T-Mobile and Telefónica. Huawei’s Agile Network solutions have now been selected by approximately 500 enterprises worldwide.

BYOD has become a widely accepted working style for enterprises. With its partners, Huawei has built mobile platforms featuring rich applications and now promotes the highly secure one-stop BYOD solutions. These solutions have been adopted by large enterprises such as Haier Group, financial services organisations such as China Minsheng Bank as well as educational institutions such as education bureaus in South Africa.

Cloud Computing and Data Centre This segment includes Huawei’s broad range of high-performance Server and Storage product lines as well as integrated Cloud Computing and Data Centre Infrastructure solutions.

Featured offerings include the industry’s first distributed cloud data centre solution (FusionCloud) and the industry’s first enterprise-class Big Data analytics platform (FusionInsight). Huawei was positioned as a challenger in the Magic Quadrant for Contact Centre Infrastructure26. Huawei was listed in Gartner’s magic quadrants for x86 Server Virtualisation Infrastructure27.

26 Gartner ‘‘Magic Quadrant for Contact Centre Infrastructure’’ Drew Kraus et al, 22 May 2014. Gartner does not endorse any vendor, product or service depicted in its research publications, and does not advise technology users to select only those vendors with the highest ratings or other designation. Gartner research publications consist of the opinions of Gartner’s research organisation and should not be construed as statements of fact. Gartner disclaims all warranties, expressed or implied, with respect to this research, including any warranties of merchantability or fitness for a particular purpose. 27 Gartner ‘‘Magic Quadrant for x86 Server Virtualization Infrastructure’’ Thomas J. Bittman et al, 2 July 2014.

103 Huawei’s converged storage products range (blending SAN/NAS features and HDD/solid-state drives) can cater to a wide range of small/mid-range and large enterprises across Big Data, vertical industry and cloud storage applications.

To date, Huawei has built more than 480 data centres for customers worldwide. Huawei’sstorage solutions and server products have been deployed in over 100 countries. Huawei has become a storage partner of Vodafone, University of California at Santa Cruz, CSS Insurance of Switzerland, Industrial and Commercial Bank of China, China Construction Bank and Agricultural Bank of China. By the end of 2014, more than 700,000 Virtual Machines (‘‘VMs’’) were running on Huawei’s virtualisation products. Huawei’s server shipments ranked No.4 globally for five consecutive quarters28.

Committed to building an open, innovative ICT ecosystem, Huawei has actively cooperated with partners such as Accenture, Intel, SAP and Telefonica in the areas of cloud computing and Big Data. Huawei has also become a major contributor to the open source organisation OpenStack.

Below are some highlights of Huawei’s recent successes in specific industry-vertical domains:

• Finance: Huawei’s Big Data Solution was adopted by China Merchants Bank and Industrial and Commercial Bank of China, helping them carry out precision marketing in the Internet era. Huawei’s server and storage products were deployed on a large scale by Industrial and Commercial Bank of China, Agricultural Bank of China, Bank of China and China Construction Bank.

• Internet: Huawei has constructed an efficient and secure cloud platform for Qwant, France’stop search engine company and built a highly cost-effective hosting platform for Leaseweb in the Netherlands. Huawei has also helped Taobao manage e-transactions history during the online shopping spree on Singles’ Day, a day when Chinese e-commerce companies hold huge online sales promotions. Huawei’s products and solutions have been deployed by more than 90 Internet companies and data centre cloud service providers.

• Energy: Huawei’s Data Centre Network Solution assisted CNPC in constructing the largest enterprise cloud data centre in the Asia Pacific region, meeting its requirements for ‘‘three data centres at two cities’’ data disaster recovery and redundancy backup.

• Media/Entertainment: Huawei’s Omnimedia Solution has been extensively deployed by about 200 media institutions from 15 countries, including China, France and Italy. Huawei worked with Sobey Digital Technology Co., Ltd. to apply an industry-first service-defined omnimedia cloud solution to the converged press centre of Shenzhen Media Group (‘‘SZMG’’), helping SZMG achieve a strategic transformation towards omnimedia. The HD Programme Production Solution, which is built on Big Data storage and Agile Network, has been put into commercial use on a massive scale in many well-known media groups such as Phoenix TV, Television Broadcasts Limited (‘‘TVB’’) of Hong Kong, Macau Asia Satellite Television Company and Hunan Broadcasting System.

• Government/Education: Huawei’s Elastic Education Cloud Solution has been applied to more than 20 countries and regions. The Smart Campus Solution helped more than 50 universities such as Tsinghua University enhance their teaching and research with more innovative ICT technologies.

Unified Communications and Collaboration Huawei offers a comprehensive suite of telepresence, videoconferencing, UC and contact centre solutions designed for real-time interaction and decision making. These multi-feature products/solutions have wide applications for enterprises requiring intensive interaction and efficient collaborative office services, as well as niche industries such as telemedicine, distance education, remote banking and traffic surveillance.

28 Gartner ‘‘Quarterly Statistics: Servers, Worldwide, 4Q14 Update’’ 2 March 2015.

104 Huawei’s UC&C solutions have now been put into commercial use in more than 60 countries and regions on a large scale and entered developed markets such as Europe and North America. These solutions serve a large number of industry customers worldwide, including ICBC, Saudi Aramco, Ministry of Education of Uzbekistan and Wing Lung Bank. The ICBC UC system is regarded as a benchmark for development of UC systems in the Chinese banking industry.

Huawei’s contact centre solutions are a leader in the global multimedia contact centre market, with a segment presence for more than 20 years. These end-to-end solutions feature large capacity, high reliability and multiple channels to transform enterprises into high-value customer services and marketing centres. As an example, the IPCC solution deployed by China Merchants Bank helped it transform from simple financial advisory service into a remote banking centre and from a cost centre to a profit centre. The three project sites have a total of 2,500 agents, which provide top-notch bundled services to more than 60 million customers in retail and wholesale banking.

Enterprise Services Huawei provides converged ICT service solutions for the enterprise market, covering the entire network lifecycle. It includes technical consulting, network planning, network design, deployment, technical support, network optimisation, as well as technical and pre-sales training and certification. By the end of 2014, Huawei had more than 1,200 certified and authorised service partners.

Huawei has established a global ICT training and certification programme, which includes Huawei’sin- house training centres, authorised training partners and education projects with more than 30 universities. Under the programme, Huawei offers channel partners service certification, authorisation, enablement, incentives and all-around service support. Approximately 20,000 people so far have passed Huawei’s certification programme and received a certificate. The number of Huawei Certified Internetwork Experts (‘‘HCIEs’’), the highest technical certification offered by Huawei, has reached nearly 500.

Huawei also partners with more than 20 leading global carriers including Vodafone Global Enterprise, Deutsche Telekom and BT Global Services to provide ICT services to enterprise customers.

Consumer Business Huawei offers a wide range of models of consumer devices that are designed to provide a smarter and simpler user experience for individuals, homes and businesses, including smartphones, mobile broadband devices and home devices. Huawei’s Consumer Business targets retail customers who look for entertainment, communications and information experiences through using these devices.

In 2013 and 2014, revenue from the Consumer Business amounted to RMB56,618 million and RMB75,100 million, respectively. The 32.6% year-on-year increase in the Consumer Business’srevenue in 2014 was primarily due to the rapid sales growth of Huawei’s smartphone business.

Mobile Phones Huawei offers a wide range of models of smartphones that integrate communications, multi-media capabilities and mobile computing capabilities. In 2011, Huawei switched to develop its own brand with mid-range and high-end handsets. In 2012, Huawei transformed its brand, products and channels, and firmly implemented the premium product strategy by launching flagship smartphones, including the D and P series. In 2013, Huawei’s smartphone business experienced phenomenal growth, led by its flagship devices such as the Ascend P6 and Ascend Mate. In 2014, with the rapid development of 4G LTE in which Huawei has core patent rights, its Consumer Business captured unprecedented opportunities and has performed well in terms of revenue and profits.

105 Huawei’s smartphone shipment in 2014 reached 75 million units29, representing an annual increase of 45% as compared to 2013. According to a report by Strategy Analytics, by the end of 2014, Huawei was the third-largest producer of smartphones based on units shipped with a global market share of 5.8%. Huawei P7 and Honor 6, two of Huawei’s premium flagship products, achieved global shipment of 4 million and 3 million units, respectively, only six months after they were launched in 2014. Huawei Mate7 was also overwhelmingly well-received by business executives in all markets, with a total shipment of 2 million units being delivered in the first three months after the launch in 2014. Total shipment of Honor devices reached approximately 20 million units in 2014. The Honor brand is currently distributed in more than 60 countries and regions around the world.

Major smartphone models of Huawei that have gained wide market recognition include:

• Ascend Mate 7: Launched in November 2014, Ascend Mate 7 is the first smartphone powered by Huawei’s Hisilicon eight-core Kirin 925 chipset, with Android 4.4 operation system, 3GB RAM and 32GB ROM. Its 6-inch screen with 1920 x 1080 pixels display allows users to view videos and play games at a comfortable size and high resolution. With the high-end dual cameras, front 5.0 MP, black 13.0 MP with flashlight auto focus, Ascend Mate 7 is perfect for enhanced video recording. Compatible with a wide range of network spectrums worldwide, Ascend Mate 7 uses smart antenna switching to intelligently detect the strongest signal, choosing the ideal source for emission or reception of data. Featuring Category 6 4G LTE technology and a download rate of up to 300 Mbps, Ascend Mate 7 is able to download a full-length HD movie in seconds.

• Ascend P7: Launched in June 2014, Ascend P7 is a smartphone with a 6.5mm slim body with a glass back and a 5 inch FHD In-cell LCD display (1920 x 1080). The Ascend P7 has a 13MP BSI camera with F2.2 aperture and an 8MP BSI front facing camera with auto face enhancement. It has a 1.8GHz quad-core processor with 2GB RAM and 16GB ROM and supports 4G LTE CAT 4 and DL 150Mbps. The Ascend P7 utilises a 2500mAh high density battery with ultra power-saving mode. The Ascend P7 was awarded the ‘‘European Consumer Smartphone 2014-2015’ award by the European Imaging and Sound Association.

• Honor 6 Plus: Launched in December 2014, Honor 6 Plus is powered by Huawei’s Hisilicon Kirin 925 eight-core chipset, with 3GB RAM and 32GB ROM and supports Micro SD up to 128GB extended. Honor 6 Plus has a built-in 3600mAh Battery that supports reverse charging function and can serve as ‘‘Charge Pal’ to charge other phones. Honor 6 Plus is equipped with a 5.5-inch Full HD 1920 x 1080 IPS display, with a 78.2% display-to-panel ratio. The Honor 6 Plus LTE model supports NFC, making various NFC support programs functionable in China. Honor 6 Plus uses dual parallel front 8.0 MP and back dual 8.0 MP BSI cameras.

• Honor 6: Launched in August 2014, Honor 6 is a smartphone with a JDI 5.0-inch FHD Incell screen (1920 x 1080) and pixel density of up to 445 PPI. The Honor 6 has a 3GB LPDDR3 large memory, 16GB/32GB eMMC storage capacity of the fuselage, with maximum support of 64G SD card expansion. It has a set of high-end dual cameras, with a rear 13.0MP Sony fourth generation BSI stack type camera, F2.0 large aperture, 5-piece ISP lens and BSI sensor (equipped with dual LED flash) and a front 5.0MP front camera.

Mobile Broadband Devices Huawei is the global leader for mobile broadband devices and has maintained a leading market share. In 2014, global shipments of Huawei’s mobile broadband devices reached approximately 33.3 million sets.

Huawei focuses on developing innovative features in its mobile broadband devices that provide faster connectivity, a higher degree of convenience and better energy efficiency. In December 2013, Huawei launched the world’s first pocket router with the world’s fastest 3G wireless router for that time, with

29 BasedonHuawei’s internal record, the smartphone shipment in 2014 reached 75 million units.

106 downlink rates of up to 42Mbps and with other features such as the capability to switch easily between wired network and WiFi, high 5200mAh portable mobile power, a continuous working time of up to 16 hours and a standby time of up to 500 hours. In 2014, Huawei released the world’sfirstLTECat-6 Mobile WiFi with a downlink speed of up to 300Mpbs and hotspot access for 10 devices. Leveraging on its distinctive technology advantages, Huawei shipped over 19 million LTE-enabled devices in 2014. Huawei also made strategic investments into smart wearables and smart home domains. Huawei’sfirst wearable Talk Band B1 was launched globally in 2014 and is rapidly being recognised in the market for its unique innovative features. Huawei’s Honor X1 phablet, MediaQ M310 and Honor Cube have all been well-received by the market.

Home Devices Huawei offers various home devices such as tablets, broadband access devices and the TV set-top-box. Huawei had distinctive advantages in its LTE-enabled devices, shipping over 26.6 million of such devices throughout 2014. Huawei also made strategic investments into smart wearables and smart home domains. In 2014, according to Infonetics Research, Huawei was the largest provider of DSL CPE devices globally in 2014, with shipments of 17.2 million units, capturing an approximately 18.5% market share.

In 2014, Huawei’s tablet sales increased 49% year-on-year as compared to 2013, with operators and channel distributors from over 100 countries including Vodafone, Telefonica and Softbank signing purchase orders for the MediaPad tablet series.

Sales and Marketing Huawei sells its products and services both directly and through a variety of channels with support from its sales force. Huawei’s channel partners include service providers, distributors and retail partners. For the years ended 31 December 2013 and 2014, the revenue contribution from the largest single customer to Huawei was 16% and 17%, respectively, of its total revenue.

Carrier Business Huawei markets and sells its carrier network products and solutions to customers directly and also provides system installation, technical support, professional services and other support services. Huawei’s customers are primarily fixed, mobile or convergent telecommunications carriers which are licensed to offer data, voice, video and mobile services to the public. Huawei’s customers include many well-established top carriers, such as China Mobile, China Telecom, China Unicom, Etisalat, Telefónica, and Vodafone, which own and operate multiple networks globally with dominant or substantial market share in their respective jurisdictions of operation. Huawei works closely with its customers in building efficient infrastructure to bring more value to end users in a better connected world.

Huawei typically enters into a long-term global framework agreement, usually five years or more, with a top carrier and the quantity and specification requirements as well as price of the products are agreed upon when each customer places a purchase order. In addition, Huawei also delivers its products and services to over 500 other telecommunications carriers in over 170 countries and regions. Huawei’s supply contracts with these customers are relatively short-term and are of a smaller scale. As a common practice in the telecommunications industry, Huawei requires its carrier customers to make an upfront payment upon contract signing, progress payments based on project milestones and final payment upon completion or full delivery. Huawei’s customers sometimes withhold a small portion of the contract price as quality assurance, which will be paid over a specified time period. Huawei generally grants its customers a payment term of 30 to 120 days based on each customer’s credit grade which is reviewed periodically by Huawei.

107 Enterprise Business By the end of 2014, Huawei had sold its products and services through over 6,000 channel partners as customers worldwide. Customers of Huawei’s Enterprise Business are generally fragmented, encompassing all scales of business or governmental entities globally.

Consumer Business Huawei’s consumer products are globally distributed through network carriers, distributors and resellers. Huawei adopts a diversified channel strategy for its consumer products. As part of its marketing strategy, Huawei plans to increase sales of mobile phones through distributors and resellers.

In 2014, Huawei made great efforts in developing open channels and retail outlets. There was a significant growth in revenue contribution from open channels (including e-commerce), which accounted for approximately 41% of the total revenue of 2014. In 2014, the sales revenue of its Consumer Business reached RMB75,100 million, a year-on-year growth of 32.6%. As at 31 December 2014, Huawei’s Consumer Business established approximately 630 brand image stores globally, which greatly enhanced the retail shopping experience for consumers around the world. In 2014, in open markets, where retail accounts for a high proportion of all sales, such as China, Russia, Italy, the UK, Saudi Arabia, the Philippines and South Africa, the sales of Huawei’s smartphones increased by 45% as compared to 2013. In addition, Huawei established strategic partnerships with top distributors and retailers in China, Western Europe, the Middle East, Southeast Asia and other key markets to help promote Huawei’s sales. Huawei also relies on e-commerce channels such as JD.com and Taobao.com to market its consumer devices. In 2015, Huawei continues to develop open channels, focusing on overseas key markets transformation to strengthen global distributor management and to cultivate long-term buyer-seller partnerships.

Huawei continues to invest and successfully raise its brand franchise. By conducting a series of brand campaigns worldwide, including sponsoring football games such as La Liga Spain, as well as well- known football clubs including A.C. Milan, Borussia Dortmund and Arsenal, Huawei significantly enhanced the brand recognition of Huawei mobile phones. A recent consumer survey report from IPSOS, a market research firm, which covered 32 countries, found that Huawei’s brand awareness rose from 52% in 2013 to 65% in 2014. In the Chinese market, the awareness of the Huawei brand increased to 90% and that of the Honor brand increased to 54%. According to IPSOS, Huawei is among the top three brands in terms of brand momentum for 2014. Huawei is also the first Chinese company to be successfully listed on Interbrand’s 2014 Top 100 Best Global Brands list.

Research and Development Huawei is committed to investing in R&D activities to introduce competitive products and innovative solutions and maintain its leadership in key technological areas of the ICT industry. To address market requirements, Huawei focuses on continuous customer-centric innovation. Huawei has extensively implemented the integrated product development process within its R&D function. To ensure that Huawei’s latest products reach consumers quickly, Huawei has shortened its R&D and production timeline by ensuring that technical innovations have clear customer relevance and can be commercialised in a short period with a reasonable rate of return. Focusing on the ICT pipe strategy, Huawei has increased investment in future-proof basic research and innovation, particularly in key technologies, basic engineering capabilities, architectures, standards, and product development. Huawei aims to create a better user experience by providing broader, smarter, and more reliable pipes with higher performance and zero wait time. Huawei is also committed to continuous innovation and has made significant achievements in the fields of future 5G communications, network architecture, computing and storage.

108 As at 31 December 2014, Huawei had 28 Joint Innovation Centres with leading carriers as well as 16 R&D centres in countries such as Germany, Sweden, the United States, India, Japan, Canada and China. Huawei employed approximately 76,000 product and solution R&D employees as at 31 December 2014, comprising 45% of its total global workforce.

Huawei’s R&D expenses were, RMB31,563 million and RMB40,845 million, respectively for the years ended 31 December, 2013 and 2014. This represented 13.2% and 14.2% of its total sales revenue for the respective periods. Huawei has cumulatively spent more than RMB190 billion in R&D over the last decade.

In 2012, Huawei set up 2012 Laboratories, which functions as its innovation, research, and platform technology development arm. At the ITU, Huawei took the initiative to facilitate the establishment of an organisation to research carrier software defined networking. Huawei was also a founding member of the oneM2M global partnership project.

In 2013, Huawei applied mainstream international industry standards and worked closely with global tier-1 carriers and contributed positively to expanding the ICT industry. Huawei proposed identifying at minimum an additional 500 MHz of spectrum for international mobile telephony at the World Radio Communication Conference 2015 and published a white paper titled 5G: A Technology Vision.Asa major facilitator of 5G projects initiated by the European Union and a founding member of the 5G Innovation Centre in the UK, Huawei proactively constructed a global 5G ecosystem and carried out joint research in close collaboration with more than 20 universities worldwide. Huawei also led the research and design of 5G wireless air interface link technology at the METIS 2020 Project, a large and comprehensive 5G research project funded by the European Commission.

In 2014, Huawei has increased its investment in the information value chain with a focus on ICT infrastructure and the Pipe system strategy ranging from presentation and creation, to transportation and distribution, and to storage and processing. Below are some of Huawei’s achievements in 2014:

In the wireless domain, Huawei continued to lead 4G innovation by launching CA technology for multiple base stations over IP RANs for simplified deployment and application of interference coordination technology to significantly enhance network performance. As a pioneer of 5G innovation. Huawei proposed SCMA, a key technology for 5G air interfaces, and partnered with mainstream automobile manufacturers in Europe to research 5G technologies for IoV and define the requirements of future self-driving technologies on 5G communications networks. Huawei established a 5G Innovation Centre (5GIC) together with the University of Surrey in the UK, multiple well-known companies, and world-renowned carriers. In November 2014, they jointly announced the world’s first 5G testbed in London, confirming Huawei’s position at the forefront of global 5G research. Huawei also pioneered research into next-generation Wi-Fi, proposing the 10GiFi concept and launching the industry’sfirst 10GiFi prototype. To date, Huawei is a leader in commercial LTE deployment worldwide and has been dedicated to driving the development of LTE standards with 665 accepted proposal submitted to 3GPP LTE core standards since 2010. These solutions have been deployed in more than 100 capital cities and nine financial centres.

In the fixed network domain, Huawei continues to lead innovation in core router, high-speed transport, and ultra-broadband access technologies. Huawei also passed the test for the industry’s first core router 1T line card at EANTC, made a breakthrough in 400G clustering technology, and facilitated large-scale commercial application of 400G clusters. Huawei released the industry’s first commercial 1T WDM card, and worked with carriers to pass the testing for 3 Tbit/s WDM cards on live networks; the rate is equivalent to transmitting 100 uncompressed HD movies per second. As the first vendor to begin researching G.fast, Huawei developed the industry’s first G.fast prototype, and released SuperVector technology which increases the speed of existing copper wires threefold. Furthermore, Huawei launched the SmartAX MA5800, the industry’s first smart OLT with distributed architecture at the Broadband World Forum 2014. This product supports non-blocking access for 100G-PON and provides 100 Mbit/s

109 non-blocking bandwidth to 32,000 homes, allowing users to enjoy 4K videos seamlessly. Huawei developed the industry’s first microwave-borne CPRI network based on high-order modulation microwave technology, which supports backhaul bandwidth of 4 Gbps.

In the enterprise networking domain, Huawei introduced the Agile Network architecture technology that supports full network programmability, dynamic network quality awareness, and smooth evolution to SDN. Huawei also converged different CPU architectures into a single architecture for enterprise branch networks. It used SDN and NFV technologies to deeply integrate IT and CT capabilities in gateways, which enables the local integration of ICT applications through an open virtualization platform. Huawei launched an open Cloud Fabric Data Centre Network architecture that supports interconnections with mainstream cloud platforms and is compatible with numerous virtual and physical networks. China National Petroleum Corporation used Huawei’s Data Centre Network Solution to build the largest enterprise cloud data centre in the Asia Pacific region in order to meet the requirements for data disaster recovery and redundancy backup of ‘‘three data centres in two cities’’ at the group level.

In the core network domain, Huawei has become one of the first enterprises to complete the POC for virtualised IMS in line with ETSI NFV ISG requirements, and established NFV/SDN open labs for joint innovation with carriers and NFV ecosystem partners. It also launched real-time video experience enhancement technology that automatically adapts to challenging network environments. This industry- leading technology has been embedded in core chipsets and is now one of Huawei’s core competencies. In addition, Huawei released the industry’s first xVCC (including eSRVCC) handover enhancement technology for live networks, enabling carriers to deliver consistent and seamless service experience in different access modes.

In the IT domain, Huawei has made many achievements in innovation, such as proposing SD-DC, a future-oriented Service-driven Distributed Cloud Data Centre architecture. The IT domain consists of four different areas: the cloud computing field, the Big Data field, the storage field and the future data centre field.

• In the cloud computing field, Huawei launched the first-of-its-kind distributed OpenStack cascading architecture that supports multi-data-centre resource consolidation and distributes scheduling and management of 100 data centres and one million hosts. It has won extensive support from mainstream carriers in Europe. Huawei also launched the industry’s first enterprise- level distributed software-defined storage system FusionStorage – with up to 256 servers in one resource pool, the system has a throughput of 600 Gbit/s and reduces the fault recovery time of a 2 TB hard disk to 5 minutes, 100 times faster than traditional SAN storage. When running the clustered SAP HANA in-memory database, the FusionStorage system reduces latency to 169 µs, the fastest in the industry. In addition, Huawei released FusionSphere 5.0, an OpenStack-based cloud OS.

• In the Big Data field, Huawei launched the industry-leading Big Data solution FusionInsight, which is based on open technologies such as Hadoop, Spark, and Storm. Huawei also introduced Big Data solutions for the finance industry based on cutting-edge NoSQL clustering, application server pooling, and stream processing technologies. This technology helps customers expand the period of historical data to be processed and shortens the service processing period for credit investigations in relation to issuing credit cards.

• In the storage field, Huawei launched the industry’s first converged storage operating system, OceanStor OS. The system supports convergence of SAN and NAS to boost capacity utilisation; multi-vendor heterogeneous storage devices to maximize customers’ ROI; performance and capacity to allow flexible allocation of SSD and HDD media on demand as well as the convergence of entry-level, mid-range, and high-end storage products to maximise data value. The system also supports the integration of primary and backup storage, realizing backup in seconds,

110 and agile, efficient data lifecycle management. Huawei’s high-end storage products provide a high- availability active-active data centre solution that delivers an RTO and RPO of zero at an inter- centre distance of up to 300 km, the longest in the industry.

• Inthefuturedatacentrefield,HuaweireleasedtheDataCentre3.0whitepaperattheInternational Symposium on Computer Architecture (ISCA 2014) and defined the next-generation data centre DC3.0. It also developed the industry’s first operational computer prototype with all-optical interconnections and launched the industry’s first framework for CPU+GPU integrated clustering resource.

Huawei has been focusing on and investing in key consumer technologies, infrastructure, algorithms and standards, as well as leveraging Huawei’s leading capability in 4G and 5G wireless networks and chipsets. Huawei Consumer BG will continue to pursue innovation in product structure, design, audio, video, camera, interface, connectivity and battery life. Huawei Consumer BG is committed to putting innovative technology into application to create better user experiences for consumers.

Huawei plays an active role in contributing to the development of future wireless technologies, industry standards and the industry chain. In addition, Huawei works to boost network capabilities such as service exposure and service chaining in the areas of System Architecture Evolution and Policy and Charging Control. Huawei also took the lead in developing Network Functions Visualisation standards to build an ICT convergence standards ecosystem and promoted the incubation of the carrier software defined networking industry. Huawei also led the development of IP and Internet security rules that expanded interoperability, robustness and the Flex-OTN standards. Huawei is recognised as a major contributor of 100GE/400GE standards, taking the initiative to launch and lead research into the next generation of WiFi standards at IEEE 802.11.

Huawei has gained considerable influence in setting international standards for the ICT industry that enable Huawei to stay at the forefront of key technological development. By the end of 2014, Huawei was a member of 177 standards and open source organisations, including the 3GPP, IETF, IEEE, ITU, BBF,ETSI,TMF,WFA,CCSA,GSMA,OMA,ONF,INCITS, OpenStack and OpenDaylight. In 2014, Huawei submitted more than 4,800 proposals to these standards organisations. According to statistics from 3GPP, Huawei has contributed 665 accepted proposal submitted to 3GPP LTE core standards since 2010, which is the most in the industry and 25% of the world’s total. Up to 31 December 2014, Huawei has submitted a total of 38,000 proposals. Moreover, Huawei held 183 key positions ranging from chairperson and deputy chairperson, to board member, workgroup leader, reporter and speaker, including IEEE-SA, ETSI, WFA, TMF, OneM2M, OMA, OASIS, and CCSA and many others. More than 700 papers are accepted by these organizations every year. This demonstrates Huawei’s strong leadership in terms of both standards and concepts.

By 31 December 2014, Huawei had filed 48,719 patent applications in China and 23,917 outside China. Of these applications, 38,825 have been granted. Huawei has the largest number of patents in China and is also one of the top 50 holders of patents granted in the United States and one of the top 10 holders of patents granted in Europe. Huawei is committed to continue investing 10% of sales revenue in R&D every year to further strengthen its technological capabilities.

In the future, Huawei aims to increase investment in future key technologies and standards on wireless networks. Huawei will invest at least US$600 million in 5G technology research and innovation by 2018. Huawei believes that it has development opportunities in the communications industry as well as the healthcare, retail, transportation, banking, media, education and manufacturing industries and is in a position to help its customers meet communications needs.

Suppliers and Manufacturing In 2013 and 2014, Huawei’s top five suppliers, based on the total cost of purchase, accounted for 19% and 13%, respectively, of total supplies to Huawei.

111 The raw materials and components Huawei uses to manufacture its products include electrical and electronic components, such as chips, circuit boards and optic components, as well as servers and accessories. Huawei sources a majority of its raw materials and components from leading suppliers of telecommunications components and IT equipment, such as Qualcomm, Foxconn, TI, Intel and JDI, with whom Huawei has more than 10 years of collaboration. Huawei employs a competitive bidding process to select its suppliers in order to increase transparency, control costs and maintain the quality of supplies. Huawei generally orders supplies of raw materials and components based on its forecast of demand. Its purchase agreements generally include quantity, pricing, payment, termination and warranty terms. Huawei generally keeps a reasonable level of inventory of raw materials and components to mitigate the risk of disruptions in raw material supplies while avoiding over-stocking and inventory obsolescence.

Huawei strives to avoid single-source supplier solutions. For most of its raw materials and components, Huawei adopts a multiple-supplier strategy to diversify its sources of supply and reduce concentration risk. For a particular component that is available only from one supplier or a limited number of suppliers, Huawei typically enters into a guaranteed product supply arrangement with such suppliers, which gives Huawei the right to receive supplies on a priority basis and to claim compensation or other remedies if such supplier fails to meet its quality or quantity requirements.

To reduce the risk of supply chain disruptions and enhance the capability of providing a quick response to customer’s requirements, Huawei has built a global supply and manufacturing network and set up supply and manufacturing centres in China, Hungary, Mexico, Brazil, India and Dubai. Huawei operates its own manufacturing facility in Dongguan, China, which focuses on core product manufacturing, trial of new products, incubating global manufacturing technologies and management capabilities.

Huawei and its EMS vendors use its proprietary software on electronically programmable memory chips for designing parts and products that meet customers’ requirements and to guarantee quality control and product security. This controlled manufacturing process enables Huawei to configure hardware and software in unique combinations to meet customer requirements, such as capacity and standards and applies automated testing equipment and procedures, product inspection, testing, and process controls that are designed to help ensure the quality and reliability of its products. These manufacturing processes are generally certified to ISO 9001, ISO 14001 or TL9000 standards. Huawei’s quality management department, based in Shenzhen, is responsible for formulating its overall quality control strategy and objectives and supervises the implementation of its quality control procedures.

Competition Huawei operates in the information and communications infrastructure markets, providing products, solutions and services for transporting data, voice and video traffic across intranets, extranets and the Internet. These markets are characterised by rapid changes, converging technologies and a migration to networking and communications solutions. These market factors represent both opportunities and threats to Huawei.

Huawei competes with numerous vendors in each product category. The overall number of its competitors providing niche product solutions may increase. Also, the identity and composition of competitors may change as they enter into new markets or businesses. As Huawei continues to expand globally, it may face new competition in different geographic regions, in particular, competitors from the United States and Europe.

The principal competitive factors in the markets in which Huawei presently competes and may compete in the future include:

• the ability to lead through critical technological cycles with new products and solutions, including those with technological and price-performance advantages;

112 • technology leadership;

• market share and business scale;

• long-term relationship with and deep knowledge of its customers;

• participation and influence in setting industry standards;

• end-to-end solution capabilities that meet the customers’ comprehensive technical, financial and other requirements;

• breadth and depth of products and services;

• effective end-to-end cost management, including R&D, production, service delivery, procurement, functional and operational support; and

• brand.

Some of the competitors compete across a number of Huawei’s business lines, while others are primarily focused on a specific product area. Some of Huawei’s competitors may have greater technical, engineering, or capital resources. As Huawei expands into new markets, it will face competition not only from its existing competitors but also from other potential competitors. In addition, companies with whom Huawei has strategic alliances in some areas may be competitors in other areas.

Insurance Huawei currently maintains insurance coverage on its properties and fixed assets, plant and equipment, inventory and transportation, trade marks and third-party liability, which it considers to be exposed to major business risks. However, Huawei does not purchase business interruption insurance or directors’ and officers’ liability insurance, which is not mandatory under PRC laws. Huawei believes that its insurance coverage is adequate and customary for the telecommunications industry.

Employees As at 31 December 2014, Huawei employed approximately 170,000 employees. The following table sets forth a breakdown of Huawei’s employees by function as at 31 December 2014:

No. of Employees Manufacturing...... 12,500 R&D...... 76,000 SalesandMarketing...... 26,000 ServicesandTechnicalSupport...... 36,000 CorporateServicesFunctionsandOthers...... 20,000 Total...... 170,500

To date, Huawei has not experienced any strikes or other labour disturbances that have materially affected its operations and Huawei considers its relationships with its employees and the Union to be positive. Competition for technical personnel in the industries in which it operates is intense. Huawei believes that its future success depends in part on its continued ability to hire, assimilate and retain skilled personnel. To date, Huawei believes that it has been successful in recruiting qualified employees.

Environment Huawei is subject to various environmental regulations in each country where it operates. Generally, there are national or local standards applicable to, among others, carbon emissions. In addition, Huawei has implemented the environmental protection strategy of ‘‘Green Pipe, Green Operations, Green Partner, Green World’’ and is actively increasing its own energy efficiency while reducing its carbon

113 footprint and energy consumption. Externally, Huawei works with suppliers, customers and partners to reduce the environmental impact throughout the products’ lifecycles, promoting a sustainable society. Huawei believes that as at 31 December 2014 it is in compliance in all material respects with all applicable environmental laws which are relevant to its business in each jurisdiction in which it operates.

Legal Proceedings Huawei is from time to time involved in certain legal proceedings concerning matters arising in the ordinary course of its business. Its management believes that the following three legal proceedings warrant particular attention:

• In July 2011, InterDigital Corporation (‘‘IDC’’) filed a complaint with the United States International Trade Commission (the ‘‘USITC’’ or ‘‘Commission’’) and the United States District Court for the District of Delaware against Huawei Technologies Co., Ltd. (‘‘Huawei Tech’’)and Futurewei Technologies Inc. (‘‘Futurewei’’), both wholly-owned subsidiaries of the Company. The complaint by IDC alleged that sales of imported 3G wireless devices by the said subsidiaries within the United States had infringed IDC’s 3G wireless patents and requested for issuance of exclusion order and cease and desist order in relation to the accused 3G wireless devices concerned (‘‘the first complaint’’).

In December 2011, Huawei Tech filed a complaint against IDC in the PRC for violation of the fair, reasonable and non-discriminatory (‘‘FRAND’’) policies and the PRC’s Anti-Monopoly Law. In June 2012, Huawei Tech filed another complaint with the European Commission (the ‘‘EC’’)to request an investigation into the licensing fees requested by IDC, which it deemed exploitative, discriminatory and in violation of the FRAND policies as well as the EC’santitrustlaw.

On 2 January 2013, IDC filed another two complaints with the USITC and the United States District Court for the District of Delaware against Huawei Tech, Futurewei and Huawei Device USA Inc. (‘‘USA Device’’), another wholly-owned subsidiary of the Company. The complaints further alleged that the sales of certain 3G and 4G wireless devices sold by the said subsidiaries within the United States had infringed three of IDC’s other patents.

On 4 February 2013, the Shenzhen Intermediate People’s Court ruled that IDC had violated the PRC’s Anti-Monopoly Law and ordered IDC to compensate the Group for damages of RMB20 million. The Court also ruled that the royalty rates licenses to Huawei Tech for IDC’s Chinese essential standard patents in wireless communication should not exceed 0.019% of the actual sales prices of Huawei Tech’s wireless devices.

On 11 March 2013, IDC filed appeals to the Guangdong Higher People’s Court in respect of the rulings made by the Shenzhen Intermediate People’s Court. On 25 October 2013, the Guangdong Higher People’s Court upheld the Shenzhen Intermediate People’sCourt’s ruling which is the final ruling.

On 28 June 2013 and 19 December 2013, the USITC ruled in favor of Huawei Tech, Futurewei and USA Device in respect of the first complaint in the initial determination and the final determination, respectively.

On 23 December 2013, Huawei Tech, Futurewei and USA Device reached a settlement agreement with IDC to withdraw or dismiss all the ongoing legal actions against each other. Under the settlement agreement, the parties will solve their dispute through arbitration.

On 12 January 2015, the arbitration hearing was held in the United States to solve the dispute between Huawei and InterDigital. The arbitration award is still pending.

114 At this stage, Huawei is unable to predict the outcome of the arbitration, or reasonably estimate a range of possible loss, if any, given the current pending status of the arbitration.

• On 23 May 2012, Flashpoint Technology Inc. (‘‘Flashpoint’’) filed a complaint with the USITC, requesting the Commission to commence an investigation under Section 337 of the Tariff Act of 1930 into certain electronic imaging devices manufactured by four alleged infringing companies and their affiliates by reason of patent infringement and requested for issuance of an exclusion order and cease and desist order in relation to the electronic imaging devices concerned. Huawei Tech and Futurewei were named as respondents. On 2 August 2012, the Administrative Law Judge granted a joint motion to substitute Huawei Device Co., Ltd. (‘‘Huawei Device’’)andUSADevice for Huawei Tech and Futurewei. Flashpoint also filed another complaint before the United States District Court for the District of Delaware for the same reason against Huawei Device and USA Device. The legal action before District Court of Delaware was stayed.

On 14 March 2014, the USITC issued the final determination deciding that Huawei Device and USA Device did not infringe the asserted patents. Flashpoint did not appeal to such final determination and the investigation terminated in the Group’s favor. Flashpoint subsequently also dismissed its infringement assertions against Huawei Device and USA Device before the United States District Court for the District of Delaware. The Group could reasonably conclude that this litigation is terminated and there is no possible loss to the Group.

• On 24 July 2012, Technology Properties Limited LLC (‘‘TPL’’) filed a complaint with the USITC, requesting the Commission to commence an investigation under Section 337 of the Tariff Act of 1930 into certain wireless consumer electronics devices and components manufactured by thirteen companies and their affiliates by reason of alleged patent infringement and requested for issuance of an exclusion order and cease and desist order in relation to the electronic products concerned. Huawei Tech was named as one of the thirteen companies. On 21 August 2012, the USITC decided to institute Section 337 investigation in relation to the electronic products concerned. TPL also filed another complaint before the United States District Court for the Northern District of California for the same reason. On 6 September 2013, the Administrative Law Judge of the USITC issued an initial determination that the Group did not infringe the asserted patent. On 19 February 2014, the USITC issued a final determination that the Group did not infringe the asserted patent. TPL did not appeal the final determination within the statutory period, as a result, the USITC investigation formally terminated. With the termination of the investigation, the suit before the United States District Court for the Northern District of California was reopened. Given the fact that the suit in the district court remains in an early stage, the Group is unable to predict the outcome of the suit, or reasonably estimate a range of possible loss if any.

Except as disclosed in this Offering Circular, neither Huawei nor any of its subsidiaries is involved in any litigation or arbitration proceedings that Huawei believes would have a material adverse effect on its business or financial position and nor is Huawei aware that any such litigations or proceedings are pending or threatened against it or any of its subsidiaries.

Capital Resources and Expenditures To date, Huawei has primarily financed its business operations through cash flows generated from operating activities, capital injection and bank borrowings. Huawei’s cash requirements primarily include expenditures to fund its R&D activities, marketing and distribution, business expansion and working capital.

115 As at 31 December 2014, Huawei had cash and cash equivalents of RMB78,048 million. As at 31 December 2014, its unutilised committed banking facilities amounted to RMB13,660 million.

Indebtedness As at 31 December 2014, Huawei had total loans and borrowings of RMB28,107 million, of which approximately RMB10,530 million will mature before 31 December 2015. The following table sets forth a breakdown of Huawei’s interest-bearing loans and borrowings as at the dates indicated:

As at 31 December 2014 2013 (RMB in millions) Short-term loans and borrowings ...... Intra-groupguaranteed...... 1,890 2,022 Unsecured...... – 25 1,890 2,047 Long-term loans and borrowings Intra-groupguaranteed...... 22,254 18,351 Unsecured...... 1,382 1,644 Corporatebonds...... 2,581 991 26,217 20,986 Total short-term and long-term loans and borrowings ...... 28,107 23,033 Divided into: Non-currentportion...... 17,577 19,990 Currentportion...... 10,530 3,043 Total...... 28,107 23,033

As at 31 December 2014, Huawei had six syndicated term or revolving loan facilities denominated in US dollars or Euros from a group of international banks and financial institutions. The borrowers of these facilities are Huawei’s major overseas subsidiaries, including Huawei Tech. Investment Co., Ltd., Huawei Technologies Coöperatief U.A. and Huawei International Pte. Ltd. As at 31 December 2014, the aggregate principal amount which had been drawn down under five facilities was US$2,900 million for facilities denominated in US dollars and €475 million for facilities denominated in Euro. These facilities will mature between April 2015 to July 2019.

116 DIRECTORS AND MANAGEMENT

Driven by Huawei’s core values of customer-centricity and dedication, Huawei has maintained long-term effective growth by continuously improving its corporate governance structure, organisation, processes and appraisal systems.

The following chart shows Huawei’s corporate governance structure as at 31 December 2014:

Shareholders Huawei Investment & Holding Co., Ltd. is a private company wholly owned by its employees. Huawei’s shareholders are the Union and Mr. Ren Zhengfei.

Through the Union, Huawei implements the Scheme, which involved 82,471 employees as at 31 December 2014. The Scheme effectively aligns employee contributions with the long-term development of the company, fostering Huawei’s continued success.

Mr. Ren Zhengfei is the individual shareholder of Huawei and also participates in the Scheme. As at 31 December 2014, Mr. Ren Zhengfei’s investment (including those held directly by himself and through the Union) accounts for nearly 1.4% of Huawei’s total share capital.

The Shareholders’ Meeting and the Representatives’ Commission The Shareholders’ Meeting is the highest authority within Huawei and comprises two shareholders: the Union and Mr. Ren Zhengfei.

Huawei’s major issues, which involve the decisions of the Union as a shareholder of the Company, shall be primarily reviewed and decided on by the Representatives’ Commission (the ‘‘Commission’’). The Commission consists of representatives of shareholding employees (‘‘Representatives’’) and exercises

117 rights on behalf of all shareholding employees. In 2014, the Commission held two meetings. The Commission elected five additional members to the Supervisory Board. At these meetings, the Commission approved proposals on annual profit distribution, capital increases, regulations on the by- elections of members of the Supervisory Board and the incentive program TUP. The Commission elected five additional members to the Supervisory Board.

TUP is a profit-sharing and bonus plan based on employee performance for all recipients in the Group. Under TUP, TBUs are granted to the recipients, which entitle the recipients to receive cash incentives calculated based on the annual profit-sharing amount and the cumulative end-of-term gain amount. Both of the annual profit-sharing and the end-of-term gain amount are determined at the discretion of the Group. The TBUs will have an exercise period of five years, and after the first, second and third anniversary of the date of grant, one-third of the TBUs will become exercisable and recipients will receive the annual profit-sharing amount. The end-of-term gain amount will be paid to the recipients upon the expiry of the TBUs or at the date the recipients resign or are dismissed from the Group.

The 51 Representatives and nine alternate Representatives are elected by active shareholding employees with a term of service of five years. In the event that there is a vacancy in the body of Representatives, the alternate Representatives shall take up the vacancy in a predetermined sequence. The existing Commission was elected in December 2010.

At present, the Representatives are Ms. Sun Yafang, Mr. Guo Ping, Mr. Xu Zhijun, Mr. Hu Houkun, Mr. Ren Zhengfei, Mr. Xu Wenwei, Mr. Li Jie, Mr. Ding Yun, Ms. Meng Wanzhou, Ms. Chen Lifang, Mr. Wan Biao, Mr. Zhang Ping’an, Mr. Yu Chengdong, Mr. Liang Hua, Mr. Ren Shulu, Mr. Tian Feng, Mr. Deng Biao, Mr. Zhou Daiqi, Mr. Cai Liqun, Mr. Jiang Xisheng, Mr. Yin Xuquan, Mr. Yao Fuhai, Mr. Zha Jun, Mr. Li Yingtao, Ms. Ji Ping, Mr. Tao Jingwen, Mr. Zhang Shunmao, Mr. Ding Shaohua, Mr. Li Jin’ge, Mr. Wang Shengli, Mr. Wang Kexiang, Mr. Lv Ke, Mr. Yang Kaijun, Mr. Jiang Yafei, Ms. He Tingbo, Mr. Sun Ming, Mr. Wu Kunhong, Mr. Zhao Yong, Ms. Yan Weimin, Mr. Tang Xiaoming, Mr. Wang Jiading, Mr. Wei Chengmin, Mr. Xiong Lening, Mr. Li Shanlin, Mr. Xu Chi, Mr. Yang Shu, Mr. Song Liuping, Mr. Zhou Hong, Ms. Chen Jun, Mr. Hui Chun and Mr. Yang Yuefeng.

Board of Directors and Committees The Board of Directors (‘‘BOD’’) is the decision-making body for corporate strategy and management. The BOD guides and oversees the overall business operations and makes decisions on significant strategic issues. The BOD established the Human Resources Committee (‘‘HRC’’), the Finance Committee (‘‘FC’’), the Strategy & Development Committee (‘‘SDC’’) and the Audit Committee (‘‘AC’’) to assist and support BOD operations.

The main responsibilities of the BOD are to:

• decide on Huawei’s strategic directions and to approve and monitor the execution of Huawei’s medium-to-long-term development plan;

• provide advice and guidance to management regarding significant issues, including major crises and market changes;

• review Huawei’s business operations, organisation and processes and approve major organisational restructurings, business transformations and process transformations;

• approve Huawei’s major financial policies, financial arrangements and business transactions;

• approve Huawei’s operating results, financial results and financial statements;

• establish Huawei’s monitoring mechanisms and oversee their execution;

• establish Huawei’s governance structure and organise its optimisation and deployment;

118 • decide on the selection, appraisal and compensation of the chief executive officer (‘‘CEO’’)and approve the appointment and compensation of other members of senior management; and

• approve the corporate-level human resources (‘‘HR’’) planning and major HR policies.

In 2014, the BOD held 12 meetings. At the meetings, the BOD reviewed and approved matters such as the company’s medium-to-long-term development plan, annual business plan and budget, BOD committee operations, compensation and incentives, management transformations, information security, mergers and acquisitions and cooperation. In addition, the BOD organised a training session for new directors.

Currently, the BOD has 17 members, who were elected by all Representatives.

The members of the BOD of the Guarantor as at the date of this Offering Circular are as follows:

Name Position Ms.SUNYafang...... Chairwoman Mr.GUOPing...... DeputyChairman Mr.XUZhijun...... DeputyChairman Mr.HUHoukun...... DeputyChairman Mr.RENZhengfei...... DeputyChairman Mr.XUWenwei...... ExecutiveDirector Mr.LIJie...... ExecutiveDirector Mr.DINGYun...... ExecutiveDirector Ms.MENGWanzhou...... ExecutiveDirector Ms.CHENLifang...... Director Mr.WANBiao...... Director Mr. ZHANG Ping’an...... Director Mr. YU Chengdong ...... Director Mr.LIYingtao...... Director Mr. LI Jin’ge...... Director Ms.HETingbo...... Director Mr.WANGShengli...... Director

The BOD established the Executive Committee (the ‘‘Executive Committee’’), which acts as the executive body of the BOD while it is adjourned. Members of the Executive Committee include Mr. Guo Ping, Mr. Xu Zhijun, Mr. Hu Houkun, Mr. Xu Wenwei, Mr. Li Jie, Mr. Ding Yun and Ms. Meng Wanzhou. In 2014, the Executive Committee held 16 meetings.

Resume of Directors Ms. SUN Yafang: Ms. Sun joined Huawei in 1989 and has served as an engineer in the Marketing & Sales Department, Director of the Training Centre, President of the Procurement Department, General Manager of Wuhan Office, President of the Marketing & Sales Department, Chair of the Human Resources Committee, Chair of the Business Transformation Executive Steering Committee (BT-ESC), Chair of the Strategy and Customer Standing Committee and President of Huawei University. Since 1999, Ms. Sun has been the Chairwoman of the BOD.

Prior to joining Huawei, Ms. Sun worked as a technician at the state-owned Xinxiang Liaoyuan Radio Factory in 1982, as a teacher at China Research Institute of Radio Wave Propagation in 1983 and as an engineer at Beijing Research Institute of Information Technology in 1985.

Ms. Sun was born in 1955 and graduated in 1982 with a bachelor’s degree from Chengdu University of Electronic Science and Technology.

Mr. GUO Ping: Born in 1966, Mr. Guo holds a master’s degree from Huazhong University of Science and Technology. Mr. Guo joined Huawei in 1988 and has served as R&D Project Manager, General Manager of Supply Chain, Director of Huawei Executive Office, Chief Legal Officer, President of the

119 Business Process & IT Management Department, President of the Corporate Development Department and Chairman and President of Huawei Device. Currently, Mr. Guo serves as Deputy Chairman of the Board, Rotating CEO and Chairman of the FC.

Mr. XU Zhijun (Eric Xu): Born in 1967, Mr. Xu holds a doctorate degree from Nanjing University of Science & Technology. Mr. Xu joined Huawei in 1993 and has served as President of the Wireless Network Product Line, Chief Strategy & Marketing Officer, Chief Products & Solutions Officer and Chairman of the Investment Review Board. Currently, Mr. Xu serves as Deputy Chairman of the Board, RotatingCEOandChairmanoftheSDC.

Mr.HUHoukun(KenHu): Born in 1968, Mr. Hu holds a bachelor’s degree from Huazhong University of Science and Technology. Mr. Hu joined Huawei in 1990 and has served as President of the Marketing & Sales Department in China, President of the Latin America Region, President of the Global Sales Department, Chief Sales & Service Officer, Chief Strategy & Marketing Officer, Chairman of the Corporate Global Cyber Security Committee, Chairman of the BOD of Huawei USA, Deputy Chairman of the Board, Rotating CEO and Chairman of the HRC.

Mr. REN Zhengfei: Born on 25 October, 1944 into a rural family where both parents were school teachers, Mr. Ren Zhengfei spent his primary and middle school years in a remote mountainous town in Guizhou Province. In 1963, he studied at the Chongqing Institute of Civil Engineering and Architecture. After graduation, he was employed in the civil engineering industry until 1974 when he joined the military’s Engineering Corps as a soldier tasked to establish the Liao Yang Chemical Fiber Factory. Subsequently, Mr. Ren Zhengfei had taken positions as a Technician, an Engineer and was lastly promoted as a Deputy Director, which was a professional role equivalent to a Deputy Regimental Chief, but without military rank. Because of his outstanding performance, Mr. Ren Zhengfei was invited to attend the National Science Conference in 1978 and the 12th National Congress of the Communist Party of China in 1982. Mr. Ren Zhengfei retired from the army in 1983 when the Chinese government disbanded the entire Engineering Corps. He then worked in the logistics service base of the Shenzhen South Sea Oil Corporation. As he was dissatisfied with his job, he decided to establish Huawei with a capital of RMB21000 in 1987. He became the CEO of Huawei in 1988 and has held the title ever since.

Mr. XU Wenwei (William Xu): Born in 1963, Mr. Xu holds a master’s degree from Southeast University. Mr. Xu joined Huawei in 1991 and has served as President of the International Technical Sales & Marketing Department, President of the European Area, Chief Strategy & Marketing Officer, Chief Sales & Service Officer, President of the Joint Committee of Regions, CEO of the Enterprise BG and Chief Strategy Marketing Officer.

Mr. LI Jie (Jason Li): Born in 1967, Mr. Li holds a master’s degree from Xi’an Jiaotong University. Mr. Li joined Huawei in 1992 and has served as Regional President, President of the Global Technical Service Department, President of the Human Resource Management Department and President of the Joint Committee of Regions.

Mr. DING Yun (Ryan Ding): Born in 1969, Mr. Ding holds a master’s degree from Southeast University. Mr. Ding joined Huawei in 1996 and has served as Product Line President, President of the Global Solution Sales Department, President of the Global Marketing Department, Chief Products & Solutions Officer and CEO of the Carrier Network BG.

Ms. MENG Wanzhou (Sabrina Meng): Born in 1972, Ms. Meng holds a master’s degree from Huazhong University of Science and Technology. Ms. Meng joined Huawei in 1993. She then obtained her M.A. in 1998. Ms. Meng has served as Director of the International Accounting Department, chief financial officer (‘‘CFO’’) of Huawei Hong Kong, President of the Accounting Management Department and President of the Sales Financing & Treasury Management Department. Currently, Ms. Meng serves as CFO of Huawei.

120 Ms. CHEN Lifang: Born in 1971, Ms. Chen graduated from Northwest University in China. Ms. Chen joined Huawei in 1995 and has served as Chief Representative of the Beijing Representative Office, Vice President of the International Marketing Department, Deputy Director of the Domestic Marketing Management Office, President of the Public Affairs and Communications Department and Corporate Senior Vice President.

Mr. WAN Biao: Born in 1972, Mr. Wan holds a bachelor’s degree from the University of Science and Technology of China. Mr. Wan joined Huawei in 1996 and has served as Director for the UMTS RAN System, President of the UMTS Product Line, President of the Wireless Network Product Line, CEO of Huawei Device and President of the Russia region.

Mr. ZHANG Ping’an (Alex Zhang): Born in 1972, Mr. Zhang holds a master’s degree from Zhejiang University. Mr. Zhang joined Huawei in 1996 and has served as Product Line President, Senior Vice President, Vice President of Strategy & Marketing, Regional Vice President, Vice President of the Global Technical Service Department, CEO of Huawei Symantec and chief operating officer (‘‘COO’’) of the Enterprise BG. Currently, Mr. Zhang serves as President of the Carrier Software Business Unit.

Mr. YU Chengdong (Richard Yu): Born in 1969, Mr. Yu holds a master’s degree from Tsinghua University. Mr. Yu joined Huawei in 1993 and has served as 3G Product Director, Vice President of the Wireless Technical Sales Department, President of the Wireless Network Product Line, President of the European Area, Chief Strategy & Marketing Officer, Chairman of Huawei Device and CEO of the Consumer BG.

Mr. LI Yingtao: Born in 1969, Mr. Li holds a doctorate degree from Harbin Institute of Technology. Mr. Li joined Huawei in 1997 and has served as Chief of the Sweden Research Centre, Director of the Product Management Department of Wireless Marketing, Director of the Research Department of Products & Solutions, Director of the General Technology Office of Products & Solutions, President of the Central Research & Development Unit, President of the 2012 Laboratories, Director of the Integrated Technology Management Committee, member of the HRC and member of the SDC.

Mr. LI Jin’ge: Born in 1968, Mr. Li holds a bachelor’s degree from Beijing University of Posts and Telecommunications. Mr. Li joined Huawei in 1992 and has served as Regional Vice President, Regional President, President of the Global Technical Sales Department, President of the Sub-Sahara Area, member of the Joint Committee of Regions, member of the FC and President of the Asia Pacific Area.

Ms. HE Tingbo (Teresa He): Born in 1969, Ms. He holds a master’s degree from Beijing University of Posts and Telecommunications. She joined Huawei in 1996 and has since served as Principal ASIC Engineer and R&D Director of HiSilicon. Currently, Ms. He serves as President of HiSilicon and Vice President of the 2012 Laboratories.

Mr. WANG Shengli (Victor Wang): Born in 1963, Mr. Wang holds a master’s degree from Wuhan University. He joined Huawei in 1997 and has served as Regional Vice President, Regional President and President of the Asia-Pacific Area. Currently, Mr. Wang serves as President of the European Area, executive member of the Management Team of the Joint Committee of Regions, Director of the overseas subsidiaries’ Board Bureau and Chairman of the Board of Huawei Technologies Coöperatief U.A.

Human Resources Committee The HRC manages and optimises core corporate elements such as organisation, talent, incentives and culture. It operates under the BOD to develop, determine and oversee the implementation of key policies and transformation initiatives relating to HR management. The committee aligns HR policies with Huawei’s HR management philosophy and core concepts to ensure policy consistency. These policies also reflect the business characteristics and management models of departments at all levels to support business development.

121 The main responsibilities of the HRC are to:

• manage HR initiatives for key managers and talent (including succession planning, deployment, appointments/removals, performance appraisals, compensation and incentives);

• set policies for incentives, benefits, the compensation structure and job matching;

• set policies for organisational development and optimisation and manage HR budgets and staffing for each budgetary unit;

• set policies for and provide guidance on learning and development;

• set policies for employee discipline and oversee disciplinary action for major violations;

• set policies for and provide guidance on health and safety; and

• manage HR strategic planning and key HR transformation initiatives.

The HRC holds monthly meetings. Business executives, HR executives from key departments and various experts are invited to attend as non-voting participants.

The committee met 12 times in 2014 and achieved its annual targets in the areas of developing HR management frameworks and policies, making key decisions and overseeing policy execution. The specific initiatives are as follows:

• formulated strategic plans for HR management to satisfy BOD requirements, meet global development needs of business groups and manage Huawei’s diverse workforce;

• identified specific talent requirements for different job levels and positions based on corporate strategies and future development needs and implemented the ‘‘Leadership Model’’ and qualification management system to adapt managers to business strategies;

• implemented the ‘‘Contribute and Share’’ bonus system, tailored compensation and incentive strategies and standards for different job categories, increased incentives for high-performing employees and rolled out the TUP globally and increased monetary incentives and established a management framework to create more non-monetary incentives;

• restructured organisations based on three dimensions – customers, products and regions; delegated more authority to field offices and managed workforce budgets more flexibly based on business needs;

• strengthened employee discipline and improved healthcare initiatives; and

• launched a three-to-five-year program to improve HR management capabilities and deliver professional and efficient HR services.

The HRC comprises 15 members, including BOD members, senior business executives and senior HR experts.

• Chairman: Mr. Hu Houkun.

• Members: Mr. Guo Ping, Mr. Xu Zhijun, Mr. Xu Wenwei, Mr. Li Jie, Mr. Ding Yun, Ms. Meng Wanzhou, Mr. Li Yingtao, Mr. Wan Biao, Ms. He Tingbo, Mr. Zhang Ping’an, Mr. Zha Jun, Mr. Li Jin’ge, Mr. Peng Bo and Mr. Li Shanlin.

122 Finance Committee The FC is Huawei’s overall enterprise value integrator. It operates under the BOD to exercise macro- control over the company’s business operations, investment activities and enterprise risks, helping to strike a dynamic balance between opportunities and resources to facilitate the company’s long-term effective growth.

The main responsibilities of the FC are to:

• align resources with business needs based on the Group’s resources and resource acquisition capabilities;

• set financial objectives for the growth and investment projects of the Group and each responsibility centre; and determine the standards, structure and pace for resource investments;

• measure the monetary value of key strategies, conduct forward-looking forecasts and analysis and submit proposals to the BOD; and review the Group’s annual budget plan, approve the annual budget for each responsibility centre and ensure closed-loop management of corporate-level planning, budgeting, accounting and assessment;

• review the capital structure plan and propose major financing activities, the asset structure and profit distribution;

• review the Group’s key financial policies, annual financial statements and related information disclosures;

• review capital investment and strategic cooperation projects, submit proposals to the BOD and periodically assess the execution of such projects; and

• review the Group’s risk management framework and provide advice on operational compliance and business continuity management.

The FC holds monthly meetings and convenes special sessions as necessary. Based on business needs and BOD’s requirements, the FC held 13 meetings in 2014. At the meetings, the FC reviewed such key items as the Group’s medium-to-long-term development plan, annual budget plan, operational management, capital investment projects, capital structure, enterprise risk management and subsidiary and joint venture management. The FC then discussed and established financial policies and systems, reviewed and decided on key initiatives and monitored their execution.

The FC comprises 15 members, including BOD members and various experts.

• Chairman: Mr. Guo Ping.

• Members: Mr. Xu Zhijun, Mr. Hu Houkun, Mr. Xu Wenwei, Mr. Li Jie, Mr. Ding Yun, Ms. Meng Wanzhou, Mr. Liang Hua, Mr. Yi Xiang, Mr. Fang Weiyi, Mr. Zou Zhilei, Mr. Yao Fuhai, Mr. Xiong Lening, Mr. Song Liuping and Mr. Peng Qiu’en.

Strategy & Development Committee The SDC develops, sets and executes Huawei’s strategic directions. The SDC gains insight into major industry and technological trends, changes in customer needs and identifies opportunities and paths for the company’s development. Through macro-management of industrial investments, technologies, business models and transformations, the SDC ensures that concerted efforts are made to maintain Huawei’s effective growth.

123 The main responsibilities of the SDC are to:

• manage the Group’s medium-to-long-term strategic planning, key initiatives and major objectives of the year;

• manage the Group’s brand strategy, brand architecture and brand attributes, as well as publicity strategy and direction;

• manage the Group’s strategy for strategic partnerships and alliances, as well as the selection of strategic partners and alliances;

• manage the Group’s business portfolios and scope;

• manage the Group’s pricing policies, commercial authorisation principles and actual pricing of key strategic products;

• manage the Group’s medium-to-long- term technology development planning, standards and patent strategy and major technology investments;

• manage the Group’s medium-to-long-term business transformation strategy, process and management system structures and quality policies, amongst others; and

• review the Group’s business portfolios to ensure investments are made in strategic domains.

The SDC held 12 meetings and two special sessions in 2014. Based on the practice over the past two years, the SDC strengthened the review of regional strategies and enhanced strategic alignment, synergy and execution. In accordance with the positioning and responsibilities determined by the BOD, the SDC continued to guide business units to build future-proof core competences along the path of strategic focus, innovation, differentiation and leadership. On this basis, the SDC aims to expand its share in the industry, formulate the future development strategy and promote its execution to support Huawei’s long- term development.

The SDC comprises 15 members, including BOD members, senior business executives and various senior experts.

• Chairman: Mr. Xu Zhijun.

• Members: Mr. Guo Ping, Mr. Hu Houkun, Mr. Xu Wenwei, Mr. Li Jie, Mr. Ding Yun, Ms. Meng Wanzhou, Mr. Yu Chengdong, Mr. Li Yingtao, Mr. Liang Hua, Mr. Zhang Ping’an, Mr. Zha Jun, Mr. Deng Biao, Mr. Wang Shengqing and Mr. Zhang Shunmao.

Audit Committee The AC operates under the BOD to oversee internal controls, including the internal control system, internal and external audits, corporate processes, legal compliance and adherence to Business Conduct Guidelines (‘‘BCGs’’).

The main responsibilities of the AC are to:

• approve the annual internal audit plan and review its scope, required resources and audit outputs;

• approve corporate policies for internal controls, approve the corporate development plan for internal controls and the plan’s key milestones and regularly assess the company’s internal control status;

124 • evaluate the effectiveness of the ethics and compliance function, legal compliance and adherence to corporate policies;

• approve the selection of the external auditor, notify the BOD of any proposed change to the external auditor for approval, approve related budgets and evaluate the work of the external auditor;

• supervise the completeness, accuracy and legal compliance of Huawei’s financial statements and review compliance with accounting policies and all financial disclosures; and

• approve internal control key performance indicators at the beginning of each year and instruct Global Process Owners (‘‘GPOs’’) and business executives to report internal control results.

The AC holds quarterly meetings and convenes special sessions as necessary. Business executives and various experts are invited to attend as non-voting participants.

The committee held seven meetings in 2014. Focusing on topics such as risk management, the development of the internal control system and anti-corruption, the committee:

• reviewed and approved Huawei’s annual internal audit plan and annual plan for internal controls on global processes;

• received reports on internal control maturity trends, SACA, internal control improvements by GPOs, assessments on the internal control framework and accountability system and the anti- corruption roadmap;

• improved employee compliance with BCGs by publicising major audit findings and non- compliance cases; and

• arranged discussions between the committee chairman and the external auditor on management improvement proposals.

The AC comprises 10 members, including Supervisory Board members, BOD members and various experts.

• Chairman: Mr. Liang Hua.

• Members: Mr. Zhou Daiqi, Mr. Ren Shulu, Mr. Li Jianguo, Mr. Yin Xuquan, Mr. Tian Feng, Mr. Song Liuping, Mr. Yi Xiang, Mr. Li Jin’ge and Mr. Hui Chun.

Supervisory Board Pursuant to the requirements of the Company Law of the People’s Republic of China, Huawei has established a Supervisory Board (the ‘‘Supervisory Board’’). The key responsibilities of the Supervisory Board include examining Huawei’s financial and operational status, monitoring the responsibility fulfillment of BOD members and senior management as well as the standardisation of BOD operations. Members of the Supervisory Board attend BOD meetings as non-voting participants.

In 2014, the Supervisory Board held nine meetings. At the meetings, it evaluated Huawei’s financial position, received reports from the Group’s supervisory functions and assessed the responsibility fulfillment of its own members and that of BOD members. The Supervisory Board organised its own candidate nomination and elected its executive members. Throughout the year, members of the Supervisory Board attended 12 meetings of the BOD as non-voting participants, monitoring the Group’s financial position, the responsibility fulfillment of BOD members and senior management and the standardisation of BOD operations.

125 On 28 November 2014, all of the Representatives elected five additional members of the Supervisory Board.

Currently, the Supervisory Board comprises nine members.

• Chairman: Mr. Liang Hua.

• Executive members: Mr. Zhou Daiqi, Mr. Ren Shulu, Mr. Li Jianguo and Mr. Yin Xuquan.

• Members: Mr. Tian Feng, Mr. Deng Biao, Mr. Song Liuping and Mr. Yi Xiang.

Resume of Supervisory Board Members Mr. Liang Hua (Howard Liang): Born in 1964, Mr. Liang holds a doctorate degree from Wuhan University of Technology. Mr. Liang joined Huawei in 1995 and has served as President of Supply Chain, CFO of Huawei, President of the Business Process & IT Management Department, President of the Global Technical Service Department, Chief Supply Chain Officer and Chairman of the AC.

Mr. Zhou Daiqi:Bornin1947,Mr.ZhougraduatedfromXidian University. Mr. Zhou joined Huawei in 1994 and has served as ATM Product Manager, Chief Engineer and General Manager of the Multimedia Department, Director of the Hardware Department, Chief of the Xi’an Research Centre and Director of the HR Branch of Products & Solutions. Currently, Mr. Zhou serves as Chief Ethics & Compliance Officer, Director of the Corporate Committee of Ethics and Compliance and member of the AC.

Mr. Ren Shulu (Steven Ren): Born in 1956, Mr. Ren holds a bachelor’s degree from Yunnan University. Mr. Ren joined Huawei in 1992 and has served as President of Shenzhen Smartcom Business Co., Limited and Chairman of the Capital Construction Investment Management Committee. Currently, Mr. Ren serves as Chairman of the Internal Service Management Committee.

Mr. Li Jianguo: Born in 1964, Mr. Li holds a master’s degree from Huazhong University of Science and Technology. Mr. Li joined Huawei in 1993 and has served as an R&D engineer, Deputy Manager of the Development and Pilot (‘‘D&P’’) Department, Manager of the Manufacturing Department, Executive Vice President of Huawei Electric, Director of the Assembly Business Department, Deputy Director of the Supply Chain Management Department, Director of the Board Design Engineering Department under the Central Research & Development Unit (‘‘CRDU’’), Director of the PDT/TDT Leaders Management Department under the CRDU and President of the Manufacturing SBG. Currently, Mr. Li serves as President of the Manufacturing Department.

Mr. Yin Xuquan: Born in 1964, Mr. Li holds a master’s degree from Xi’an Jiaotong University. Mr. Yin joined Huawei in 1995 and has served as President of the Southern Africa Region, Vice President of the Turnkey Business Department, President of the Optical Network Product Line, HR Director of Sales & Service Department and Vice President of the Procurement Qualification Management Department.

Mr. Tian Feng: Born in 1969, Mr. Tian holds a bachelor’s degree from Xidian University. Mr. Tian joined Huawei in 1995 and has served as Executive Vice President (‘‘EVP’’)oftheMiddleEastand Northern Africa Area, President of the Middle East Region, President of the China Region, CEO of Huawei Agisson, Vice President (acting) of the Human Resource Management Department, EVP of Huawei University, Director of the Institute of Education of Huawei University, Director of the Disciplinary and Supervisory Sub-committee of the HRC and executive member of the Management Team of the Joint Committee of Regions.

126 Mr. Deng Biao (Alex Deng): Born in 1971, Mr. Deng holds a bachelor’s degree from Jiangxi University. Mr. Deng joined Huawei in 1996 and has served as President of the Access Network Product Line, President of the Network Product Line, President of the Carrier Software & Core Network Business Unit and President of the Quality, Business Process & IT Management Department.

Mr. Song Liuping: Born in 1966, Mr. Song completed his postdoctoral research at the Beijing Institute of Technology. Mr. Song joined Huawei in 1996 and has served successively as Manager of the Product Strategy Planning Department, Director of the IPR Department, Director of External Cooperation Department, PSST member, President of the Legal Affairs Department, Chief Legal Officer, President of the Patent Review Board, Director of the Trade and Customs Compliance Committee, member of the Disciplinary and Supervisory Sub-committee of the HRC and member of the FC.

Mr. Yi Xiang (Steven Yi): Born in 1975, Mr. Yi holds a bachelor’s degree from Wuhan University. Mr. Yi joined Huawei in 1998 and has served as Director of the Sales Management Department in the Asia- Pacific Area, General Manager of the Pakistan Representative Office, President of the Middle East Region, President of the Middle East and Africa Area, President of the Sales & Delivery Management Department and Deputy CFO of Huawei. Currently, Mr. Yi serves as President of the Regions Management Department, Director of the Transformation Project Office and member of the FC.

Committee Members Committee members not listed in ‘‘Directors and Management – Resume of Directors’’ or ‘‘Directors and Management – Resume of Supervisory Board Members’’ are included below.

Mr. Wang Shengqing (Ken Wang): Born in 1972, Mr. Wang holds a master’s degree from Huazhong University of Science and Technology. Mr. Wang joined Huawei in 1997 and has served as Deputy Director of the Mobile Technical Sales Department in China, Deputy Director (acting) of the Technical Sales Department in the Asia Pacific Area, Deputy General Manager of the Indonesia Representative Office, Director of the Telefonica Account Department and President of the Marketing & Solution Department.

Mr. Fang Weiyi: Born in 1965, Mr. Fang holds a master’s degree from the Aeronautics Computing Technique Research Institute. Mr. Fang joined Huawei in 1995 and has served as an engineer, Director of the Intelligent Network Product Line, Director of the Strategy and Planning Department, President of the Finance Management Department, President of the Sales & Delivery Finance Management Department and CFO of the Carrier Network BG. Currently, Mr. Fang serves as Director of the Finance Management Department of the Carrier BG and member of the FC.

Mr. Li Shanlin: Born in 1968, Mr. Li holds a master’s degree from Beijing University of Aeronautics and Astronautics. Mr. Li joined Huawei in 1996 and has served as R&D Project Manager, Department Manager at Huawei Technologies India Private Limited, Deputy Chief of the Beijing Research Centre, Director of the R&D Department of the Data Communications Product Line, Director of the HR Branch of Products & Solutions, Vice President of the Human Resource Management Department and member of the HRC.

Mr. Zou Zhilei: Born in 1971, Mr. Zou holds a bachelor’s degree from Hefei University of Technology. Mr. Zou joined Huawei in 1998 and has served as General Manager of the Xi’an Representative Office, General Manager of the Guangzhou Representative Office, President of the Northern Africa Region, President of the Global Sales Department under the Enterprise BG and President of the Global Sales and Service Department under the Enterprise BG. Currently, Mr. Zou is EVP of the Carrier BG and member of the FC.

Mr. Zhang Shunmao (Patrick Zhang): Born in 1966, Mr. Zhang holds a master’s degree from Fudan University. Mr. Zhang joined Huawei in 1992 and has served as Director of the Switch Business Department of the Central Research Department, Vice President of the Technical Support Department,

127 Corporate Senior Vice President, EVP of the Marketing Department, President of the Fixed Network Product Line, President of the Wireless Network Product Line, EVP of the Latin America Area, President of the Northern Latin America Region and President of the Enterprise Business Marketing & Solutions Department.

Mr. Zha Jun: Born in 1971, Mr. Zha holds a master’s degree from Zhejiang University. Mr. Zha joined Huawei in 1997 and has served as R&D Product Manager, Director of the IMS Product Line, President of the Router and Network Security Product Line, President of the Fixed Network Business Unit, President of the Fixed Network Product Line, member of the HRC and member of the SDC.

Mr. Yao Fuhai: Born in 1968, Mr. Yao holds a bachelor’s degree from the University of Electronic Science and Technology of China. Mr. Yao joined Huawei in 1997 and has served as Director of the Pricing Centre, Vice President of the Business Process & IT Management Department, Vice President of the Strategy Cooperation Department, Vice President of the Global Technical Sales Department and President of the Global Technical Service Department. Currently, Mr. Yao serves as President of the Procurement Qualification Management Department, Director of the Group Procurement Management Committee and member of the FC.

Mr. Peng Qiu’en (Ted Peng):Bornin1971,Mr.Pengholdsamaster’s degree from Zhongnan University of Economics and Law. Mr. Peng joined Huawei in 1997 and has served as Director of the Budget & Cost Management Section, Director of the Financial Planning & Analysis Department, Vice President of the Sales & Delivery Finance Management Department and CFO of the India Region. Currently, Mr. Peng serves as President of the Finance Management Department and member of the FC.

Mr. Peng Bo (Vincent Peng): Born in 1976, Mr. Peng holds a bachelor’s degree from Harbin Institute of Technology. Mr. Peng joined Huawei in 1999 and has served as Account Manager of the Customer Relationship Management Department, Account Manager of the Hong Kong Representative Office, President of the Vodafone Account Department, Vice President of the West European Region, President of the Accounts Business Department, President of the Sales & Accounts Business Department under the Carrier BG, member of the Carrier BG Executive Management Team (‘‘EMT’’), member of the HRC andmemberoftheSDC.

Mr. Hui Chun (Clark Hui): Born in 1963, Mr. Hui holds a master’s degree from Huazhong University of Science and Technology. Mr. Hui joined Huawei in 1989 and has served as President of the Procurement Qualification Management Department, Vice President of Finance & President of the Business Control Department and Vice President of the Business Process & IT Management Department. Currently, Mr. Hui serves as Director of the Engineering Inspection Department and member of the AC.

Mr. Xiong Lening: Born in 1969, Mr. Xiong holds a bachelor’s degree from Zhejiang University. Mr. Xiong joined Huawei in 1993 and has served as Deputy Director of the Development and Pilot (‘‘D&P’’) Department, General Manager of the Chengdu Representative Office, Director of the Beijing Branch, Director of the China Mobile Account Department, Vice President of the China Region and EVP (acting) of the Russia region. Currently, Mr. Xiong serves as President of the Supply Chain Management Department and member of the FC.

Rotating CEOs Huawei implements the rotating CEO system under the BOD’s leadership. As the primary controller of Huawei’s operations and crisis management during the tenure, the Rotating and Acting CEO is responsible for the company’s survival and development.

The Rotating and Acting CEO convenes and chairs the Group’s Executive Management Team (‘‘EMT’’) meetings. During routine management decision making, the Rotating and Acting CEO promptly notifies the BOD and Supervisory Board members of responsibilities which have been fulfilled.

128 The three Deputy Chairmen take turns to act as the Rotating and Acting CEO for a tenure of six months. In 2014, the acting tenures for the three rotating CEOs were as follows:

• Mr. Xu Zhijun: October 1, 2013 – March 31, 2014

• Mr. Guo Ping: April 1, 2014 – September 30, 2014

• Mr. Hu Houkun: October 1, 2014 – March 31, 2015

Business Structure In 2014, Huawei gradually adjusted its business structure to focus on three dimensions – customers, products and regions. All organisations jointly create value for customers and are responsible for the Group’s financial results, market competitiveness and customer satisfaction.

Based on the business patterns and operational characteristics of the carrier, enterprise and consumer segments, Huawei restructured three BGs to deliver innovative, differentiated and leading solutions.

To adapt to the increasing convergence of IT and CT technologies, Huawei established the Products & Solutions department to sharpen its competitive edge in products and solutions, fully leverage the competitive advantages of its integrated ICT portfolio and deliver a better user experience.

Regional organisations are the company’s regional operations centres and are responsible for developing and effectively utilising regional resources and capabilities. The Group has optimised regional organisations and accelerated the pace of delegating authority to field offices. While establishing closer partnerships with customers and helping them achieve business success, the Group maintains effective and sustainable growth.

Group Functions provide business support, services and supervision. They are positioned to offer accurate, timely and effective services to field offices and strengthen supervision while delegating sufficient authority to them.

Independent Auditor An independent auditor is responsible for auditing Huawei’s annual financial statements. In accordance with applicable accounting standards and audit procedures, the independent auditor expresses an opinion as to whether the financial statements are true and fair.

The scope of the financial audit and the annual audit results are subject to review by the AC. Any relationship or service that may potentially affect the objectivity and independence of the independent auditor can be discussed with the AC. The independent auditor may discuss any issues identified or any difficulties encountered during the course of the financial audits with the AC.

KPMG Huazhen has been Huawei’s independent auditor since 2000.

129 THE GUARANTEE

The Guarantor will unconditionally and irrevocably guarantee the due payment of all sums expressed to be payable by the Issuer under the Bonds. Its obligations in respect of the Guarantee will be contained in the Trust Deed to be dated on or about 19 May 2015.

The Guarantor is required to register the Guarantee and will register the Guarantee with the Shenzhen Branch of SAFE within 15 business days after the execution date of the Guarantee pursuant to the SAFE Notice. If the Guarantor fails to register the Guarantee within the prescribed timeframe, the Guarantor will not be able to purchase or remit foreign currency in order for the Guarantor to fulfil its payment obligations under the Guarantee. The Bondholders will need to rely on the Issuer to source sufficient foreign currency from other sources to fully discharge its obligations under the Bonds. See ‘‘Risk Factors – Risks relating to the Guarantee and the Bonds – There may be uncertainties relating to the performance of obligations under the Guarantee."

Any payment by the Guarantor under the Guarantee in respect of premium and interest under the Bonds will be subject to withholding taxes in the PRC at a rate up to 10 per cent., subject to the application of any relevant income tax treaty that the PRC has entered into, as such payments of premium and interest will be regarded as being derived from sources within the PRC. See ‘‘Taxation – PRC’’.TheGuarantor is obliged under the Conditions of the Bonds to pay such additional amounts as will result in receipt by the Bondholders of such amounts as would have been received by them had no such withholding been required.

130 THE SHAREHOLDING STRUCTURE OF THE GUARANTOR

The Guarantor is a private company wholly-owned by its employees. Its shareholders are the Union and Mr. Ren Zhengfei. The Guarantor implements the Scheme through the Union. As at 31 December 2014, there were 82,471 employees participating in the Scheme, which aligns employee contributions with the company’s long-term development, fostering Huawei’s continued success. Mr. Ren Zhengfei is the individual shareholder of the Guarantor and also participates in the Scheme. As at 31 December 2014, Mr. Ren Zhengfei’s investments (including those held directly by himself and through the Union) accounted for nearly 1.4% of the Guarantor’s total share capital. The portion of the Scheme held by any single employee does not and is not allowed to exceed 2.0%.

AccordingtotheCompanyLawofthePRCandthearticles of association of the Guarantor, the shareholders’ meeting is comprised of all shareholders – the Union and Mr. Ren Zhengfei. The shareholders’ meetings are primarily responsible for:

• determining the business strategy and investment plans of the Guarantor;

• approving the Guarantor’s financial budget;

• approving plans for profit distribution and recovery of losses;

• passing resolutions on the increase or decrease of its registered share capital and amendments to the articles of association;

• appointing or replacing directors; and

• approving other significant events of the Guarantor.

All shareholders of the Guarantor exercise their voting rights at the shareholders’ meeting in proportion with their shareholding. Resolutions on any increase or decrease of the Guarantor’s registered share capital, any divesture, merger, or dissolution plans, any change of corporate form and amendments to the articles of association are required to be passed by shareholders representing at least two-thirds of the votes at the relevant shareholders’ meeting(s). Resolutions on other activities which shall be decided at the shareholders’ meeting according to the articles of association of the Guarantor are required to be passed by shareholders representing at least one-half of the votes at the relevant shareholders’ meeting(s).

All active employees participating in the Scheme have the right to select representatives from the Union to form the Commission to represent the Union. As at 31 December 2014, the Commission consists of 51 representatives from the Union. Major issues requiring a decision of the Union (as the shareholder of the Guarantor), such as any increase in the share capital, profit distribution, selection of Directors and Supervisors, and amendments to the articles of association of the Guarantor, shall be primarily reviewed and decided by the Commission.

The eligibility criteria for an employee to participate in the Scheme depends on whether such employee is an active key employee who has displayed excellent work performance. Any entitlement allocated to the employees under the Scheme shall be determined by his or her job grade and performance. Employees participating in the Scheme are entitled to receive dividends and any relevant appreciation in their allocated entitlement, as well as bear risks of any depreciation on such allocation. Employees participating in the Scheme have no right of transfer or disposal in its allocated entitlement. Except for certain prescribed situations (for example, employees who are permitted to retire upon meeting certain requirements), in the event of any termination of service of an employee, such employee is required to secede from the Scheme.

131 TAXATION

The following summary of certain tax consequences of the purchase, ownership and disposition of the Bonds is based upon applicable laws, regulations, rulings and decisions in effect as at the date of this Offering Circular, all of which are subject to change (possibly with retroactive effect). This discussion does not purport to be a comprehensive description of all the tax considerations that may be relevant to a decision to purchase, own or dispose of the Bonds and does not purport to deal with consequences applicable to all categories of investors, some of which may be subject to special rules. Neither these statements nor any other statements in this Offering Circular are to be regarded as advice on the tax position of any holder of the Bonds or any persons acquiring, selling or otherwise dealing in the Bonds or on any tax implications arising from the acquisition, sale or other dealings in respect of the Bonds. Persons considering the purchase of the Bonds should consult their own tax advisers concerning the possible tax consequences of buying, holding or selling any Bonds under the laws of their country of citizenship, residence or domicile.

PRC

The following summary describes the principal PRC tax consequences of ownership of the Bonds by beneficial owners who, or which, are not residents of China for PRC tax purposes. These beneficial owners are referred to as non-PRC Bondholders in this section. In considering whether to invest in the Bonds, investors should consult their individual tax advisors with regard to the application of PRC tax laws to their particular situation as well as any tax consequences arising under the laws of any other tax jurisdiction. Reference is made to PRC taxes imposed in the taxable year beginning on or after 1 January 2008.

Pursuant to the EIT Law and its implementation regulations, enterprises that are established under the laws of foreign countries and regions (including Hong Kong, Macau and Taiwan) but whose ‘‘de facto management bodies’’ are within the territory of China shall be treated as PRC tax resident enterprises for the purpose of the EIT Law and they are required to pay enterprise income tax at the rate of 25 per cent. in respect of their income sourced from both within and outside China. The implementing rules of the EIT Law define ‘‘de facto management’’ as ‘‘substantial and overall management and control over the production and operations, personnel, accounting, and properties’’ of the enterprise. A circular issued by the State Administration of Taxation on 22 April 2009 provides that a foreign enterprise controlled by a PRC enterprise or a PRC enterprise group will be treated as a ‘‘resident enterprise’’ with a ‘‘de facto management body’’ located within the PRC if all of the following requirements are satisfied at the same time: (i) the senior management and core management departments in charge of daily operations are located mainly within the PRC; (ii) financial and human resources decisions are subject to determination or approval by persons or bodies in the PRC; (iii) major assets, accounting books, company seals and minutes and files of board and shareholders’ meetings are located or kept within the PRC; and (iv) at least half of the enterprise’s directors with voting rights or senior management reside within the PRC. However, it is still unclear how the PRC tax authorities will determine whether an entity will be classified as a PRC tax resident enterprise. If the relevant PRC tax authorities decide, in accordance with applicable tax rules and regulations, that the ‘‘de facto management body’’ of the Issuer is within the territory of the PRC, the Issuer may be held to be a PRC tax resident enterprise for the purpose of the EIT Law and be subject to enterprise income tax at the rate of 25 per cent. for its income sourced from both within and outside the PRC. As confirmed by the Issuer, as of the date of this Offering Circular, the Issuer has not been given notice or informed by the PRC tax authorities that it is considered as a PRC tax resident enterprise for the purpose of the EIT Law. On that basis, holders of the Bonds will not be subject to withholding tax, income tax or any other taxes or duties (including stamp duty) imposed by any governmental authority in the PRC in respect of the holding of the Bonds or any repayment of principal and payment of interest made thereon.

However, there is no assurance that the Issuer will not be treated as a PRC tax resident enterprise under the EIT Law and related implementation regulations in the future. Accordingly, in the event the Issuer is deemed to be a PRC tax resident enterprise by the PRC tax authorities in the future, interest payable to

132 ‘‘non-resident enterprise’’ holders of the Bonds and capital gains realised by ‘‘non-resident enterprise’’ holders of Bonds may be treated as income derived from sources within China and be subject to PRC withholding tax at a rate of 10 per cent., or a lower rate for holders who qualify for the benefits of a double-taxation treaty with China. However, despite the potential withholding of PRC tax by the Issuer, the Issuer has agreed to pay additional amounts to ‘‘non-resident enterprise’’ holders of the Bonds so that holders of the Bonds would receive the full amount of the scheduled payment, as further set out in ‘‘Conditions of the Bonds’’.

In addition, in the event that the Guarantor is required to discharge its obligations under the Guarantee, the Guarantor will be obliged to withhold PRC enterprise income tax at the rate up to 10 per cent., subject to the application of any relevant income tax treaty that the PRC has entered into, on the payments of interest made by it under the Guarantee to non-PRC resident enterprise Bondholders as such interest payment obligations will be regarded as being derived from sources within the PRC. To the extent that the PRC has entered into arrangements relating to the avoidance of double-taxation with any jurisdiction, such as Hong Kong, that allow a lower rate of withholding tax, such lower rate may apply to qualified non-PRC resident enterprise Bondholders. Nevertheless, repayment of the principal will not be subject to PRC withholding tax.

Non-PRC Bondholders will not be subject to the PRC tax on any capital gains derived from a sale or exchange of Bonds consummated outside mainland China between non-PRC Bondholders, except however, if the Issuer is treated as a PRC tax resident enterprise under the New Enterprise Income Tax Law and related implementation regulations in the future, any gain realised by the non-PRC enterprise Bondholders from the transfer of the Bonds may be regarded as being derived from sources within the PRC and accordingly would be subject to PRC withholding tax at a rate of up to 10 per cent., subject to the application of any relevant income tax treaty that the PRC has entered into.

No PRC stamp duty will be chargeable upon the issue or transfer (for so long as the register of Bondholders is maintained outside China) of a Bond.

Hong Kong Withholding tax No withholding tax is payable in Hong Kong in respect of payments of principal or interest in respect of the Bonds or in respect of any capital gains arising from the sale of the Bonds.

Profits tax Hong Kong profits tax is chargeable on every person carrying on a trade, profession or business in Hong Kong in respect of profits arising in or derived from Hong Kong from such trade, profession or business (excluding profits arising from the sale of capital assets).

Under the Inland Revenue Ordinance (Chapter 112 of the Laws of Hong Kong) (the ‘‘Inland Revenue Ordinance’’) as it is currently applied by the Inland Revenue Department, interest on the Bonds may be deemed to be profits arising in or derived from Hong Kong from a trade, profession or business carried on in Hong Kong in the following circumstances:

(a) interest on the Bonds is received by or accrues to a financial institution (as defined in the Inland Revenue Ordinance) and arises through or from the carrying on by the financial institution of its business in Hong Kong; or

(b) interest on the Bonds is derived from Hong Kong and is received by or accrues to a company (other than a financial institution) carrying on a trade, profession or business in Hong Kong; or

133 (c) interest on the Bonds is derived from Hong Kong and is received by or accrues to a person (other than a company) carrying on a trade, profession or business in Hong Kong and is in respect of the funds of the trade, profession or business.

Sums derived from the sale, disposal or redemption of the Bonds will be subject to Hong Kong profits tax where received by or accrued to a person who carries on a trade, profession or business in Hong Kong and the sum has a Hong Kong source.

Sums received by or accrued to a financial institution by way of gains or profits arising through or from the carrying on by the financial institution of its business in Hong Kong from the sale, disposal and redemption of the Bonds will be subject to profits tax.

Stamp duty No Hong Kong stamp duty will be chargeable upon the issue of the Bonds. Stamp duty may be payable on a transfer of the Bonds if the relevant transfer is required to be registered in Hong Kong, but stamp duty will not be payable if the Bonds constitute loan capital (as defined in the Stamp Duty Ordinance (Cap.117 of the Laws of Hong Kong) (‘‘Stamp Duty Ordinance’’)). The Bonds, under the present terms and conditions, constitute loan capital (as defined in the Stamp Duty Ordinance) and accordingly no Hong Kong stamp duty will be chargeable upon the issue, transfer or exchange of the Bonds.

Estate duty No Hong Kong estate duty is payable in respect of the Bonds.

EU directive on the taxation of savings income Under EC Council Directive 2003/48/EC on the taxation of savings income, each Member State is required to provide to the tax authorities of another Member State details of payments of interest or other similar income paid by a person within its jurisdiction to, or collected by such a person for, an individual resident or certain limited types of entity established in that other Member State; however, for a transitional period, Austria may instead apply a withholding system in relation to such payments, deducting tax at a rate of 35 per cent. The transitional period is to terminate at the end of the first full fiscal year following agreement by certain non-EU countries to the exchange of information relating to such payments.

A number of non-EU countries and certain dependent or associated territories of certain Member States, have adopted similar measures (either provision of information or transitional withholding) in relation to payments made by a person within its jurisdiction to, or collected by such a person for, an individual resident or certain limited types of entity established in a Member State. In addition, the Member States have entered into provision of information or transitional withholding arrangements with certain of those dependent or associated territories in relation to payments made by a person in a Member State to, or collected by such a person for, an individual resident or certain limited types of entity established in one of those territories.

The Council of the European Union formally adopted a Council Directive amending the Directive on 24 March 2014 (the ‘‘Amending Directive’’). The Amending Directive broadens the scope of the requirements described above. Member States have until 1 January 2016 to adopt the national legislation necessary to comply with the Amending Directive. The changes made under the Amending Directive include extending the scope of the Directive to payments made to, or collected for, certain other entities and legal arrangements. They also broaden the definition of ‘‘interest payment’’ to cover income that is equivalent to interest.

However, the European Commission has proposed the repeal of the Savings Directive from 1 January 2017 in the case of Austria and from 1 January 2016 in the case of all other Member States (subject to on-going requirements to fulfil administrative obligations such as the reporting and exchange of

134 information relating to, and accounting for withholding taxes on, payments made before those dates). This is to prevent overlap between the Savings Directive and a new automatic exchange of information regime to be implemented under Council Directive 2011/16/EU on Administrative Cooperation in the field of Taxation (as amended by Council Directive 2014/107/EU). The proposal also provides that, if it proceeds, Member States will not be required to apply the new requirements of the Amending Directive

Investors who are in any doubt as to their position should consult their professional advisers.

Proposed EU Directive for a Financial Transactions Tax On 14 February 2013, the European Commission published a proposal (the ‘‘Commission’sProposal’’) for a Directive for a common financial transactions tax (‘‘FTT’’) in Belgium, Germany, Estonia, Greece, Spain, France, Italy, Austria, Portugal, Slovenia and Slovakia (the ‘‘participating Member States’’).

The Commission’s Proposal has very broad scope and could, if introduced, apply to certain dealings in the Bonds (including secondary market transactions) in certain circumstances. The issuance and subscription of Bonds should, however, be exempt.

Under the Commission’s Proposal, the FTT could apply in certain circumstances to persons both within and outside of the participating Member States. Generally, it would apply to certain dealings in the Bonds where at least one party is a financial institution, and at least one party is established in a participating Member State. A financial institution may be, or be deemed to be, ‘‘established’’ in a participating Member State in a broad range of circumstances, including (a) by transacting with a person established in a participating Member State or (b) where the financial instrument which is subject to the dealings is issued in a participating Member State.

Joint statements issued by participating Member States indicate an intention to implement the FTT by 1 January 2016.

However, the FTT proposal remains subject to negotiation between the participating Member States and the scope of any such tax is uncertain. Additional EU Member States may decide to participate.

Prospective Bondholders are advised to seek their own professional advice in relation to the FTT.

FATCA

FATCA imposes a US federal withholding tax of 30 per cent. on certain payments to certain non-US entities unless various US information reporting and due diligence requirements (generally relating to ownership by US persons of certain interests in or accounts with those entities) have been satisfied. The scope of FATCA, as enacted, is not entirely clear, and future US Treasury regulations may be issued that broaden or change the scope of FATCA. Under current guidance, withholding under FATCA would not apply to payments on Bonds that are issued prior to the date that is six months after the date on which the final regulations that define ‘‘foreign passthru payments’’ are published, unless the Bonds are materially modified after such date or are characterised as equity for US federal income tax purposes.

A tax for withholding may be payable under FATCA if an investor or custodian of the Bonds is unable to receive payments free of withholding. Whilst the Bonds are in global form and held within the Clearing Systems, it is expected that FATCA will not affect the amount of any payments made under, or in respect of, the Bonds by the Issuer, the Guarantor, any paying agent and the common depositary, given that each of the entities in the payment chain between the Issuer and the participants in the Clearing Systems is a major financial institution whose business is dependent on compliance with FATCA and that any alternative approach introduced under an intergovernmental agreement will be unlikely to affect the Bonds. The documentation expressly contemplates the possibility that the Bonds may go into definitive form and therefore that they may be taken out of the Clearing Systems and also

135 provides for the issuance of Bearer Bonds. If either of these were to happen, then a non-FATCA compliant holder could be subject to withholding. However, definitive Bonds will only be printed in remote circumstances.

If an amount in respect of FATCA were to be deducted or withheld from any payments on or with respect to the Bonds, neither the Issuer nor the Guarantor would have any obligation to pay additional amounts or otherwise indemnify a holder or investor for any such withholding or deduction by the Issuer, the Guarantor, a Paying Agent or any other party as a result of the deduction or withholding of such amount. As a result, if FATCA withholding is imposed on such payments, investors may receive less interest or principal than expected, and would need to pursue a refund of any excess amounts withheld from the US Internal Revenue Service. Investors should consult their own tax advisers to obtain a more detailed explanation of FATCA and how FATCA may affect them.

British Virgin Islands As the Issuer is incorporated under the BVI Business Companies Act 2004 (as amended) of the British Virgin Islands, (i) payment of principal and interest in respect of the Bonds will not be subject to taxation in the British Virgin Islands, (ii) no withholding tax will be required to be deducted by the Issuer on such payments to any holder of a Bond and (iii) the Bonds will not be liable to stamp duty in the British Virgin Islands. Gains derived from the sale of Bonds will not be subject to British Virgin Islands income tax. A Holder of a Bond who is a non-resident of the British Virgin Islands will not be subject to estate or gift taxes with respect to the Bonds.

136 SUBSCRIPTION AND SALE

The Issuer and the Guarantor have entered into a subscription agreement with Australia and New Zealand Banking Group Limited, Bank of China (Hong Kong) Limited, DBS Bank Ltd., ING Bank N.V., Singapore Branch and Standard Chartered Bank (the ‘‘Joint Lead Managers’’) dated 12 May 2015 (the ‘‘Subscription Agreement’’), pursuant to which and subject to certain conditions contained therein, the Issuer has agreed to sell to the Joint Lead Managers, which have severally, but not jointly, agreed to subscribe and pay for, or to procure subscribers to subscribe and pay for, the aggregate principal amount of the Bonds.

The Subscription Agreement provides that the Issuer and the Guarantor will jointly and severally indemnify the Joint Lead Managers against certain liabilities in connection with the offer and sale of the Bonds. The Subscription Agreement provides that the obligations of the Joint Lead Managers are subject to certain conditions precedent and entitles the Joint Lead Managers to terminate the Subscription Agreement in certain circumstances prior to payment being made to the Issuer.

The Joint Lead Managers and certain of their subsidiaries and affiliates may have performed certain investment banking and advisory services for, and entered into certain commercial banking transactions with the Issuer, the Guarantor or any member of the Group and/or their respective subsidiaries and affiliates, from time to time, for which they have received customary fees and expenses. The Joint Lead Managers and their subsidiaries or affiliates may, from time to time, engage in transactions with and perform services for the Issuer, the Guarantor or any member of the Group and/or their respective subsidiaries and affiliates in the ordinary course of their business.

The Joint Lead Managers and their respective subsidiaries affiliates are full service financial institutions engaged in various activities, which may include securities trading, commercial and investment banking, financial advisory, investment management, principal investment, hedging, financing and brokerage activities. The Joint Lead Managers and their respective affiliates have, from time to time, performed, and may in the future perform, various financial advisory and investment banking services for the Issuer, the Guarantor and/or the Group for which they received or will receive customary fees and expenses.

The Joint Lead Managers and their respective affiliates may purchase the Bonds and be allocated Bonds for asset management and/or proprietary purposes but not with a view to distribution. References herein to the Bonds being offered should be read as including any offering of the Bonds to the Joint Lead Managers and/or their affiliates acting in such capacity. In the ordinary course of their various business activities, the Joint Lead Managers and their respective affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for their own account and for the accounts of their customers and may at any time hold long and short positions in such securities and instruments. Such investment and securities activities may involve securities and instruments of the Issuer. Such persons do not intend to disclose the extent of any such investment or transactions otherwise than in accordance with any legal or regulatory obligation to do so.

The distribution of this Offering Circular, or any offering material, and the offering, sale or delivery of the Bonds is restricted by law in certain jurisdictions. Therefore, persons who may come into possession of this Offering Circular, or any offering material, are advised to consult with their own legal advisers as to what restrictions may be applicable to them and to observe such restrictions. This Offering Circular may not be used for the purpose of an offer or invitation in any circumstances in which such offer or invitation is not authorised.

137 General No action has been taken or will be taken in any jurisdiction that would permit a public offering of the Bonds, or possession or distribution of this Offering Circular or any amendment or supplement thereto or any other offering or publicity material relating to the Bonds, in any country or jurisdiction where action for that purpose is required. The Group will have no responsibility for, and each Joint Lead Manager will obtain any consent, approval or permission required by it for, the acquisition, offer, sale or delivery by it of Bonds under the laws and regulations in force in any jurisdiction to which it is subject or in or from which it makes any acquisition, offer, sale or delivery of the Bonds. None of the Joint Lead Managers is authorised to make any representation or use any information in connection with the issue, subscription and sale of the Bonds, other than as contained in this Offering Circular or any amendment or supplement thereto.

If a jurisdiction requires that the offering of the Bonds be made by a licensed broker or dealer and a Joint Lead Manager or any affiliate of that Joint Lead Managers is a licensed broker or dealer in that jurisdiction, the offering of the Bonds shall be deemed to be made by that Joint Lead Manager or its affiliate on behalf of the Issuer in such jurisdiction.

United States Each Joint Lead Manager has represented, warranted and undertaken to the Issuer and the Guarantor that it has not offered or sold, and will not offer or sell, any Bonds constituting part of its allotment within the United States except in accordance with Rule 903 of Regulation S under the Securities Act and, accordingly, that neither it nor any of its affiliates (including any person acting on behalf of the Joint Lead Manager or any of its affiliates) has engaged or will engage in any directed selling efforts with respect to the Bonds.

Terms used in the paragraph above have the meanings given to them by Regulation S under the Securities Act.

United Kingdom Each of the Joint Lead Managers has represented, warranted and undertaken that:

(a) it has complied and will comply with all applicable provisions of the Financial Services and Markets Act 2000 (the ‘‘FSMA’’) with respect to anything done by it in relation to the Bonds in, from or otherwise involving the United Kingdom; and

(b) it has only communicated or caused to be communicated and will only communicate or cause to be communicated any invitation or inducement to engage in investment activity (within the meaning of Section 21 of the FSMA) received by it in connection with the issue or sale of any Bonds in circumstances in which Section 21(1) of the FSMA does not apply to the Issuer or the Guarantor.

Hong Kong Each of the Joint Lead Managers has represented, warranted and undertaken that:

(a) it has not offered or sold and will not offer or sell in Hong Kong, by means of any document, any Bonds other than (i) to ‘‘professional investors’’ as defined in the Securities and Futures Ordinance (Cap. 571) of Hong Kong (‘‘SFO’’) and any rules made under that Ordinance; or (ii) in other circumstances which do not result in the document being a ‘‘prospectus’’ asdefinedinthe Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32) of Hong Kong or which do not constitute an offer to the public within the meaning of that Ordinance; and

(b) it has not issued or had in its possession for the purposes of issue, and will not issue or have in its possession for the purposes of issue, whether in Hong Kong or elsewhere, any advertisement, invitation or document relating to the Bonds, which is directed at, or the contents of which are

138 likely to be accessed or read by, the public of Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect to Bonds which are or are intended to be disposed of only to persons outside Hong Kong or only to ‘‘professional investors’’ as defined in the SFO and any rules made under that Ordinance.

PRC

Each of the Joint Lead Managers has represented, warranted and agreed that the Bonds are not being offered or sold and may not be offered or sold, directly or indirectly, in the PRC (for such purposes, not including Hong Kong and Macau Special Administrative Regions or Taiwan), except as permitted by the Securities Laws of the PRC.

Singapore Each of the Joint Lead Managers has acknowledged that this Offering Circular has not been and will not be registered as a prospectus with the Monetary Authority of Singapore. Accordingly, each Joint Lead Manager has represented, warranted and undertaken that it has not offered or sold any Bonds or caused such Bonds to be made the subject of an invitation for subscription or purchase and will not offer or sell such Bonds or cause such Bonds to be made the subject of an invitation for subscription or purchase, and has not circulated or distributed, nor will it circulate or distribute, this Offering Circular or any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of such Bonds, whether directly or indirectly, to persons in Singapore other than (i) to an institutional investor under Section 274 of the Securities and Futures Act, Chapter 289 of Singapore (the ‘‘SFA’’), (ii) to a relevant person pursuant to Section 275(1), or any person pursuant to Section 275(1A), and in accordance with the conditions specified in Section 275, of the SFA or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA.

Where Bonds are subscribed or purchased under Section 275 of the SFA by a relevant person which is:

(a) a corporation (which is not an accredited investor (as defined in Section 4A of the SFA)) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or

(b) a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary of the trust is an individual who is an accredited investor,

(c) securities (as defined in Section 239(1) of the SFA) of that corporation or the beneficiaries’ rights and interest (howsoever described) in that trust shall not be transferred within six months after that corporation or that trust has acquired the Bonds pursuant to an offer made under Section 275 of the SFA except:

(i) to an institutional investor or to a relevant person defined in Section 274(2) of the SFA, or to any person arising from an offer referred to in Section 275(1A) or Section 276(4)(i)(B) of the SFA;

(ii) where no consideration is or will be given for the transfer;

(iii) where the transfer is by operation of law;

(iv) as specified in Section 276(7) of the SFA; or

(v) as specified in Regulation 32 of the Securities and Futures (Offer of Investments) (Shares and Debentures) Regulations 2005 of Singapore.

139 British Virgin Islands Each Joint Lead Manager has represented, warranted and agreed that it has not made and will not make an invitation to any person resident in the British Virgin Islands to offer or sell the Bonds but the Bonds may be acquired by British Virgin Islands persons who receive the offer of the Bonds outside of the British Virgin Islands and in a manner which does not contravene the laws of the jurisdiction in which such offer is received.

140 GENERAL INFORMATION

1. Clearing Systems: The Bonds will be lodged and cleared through the Euroclear and Clearstream, Luxembourg under Common Code number 123327519 and the International Securities Identification Number for the Bonds is XS1233275194.

2. Authorisations: The Issuer has obtained all necessary consents, approvals and authorisations in connection with the issue and performance of the Bonds. The issue of the Bonds was authorised by resolutions of the board of directors of the Issuer on 30 April 2015. The Guarantor has obtained all necessary consents, approvals and authorisations in connection with the giving and performance of the Guarantee, provided however that, the Guarantor shall register the Guarantee with the Shenzhen Branch of SAFE within 15 business days after the date of execution of the Guarantee. An application for registration in writing with supporting documents including the Guarantee shall be submitted to the Shenzhen Branch of SAFE by the Guarantor, subject to a procedural review in respect of its authenticity and regulatory compliance. If the Guarantor fails to register the Guarantee within the prescribed timeframe, at the time of making payments under the Guarantee, the Guarantor will not be able to purchase or remit foreign currency or Renminbi in order for the Guarantor to fulfil its payment obligations under the Guarantee. Upon the performance or discharge of the obligations of the Guarantor, the Guarantor shall go through the registration procedures as required in accordance with the applicable PRC law and regulations. The Guarantor has made a filing notifying the National Development and Reform Commission of the PRC of the terms of the Bonds and the Guarantee. The giving and performance of the Guarantee was authorised by the shareholders of the Guarantor on 29 January 2015.

3. No Material Adverse Change: There has been no material adverse change or development involving a prospective material adverse change in the financial condition, business, properties, shareholders’ equity or results of operations of the Issuer, the Guarantor or the Group since 31 December 2014.

4. Litigation: Save as disclosed in this Offering Circular, neither the Issuer nor the Guarantor nor any member of the Group is involved in any litigation or arbitration proceedings that are material in the context of the Bonds nor is the Issuer or the Guarantor aware that any such proceedings are pending or threatened.

5. Listing of Bonds: Application will be made to the Hong Kong Stock Exchange for the listing of, and permission to deal in, the Bonds by way of debt issues to professional investors (as defined in the SFO) only and such permission is expected to become effective on or about 20 May 2015.

6. Available Documents: Copies of the Guarantor’s audited consolidated financial statements as at and for the years ended 31 December 2013 and 2014, the Trust Deed, the Agency Agreement, the Offering Circular relating to the Bonds and the Articles of Association of the Issuer and the Guarantor will be available for inspection from the Issue Date at the principal office of the Guarantor in the PRC at Building No. 1, District B, Huawei Industrial Base, Bantian, Longgang District, Shenzhen, China and on prior written request, at the principal place of business in Hong Kong of the Trustee and at the specified office of the Principal Paying Agent during normal business hours, so long as any of the Bonds is outstanding.

Consolidated Financial Statements: The Guarantor’s consolidated financial statements as at and for the years ended 31 December 2013 and 2014, which are included elsewhere in this Offering Circular, have been audited by KPMG Huazhen, as stated in their report herein.

141 and that the product management activities for product divisions, previously presented as selling expenses, should be changed to research and development expenses to more accurately reflect their function. The management of Huawei also further determined that certain cash received from customers would be more appropriately presented as advances received within other payables, rather than being offset against the receivables due from the same customers. Huawei’ssenior management also adjusted the segment reporting solution based on the development of the business. The comparatives as at and for the year ended 31 December 2013 have been represented to comply with the presentation in 2014. These changes in presentation have had no impact on reported operating profit or net assets. For more details, please see note 40 to Huawei’s audited consolidated financial statements as at and for the year ended 31 December 2014 included elsewhere in this Offering Circular. Huawei’s financial information as at and for the years ended 31 December 2012 have not been restated to reflect such reclassifications, restatements or amendments. Therefore the consolidated financial information as at and for the year ended 31 December 2012 are not directly comparable to Huawei’s consolidated financial information as at and for the years ended 31 December 2013 and 2014 contained in Huawei’s 2014 Financial Statements contained herein. For more details, please see the section entitled ‘‘Risk Factors – Risks relating to Huawei’s Business and Industry – Huawei’s financial information as at and for the year ended 31 December 2012 regarding certain aspects has not been restated and may not be comparable to Huawei’s financial information as at and for the years ended 31 December 2013 and 2014 contained in Huawei’s 2014 Financial Statements’’. KPMG Huazhen have given and not withdrawn their written consent to the reproduction of their auditors’ reports on the Guarantor’s Financial Statements dated 31 December 2013 and 2014, respectively, in this Offering Circular and with references to KPMG Huazhen in the form and context in which they appear. Their consent should not be construed as in any way updating or re-issuing the aforementioned audit reports.

142 INDEX TO FINANCIAL STATEMENTS

Page

Consolidated Financial Statements of Huawei Investment & Holding Co., Ltd. for the year ended 31 December 2013

Independent Auditors’ Report...... F-2

ConsolidatedStatementofProfitorLoss ...... F-3

ConsolidatedStatementofProfitorLossandOtherComprehensiveIncome...... F-4

ConsolidatedStatementofFinancialPosition ...... F-5

ConsolidatedStatementofChangesinEquity ...... F-7

ConsolidatedStatementofCashFlows ...... F-8

NotestotheConsolidatedFinancialStatements ...... F-9

Consolidated Financial Statements of Huawei Investment & Holding Co., Ltd. for the year ended 31 December 2014

Independent Auditors’ Report...... F-72

ConsolidatedStatementofProfitorLoss ...... F-74

ConsolidatedStatementofProfitorLossandOtherComprehensiveIncome...... F-75

ConsolidatedStatementofFinancialPosition ...... F-76

ConsolidatedStatementofChangesinEquity ...... F-79

ConsolidatedStatementofCashFlows ...... F-81

NotestotheConsolidatedFinancialStatements ...... F-83

Note: The consolidated financial statements as of and for the year ended 31 December 2013 and 2014 set out herein have been reproduced from the Guarantor’s annual reports for the year ended 31 December 2013 and 2014, including the page numbers and page references set forth in such reports. The consolidated financial statements have not been specifically prepared for the inclusion in this Offering Circular.

F-1 INDEPENDENT AUDITORS’ REPORT TO THE BOARD OF DIRECTORS OF HUAWEI INVESTMENT & HOLDING CO., LTD.

We have audited the accompanying consolidated financial statements of Huawei Investment & Holding Co., Ltd. and its subsidiaries (the “Group”) set out on pages 2 to 70, which comprise the consolidated statement of financial position as at 31 December 2013, the consolidated statements of profit or loss, profit or loss and other comprehensive income, changes in equity and cash flows for the year then ended, and notes, comprising a summary of significant accounting policies and other explanatory information.

Management’s responsibility for the consolidated financial statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on our judgement, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the consolidated financial statements give a true and fair view of the consolidated financial position of the Group as at 31 December 2013, and of its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards.

This report has been prepared solely for the information and use of the Board of Directors of Huawei Investment & Holding Co., Ltd. It should not be relied upon by any other party for any other purpose and we expressly disclaim any liability or duty to any other party in this respect. It should not be disclosed, referred to or quoted in whole or in part without our prior written consent.

KPMG Huazhen (Special General Partnership) Certified Public Accountants 9th Floor, China Resources Building 5001 Shennan East Road Shenzhen 518001, China

10 March 2014

F-2 Huawei Investment & Holding Co., Ltd. Consolidated Statement of Profit or Loss for the year ended 31 December 2013

Note 2013 2012 RMB’000 RMB’000 Restated (Note 4) Revenue ...... 5 239,025,010 220,198,344 Cost of sales ...... (141,005,320) (132,511,877) Gross profit ...... 98,019,690 87,686,467 Other income ...... 6(a) 2,064,542 2,913,555 Research and development expenses ...... (30,672,119) (29,746,683) Selling expenses ...... (27,362,525) (28,336,742) Administrative expenses ...... (11,579,693) (10,330,734) Other operating expenses ...... 6(b) (1,341,457) (1,527,417) Operating profit before financing costs ...... 29,128,438 20,658,446 Finance income ...... 1,946,010 1,631,037 Finance expenses ...... (5,888,762) (3,671,178) Net finance expenses ...... 8 (3,942,752) (2,040,141) Share of associates’ results ...... 16 4,073 (472) Share of joint ventures’ results ...... 17 (27,990) (236,162) Profit before taxation ...... 25,161,769 18,381,671 Income tax ...... 9 (4,158,752) (2,757,954) Profit for the year ...... 21,003,017 15,623,717

Attributable to: Equity holders of the Company ...... 20,919,275 15,608,244 Non-controlling interests ...... 83,742 15,473 Profit for the year ...... 21,003,017 15,623,717

The notes on pages 8 to 70 form part of these consolidated financial statements.

F-3 Huawei Investment & Holding Co., Ltd. Consolidated Statement of Profit or Loss and Other Comprehensive Income for the year ended 31 December 2013

Note 2013 2012 RMB’000 RMB’000 Restated (Note 4) Profit for the year ...... 21,003,017 15,623,717 ------Other comprehensive income for the year (after tax and reclassification adjustments) ...... 10 Items that will not be reclassified to profit or loss: Remeasurement of defined benefit obligations ...... (618,227) (243,791) Items that are or may be reclassified to profit or loss: Net change in the fair value of available-for-sale securities .... 164,957 57,749 Exchange differences on translation of financial statements of foreign operations ...... 229,573 37,117 394,530 94,866 Other comprehensive income for the year ...... (223,697) (148,925) ------

Total comprehensive income for the year ...... 20,779,320 15,474,792

Attributable to: Equity holders of the Company ...... 20,693,494 15,459,483 Non-controlling interests ...... 85,826 15,309 Total comprehensive income for the year ...... 20,779,320 15,474,792

The notes on pages 8 to 70 form part of these consolidated financial statements.

F-4 Huawei Investment & Holding Co., Ltd. Consolidated Statement of Financial Position at 31 December 2013

Note 31 December 31 December 1 January 2013 2012 2012 RMB’000 RMB’000 RMB’000 Restated Restated (Note 4) (Note 4) Assets Property, plant and equipment ...... 12 22,209,029 20,365,748 18,630,896 Long-term leasehold prepayments ...... 13 2,761,112 2,360,926 2,222,759 Intangible assets ...... 14 2,410,305 1,688,868 1,163,344 Goodwill ...... 15 3,342,717 3,388,790 217,759 Interest in associates ...... 16 269,736 243,079 229,171 Interest in joint ventures ...... 17 210,869 249,531 453,768 Other investments ...... 18 583,874 548,620 454,467 Deferred tax assets ...... 19 11,576,567 9,805,326 9,094,688 Trade receivables ...... 21 335,603 496,705 28,749 Other receivables ...... 22 13,906 407,344 16,678 Other non-current assets ...... 32 973,915 982,758 1,158,457 Non-current assets ...... 44,687,633 40,537,695 33,670,736 ------Other investments ...... 18 8,544,966 4,468,807 5,149,320 Inventories ...... 20 24,928,931 22,236,525 26,435,634 Trade and bills receivable ...... 21 65,533,625 59,829,031 55,330,144 Other receivables ...... 22 14,438,023 15,406,821 16,070,549 Cash and cash equivalents ...... 23 73,398,640 67,180,115 57,192,360 Assets held for sale ...... 24 – 346,609 – Current assets ...... 186,844,185 169,467,908 160,178,007 ------

Total assets ...... 231,531,818 210,005,603 193,848,743

F-5 Huawei Investment & Holding Co., Ltd. Consolidated Statement of Financial Position at 31 December 2013 (continued)

Note 31 December 31 December 1 January 2013 2012 2012 RMB’000 RMB’000 RMB’000 Restated Restated (Note 4) (Note 4) Equity Paid-in capital ...... 12,088,632 10,989,666 9,990,605 Capital surplus ...... 38,550,545 33,693,113 29,277,266 Reserves ...... 15,676,022 10,873,552 9,243,194 Retained earnings ...... 19,891,507 19,491,850 17,762,727 Equity attributable to equity holders of the Company ...... 86,206,706 75,048,181 66,273,792 Non-controlling interests ...... 59,410 (24,573) (45,473) Total equity ...... 86,266,116 75,023,608 66,228,319 ------Liabilities Interest-bearing loans and borrowings ...... 26 19,989,460 16,077,097 13,269,732 Defined benefit obligations ...... 30(b) 9,608,257 9,686,076 8,391,812 Deferred government grants ...... 6(a) 2,746,397 2,218,256 1,857,315 Deferred tax liabilities ...... 19 475,744 784,072 651,769 Provisions ...... 31 781,688 585,855 267,958 Non-current liabilities ...... 33,601,546 29,351,356 24,438,586 ------Interest-bearing loans and borrowings ...... 26 3,043,280 4,676,932 7,057,393 Income tax payable ...... 4,034,410 1,652,881 2,323,172 Trade and bills payable ...... 27 31,980,480 40,272,300 38,049,466 Other payables ...... 28 67,888,360 55,379,343 52,216,378 Provisions ...... 31 4,717,626 3,649,183 3,535,429 Current liabilities ...... 111,664,156 105,630,639 103,181,838 ------

Total liabilities ...... 145,265,702 134,981,995 127,620,424 ------

Total equity and liabilities ...... 231,531,818 210,005,603 193,848,743

Approved and authorised for issue by the board of directors on 10 March 2014.

) Sun Yafang Guo Ping ) Directors )

The notes on pages 8 to 70 form part of these consolidated financial statements.

F-6 Huawei Investment & Holding Co., Ltd. Consolidated Statement of Changes in Equity for the year ended 31 December 2013

Attributable to equity holders of the Company Registered Non- and paid-in Capital Statutory Exchange Fair Value Other Retained controlling Total Note Capital surplus reserves reserve reserve reserves earnings Total interests equity RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 Balance at 1 January 2012 ...... 9,990,605 29,277,266 10,886,471 (5,730) – (241,501) 16,366,681 66,273,792 (45,473) 66,228,319 Impact of change in accounting policy ..4–––––(1,396,046) 1,396,046 – – – Restated balance at 1 January 2012 ... 9,990,605 29,277,266 10,886,471 (5,730) – (1,637,547) 17,762,727 66,273,792 (45,473) 66,228,319 ------Changes in equity for 2012: Profit for the year (restated) ...... 4 ––––––15,608,244 15,608,244 15,473 15,623,717 Other comprehensive income (restated) . 4 – – – 37,281 57,749 (243,791) – (148,761) (164) (148,925) Total comprehensive income ...... – – – 37,281 57,749 (243,791) 15,608,244 15,459,483 15,309 15,474,792 ------Capital injected ...... 999,061 4,415,847 –––––5,414,908 – 5,414,908 Acquisition of non-controlling interests without a change in control ...... 25(g) –––––(11,370) – (11,370) 6,403 (4,967) Profit appropriations ...... 25(d) – – 1,790,489 – – – (1,790,489) – – – Dividends approved in respect of previous years ...... 25(b) ––––––(12,088,632) (12,088,632) (812) (12,089,444) Restated balance at 31 December 2012 . 10,989,666 33,693,113 12,676,960 31,551 57,749 (1,892,708) 19,491,850 75,048,181 (24,573) 75,023,608

Restated balance at 31 December 2012 and 1 January 2013 ...... 10,989,666 33,693,113 12,676,960 31,551 57,749 (1,892,708) 19,491,850 75,048,181 (24,573) 75,023,608 Changes in equity for 2013: Profit for the year ...... –––––20,919,275 20,919,275 83,742 21,003,017 Other comprehensive income ...... – – – 227,489 164,957 (618,227) – (225,781) 2,084 (223,697) Total comprehensive income ...... – – – 227,489 164,957 (618,227) 20,919,275 20,693,494 85,826 20,779,320 ------Capital injected ...... (i) 1,098,966 4,857,432 –––––5,956,398 – 5,956,398 Acquisition of non-controlling interests without a change in control ...... 25(g) –––––(289) – (289) (846) (1,135) Profit appropriations ...... 25(d) – – 2,766,125 – – – (2,766,125) – – – Dividends approved in respect of previous years ...... 25(b) ––––––(15,495,429) (15,495,429) (997) (15,496,426) Transfer of remeasurement of defined benefit obligations within equity .... 25(g) –––––2,258,064 (2,258,064) – – – Share of an associate’s reserves movement . 25(g) –––––4,351 – 4,351 – 4,351 Balance at 31 December 2013 ...... 12,088,632 38,550,545 15,443,085 259,040 222,706 (248,809) 19,891,507 86,206,706 59,410 86,266,116

(i) According to the equity holder’s resolution dated 26 July 2013, the Union of Huawei Investment & Holding Co., Ltd. (the “Union”), the ultimate controlling party of the Company, injected cash of RMB5,956,398,000 into the Company in December 2013. The Company increased its paid-in capital by RMB1,098,966,000 along with the Union’s cash injection.

The notes on pages 8 to 70 form part of these consolidated financial statements.

F-7 Huawei Investment & Holding Co., Ltd. Consolidated Statement of Cash Flows for the year ended 31 December 2013

Note 2013 2012 RMB’000 RMB’000 Cash flows from operating activities Cash receipts from customers ...... 293,316,662 258,332,258 Cash paid to suppliers and employees ...... (269,597,954) (230,990,733) Government grants received ...... 992,750 1,110,671 Pledged deposits ...... 64,862 (485,433) Cash generated from operating activities ...... 24,776,320 27,966,763 Income tax paid ...... (2,222,743) (2,997,765) Net cash from operating activities ...... 22,553,577 24,968,998 ------Cash flows from investing activities Proceeds from sale of property, plant and equipment ...... 1,049,070 819,113 Proceeds from sale of intangible assets ...... 25,930 – Purchase and sale of wealth management products ...... (2,790,695) 1,498,018 Interest received ...... 116,746 125,674 Proceeds from disposal of associates ...... 15,000 43,000 Proceeds from sale of available-for-sale equity securities ...... 40,644 – Proceeds from sale of held-for-trading equity securities ...... 13,029 – Repayment from loans receivable ...... 58,354 427,835 Acquisition of available-for-sale equity securities ...... – (52,765) Acquisition of loans receivable ...... (37,750) (290,073) Acquisition of property, plant and equipment ...... (5,256,996) (4,813,937) Acquisition of intangible assets and long-term leasehold prepayments ...... (1,077,207) (594,737) Investment in associates ...... (25,000) (40,000) Acquisition of subsidiaries, net of cash acquired ...... (168,429) (2,548,288) Net cash used in investing activities ...... (8,037,304) (5,426,160) ------Cash flows from financing activities Proceeds from capital contribution ...... 5,956,398 5,414,908 Payment for acquisition of non-controlling interests ...... (6,475) – Proceeds from issuance of corporate bond ...... – 988,852 Proceeds from borrowings ...... 31,913,325 49,924,338 Repayment of borrowings ...... (28,850,697) (50,259,780) Dividends paid to non-controlling interests ...... (812) (812) Dividends paid to equity holders of the Company ...... (15,176,002) (14,205,231) Interest paid ...... (961,187) (1,041,759) Net cash used in financing activities ...... (7,125,450) (9,179,484) ------

Net increase in cash and cash equivalents ...... 7,390,823 10,363,354 Cash and cash equivalents at 1 January ...... 23 67,180,115 57,192,360 Effect of foreign exchange rate changes ...... (1,172,298) (375,599) Cash and cash equivalents at 31 December ...... 23 73,398,640 67,180,115

The notes on pages 8 to 70 form part of these consolidated financial statements.

F-8 Huawei Investment & Holding Co., Ltd. Notes to the Consolidated Financial Statements for the year ended 31 December 2013

1 Reporting entity

Huawei Investment & Holding Co., Ltd. (the “Company”) is a limited liability company established in Shenzhen in the People’s Republic of China (the “PRC”). The Company’s registered office is at Huawei Industrial Base, Bantian Longgang, Shenzhen, PRC.

The principal activities of the Company are the research and development, the production and sale of high technology products, investment holding, leasing of self-owned properties and provision of Information Technology services, management services, consultation services, training services and other related services. The principal activities and other particulars of the Company’s major subsidiaries are set out in note 38(b) to the consolidated financial statements.

2 Statement of compliance

These consolidated financial statements have been prepared in accordance with all applicable International Financial Reporting Standards (“IFRSs”), which collective term includes all applicable individual IFRSs, International Accounting Standards (“IASs”) and Interpretations issued by the International Accounting Standards Board (“IASB”).

The IASB has issued certain new and revised IFRSs that are first effective or available for early adoption for the current accounting period of the Company and its subsidiaries (together referred to as the “Group”). Note 4 provides information on any changes in accounting policies resulting from initial application of these developments to the extent that they are relevant to the Group for the current and prior accounting periods reflected in these consolidated financial statements.

The Company has also prepared a separate set of consolidated financial statements which comply with the generally accepted accounting principles in the PRC.

3 Significant accounting policies

(a) Basis of preparation of the consolidated financial statements

The consolidated financial statements for the year ended 31 December 2013 comprise the Company and its subsidiaries and the Group’s interest in associates and joint ventures.

The measurement basis used in the preparation of the consolidated financial statements is the historical cost basis except for financial instruments classified as available-for-sale or held-for-trading, which are stated at their fair value as explained in the accounting policies set out in note 3(f).

Non-current assets held for sale are stated at the lower of carrying amount and fair value less costs to sell (see note3(u)).

The preparation of consolidated financial statements in conformity with IFRSs requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

F-9 3 Significant accounting policies (continued)

(a) Basis of preparation of the consolidated financial statements (continued)

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

Judgments made by management in the application of IFRSs that have significant effect on the consolidated financial statements and major sources of estimation uncertainty are discussed in note 39.

(b) Functional and presentation currency

These consolidated financial statements are presented in Renminbi (“RMB”), which is the Company’s functional currency. All amounts have been rounded to the nearest thousand.

The Group accounts for business combinations using the acquisition method when control is transferred to the Group (see note 3(d)). The consideration transferred in the acquisition is generally measured at fair value, as are the identifiable net assets acquired. Transaction costs are expensed as incurred.

The consideration transferred does not include amounts related to the settlement of pre-existing relationships. Such amounts generally are recognised in profit or loss.

Any contingent consideration payable is measured at fair value at the acquisition date. If the contingent consideration is classified as equity, then it is not remeasured and settlement is accounted for within equity. Otherwise, subsequent changes in the fair value of the contingent consideration are recognised in profit or loss.

Goodwill arising on a business combination represents the excess of:

(i) the aggregate of the fair value of the consideration transferred, the recognised amount of any non-controlling interest in the acquiree and the fair value of the Group’s previously held equity interest in the acquiree; over

(ii) the net fair value of the acquiree’s identifiable assets acquired and liabilities assumed as at the acquisition date.

When (ii) is greater than (i), then this excess is recognised immediately in profit or loss as a gain on a bargain purchase.

Goodwill is stated at cost less accumulated impairment losses (see note 3(l)). Goodwill is allocated to each cash-generating unit, or groups of cash generating units, that is expected to benefit from the synergies of the combination and is tested annually for impairment (see note 3(l)).

F-10 3 Significant accounting policies (continued)

(d) Subsidiaries and non-controlling interests

Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed, or has rights, to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. When assessing whether the Group has power, only substantive rights (held by the Group and other parties) are considered.

An investment in a subsidiary is consolidated into the consolidated financial statements from the date that control commences until the date that control ceases. Intra-group balances, transactions and cash flows and any unrealised profits arising from intra-group transactions are eliminated in full in preparing the consolidated financial statements. Unrealised losses resulting from intra-group transactions are eliminated in the same way as unrealised gains but only to the extent that there is no evidence of impairment.

Non-controlling interests represent the equity in a subsidiary not attributable directly or indirectly to the Company, and in respect of which the Group has not agreed any additional terms with the holders of those interests which would result in the Group as a whole having a contractual obligation in respect of those interests that meets the definition of a financial liability. For each business combination, the Group can elect to measure any non-controlling interests either at fair value or at the non-controlling interests’ proportionate share of the subsidiary’s net identifiable assets.

Non-controlling interests are presented in the consolidated statement of financial position within equity, separately from equity attributable to the equity holders of the Company. Non-controlling interests in the results of the Group are presented on the face of the consolidated statement of profit or loss and the consolidated statement of profit or loss and other comprehensive income as an allocation of the total profit or loss and total comprehensive income for the year between non-controlling interests and the equity holders of the Company.

Changes in the Group’s interests in a subsidiary that do not result in a loss of control are accounted for as equity transactions, whereby adjustments are made to the amounts of controlling and non-controlling interests within consolidated equity to reflect the change in relative interests, but no adjustments are made to goodwill and no gain or loss is recognised.

When the Group loses control of a subsidiary, it is accounted for as a disposal of the entire interest in that subsidiary, with a resulting gain or loss being recognised in profit or loss. Any interest retained in that former subsidiary at the date when control is lost is recognised at fair value and this amount is regarded as the fair value on initial recognition of a financial asset (see note 3(f)) or, when appropriate, the cost on initial recognition of an investment in an associate or joint venture (see note 3(e)).

F-11 3 Significant accounting policies (continued)

(e) Associates and joint ventures

An associate is an entity in which the Group has significant influence, but not control or joint control, over its management, including participation in the financial and operating policy decisions.

A joint venture is an arrangement whereby the Group and other parties contractually agree to share control of the arrangement, and have rights to the net assets of the arrangement.

An investment in an associate or a joint venture is accounted for in the consolidated financial statements using the equity method. Under the equity method, the investment is initially recorded at cost, adjusted for any excess of the Group’s share of the acquisition-date fair values of the investee’s identifiable net assets over the cost of the investment (if any). Thereafter, the investment is adjusted for the post acquisition change in the Group’s share of the investee’s net assets and any impairment loss relating to the investment (see notes 3(l)). Any acquisition-date excess over cost, the Group’s share of the post-acquisition, post-tax results of the investees and any impairment losses for the year are recognised in the consolidated statement of profit or loss, whereas the Group’s share of the post-acquisition post-tax items of the investees’ other comprehensive income is recognised in the consolidated statement of profit or loss and other comprehensive income.

When the Group’s share of losses equals or exceeds its interest in the associate or the joint venture, the Group’s interest is reduced to nil and recognition of further losses is discontinued except to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the investee. For this purpose, the Group’s interest is the carrying amount of the investment under the equity method together with the Group’s long-term interests that in substance form part of the Group’s net investment in the associate or the joint venture.

Unrealised profits and losses resulting from transactions between the Group and its associates and joint ventures are eliminated to the extent of the Group’s interest in the investee, except where unrealised losses provide evidence of an impairment of the asset transferred, in which case they are recognised immediately in profit or loss.

If an investment in an associate becomes an investment in a joint venture or vice versa, retained interest is not remeasured. Instead, the investment continues to be accounted for under the equity method.

In other cases, when the Group ceases to have significant influence over an associate or joint control over a joint venture, it is accounted for as a disposal of the entire interest in that investee, with a resulting gain or loss being recognised in profit or loss. Any interest retained in that former investee at the date when significant influence or joint control is lost is recognised at fair value and this amount is regarded as the fair value on initial recognition of a financial asset (see note 3(f)).

F-12 3 Significant accounting policies (continued)

(f) Financial instruments other than derivatives

Non-derivative financial assets of the Group comprise financial assets at fair value through profit or loss, loans and receivables, cash and cash equivalents and available-for-sale financial assets.

Non-derivative financial liabilities of the Group comprise interest-bearing loans and borrowings, and other financial liabilities.

(i) Recognition and derecognition

Non-derivative financial assets and financial liabilities are recognised in the consolidated statement of financial position when the Group becomes a party to the contractual provisions of the instrument.

The Group derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all of the risks and rewards of ownership of the financial asset are transferred, or it neither transfers nor retains substantially all of the risks and rewards of ownership and does not retain control over the transferred asset. Any interest in such derecognised financial assets that is created or retained by the Group is recognised as a separate asset or liability. The Group derecognises a financial liability when its contractual obligations are discharged, cancelled, or expire.

Financial assets and financial liabilities are offset and the net amount presented in the consolidated statement of financial position when, and only when, the Group has a legal right to offset the amounts and intends either to settle them on a net basis or to realise the asset and settle the liability simultaneously.

(ii) Measurement

– Financial assets at fair value through profit or loss

A financial asset is classified as at fair value through profit or loss if it is classified as held-for-trading or is designated as such on initial recognition. Directly attributable transaction costs are recognised in profit or loss as incurred. At the end of each reporting period the fair value is remeasured, with any resultant gain or loss being recognised in profit or loss. The net gain or loss recognised in profit or loss does not include any dividends or interest earned on these investments as these are recognised in accordance with the policies set out in note 3(t).

– Loans and receivables

Loans and receivables are initially recognised at fair value and thereafter stated at amortised cost less allowance for impairment of doubtful debts (see note 3(l)), except where the receivables are interest-free loans made to related parties without any fixed repayment terms or the effect of discounting would be immaterial. In such cases, the receivables are stated at cost less allowance for impairment of doubtful debts.

F-13 3 Significant accounting policies (continued)

(f) Financial instruments other than derivatives (continued)

(ii) Measurement (continued)

– Loans and receivables (continued)

From time to time, the Group transfers its trade receivables to banks or financial institutions; the bank or the financial institutions fully bear the collection risk without the right to receive payments from the Group in the event a loss occurs due to the non-collectibility of the receivables transferred. The Group’s customers make payments of the receivables transferred directly to the bank or the financial institutions. In such case, trade receivables transferred are derecognised from the consolidated statement of financial position. The excess of the carrying amount of trade receivables over cash received from the banks or financial institutions is included in “other operating expenses” in the consolidated statement of profit or loss.

– Cash and cash equivalents

Cash and cash equivalents comprise cash at bank and on hand, demand deposits with banks and other financial institutions, and short-term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value, having been within three months of maturity at acquisition. Bank overdrafts that are repayable on demand and form an integral part of the Group’s cash management are also included as a component of cash and cash equivalents for the purpose of the consolidated statement of cash flows.

~ Available-for-sale financial assets

Available-for-sale financial assets are non-derivative financial assets that are not classified in any of the above categories of financial assets. Available-for-sale financial assets are recognised initially at fair value plus any directly attributable transaction costs. At the end of each reporting period the fair value is remeasured, with any resultant gain or loss being recognised in other comprehensive income and accumulated separately in equity in the fair value reserve. As an exception to this, available-for-sale financial assets that do not have a quoted price in an active market for an identical instrument and whose fair value cannot otherwise be reliably measured are recognised in the consolidated statement of financial position at cost less impairment losses (see note 3(l)). Dividend income is recognised in profit or loss in accordance with the policy set out in note 3(t) and, where these investments are interest-bearing, interest calculated using the effective interest method is recognised in profit or loss in accordance with the policy set out in note 3(t).

When these assets are derecognised or impaired (see note 3(l)), the cumulative gain or loss is reclassified from equity to profit or loss.

– Interest-bearing loans and borrowings

Interest-bearing loans and borrowings are recognised initially at fair value less attributable transaction costs. Subsequent to initial recognition, interest-bearing loans and borrowings are stated at amortised cost with any difference between the amount initially recognised and redemption value being recognised in profit or loss over the period of the loans and borrowings, together with any interest and fees payable, using the effective interest method.

F-14 3 Significant accounting policies (continued)

(f) Financial instruments other than derivatives (continued)

(ii) Measurement (continued)

– Other financial liabilities

Trade and other payables are initially recognised at fair value and subsequently stated at amortised cost unless the effect of discounting would be immaterial, in which case they are stated at cost.

(g) Investment property

Investment properties are land and/or buildings which are owned or held under a leasehold interest (see note 3(k)) to earn rental income and/or for capital appreciation.

Investment properties are stated at cost less accumulated depreciation (see note 3(h)(iii)) and impairment losses (see note 3(l)). Depreciation is calculated to write off the cost of items of investment property, less their estimated residual value, if any, using the straight line method over their estimated useful lives. Rental income from investment properties is accounted for as described in note 3(r)(iv).

(h) Other property, plant and equipment

(i) Recognition and measurement

Items of property, plant and equipment are stated at cost less accumulated depreciation and impairment losses (see note 3(l)). Cost includes expenditure that is directly attributable to the acquisition of the assets. The cost of self-constructed items of property, plant and equipment includes the cost of materials, direct labour, the initial estimate, where relevant, of the costs of dismantling and removing the items and restoring the site on which they are located, and an appropriate proportion of production overheads and borrowing costs (see note 3(t)).

Construction in progress is transferred to other property, plant and equipment when it is ready for its intended use.

Gains or losses arising from the retirement or disposal of an item of property, plant and equipment are determined as the difference between the net disposal proceeds and the carrying amount of the item and are recognised in profit or loss on the date of retirement or disposal.

(ii) Subsequent costs

The cost of replacing part of an item of property, plant and equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Group and its cost can be measured reliably. The carrying amount of the replaced component is derecognised. The costs of the day-to-day servicing of property, plant and equipment are recognised in profit or loss as incurred.

F-15 3 Significant accounting policies (continued)

(h) Other property, plant and equipment (continued)

(iii) Depreciation

Depreciation is calculated to write off the cost of items of property, plant and equipment, less their estimated residual value, if any, using the straight line method over their estimated useful lives as follows:

• Freehold land and construction in progress are not depreciated • Buildings ...... 20years • Machinery, electronic equipment and other equipment ...... 3to10years • Motor vehicles ...... 5years • Decoration and leasehold improvements ...... 2to5years

Where parts of an item of property, plant and equipment have different useful lives, the cost or valuation of the item is allocated on a reasonable basis between the parts and each part is depreciated separately. Both the useful life of an item of property, plant and equipment and its residual value, if any, are reviewed annually.

(i) Long-term leasehold prepayments

Long-term leasehold prepayments represent land premium, resettlement fees and related expenses in obtaining the relevant land use rights. Long-term leasehold prepayments are stated at cost, less accumulated amortisation and impairment losses (see note 3(l)).

Amortisation is charged to the consolidated statement of profit or loss on a straight-line basis over the period of the land use rights which is generally not exceeding 50 years.

(j) Intangible assets

(i) Research and development

Research and development costs comprise all costs that are directly attributable to research and development activities or that can be allocated on a reasonable basis to such activities. Because of the nature of the Group’s research and development activities, the criteria for the recognition of such costs as assets are generally not met until late in the development stage of the project when the remaining development costs are immaterial. Hence both research costs and development costs are generally recognised as expenses in profit or loss in the period in which they are incurred.

(ii) Other intangible assets

Other intangible assets that are acquired by the Group are stated at cost less accumulated amortisation (where the estimated useful life is finite) and impairment losses (see note 3(l)).

F-16 3 Significant accounting policies (continued)

(j) Intangible assets (continued)

(iii) Amortisation

Amortisation of intangible assets with finite useful lives is charged to profit or loss on a straight-line basis over the assets’ estimated useful lives. The following intangible assets with finite useful lives are amortised from the date they are available for use and their estimated useful lives are as follows:

• Software ...... 3years • Patents ...... 3to22years • Trademark ...... 10years

Both the period and method of amortisation are reviewed annually.

Intangible assets are not amortised while their useful lives are assessed to be indefinite. Any conclusion that the useful life of an intangible asset is indefinite is reviewed annually to determine whether events and circumstances continue to support the indefinite useful life assessment for that asset. If they do not, the change in the useful life assessment from indefinite to finite is accounted for prospectively from the date of change and in accordance with the policy for amortisation of intangible assets with finite lives as set out above.

(k) Leased assets

An arrangement, comprising a transaction or a series of transactions, is or contains a lease if the Group determines that the arrangement conveys a right to use a specific asset or assets for an agreed period of time in return for a payment or a series of payments. Such a determination is made based on an evaluation of the substance of the arrangement and is regardless of whether the arrangement takes the legal form of a lease.

(i) Classification of assets leased to the Group

Assets that are held by the Group under leases which transfer to the Group substantially all the risks and rewards of ownership are classified as being held under finance leases. Leases which do not transfer substantially all the risks and rewards of ownership to the Group are classified as operating leases.

(ii) Operating lease charges

Where the Group has the use of assets held under operating leases, payments made under the leases are charged to profit or loss in equal instalments over the accounting periods covered by the lease term, except where an alternative basis is more representative of the pattern of benefits to be derived from the leased asset. Lease incentives received are recognised in profit or loss as an integral part of the aggregate net lease payments made. Contingent rentals are charged to profit or loss in the accounting period in which they are incurred.

F-17 3 Significant accounting policies (continued)

(l) Impairment of assets

(i) Impairment of investments in debt and equity securities and other receivables

Investments in debt and equity securities and other current and non-current receivables that are stated at cost or amortised cost or are classified as available-for-sale securities are reviewed at the end of each reporting period to determine whether there is objective evidence of impairment. Objective evidence of impairment includes observable data that comes to the attention of the Group about one or more of the following loss events:

– significant financial difficulty of the debtor;

– a breach of contract, such as a default or delinquency in interest or principal payments;

– it becoming probable that the debtor will enter bankruptcy or other financial reorganisation;

– significant changes in the technological, market, economic or legal environment that have an adverse effect on the debtor; and

– a significant or prolonged decline in the fair value of an investment in an equity instrument below its cost.

If any such evidence exists, any impairment loss is determined and recognised as follows:

– For investments in associates and joint ventures accounted for under the equity method (see note 3(e)), the impairment loss is measured by comparing the recoverable amount of the investment with its carrying amount in accordance with note 3(l)(ii). The impairment loss is reversed if there has been a favourable change in the estimates used to determine the recoverable amount in accordance with note 3(l)(ii).

– For unquoted equity securities carried at cost, the impairment loss is measured as the difference between the carrying amount of the financial asset and the estimated future cash flows, discounted at the current market rate of return for a similar financial asset where the effect of discounting is material. Impairment losses for equity securities carried at cost are not reversed.

– For trade and other current receivables and other financial assets carried at amortised cost, the impairment loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the financial assets’ original effective interest rate (i.e. the effective interest rate computed at initial recognition of these assets), where the effect of discounting is material. This assessment is made collectively where these financial assets share similar risk characteristics, such as similar past due status, and have not been individually assessed as impaired. Future cash flows for financial assets which are assessed for impairment collectively are based on historical loss experience for assets with credit risk characteristics similar to the collective group.

If in a subsequent period the amount of an impairment loss decreases and the decrease can be linked objectively to an event occurring after the impairment loss was recognised, the impairment loss is reversed through profit or loss. A reversal of an impairment loss shall not result in the asset’s carrying amount exceeding that which would have been determined had no impairment loss been recognised in prior years.

F-18 3 Significant accounting policies (continued)

(l) Impairment of assets (continued)

(i) Impairment of investments in debt and equity securities and other receivables (continued)

– For available-for-sale securities, the cumulative loss that has been recognised in the fair value reserve is reclassified to profit or loss. The amount of the cumulative loss that is recognised in profit or loss is the difference between the acquisition cost (net of any principal repayment and amortisation) and current fair value, less any impairment loss on that asset previously recognised in profit or loss.

Impairment losses recognised in profit or loss in respect of available-for-sale equity securities are not reversed through profit or loss. Any subsequent increase in the fair value of such assets is recognised in other comprehensive income.

Impairment losses in respect of available-for-sale debt securities are reversed if the subsequent increase in fair value can be objectively related to an event occurring after the impairment loss was recognised. Reversals of impairment losses in such circumstances are recognised in profit or loss.

Impairment losses are written off against the corresponding assets directly, except for impairment losses recognised in respect of trade and bills receivable, whose recovery is considered doubtful but not remote. In this case, the impairment losses for doubtful debts are recorded using an allowance account. When the Group is satisfied that recovery is remote, the amount considered irrecoverable is written off against trade and bills receivable directly and any amounts held in the allowance account relating to that debt are reversed. Subsequent recoveries of amounts previously charged to the allowance account are reversed against the allowance account. Other changes in the allowance account and subsequent recoveries of amounts previously written off directly are recognised in profit or loss.

(ii) Impairment of other assets

Internal and external sources of information are reviewed at the end of each reporting period to identify indications that the following assets may be impaired or, except in the case of goodwill, an impairment loss previously recognised no longer exists or may have decreased:

– investment property and other property, plant and equipment;

– long-term leasehold prepayments;

– other long-term deferred assets;

– intangible assets; and

– goodwill

If any such indication exists, the asset’s recoverable amount is estimated. In addition, for goodwill, intangible assets that are not yet available for use and intangible assets that have indefinite useful lives, the recoverable amount is estimated annually whether or not there is any indication of impairment.

F-19 3 Significant accounting policies (continued)

(l) Impairment of assets (continued)

(ii) Impairment of other assets (continued)

– Calculation of recoverable amount

The recoverable amount of an asset is the greater of its fair value less costs of disposal and 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 time value of money and the risks specific to the asset. Where an asset does not generate cash inflows largely independent of those from other assets, the recoverable amount is determined for the smallest group of assets that generates cash inflows independently (i.e. a cash-generating unit).

– Recognition of impairment losses

An impairment loss is recognised in profit or loss if the carrying amount of an asset, or the cash-generating unit to which it belongs, exceeds its recoverable amount. Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the cash-generating unit (or group of units) and then, to reduce the carrying amount of the other assets in the unit (or group of units) on a pro rata basis, except that the carrying value of an asset will not be reduced below its individual fair value less costs of disposal (if measureable) or value in use (if determinable).

– Reversals of impairment losses

In respect of assets other than goodwill, an impairment loss is reversed if there has been a favourable change in the estimates used to determine the recoverable amount. An impairment loss in respect of goodwill is not reversed.

A reversal of an impairment loss is limited to the asset’s carrying amount that would have been determined had no impairment loss been recognised in prior years. Reversals of impairment losses are credited to profit or loss in the year in which the reversals are recognised.

(m) Inventories

Inventories are carried at the lower of cost and net realisable value.

Cost is calculated using the standard cost method with periodical adjustments of cost variance to arrive at the actual cost, which approximates weighted average cost formula. The cost of inventories includes expenditures incurred in acquiring the inventories and bringing them to their present location and condition. In the case of manufactured inventories and work in progress, cost includes an appropriate share of overheads based on normal operating capacity.

Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and the estimated costs necessary to make the sale.

F-20 3 Significant accounting policies (continued)

(m) Inventories (continued)

When inventories are sold, the carrying amount of those inventories is recognised as an expense in the period in which the related revenue is recognised. The amount of any write-down of inventories to net realisable value and all losses of inventories are recognised as an expense in the period the write-down or loss occurs. The amount of any reversal of any write-down of inventories is recognised as a reduction in the amount of inventories recognised as an expense in the period in which the reversal occurs.

(n) Construction contracts

Construction contracts are contracts specifically negotiated with a customer for the construction of an asset or a group of assets, where the customer is able to specify the major structural elements of the design. The accounting policy for contract revenue is set out in note 3(r)(ii). When the outcome of a construction contract can be estimated reliably, contract costs are recognised as an expense by reference to the stage of completion of the contract at the end of the reporting period. When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognised as an expense immediately. When the outcome of a construction contract cannot be estimated reliably, contract costs are recognised as an expense in the period in which they are incurred.

Construction contracts in progress at the end of the reporting period are recorded at the net amount of costs incurred plus recognised profit less recognised losses and progress billings, and are presented in the consolidated statement of financial position as “gross amount due from third-party customers for contract works” (as an asset) or “gross amount due to third-party customers for contract works” (as a liability), as applicable. Progress billings not yet paid by the customer are included under “other receivables”. Amounts received before the related work is performed are included under “other payables”.

(o) Employee benefits

(i) Short term employee benefits and contributions to defined contribution retirement plans

Salaries, annual bonuses, paid annual leave and contributions to defined contribution retirement plans are accrued in the year in which the associated services are rendered by employees. Where payment or settlement is deferred and the effect would be material, these amounts are stated at their present values.

(ii) Defined benefit obligations

The Group’s obligation in respect of defined benefit plans is calculated separately for each plan by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine the present value. The calculation is performed by management using the projected unit credit method.

F-21 3 Significant accounting policies (continued)

(o) Employee benefits (continued)

(ii) Defined benefit obligations (continued)

Service cost and interest cost on the defined benefit obligations are recognised in profit or loss. Service cost is allocated by function as part of “cost of sales”, “research and development expenses”, “selling expenses” or “administrative expenses”. Current service cost is measured as the increase in the present value of the defined benefit obligations resulting from employee service in the current period. When the benefits of a plan are changed, or when a plan is curtailed, the portion of the changed benefit related to past service by employees, or the gain or loss on curtailment, is recognised as an expense in profit or loss at the earlier of when the plan amendment or curtailment occurs and when related restructuring costs or termination benefits are recognised. Interest cost on defined benefit obligations for the period is determined by applying the discount rate used to measure the defined benefit obligation at the beginning of the reporting period to the defined benefit obligations. The discount rate is the yield at the end of the reporting period on high quality corporate bonds that have maturity dates approximating the terms of the Group’s obligations.

Remeasurements arising from defined benefit plans are recognised immediately in other comprehensive income and shall not be reclassified to profit or loss in a subsequent period. However, the remeasurement amounts recognised in other comprehensive income may be transferred within equity. Remeasurements include actuarial gains and losses.

(p) Income tax

Income tax for the year comprises current tax and movements in deferred tax assets and liabilities. Current tax and movements in deferred tax assets and liabilities are recognised in profit or loss except to the extent that they relate to items recognised in other comprehensive income or directly in equity, in which case the relevant amounts of tax are recognised in other comprehensive income or directly in equity, respectively.

Deferred tax assets and liabilities arise from deductible and taxable temporary differences respectively, being the differences between the carrying amounts of assets and liabilities for financial reporting purposes and their tax bases. Deferred tax assets also arise from unused tax losses and unused tax credits.

Apart from certain limited exceptions, all deferred tax liabilities, and all deferred tax assets to the extent that it is probable that future taxable profits will be available against which the asset can be utilised, are recognised. Future taxable profits that may support the recognition of deferred tax assets arising from deductible temporary differences include those that will arise from the reversal of existing taxable temporary differences, provided those differences relate to the same taxation authority and the same taxable entity, and are expected to reverse either in the same period as the expected reversal of the deductible temporary difference or in periods into which a tax loss arising from the deferred tax asset can be carried back or forward. The same criteria are adopted when determining whether existing taxable temporary differences support the recognition of deferred tax assets arising from unused tax losses and credits, that is, those differences are taken into account if they relate to the same taxation authority and the same taxable entity, and are expected to reverse in a period, or periods, in which the tax loss or credit can be utilised.

F-22 3 Significant accounting policies (continued)

(p) Income tax (continued)

The limited exceptions to recognition of deferred tax assets and liabilities are those temporary differences arising from the initial recognition of goodwill, the initial recognition of assets or liabilities that affect neither accounting nor taxable profit (provided they are not part of a business combination), and temporary differences relating to investments in subsidiaries to the extent that, in the case of taxable differences, the Group controls the timing of the reversal and it is probable that the differences will not reverse in the foreseeable future, or in the case of deductible differences, unless it is probable that they will reverse in the future.

The amount of deferred tax recognised is measured based on the expected manner of realisation or settlement of the carrying amount of the assets and liabilities, using tax rates enacted or substantively enacted at the end of the reporting period. Deferred tax assets and liabilities are not discounted.

The carrying amount of a deferred tax asset is reviewed at the end of each reporting period and is reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow the related tax benefit to be utilised. Any such reduction is reversed to the extent that it becomes probable that sufficient taxable profits will be available.

Current tax balances and deferred tax balances, and movements therein, are presented separately from each other and are not offset. Current tax assets are offset against current tax liabilities, and deferred tax assets against deferred tax liabilities, if the Group has the legally enforceable right to set off current tax assets against current tax liabilities and the following additional conditions are met:

– in the case of current tax assets and liabilities, the Group intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously; or

– in the case of deferred tax assets and liabilities, if they relate to income taxes levied by the same taxation authority on either:

– the same taxable entity; or

– different taxable entities, which, in each future period in which significant amounts of deferred tax liabilities or assets are expected to be settled or recovered, intend to realise the current tax assets and settle the current tax liabilities on a net basis or realise and settle simultaneously.

(q) Provisions and contingent liabilities

(i) Provision for warranties

The Group provides warranty on its products for a period typically covering 12 to 24 months. The Group estimates the costs that may be incurred under its warranty obligations and records a liability in the amount of such costs when revenue is recognised. Warranty costs generally includes parts, labour costs and service centre support. Factors that affect the Group’s warranty liability include the number of installed units, historical and anticipated rates of warranty claims. The Group periodically reassesses its warranty liabilities and adjusts the amounts as necessary.

F-23 3 Significant accounting policies (continued)

(q) Provisions and contingent liabilities (continued)

(ii) Provision for onerous contracts

A provision for onerous contracts is recognised when the expected benefits to be derived by the Group from a contract are lower than the unavoidable cost of meeting its obligations under the contract. The provision is measured at the present value of the lower of the expected cost of terminating the contract and the expected net cost of continuing with the contract. Before a provision is established, the Group recognises any impairment loss on the assets associated with that contract.

(iii) Other provisions and contingent liabilities

Provisions are recognised for other liabilities of uncertain timing or amount when the Group has a legal or constructive obligation arising as a result of a past event, it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate can be made. Where the time value of money is material, provisions are stated at the present value of the expenditure expected to settle the obligation.

Where it is not probable that an outflow of economic benefits will be required, or the amount cannot be estimated reliably, the obligation is disclosed as a contingent liability, unless the probability of outflow of economic benefits is remote. Possible obligations, whose existence will only be confirmed by the occurrence or non-occurrence of one or more future events are also disclosed as contingent liabilities unless the probability of outflow of economic benefits is remote.

(r) Revenue recognition

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

(i) Sale of goods and provision of services

Revenue from sale of goods is recognised when the significant risks and rewards of ownership of goods have been transferred to the buyer. Revenue from provision of services is recognised at the time when the services are provided. No revenue is recognised if there are significant uncertainties regarding the recovery of the consideration due, associated costs or the possible return of goods. Revenue excludes value added tax or other sales taxes and is after deduction of any trade discounts.

(ii) Contract revenue

When the outcome of a construction contract can be estimated reliably, revenue from a fixed price contract is recognised using the percentage of completion method, measured by reference to the percentage of contract costs incurred to date to estimated total contract costs for the contract.

When the outcome of a construction contract cannot be estimated reliably, revenue is recognised only to the extent of contract costs incurred that it is probable will be recoverable.

F-24 3 Significant accounting policies (continued)

(r) Revenue recognition (continued)

(iii) Government grants

Government grants are recognised in the consolidated statement of financial position initially when there is reasonable assurance that they will be received and that the Group will comply with the conditions attaching to them. Grants that compensate the Group for expenses incurred are recognised as other income in profit or loss on a systematic basis in the same periods in which the expenses are incurred. Grants that compensate the Group for the cost of an asset are recognised as deferred income and consequently are effectively recognised in profit or loss on a systematic basis over the useful life of the asset.

(iv) Rental income from operating leases

Rental income receivable under operating leases is recognised in profit or loss in equal instalments over the periods covered by the lease term, except where an alternative basis is more representative of the pattern of benefits to be derived from the use of the leased asset. Lease incentives granted are recognised in profit or loss as an integral part of the aggregate net lease payments receivable. Contingent rentals are recognised as income in the accounting period in which they are earned.

(s) Translation of foreign currencies

(i) Foreign currency transactions

Foreign currency transactions during the year are translated to the respective functional currencies of group entities at the foreign exchange rates ruling at the transaction dates. Monetary assets and liabilities denominated in foreign currencies are translated to the functional currency at the foreign exchange rates ruling at the end of the reporting period. Exchange gains and losses are recognised in profit or loss.

Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the foreign exchange rates ruling at the transactions dates. Non-monetary assets and liabilities denominated in foreign currencies that are stated at fair value are translated using the foreign exchange rates ruling at the dates the fair value was measured.

(ii) Foreign operations

The results of foreign operations, except for foreign operations in hyperinflationary economies, are translated into RMB at the exchange rates approximating the foreign exchange rates ruling at the dates of the transactions. Statement of financial position items are translated into RMB at the closing foreign exchange rates at the end of the reporting period. The resulting exchange differences are recognised in other comprehensive income and accumulated separately in equity in the exchange reserve. If the operation is a non-wholly-owned subsidiary, then the relevant proportionate share of the exchange difference is allocated to the non-controlling interests.

The results of foreign operations in hyperinflationary economies are translated to RMB at the exchange rates ruling at the end of the reporting period. Prior to translating the financial statements of foreign operations in hyperinflationary economies, their financial statements for the current year are restated to account for changes in the general purchasing power of the local currencies. The restatement is based on relevant price indices at the end of the reporting period.

F-25 3 Significant accounting policies (continued)

(s) Translation of foreign currencies (continued)

(ii) Foreign operations (continued)

When a foreign operation is disposed of in its entirety or partially such that control, significant influence or joint control is lost, the cumulative amount in the exchange reserve related to that foreign operation is reclassified to profit or loss as part of the gain or loss on disposal.

When the Group disposes of only part of its interest in a subsidiary that includes a foreign operation while retaining control, the relevant proportion of the cumulative amount is reattributed to non-controlling interests. When the Group disposes of only part of its investment in an associate or a joint venture that includes a foreign operation while retaining significant influence or joint control, the relevant proportion of the cumulative amount is reclassified to profit or loss.

(t) Finance income and expenses

Finance income comprises dividend and interest income on funds invested (including available-for-sale financial assets), gains on the disposal of available-for-sale and held-for-trading financial assets, and changes in the fair value of held-for-trading financial assets. Interest income is recognised as it accrues using the effective interest method. Dividend income from listed and unlisted investments is recognised when the equity holder’s right to receive payment is established; dividend income from listed investments is recognised when the share price of the investment goes ex-dividend.

Finance expenses comprise interest expense on borrowings, unwinding of the discount on provisions and impairment losses recognised on available-for-sale financial assets. Borrowing costs that are directly attributable to the acquisition, construction or production of an asset which necessarily takes a substantial period of time to get ready for its intended use or sale are capitalised as part of the cost of that asset. Other borrowing costs are expensed in the period in which they are incurred.

The capitalisation of borrowing costs as part of the cost of a qualifying asset commences when expenditure for the asset is being incurred, borrowing costs are being incurred and activities that are necessary to prepare the asset for its intended use or sale are in progress. Capitalisation of borrowing costs is suspended or ceases when substantially all the activities necessary to prepare the qualifying asset for its intended use or sale are interrupted or completed.

Foreign exchange gains and losses are included under finance income or expenses on a net basis.

(u) Non-current assets held for sale

A non-current asset (or disposal group) is classified as held for sale if it is highly probable that its carrying amount will be recovered through a sale transaction rather than through continuing use and the asset (or disposal group) is available for sale in its present condition. A disposal group is a group of assets to be disposed of together as a group in a single transaction, and liabilities directly associated with those assets that will be transferred in the transaction.

F-26 3 Significant accounting policies (continued)

(u) Non-current assets held for sale (continued)

Immediately before classification as held for sale, the measurement of the non-current assets (and all individual assets and liabilities in a disposal group) is brought up-to-date in accordance with the accounting policies before the classification. Then, on initial classification as held for sale and until disposal, the non-current assets (except for certain assets as explained below), or disposal groups, are recognised at the lower of their carrying amount and fair value less costs to sell. The principal exceptions to this measurement policy so far as the consolidated financial statements of the Group are concerned are deferred tax assets, assets arising from employee benefits and financial assets (other than investments in associates and joint ventures). These assets, even if held for sale, would continue to be measured in accordance with the policies set out elsewhere in note 3.

Impairment losses on initial classification as held for sale, and on subsequent remeasurement while held for sale, are recognised in profit or loss. As long as a non-current asset is classified as held for sale, or is included in a disposal group that is classified as held for sale, the non-current asset is not depreciated or amortised.

(v) Related parties

(a) A person, or a close member of that person’s family, is related to the Group if that person:

(i) has control or joint control over the Group;

(ii) has significant influence over the Group; or

(iii) is a member of the key management personnel of the Group or the Group’s equity holders.

(b) An entity is related to the Group if any of the following conditions applies:

(i) The entity and the Group are members of the same group (which means that each parent, subsidiary and fellow subsidiary is related to the others).

(ii) One entity is an associate or joint venture of the other entity (or an associate or joint venture of a member of a group of which the other entity is a member).

(iii) Both entities are joint ventures of the same third party.

(iv) One entity is a joint venture of a third entity and the other entity is an associate of the third entity.

(v) The entity is a post-employment benefit plan for the benefit of employees of either the Group or an entity related to the Group.

(vi) The entity is controlled or jointly controlled by a person identified in (a).

(vii) A person identified in (a)(i) has significant influence over the entity or is a member of the key management personnel of the entity (or of a parent of the entity).

Close members of the family of a person are those family members who may be expected to influence, or be influenced by, that person in their dealings with the entity.

F-27 3 Significant accounting policies (continued)

(w) Segment reporting

Operating segments, and the amounts of each segment item reported in the financial statements, are identified from the financial information provided regularly to the Group’s most senior executive management for the purposes of allocating resources to, and assessing the performance of, the Group’s various lines of business and geographical locations.

Individually material operating segments are not aggregated for financial reporting purposes unless the segments have similar economic characteristics and are similar in respect of the nature of products and services, the nature of production processes, the type or class of customers, the methods used to distribute the products or provide the services, and the nature of the regulatory environment. Operating segments which are not individually material may be aggregated if they share a majority of these criteria.

4 Changes in accounting policies

The IASB has issued a number of new IFRSs and amendments to IFRSs that are first effective for the current accounting period of the Group. Of these, the following developments are relevant to the consolidated financial statements:

• Amendments to IAS 1, Presentation of financial statements – Presentation of items of other comprehensive income

• IFRS 10, Consolidated financial statements

• IFRS 11, Joint arrangements

• IFRS 12, Disclosure of interests in other entities

• IFRS 13, Fair value measurement

• Revised IAS 19, Employee benefits

• Annual Improvements to IFRSs 2009-2011 Cycle

• Amendments to IFRS 7 – Disclosures – Offsetting financial assets and financial liabilities

The Group has not applied any new standard or interpretation that is not yet effective for the current accounting period. Impacts of the adoption of new or amended IFRSs are discussed below:

Amendments to IAS 1, Presentation of financial statements – Presentation of items of other comprehensive income

The amendments require entities to present separately the items of other comprehensive income that would be reclassified to profit or loss in the future if certain conditions are met from those that would never be reclassified to profit or loss. The presentation of other comprehensive income in the consolidated statement of profit or loss and other comprehensive income in these consolidated financial statements has been modified accordingly.

In addition, the Group has chosen to use the new titles “statement of profit or loss” and “statement of profit or loss and other comprehensive income” as introduced by the amendments in these consolidated financial statements.

F-28 4 Changes in accounting policies (continued)

IFRS 10, Consolidated financial statements

IFRS 10 replaces the requirements in IAS 27, Consolidated and separate financial statements relating to the preparation of consolidated financial statements and SIC 12 Consolidation – Special purpose entities. It introduces a single control model to determine whether an investee should be consolidated, by focusing on whether the entity has power over the investee, exposure or rights to variable returns from its involvement with the investee and the ability to use its power to affect the amount of those returns.

As a result of the adoption of IFRS 10, the Group has changed its accounting policy with respect to determining whether it has control over an investee. The adoption does not change any of the control conclusions reached by the Group in respect of its involvement with other entities as at 1 January 2013.

IFRS 11, Joint arrangements

IFRS 11, which replaces IAS 31, Interests in joint ventures, divides joint arrangements into joint operations and joint ventures. Entities are required to determine the type of an arrangement by considering the structure, legal form, contractual terms and other facts and circumstances relevant to their rights and obligations under the arrangement. Joint arrangements which are classified as joint operations under IFRS 11 are recognised on a line-by-line basis to the extent of the joint operator’s interest in the joint operation. All other joint arrangements are classified as joint ventures under IFRS 11 and are required to be accounted for using the equity method in the Group’s consolidated financial statements. Proportionate consolidation is no longer allowed as an accounting policy choice.

As a result of the adoption of IFRS 11, the Group has changed its accounting policy with respect to its interests in joint arrangements and re-evaluated its involvement in its joint arrangements. The Group has reclassified the investments from jointly controlled entity to joint venture. The investments continue to be accounted for using the equity method and therefore this reclassification does not have any material impact on the financial position and the financial performance of the Group.

IFRS 12, Disclosure of interests in other entities

IFRS 12 brings together into a single standard all the disclosure requirements relevant to an entity’s interests in subsidiaries, joint arrangements, associates and unconsolidated structured entities. The disclosures required by IFRS 12 are generally more extensive than those previously required by the respective standards. To the extent that the requirements are applicable to the Group, the Group has provided those disclosures in notes 16 and 17.

IFRS 13, Fair value measurement

IFRS 13 replaces existing guidance in individual IFRSs with a single source of fair value measurement guidance. IFRS 13 also contains extensive disclosure requirements about fair value measurements for both financial instruments and non-financial instruments. To the extent that the requirements are applicable to the Group, the Group has provided those disclosures in note 12 and note 33. The adoption of IFRS 13 does not have any material impact on the fair value measurements of the Group’s assets and liabilities.

F-29 4 Changes in accounting policies (continued)

Revised IAS 19, Employee benefits

Revised IAS 19 introduces a number of amendments to the accounting for defined benefit plans. Among them, revised IAS 19 requires all actuarial gains and losses to be recognised immediately in other comprehensive income.

As a result of the adoption of revised IAS 19, the Group has changed its accounting policy with respect to defined benefit plans, for which actuarial gains and losses were previously recognised in profit or loss. This change in accounting policy has been applied retrospectively by restating the balances at 1 January 2012 and 31 December 2012, with consequential adjustments to comparatives for the year ended 31 December 2012 as follows:

Effect of As previously adoption of reported revised IAS 19 As restated RMB’000 RMB’000 RMB’000 Consolidated statement of profit or loss for the year ended 31 December 2012: Defined benefit plan expense ...... (2,239,991) 290,417 (1,949,574) Income tax ...... (2,711,328) (46,626) (2,757,954) Profit for the year ...... 15,379,926 243,791 15,623,717 Consolidated statement of profit or loss and other comprehensive income for year ended 31 December 2012: Remeasurement of defined benefit obligations .... – (243,791) (243,791) Other comprehensive income for the year ...... 94,866 (243,791) (148,925) Consolidated statement of financial position as at 31 December 2012: Reserves ...... 12,513,389 (1,639,837) 10,873,552 Retained earnings ...... 17,852,013 1,639,837 19,491,850 Consolidated statement of financial position as at 1 January 2012: Reserves ...... 10,639,240 (1,396,046) 9,243,194 Retained earnings ...... 16,366,681 1,396,046 17,762,727

Had the policy not been changed, the Group’s net profit and other comprehensive income for the year ended 31 December 2013 would have decreased by RMB618,227,000 and increased by RMB618,227,000 respectively.

Annual Improvements to IFRSs 2009-2011 Cycle

This cycle of annual improvements contains amendments to five standards with consequential amendments to other standards and interpretations. Among them, IAS 1 has been amended to clarify that an opening statement of financial position is required only when a retrospective application of an accounting policy, a retrospective restatement or a reclassification has a material effect on the information presented in the opening statement of financial position. The amendments also remove the requirement to present related notes to the opening statement of financial position when such statement is presented.

Since the Group considers that the restatement resulting from the adoption of revised IAS 19 has a material impact on the opening financial position, an additional consolidated statement of financial position as at 1 January 2012 has been presented in these consolidated financial statements.

F-30 4 Changes in accounting policies (continued)

Amendments to IFRS 7 – Disclosures – Offsetting financial assets and financial liabilities

The amendments introduce new disclosures in respect of offsetting financial assets and financial liabilities. Those new disclosures are required for all recognised financial instruments that are set off in accordance with IAS 32, Financial instruments: Presentation and those that are subject to an enforceable master netting arrangement or similar agreement that covers similar financial instruments and transactions, irrespective of whether the financial instruments are set off in accordance with IAS 32.

The adoption of the amendments does not have an impact on these consolidated financial statements because the Group has not offset financial instruments, nor has it entered into master netting arrangement or similar agreement which is subject to the disclosures of IFRS 7 during the periods presented.

5 Revenue

2013 2012 RMB’000 RMB’000 Sale of goods and provision of services ...... 238,947,809 220,084,300 Rental income ...... 77,201 114,044 239,025,010 220,198,344

6 Other income and other operating expenses

(a) Other income

Note 2013 2012 RMB’000 RMB’000 Gain on disposal of property, plant and equipment and intangible assets ...... 1,028,839 770,518 Government grants ...... (i) 464,609 749,730 Penalty income ...... 154,659 228,720 Commissions on individual income tax payments withheld 122,625 168,125 Gain on deemed disposal of a joint venture ...... – 509,926 Gain from liquidation of a subsidiary ...... – 34,370 Gain on disposal of associates ...... – 57,889 Others ...... 293,810 394,277 2,064,542 2,913,555

(i) During the year ended 31 December 2013, the Group received unconditional government grants of RMB306,625,000 (2012: RMB587,375,000) in respect of its contributions to the development of research and innovation in the PRC. These grants were directly recognised as other income.

During the year ended 31 December 2013, the Group received government grants of RMB686,125,000 (2012: RMB523,296,000) which were conditional upon completion of certain research and development projects. These grants were initially recognised in the consolidated statement of financial position as deferred government grants and amortised through the consolidated statement of profit or loss on a systematic basis in the same periods in which the related research and development expenses are incurred. During the year ended 31 December 2013, conditional government grants of RMB157,984,000 (2012: RMB162,355,000) were recognised in profit or loss.

F-31 6 Other income and other operating expenses (continued)

(b) Other operating expenses

2013 2012 RMB’000 RMB’000 Expense on factoring ...... 550,483 761,669 Penalty expenses ...... 225,196 109,658 Net loss on disposal of property, plant and equipment and intangible assets ...... 43,610 51,719 Donations ...... 39,617 42,679 Impairment loss of intangible assets and goodwill ...... – 278,052 Loss on deemed disposal of a joint venture ...... – 24,152 Others ...... 482,551 259,488 1,341,457 1,527,417

7 Personnel expenses

Note 2013 2012 RMB’000 RMB’000 Restated (Note 4) Expenses recognised in respect of defined benefit plan . . . 30(b)(iii) 1,337,794 1,538,375 Contributions to defined contribution retirement plans . . . 6,497,349 5,864,633 Total costs on post-employment plans ...... 7,835,143 7,403,008 Salaries, wages and other benefits ...... 44,615,006 39,979,244 52,450,149 47,382,252

8 Net finance expenses

Note 2013 2012 RMB’000 RMB’000 Restated (Note 4) Interest income ...... 838,782 844,042 Net gain on disposal of available-for-sale wealth management products ...... 10(b) 1,056,473 784,955 Net gain on disposal of other available-for-sale securities and held-for-trading equity securities ...... 41,785 840 Dividend income from available-for-sale equity securities . 8,970 1,200 Finance income ...... 1,946,010 1,631,037 ------Interest expense ...... (1,357,735) (1,758,068) Net foreign exchange loss ...... (3,686,178) (1,085,283) Impairment loss of available-for-sale securities ...... 10(b) – (10,851) Bank charges ...... (418,097) (405,777) Interest cost on defined benefit obligations ...... 30(b)(iii) (469,007) (411,199) (5,931,017) (3,671,178) Less: interest expense capitalised ...... 42,255 – Finance expenses ...... (5,888,762) (3,671,178) ------

Net finance expenses ...... (3,942,752) (2,040,141)

The borrowing costs have been capitalised at a rate of 5.90% per annum in 2013.

F-32 9 Income tax in the consolidated statement of profit or loss

(a) Taxation in the consolidated statement of profit or loss represents:

2013 2012 RMB’000 RMB’000 Restated (Note 4) Current tax Provision for the year ...... 6,383,472 3,261,853 (Over)/under-provision in respect of prior years ...... (77,737) 107,874 6,305,735 3,369,727 Deferred tax Origination and reversal of temporary differences ...... (2,146,983) (611,773) 4,158,752 2,757,954

(b) Reconciliation between tax expenses and accounting profit at applicable tax rates:

Note 2013 2012 RMB’000 RMB’000 Restated (Note 4) Profit before taxation ...... 25,161,769 18,381,671

Notional tax on profit before taxation, calculated at the rates applicable to profits in the tax jurisdictions concerned ...... (i) 4,470,154 3,112,665 Effect on opening deferred tax balances resulting from change in tax rates during the year ...... 104,942 (34,756) Tax effect of bonus deduction of research and development expenses, non-taxable income, netted off by non-deductible expenses ...... (ii) (1,055,659) (1,260,039) Deferred tax liabilities recognised for the undistributed profits of subsidiaries ...... 229,179 105,629 Tax effect of unused tax losses and deductible temporary differences not recognised ...... 487,873 726,581 (Over)/under-provision in respect of prior years ...... (77,737) 107,874 Actual tax expense ...... 4,158,752 2,757,954

(i) In accordance with the Corporate Income Tax Law of the PRC effective from 1 January 2008, enterprises established in the PRC are subject to PRC corporate income tax at the statutory rate of 25% unless otherwise specified.

Pursuant to the rules and regulations applicable to advanced technology enterprises established in the PRC, certain domestic subsidiaries are subject to PRC corporate income tax at a preferential tax rate of 15%. Some qualified domestic subsidiaries enjoy respective preferential policies in accordance with the Corporate Income Tax Law of the PRC.

Overseas subsidiaries are charged at the appropriate current rates of taxation ruling in the relevant countries in which they operate.

(ii) According to relevant tax rules in the PRC, certain research and development expenses, qualify for bonus deduction for income tax purpose, i.e. an additional 50% of such expenses may be deemed as tax deductible expenses.

F-33 10 Other comprehensive income

(a) Tax effects relating to each component of other comprehensive income

2013 2012 Before-tax Tax benefit/ Net-of-tax Before-tax Net-of-tax amount (expense) amount amount Tax benefit amount RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 Restated Restated Restated (Note 4) (Note 4) (Note 4) Remeasurement of defined benefit obligations – The Group ...... (719,613) 102,088 (617,525) (290,417) 46,626 (243,791) – Share of associates and joint ventures ...... (702) – (702) – – – (720,315) 102,088 (618,227) (290,417) 46,626 (243,791) ------Net change in the fair value of available-for-sale securities ...... 186,702 (21,745) 164,957 57,749 – 57,749 ------Exchange differences on translation of financial statements of foreign operations – The Group ...... 228,666 – 228,666 36,897 – 36,897 – Share of associates and joint ventures ...... 907 – 907 220 – 220 229,573 – 229,573 37,117 – 37,117 ------

Other comprehensive income ...... (304,040) 80,343 (223,697) (195,551) 46,626 (148,925)

(b) Components of other comprehensive income, including reclassification adjustments

2013 2012 RMB’000 RMB’000 Available-for-sale securities: Changes in fair value recognised during the year ...... 1,243,175 831,853 Reclassification adjustment for amounts transferred to profit or loss: – Gain on disposal (note 8) ...... (1,056,473) (784,955) – Impairment losses (note 8) ...... – 10,851 Net deferred tax charged to other comprehensive income ...... (21,745) – Net movement in the fair value reserve during the year recognised in other comprehensive income ...... 164,957 57,749

Exchange differences: Recognised during the year ...... 229,573 84,084 Reclassification adjustment for amounts transferred to profit or loss: – Gain on deemed disposal of a joint venture and from liquidation of a subsidiary ...... – (46,967) Net movement in the exchange reserve during the year recognised in other comprehensive income ...... 229,573 37,117

F-34 11 Segment reporting

The Group divides its business into three operating segments in accordance with the types of products and services provided:

• Carrier Network

Develops and manufactures a wide range of wireless network, fixed network, carrier software and core network, as well as services solutions to telecommunications operators.

• Enterprise

Develops integratable information and communication technology (“ICT”) products and solutions including enterprise network infrastructure, cloud-based green data centers, enterprise information security and unified communication & collaboration, and delivers these solutions to vertical industries such as governments & public utilities, enterprises, energy, power, transportation and finance.

• Consumers

Develops and manufactures mobile broadband devices, home devices, smartphones, as well as the applications on these devices, and delivers them to consumers and businesses.

The reportable segments are determined based on the Group’s organisation structure, management requirement and reporting system.

Each reportable segment is managed separately because each requires different technology and marketing strategies. The financial information of the different segments is regularly reviewed by the Group’s most senior executive management for the purpose of resource allocation and performance assessment.

(i) Segment results, assets and liabilities

For the purposes of assessing segment performance and allocating resources between segments, the Group’s senior executive management monitors the results of operations and assets attributable to each reportable segment on the following bases:

Segment assets include all tangible, intangible assets and current assets with the exception of interest in associates, interest in joint ventures, other investments, deferred tax assets and other corporate assets.

Results of operations are operating profit before financing costs attributable to the individual segments.

F-35 11 Segment reporting (continued)

(i) Segment results, assets and liabilities (continued)

2013 Carrier Unallocated Network Enterprise Consumers items Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 Reportable segment revenue . 166,512,189 15,263,113 56,986,067 263,641 239,025,010 Reportable segment profit (operating profit before financing costs) ...... 27,769,060 (2,718,306) 3,031,529 1,046,155 29,128,438 Reportable segment assets . . 78,441,831 8,451,784 12,234,016 132,404,187 231,531,818

Total liabilities ...... 145,265,702

Other segment information Depreciation and amortisation 1,621,995 361,615 390,466 1,906,545 4,280,621 Impairment of intangible assets and goodwill ...... ––––– Capital expenditure (Note (a)) 1,153,693 213,212 708,760 5,748,067 7,823,732

2012 Carrier Unallocated Network Enterprise Consumers items Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 Reportable segment revenue . 160,093,247 11,529,713 48,376,380 199,004 220,198,344 Reportable segment profit (operating profit before financing costs) ...... 20,385,880 (3,568,034) 2,410,770 1,429,830 20,658,446 Reportable segment assets . . 73,536,210 8,775,616 10,171,438 117,522,339 210,005,603

Total liabilities ...... 134,981,995

Other segment information Depreciation and amortisation 1,438,196 265,026 294,435 2,280,446 4,278,103 Impairment of intangible assets and goodwill ...... 278,052 – – – 278,052 Capital expenditure (Note (a)) 1,165,488 234,803 374,441 5,192,223 6,966,955

(a) Expenditure incurred on acquisition of property, plant and equipment, long-term leasehold prepayments and intangible assets excluding assets acquired as part of business combinations and goodwill.

F-36 11 Segment reporting (continued)

(ii) Reconciliation of reportable segment profit

2013 2012 RMB’000 RMB’000 Restated Reportable segment profit ...... 29,128,438 20,658,446 Net finance expenses ...... (3,942,752) (2,040,141) Share of associates’ results ...... 4,073 (472) Share of joint ventures’ results ...... (27,990) (236,162) Consolidated profit before taxation ...... 25,161,769 18,381,671

(iii) Geographic information

The following table sets out information about the geographical location of (i) the Group’s revenue from external customers and (ii) the Group’s non-current assets excluding deferred tax assets (“specified non-current assets”). The geographical location of customers is based on the location at which the services were provided or the goods were delivered. The geographical location of the specified non-current assets is based on the location of operations to which the assets are related.

Revenue from Specified external customers non-current assets 2013 2012 2013 2012 RMB’000 RMB’000 RMB’000 RMB’000 China ...... 84,017,294 73,579,446 24,546,602 21,637,277 Americas ...... 31,428,193 31,845,296 1,412,982 2,218,470 Asia Pacific ...... 38,925,012 37,359,114 5,127,999 4,980,702 Europe, the Middle East and Africa . . . 84,654,511 77,414,488 2,023,483 1,895,920 Total ...... 239,025,010 220,198,344 33,111,066 30,732,369

Major customer

Revenue from one customer of the Group of RMB37,096,576,000 (2012: RMB28,082,090,000) represents approximately 16% (2012: 13%) of the Group’s total revenue.

F-37 12 Property, plant and equipment

Machinery, electronic equipment Decoration and other Motor Construction Investment and leasehold Freehold land Buildings equipment vehicles in progress property improvements Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 Cost: At 1 January 2012 ..... 49,559 7,357,650 14,411,944 483,774 5,304,142 567,451 4,271,379 32,445,899 Exchange adjustment .... (756) (1,790) (14,376) (2,951) (16,529) – (7,748) (44,150) Additions ...... – 2,770 2,598,245 91,039 2,729,876 – 800,308 6,222,238 Transfer from construction in progress ...... – 1,968,774 1,131,414 – (4,252,762) – 1,152,574 – Acquisitions through business combinations . . – – 94,986 744 – – 9,685 105,415 Disposals ...... – (219,604) (577,931) (33,355) – (133,358) (496,194) (1,460,442) Reclassified to held for sale – (415,147) (9,751) – – – (18,560) (443,458) At 31 December 2012 .... 48,803 8,692,653 17,634,531 539,251 3,764,727 434,093 5,711,444 36,825,502 ------At 1 January 2013 ..... 48,803 8,692,653 17,634,531 539,251 3,764,727 434,093 5,711,444 36,825,502 Exchange adjustment .... (1,310) (11,384) (340,598) (21,627) (70,538) – (64,512) (509,969) Additions ...... 58,933 12,560 2,527,172 82,761 3,178,501 – 238,557 6,098,484 Transfer from construction in progress ...... – 757,827 543,478 – (1,962,577) – 661,272 – Acquisitions through business combinations (note 38(c)) ...... – – 2,465 – – – 27 2,492 Disposals ...... – (23,628) (865,768) (57,415) – – (45,112) (991,923) At 31 December 2013 .... 106,426 9,428,028 19,501,280 542,970 4,910,113 434,093 6,501,676 41,424,586 ------Accumulated depreciation: At 1 January 2012 ..... – 1,844,871 8,568,491 302,922 – 289,298 2,809,421 13,815,003 Exchange adjustment .... – (436) (25,280) (1,326) – – (4,927) (31,969) Depreciation charge for the year ...... – 442,595 2,131,358 78,858 – 22,443 1,131,314 3,806,568 Disposals ...... – (40,753) (513,715) (27,949) – (26,922) (423,660) (1,032,999) Reclassified to held for sale – (79,597) (3,500) – – – (13,752) (96,849) At 31 December 2012 .... – 2,166,680 10,157,354 352,505 – 284,819 3,498,396 16,459,754 ------

At 1 January 2013 ..... – 2,166,680 10,157,354 352,505 – 284,819 3,498,396 16,459,754 Exchange adjustment .... – (1,665) (175,624) (11,575) – – (42,337) (231,201) Depreciation charge for the year ...... – 408,188 2,402,472 68,400 – 21,893 855,998 3,756,951 Disposals ...... – (18,183) (666,690) (49,373) – – (35,701) (769,947) At 31 December 2013 .... – 2,555,020 11,717,512 359,957 – 306,712 4,276,356 19,215,557 ------

Carrying amounts: At 31 December 2013 .... 106,426 6,873,008 7,783,768 183,013 4,910,113 127,381 2,225,320 22,209,029

At 31 December 2012 .... 48,803 6,525,973 7,477,177 186,746 3,764,727 149,274 2,213,048 20,365,748

Investment property

The Group leased out certain buildings to third parties. Such buildings are classified as investment property.

The carrying value of investment property as at 31 December 2013 is RMB127,381,000 (2012: RMB149,274,000). The fair value of investment property as at 31 December 2013 is estimated by management to be RMB251,875,000 (2012: RMB273,496,000).

The fair value of investment property is determined by the Group internally by reference to market conditions and discounted cash flow forecasts. The Group’s current lease agreements, which were entered into on an arm’s-length basis, are taken into account when estimating future cash flow. The fair value measurement is categorised into level 3 of the three-level fair value hierarchy as defined in IFRS 13, Fair value measurement (note 33(e)(i)).

F-38 13 Long-term leasehold prepayments

2013 2012 RMB’000 RMB’000 At 1 January ...... 2,360,926 2,222,759 Additions ...... 461,936 197,644 Amortisation for the year ...... (61,750) (59,477) At 31 December ...... 2,761,112 2,360,926

14 Intangible assets

Software Patents Trademark Total RMB’000 RMB’000 RMB’000 RMB’000 Cost: At 1 January 2012 ...... 1,409,527 975,418 76,911 2,461,856 Additions ...... 308,700 234,833 3,540 547,073 Acquisitions through business combinations ...... – 472,833 1,500 474,333 Disposals ...... (31,400) (7,536) – (38,936) At 31 December 2012 ...... 1,686,827 1,675,548 81,951 3,444,326 ------At 1 January 2013 ...... 1,686,827 1,675,548 81,951 3,444,326 Exchange adjustment ...... (25,882) (2,011) 783 (27,110) Additions ...... 519,245 559,175 4,036 1,082,456 Acquisitions through business combinations (note 38(c)) ...... 95,992 46,265 75 142,332 Disposals ...... (27,088) (99,591) (390) (127,069) At 31 December 2013 ...... 2,249,094 2,179,386 86,455 4,514,935 ------Accumulated amortisation and impairment losses: At 1 January 2012 ...... 806,939 468,082 23,491 1,298,512 Exchange adjustment ...... 491 – 89 580 Amortisation for the year ...... 238,066 167,455 6,537 412,058 Disposals ...... (16,534) (1,139) – (17,673) Impairment losses ...... 52,452 – 9,529 61,981 At 31 December 2012 ...... 1,081,414 634,398 39,646 1,755,458 ------

At 1 January 2013 ...... 1,081,414 634,398 39,646 1,755,458 Exchange adjustment ...... (14,287) (710) 253 (14,744) Amortisation for the year ...... 263,439 191,870 6,611 461,920 Disposals ...... (18,729) (78,914) (361) (98,004) At 31 December 2013 ...... 1,311,837 746,644 46,149 2,104,630 ------

Carrying amounts: At 31 December 2013 ...... 937,257 1,432,742 40,306 2,410,305

At 31 December 2012 ...... 605,413 1,041,150 42,305 1,688,868

The amortisation charge for the year is included in “cost of sales”, “research and development expenses”, “selling expenses” and “administrative expenses” in the consolidated statement of profit or loss. The impairment losses are included in “other operating expenses” in the consolidated statement of profit or loss.

F-39 15 Goodwill

Note 2013 2012 RMB’000 RMB’000 Cost: At 1 January ...... 3,608,582 217,759 Exchange adjustment ...... (87,124) (28,030) Acquisitions through business combinations ...... 38(c) 44,378 3,418,853 At 31 December ...... 3,565,836 3,608,582 ------Accumulated impairment losses: At 1 January ...... 219,792 – Exchange adjustment ...... 3,327 3,721 Impairment loss ...... – 216,071 At 31 December ...... 223,119 219,792 ------

Carrying amount: At 31 December ...... 3,342,717 3,388,790

Impairment tests for cash-generating units containing goodwill

Goodwill is allocated to the Group’s cash-generating units (“CGU”) or group of CGUs, which is either an operating segment or at a level not larger than an operating segment, as follows:

2013 2012 RMB’000 RMB’000 Sectors under Enterprise business group ...... 3,139,188 3,229,208 International Turnkey Systems Technologies W.L.L (“ITS Bahrain”) . . . – – Beijing Huawei Longshine Information Technology Company Limited (“Beijing Huawei Longshine”) ...... 154,368 154,368 Multiple units without significant goodwill ...... 49,161 5,214 3,342,717 3,388,790

F-40 15 Goodwill (continued)

Impairment tests for cash-generating units containing goodwill (continued)

Goodwill is allocated to the Group’s CGUs expected to benefit from the synergies of the acquisitions. For annual impairment assessment purposes, the recoverable amount of the CGUs are based on their value-in-use calculations. The value-in-use calculations apply a discounted cash flow model using cash flow projections based on financial budgets approved by management covering five-year, eight-year and five-year period for sectors under Enterprise business group, ITS Bahrain and Beijing Huawei Longshine, respectively, based on their industry expertise. The key assumptions for the calculation of value-in-use include the discount rates and growth rates applied. Discount rates used are pre-tax and reflect specific risks relating to respective CGU or group of CGUs. Cash flows beyond the aforementioned approved financial budget’s periods are extrapolated using an estimated growth rate applied. The growth rate does not exceed the long-term average growth rate for the business in which the CGU or group of CGUs operates. Discount rates and growth rates applied for the computation of value-in-use are as follows:

As at 31 December 2013 2012 %% Sectors under Enterprise business group – Discount rate ...... 17.0 14.5 – Terminal value growth rate ...... 5.0 10.0

ITS Bahrain – Discount rate ...... n/a 36.4 – Terminal value growth rate ...... n/a 4.0

Beijing Huawei Longshine – Discount rate ...... 17.9 19.1 – Terminal value growth rate ...... 3.0 3.0

During the year ended 31 December 2012, impairment loss of RMB216,071,000 related to goodwill allocated to ITS Bahrain was recognised and the carrying amount of the goodwill allocated was reduced to nil.

16 Interest in associates

Details of the Group’s interest in the material associates are as follows:

Form of Place of business incorporation Proportion of Name of associate structure and business ownership interest Principal activity 2013 2012 TD Tech Holding Limited Incorporated Hong Kong, 49% 49% Research and development, (“TD Tech”) ...... PRC production and sale of TD-SCDMA telecommmunication products

Tianwen Digital Media Incorporated Beijing, PRC 49% 49% Development, publication Technology (Beijing) and operation of digital Co., Ltd. (“Tianwen Digital media related services Media”) ......

All of the associates are accounted for using equity method in the consolidated financial statements.

F-41 16 Interest in associates (continued)

Summarised financial information of the material associates, reconciled to the carrying amounts in the consolidated financial statements, are disclosed below:

TD Tech Tianwen Digital Media 2013 2012 2013 2012 RMB’000 RMB’000 RMB’000 RMB’000 Gross amounts of the associates’ Current assets ...... 368,539 1,194,033 302,292 257,298 Non-current assets ...... 55,836 75,613 8,476 8,282 Current liabilities ...... (429,069) (1,188,448) (60,498) (14,684) Non-current liabilities ...... (86,952) (3,114) (1,660) (3,500) Equity (deficit) ...... (91,646) 78,084 248,610 247,396 Revenue ...... 3,972,117 2,800,635 138,818 9,992 (Loss)/profit ...... (169,730) 78,084 1,214 (57,798) Total comprehensive income ...... (169,730) 78,084 1,214 (57,798)

Reconciled to the Group’s interest in the associates Gross amounts of net assets of the associate . . (91,646) 78,084 248,610 247,396 Group’s effective interest ...... 49% 49% 49% 49% Group’s share of net assets of the associate . . . (44,907) 38,261 121,819 121,224 Goodwill ...... – – 4,996 4,996 Net loss not shared by the Group ...... 44,907 – – – Carrying amount in the consolidated financial statements ...... – 38,261 126,815 126,220

Aggregate information of associates that are not individually material:

2013 2012 RMB’000 RMB’000 Aggregate carrying amount of individually immaterial associates in the consolidated financial statements ...... 142,921 78,598 Aggregate amounts of the Group’s share of those associates’ Profit/(loss) ...... 41,738 (10,412) Total comprehensive income ...... 41,738 (10,412)

17 Interest in joint ventures

Details of the Group’s interest in the material joint ventures are as follows:

Form of Place of business incorporation Proportion of Name of associate structure and business ownership interest Principal activity 2013 2012 Huawai Marine Systems Co., Ltd. Incorporated Hong Kong, 51% 51% Construction and operation (“Huawei Marine”) ...... PRC of submarine fibres

Chengdu Huawei Investment Incorporated Chengdu, 49% 49% Investment, lease of Co., Ltd. (“CD Investment”).... PRC property and machinery, developments of high technology products and provision of related services, sale of telecommunication and electronic products

All of the joint ventures are accounted for using equity method in the consolidated financial statements.

F-42 17 Interest in joint ventures (continued)

Summarised financial information of the material joint ventures, reconciled to the carrying amounts in the consolidated financial statements, are disclosed below:

Huawei Marine CD Investment 2013 2012 2013 2012 RMB’000 RMB’000 RMB’000 RMB’000 Gross amounts of the joint ventures’ Current assets ...... 439,089 447,359 172,901 48,982 Non-current assets ...... 19,843 27,681 1,422,159 1,612,295 Current liabilities ...... (322,109) (333,151) (239,233) (312,868) Non-current liabilities ...... (12,645) (16,701) (1,136,631) (1,054,420) Equity ...... 124,178 125,188 219,196 293,989

Included in the above assets and liabilities: Cash and cash equivalents ...... 98,458 73,665 4,205 2,922 Non-current financial liabilities (excluding trade and other payables and provisions) ...... – – (1,136,631) (1,054,420)

Revenue ...... 497,765 582,664 241,251 59,812 Profit/(loss) ...... 19,915 (34,317) (74,793) (67,353) Other comprehensive income ...... 402 431 – – Total comprehensive income ...... 20,317 (33,886) (74,793) (67,353)

Included in the above profit/(loss): Depreciation and amortisation ...... 11,067 10,105 190,137 46,129 Interest income ...... 206 376 65 65 Interest expense ...... – – 71,505 21,793 Income tax expense ...... 990 1,431 668 –

Reconciled to the Group’s interest in the joint ventures Gross amounts of net assets of the joint venture ...... 124,178 125,188 219,196 293,989 Group’s effective interest ...... 51% 51% 49% 49% Carrying amount in the consolidated financial statements ...... 63,331 63,846 107,406 144,055

Aggregate information of joint ventures that are not individually material:

2013 2012 RMB’000 RMB’000 Aggregate carrying amount of individually immaterial joint ventures in the consolidated financial statements ...... 40,132 41,630

Aggregate amounts of the Group’s share of those joint ventures’ Loss ...... (1,498) (185,657) Total comprehensive income ...... (1,498) (185,657)

F-43 18 Other investments

Note 2013 2012 RMB’000 RMB’000 Available-for-sale financial assets: – Unlisted equity securities stated at cost ...... 477,327 502,063 – Listed equity securities stated at fair value ...... 118,047 76,352 – Debt securities ...... 4,684 6,778 – Wealth management products ...... (i) 8,544,966 4,456,222 Held-for-trading equity securities ...... – 12,585 9,145,024 5,054,000 Less: Impairment losses ...... (ii) (16,184) (36,573) 9,128,840 5,017,427

Non-current portion ...... 583,874 548,620 Current portion ...... 8,544,966 4,468,807 9,128,840 5,017,427

(i) The Group purchased certain wealth management products from commercial banks with maturity less than one year. The principal and earnings of these wealth management products were not guaranteed. These wealth management products were classified as available-for-sale in accordance with the policy set out in note 3(f).

(ii) As at 31 December 2013 and 2012, certain of the Group’s available-for-sale equity and debt securities were individually determined to be impaired on the basis of a material decline and adverse changes in the market in which the investees operated which indicated that the cost of the Group’s investment in them may not be recovered. Impairment losses on these investments are recognised in profit or loss in accordance with the policy set out in note 3(l).

19 Deferred tax assets/(liabilities)

(a) The components of deferred tax assets/(liabilities) recognised in the consolidated statement of financial position and the movements during the year are as follows:

Accrued Depreciation Provision Fair value bonus and Provision of property, for Defined Undistributed adjustments other for plant and impairment benefit profits of Unrealised on business Deferred tax arising from: expenses warranties equipment losses obligations Tax losses subsidiaries profit combinations Others Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 At 1 January 2012...... 3,231,918 260,895 259,196 538,067 1,068,860 169,901 (369,304) 3,136,701 (50,237) 196,922 8,442,919 Exchange adjustment .... (114,689) 34,651 (114,170) (4,592) (26,048) (53,151) 7,081 21,276 6,682 237,665 (5,295) Credited/(charged) to profit or loss (restated) (note 9(a)) ...... 173,199 50,670 175,697 554,467 18,926 119,109 (105,629) (669,704) 26,098 268,940 611,773 Credited to other comprehensive income (restated) (note 10(a)) . . . ––––46,626 –––––46,626 Acquired in business combinations (note 38(c)) . ––––––––(74,769) – (74,769) At 31 December 2012 .... 3,290,428 346,216 320,723 1,087,942 1,108,364 235,859 (467,852) 2,488,273 (92,226) 703,527 9,021,254

At 1 January 2013...... 3,290,428 346,216 320,723 1,087,942 1,108,364 235,859 (467,852) 2,488,273 (92,226) 703,527 9,021,254 Exchange adjustment .... (12,903) 41,276 (18,787) (107,920) (31,976) (8,893) 6,576 (219) 1,159 15,497) (147,184) Credited/(charged) to profit or loss (note 9(a)) . . 984,308 79,338 (32,461) (8,887) (167,542) (120,459) 301,825 643,309 16,574 450,978 2,146,983 Credited/(charged) to other comprehensive income (note 10(a)) ...... ––––102,088 ––––(21,745) 80,343 Acquired in business combinations (note 38(c)) . ––––––––(573) – (573) At 31 December 2013 .... 4,261,833 466,830 269,475 971,135 1,010,934 106,507 (159,451) 3,131,363 (75,066) 1,117,263 11,100,823

F-44 19 Deferred tax assets/(liabilities) (continued)

(a) The components of deferred tax assets/(liabilities) recognised in the consolidated statement of financial position and the movements during the year are as follows: (continued)

Reconciliation to the consolidated statement of financial position

2013 2012 RMB’000 RMB’000 Net deferred tax assets recognised in the consolidated statement of financial position ...... 11,576,567 9,805,326 Net deferred tax liabilities recognised in the consolidated statement of financial position ...... (475,744) (784,072) 11,100,823 9,021,254

(b) Deferred tax assets not recognised

As at 31 December 2013 and 2012, deferred tax assets were not recognised in relation to certain unused tax losses and other deductible temporary differences. The unrecognised unused tax losses and deductible temporary differences are analysed as follows:

2013 2012 RMB’000 RMB’000 Other deductible temporary differences ...... 1,007,558 573,834 Tax losses ...... 1,463,188 1,396,039 2,470,746 1,969,873

Deferred tax assets have not been recognised in respect of certain provisions for impairment losses and other provisions as management believes that these provisions are unlikely to be allowed for tax deduction by the relevant tax authorities.

Deferred tax assets have not been recognised in respect of certain unused tax losses as it was determined by management that it is not probable that future taxable profits against which the tax losses can be utilised will be available before they expire.

20 Inventories

(a) Inventories in the consolidated statement of financial position comprise:

2013 2012 RMB’000 RMB’000 Raw materials ...... 5,990,340 6,312,528 Work in progress ...... 4,149,514 2,462,131 Finished goods ...... 6,076,866 5,734,153 Goods delivered but not completely installed ...... 8,712,211 7,727,713 24,928,931 22,236,525

(b) The analysis of the amount of inventories recognised as an expense and included in profit or loss is as follows:

2013 2012 RMB’000 RMB’000 Carrying amount of inventories sold ...... 99,693,863 96,551,236 Write down of inventories ...... 1,230,579 17,257 100,924,442 96,568,493

F-45 21 Trade and bills receivable

Note 2013 2012 RMB’000 RMB’000 Trade receivables Trade receivables due from third parties ...... 59,188,622 54,575,678 Trade receivables due from related parties ...... 37(b) 691,887 525,379 59,880,509 55,101,057 ------Bills receivable Bank acceptance bills ...... 2,224,077 2,077,639 Commercial acceptance bills ...... 2,966,686 2,106,339 Letter of credit receivables ...... 797,956 1,040,701 5,988,719 5,224,679 ------

65,869,228 60,325,736

Non-current portion ...... 335,603 496,705 Current portion ...... 65,533,625 59,829,031 65,869,228 60,325,736

(a) Ageing analysis

At the end of the reporting period, the ageing analysis of trade receivables due from third parties is as follows:

2013 2012 RMB’000 RMB’000 Not past due ...... 43,902,507 37,429,834 Less than 90 days past due ...... 10,698,668 11,960,125 90 days to 1 year past due ...... 7,574,686 6,982,642 1 year and above past due ...... 1,352,729 1,690,068 63,528,590 58,062,669 Less: Allowance for doubtful debts ...... (4,339,968) (3,486,991) 59,188,622 54,575,678

(b) Impairment of trade receivables due from third parties

Impairment losses in respect of trade receivables due from third parties are recorded using an allowance account unless the Group is satisfied that recovery of the amount is remote, in which case the impairment loss is written off against the trade receivables due from third parties directly (see note 3(l)).

The movement in the allowance for doubtful debts in respect of trade receivables due from third parties during the year is as follows:

2013 2012 RMB’000 RMB’000 At 1 January ...... 3,486,991 3,548,190 Exchange adjustment ...... (519,285) (63,238) Impairment loss recognised ...... 1,074,652 3,479,047 Collection of previously written-off debtors ...... 410,501 – Uncollectible amounts written off ...... (112,891) (3,477,008) At 31 December ...... 4,339,968 3,486,991

F-46 21 Trade and bills receivable (continued)

(b) Impairment of trade receivables due from third parties (continued)

As at 31 December 2013, specific allowance of RMB2,494,486,000 (2012: RMB2,304,302,000) was recognised as a result from the assessment of the Group’s trade receivables due from third parties of RMB4,353,560,000 (2012: RMB2,356,209,000) that were individually determined to be impaired. The individually impaired trade receivables mainly relate to customers who are in financial difficulties and the likelihood of recoverability is expected to be in doubt. The Group does not hold any collateral over these balances.

The ageing analysis of trade receivables due from third parties that are neither individually nor collectively considered to be impaired is as follows:

2013 2012 RMB’000 RMB’000 Neither past due nor impaired ...... 40,543,893 36,723,255

Receivables that are neither past due nor impaired relate to a wide range of customers for whom there was no recent history of default.

(d) Trade receivables due from related parties

The Group monitors the trade receivables due from related parties on an ongoing basis considering the financial results of the related parties and repayments made by the related parties. As at the reporting date, there was no indication that related parties would default on repayment.

22 Other receivables

Note 2013 2012 RMB’000 RMB’000 Advance payments to suppliers ...... 1,605,242 2,387,940 Withholding taxes receivable ...... 4,620,008 4,797,043 Pledged deposits ...... 1,805,091 1,832,183 Gross amount due from third-party customers for contract works ...... 29 227,664 1,339,784 Proceeds receivable from disposal of associates ...... 23,900 38,900 Other non-trade receivables due from third parties ...... 6,135,324 5,288,770 Non-trade receivables due from related parties ...... 37(b) 34,570 21,983 Loans receivable ...... 130 107,562 14,451,929 15,814,165

Non-current portion ...... 13,906 407,344 Current portion ...... 14,438,023 15,406,821 14,451,929 15,814,165

F-47 23 Cash and cash equivalents

2013 2012 RMB’000 RMB’000 Cash in hand ...... 5,380 15,172 Deposits with banks and other financial institutions ...... 61,793,260 67,164,943 Highly liquid short-term investments ...... 11,600,000 – Cash and cash equivalents in the consolidated statement of financial position and consolidated statement of cash flows ...... 73,398,640 67,180,115

As at 31 December 2013, the Group had certain short-term investments purchased from commercial banks with maturity less than three months. These short-term investments were highly liquid, readily convertible into known amounts of cash and are subject to an insignificant risk of changes in value. These short-term investments were all subsequently matured and settled in January 2014.

24 Assets held for sale

According to an agreement entered into by the Company and a third party, the Company committed to sell certain of its property, plant and equipment to the third party with a total consideration of RMB2,800,000,000. Pursuant to the agreement, the Company shall deliver the related property, plant and equipment to the third party before the end of March 2013. As a result, the related property, plant and equipment were classified as held for sale. The sale of the related property, plant and equipment was completed in two batches in the latter half of 2012 and the first half of 2013 with a net gain of RMB761,188,000 and RMB986,498,000 recognised, respectively.

25 Capital, reserves and dividends

(a) Movements in components of equity

The reconciliation between the opening and closing balances of each component of the Group’s consolidated equity is set out in the consolidated statement of changes in equity.

(b) Dividends payable to equity holders of the Company attributable to the previous financial years, approved and paid during the year

2013 2012 RMB’000 RMB’000 Final dividend in respect of the previous financial years, approved and paid during the year ...... 15,495,429 12,088,632

Capital surplus represents the portion of the fair value of capital contributions made by the investors in excess of the registered capital.

(d) Statutory reserves

According to the relevant rules and regulations and the Articles of Association of the Company and certain of its subsidiaries, the Company and the relevant subsidiaries are required to transfer certain of its profit after tax to the statutory reserves. The transfer to the reserves must be made before the distribution of dividends to investors. Statutory reserves can be used to reduce previous years’ losses, if any, and may be converted into paid-in capital in proportion to the existing equity interest of investors.

F-48 25 Capital, reserves and dividends (continued)

(e) Exchange reserve

The exchange reserve comprises all foreign exchange differences arising from the translation of financial statements of foreign operations. The reserve is dealt with in accordance with the accounting policies set out in note 3(s)(ii).

(f) Fair value reserve

The fair value reserve comprises the cumulative net change in the fair value of available-for-sale securities held at the end of the reporting period and is dealt with in accordance with the accounting policies in notes 3(f) and 3(l).

(g) Other reserves

Other reserves comprise the following:

• share of the reserves movement of the associates and joint ventures other than profit or loss and other comprehensive income;

• the accumulated changes in equity during the periods arising from transactions with equity holders in their capacity as equity holders; and

• remeasurement of defined benefit obligations.

(h) Capital management

The Group’s Finance Committee under the board of directors is responsible for capital management. The primary objectives when managing capital are to safeguard the Group’s ability to continue as a going concern.

Treasury management department of the Group issues capital management policies that are in compliance with the strategies set by the Finance Committee, and actively and regularly reviews and manages the Group’s capital structure to maintain a balance between the higher returns that might be possible with higher levels of borrowings and advantages and security afforded by a sound capital position, and makes adjustments to the capital structure in light of changes in economic conditions.

During 2013, the Group’s strategy, which was unchanged from 2012, was to maintain an interest-bearing debt-to-equity ratio at a range of levels to support the operations and development of the Group’s business in the long run. In order to maintain or adjust the ratio, the Group may increase capital, request new loans, or raise new debt financing.

F-49 25 Capital, reserves and dividends (continued)

(h) Capital management (continued)

The interest-bearing debt-to-equity ratio at 31 December 2013 and 2012 is as follows:

Note 2013 2012 RMB’000 RMB’000 Current liabilities Interest-bearing loans and borrowings ...... 26 3,043,280 4,676,932

Non-current liabilities Interest-bearing loans and borrowings ...... 26 19,989,460 16,077,097 Net interest-bearing debt ...... 23,032,740 20,754,029

Total equity ...... 86,266,116 75,023,608

Interest-bearing debt-to-equity ratio ...... 26.70% 27.66%

Neither the Company nor its subsidiaries are subject to externally imposed capital requirements.

26 Interest-bearing loans and borrowings

This note provides information about the contractual terms of the Group’s interest-bearing loans and borrowings. Information about the Group’s exposure to interest rate and currency risk is disclosed in note 33.

2013 2012 RMB’000 RMB’000 Short-term loans and borrowings: – Intra-group guaranteed ...... 2,022,164 2,266,435 – Unsecured ...... 24,829 1,991,137 2,046,993 4,257,572 ------Long-term loans and borrowings: – Intra-group guaranteed ...... 18,350,848 14,463,529 – Unsecured ...... 1,643,560 1,047,881 – Corporate bond ...... 991,339 985,047 20,985,747 16,496,457 ------

23,032,740 20,754,029

Non-current portion ...... 19,989,460 16,077,097 Current portion ...... 3,043,280 4,676,932 23,032,740 20,754,029

F-50 26 Interest-bearing loans and borrowings (continued)

Terms and repayment schedule

Terms and conditions of outstanding loans and borrowings are as follows:

Total 1 year or less 1 to 5 years over 5 years RMB’000 RMB’000 RMB’000 RMB’000 Intra-group guaranteed bank loans: Euro (“EUR”) – variable at 1.41% ~ 1.92% p.a. . . 3,570,615 576,927 2,993,688 – Japanese yen – variable at 0.97% ~ 1.28% p.a. . . 808,588 808,588 – – RMB – variable at 5.9% p.a...... 577,500 157,500 420,000 – Indian rupee – variable at 9.9% ~ 11.75% p.a. . . 1,213,576 1,213,576 – – United States dollar (“USD”) – fixed at 4.33% p.a...... 2,725,605 – 2,725,605 – USD – variable at 1.68% ~ 2.71% p.a...... 11,472,250 – 11,472,250 – Ethiopian birr – fixed at 9.5% p.a...... 4,878 – 4,878 – 20,373,012 2,756,591 17,616,421 – ------Unsecured bank loan: Bangladeshi taka – variable at 14.5% p.a...... 24,176 24,176 – – RMB – variable at 5.9% ~ 6.55% p.a...... 1,643,560 261,860 857,379 524,321 Singapore dollar – fixed at 2.5% p.a...... 653 653 – – 1,668,389 286,689 857,379 524,321 ------Corporate bond: RMB – fixed at 5.30% p.a...... 991,339 – 991,339 – ------

23,032,740 3,043,280 19,465,139 524,321

The carrying amount of the above loans and borrowings approximates to the fair value.

Certain of the Group’s banking facilities are subject to the fulfilment of covenants relating to certain of the borrower’s statement of financial position ratios, as are commonly found in lending agreements with financial institutions. If the Group were to breach the covenants, the draw down facilities would become payable on demand. The Group regularly monitors its compliance with these covenants. Further details of the Group’s management of liquidity risk are set out in note 33(b). As at 31 December 2013, none of the covenants relating to draw down facilities had been breached (2012: nil).

Corporate bond

On 11 May 2012, Proven Honour Capital Limited, a wholly-owned subsidiary of the Company, issued a corporate bond with a principal amount of RMB1,000,000,000 with three years maturity at an annual interest rate of 5.30%. This corporate bond is fully guaranteed by the Company.

F-51 27 Trade and bills payable

Note 2013 2012 RMB’000 RMB’000 Trade payables Trade payables due to related parties ...... 37(b) 760,992 840,276 Trade payables due to third parties ...... 30,529,061 32,695,375 31,290,053 33,535,651 ------Bills payable Bank acceptance bills ...... 377,876 1,793,980 Letter of credit payables ...... 312,551 4,942,669 690,427 6,736,649 ------

31,980,480 40,272,300

28 Other payables

Note 2013 2012 RMB’000 RMB’000 Interest payable ...... 633,926 1,174,085 Advances received ...... 12,694,299 8,661,471 Accrued expenses – Staff related ...... 17,819,536 14,414,020 – Supplies related ...... 11,777,394 9,797,444 Other taxes payable ...... 7,823,759 5,640,130 Purchase of property, plant and equipment ...... 2,053,212 1,759,096 Non-trade payables due to third parties ...... 14,606,938 11,548,973 Non-trade payables due to related parties ...... 37(b) 62,962 53,149 Gross amount due to third-party customers for contract works ...... 29 416,334 2,330,975 67,888,360 55,379,343

29 Construction contracts

The aggregate amount of costs incurred plus recognised profits less recognised losses to date for the Group, included in the gross amount due from/to third-party customers for contract works as at 31 December 2013, is RMB8,067,442,000 (2012: RMB26,722,664,000).

30 Employee post-employment benefits

(a) Defined contribution retirement plan

Pursuant to the relevant laws and regulations, the Group contributes to defined contribution retirement plans for the respective group entities’ employees. The plans are managed either by the government organisation at the location of the respective group entities or by the independent trustees. The amount of contributions made to the retirement schemes is calculated using the method compliant with the respective laws and regulations concerned.

F-52 30 Employee post-employment benefits (continued)

(b) Defined benefit post-employment plan

The plan exposes the Group to actuarial risks, such as interest rate risk and longevity risk. Information about the plan is disclosed below:

(i) The amounts recognised in the consolidated statement of financial position are as follows:

2013 2012 RMB’000 RMB’000 Present value of obligations ...... 9,608,257 9,686,076

(ii) Movement in the present value of the defined benefit obligations

2013 2012 RMB’000 RMB’000 At 1 January ...... 9,686,076 8,391,812 Remeasurements: actuarial losses ...... 719,613 290,417 10,405,689 8,682,229 ------Benefits paid by the plan ...... (2,604,363) (1,259,588) Past service credit resulting from a plan amendment ...... (1,169,118) – Current service cost ...... 2,506,912 1,538,375 Interest cost ...... 469,007 411,199 Acquisition through business combinations ...... – 313,388 Transfer from related parties ...... 130 473 At 31 December ...... 9,608,257 9,686,076

During the year ended 31 December 2013, certain terms of the defined benefit post-employment plan were amended by the Group regarding the calculation of future benefits to be received by the employees. As a result of the plan amendment, the Group’s defined benefit obligations decreased by RMB1,169,118,000 (2012: nil), which was recognised as past service credit in profit or loss immediately.

F-53 30 Employee post-employment benefits (continued)

(b) Defined benefit post-employment plan (continued)

(iii) Amounts recognised in the consolidated statement of profit or loss and other comprehensive income are as follows:

Note 2013 2012 RMB’000 RMB’000 Restated (Note 4) Current service cost ...... 7 2,506,912 1,538,375 Past service credit ...... 7 (1,169,118) – Interest cost ...... 8 469,007 411,199 Total amounts recognised in profit or loss ...... 1,806,801 1,949,574 Actuarial losses recognised in other comprehensive income ...... 719,613 290,417 ------

Total defined benefit costs ...... 2,526,414 2,239,991

The past service credit and current service cost are recognised in the following line items in the consolidated statement of profit or loss:

2013 2012 RMB’000 RMB’000 Restated (Note 4) Cost of sales ...... 342,182 241,025 Research and development expenses ...... 569,528 753,238 Selling expenses ...... 291,717 332,364 Administrative expenses ...... 134,367 211,748 1,337,794 1,538,375

The interest cost on defined benefit obligations is recognised in finance expenses within the consolidated statement of profit or loss.

(iv) Significant actuarial assumptions and sensitivity analysis are as follows:

2013 2012 Discount rate ...... 4.90% 4.90% Future salary increases ...... 5.00% 5.00%

The below analysis shows how the defined benefit obligations as at 31 December 2013 would have increased (decreased) as a result of 1% change in the significant actuarial assumptions:

Increase in 1% Decrease in 1% RMB’000 RMB’000 Discount rate ...... (202,758) 211,617 Future salary increases ...... 45,939 (44,435)

The above sensitivity analysis is based on the assumption that changes in actuarial assumptions are not correlated and therefore it does not take into account the correlations between the actuarial assumptions.

F-54 31 Provisions

Note 2013 2012 RMB’000 RMB’000 Provision for warranties ...... (b) 2,962,744 2,407,314 Other provisions ...... (c) 2,536,570 1,827,724 5,499,314 4,235,038

Non-current portion ...... 781,688 585,855 Current portion ...... 4,717,626 3,649,183 5,499,314 4,235,038

(a) Movement in provisions during the year is shown as below:

Provision for warranties Other provisions Total RMB’000 RMB’000 RMB’000 At 1 January 2012 ...... 1,961,702 1,841,685 3,803,387 Provisions made during the year ...... 2,844,413 1,384,256 4,228,669 Provisions utilised during the year ...... (2,398,801) (1,398,217) (3,797,018) At 31 December 2012 and 1 January 2013 ...... 2,407,314 1,827,724 4,235,038 ------Provisions made during the year ...... 3,491,145 1,331,725 4,822,870 Provisions utilised during the year ...... (2,935,715) (622,879) (3,558,594) At 31 December 2013 ...... 2,962,744 2,536,570 5,499,314

(b) Provision for warranties

The provision for warranties relates primarily to equipment sold during the year. The provision is determined based on estimates made from historical warranty data associated with similar products and services and anticipated rates of warranty claims for the products. The Group expects to settle the majority of the liability within the next twelve months.

Other provisions are mainly for onerous contracts and outstanding litigations and claims.

32 Other non-current assets

2013 2012 RMB’000 RMB’000 Taxes recoverable in foreign subsidiaries ...... 483,115 754,233 Prepayment for acquisition of long-term leasedhold land ...... 180,856 – Other long-term deferred assets ...... 309,944 228,525 973,915 982,758

F-55 33 Financial risk management and fair values of financial instruments

Exposure to credit, liquidity, interest rate and currency risk arises in the normal course of the Group’s business. The Group’s exposure to these risks and the financial risk management policies and practices used by the Group to manage these risks are described below.

(a) Credit risk

The Group’s credit risk is primarily attributable to cash and cash equivalents and trade and other receivables. Management has a credit policy in place and the exposures to these credit risks are monitored on an ongoing basis.

The majority of the Group’s cash and cash equivalents are deposited with banks or financial institutions, which management believes are of high credit quality.

In respect of trade and other receivables, the Group regularly performs assessment of creditworthiness on all customers for the Group’s commercial transactions to monitor the risk arising from customers’ inability or unwillingness to make full and timely payments. These evaluations focus on the customer’s current ability to pay, historical payment records and take into account information specific to the customer as well as pertaining to the country and economic environment in which the customer operates.

The Group provides funding to customers in certain limited situations. These funding are subject to credit analysis for evaluation of associated credit risk and shall be approved by senior management of the Group. For significant funding provided, covenants are contained in the arrangements to protect the Group against credit deterioration of the customers. In certain circumstances, the Group would consider transferring the credit risk to third parties. The credit risk exposure of these funding is monitored on an ongoing basis and provision for impairment losses is made where that the prospect of recovery is remote.

In most cases, the Group’s exposure to credit risk is influenced mainly by the individual characteristics of each customer rather than the country in which the customers operate and therefore significant concentrations of credit risk primarily arise when the Group has significant exposure to individual customers. At the end of the reporting period, approximately 17% (2012: 12%) of total trade receivables was due from one customer of the Group.

Further quantitative disclosures in respect of the Group’s exposure to credit risk arising from trade and other receivables are set out in note 21 and note 22.

(b) Liquidity risk

The Group has established a treasury management system for cash flow planning, budgeting, and forecasting to regularly monitor current and expected liquidity requirements, to ensure that it maintains sufficient reserves of cash and readily realisable marketable securities and adequate committed lines of funding from major financial institutions to meet its liquidity requirements in the short and longer term. A financial risk control center and global liquidity risk monitoring team was also established in London to help with the Group’s global cash and liquidity management.

F-56 33 Financial risk management and fair values of financial instruments (continued)

(b) Liquidity risk (continued)

The following tables show the remaining contractual maturities at the end of the reporting period of the Group’s non-derivative financial liabilities, which are based on contractual undiscounted cash flows (including interest payments computed using contractual rates or, if floating, based on rates current at the end of the reporting period) and the earliest date the Group can be required to pay:

2013 Contractual undiscounted cash outflow More than Within 1 year but Carrying 1 year or less than More than amount Total on demand 5 years 5 years RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 Interest-bearing loans and borrowings . . . 23,032,740 24,416,304 3,640,837 20,166,912 608,555 Trade and bills payable ...... 31,980,480 31,980,480 31,980,480 – – Other payables, excluding other taxes payable, staff benefits payable, advances received and other provisions 23,538,167 23,538,167 23,538,167 – – 78,551,387 79,934,951 59,159,484 20,166,912 608,555

2012 Contractual undiscounted cash outflow More than Within 1 year but Carrying 1 year or less than More than amount Total on demand 5 years 5 years RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 Interest-bearing loans and borrowings . . . 20,754,029 22,169,369 5,240,598 16,928,771 – Trade and bills payable ...... 40,272,300 40,272,300 40,272,300 – – Other payables, excluding other taxes payables, staff benefits payable, advances received and other provisions 16,718,548 16,718,548 16,718,548 – – 77,744,877 79,160,217 62,231,446 16,928,771 –

F-57 33 Financial risk management and fair values of financial instruments (continued)

(i) Interest rate profile

The following table details the interest rate profile of the Group’s net non-current borrowings as at 31 December:

2013 2012 Effective Effective interest rate interest rate % RMB’000 % RMB’000 Net fixed rate non-current borrowings: Interest-bearing loans and borrowings ...... 4.59 3,721,822 4.60 3,788,313 Other receivables ...... – – 1.98 (69,894) 3,721,822 3,718,419 ------Net variable rate non-current borrowings: Interest-bearing loans and borrowings ...... 2.41 16,267,638 2.24 12,288,784 Other receivables ...... – – 4.20 (337,450) 16,267,638 11,951,334 ------

Total net non-current borrowings ...... 19,989,460 15,669,753

Net fixed rate non-current borrowings as a percentage of total net non-current borrowings . . . 18.62% 23.73%

(ii) Sensitivity analysis

As at 31 December 2013, it is estimated that a general increase/decrease of 50 basis points in interest rate, with all other variables held constant, would have decreased/increased the Group’s profit after tax and retained earnings by approximately RMB81,468,000 (2012: RMB64,850,000).

The sensitivity analysis above indicates the instantaneous change in the Group’s profit after tax and retained earnings that would arise assuming that the change in interest rates had occurred at the end of the reporting period and had been applied to re-measure those financial instruments held by the Group which expose the Group to fair value interest rate risk at the end of the reporting period. In respect of the exposure to cash flow interest rate risk arising from variable rate non-derivative instruments held by the Group at the end of the reporting period, the impact on the Group’s profit after tax and retained earnings is estimated as an annualised impact on interest expense or income of such a change in interest rates. The analysis is performed on the same basis for 2012.

(d) Currency risk

The Group conducts business globally and is exposed to currency risk primarily through external and intra-group sales and purchases, which give rise to receivables, payables and cash and cash equivalent balances that are denominated in a foreign currency, i.e. a currency other than the functional currency of the operations to which the transactions relate. The functional currency of the Group and the individual subsidiaries that compose the Group may be different. The currencies giving rise to this risk are primarily USD, EUR and Hong Kong dollar (“HKD”).

F-58 33 Financial risk management and fair values of financial instruments (continued)

(d) Currency risk (continued)

The Group has established a currency exposure management system that mitigates currency risk through various foreign exchange measures including:

– matching currencies between procurements and sales transactions.

– balancing cash inflows and outflows of foreign currencies.

– selecting appropriate financial measures which are in line with the Company’s risk management policies and strategies.

– monitoring foreign currencies with heightened remittance risk.

(i) Exposure to currency risk

Exposure to foreign currencies (expressed in RMB) 2013 2012 USD’000 EUR’000 HKD’000 USD’000 EUR’000 HKD’000 Other investments ...... – – – 12,585 – – Trade and bills receivable . . 90,281,149 12,427,986 143 89,028,651 13,275,351 321 Other receivables ...... 22,865,810 4,027,776 10,574 27,085,403 11,086,676 33,912 Cash and cash equivalents . . 12,996,287 767,848 – 5,418,164 985,372 – Interest-bearing loans and borrowings ...... (29,840,041) (5,230,928) – (25,367,559) (3,576,188) – Trade and bills payable .... (56,511,642) (6,807,680) (2,655,306) (63,650,127) (7,331,473) (4,992,862) Other payables ...... (7,657,923) (1,238,930) (3,524) (12,573,277) (9,545,161) (8,395) Total exposure ...... 32,133,640 3,946,072 (2,648,113) 19,953,840 4,894,577 (4,967,024)

(ii) Sensitivity analysis

The following table indicates the instantaneous change in the Group’s profit after tax and retained earnings that would arise if foreign exchange rates to which the Group has significant exposure at the end of the reporting period had changed at that date, assuming all other risk variables remained constant.

2013 2012 Increase/ Increase/ Increase/ (decrease) on Increase/ (decrease) on (decrease) profit after tax (decrease) profit after tax in foreign and retained in foreign and retained exchange rates earnings exchange rates earnings RMB’000 RMB’000 USD...... 5% (1,453,758) 5% (1,009,410) (5%) 1,453,758 (5%) 1,009,410 EUR...... 5% (172,894) 3% (140,408) (5%) 172,894 (3%) 140,408 HKD ...... 5% 116,032 5% 211,072 (5%) (116,032) (5%) (211,072)

F-59 33 Financial risk management and fair values of financial instruments (continued)

(d) Currency risk (continued)

(ii) Sensitivity analysis (continued)

Results of the analysis as presented in the above table represent an aggregation of the instantaneous effects on each of the group entities’ profit after tax and retained earnings measured in the respective functional currencies, translated into RMB at the exchange rate ruling at the end of the reporting period for presentation purposes.

The sensitivity analysis assumes that the change in foreign exchange rates had been applied to re-measure those financial instruments held by the Group which expose the Group to foreign currency risk at the end of the reporting period, including inter-company payables and receivables within the Group which are denominated in a currency other than the functional currencies of the lender or the borrower. The analysis excludes differences that would result from the translation of financial statements of foreign operations into the Group’s presentation currency. The analysis is performed on the same basis for 2012.

(e) Fair value measurement

(i) Financial instruments measured at fair value

The following table presents the carrying value of the Group’s financial instruments measured at fair value at the end of the reporting period on a recurring basis, categorised into the three-level fair value hierarchy as defined in IFRS 13, Fair value measurement. The level into which a fair value measurement is classified is determined with reference to the observability and significance of the inputs used in the valuation technique as follows:

– Level 1 valuations: Fair value measured using only Level 1 inputs i.e. unadjusted quoted prices in active markets for identical assets or liabilities at the measurement date

– Level 2 valuations: Fair value measured using Level 2 inputs i.e. observable inputs which fail to meet Level 1, and not using significant unobservable inputs. Unobservable inputs are inputs for which market data are not available.

– Level 3 valuations: Fair value measured using significant unobservable inputs

Fair value measurements as at Fair value measurements as at Fair value at Fair value at 31 December 2013 categorised into 31 December 2012 categorised into 31 December 31 December 2013 Level 1 Level 2 Level 3 2012 Level 1 Level 2 Level 3 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 Recurring fair value measurements Assets: Available-for-sale financial assets: – Listed equity securities ..... 118,047 118,047 – – 76,352 76,352 – – – Debt securities ...... 633 633 – – 621 621 – – – Wealth management products . . 8,544,966 – 8,544,966 – 4,456,222 – 4,456,222 – Held-for-trading equity securities . . ––––12,585 12,585 – –

Valuation techniques and inputs used in Level 2 fair value measurements

The fair value of wealth management products in Level 2 is the estimated amount that the Group would receive upon expiry or termination at the end of the reporting period, taking into account the related current interest rates.

During the year ended 31 December 2013 and 2012, there were no significant transfers among instruments in Level 1, Level 2 and Level 3.

F-60 33 Financial risk management and fair values of financial instruments (continued)

(e) Fair value measurement (continued)

(ii) Fair values of financial instruments carried at other than fair value

The carrying amounts of the Group’s financial instruments carried at cost or amortised cost are not materially different from their fair values as at 31 December 2013 and 2012 except for the following financial instruments:

Carrying Carrying Fair value measurements as at amount at Fair value at amount at Fair value at 31 December 2013 categorised into 31 December 31 December 31 December 31 December 2013 2013 Level 1 Level 2 Level 3 2012 2012 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 Non-current trade receivables ...... 335,603 284,089 – – 284,089 496,705 355,704 Non-current other receivables ...... 13,906 10,911 – – 10,911 69,894 58,392 Non-current fixed rate interest-bearing loans and borrowings ...... (3,721,822) (3,468,628) – – (3,468,628) (3,788,313) (3,607,684)

Valuation techniques and inputs used in Level 3 fair value measurements

The fair values of the non-current trade receivables, non-current loans receivable and non-current fixed rate interest-bearing loans and borrowings are estimated as being the present values of future cash flows, discounted at interest rates based on the government yield curve as at 31 December 2013 plus an adequate constant credit spread, adjusted for the Group’s own credit risk.

34 Operating leases

(a) Leases as lessee

As at 31 December 2013 and 2012, the total future minimum lease payments under non-cancellable operating leases are payable as follows:

2013 2012 RMB’000 RMB’000 Within 1 year ...... 618,539 472,303 After 1 year but within 5 years ...... 877,704 576,649 After 5 years ...... 64,817 57,548 1,561,060 1,106,500

The Group leases a number of warehouses, factory facilities, office premises and staff apartments under operating leases. The leases typically run for an initial period of one to five years. None of the leases includes contingent rentals.

During the year ended 31 December 2013, RMB2,391,969,000 was recognised as an expense in the consolidated statement of profit or loss in respect of operating leases (2012: RMB2,334,125,000).

F-61 34 Operating leases (continued)

(b) Leases as lessor

The Group leases out certain of its properties under operating leases (see note 5 and note 12). As at 31 December 2013 and 2012, the Group’s total future minimum lease payments under non-cancellable operating leases are receivable as follows:

2013 2012 RMB’000 RMB’000 Within 1 year ...... 22,587 100,448 After 1 year but within 5 years ...... 1,434 8,720 24,021 109,168

During the year ended 31 December 2013, RMB77,201,000 was recognised as rental income in the consolidated statement of profit or loss (2012: RMB114,044,000).

35 Capital commitments

(a) Acquisition and construction of buildings

Capital commitments of the Group in respect of acquisition and construction of buildings outstanding at 31 December 2013 and 2012 not provided for in the consolidated financial statements were as follows:

2013 2012 RMB’000 RMB’000 Contracted for ...... 3,378,248 2,094,272 Authorised but not contracted for ...... 2,944,379 4,375,599 6,322,627 6,469,871

(b) Other capital commitments

Other contracted capital commitments outstanding at 31 December 2013 and 2012 not provided for in the consolidated financial statements were as follows:

2013 2012 RMB’000 RMB’000 Establishment of an associate ...... – 25,000

36 Contingencies

(i) In July 2011, InterDigital Corporation (“IDC”) filed a complaint with the United States International Trade Commission (the “USITC” or “Commission”) and the United States District Court for the District of Delaware against Huawei Technologies Co., Ltd. (“Huawei Tech”) and Futurewei Technologies Inc. (“Futurewei”), both wholly-owned subsidiaries of the Company. The complaint alleged that sales of imported 3G wireless devices by the said subsidiaries within the United States had infringed IDC’s 3G wireless patents and requested for issuance of exclusion order and cease and desist order in relation to the accused 3G wireless devices concerned (“the first complaint”).

F-62 36 Contingencies (continued)

(i) (continued)

In December 2011, Huawei Tech filed a complaint against IDC in the PRC for violation of the fair, reasonable, and non-discriminatory (“FRAND”) policies and the PRC’s Anti-Monopoly Law. In June 2012, Huawei Tech filed another complaint with the European Commission (the “EC”) to request an investigation into the licensing fees requested by IDC, which it deemed exploitative, discriminatory, and in violation of the FRAND policies as well as the EC’s antitrust law.

On 2 January 2013, IDC filed another two complaints with the USITC and the United States District Court for the District of Delaware against Huawei Tech, Futurewei, and Huawei Device USA Inc. (“USA Device”), another wholly-owned subsidiary of the Company. The complaints further alleged that the sales of certain 3G and 4G wireless devices sold by the said subsidiaries within the United States had infringed three of IDC’s other patents.

On 4 February 2013, the Shenzhen Intermediate People’s Court ruled that IDC had violated the PRC’s Anti-Monopoly Law and ordered IDC to compensate the Group for damages of RMB20 million. The Court also ruled that the royalty rates licenses to Huawei Tech for IDC’s Chinese essential standard patents in wireless communication should not exceed 0.019%. of the actual sales prices of Huawei Tech’s wireless devices.

At this stage, the Group is unable to predict the outcome of the litigation, or reasonably estimate a range of possible loss, if any, given the current preliminary status of the litigation.

(ii) On 23 May 2012, Flashpoint Technology Inc. (“Flashpoint”) filed a complaint with the USITC, requesting the Commission to commence an investigation under Section 337 of the Tariff Act of 1930 into certain electronic imaging devices manufactured by four alleged infringing companies and their affiliates by reason of patent infringement and requested for issuance of an exclusion order and cease and desist order in relation to the electronic imaging devices concerned. Huawei Tech and Futurewei were named as respondents. On 2 August 2012, the Administrative Law Judge granted a joint motion to substitute Huawei Device Co., Ltd. (“Huawei Device”) and USA Device for Huawei Tech and Futurewei. Flashpoint also filed another complaint before the United States District Court for the District of Delaware for the same reason against Huawei Device and USA Device. The legal action before District Court of Delaware was stayed.

On 30 September 2013, the Administrative Law Judge of the USITC issued an initial determination in respect of Flashpoint’s complaint with USITC that Huawei Device and USA Device did not infringe the asserted patents. At this stage, the Group is unable to predict the outcome of the litigation, or reasonably estimate a range of possible loss, if any, given the current status of this litigation.

F-63 36 Contingencies (continued)

37 Related parties

(a) Key management personnel remuneration

Remuneration for key management personnel of the Group is as follows:

2013 2012 RMB’000 RMB’000 Short-term employee benefits and post-employment benefits ...... 25,178 28,724

Total remuneration is included in “personnel expenses” (see note 7).

(b) Other related party transactions

Transactions with associates and joint ventures

2013 (RMB’000) Designated Service Rental Interest Service Rental loans lend Sales Purchases income income income expenses expenses out TDTech...... 1,151,604 3,059,023 3,178 – –––– Huawei Marine ...... 129,827 355,063 9,556 1,557 – 31,906 – – CD Investment ...... ––––––241,251 – Tianwen Digital Media ...... – 350 1,707 – –––– Chinasoft International Technology .... Services Ltd ...... –––––551,605 – – iSoftStone Technology Service Company Limited ...... –––––795,909 – – 1,281,431 3,414,436 14,441 1,557 – 1,379,420 241,251 –

2012 (RMB’000) Designated Service Rental Interest Service Rental loans lend Sales Purchases income income income expenses expenses out TDTech...... 591,696 2,159,656 3,126 – –––– Huawei Digital HK ...... 237,898 – 32,290 – –––– Huawei Marine ...... 132,131 360,209 7,892 1,910 – 95,341 – – CD Investment ...... – – 3,699 – – – 59,812 – Beijing Huawei Longshine ...... ––––330––48,422 961,725 2,519,865 47,007 1,910 330 95,341 59,812 48,422

F-64 37 Related parties (continued)

(b) Other related party transactions (continued)

Balances with associates and joint ventures

31 December 2013 (RMB’000) Trade Other Trade Other receivables receivables payables payables TDTech...... 492,301 23,873 179,620 – Huawei Marine ...... 192,603 10,697 226,266 61,721 CD Investment ...... 5,276 – 164,985 1,241 Tianwen Digital Media ...... 1,707 – 200 – Chinasoft International Technology Services Ltd...... – – 36,427 – iSoftStone Technology Service Company Limited ...... – – 153,494 – 691,887 34,570 760,992 62,962

31 December 2012 (RMB’000) Trade Other receivables receivables Trade payables Other payables TDTech...... 329,884 20,616 552,445 – Huawei Marine ...... 165,219 1,367 248,397 53,149 CD Investment ...... 30,276 – 39,434 – 525,379 21,983 840,276 53,149

38 Group enterprises

(a) Parent and ultimate controlling party

The Group’s ultimate controlling party is the Union.

F-65 38 Group enterprises

(b) Major subsidiaries

Place of incorporation Proportion of Name of subsidiary and business ownership interest Principal activity 2013 2012 Huawei Technologies Co., Ltd. . PRC 100% 100% Development, manufacture and sale of telecommunication products and the technical support & maintenance of electrical equipment and spare parts

Huawei Software Technologies PRC 100% 100% Development, manufacture and sale Co., Ltd. (“Huawei Software of software and new products in Tech”) ...... mobile communication area and rendering of related services

Shanghai Huawei Technologies PRC 100% 100% Development, sale, consultancy Co., Ltd...... service and after-sale service of telecommunication equipment

Beijing Huawei Digital PRC 100% 100% Development, sale, and technical Technologies Co., Ltd ...... support of mobile communication products, import and export of goods and techniques

Shenzhen Huawei Technologies PRC 100% 100% Development, manufacture, sale and Software Co., Ltd...... provide service of communication software and related products

HUAWEI TECHNICAL PRC 100% 100% Installation, technology consultancy SERVICE CO., LTD...... service and maintenance of telecommunication equipment and auxiliary products

Huawei Machine Co., Ltd. .... PRC 100% 100% Development, manufacture and sale of telecommunication products; offering of technology services

HiSilicon Technologies Co., PRC 100% 100% Design, development and sale of Limited ...... semiconductors of telecommunication products

Huawei Tech. Investment Co., Hong Kong 100% 100% Trading of imported materials, sale Ltd (“Huawei Tech of overseas device (exclude the Investment”) ...... United States) and overseas machineries

Huawei Device Co., Ltd...... PRC 100% 100% Development, manufacture and sale of mobile communication products and electrical parts

Huawei International Pte. Ltd. . . Singapore 100% 100% Trading of telecommunication equipment

Huawei Technologies Netherlands 100% 100% Investor of overseas subsidiaries Coöperatief U.A......

PT. Huawei Tech Investment . . . Indonesia 100% 100% Trading of telecommunication equipment

Huawei Technologies Japan K.K. Japan 100% 100% Design, development, manufacture and sale of telecommunication and information products, provide auxiliary products and services

Huawei Device (Hong Kong) Hong Kong 100% 100% Sale and maintenance of electrical Co., Ltd...... equipment and mobile communication products

F-66 38 Group enterprises (continued)

(i) On 6 August 2013, Huawei Tech Investment, a wholly-owned subsidiary of the Company, acquired 100%. equity interest in Caliopa NV (“Caliopa”) from third parties for a consideration of EUR6,923,000 (equivalent to RMB56,204,000).

Caliopa is located in Belgium and principally engaged in developing silicon photonics-based optical solutions in the telecommunication industry. In 2013, all of Caliopa’s services were provided to entities within the Group.

(ii) On 10 December 2013, Huawei Technologies (Australia) PTY Ltd., a wholly-owned subsidiary of the Company acquired 100%. equity interest in Fastwire PTY Limited (“Fastwire”) from a third party for a consideration of USD19,052,000 (equivalent to RMB117,213,000).

Fastwire is located in Sydney and provides Operation Supporting System services to telecommunication operators.

In the period from the acquisition date to 31 December 2013, Fastwire contributed revenue of RMB918,000 and net loss of RMB2,650,000 to the Group’s results. If the acquisition had occurred on 1 January 2013, management estimate that consolidated revenue would have been increased by RMB29,943,000, and consolidated profit for the year would have been decreased by RMB9,297,000. In determining these amounts, management have assumed that the fair value adjustments that arose on the acquisition date would have been the same if the acquisition had occurred on 1 January 2013.

(iii) On 30 March 2012, Huawei Tech Investment, a wholly-owned subsidiary of the Company, acquired the remaining 49%. stake in Huawei Digital Technologies (Hong Kong) Co., Limited (formerly “Huawei Symantec Technologies Co., Ltd.”) (“Huawei Digital HK”) from Symantec Hardware Holding LLC (“Symantec Hardware”) for a consideration of USD530,000,000 (equivalent to RMB3,336,767,000). As a result of this acquisition, the Group’s equity interest in Huawei Digital HK increased from 51% to 100% and Huawei Digital HK became a wholly-owned subsidiary of Huawei Tech Investment, which in turn is a wholly-owned subsidiary of the Company.

Huawei Digital HK is a Hong Kong-based joint venture established by Huawei Tech Investment and Symantec Hardware in 2008. Huawei Digital HK is principally engaged in research and development, production and sale of network storage and security products.

In the period from the acquisition date to 31 December 2012, Huawei Digital HK contributed revenue of RMB3,224,747,000 and net loss of RMB68,801,000 to the Group’s results. If the acquisition had occurred on 1 January 2012, management estimate that consolidated revenue would have been increased by RMB4,289,369,000, and consolidated profit for the year would have been decreased by RMB375,091,000. In determining these amounts, management have assumed that the fair value adjustments that arose on the acquisition date would have been the same if the acquisition had occurred on 1 January 2012.

F-67 38 Group enterprises (continued)

(iv) On 31 March 2012, Huawei Software Tech, a wholly-owned subsidiary of the Company, acquired the remaining 48% stake in Beijing Huawei Longshine from Longshine Information Technology Company Limited (“Longshine Information”) for a consideration of RMB115,966,000. As a result of this acquisition, the Group’s equity interest in Beijing Huawei Longshine increased from 52% to 100% and Beijing Huawei Longshine became a wholly-owned subsidiary of the Company.

Beijing Huawei Longshine is a China-based company established in 1996. Beijing Huawei Longshine is principally engaged in production and sale of network communication products, computer hardware and software and provision of related services.

In the period from the acquisition date to 31 December 2012, Beijing Huawei Longshine contributed revenue of RMB130,140,000 and profit of RMB12,577,000 to the Group’s results. If the acquisition had occurred on 1 January 2012, management estimate that consolidated revenue would have been increased by RMB130,288,000, and consolidated profit for the year would have been decreased by RMB9,487,000. In determining these amounts, management have assumed that the fair value adjustments that arose on the acquisition date would have been the same if the acquisition had occurred on 1 January 2012.

The above acquisitions had the following effect on the Group’s assets and liabilities on acquisition date:

Recognised values on acquisition 2013 2012 Beijing Huawei Digital Huawei Caliopa Fastwire HK Longshine RMB’000 RMB’000 RMB’000 RMB’000 note 38(c)(i) note 38(c)(ii) note 38(c)(iii) note 38(c)(iv) Property, plant and equipment ...... 1,512 980 87,618 2,292 Available-for-sale securities ...... – – 25,980 – Intangible assets ...... 25,892 116,440 374,761 92,500 Trade and other receivables ...... 4,931 7,356 509,577 62,203 Inventories ...... – – 542,722 15,731 Cash and cash equivalents ...... 2,656 584 1,025,075 32,820 Trade and other payables ...... (14,631) (14,865) (1,628,473) (24,368) Interest-bearing loans and borrowings ...... (43) (1,200) (170,060) (63,422) Defined benefit obligations ...... – – (313,388) – Deferred tax liabilities ...... (573) – (60,894) (13,875) Total net identifiable assets ...... 19,744 109,295 392,918 103,881

Acquisition-related costs (included in “administrative expenses” in consolidated statement of profit or loss) ...... 1,104 3,231 28,096 300

Consideration, satisfied by cash ...... 56,204 117,213 3,336,767 115,966

Analysis of the net outflow of cash and cash equivalents in respect of the acquisitions:

Cash consideration paid ...... 52,806 117,213 3,336,767 115,966 Cash and cash equivalents acquired ...... (2,656) (584) (1,025,075) (32,820) Net cash outflow ...... 50,150 116,629 2,311,692 83,146

F-68 38 Group enterprises (continued)

Goodwill

Goodwill was recognised as a result of the acquisitions as follows:

Recognised values on acquisition 2013 2012 Beijing Huawei Digital Huawei Caliopa Fastwire HK Longshine RMB’000 RMB’000 RMB’000 RMB’000 note 38(c)(i) note 38(c)(ii) note 38(c)(iii) note 38(c)(iv) Total consideration ...... 56,204 117,213 3,336,767 115,966 Fair value of pre-existing interest ..... – – 315,555 142,283 Fair value of identifiable net assets . . . (19,744) (109,295) (392,918) (103,881) 36,460 7,918 3,259,404 154,368

Caliopa

The goodwill is attributable mainly to the skills and technical talent of Caliopa’s work force. None of the goodwill recognised is expected to be deductible for tax purposes.

Fastwire

The goodwill is attributable mainly to the skills and technical talent of Fastwire’s work force, and the synergies expected to be achieved from integrating Fastwire into the Group’s existing network business. None of the goodwill recognised is expected to be deductible for tax purposes.

39 Accounting judgments and estimates

Sources of estimation uncertainty

Notes 15, 18, 30(b) and 33(e) contain information about the assumptions and their risk factors relating to valuation of goodwill impairment, defined benefit obligations and financial instruments. Other key sources of estimation uncertainty are as follows:

(a) Revenue recognition

The Group’s sales of goods are recognised when the criteria set out in note 3(r) are met. Managerial judgment is applied regarding, among other aspects, conformance with acceptance criteria and if transfer of risks and rewards to the customer has taken place to determine if revenue should be recognised in the current year and the customer credit standing to assess whether payment is likely or not to justify revenue recognition. Revenues may materially change if management’s assessment of such criteria was determined to be inaccurate.

F-69 39 Accounting judgments and estimates (continued)

(a) Revenue recognition (continued)

Revenues from contracts involving solutions achieved through modification of complex telecommunication equipment or construction of entire telecommunication networks is recognised on the percentage of completion basis when the outcome of contract can be estimated reliably. Based on the recent experience and the nature of the construction activities undertaken by the Group, management makes estimates of the point at which the work is sufficiently advanced such that the costs to complete and revenue can be reliably estimated. As a result, until this point is reached the amounts due from customers for contract work as disclosed in note 29 will not include profits which the Group may eventually realise from the work done to date. In addition, actual outcomes in terms of total cost or revenue may be higher or lower than estimated at the end of the reporting period due to changes in the project scope, under/over estimation of costs, realisation of penalties and other factors, which would affect the revenue and profit recognised in future years as an adjustment to the amounts recorded to date.

(b) Allowance for doubtful receivables

As described in note 33(a), credit risks of customers are regularly assessed with reference to the estimated future cash flow of an individual debtor or a portfolio of debtors and changes in the financial condition that have an adverse effect on the debtor, and allowances are recorded for estimated losses. If the financial conditions of customers were to deteriorate/improve, additional/reversal of allowance may be required in future periods.

Net realisable value of inventories is the estimated selling price in the ordinary course of business, less the estimated costs of completion and the estimated costs necessary to make the sale. These estimates are based on the current market condition and the historical experience of distributing and selling products of similar nature. It could change significantly as a result of competitor actions in response to severe industry cycles or other changes in market condition. Management will reassess the estimations at the end of each reporting period.

(d) Depreciation and amortisation

Property, plant and equipment are depreciated on a straight-line basis over the estimated useful lives, after taking into account the estimated residual value. The Group reviews annually the useful life of an asset and its residual value, if any. Intangible assets with finite useful life are amortised on a straight-line basis over the estimated useful lives. Both the period and method of depreciation and amortisation are reviewed annually. The depreciation and amortisation expense for future periods is adjusted if there are significant changes, such as operational efficiency or changes in technologies, from previous estimates.

(e) Impairment losses of property, plant and equipment and intangible assets

Property, plant and equipment and intangible assets are reviewed periodically to assess whether impairment losses exist. In determining whether an impairment loss exists, the Group has to exercise judgment particularly in assessing whether the carrying value of an asset can be supported by the net present value of future cash flows which are estimated based upon the continued use of the asset; and the appropriate key assumptions to be applied in preparing cash flow projections including whether these cash flow projections are discounted using an appropriate rate. Changes in the assumptions selected by management to determine the level of impairment, including the discount rates or the growth rate assumptions in the cash flow projections, could materially affect the net present value used in the impairment test.

F-70 39 Accounting judgments and estimates (continued)

(f) Income tax

The Group is subject to income taxes in various jurisdictions. Significant judgment is required in determining the worldwide provision for income taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. The Group recognises, as current liabilities, liabilities for anticipated tax issues based on estimates of whether additional taxes will eventually be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions for the period in which such decision is made.

(g) Provision for warranties

As explained in note 31, the Group makes provision for warranties in respect of its products, taking into account the Group’s recent claim experience and anticipated claim rates for its products. As the Group is continually upgrading its product designs and launching new models, it is possible that the recent claim experience is not indicative of future claims that it will receive in respect of past sales. Any increase or decrease in the provision would affect income in future years.

(h) Other provisions

The Group makes provisions for onerous contracts and outstanding litigations and claims based on project budgets, contract terms, available knowledge and past experience. The Group recognises provisions to the extent that it has a present legal or constructive obligation as a result of a past event; it is probable that an outflow of resources will be required to settle the obligation; and that the amount can be reliably estimated.

40 Possible impact of amendments, new standards and interpretations issued but not yet effective for the year ended 31 December 2013

Up to the date of issue of these consolidated financial statements, the IASB has issued a few amendments, new standards and interpretations which are not yet effective for the year ended 31 December 2013 and which have not been adopted in these consolidated financial statements. These include the following which may be relevant to the Group.

Effective for accounting periods beginning on or after Amendments to IAS 32, Offsetting financial assets and financial liabilities...... 1 January 2014 Amendments to IAS 36, Recoverable amount disclosures for non-financial assets ...... 1 January 2014 Amendments to IAS 39, Novation of derivatives and continuation of hedge accounting ...... 1 January 2014 IFRS 9, Financial instruments ...... Unspecified IFRS 14, Regulatory deferred accounts ...... 1 January 2016 IFRIC 21, Levies ...... 1 January 2014

The Group is in the process of making an assessment of what the impact of these amendments is expected to be in the period of initial application. So far it has concluded that the adoption of them is unlikely to have a significant impact on the consolidated financial statements.

41 Comparative figures

As a result of the application of new IFRSs and amendments to IFRSs and to conform to current year’s presentation, certain comparative figures have been adjusted to provide comparative amounts in respect of items disclosed for the first time in 2013. Further details of these developments are disclosed in note 4.

F-71

Independent auditors’ report to the Board of Directors of Huawei Investment & Holding Co., Ltd.

We have audited the accompanying consolidated financial statements of Huawei Investment & Holding Co., Ltd. and its subsidiaries (the “Group”) set out on pages 3 to 102, which comprise the consolidated statement of financial position as at 31 December 2014, the consolidated statements of profit or loss, profit or loss and other comprehensive income, changes in equity and cash flows for the year then ended, and notes, comprising a summary of significant accounting policies and other explanatory information.

Management’s responsibility for the consolidated financial statements

Auditors’ responsibility

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

F-72

Independent auditors’ report to the Board of Directors of Huawei Investment & Holding Co., Ltd. (continued)

Opinion

In our opinion, the consolidated financial statements give a true and fair view of the consolidated financial position of the Group as at 31 December 2014, and of its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards.

KPMG Huazhen (Special General Partnership)

Certified Public Accountants

9th Floor, China Resources Building 5001 Shennan East Road Shenzhen 518001, China

12 March 2015

F-73 Huawei Investment & Holding Co., Ltd. Consolidated financial statements for the year ended 31 December 2014

Consolidated statement of profit or loss for the year ended 31 December 2014

Note 2014 2013 RMB’000 RMB’000 Restated (Note 40)

Revenue 5 288,197,429 239,025,010 Cost of sales 6 (160,746,505) (141,005,320)

Gross profit 127,450,924 98,019,690

Other income 7(a) 1,724,398 2,064,542 Research and development expenses 6 (40,844,786) (31,562,698) Selling expenses 6 (28,750,390) (24,323,873) Administrative expenses 6 (18,717,593) (13,727,766) Other expenses 6/7(b) (6,656,979) (1,341,457)

Operating profit before financing costs 34,205,574 29,128,438

Finance income 3,242,624 1,946,010 Finance expenses (4,697,974) (5,888,762)

Net finance expenses 9 (1,455,350) (3,942,752)

Share of associates’ results 332,172 4,073 Share of joint ventures’ results (28,997) (27,990)

Profit before taxation 33,053,399 25,161,769

Income tax 10 (5,186,985) (4,158,752)

Profit for the year 27,866,414 21,003,017

Attributable to: Equity holders of the Company 27,850,733 20,919,275 Non-controlling interests 15,681 83,742

Profit for the year 27,866,414 21,003,017

The notes on pages 12 to 102 form part of these consolidated financial statements.

F-74 Huawei Investment & Holding Co., Ltd. Consolidated financial statements for the year ended 31 December 2014

Consolidated statement of profit or loss and other comprehensive income for the year ended 31 December 2014

Note 2014 2013 RMB’000 RMB’000

Profit for the year 27,866,414 21,003,017 ------

Other comprehensive income for the year (after tax and reclassification adjustments) 11

Items that will not be reclassified subsequently to profit or loss: Remeasurement of defined benefit obligations (166,063) (618,227)

Items that will or may be reclassified subsequently to profit or loss: Net change in the fair value of available-for-sale securities (200,040) 164,957 Exchange differences on translation of financial statements of foreign operations 173,658 229,573

(26,382) 394,530

Other comprehensive income for the year (192,445) (223,697) ------

Total comprehensive income for the year 27,673,969 20,779,320

Attributable to: Equity holders of the Company 27,663,609 20,693,494 Non-controlling interests 10,360 85,826

Total comprehensive income for the year 27,673,969 20,779,320

The notes on pages 12 to 102 form part of these consolidated financial statements.

F-75 Huawei Investment & Holding Co., Ltd. Consolidated financial statements for the year ended 31 December 2014

Consolidated statement of financial position at 31 December 2014

Note 31 December 31 December 1 January 2014 2013 2013 RMB’000 RMB’000 RMB’000 Restated Restated (Note 40) (Note 40)

Assets

Goodwill 13 307,325 3,342,717 3,388,790 Intangible assets 14 2,290,415 2,410,305 1,688,868 Property, plant and equipment 15 27,247,616 22,209,029 20,365,748 Long-term leasehold prepayments 16 3,349,232 2,761,112 2,360,926 Interest in associates 17 548,401 269,736 243,079 Interest in joint ventures 18 107,249 210,869 249,531 Other investments 19 540,090 583,874 548,620 Deferred tax assets 20 14,916,223 11,576,567 9,805,326 Trade receivables 22 445,969 335,603 496,705 Other non-current assets 23 2,915,673 987,821 1,390,102

Non-current assets 52,668,193 44,687,633 40,537,695 ------

Inventories 21 46,575,920 24,928,931 22,236,525 Trade and bills receivable 22 79,579,628 78,005,307 73,171,111 Other current assets 23 24,912,638 14,525,125 15,406,821 Short-term investments 24 27,988,664 8,544,966 4,468,807 Cash and cash equivalents 25 78,047,655 73,398,640 67,180,115 Assets held for sale - - 346,609

Current assets 257,104,505 199,402,969 182,809,988 ------

Total assets 309,772,698 244,090,602 223,347,683

F-76 Huawei Investment & Holding Co., Ltd. Consolidated financial statements for the year ended 31 December 2014

Consolidated statement of financial position at 31 December 2014 (continued)

Note 31 December 31 December 1 January 2014 2013 2013 RMB’000 RMB’000 RMB’000 Restated Restated (Note 40) (Note 40)

Equity

Paid-in capital 12,813,950 12,088,632 10,989,666 Capital surplus 41,930,527 38,550,545 33,693,113 Reserves 18,720,029 15,676,022 10,873,552 Retained earnings 26,475,000 19,891,507 19,491,850

Equity attributable to equity holders of the Company 99,939,506 86,206,706 75,048,181

Non-controlling interests 45,571 59,410 (24,573)

Total equity 99,985,077 86,266,116 75,023,608 ------

Liabilities

Interest-bearing loans and borrowings 27 17,576,885 19,989,460 16,077,097 Long-term employee benefits 30 9,731,333 9,608,257 9,686,076 Deferred government grants 7(a) 2,656,019 2,746,397 2,218,256 Deferred tax liabilities 20 320,488 475,744 784,072 Provisions 31 964,028 781,688 585,855

Non-current liabilities 31,248,753 33,601,546 29,351,356 ------

F-77 Huawei Investment & Holding Co., Ltd. Consolidated financial statements for the year ended 31 December 2014

Consolidated statement of financial position at 31 December 2014 (continued)

Note 31 December 31 December 1 January 2014 2013 2013 RMB’000 RMB’000 RMB’000 Restated Restated (Note 40) (Note 40)

Liabilities (continued)

Interest-bearing loans and borrowings 27 10,529,847 3,043,280 4,676,932 Income tax payable 5,947,493 4,034,410 1,652,881 Trade and bills payable 28 45,898,550 31,980,480 40,272,300 Other payables 29 108,818,033 80,447,144 68,721,423 Provisions 31 7,344,945 4,717,626 3,649,183

Current liabilities 178,538,868 124,222,940 118,972,719 ------

Total liabilities 209,787,621 157,824,486 148,324,075 ------

Total equity and liabilities 309,772,698 244,090,602 223,347,683

Approved and authorised for issue by the board of directors on 12 March 2015.

) ) Directors Sun Yafang Guo Ping )

The notes on pages 12 to 102 form part of these consolidated financial statements.

F-78 Huawei Investment & Holding Co., Ltd. Consolidated financial statements for the year ended 31 December 2014

Consolidated statement of changes in equity for the year ended 31 December 2014

Attributable to equity holders of the Company Registered Non- and paid-in Capital Statutory Exchange Fair value Other Retained controlling Total Note capital surplus reserves reserve reserve reserves earnings Total interests equity RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

Balance at 31 December 2013 and 1 January 2014 12,088,632 38,550,545 15,443,085 259,040 222,706 (248,809) 19,891,507 86,206,706 59,410 86,266,116

Changes in equity for 2014: Profit for the year ------27,850,733 27,850,733 15,681 27,866,414 Other comprehensive income - - - 178,979 (200,040) (166,063) - (187,124) (5,321) (192,445)

Total comprehensive income - - - 178,979 (200,040) (166,063) 27,850,733 27,663,609 10,360 27,673,969 ------

F-79 Capital injected (i) 725,318 3,379,982 - - - - - 4,105,300 - 4,105,300 Restatement for the translation of financial statements of foreign operations in hyperinflation economies - - (173) - - - (287,220) (287,393) - (287,393) Acquisition of non-controlling interests without a change in control 26(g) - - - - - 5,283 - 5,283 (22,829) (17,546) Profit appropriations 26(d) - - 3,043,667 - - - (3,043,667) - - - Dividends declared in respect of previous years 26(b) ------(17,770,290) (17,770,290) (1,370) (17,771,660) Transfer of remeasurement of defined benefit obligations within equity 26(g) - - - - - 166,063 (166,063) - - - Share of an associate’s reserves movement 26(g) - - - - - 16,291 - 16,291 - 16,291

Balance at 31 December 2014 12,813,950 41,930,527 18,486,579 438,019 22,666 (227,235) 26,475,000 99,939,506 45,571 99,985,077

(i) According to the equity holder’s resolution dated 28 August 2014, the Union of Huawei Investment & Holding Co., Ltd. (the “Union”), the ultimate controlling party of the Company, injected

cash of RMB4,105,300,000 into the Company in December 2014.

8 Huawei Investment & Holding Co., Ltd. Consolidated financial statements for the year ended 31 December 2014

Consolidated statement of changes in equity for the year ended 31 December 2014 (continued)

Balance at 1 January 2013 10,989,666 33,693,113 12,676,960 31,551 57,749 (1,892,708) 19,491,850 75,048,181 (24,573) 75,023,608

Changes in equity for 2013: Profit for the year ------20,919,275 20,919,275 83,742 21,003,017 Other comprehensive income - - - 227,489 164,957 (618,227) - (225,781) 2,084 (223,697)

Total comprehensive income - - - 227,489 164,957 (618,227) 20,919,275 20,693,494 85,826 20,779,320 ------

Capital injected (ii) 1,098,966 4,857,432 - - - - - 5,956,398 - 5,956,398

F-80 Acquisition of non-controlling interests without a change in control 26(g) - - - - - (289) - (289) (846) (1,135) Profit appropriations 26(d) - - 2,766,125 - - - (2,766,125) - - - Dividends declared in respect of previous years 26(b) ------(15,495,429) (15,495,429) (997) (15,496,426) Transfer of remeasurement of defined benefit obligations within equity 26(g) - - - - - 2,258,064 (2,258,064) - - - Share of an associate’s reserves movement 26(g) - - - - - 4,351 - 4,351 - 4,351

Balance at 31 December 2013 12,088,632 38,550,545 15,443,085 259,040 222,706 (248,809) 19,891,507 86,206,706 59,410 86,266,116

(ii) According to the equity holder’s resolution dated 26 July 2013, the Union injected cash of RMB5,956,398,000 into the Company in December 2013.

The notes on pages 12 to 102 form part of these consolidated financial statements.

9 Huawei Investment & Holding Co., Ltd. Consolidated financial statements for the year ended 31 December 2014

Consolidated statement of cash flows for the year ended 31 December 2014

2014 2013 RMB’000 RMB’000 Cash flows from operating activities

Cash receipts from customers 367,826,797 293,316,662 Cash paid to suppliers and employees (321,201,150) (269,597,954) Government grants received 943,060 992,750 Pledged deposits (725,046) 64,862

Cash generated from operating activities 46,843,661 24,776,320 Income tax paid (5,088,297) (2,222,743)

Net cash from operating activities 41,755,364 22,553,577 ------Cash flows from investing activities

Proceeds from sale of property, plant and equipment 93,420 1,049,070 Proceeds from sale of intangible assets - 25,930 Purchase and sale of wealth management products (18,867,619) (2,790,695) Interest and dividends received 7,226 116,746 Proceeds from disposal of associates - 15,000 Proceeds from sale of available-for-sale equity securities stated at fair value 149,630 40,644 Proceeds from sale of held-for-trading financial instruments 145,742 13,029 Repayment from loans receivable 3,237 58,354 Acquisition of available-for-sale equity securities stated at cost (34,303) - Acquisition of held-for-trading financial instruments (170,239) - Acquisition of loans receivable (3,642) (37,750) Acquisition of property, plant and equipment (6,109,441) (5,256,996) Acquisition of intangible assets and long-term leasehold prepayments (1,054,038) (1,077,207) Investment in an associate - (25,000) Acquisition of subsidiaries, net of cash acquired (369,313) (168,429)

Net cash used in investing activities (26,209,340) (8,037,304) ------

F-81 Huawei Investment & Holding Co., Ltd. Consolidated financial statements for the year ended 31 December 2014

Consolidated statement of cash flows for the year ended 31 December 2014 (continued)

Note 2014 2013 RMB’000 RMB’000 Cash flows from financing activities

Proceeds from capital injected 4,105,300 5,956,398 Payment for acquisition of non-controlling interests - (6,475) Proceeds from issuance of corporate bond 1,599,995 - Proceeds from borrowings 21,770,946 31,913,325 Repayment of borrowings (19,526,450) (28,850,697) Dividends paid to non-controlling interests (1,431) (812) Dividends paid to equity holders of the Company (17,335,621) (15,176,002) Interest paid (1,018,852) (961,187)

Net cash used in financing activities (10,406,113) (7,125,450) ------

Net increase in cash and cash equivalents 5,139,911 7,390,823

Cash and cash equivalents at 1 January 25 73,398,640 67,180,115 Effect of foreign exchange rate changes (490,896) (1,172,298)

Cash and cash equivalents at 31 December 25 78,047,655 73,398,640

The notes on pages 12 to 102 form part of these consolidated financial statements.

F-82 Huawei Investment & Holding Co., Ltd. Consolidated financial statements for the year ended 31 December 2014

Notes to the consolidated financial statements for the year ended 31 December 2014

1 Reporting entity

The Company and its subsidiaries, together referred to as the Group, principally provide end to end ICT solutions, research, design, manufacture and market telecom network equipment, IT products and solutions, and smart devices for telecom carriers, enterprises and consumers. The principal activities and other particulars of the Company’s major subsidiaries are set out in note 37(b) to the consolidated financial statements.

2 Statement of compliance

These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRSs”), which collective term includes all applicable individual IFRSs, International Accounting Standards (“IASs”) and Interpretations issued by the International Accounting Standards Board (“IASB”).

The IASB has issued certain new and revised IFRSs that are first effective or available for early adoption for the current accounting period of the Group. Note 4 provides information on any changes in accounting policies resulting from initial application of these developments to the extent that they are relevant to the Group for the current and prior accounting periods reflected in these consolidated financial statements.

The Company has also prepared a separate set of consolidated financial statements which comply with the generally accepted accounting principles in the PRC.

3 Significant accounting policies

(a) Basis of preparation of the consolidated financial statements

The consolidated financial statements for the year ended 31 December 2014 comprise the Company and its subsidiaries and the Group’s interest in associates and joint ventures.

F-83 Huawei Investment & Holding Co., Ltd. Consolidated financial statements for the year ended 31 December 2014

3 Significant accounting policies (continued)

(a) Basis of preparation of the consolidated financial statements (continued)

Non-current assets held for sale are stated at the lower of carrying amount and fair value less costs to sell (see note 3(v)).

Judgments made by management in the application of IFRSs that have significant effect on the consolidated financial statements and major sources of estimation uncertainty are discussed in note 38.

(b) Functional and presentation currency

These consolidated financial statements are presented in Renminbi (“RMB”), which is the Company’s functional currency. All amounts have been rounded to the nearest thousand unless otherwise specified.

(c) Business combinations and goodwill The Group accounts for business combinations using the acquisition method when control is transferred to the Group (see note 3(d)). The consideration transferred in the acquisition is generally measured at fair value, as are the identifiable net assets acquired. Transaction costs are expensed as incurred.

The consideration transferred does not include amounts related to the settlement of pre- existing relationships. Such amounts generally are recognised in profit or loss.

F-84 Huawei Investment & Holding Co., Ltd. Consolidated financial statements for the year ended 31 December 2014

3 Significant accounting policies (continued)

Goodwill arising on a business combination represents the excess of:

(ii) the net fair value of the acquiree’s identifiable assets acquired and liabilities assumed as at the acquisition date.

When (ii) is greater than (i), then this excess is recognised immediately in profit or loss as a gain on a bargain purchase.

Goodwill is stated at cost less accumulated impairment losses (see note 3(m)). Goodwill is allocated to each cash-generating unit, or groups of cash generating units, that is expected to benefit from the synergies of the combination and is tested annually for impairment (see note 3(m)).

(d) Subsidiaries and non-controlling interests

F-85 Huawei Investment & Holding Co., Ltd. Consolidated financial statements for the year ended 31 December 2014

3 Significant accounting policies (continued)

(d) Subsidiaries and non-controlling interests (continued)

(e) Associates and joint ventures

An associate is an entity in which the Group has significant influence, but not control or joint control, over its management, including participation in the financial and operating policy decisions.

A joint venture is an arrangement whereby the Group and other parties contractually agree to share control of the arrangement, and have rights to the net assets of the arrangement.

An investment in an associate or a joint venture is accounted for in the consolidated financial statements using the equity method. Under the equity method, the investment is initially recorded at cost, adjusted for any excess of the Group’s share of the acquisition- date fair values of the investee’s identifiable net assets over the cost of the investment (if any). Thereafter, the investment is adjusted for the post acquisition change in the Group’s share of the investee’s net assets and any impairment loss relating to the investment (see note 3(m)). Any acquisition-date excess over cost, the Group’s share of the post- acquisition, post-tax results of the investees and any impairment losses for the year are recognised in the consolidated statement of profit or loss, whereas the Group’s share of the post-acquisition post-tax items of the investees’ other comprehensive income is recognised in the consolidated statement of profit or loss and other comprehensive income.

F-86 Huawei Investment & Holding Co., Ltd. Consolidated financial statements for the year ended 31 December 2014

3 Significant accounting policies (continued)

(e) Associates and joint ventures (continued)

(f) Financial instruments

Financial assets of the Group comprise financial assets at fair value through profit or loss, loans and receivables and available-for-sale financial assets.

Financial liabilities of the Group comprise interest-bearing loans and borrowings, and other financial liabilities.

(i) Recognition and derecognition

Financial assets and financial liabilities are recognised in the consolidated statement of financial position when the Group becomes a party to the contractual provisions of the instrument.

All financial assets are initially recognised at fair value, which is usually the transaction price.

F-87 Huawei Investment & Holding Co., Ltd. Consolidated financial statements for the year ended 31 December 2014

3 Significant accounting policies (continued)

(f) Financial instruments (continued)

(i) Recognition and derecognition (continued)

Financial assets and financial liabilities are offset and the net amount presented in the consolidated statement of financial position when, and only when, the Group currently has a legally enforceable right to set off the recognised amounts and intends either to settle them on a net basis or to realise the asset and settle the liability simultaneously.

(ii) Measurement

 Financial assets at fair value through profit or loss

 Loans and receivables

Loans and receivables are initially recognised at fair value and thereafter stated at amortised cost less allowance for impairment of doubtful debts (see note 3(m)), except where the receivables are interest-free loans made to related parties without any fixed repayment terms or the effect of discounting would be immaterial. In such cases, the receivables are stated at cost less allowance for impairment of doubtful debts.

The Group purchases wealth management products from commercial banks with maturity less than one year. Wealth management products with guaranteed principals and earnings are classified as loans and receivables; while those with principals and earnings not guaranteed are classified as available-for-sale financial assets.

F-88 Huawei Investment & Holding Co., Ltd. Consolidated financial statements for the year ended 31 December 2014

3 Significant accounting policies (continued)

(f) Financial instruments (continued)

(ii) Measurement (continued)

 Loans and receivables (continued)

From time to time, the Group transfers its trade receivables to banks or financial institutions; the bank or the financial institutions fully bear the collection risk without the right to receive payments from the Group in the event a loss occurs due to the non-collectibility of the receivables transferred. The Group’s customers make payments of the receivables transferred directly to the bank or the financial institutions. In such case, trade receivables transferred are derecognised from the consolidated statement of financial position. The excess of the carrying amount of trade receivables over cash received from the banks or financial institutions is included in “other expenses” in the consolidated statement of profit or loss.

 Available-for-sale financial assets

Available-for-sale financial assets are non-derivative financial assets that are not classified in any of the above categories of financial assets. Available-for-sale financial assets are recognised initially at fair value plus any directly attributable transaction costs. At the end of each reporting period the fair value is remeasured, with any resultant gain or loss being recognised in other comprehensive income and accumulated separately in equity in the fair value reserve. As an exception to this, available-for-sale financial assets that do not have a quoted price in an active market for an identical instrument and whose fair value cannot otherwise be reliably measured are recognised in the consolidated statement of financial position at cost less impairment losses (see note 3(m)). Dividend income is recognised in profit or loss in accordance with the policy set out in note 3(u) and, where these investments are interest-bearing, interest calculated using the effective interest method is recognised in profit or loss in accordance with the policy set out in note 3(u).

When these assets are derecognised or impaired (see note 3(m)), the cumulative gain or loss is reclassified from equity to profit or loss.

 Interest-bearing loans and borrowings

F-89 Huawei Investment & Holding Co., Ltd. Consolidated financial statements for the year ended 31 December 2014

3 Significant accounting policies (continued)

(f) Financial instruments (continued)

(ii) Measurement (continued)

 Other financial liabilities

Trade and other payables are initially recognised at fair value and subsequently stated at amortised cost unless the effect of discounting would be immaterial, in which case they are stated at cost.

(g) Cash and cash equivalents

(h) Investment property

Investment properties are land and / or buildings which are owned or held under a leasehold interest (see note 3(l)) to earn rental income and / or for capital appreciation.

Investment properties are stated at cost less accumulated depreciation (see note 3(i)(iii)) and impairment losses (see note 3(m)). Depreciation is calculated to write off the cost of items of investment property, less their estimated residual value, if any, using the straight line method over their estimated useful lives. Rental income from investment properties is accounted for as described in note 3(r)(ii).

(i) Other property, plant and equipment

(i) Recognition and measurement

Items of property, plant and equipment are stated at cost less accumulated depreciation and impairment losses (see note 3(m)). Cost includes expenditure that is directly attributable to the acquisition of the assets. The cost of self-constructed items of property, plant and equipment includes the cost of materials, direct labour, the initial estimate, where relevant, of the costs of dismantling and removing the items and restoring the site on which they are located, and an appropriate proportion of production overheads and borrowing costs (see note 3(u)).

Construction in progress is transferred to other property, plant and equipment when it is ready for its intended use.

F-90 Huawei Investment & Holding Co., Ltd. Consolidated financial statements for the year ended 31 December 2014

3 Significant accounting policies (continued)

(i) Other property, plant and equipment (continued)

(i) Recognition and measurement (continued)

(ii) Subsequent costs

(iii) Depreciation

 Freehold land and construction in progress that are not depreciated

 Buildings (note 38(d)) 30 years

 Machinery, electronic equipment and other equipment 3 to 10 years

 Motor vehicles 5 years

 Decoration and leasehold improvements 2 to 5 years

(j) Long-term leasehold prepayments

Amortisation is charged to the consolidated statement of profit or loss on a straight-line basis over the period of the land use rights which is generally not exceeding 50 years.

F-91 Huawei Investment & Holding Co., Ltd. Consolidated financial statements for the year ended 31 December 2014

3 Significant accounting policies (continued)

(k) Intangible assets

(i) Research and development

(ii) Other intangible assets

Other intangible assets that are acquired by the Group are stated at cost less accumulated amortisation (where the estimated useful life is finite) and impairment losses (see note 3(m)).

(iii) Amortisation

 Software 3 years

 Patents 3 to 22 years

 Trademark 10 years

Both the period and method of amortisation are reviewed annually.

F-92 Huawei Investment & Holding Co., Ltd. Consolidated financial statements for the year ended 31 December 2014

3 Significant accounting policies (continued) (l) Leased assets An arrangement, comprising a transaction or a series of transactions, is or contains a lease if the Group determines that the arrangement conveys a right to use a specific asset or assets for an agreed period of time in return for a payment or a series of payments. Such a determination is made based on an evaluation of the substance of the arrangement and is regardless of whether the arrangement takes the legal form of a lease. (i) Classification of assets leased to the Group Assets that are held by the Group under leases which transfer to the Group substantially all the risks and rewards of ownership are classified as being held under finance leases. Leases which do not transfer substantially all the risks and rewards of ownership to the Group are classified as operating leases. (ii) Operating lease charges Where the Group has the use of assets held under operating leases, payments made under the leases are charged to profit or loss in equal instalments over the accounting periods covered by the lease term, except where an alternative basis is more representative of the pattern of benefits to be derived from the leased asset. Lease incentives received are recognised in profit or loss as an integral part of the aggregate net lease payments made. Contingent rentals are charged to profit or loss in the accounting period in which they are incurred.

(m) Impairment of assets (i) Impairment of investments in debt and equity securities and other receivables Investments in debt and equity securities and other current and non-current receivables that are stated at cost or amortised cost or are classified as available-for-sale securities are reviewed at the end of each reporting period to determine whether there is objective evidence of impairment. Objective evidence of impairment includes observable data that comes to the attention of the Group about one or more of the following loss events:

 significant financial difficulty of the debtor;

 a breach of contract, such as a default or delinquency in interest or principal payments;

 it becoming probable that the debtor will enter bankruptcy or other financial reorganisation;

 significant changes in the technological, market, economic or legal environment that have an adverse effect on the debtor; and

 a significant or prolonged decline in the fair value of an investment in an equity instrument below its cost.

F-93 Huawei Investment & Holding Co., Ltd. Consolidated financial statements for the year ended 31 December 2014

3 Significant accounting policies (continued)

(m) Impairment of assets (continued)

(i) Impairment of investments in debt and equity securities and other receivables (continued)

If any such evidence exists, any impairment loss is determined and recognised as follows:

 For investments in associates and joint ventures accounted for under the equity method (see note 3(e)), the impairment loss is measured by comparing the recoverable amount of the investment with its carrying amount in accordance with note 3(m)(ii). The impairment loss is reversed if there has been a favourable change in the estimates used to determine the recoverable amount in accordance with note 3(m)(ii).

 For unquoted equity securities carried at cost, the impairment loss is measured as the difference between the carrying amount of the financial asset and the estimated future cash flows, discounted at the current market rate of return for a similar financial asset where the effect of discounting is material. Impairment losses for equity securities carried at cost are not reversed.

 For trade and other current receivables and other financial assets carried at amortised cost, the impairment loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the financial assets’ original effective interest rate (i.e. the effective interest rate computed at initial recognition of these assets), where the effect of discounting is material. This assessment is made collectively where these financial assets share similar risk characteristics, such as similar past due status, and have not been individually assessed as impaired. Future cash flows for financial assets which are assessed for impairment collectively are based on historical loss experience for assets with credit risk characteristics similar to the collective group.

F-94 Huawei Investment & Holding Co., Ltd. Consolidated financial statements for the year ended 31 December 2014

3 Significant accounting policies (continued)

(m) Impairment of assets (continued)

(i) Impairment of investments in debt and equity securities and other receivables (continued)

 For available-for-sale securities, the cumulative loss that has been recognised in the fair value reserve is reclassified to profit or loss. The amount of the cumulative loss that is recognised in profit or loss is the difference between the acquisition cost (net of any principal repayment and amortisation) and current fair value, less any impairment loss on that asset previously recognised in profit or loss.

(ii) Impairment of other assets

 investment property and other property, plant and equipment;

 long-term leasehold prepayments;

 other long-term deferred assets;

 intangible assets; and

 goodwill

F-95 Huawei Investment & Holding Co., Ltd. Consolidated financial statements for the year ended 31 December 2014

3 Significant accounting policies (continued)

(m) Impairment of assets (continued)

(ii) Impairment of other assets (continued)

 Calculation of recoverable amount

The recoverable amount of an asset is the greater of its fair value less costs of disposal and 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. Where an asset does not generate cash inflows largely independent of those from other assets, the recoverable amount is determined for the smallest group of assets that generates cash inflows independently (i.e. a cash-generating unit).

 Recognition of impairment losses

 Reversals of impairment losses

F-96 Huawei Investment & Holding Co., Ltd. Consolidated financial statements for the year ended 31 December 2014

3 Significant accounting policies (continued)

(n) Inventories

Inventories are carried at the lower of cost and net realisable value.

Cost is calculated using the standard cost method with periodical adjustments of cost variance to arrive at the actual cost, which approximates to a weighted average cost formula. The cost of inventories includes expenditures incurred in acquiring the inventories and bringing them to their present location and condition. In the case of manufactured inventories and work in progress, cost includes an appropriate share of overheads based on normal operating capacity.

Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and the estimated costs necessary to make the sale.

(o) Employee benefits

(i) Short term employee benefits, contributions to defined contribution retirement plans and other long-term employee benefits

Salaries, profit-sharing and bonus payments, paid annual leave and contributions to defined contribution retirement plans are accrued in the year in which the associated services are rendered by employees. Where payment or settlement is deferred and the effect would be material, these amounts are stated at their present values.

(ii) Defined benefit obligations

F-97 Huawei Investment & Holding Co., Ltd. Consolidated financial statements for the year ended 31 December 2014

3 Significant accounting policies (continued)

(o) Employee benefits (continued)

(ii) Defined benefit obligations (continued) Service cost and interest cost on the defined benefit obligations are recognised in profit or loss. Current service cost is measured as the increase in the present value of the defined benefit obligations resulting from employee service in the current period. When the benefits of a plan are changed, or when a plan is curtailed, the portion of the changed benefit related to past service by employees, or the gain or loss on curtailment, is recognised as an expense in profit or loss at the earlier of when the plan amendment or curtailment occurs and when related restructuring costs or termination benefits are recognised. Interest cost on defined benefit obligations for the period is determined by applying the discount rate used to measure the defined benefit obligation at the beginning of the reporting period to the defined benefit obligations. The discount rate is the yield at the end of the reporting period on high quality corporate bonds that have maturity dates approximating the terms of the Group’s obligations. Remeasurements arising from defined benefit plans are recognised immediately in other comprehensive income and shall not be reclassified to profit or loss in a subsequent period. However, the remeasurement amounts recognised in other comprehensive income may be transferred within equity. Remeasurements include actuarial gains and losses. (p) Income tax Income tax for the year comprises current tax and movements in deferred tax assets and liabilities. Current tax and movements in deferred tax assets and liabilities are recognised in profit or loss except to the extent that they relate to items recognised in other comprehensive income or directly in equity, in which case the relevant amounts of tax are recognised in other comprehensive income or directly in equity, respectively.

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the end of the reporting period, and any adjustment to tax payable in respect of previous years. Deferred tax assets and liabilities arise from deductible and taxable temporary differences respectively, being the differences between the carrying amounts of assets and liabilities for financial reporting purposes and their tax bases. Deferred tax assets also arise from unused tax losses and unused tax credits.

F-98 Huawei Investment & Holding Co., Ltd. Consolidated financial statements for the year ended 31 December 2014

3 Significant accounting policies (continued)

(p) Income tax (continued)

F-99 Huawei Investment & Holding Co., Ltd. Consolidated financial statements for the year ended 31 December 2014

3 Significant accounting policies (continued)

(p) Income tax (continued)

 in the case of current tax assets and liabilities, the Group intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously; or

 in the case of deferred tax assets and liabilities, if they relate to income taxes levied by the same taxation authority on either:

 the same taxable entity; or

 different taxable entities, which, in each future period in which significant amounts of deferred tax liabilities or assets are expected to be settled or recovered, intend to realise the current tax assets and settle the current tax liabilities on a net basis or realise and settle simultaneously.

(q) Provisions and contingent liabilities

(i) Provision for warranties

(ii) Provision for onerous contracts

F-100 Huawei Investment & Holding Co., Ltd. Consolidated financial statements for the year ended 31 December 2014

3 Significant accounting policies (continued)

(q) Provisions and contingent liabilities (continued)

(iii) Other provisions and contingent liabilities

(r) Revenue recognition

(i) Sale of goods and provision of services

F-101 Huawei Investment & Holding Co., Ltd. Consolidated financial statements for the year ended 31 December 2014

3 Significant accounting policies (continued)

(r) Revenue recognition (continued)

(ii) Rental income from operating leases

(s) Government grants

Government grants are recognised in the consolidated statement of financial position only when there is reasonable assurance that they will be received and that the Group will comply with the conditions attaching to them. Grants that compensate the Group for expenses incurred are recognised as other income in profit or loss on a systematic basis in the same periods in which the expenses are incurred. Grants that compensate the Group for the cost of an asset are recognised as deferred income and consequently are effectively recognised in profit or loss on a systematic basis over the useful life of the asset.

(t) Translation of foreign currencies

(i) Foreign currency transactions

Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the foreign exchange rates ruling at the transaction dates. Non-monetary assets and liabilities denominated in foreign currencies that are stated at fair value are translated using the foreign exchange rates ruling at the dates the fair value was measured.

F-102 Huawei Investment & Holding Co., Ltd. Consolidated financial statements for the year ended 31 December 2014

3 Significant accounting policies (continued)

(t) Translation of foreign currencies (continued)

(ii) Foreign operations

(u) Finance income and expenses

Finance income comprises dividend and interest income on funds invested (including available-for-sale financial assets), gains on the disposal of available-for-sale and held- for-trading financial assets, and changes in the fair value of held-for-trading financial assets. Interest income is recognised as it accrues using the effective interest method. Dividend income from unlisted investments is recognised when the equity holder’s right to receive payment is established; dividend income from listed investments is recognised when the share price of the investment goes ex-dividend.

F-103 Huawei Investment & Holding Co., Ltd. Consolidated financial statements for the year ended 31 December 2014

3 Significant accounting policies (continued)

(u) Finance income and expenses (continued)

Foreign exchange gains and losses are included under finance income or expenses on a net basis.

(v) Non-current assets held for sale

Impairment losses on initial classification as held for sale, and on subsequent remeasurement while held for sale, are recognised in profit or loss. As long as a non- current asset is classified as held for sale, or is included in a disposal group that is classified as held for sale, the non-current asset is not depreciated or amortised.

F-104 Huawei Investment & Holding Co., Ltd. Consolidated financial statements for the year ended 31 December 2014

3 Significant accounting policies (continued)

(w) Related parties