ZTE : 2021 Annual Report

Important

The Board of Directors, Supervisory Committee and the Directors, Supervisors and senior management of the Company confirm that the contents of this report are true, accurate and complete without any false information, misleading statements or material omissions, and collectively and individually accept legal responsibility therefor.

There are no Directors, Supervisors or senior management who do not warrant or who dispute the truthfulness, accuracy and completeness of the contents of this report.

This report has been considered and approved at the Forty-fifth Meeting of the Eighth Session of the Board of Directors of the Company.

The annual financial statements of the Group for the year ended 31 December 2021 have been audited by Ernst & Young Hua Ming LLP, which has issued an unqualified auditors' report.

During the year, there was no significant deficiency in internal control in relation to financial reporting of the Company, nor was any significant deficiency in internal control in relation to non-financial reporting identified.

Mr. Li Zixue, Chairman of the Company, Ms. Li Ying, Chief Financial Officer of the Company and Mr. Xu Jianrui, Head of Finance Division of the Company, hereby declare that they warrant the truthfulness, accuracy and completeness of the financial reports contained in this report.

In view of the state of affairs of the Company, the proposal for profit distribution for 2021 is as follows: distribution of RMB3 in cash (before tax) for every 10 shares to all shareholders based on the total share capital (including A shares and H shares) as at the record date for profit distribution and dividend payment. In the event of changes in the Company's total share capital after the announcement of the Company's profit distribution proposal for 2021 but before its implementation, the total amount of distribution shall be readjusted in accordance with the law on the basis of the total share capital (including A shares and H shares) as at the record date for profit and dividend distribution for the purpose of the profit distribution proposal for 2021 according to the existing proportion for distribution. The aforesaid matter is subject to consideration and approval at the general meeting.

This report contains forward-looking statements in relation to subjects such as future plans, which do not constitute any specific undertakings to investors by the Company. Investors are asked to beware of investment risks and their attention is drawn to the description of the potential risks inherent in the operations of the Company set out in the section headed "Report of the Board of Directors (V) Business outlook of 2022 and risk exposures" in this report.

This report has been prepared in Chinese and English, respectively. In case of discrepancy, the Chinese version shall prevail.

China Securities Journal, Securities Times, Shanghai Securities News andhttp://www.cninfo.com.cnare designated media for the Company's information disclosure. Investors are asked to beware of investment risks.

Contents

• 2 Definitions

• 4 Glossary

• 10 Company Profile

• 11 Corporate Informaion

• 14 Chairman's Statement

• 16 Highlights of Accounting Data and Financial Indicators

• 19 Summary of the Company's Business

• 25 Report of the Board of Directors

• 56 Corporate Governance Report

• 87 Environmental and Social Responsibility

• 90 Material Matters

• 110 Changes in Shareholdings and Information of Shareholders

• 118 Directors, Supervisors, Senior Management and Employees

• 128 Information on Bonds

• 134 Audit Report

• 142 Financial Statements Prepared and Notes Thereto

• 320 Documents Available for Inspection

Definitions

In this report, unless the context otherwise requires, the following terms shall have the meanings set out below. Certain other terms are explained in the section headed "Glossary".

Company or ZTE	ZTE Corporation, a limited company incorporated in China, the shares of
which are listed on the Shenzhen Stock Exchange and the Hong Kong Stock
Exchange, respectively
Articles of Association	The Articles of Association of ZTE Corporation (June 2021)
Company Law	Company Law of the People's Republic of China
Securities Law	Securities Law of the People's Republic of China
Group	ZTE and one or more of its subsidiaries
Board of Directors	The board of directors of the Company
Directors	Members of the board of directors of the Company
Supervisory Committee	The supervisory committee of the Company
Supervisors	Members of the supervisory committee of the Company
China or PRC	The People's Republic of China
MOF	PRC Ministry of Finance
CSRC	China Securities Regulatory Commission
Shenzhen Stock Exchange	The Shenzhen Stock Exchange
Shenzhen Listing Rules	Rules Governing the Listing of Stocks on the Shenzhen Stock Exchange
Hong Kong Stock Exchange	The Stock Exchange of Hong Kong Limited
Hong Kong Listing Rules	Rules Governing the Listing of Securities on The Stock Exchange of Hong
Kong Limited
SFO	Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong)
Companies Ordinance	Companies Ordinance (Chapter 622 of the laws of Hong Kong)
PRC ASBEs	PRC Accounting Standards for Business Enterprise (Generally accepted
accounting principles in China)
HKFRSs	Hong Kong Financial Reporting Standards (including Hong Kong Accounting
Standards ("HKASs") and Interpretations)
ZTE HK	ZTE (H.K.) Limited
Zhongxing Software	Shenzhen Zhongxing Software Company Limited
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Definitions
China Eagle Electronic	Huizhou China Eagle Electronic Technology Inc.
Huaheng Biotech	Anhui Huaheng Biotechnology Co., Ltd.
Anji Technology	Anji Microelectronics Technology (Shanghai) Co., Ltd.
NOVORAY	Jiangsu NOVORAY New Material Co., Ltd
Chipsea Technologies	Chipsea Technologies (Shenzhen) Corporation
Leadyo	Guangdong Leadyo IC Testing Co., Ltd.
Circuit Fabology	Circuit Fabology Microelectronics Equipment Co., Ltd.
Hajime	Shanghai Hajime Advanced Material Technology Co., Ltd
Enablence Technologies	Enablence Technologies Inc.
ZTE Capital	Shenzhen ZTE Capital Management Company Limited
Jiaxing Fund	Jiaxing Xinghe Equity Investment Partnership (Limited Partnership)
Zhonghe Chunsheng Fund III	Suzhou Zhonghe Chunsheng Partnership Investment Fund III (Limited
Partnership)
Hengjian Xinxin	Guangdong Hengjian Xinxin Investment Partnership Enterprise (Limited
Partnership)
Huitong Rongxin	Shenzhen Huitong Rongxin Investment Co., Ltd (Renamed "Shenzhen
Nanshan Strategic New Industries Investment Company Limited")
Zhongxingxin	Zhongxingxin Telecom Company Limited
Xi'an Microelectronics	Xi'an Microelectronics Technology Research Institute
Aerospace Guangyu	Shenzhen Aerospace Guangyu Industrial Company Limited
Zhongxing WXT	Shenzhen Zhongxing WXT Equipment Company Limited
Guoxing Ruike	Zhuhai Guoxing Ruike Capital Management Centre (Limited Partnership)
ZTE Microelectronics	ZTE Microelectronics Technology Company Limited
2017 Share Option Incentive	the share option incentive scheme considered and approved at the 2016
Scheme	Annual General Meeting, the First A Shareholders' Class Meeting of 2017
and the First H Shareholders' Class Meeting of 2017 of the Company
2020 Share Option Incentive	the share option incentive scheme considered and approved at the Second
Scheme	Extraordinary General Meeting 2020 of the Company
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Glossary

This glossary contains definitions of certain technical terms used in this report as they relate to the Group. Some of these definitions may not correspond to standard industry definitions or usage.

5G

Fifth-generation mobile communications, which is a general reference to the ensemble of post-4G broadband wireless communication technologies. The general view of the industry is that 5G is capable of providing faster data throughput (1,000 times faster than currently available) and more connections (100 times more than currently available), more efficient utilisation of energy (10 times of the current level of efficiency) and shorter end-to-end time delay (1/5 of the current length of time delay). It goes beyond human-to-human communication to cover a wide range of applications such as ultra-intensive networks, machine-to-machine communication and the internet of vehicles.

ICT

New products and services arising from the integration of IT (information technology) and CT (communications (i.e., the transmission of information) technology).

New Infrastructure Novel infrastructure facilities such as 5G, artificial intelligence ("AI"), industrial Internet and the Internet of Things ("IOT").

East-to-West Data

Computing

An "information pipeline" analogous to the "West-to-East Gas Pipeline", whereby data of the eastern regions are "transmitted" to the national algorithmic hubs and nodes built in western regions for storage and computing, in order to improve the imbalances of digital infrastructure facilities and realise the optimal value of data as capital.

Carbon Peak and

Carbon Neutrality

Carbon peak refers to the downward cycle of carbon dioxide emission after such emission reaches its maximum volume by a certain year; carbon neutrality refers to the absorption and offsetting of carbon dioxide generated by specific entities or activities of the community as a whole over a specified period through natural processes or artificial means such as plantation and afforestation, absorption by the ocean or constructed seal-off, in order to achieve relative "zero emission" of carbon dioxide by human activities.

Cloud-net integration A base resource layer oriented towards the cloud and the network that ultimately achieves succinct, swift, open, integrated, safe and intelligent resource supply for novel information infrastructure by implementing virtualised/cloudified technical structures.

Algorithmic network A novel information infrastructure that allocates and flexibly modulates computing resources, storage resources and network resources among the cloud, the network and the edge on an as-needed basis according to business requirements.

Distributed database A logically coherent database formed by the interconnection of multiple data storage units located in different physical locations using a high-speed computer network, so as to enable larger storage capacity and higher volume of simultaneous visits.

AI

Artificial Intelligence, the use of machine to aid or replace human in doing certain tasks by simulating the sight, hearing, senses and thinking of human.

PowerPilot

5G green energy efficiency solution.

Openlab

Open laboratories.

Integrated core network

Mobile network comprises a wireless access network and a core network, the latter of which provides services such as call control, billing and mobility. An integrated core network supports multi-modal core network functions on a simultaneous basis.

5G NSA

The Non-Standalone network architecture model as defined under 3GPP, where the 4G base station is used in conjunction with the 5G base station on the wireless side, while the core network could be a 4G core network or 5G core network. As a transitional network architecture model, NSA allows full utilisation of existing 4G network resources.

5G SA

The Standalone network architecture model as defined under 3GPP, where the 5G base station is used on the wireless side and 5G core network is used. SA is the target infrastructure of 5G network evolution.

Integrated cloud-net cabinet

Integrated deployment of equipment such as edge cloud, wireline access and private wireless net through a centralised cabinet with default typical applications, supporting feature functions such as integrated wireline and wireless access, private net voice and news and capable of flexibly submerged to the access server rooms of corporate business zones or carriers.

WAN

Wide area network.

Single carrier

In a dense wavelength-division multiplexing (DWDM) system that facilitates the use of multiple wavelengths on one optical fibre, each wavelength is known as a single-carrier, the speed of which has been increasing with the evolution of optical technology such as single carrier 2.5G, 10G, 100G, 200G, 400G, 800G and 1.2T.

C+L bands

Conventional band and long-wavelength band, the two commonly used wavelength-division frequency bands in the usable wavelengths of optical fibre. In the DWDM system, the C band has already been put to wide applications, while with the increasing demand for bandwidth, the L band has now also been put to trial runs for commercial applications.

Data centre or DC An Internet-based infrastructure centre that operates and maintains equipment for centralised collection, storage, processing and dispatch of data, and provides related services.

SRv6

SRv6 (Segment Routing IPv6), a protocol for forwarding IPv6 data packs on the network designed on the basis of the source router concept. SRv6 adopts the existing IPv6 forwarding technology and facilitates processing similar to label forwarding by expanding the header fields of the IPv6 text. SRv6 is capable of further simplifying the network protocol to allow more flexible service route planning.

CN2

ChinaNet Next Carrying Network.

SDN

Software Defined Network, a new type of innovative network architecture.

FlexE

Flex Ethernet, which facilitates flexible speed, greater bandwidth and passage separation. FlexE is one of the recognised key technologies for 5G bearer networks and the core of third-generation ethernet technologies.

OXC

Optical cross-connect, which offers the advantages of greater scalability compared to ROADM, "0" fibre jump, a high level of systems integration, easy maintenance, occupation of less server room space and lower equipment cost.

CLOS architecture An architecture for multi-level circuit exchange network representing an improvement to the Crossbar structure, through which unobstructed network could be provided. CLOS has the merits of cost savings and efficiency enhancement.

PON

Passive Optical Network, a network that provides optical access services to users through the use of passive optical network technology and facilitates conservation of optical fibre resources on the main line through the adoption of a point-to-multipoint topological structure. It also offers flow management and security control functions.

FTTR

FTTR (Fiber to The Room) is a networking mode connecting different indoor AP with the indoor all-optical node through optical fibre to achieve a 1,000M+ coverage throughout the house.

MEC

Mobile Edge Computing, through which services and cloud computing functions required by telecom users IT can be provided from a nearby point using wireless access networks to create a telecom service environment featuring high performance, low latency and high bandwidth, accelerating the fast download of contents, services and applications in the network to allow uninterrupted premium network experience on the part of consumers.

ONT

Optical Network Terminal.

Low bitrate HD

Reducing bandwidth and storage space for videos while providing the same quality in user experience, mainly through the application of: intelligent image segmentation, more refined and intelligent compression code technology and AI-based SR technology.

Video SR

SR (Super Resolution) involves the conversion of low resolution videos to high resolution videos with the application of AI intelligent technologies to reduce bandwidth and enhance image details. It can be applied in video communication, monitor and industrial applications.

User experience in countering weak

Real-time detection of network status and dynamic adjustment of parameters such as video bandwidth, resolution and latency according to service preference during weak

network connection network connection to compensate for network packet loss, so as to enhance user experience.

Free viewpointFree viewpoint is a technology that allows uninterrupted capturing with precise synchronic control through multiple cameras to ensure synchronic delivery and preservation of spectacular live shots, such that users are able to watch matches with a 360º free viewpoint by clicking the live video under the interactive mode.

Machine vision

Simulation of human visual functions using computers to extract, process and understand information from images of physical objects, to be applied in four major scenarios: identification, detection, surveying and positioning, for various industries.

SLAM

Simultaneous localisation and mapping, which involves the creation of scenario models with survey data acquired through sensors, is applied mainly to solve the problem of voluntary motion of robots in an unknown environment.

Point cloud

Data on 3D coordinate points of the external surface of a target object acquired through survey instruments are collectively known as point cloud.

Space arrangement Also known as content space arrangement or virtual content arrangement, a process of placing the virtual object (model) into the space of the point cloud model to facilitate the design of augmented reality effect.

Spatial positioning The process of acquiring the posing information of equipment in the current scenario through the survey data of sensors. Generally this means the repositioning process in SLAM or 3D reconstruction.

Cloud identification The process of uploading the sensor's survey data to the cloud for target identification using identification alogrithms and returning identification results.

Cloud render

The operation of 3D applications on a remote cloud server for 3D effect rendering and the transmission of the rendered image back to the user's terminal for display. The major merit of cloud render is that it could provide quality 3D rendering on any terminal (light-weight or heavy-weight).

CDN

Content Delivery Network, a network structure capable of redirecting on a real-time basis a user's request to the closest service node available to such user based on network flow and information of various service nodes such as connection, load, distance from the user and response time.

Big Video

Ultra-high-definition videos such as 4K/8K/VR/AR, as opposed to standard-definition and high-definition videos, which feature richer contents and more exacting requirements for channels, signifying the big video era for the video business. In particular, 4K is a range of resolution, namely, a display quality approximating 4,096 pixels in horizontal resolution.

Cloud base

Provision of basic virtual singular or hybrid resource services for virtual machine, bare machine and container based on the cloud infrastructure, operating on standardised hardware facilities or enhanced and customised hardware equipment. It provides technical components and network and business services on an integrated basis and is expandable as required to provide cloud-native technology stack for a range of products.

Heterogeneous acceleration

The technology of allocating processing tasks to accelerated hardware to reduce the workload of the CPU with the application of hardware modules in place of software algorithm to achieve performance enhancement and cost optimisation. A computing structure applying hardware structure is also known as heterogenous computing.

XR

Extended Reality, a collective reference to AR (Augmented Reality), VR (Virtual Reality) and MR (Mixed Reality), which is an environment featuring the combination of reality and simulation and human-machine interaction enabled by computer technology and wearable device.

5G natural navigation Robotic technology leveraging the characteristics of 5G network communication that facilitates the sensing of a physical environment through multi-modal sensors with the aid of intelligent algorithm analysis to allow voluntary selection of effective approaches and pathways and voluntary movement.

Digital twin

A multi-disciplinary, multi-physical dynamic, multi-dimensional and multi-probable simulation process utilising fully data such as physical models, sensor updates and operating history that completes projection in a virtual space to reflect the full life cycle of the corresponding physical entity.

5G cloud-based PLC A 5G-based structure that performs software-enabled PLC functions by upshifting the

CPU of traditional (PLC) programmable logic controller to the cloud for deployment, utilising fully 5G MEC (mobile edge computing) to solve the issues with traditional PLC, such as relatively small algorithmic capacity, lack of scalability and difficulties in centralised management.

Intrinsic safety base station

Mine intrinsic safety base station is an Internet access device that facilitates communication at critical locations in a coal mine well. It is suitable for use at a corrosive gas scene in coal mine wells where explosive mixtures such as methane and coal dust are present but where insulation is uncompromised. It does not require the addition of metal cases or fillings to avoid explosion, and the level of energy generated from sparks or thermal effect occurring during normal use or breakdown complies with national standards applicable to mines. The device is characterised by its small size, light weight and high safety level.