ZTE Corporation

000063

CNE000000TK5

Communications & Networking

End-of-day quote Shenzhen S.E. Other stock markets 06:00:00 2024-04-23 pm EDT			5-day change	1st Jan Change
28.24 ^CNY	+2.69%		+2.36%	+6.65%

Apr. 15	Ying Li Returns to Profit in 2023 as Revenue Rises 25.5%	MT
Apr. 11	China Telecom Research Institute, ZTE Corporation and Yangtze Optical Fibre and Cable Joint Stock Limited Company Jointly Set World Record for Real-Time Transmission of over 120Tbit/s on A Single Fibre in S+C+L Band	CI

ZTE : INTERIM REPORT 2020

September 10, 2020 at 10:20 am EDT

stock code : 000063.SZ

763.HK

INTERIM REPORT 2020

Important

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

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 Twenty-second Meeting of the Eighth Session of the Board of Directors of the Company.

The interim financial reports of the Group for the six months ended 30 June 2020 were unaudited.

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.

No profit distribution or conversion of capital reserves will be implemented in respect of the interim period of 2020.

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 (VI) Business outlook for the second half of 2020 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, except for the financial statements prepared in accordance with Hong Kong Financial Reporting Standards, of which the English version shall prevail.

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

Contents

DEFINITIONS	2
GLOSSARY	4
I.	CORPORATE INFORMATION	6
II.	HIGHLIGHTS OF ACCOUNTING DATA AND FINANCIAL INDICATORS	7
III.	SUMMARY OF THE COMPANY'S BUSINESS	9
IV.	REPORT OF THE BOARD OF DIRECTORS	12
V.	MATERIAL MATTERS	34
VI.	CHANGES IN SHAREHOLDINGS AND INFORMATION OF SHAREHOLDERS	55
VII.	DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT	61
VIII. FINANCIAL STATEMENTS PREPARED IN ACCORDANCE WITH PRC ASBEs (UNAUDITED)
	AND NOTES THERETO	65
IX.	FINANCIAL STATEMENTS PREPARED IN ACCORDANCE WITH HONG KONG
	ACCOUNTING STANDARD 34 (UNAUDITED) AND NOTES THERETO	220
X.	DOCUMENTS AVAILABLE FOR INSPECTION	252

ZTE CORPORATION INTERIM REPORT 2020

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
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 CSRC	The CSRC Shenzhen Bureau
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)
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
Mentech	Dongguan Mentech Optical & Magnetic Co., Ltd
Union Optech	Union Optech Co., Ltd.

ZTE CORPORATION INTERIM REPORT 2020

Shijia Science & Technology	Suzhou Shijia Science & Technology Inc.
China Eagle Electronic	Huizhou China Eagle Electronic Technology Inc.
Beken	Beken Corporation
Anji Technology	Anji Microelectronics Technology (Shanghai) Co., Ltd.
Novoray	Novoray Corporation
ST PD Group	Pang Da Automobile Trade Co., Ltd
Enablence Technologies	Enablence Technologies Inc.
ZTE Capital	Shenzhen ZTE Capital Management Company Limited
Zhonghe Chunsheng Fund I	Shenzhen Zhonghe Chunsheng Partnership Private Equity Fund I (Limited
	Partnership)
Jiaxing Fund	Jiaxing Xinghe Equity Investment Partnership (Limited Partnership)
Zhonghe Chunsheng Fund III	Suzhou Zhonghe Chunsheng Partnership Investment Fund III (Limited
	Partnership)
Zhongxingxin	Zhongxingxin Telecom Company Limited
Zhongxing Hetai	Shenzhen Zhongxing Hetai Hotel Investment and Management Company
	Limited
航天歐華	航天歐華信息技術有限公司
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 Group Finance	ZTE Group Finance Co., Ltd.
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

ZTE CORPORATION INTERIM REPORT 2020

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.

4G	Fourth-generation mobile networks operating according to IMT-Advanced standards as
	defined by ITU, including LTE-Advanced and Wireless MAN-Advanced (802.16m)
	standards, which support theoretical download rates of 1Gbit/s at fixed locations and
	100Mbit/s in motion.
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).
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.
AR	Augmented Reality, a technology that superimposes virtual objects not existing in reality
	onto the real world through 3D registration and "aug-mediation", facilitating a natural
	interaction between virtual objects and the reality to create faked reality with real-time
	images, which are further projected to end-to-end technologies and devices of other
	media via monitoring devices.
VR	Virtual Reality, a virtual 3D environment created with the aid of the computer system
	and sensor technologies, providing the visual experience of a highly simulated reality
	and immersive human-machine interaction by engaging all senses of users (sight, sound,
	touch and smell).
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.
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.
	PON can be distinguished into FTTH, FTTDp, FTTB and FTTC based on different
	destinations of optical connection, or GPON, EPON, 10G EPON and XG PON, etc based
	on different standards.
SA	Standalone Access. In the context of 5G, it refers to the use of 5G base stations for
	signalling and data transmission at the same time. It adopts the new 5G packet
	switching core network architecture instead of the 4G core network. 5G SA networks
	can be deployed entirely independent of the 4G network.
NSA	Non-Standalone Access. In the context of 5G, non-standalone access is an option in 5G
	deployment. Under this model, the control function is dependent on the control interface
	of the existing LTE network, while 5G is entirely focused on the user interface.
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.

ZTE CORPORATION INTERIM REPORT 2020

Common Edge	An innovative plan launched by ZTE, Common Edge is a platform engaged in both the
	provision of resource computation and wireless network capacity. By facilitating the in-
	depth integration of mobile access network and Internet services, it does not only
	improve user experience and conserve bandwidth resources, but can also provide third-
	party applications integration by submerging computing capacities to the edge of the
	network, thereby offering opportunities for innovative services at the mobile edge
	entrance.
OTN	Optical Transport Network, a transmission network formed at the optical layer based on
	the wavelength-division multiplexing technology. OTN is a "digital transmission system"
	and "optical transmission system" regulated by a range of ITU-T recommendations such
	as G.872, G.709 and G.798, purporting to solve the problems of traditional WDM
	networks, such as poor modulation in the no-wavelength/sub-wavelength services, weak
	network formation and weak protection.
WDM	Wavelength Division Multiplexing, a technology that transmits a number of laser signals
	with different wavelengths simultaneously on a single optical fiber using multiple lasers,
	resulting in the exponential increase of the transmission capacity of optical fiber.
Big Data	A data set that is too large and complex to be processed by existing conventional
	database management technologies and tools, and that requires the use of new data
	processing and management technologies in order to create value from the set in a
	speedy and economic manner. It has revolutionary long-term implications for the
	development of informatisation, smart applications and business models of the society.
	Big Data is often characterised by 4Vs: Volume, Variety, Velocity and Value.
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 4096 pixels in horizontal
	resolution.
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.
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.
Data centre	An Internet-based infrastructure centre that operates and maintains equipment for
	centralised collection, storage, processing and dispatch of data, and provides related
	services.
IOT	Internet Of Things, a massive network connecting all sorts of information sensory
	devices, such as radio frequency identification units, ultra-red sensors, global
	positioning systems and laser scanners, to the Internet with the aim of connecting all
	things to the network for easy identification and management.
Cloud Computing	The concept underlining the fusion of traditional computing technologies such as grid
	computation and distributed computation with network technology development. The
	core idea is to centralise the management and modulation of massive computing
	resources connected through the network, forming a pool of computing resources that
	serve users on an as-needed basis. Cloud Computing is applied in business models
	such as SaaS, PaaS and IaaS.
Intelligent	An integrated intelligent system comprising intelligent machines and human experts
manufacturing	which is capable of intelligent activities such as analysing, inferring, making judgments,
	postulating and making decisions in the manufacturing process, such that manufacturing
	automation can reach a higher level in terms of flexibility, intelligence and
	intensification.
Cloud computer	An overall service plan including cloud resources, transmission protocol and cloud
	terminal, providing desktop, application, hardware and other resources to users on a
	service-on-demand basis with flexible allocation using multiple forms of cloud terminals
	through efficient and safe transmission protocol.

ZTE CORPORATION INTERIM REPORT 2020

Corporate Information

1.	Legal name (in Chinese)	中興通訊股份有限公司
	Chinese abbreviation	中興通訊
	Legal name (in English)	ZTE Corporation
	English abbreviation	ZTE
2.	Legal representative	Li Zixue
3.	Secretary to the Board of	Ding Jianzhong
	Directors/Company Secretary
	Securities affairs representatives	Xu Yulong
	Correspondence address	No. 55, Keji Road South, Shenzhen, Guangdong Province,
		The People's Republic of China
	Telephone	+86 755 26770282
	Facsimile	+86 755 26770286
	E-mail	IR@zte.com.cn
4.	Registered and office address	ZTE Plaza, Keji Road South, Hi-Tech Industrial Park,
		Nanshan District,
		Shenzhen, Guangdong Province,
		The People's Republic of China
	Postal code	518057
	Website	http://www.zte.com.cn
	E-mail	IR@zte.com.cn
	Principal place of business in Hong Kong	31/F, Tower Two, Times Square,
		1 Matheson Street, Causeway Bay,
		Hong Kong

Authorised representatives
Media designated for information disclosure by the Company
Authorised websites on which this report is made available
Place where this report is available for inspection
Listing information

Gu Junying

Ding Jianzhong

China Securities Journal, Securities Times, Shanghai Securities News http://www.cninfo.com.cn http://www.hkexnews.hk

No. 55, Keji Road South, Shenzhen, Guangdong Province,

The People's Republic of China

A shares

Shenzhen Stock Exchange Abbreviated name of stock: 中興通訊 Stock code: 000063

H shares

Hong Kong Stock Exchange Abbreviated name of stock: ZTE Stock code: 763

Change in other relevant information

□ Applicable

N/A

ZTE CORPORATION INTERIM REPORT 2020

Highlights of Accounting Data and Financial Indicators

WHETHER THE COMPANY HAS MADE RETROSPECTIVE ADJUSTMENTS TO OR RESTATEMENT OF ACCOUNTING DATA OF THE PREVIOUS YEAR BECAUSE OF CHANGES IN ACCOUNTING POLICIES OR FOR THE RECTIFICATION OF ACCOUNTING ERRORS
□Yes No

MAJOR ACCOUNTING DATA AND FINANCIAL INDICATORS OF THE GROUP PREPARED IN ACCORDANCE WITH PRC ASBEs

		Unit: RMB in thousands
			Changes as at the

			end of the
	End of the	End of last year	reporting period
	reporting period	(31 December	compared with the
Item	(30 June 2020)	2019)	end of last year
Total assets	165,432,364	141,202,135	17.16%
Owners' equity attributable to holders of
ordinary shares of the listed company	41,156,116	28,826,868	42.77%
Share capital (thousand shares)Note 1	4,613,435	4,227,530	9.13%
Net assets per share attributable to
holders of ordinary shares of the listed
company (RMB/share)	8.92	6.82	30.79%
			Increased by 0.12
Gearing ratio (%)	73.24%	73.12%	percentage point
		Unit: RMB in thousands
		Same period of

	Reporting period	last year
	(Six months	(Six months	Changes compared
	ended	ended	with the same
Item	30 June 2020)	30 June 2019) period of last year
Operating revenue	47,199,373	44,609,219	5.81%
Operating profit	2,840,600	2,343,209	21.23%
Total profit	2,840,971	2,237,477	26.97%
Net profit attributable to holders of
ordinary shares of the listed company	1,857,289	1,470,699	26.29%
Net profit after extraordinary items
attributable to holders of ordinary
shares of the listed company	902,115	612,138	47.37%
Basic earnings per share
(RMB/share) Note 2	0.40	0.35	14.29%
Diluted earnings per share
(RMB/share) Note 3	0.40	0.35	14.29%
Basic earnings per share after
extraordinary items (RMB/share) Note 2	0.20	0.15	33.33%
			Decreased by 0.92
Weighted average return on net assets	5.28%	6.20%	percentage point
Weighted average return on net assets			Decreased by 0.02
after extraordinary items	2.56%	2.58%	percentage point
Net cash flows from operating activities	2,040,770	1,266,617	61.12%
Net cash flows from operating activities
per share (RMB/share)	0.44	0.30	46.67%

ZTE CORPORATION INTERIM REPORT 2020

Highlights of Accounting Data and Financial Indicators

Note 1: The total share capital of the Company was increased from 4,227,529,869 shares to 4,613,434,832 shares following the non- public issue of 381,098,968 A shares by the Company and the exercise of 4,805,995 A share options by scheme participants under the 2017 Share Option Incentive Scheme of the Company during the reporting period.

Note 2: Basic earnings per share and basic earnings per share after extraordinary items for the reporting period and for the same period last year have been calculated on the basis of the weighted average number of ordinary shares in issue as at the end of the respective periods.

Note 3: As the 2017 share options granted by the Company have given rise to 22,143 thousand and 30,440 thousand potentially dilutive ordinary share for the six months ended 30 June 2020 and the six months ended 30 June 2019, respectively, dilutive earnings per share has been calculated on the basis of basic earnings per share taking into account the said factor.

Extraordinary gains or losses items and amounts deducted are set out as follows:

	Unit: RMB in thousands
Extraordinary item	Amount

Non-operating income, other income and others	1,272,667
Gains/(Losses) from fair value change	(121,434)
Investment income	57,351
Less: Losses on disposal of non-current assets	26,618
Less: Other non-operating expenses	28,670
Less: Asset impairment loss	7,165
Less: Effect of income tax	171,920
Less: Effect of non-controlling interests (after tax)	19,037

Total	955,174

MAJOR FINANCIAL INDICATORS OF THE GROUP PREPARED IN ACCORDANCE WITH HKFRSs

	Six months	Six months
	ended	ended
Item	30 June 2020	30 June 2019
Basic earnings per share (RMB/share) Note	0.40	0.35
Weighted average return on net assets	5.28%	6.20%
Weighted average return on net assets after extraordinary items	2.56%	2.58%

	30 June	31 December
Item	2020	2019
Net assets per share attributable to holders of ordinary shares of
the listed company (RMB/share)	8.92	6.82

Note: Basic earnings per share for the reporting period and for the same period last year have been calculated on the basis of the weighted average number of ordinary shares in issue as at the end of the respective periods.

IV THE AMOUNTS OF NET PROFIT AND SHAREHOLDERS' EQUITY OF THE GROUP FOR THE SIX MONTHS ENDED AND AS AT 30 JUNE 2020 CALCULATED IN ACCORDANCE WITH PRC ASBEs ARE FULLY CONSISTENT WITH THOSE CALCULATED UNDER HKFRSs

ZTE CORPORATION INTERIM REPORT 2020

Summary of the Company's Business

PRINCIPAL BUSINESSES

The Group is dedicated to the provision of ICT products and solutions that satisfy the needs of customers, integrating design, development, production, sales and services with a special focus on carriers' networks, government and corporate business and consumer business. There was no significant change to the principal businesses of the Group during the reporting period.

The carriers' network is focused on meeting carriers' requirements in network evolution with the provision of wireless access, wireline access, bearer networks, core networks, telecommunication software systems and services and other innovative technologies and product solutions.

The government and corporate business is focused on meeting requirements of government and corporate clients, providing informatization solutions for the government and corporations through the application of products such as communications networks, IOT, big data and cloud computing.

The consumer business is focused on bringing experience in smart devices to customers while also catering to the requirements of industry clients through the development, production and sales of products such as smart phones, mobile data terminals, home information terminals and innovative fusion terminals, as well as the provision of related software application and value-added services.

THE INDUSTRY IN WHICH WE OPERATE

The Company is a leading provider of integrated communication and information solutions in the world market, providing innovative technology and product solutions to customers in numerous countries and regions around the world.

The Group owns complete end-to-end products and integrated solutions in the telecommunications industry. Through a complete range of "wireless, wireline, cloud computing and terminal" products, we have the flexibility to fulfil differentiated requirements and demands for fast innovation on the part of different customers around the world.

In future, the Group will continue to focus on mainstream markets and products, enhancing customer's satisfaction as well as market share in an ongoing effort and constantly strengthening its product competitiveness through persistent endeavours in proprietary innovation of core technologies, while forging closer cooperation with partners with a more open-minded approach to build a mutually beneficial industrial chain and embrace together the brilliant and best new era of "mobile smart interconnection of all things".

III. MAJOR ASSETS

There was no significant change in the major assets of the Group during the reporting period. For an analysis of the Group's assets and liabilities, please refer to the section headed "Report of the Board of Directors - (II) 7. Analysis of the Group's assets and liabilities" in this report.

IV. TECHNOLOGICAL INNOVATION

Thanks to consistent investment in innovation over the years in line with its core 5G development strategy, the Group is equipped with the ability to provide a complete range of end-to-end 5G solutions and well-positioned to advance its large-scale global 5G commercial deployment on the back of its leading technologies, products and solutions in wireless products, core networks, bearers, chips, terminals and industrial applications.

ZTE CORPORATION INTERIM REPORT 2020

Summary of the Company's Business

In connection with wireless products, the Group has won a number of second-phase 5G centralised procurement projects of the domestic big three carriers, assisting China Mobile in the construction of a 5G SA network with the highest specifications, largest scale and most complete scenarios on a global basis. We have also assisted China Telecom and China Unicom in the construction of the world's largest shared and jointly constructed 5G SA network capable of providing consecutive coverage above the Gb level. The Group's practical experience in large-scale 5G SA construction in China has provided a useful example for 5G commercial applications elsewhere in the world.

The Group is equipped with the ability in chip design and development. Our full range of high- performance wireless products based on our proprietary 7nm chip have helped carriers to build evolution-ready 5G networks with maximum cost efficiency.

In addition to typical scenarios such as macro-coverage, indoors, hotspot streets and high-speed rail tunnels, the full-scenario and full-frequency 5G products of the Group also provide coverage of special scenarios such as air flight routes and surface ultra-high speed EMS trains. Our FAST (time and frequency synchronisation), SuperDSS (super dynamic spectrum sharing), Massive MIMO performance optimisation and other solutions have generally enhanced the ratio of network resource utilization. Common Core, our fully integrated core network based on cloud native and an advanced micro-service based architecture, have formed a most powerful brain supporting the integrated access of 2/3/4/5G and IOT access, while also supporting 5G SA and NSA to deliver a one-stop architecture that facilitates swift connection of services and intelligent end-to-end slicing deployment. Our Common Edge supports multiple modes such as 4G/5G/WiFi and provides full-scenario MEC hardware, fully-integrated edge cloud and an open platform. Our 5G news centre platform supports traditional SMS, GSMA UP2.4 rich media news and business news. In April, the Group and Zhejiang Mobile connected the first call of 5G news. In May, we completed the first service dispatch in the world. Our ubiquitous AI has contributed to energy conservation and efficiency enhancement for networks on all fronts and provided support to business innovation.

In the 5G bearer segment, we have completed the large-scale deployment of our full range of end-to-end products. As at the end of June 2020, close to 100,000 units had been dispatched. The proprietary chip for FlexE (Flex Ethernet), network processor and switch triplet which supports ultra-low latency has yielded the best test indicators in power consumption leading peers by a significant gap, while the indicator for ultra-high precision time protocol synchronisation technology has attained perfect synchronisation under 3GPP, winning the highest rating of "Established Player" from GlobalData. In connection with optical transmission, we have constructed more than 600 OTN networks around the world featuring 100G/100G+. Our unique Flex Shaping technology has facilitated a 30% improvement in 100G+ transmission distance, making 100G+ deployment substantially easier and upgrade substantially cheaper. Our ZXONE 9700 products have received the top "Leader" rating of GlobalData, an authoritative third-party institution.

In fixed-line access, TITAN, our flagship product in optical access claims the largest capacity and highest level of integration among peers. Our serialised optical and copper-wire access solutions based on resource-sharing have expedited the integrated application of fixed and mobile 5G communication, as investigations have been made in the support of simultaneous 5G+FTTH (Fiber to the home) using one optical fibre to share FTTH network facilities and accelerate 5G deployment. We have deployed the world's largest PON-based mobile backhaul network in Indonesia, where more than 16,000 base stations are supported through the Group's FTTM (Fiber to the mobile) solution. Our OLT (Optical Line Terminal) equipped with a built-in blade solution has expedited our home broadband and 5G service for better user experience. Its unique built-in blade server features the integration of edge computing and access equipment, and the trial commercial application of Access CDN has commenced at Zhejiang Mobile and Anhui Mobile. Our PON and OLT have twice won the National Class II Scientific and Technological Progress Award.

ZTE CORPORATION INTERIM REPORT 2020

In the business of Big Video, our Big Video systems with an aggregate capacity of 130 million has captured further market shares, leading the market in competitiveness and progress in commercial application on the back of integration of CDN products. Our innovative 5G smart pavilion live broadcast solution, the first of its kind in the world, has been put to application in numerous collaborations with the big three carriers of China.

The Group has grown into a Chinese enterprise with a global track record of success in the communication energy sector and an integrated network energy solution provider with global servicing capabilities. As a pioneer in 5G power supply solutions, and a mainstream supplier for data centres, the Group has been engaged in ongoing innovation to provide high-quality green energy solutions to global customers. As at 30 June 2020, the energy products of the Group served 386 carriers in over 160 countries and regions with the successful completion of more than 280 data centre cases.

In the cloud video business, the Group provides users with integrated "5G+ smart video" industry applications through the assortment of latest and most sought-after technologies in 5G, Cloud Computing, Big Data and AI. Our recently announced operational grade uSmart cloud computer solution has profoundly unlocked a new form of safe office to assist the speedy resumption of work and production in the aftermath of the epidemic. Meanwhile, remote live broadcast, remote medical consultation, remote interview and AI smart temperature have all played a part in making outstanding contributions to the fight against the epidemic. In the financial market, the Group facilitated stable online operation of the first new-generationomni-channel coordination centre at a major state-owned bank to contribute to the digital transformation of the financial industry.

As one of the Group's strategic products targeting the ICT sector developed on the back of 18 years of R&D efforts and more than 100 licensed patents, our GoldenDB (distributed database), leading innovative development in China's basic financial technology field, has been successfully commissioned for CITIC Bank's credit card and core accounting business system as the only domestically developed distributed database covering the full range of banking businesses and all types of services.

In 5G industry application, the Group advocates a scenario-focused and value-driven approach and the principle of developing clouds on an as-needed basis and activating networks in tandem with the clouds. The first defined integrated cloud network solution has been developed to empower the transformation and upgrade of industries and extensive applications have been commenced in association with our partners.

The Group is positioned within the first quadrant in terms of global patents and a major participant in and contributor to global 5G technology research and standard formulation. As at 30 June 2020, the Group had filed applications for approximately 76,000 patented assets globally, among which more than 36,000 patents had been licensed. We had filed patent applications for more than 4,100 chips and more than 5,000 5G patents in strategic global deployment, positioning ourselves within the first quadrant in terms of strategic global 5G deployment. According to the February 2020 report of IPlytics, the Group has submitted disclosures of 2,561 5G SEP (standard essential patents) to ETSI, ranking among the top three globally. The Group is a member of more than 70 international organisations and forums for standardisation, such as ITU, 3GPP, ETSI, IEEE, NGMN (The Next Generation Mobile Networks) and CCSA (The China Communications Standards Association), and more than 60 specialists served in key roles such as chairmen and reporters of leading international standardisation organisation.

ZTE CORPORATION INTERIM REPORT 2020

Report of the Board of Directors

FINANCIAL RESULTS

Please refer to page 73 and page 220 of this report for the results of the Group for the six months ended 30 June 2020 prepared in accordance with PRC ASBEs and HKFRSs, respectively.

REVIEW OF BUSINESS FOR THE FIRST HALF OF 2020
1. Overview of the domestic telecommunications industry for the first half of 2020
The domestic telecommunication industry sustained stable development during the first half of 2020. According to the data published by the Ministry of Industry and Information Technology of the PRC, the domestic telecommunications sector reported revenue of RMB692.7 billion for the six months ended 30 June 2020, representing year-on-year growth of 3.2%. Rapid growth was also sustained in domestic mobile Internet access traffic flow with an average mobile Internet access traffic volume (DOU) of 10.14 GB per user recorded for the month of June, representing year-on- year growth of 29.3% and more 1.55 GB per user compared to last December.

During the first half of 2020, domestic carriers expedited the launch and completion of second- phase 5G tenders, taking the development of 5G network to the stage of large-scale deployment, which will usher in a new round of opportunities for development in sectors such as consumers electronics, industrial manufacturing, port operation, mining, energy, railway transport, education and new media, among others.

Note: Data derived from the "Economic Performance of the Telecommunications Industry in the First Half of 2020" published by the Ministry of Industry and Information Technology of the PRC.

Overview of the global telecommunications industry for the first half of 2020
Investment in 5G was gaining pace around the world during the first half of 2020. According to the statistics of Global mobile Suppliers Association (GSA), 84 carriers from 36 countries and regions had launched 5G retail sales as at 30 June 2020. 5G terminals have been launched with growing variety in types and models, as an increasing number of users were signing up for 5G services.
The outbreak of COVID-19 has exerted a certain impact on the global telecommunications industry in the short term,as operations in technological exchange, business tender, project work and delivery in certain countries have been suspended or postponed. From a longer-term perspective, however, sound infrastructure facilities for communication and online applications (e.g., home office, online teaching) will play an increasingly crucial role in the control of the epidemic and protection of people's livelihood.
Underpinned by new technologies such as 5G, Cloud Computing, AI and Big Data, the ICT industry has continued to grow and expand, driving the digitalisation process in different industries and facilitating rapid development of the digital economy in various countries.
Operating results of the Group for the first half of 2020
For the first half of 2020, the Group reported operating revenue of RMB47.199 billion, representing a year-on-year increase of 5.81%, reflecting primarily the year-on-year growth in revenue from carrier's network and government and corporate business. Net profit attributable to holders of ordinary shares of the listed company for the six months ended 30 June 2020 amounted to RMB1.857 billion, representing a year-on-year increase of 26.29%. Basic earnings per share amounted to RMB0.40.

ZTE CORPORATION INTERIM REPORT 2020

By market
The domestic market
For the reporting period, the Group's operating revenue from the domestic market amounted to RMB31.751 billion, accounting for 67.27% of the Group's overall operating revenue. During the first half of 2020, the Group maintained a stable overall market share with optimised market positions in key cities. The deployment of new products such as data centre and edge computing was completed in a satisfactory manner, forming a solid foundation for nurturing long-term product competitiveness and making breakthrough in future market positions.
The international market
For the reporting period, the Group's operating revenue from the international market amounted to RMB15.448 billion, accounting for 32.73% of the Group's overall operating revenue. While the first half of 2020 was characterised by increasing uncertainties in the international market, the Group overcame various difficulties and persisted in the globalisation strategy with a consistent focus on the carriers of populous nations and leading multinational carriers, as it reported overall stability in its international operations with an optimised revenue mix and further improvements in turnover efficiency.
By business segment
For the reporting period, the Group's operating revenue for carriers' networks, government and corporate business and consumer business amounted to RMB34.970 billion, RMB4.816 billion and RMB7.413 billion, respectively.
Carriers' network
During the first half of 2020, the competitiveness of the Group's products in carriers' network was further enhanced, as it reported considerable breakthroughs in the international as well as domestic markets.
In connection with wireless products, the Group continued to command a pivotal role in the innovation of 5G technologies and applications as a first-quadrant player in terms of 5G industrialisation. The Group has secured 46 5G commercial contracts globally, covering major 5G markets such as China, Europe, Asia Pacific and the Middle East. The Group was actively involved in the second-phase 5G tendering of the big three domestic carriers, establishing itself firmly in the first quadrant in the domestic market. In connection with wireline products, the marketing of our proprietary specialised core chip featuring high integration density, high performance and low power consumption has significantly enhanced our competitiveness in wireline products, while we held a second-place global ranking in terms of the aggregate shipment volumes for PON, FTTx and 100G optical transmission networks. In connection with video and energy products, the Group offered a full range of products, such as video conference, video IOT and cloud computer, on the back of its technologies in video encoding/ decoding, access, transmission and storage, which will form a new growth niche for carriers' network in the 5G era.
Government and corporate business
The Group is well-trusted by clients in the government and corporate business, having been involved in the segment for over a decade with in-depth development of the traditional key market sectors like energy, transportation, government affair and finance. Core products developed by the Group, such as server, video, digital communication, database and operating system, have enjoyed extensive applications in the government and corporate sector. During the first half of 2020, the Group was engaged in active efforts to develop new applications for the infrastructure and 5G sectors and popular new segments such as digital transformation and upgrade, while vigorously marketing its proprietary products to enhance the competitiveness of its two principal product types, namely, computing and connection, in an ongoing effort to optimise its market position.

ZTE CORPORATION INTERIM REPORT 2020

Report of the Board of Directors

Consumer business

The Group's consumer business involves handset, mobile data terminal, home information terminal and integrated innovative terminal. The handset business focuses on the 5G terminal in an active effort to explore the domestic and international carrier and consumer markets, while the mobile data terminal business was targeted at the carriers' market. We have been a consistent global leader in home information terminal and integrated innovative terminal, thanks to our formidable strengths in R&D, customisation and delivery, as well as our longstanding intensive cooperation with upstream component manufacturers and downstream carriers along the industry chain.

(II) DISCUSSION AND ANALYSIS OF OPERATIONS UNDER PRC ASBEs

The financial data below are extracted from the Group's unaudited financial statements prepared in accordance with PRC ASBEs. The following discussion and analysis should be read in conjunction with the Group's financial statements and the accompanying notes thereto set out in this report.

1. Breakdown of indicators by industry, business segment and region and comparison with the same period last year

Unit: RMB in thousands

							Year-on-
							year
					Year-on-	Year-on-	increase/
					year	year	decrease in
		As a			increase/	increase/	gross profit
		percentage			decrease in	decrease in	margin
	Operating	of operating	Operating	Gross profit	operating	operating	(percentage
Revenue mix	revenue	revenue	costs	margin	revenue	costs	points)

I. By industry
Manufacturing of
communication
equipment	47,199,373	100%	31,418,303	33.43%	5.81%	15.85%	(5.78)

Total	47,199,373	100%	31,418,303	33.43%	5.81%	15.85%	(5.78)

II. By business segment
Carriers' networks	34,969,589	74.09%	22,260,793	36.34%	7.65%	23.98%	(8.39)
Government and
corporate business	4,816,598	10.20%	3,455,139	28.27%	2.48%	16.59%	(8.68)
Consumer business	7,413,186	15.71%	5,702,371	23.08%	(0.15%)	(8.03%)	6.60

Total	47,199,373	100%	31,418,303	33.43%	5.81%	15.85%	(5.78)

III. By region
The PRC	31,751,164	67.27%	21,910,519	30.99%	15.79%	33.80%	(9.29)
Asia (excluding the PRC)	6,923,102	14.67%	3,856,222	44.30%	(11.33%)	(14.72%)	2.21
Africa	2,522,750	5.34%	1,147,424	54.52%	(7.09%)	(24.17%)	10.25
Europe, Americas and
Oceania	6,002,357	12.72%	4,504,138	24.96%	(9.93%)	(4.34%)	(4.39)

Total	47,199,373	100%	31,418,303	33.43%	5.81%	15.85%	(5.78)

Analysis of change in revenue
The Group reported RMB47,199,373,000 in operating revenue for the six months ended 30 June 2020, a 5.81% increase as compared to the same period last year. Operating revenue from domestic business amounted to RMB31,751,164,000, increasing by 15.79% as compared to the same period last year; operating revenue from international business amounted to RMB15,448,209,000, decreasing by 10.12% as compared to the same period last year.

ZTE CORPORATION INTERIM REPORT 2020

Analysed by business segment, the Group reported year-on-year growth in operating revenue for the first half of 2020, reflecting mainly year-on-year growth in revenue from carriers' network and government and corporate business. For the first half of 2020, the Group reported a 7.65% year-on-year growth in operating revenue from carriers' network, reflecting mainly year-on-year growth in revenue from 5G system equipment and core networks in the domestic market. For the first half of 2020, the Group reported a 2.48% year-on-year growth in operating revenue from government and corporate business, reflecting mainly year-on-year growth in revenue from optical transmission products in the international and domestic markets and servers and railway transportation systems integration in the domestic market.

Changes in the scope of consolidation for the reporting period as a result of changes in equity interests in the Company's subsidiaries and analysis of operating revenue and operating costs for the comparable period last year

Unit: RMB in thousands

Six months ended		Six months ended				Year-on-year
	30 June 2020		30 June 2019 Note				increase/
						Year-on-yearYear-on-year	decrease in
						increase/	increase/	gross profit
		Gross			Gross	decrease in	decrease in	margin
Operating	Operating	profit	Operating	Operating	profit	operating	operating	(percentage
revenue	costs	margin	revenue	costs	margin	revenue	costs	points)
47,199,373	31,418,303	33.43%	44,561,890	27,086,193	39.22%	5.92%	15.99%	(5.79)

Note: Figures of operating revenue and operating costs for the six months ended 30 June 2019 are stated after exclusion of operating revenue and operating costs of subsidiaries deconsolidated for the six months ended 30 June 2020.

ZTE Singapore Pte Ltd, ZTE (Albania) Limited, ZICT (Nigeria) Limited, ZTE (Lithuania) Limited, Shenzhen Zhongrui Detection Technology Co., Ltd and Foshan Zhongxing Gaojian New Energy Technology Limited completed deregistration with industrial and commercial administration authorities on 6 January 2020, 20 January 2020, 27 February 2020, 10 March 2020, 9 May 2020 and 12 May 2020, respectively, and the aforesaid companies have been excluded from the consolidated financial statements of the Group as from the respective dates on which such deregistrations were completed.

Zhongxing New Energy Automobile Company Limited, a subsidiary of the Company, completed the disposal of 5.1% equity interests in Shenzhen Zhongxin New Energy Technology Company Limited on 4 March 2020. Shenzhen Zhongxin New Energy Technology Company Limited and its subsidiaries have been excluded from the consolidated financial statements of the Group as from 4 March 2020.

2. Breakdown of the Group's costs by principal items

					Unit: RMB in thousands

		Six months ended	Six months ended
		30 June 2020	30 June 2019
			As a		As a
			percentage		percentage Year-on-year
			of operating		of operating	increase/
Industry	Item	Amount	costs	Amount	costs	decrease
Manufacturing of	Raw materials	23,951,198	76.23%	19,859,301	73.23%	20.60%
communication	Engineering	5,988,551	19.06%	6,103,113	22.50%	(1.88%)
equipment	costs
	Total	29,939,749	95.29%	25,962,414	95.73%	15.32%

ZTE CORPORATION INTERIM REPORT 2020

Report of the Board of Directors

3. Breakdown of the Group's expenses by principal items

		Unit: RMB in thousands

	Six months	Six months	Year-on-year
	ended	ended	increase/
Item	30 June 2020	30 June 2019	decrease
Selling and distribution expenses	3,940,595	4,025,746	(2.12%)
Administrative expenses	2,265,126	2,538,508	(10.77%)
Finance expenses	632,833	662,809	(4.52%)
Income tax	517,590	412,914	25.35%

4. Research and development expense of the Group

					Unit: RMB in thousands

			Six months		Six months
			ended 30 June		ended 30 June	Year-on-year
	Item		2020		2019	increase/decrease
	Amount of R&D expense		6,637,376		6,471,866	2.56%
	R&D expense as a percentage of					Decreased by 0.45
	operating revenue		14.06%		14.51%	percentage points
	Amount of capitalised R&D expense		1,112,693		1,016,546	9.46%
						Increased by
	Capitalised R&D expense as a					1.05 percentage
	percentage of R&D expense		16.76%		15.71%	points
5.	Breakdown of the Group's cash flow
					Unit: RMB in thousands

			Six months	Six months	Year-on-year
			ended	ended	increase/
	Item	30 June 2020	30 June 2019	decrease
	Sub-total of cash inflows from
	operating activities	56,586,446	49,563,207	14.17%
	Sub-total of cash outflows from
	operating activities	54,545,676	48,296,590	12.94%
	Net cash flows from operating
	activities	2,040,770	1,266,617	61.12%Note 1
	Sub-total of cash inflows from
	investing activities	1,810,774	1,789,932	1.16%
	Sub-total of cash outflows from
	investing activities	9,458,696	6,657,961	42.07%
	Net cash flows from investing
	activities	(7,647,922)	(4,868,029)	(57.11%)Note 2
	Sub-total of cash inflows from
	financing activities	47,536,790	23,807,769	99.67%
	Sub-total of cash outflows from
	financing activities	33,606,453	14,781,723	127.35%
	Net cash flows from financing
	activities	13,930,337	9,026,046	54.33%Note 3
	Net increase in cash and cash
	equivalents	8,469,212	5,502,549	53.91%

ZTE CORPORATION INTERIM REPORT 2020

Note 1: Reflecting mainly the increase in cash received from the sales of goods and provision of labour services by the Group during the period;

Note 2: Reflecting mainly the increase in cash paid in connection with investing activities by the Group during the period;

Note 3: Reflecting mainly the increase in cash received as investment by the Group during the period.

For an explanation of reasons for the difference between net cash flows from operating activities and net profit of the Group for the reporting period, please refer to "Note V 56. Supplemental Information for the Cash Flow Statement" to the financial statements prepared under PRC ASBEs.

6. Reasons for substantial changes in the Group's principal business and its structure, profit mix and profitability

There was no significant change in the principal business and its structure during the reporting period compared to the same period last year.
Changes in the profit mix during the reporting period compared to the same period last year are set out as follows:
For the first half of 2020, the Group reported operating profit of RMB2,840,600,000, a year-on- year increase by 21.23%, which was attributable mainly to the reduction in bad debt impairment; loss of trade receivable; expenses for the period amounted to RMB13,475,930,000, a year-on-year decrease by 1.63%, which was mainly attributable to the effect of the epidemic and strengthened control over expenses; investment gain decreased 90.41% to RMB30,257,000, which was attributable mainly to the decrease in gains on disposal of listed equity interests by fund partnerships under ZTE Capital during the period; net non- operating income and expenses amounted to RMB371,000, representing a year-on-year increase of 100.35%, which reflected mainly to the payment of default penalty to Shenzhen Investment Holdings Co., Ltd. during the same period last year.
Changes in the profitability (gross profit margin) of the principal business during the reporting period compared to the same period last year are set out as follows:
The Group's gross profit margin for the first half of 2020 was 33.43%, a reduction of 5.78 percentage points compared to the same period last year, reflecting mainly the year-on-year decline in gross profit margins for the carriers' networks and government and corporate business. The year-on-year decline in the gross profit margin of carriers' networks reflected the increase in revenue from low-margin domestic products as a percentage of total revenue, while the year-on-year decline in the gross profit margin of government and corporate business reflected decline in the gross profit margin of the government and corporate business of domestic subsidiaries and the increase in revenue from low-margin domestic products as a percentage of total revenue.

ZTE CORPORATION INTERIM REPORT 2020

Report of the Board of Directors

7. Analysis of the Group's assets and liabilities

Change in assets and liabilities

				Unit: RMB in thousands

	As at 30 June 2020	As at 31 December 2019	Year-on-year
					increase/
					decrease in
		As a		As a	percentage of
		percentage		percentage	total assets
		of total		of total	(percentage
Item	Amount	assets	Amount	assets	points)
Total assets	165,432,364	100%	141,202,135	100%	-
Cash	45,867,997	27.73%	33,309,347	23.59%	4.14
Trade receivables	16,898,230	10.21%	19,778,280	14.01%	(3.80)
Inventories	37,179,092	22.47%	27,688,508	19.61%	2.86
Investment properties	1,960,864	1.19%	1,957,242	1.39%	(0.20)
Long-term equity
investments	2,292,452	1.39%	2,327,288	1.65%	(0.26)
Fixed assets	10,314,505	6.23%	9,383,488	6.65%	(0.42)
Construction in
progress	845,174	0.51%	1,171,716	0.83%	(0.32)
Short-term loans	16,619,177	10.05%	26,645,966	18.87%	(8.82)
Long-term loans due					-
within one year	718,638	0.43%	612,261	0.43%
Long-term loans	21,835,076	13.20%	10,045,093	7.11%	6.09

Assets and liabilities measured at fair value

Unit: RMB in thousands

		Gains/
		losses	Cumulative
		arising from	fair value		Amount	Amount
		fair value	change	Impairment	purchased	disposed of
	Opening	change for	dealt with	charge for	for the	for the	Closing
Item	balance	the period	in equity	the period	period	period	balance

Financial assets
Including: 1. Trading financial assets
(excluding derivative
financial assets)	560,662	479,288	-	-	119,242	164,086	1,066,532
2. Derivative financial
assets	106,065	(75,110)	192	-	-	-	31,147
3. Other debt investment	2,430,389	-	-	1,013	7,804,375	6,246,365	3,987,386
4. Investment in
other equity
instruments Note 1	1,594,254	(24,515)	-	-	1,344	83,421	1,530,232
Sub-total of financial assets	4,691,370	379,663	192	1,013	7,924,961	6,493,872	6,615,297
Investment properties	1,957,242	3,622	-	-	-	-	1,960,864
Productive living assets	-	-	-	-	-	-	-
Others	-	-	-	-	-	-	-

Total	6,648,612	383,285	192	1,013	7,924,961	6,493,872	8,576,161

Financial liabilities Note 2	126,223	5,561	(257)	-	-	-	131,527

Note 1: Other equity investment comprised mainly other non-current financial assets.

Note 2: Financial liabilities included derivative financial liabilities.

ZTE CORPORATION INTERIM REPORT 2020

Assets of the Group are stated at historical costs, except for derivative financial instruments, equity and debt investments at fair value through current profit and loss, account receivables and investment properties at fair value through other comprehensive income, which are measured at fair value.

There was no substantial change to the measurement attributes of the principal assets of the Group during the reporting period.

For details of assets of the Company subject to restrictions in ownership or use as at the end of the reporting period, please refer to Note V. 57 "Assets subject to restrictions in ownership or use" to the financial reports prepared under PRC ASBEs.

8. Analysis of investments

Overview
The Company's long-term equity investments at the end of the reporting period amounted to RMB2,292,452,000, representing a decrease of 18.03% compared to RMB2,796,606,000 as at 30 June 2019. Other third-party investments amounted to approximately RMB2,596,764,000, representing an increase of 17.18% compared to RMB2,215,993,000 as at 30 June 2019.
The Company did not conduct any significant equity investment or significant non-equity investment during the reporting period.
Financial assets at fair value

Unit: RMB in ten thousands

		Gains/
		losses
		arising	Cumulative
		from fair	fair value	Amount	Amount
	Initial	value	change dealt	purchased	disposed of	Cumulative
	investment	change for	with in	for the	for the	investment	Closing
Asset type	cost	the period	equity	period	period	gain	balance	Source of funds

Stock	14,950.86	47,671.97	-	1,394.16	9,156.60	21,195.20	100,378.84	Issue fund, internal funds and
								conversion of debt interests into
								equity interests
Financial	-	(7,511.00)	19.20	-	-	7,047.45	3,114.67	Internal funds
derivatives
instruments
Others Note	373,268.34	(2,194.63)	-	791,101.92	640,230.62	3,989.63	558,036.22	Issue fund and internal funds

Total	388,219.20	37,966.34	19.20	792,496.08	649,387.22	32,232.28	661,529.73	-

Note: "Others" includes entrusted fund management, receivable financing and equity investments at fair value through current profit or loss.

ZTE CORPORATION INTERIM REPORT 2020

Report of the Board of Directors

Investment in financial assets
- Investment in securities
  A. Investment in securities as at the end of the reporting period

Unit: RMB in ten thousands

						Gains/loss	Cumulative
					Book value	arising from	fair value	Amount	Amount	Gain/loss
					at the	fair value	change	purchased	disposed	for the	Book value
Type of			Initial	Accounting	beginning of	change for	accounted	during the	during the	reporting	at the end of	Accounting
securities	Stock code Stock name	investment	method	the period	the period	for in equity	period	period	period	the period	classification	Source of funds

Stock	002902	Mentec Note 1	379.30	Fair-value	4,102.22	(1,600.37)	-	-	1,328.35	(418.70)	2,390.30	Trading financial assets	Issue fund
				measurement
Stock	300691	Union Optech Note 2	1,277.63	Fair-value	4,743.33	(3,124.36)	-	-	4,303.22	(201.44)	506.27	Trading financial assets	Issue fund
				measurement
Stock	002796	Shijia Science &	789.69	Fair-value	2,776.63	(1,986.94)	-	-	3,525.03	574.99	-	Trading financial assets	Issue fund
		Technology Note 2		measurement
Stock	002579	China Eagle Electronic Note 2	1,382.31	Fair-value	-	(13.40)	-	1,382.31	-	(2.76)	1,368.91	Trading financial assets	Issue fund
				measurement
Stock	603068	Beken Note 3	2,175.99	Fair-value	9,097.11	(54.20)	-	-	-	(12.68)	9,042.91	Trading financial assets	Issue fund
				measurement
Stock	688019	Anji Technology Note 3	4,350.00	Fair-value	27,512.92	52,616.08	-	-	-	52,704.03	80,129.00	Trading financial assets	Issue fund
				measurement
Stock	688300	Novoray Note 3	1,000.83	Fair-value	4,090.50	2,099.70	-	-	-	2,149.70	6,190.20	Trading financial assets	Issue fund
				measurement
Stock	601258	ST PD Group Note 4	11.85	Fair-value	-	0.10	-	11.85	-	0.10	11.95	Trading financial assets	Conversion of
				measurement									debt interests
													into equity
													interests
Stock	ENA: TSV	Enablence Technologies Note 5	3,583.26	Fair-value	1,003.94	(264.64)	-	-	-	(264.64)	739.30	Other non-current	Internal funds
				measurement								financial assets
Other securities investments held at the end of the period	-	-	-	-	-	-	-	-	-	-	-

Total			14,950.86	-	53,326.65	47,671.97	-	1,394.16	9,156.60	54,528.60	100,378.84	-	-

Note 1: The Company and ZTE Capital held in aggregate 31% equity interests in Zhonghe Chunsheng Fund I, a partnership reported in the consolidated financial statements of the Company. Figures corresponding to Mentech are provided with Zhonghe Chunsheng Fund I as the accounting subject;

Note 2: The Company and ZTE Capital held in aggregate 31.79% equity interests in Jiaxing Fund, a partnership reported in the consolidated financial statements of the Company. Figures corresponding to Union Optech, Shijia Science & Technology and China Eagle Electronic are provided with Jiaxing Fund as the accounting subject;

Note 3: The Company and Changshu Changxing Capital Management Company Limited, a wholly-owned subsidiary of ZTE Capital, held in aggregate 25.83% equity interests in Zhonghe Chunsheng Fund III, a partnership reported in the consolidated financial statements of the Company. Figures corresponding to Beken, Anji Technology and Novoray are provided with Zhonghe Chunsheng Fund III as the accounting subject;

Note 4: Following the implementation of the reorganisation plan of ST PD Group during the first half of 2020, the debt interests of Shenzhen Zhongxing Cloud Service Company Limited ("Zhongxing Cloud"), a wholly-owned subsidiary of the company, in ST PD Group were converted into shares of ST PD Group. Figures corresponding to ST PD Group are provided with Zhongxing Cloud as the accounting subject;

Note 5: The initial investment for the acquisition of Enablence Technologies shares by ZTE HK, a wholly- owned subsidiary of the Company, on 6 January 2015 amounted to CAD2.70 million, equivalent to approximately RMB13,931,000 based on the Company's foreign currency statement book exchange rate (CAD1: RMB5.15963) on 31 January 2015. The initial investment amount for the acquisition of shares in Enablence Technologies on 2 February 2016 was CAD4.62 million, equivalent to approximately RMB21,901,600 based on the Company's foreign currency statement book exchange rate (CAD1: RMB4.74060) on 29 February 2016. The book value of the investment as at the end of the reporting period was approximately HKD8,103,200, equivalent to approximately RMB7,393,000 based on the Company's foreign currency statement book exchange rate (HKD1: RMB0.91235) on 30 June 2020.

ZTE CORPORATION INTERIM REPORT 2020

Details in investment in securities during the reporting period
1. Shareholdings in Mentech
  During the first half of 2020, Zhonghe Chunsheng Fund I transferred 520,000 shares in Mentech (a company listed on the Small and Medium Enterprise Board of the Shenzhen Stock Exchange). As at the end of the reporting period, Zhonghe Chunsheng Fund I held 1,248,200 shares in Mentech, accounting for 0.59% of the total share capital of Mentech.
2. Shareholdings in Union Optech
  During the first half of 2020, Jiaxing Fund transferred 2,250,000 shares in Union Optech (a company listed on the GEM Board of the Shenzhen Stock Exchange) it held. As at the end of the reporting period, Jiaxing Fund held 333,500 shares in Union Optech, accounting for 0.15% of the total share capital of Union Optech.
3. Shareholdings in Shijia Science & Technology
  During the first half of 2020, Jiaxing Fund transferred 771,300 shares in Shijia Science & Technology (a company listed on the Small and Medium Enterprise Board of the Shenzhen Stock Exchange) it held. As at the end of the reporting period, Jiaxing Fund no longer held any shares in Shijia Science & Technology.
4. Shareholdings in China Eagle Electronic
  During the first half of 2020, Zhuhai Topsun Electronic Technology Co.,Ltd. ("Zhuhai Topsun") was acquired by China Eagle Electronic (a company listed on the Small and Medium Enterprise Board of the Shenzhen Stock Exchange). Following the completion of the acquisition, the shares in Zhuhai Topsun held by Jiaxing Fund were converted into shares in China Eagle Electronic. As at the end of the reporting period, Jiaxing Fund held 1,063,600 shares in China Eagle Electronic, accounting for 0.27% of the total share capital of China Eagle Electronic.
5. Shareholdings in Beken
  As at the end of the reporting period, Zhonghe Chunsheng Fund III held 1,122,200 shares in Beken (a company listed on the Shanghai Stock Exchange), accounting for 0.81% of the total share capital of Beken.
6. Shareholdings in Anji Technology
  As at the end of the reporting period, Zhonghe Chunsheng Fund III held 2,314,509 shares in Anji Technology (a company listed on the STAR Market of the Shanghai Stock Exchange), accounting for 4.36% of the total share capital of Anji Technology.
7. Shareholdings in Novoray
  As at the end of the reporting period, Zhonghe Chunsheng Fund III held 1,000,000 shares in Novoray (a company listed on the STAR Market of the Shanghai Stock Exchange), accounting for 1.16% of the total share capital of Novoray.
8. Shareholdings in ST PD Group
  ST PD Group (a company listed on the Shanghai Stock Exchange)underwent reorganisation in the first half of 2020 and, following the implementation of the reorganisation plan, Zhongxing Cloud's debt interests in ST PD Group were converted into shares of ST PD Group. As at the end of the reporting period, Zhongxing Cloud held 108,900 shares in ST PD Group, accounting for 0.001% of the total share capital of ST PD Group.

ZTE CORPORATION INTERIM REPORT 2020

Report of the Board of Directors

1. Shareholdings in Enablence Technologies
  ZTE HK, a wholly-owned subsidiary of the Company, entered into a Subscription Agreement with Enablence Technologies on 4 December 2014. ZTE HK subscribed for 18 million shares issued by Enablence Technologies on 6 January 2015 for a total investment of CAD2.70 million. ZTE HK entered into a Subscription Agreement with Enablence Technologies on 27 January 2016. On 2 February 2016, ZTE HK subscribed for 77 million shares issued by Enablence Technologies for a total investment of CAD4.62 million. As at the end of the reporting period, ZTE HK held 95,000,000 shares in Enablence Technologies, accounting for 14.80% of its total share capital.
2. Save as aforesaid, the Group did not invest in non-listed financial enterprises such as commercial banks, securities companies, insurance companies, trusts or futures companies, or conduct securities investment such as dealing in stocks of other listed companies during the reporting period.
Entrusted fund management
1. General information of the Group's entrusted fund management during the reporting period is set out in the table below:

Unit: RMB in ten thousands

				Overdue and
		Amount	Outstanding	unrecovered
Product type	Source of funds	incurred Note	balance	amount

Bank financial product	Internal funds	7,000	7,000	-

Total		7,000	7,000	-

Note: The amount incurred under entrusted management represents the maximum daily balance under entrusted fund management during the reporting period, namely, the maximum value of the daily outstanding aggregate balance under entrusted fund management during the reporting period.

1. The Group did not have high-risk entrusted fund management with individually material amounts, low level of security, poor liquidity or non-guaranteed repayment.
2. The Group did not expect any principal amount under the Group's entrusted fund management to be irrecoverable or other situations that might result in impairment.
Derivative investments

Unit: RMB in ten thousands

Closing balance of

investment

amount as a

percentage of net

Initial investment

Opening

Amount

Impairment

assets Note 3 of the

Actual profit

Whether a

amount in the

balance of

purchased

disposed of

provision

Closing balance

Company at the

or loss for

Name of party operating

Connected

connected

Type of derivative

derivative

investment

during the

amount

of investment

end of the period

the reporting

the derivative investment

relationship

transaction

investment Note 1

investment

Start date

End date

amount Note 2

period

(if any)

amount

(%)

period

Financial institution

N/A

Foreign exchange

2019/9/16

2021/6/18

196,739.61

46,516.64

160,699.16

82,557.09

2.01%

(156.49)

forwards

Financial institution

N/A

Foreign exchange

2019/11/15

2021/3/15

269,892.49

51,347.66

254,047.11

67,193.04

1.63%

(127.37)

forwards

Financial institution

N/A

Foreign exchange

2020/1/9

2021/5/13

35,797.75

54,726.92

39,486.72

51,037.95

1.24%

(96.74)

forwards

Other financial institutions

N/A

Foreign exchange

2019/8/19

2022/12/26

979,575.89

405,645.75

1,048,117.71

337,103.93

8.19%

(639.08)

forwards/interest

rate swap/

structured

forwards

Total

1,482,005.74

558,236.97

1,502,350.70

537,892.01

13.07%

(1,019.68)

Date of announcement of the Board of Directors "Announcement Resolutions of the Forty-sixthMeeting of the Seventh

in respect of the approval of derivative Session of the Board of Directors" and "Overseas Regulatory Announcement

investments (if any)Announcement on the Application for Derivative Investment Limits for 2019," both dated 27 March 2019, and "Announcement Resolutions of the Fifteen Meeting of the Eighth Session of the Board of Directors" and "Overseas Regulatory Announcement Announcement on the Application for Derivative Investment Limits for 2020," both dated 27 March 2020.

Date of announcement of the general meeting in "Announcement on Resolutions of the 2018 Annual General Meeting" dated

respect of the approval of derivative30 May 2019 and "Announcement on Resolutions of the 2019 Annual

investments (if any)General Meeting" dated 19 June 2020.

Risk analysis and control measures (including Value-protectionderivative investments were conducted by the Company but not limited to market risks, liquidity risks, during the first half of 2020. The major risks and control measures are credit risks, operational risks and legal risks) in discussed as follows:

respect of derivative positions during the

reporting period1. Market risks: Gains or losses arising from the difference between the exchange rate for settlement of value protection derivative investment contracts and the exchange rate prevailing on the maturity date will be accounted for as gains or losses on revaluation for each accounting period during the effective period of the value-protectionderivative investments. Effective gains or losses shall be represented by the accumulative gains or losses on revaluation on the maturity date;

2. Liquidity risks: The value-protectionderivative investments of the Company were based on the Company's budget of foreign exchange income and expenditure and foreign exchange exposure and these investments matched the Company's actual foreign exchange income and expenditure to ensure sufficient fund for settlement on completion. Therefore, their impact on the Company's current assets was insignificant;

3. Credit risks: The counterparties of the derivative investment trades of the Company are banks with sound credit ratings and long-standingbusiness relationships with the Company and therefore the transactions were basically free from performance risks;

4. Other risks: Failure of personnel in charge to operate derivative investments in accordance with stipulated procedures or fully understand information regarding derivatives in actual operation may result in operational risks; obscure terms in the trade contract may result in legal risks;

5. Control measures: The Company addressed legal risks by entering into contracts with clear and precise terms with counterparty banks and strictly enforcing its risk management system. The Company has formulated the "Risk Control and Information Disclosure System relating to Investments in Derivatives" that contains specific provisions for the risk control, approval procedures and subsequent management of derivative investments, so that derivative investments will be effectively regulated and risks relating to derivative investments duly controlled.

Not involved in any litigation

Litigation (if applicable)

Internal funds

Source of funds for derivative investment

ZTE CORPORATION INTERIM REPORT 2020

Report of the Board of Directors

Changes in the market prices or fair values of	The Company has recognised gains/losses from investments in derivatives
invested derivatives during the reporting period,	during the reporting period. Total loss recognised for the reporting period
including the specific methods, assumptions	amounted to RMB10 million, comprising losses from fair-value change of
and parameters adopted in the analysis of the	RMB80 million and recognised investment gains of RMB70 million. The
fair values of the derivatives	calculation of the fair value was based on forward exchange rates quoted by
	Reuters on a balance sheet date in line with the maturity date of the
	product.

Statement on whether the accounting policy and	There was no significant change in the Company's accounting policy and
accounting audit principles for derivatives for	accounting audit principles for derivatives for the reporting period as
the reporting period were significantly different	compared to that of the previous reporting period.
from the previous reporting period

Specific opinion of Independent Non-executive Directors on the Company's derivative investments and risk control

Independent Non-executive Directors' Opinion:

The Company has conducted value protection derivative investments by using financial products to enhance its financial stability, so as to mitigate the impact of exchange rate volatility on its assets, liabilities and profitability. The Company has conducted stringent internal assessment of its derivative investments made and has established corresponding regulatory mechanisms and assigned dedicated staff to be in charge thereof. The counterparties with which the Company and its subsidiaries have entered into contracts for derivative investments are organisations with sound operations and good credit standing. We are of the view that the derivative investments made by the Company and its subsidiaries have been closely related to their day-to-day operational requirements and in compliance with the provisions of relevant laws and regulations and of the Articles of Association.

Note 1: Derivative investments are classified according to the financial institutions involved and the types of such derivative investments.

Note 2: The investment amount at the beginning of the period represented the amount denominated in the original currency translated at the exchange rate prevailing as at the end of the reporting period.

Note 3: Net assets as at the end of the reporting period represented net assets attributable to holders of ordinary shares of the listed company as at the end of the reporting period.

Material disposals of assets and equity interests by the Group during the reporting period.
□Applicable N/A
Analysis of principal subsidiaries and investee companies

Unit: RMB in thousands

	Corporate	Principal	Industry in which it		Total		Operating	Operating
Name of company	type	operations	operates	Registered capital	assets	Net assets	revenue	profit	Net profit

Zhongxing Software	Subsidiary	Software development	Software development	RMB51.08 million	10,359,296	2,936,216	9,280,271	1,768,920	1,752,422
ZTE Capital	Subsidiary	Entrusted management	Investment fund	RMB30 million	1,859,622	1,806,893	-	583,660	577,524
		and venture
		investment fund
Zhongxing	Subsidiary	Design, production and	Design, production and	RMB131,578,947	8,226,506	4,873,420	6,024,545	332,836	330,820
Microelectronics		sales of integrated	sales of integrated
		circuit	circuit
ZTE HK	Subsidiary	Sales of and technical	Sales of and technical	HKD995 million	19,208,134	744,616	4,758,410	(344,133)	(381,556)
		support for	support for
		communication	communication
		products	products

For information of other subsidiaries and principal investee companies, please refer to Note XIV.4 "Long-term equity investments" and Note VII to the financial report prepared in accordance with PRC ASBEs.

ZTE CORPORATION INTERIM REPORT 2020

During the reporting period, 4 subsidiaries made a material impact on the consolidated operating results and 4 of them reported year-on-year change in operating results of more than 30%: Zhongxing Software reported year-on-year growth in net profit of 100.72%, reflecting mainly growth in revenue; ZTE Capital reported year-on-year increase in net profit of 164.24%, reflecting mainly the increase in fair-value gain on stocks of listed companies held by subsidiary fund partnerships under ZTE Capital for the period; Zhongxing Microelectronics reported year-on-year increase in net profit of 240.88%, reflecting mainly growth in revenue; ZTE HK reported year-on-year decrease in net profit of 196.54%, reflecting mainly reduction in revenue.

For details of subsidiaries acquired or disposed of during the reporting period and their impact, please refer to Note VI to the financial statements prepared under ASBEs.

11. There was no structured entity under the control of the Company within the meaning of "ASBEs No. 41 - Disclosure of Interests in Other Entities."
MANAGEMENT DISCUSSION AND ANALYSIS UNDER HKFRSs

The financial data below are extracted from the Group's unaudited financial statements prepared in accordance with HKFRSs. The following discussion and analysis should be read in conjunction with the Group's financial statements and the accompanying notes as set out in this report.

Revenue

The following table sets out the revenue attributable to the major business segments of the Group for the periods indicated, in monetary amount and as a percentage of the total operating revenue:

			Unit: RMB in millions

	For the six months ended	For the six months ended
	30 June 2020	30 June 2019
		As a percentage		As a percentage
		of operating		of operating
Business segment	Revenue	revenue	Revenue	revenue
Carriers' networks	34,969.6	74.1%	32,485.2	72.8%
Government and corporate
business	4,816.6	10.2%	4,700.0	10.5%
Consumer business	7,413.2	15.7%	7,424.0	16.7%
Total	47,199.4	100.0%	44,609.2	100.0%

The following table sets out the revenue of the Group attributable to the PRC, Asia (excluding the PRC), Africa, Europe, the Americas and Oceania for the periods indicated, in monetary amount and as a percentage of the total operating revenue:

			Unit: RMB in millions

	For the six months ended	For the six months ended
	30 June 2020	30 June 2019
		As a percentage		As a percentage
		of operating		of operating
Regions	Revenue	revenue	Revenue	revenue
The PRC	31,751.2	67.3%	27,421.7	61.5%
Asia (excluding the PRC)	6,923.1	14.7%	7,807.7	17.5%
Africa	2,522.7	5.3%	2,715.3	6.1%
Europe, the Americas and
Oceania	6,002.4	12.7%	6,664.5	14.9%
Total	47,199.4	100.0%	44,609.2	100.0%

ZTE CORPORATION INTERIM REPORT 2020

Report of the Board of Directors

The Group reported RMB47,199.4 million in operating revenue for the six months ended 30 June 2020, a 5.8% increase as compared to the same period last year. Operating revenue from domestic business amounted to RMB31,751.2 million, increasing by 15.8% as compared to the same period last year; operating revenue from international business amounted to RMB15,448.2 million, decreasing by 10.1% as compared to the same period last year.

Analysed by business segment, the Group reported year-on-year growth in operating revenue for the first half of 2020, reflecting mainly year-on-year growth in revenue from carriers' networks and government and corporate business. For the first half of 2020, the Group reported a 7.6% year-on-year growth in operating revenue from carriers' network, reflecting mainly year-on-year growth in revenue from products such as 5G system equipment and core network in the domestic market. For the first half of 2020, the Group reported a 2.5% year-on-year growth in operating revenue from government and corporate business, reflecting mainly year-on-year growth in revenue from optical transmission products in international as well as domestic markets, server and railway transportation integration in the domestic market.

Cost of Sales and Gross Profit

The following tables set out (1) the cost of sales of the Group and cost of sales as a percentage of total operating revenue and (2) the Group's gross profit and gross profit margin for the periods indicated:

			Unit: RMB in millions

	For the six months ended	For the six months ended
	30 June 2020	30 June 2019
		As a percentage		As a percentage
		of business		of business
		segment		segment
Business segment	Cost of sales	revenue	Cost of sales	revenue
Carriers' networks	22,547.2	64.5%	18,665.9	57.5%
Government and corporate
business	3,483.5	72.3%	3,059.9	65.1%
Consumer business	5,733.7	77.3%	6,332.5	85.3%
Total	31,764.4	67.3%	28,058.3	62.9%
			Unit: RMB in millions

	For the six months ended	For the six months ended
	30 June 2020	30 June 2019
		Gross profit		Gross profit
Business segment	Gross profit	margin	Gross profit	margin
Carriers' networks	12,422.4	35.5%	13,819.3	42.5%
Government and corporate
business	1,333.1	27.7%	1,640.1	34.9%
Consumer business	1,679.5	22.7%	1,091.5	14.7%
Total	15,435.0	32.7%	16,550.9	37.1%

Cost of sales of the Group for the first half of 2020 increased by 13.2%, year-on-year, to RMB31,764.4 million, reflecting mainly year-on-year growth in the cost of carriers' network and government and corporate business. The Group's overall gross profit margin decreased by 4.4 percentage points to 32.7% for the first half of 2020, reflecting lower gross profit margin for carriers' network and the government and corporate business.

ZTE CORPORATION INTERIM REPORT 2020

Cost of sales of the Group's carriers' networks for the first half of 2020 amounted to RMB22,547.2 million, a 20.8% increase compared to the same period last year. The relevant gross profit margin was 35.5%, compared to 42.5% for the same period last year. The lower gross profit margin for carriers' network reflected mainly increase in revenue from low-margin domestic products as a percentage of total revenue.

Cost of sales of the Group's government and corporate business for the first half of 2020 amounted to RMB3,483.5 million, a 13.8% increase compared to the same period last year. The relevant gross profit margin was 27.7%, compared to 34.9% for the same period last year. The lower gross profit margin for the government and corporate business reflected mainly decline in gross profit margin for the government and corporate business of domestic subsidiaries and the increase in revenue from domestic low-margin products as a percentage of total revenue.

Cost of sales of the Group's consumer business for the first half of 2020 amounted to RMB5,733.7 million, decreasing by 9.5% compared to the same period last year. The relevant gross profit margin was 22.7%, compared to 14.7% for the same period last year. The higher gross profit margin for the consumer business reflected mainly improved gross profit margin for handset products in the domestic market and home terminals in the international market.

Other Income and Gains

Other income and gains of the Group for the first half of 2020 amounted to RMB2,157.5 million, representing an 18.6% increase compared to RMB1,818.5 million for the same period last year, reflecting mainly the increase in the Group's interest income for the period.

Research and Development Costs

The Group's research and development costs for the first half of 2020 increased by 2.6% to RMB6,637.4 million from RMB6,471.9 million for the same period last year as the Group's consistent investment in core technologies such as 5G wireless, core network, bearer, access and chips during the period. Research and development costs as a percentage of operating revenue decreased by 0.4 percentage point to 14.1%, as compared to 14.5% for the same period last year.

Selling and Distribution Expenses

The Group's selling and distribution expenses for the first half of 2020 decreased by 2.1% to RMB3,940.6 million from RMB4,025.7 million for the same period last year, attributable primarily to the impact of the epidemic and the Group's stronger effort in control over selling expenses during the period. Selling and distribution expenses as a percentage of operating revenue decreased by 0.7 percentage point to 8.3%, compared to 9.0% for the same period last year.

Administrative Expenses

Administrative expenses of the Group for the first half of 2020 decreased by 10.6% to RMB2,474.7 million, as compared to RMB2,767.0 million for the same period last year. Such decrease reflected mainly the decrease in staff cost for the period. Administrative expenses as a percentage of operating revenue decreased by 1.0 percentage point to 5.2%, compared to 6.2% for the same period last year.

Credit Impairment Loss

Credit impairment loss of the Group for the first half of 2020 amounted to RMB279.1 million, representing a decrease of 80.3% compared to RMB1,416.1 million for the same period last year, which was mainly attributable to the decrease in the Group's bad debts provision for trade receivables for the period.

ZTE CORPORATION INTERIM REPORT 2020

Report of the Board of Directors

Loss on Disposal of Financial Assets Measured at Amortised Cost

Loss on disposal of financial assets measured at amortised cost of the Group for the first half of 2020 amounted to RMB69.8 million, representing a decrease of 17.0% compared to RMB84.1 million for the same period last year, reflecting mainly the decrease in the Group's international factored interest without recourse for the period.

Other Expenses

Other expenses primarily include non-operating expenses, loss on fair value changes and exchange loss. Other expenses of the Group for the first half of 2020 was RMB438.2 million, representing an increase of 13.5% from RMB386.0 million for the same period last year, which was attributable primarily to the increase in the Group's exchange loss for the period.

Profit from Operating Activities

The Group's profit from operating activities for the first half of 2020 amounted to RMB3,752.8 million, increasing by 16.6% as compared to RMB3,218.7 million for the same period last year, attributable mainly to the decrease in the Group's bad debts provision for trade receivables for the period. Operating profit margin was 8.0%, increasing by 0.8 percentage point compared to 7.2% for the same period last year.

Finance Costs

Finance costs of the Group for the first half of 2020 amounted to RMB847.9 million, increasing by 3.0% compared to RMB823.1 million for the same period last year, which was attributable mainly to the Group's higher interest expenses in line with the increase in financing for the period.

Income Tax Expense

The Group's income tax expense for the first half of 2020 was RMB517.6 million, increasing by 25.4% compared to RMB412.9 million for the same period last year, reflecting mainly the increase in the Group's profit for the period.

Profit Attributable to Non-Controlling Interests

The Group's profit attributable to non-controlling interests for the first half of 2020 amounted to RMB449.9 million, increasing by 148.6% compared to RMB181.0 million for the same period last year, which was attributable mainly to the increase in profit for the Group's subsidiaries with a higher level of minority interests for the period.

Other Comprehensive Income

Other comprehensive income of the Group for the first half of 2020 amounted to RMB-115.5 million, compared to RMB51.1 million for the same period last year, reflecting mainly the Group's losses on translation of the Group's statements denominated in foreign currencies owing to exchange rate fluctuation for the period versus gains on translation of statements denominated in foreign currencies owing to exchange rate fluctuation for the same period last year.

Debt-equity Ratio and the Basis of Calculation

Debt-equity ratio is calculated by dividing interest-bearing liabilities by the sum of interest-bearing liabilities and equity (including non-controlling interests).

The Group's debt-equity ratio for the first half of 2020 was 52.2%, increasing by 1.9 percentage points as compared to 50.3% for 2019, attributable mainly to the issue of SCPs by the Group during the period.

ZTE CORPORATION INTERIM REPORT 2020

Cash Flow Data
	Unit: RMB in millions

	For the six	For the six
	months ended	months ended
Item	30 June 2020	30 June 2019
Net cash outflow from operating activities	(663.5)	(625.1)
Net cash outflow from investing activities	(6,100.7)	(4,637.9)
Net cash inflow from financing activities	15,087.4	10,687.6
Net increase in cash and cash equivalents	8,323.2	5,424.6
Cash and cash equivalents at the end of the period	36,975.0	26,636.7

Cash and cash equivalents of the Group as of 30 June 2020 amounted to RMB36,975.0 million, which were mainly denominated in RMB and to a smaller extent in USD, EUR, INR and other currencies.

Operating Activities

The Group reported net cash outflow from operating activities of RMB663.5 million for the first half of 2020, compared to RMB625.1 million for the same period last year, reflecting mainly year-on-year increase in cash received from sales of goods and provision of services by RMB8,132.5 million, decrease in tax refund received by RMB883.1 million, decrease in other cash receipts relating to operating activities by RMB226.2 million, increase in cash paid for the purchase of goods and services by RMB6,371.2 million, increase in cash payments to and on behalf of employees by RMB2,272.2 million, decrease in payments of tax expenses by RMB1,746.4 million, and decrease in other cash payments relating to operating activities by RMB648.0 million.

Investing Activities

The Group's net cash outflow from investing activities was RMB6,100.7 million for the first half of 2020, compared to RMB4,637.9 million for the same period last year, reflecting mainly the increase in the Group's term deposits of three months or above included in cash paid for investment for the period.

Financing Activities

The Group's net cash inflow from financing activities for the first half of 2020 was RMB15,087.4 million, compared to RMB10,687.6 million for the same period last year, reflecting mainly the combined effect of the increase in cash received for the Group's non-public issue of A shares and issue of SCPs and the payment for perpetual instruments during the period.

Indebtedness
	Unit: RMB in millions

	30 June	31 December
Item	2020	2019
Secured bank loans	229.5	252.2
Unsecured bank loans	38,510.8	36,530.9

ZTE CORPORATION INTERIM REPORT 2020

Report of the Board of Directors

	Unit: RMB in millions

	30 June	31 December
Item	2020	2019
Short-term bank loans	16,905.2	26,738.0
Long-term bank loans	21,835.1	10,045.1

Credit facilities available to the Group included long-term and short-term bank loans, which were mainly used as working capital. As at 30 June 2020, the Group's RMB short-term and long-term bank loans subject to fixed interest rates amounted to RMB6,935.7 million and RMB1,084.5 million respectively. Short-term bank loans and long-term bank loans in TRY and EUR subject to fixed interest rates amounted to the equivalent of approximately RMB273.3 million and RMB214.7 million, respectively. Short- term USD bank loans subject to fixed interest rates amounted to the equivalent of approximately RMB1,203.3 million. The remaining RMB, USD, EUR and TRY loans were subject to floating interest rates. The Group's borrowings were mainly denominated in USD and EUR, apart from certain RMB loans.

The Group's bank loans as at 30 June 2020 increased by RMB1,957.2 million as compared to 31 December 2019, which were mainly applied to replenish its working capital.

Contractual Obligations
			Unit: RMB in millions

		30 June 2020
		Less than		More than
Item	Total	1 year	2-5 years	5 years
Bank loans	38,740.3	16,905.2	21,795.3	39.8
Capital Commitments
The Group had the following capital commitments as of the dates indicated:
			Unit: RMB in millions

			30 June	31 December
Item		2020	2019
Land and buildings:
Contracted, but not provided for		3,196.3	3,097.0
Investment in associates:
Contracted, but not provided for		28.2	48.7

Details of Material Acquisitions and Disposals of Subsidiaries, Associates and Joint Ventures of the Group

During the first half of 2020, no material acquisitions and disposals of subsidiaries, associates and joint ventures of the Group occurred.

Disclosure required under the Hong Kong Listing Rules

In accordance with paragraph 40(2) of Appendix 16 to the Hong Kong Listing Rules, the Company confirms that, save as disclosed herein, there has been no material change in the current information regarding the Company from the information disclosed in the 2019 Annual Report of the Company in relation to matters set out in paragraph 32 of Appendix 16.

ZTE CORPORATION INTERIM REPORT 2020

(IV) WARNINGS OF AND REASONS FOR ANY PROJECTED ACCUMULATED NET LOSS FROM THE BEGINNING OF THE YEAR TO THE END OF THE NEXT REPORTING PERIOD OR SUBSTANTIAL CHANGE IN ACCUMULATED NET PROFIT FROM THE BEGINNING OF THE YEAR TO THE END OF THE NEXT REPORTING PERIOD AS COMPARED TO THE SAME PERIOD LAST YEAR

□Applicable N/A
RECORDS OF RECEPTION OF INVESTORS, COMMUNICATIONS AND PRESS INTERVIEWS DURING THE REPORTING PERIOD

					Key contents	Information
Nature	Time	Location	Mode	Audience received	discussed	furnished
Results	April 2020	Shenzhen	Live Internet	Investors and securities	Day-to-day	Published
presentation			video	houses including	operations of	announcements
			broadcast	Southern AMC, Bosera	the Company	and regular
				Fund, China AMC, GF		reports
				Fund, Zhong Ou AMC,
				New China Life,
				Huitong Rongxin, China
				Merchants Securities,
				Haitong Securities,
				Huatai Securities and
				Credit Suisse

(VI) BUSINESS OUTLOOK FOR THE SECOND HALF OF 2020 AND RISK EXPOSURES

1. Business outlook for the second half of 2020

The 5G era has dawned upon us. Global 5G development is expected to roll out in full gear in the next 5 years, underpinned by a rapidly maturing industry chain and vigorous supply of innovative applications driving a new boom for the communications industry. First of all, 5G will continue to benefit from the volume of mobile data, as new applications such as ultra-HD video and AR/VR are poised to provide supreme experience to users, while mobile data consumption is expected to sustain robust growth. Meanwhile, the integration of infrastructure for the intelligent Internet of Everything built on the back of 5G, in a development no less significant than the birth of the global Internet in the 1990s, is expected to come initially into shape in the next 5 years. The industrial applications of 5G, such as automated driving and intelligent manufacturing to name but a few, will give rise to new businesses, models and growth opportunities in the ICT sector.

In connection with carriers' networks, global 5G investment is approaching its apex, as global carriers are estimated to splash out capital expenditure of USD1,100 billion from 2020 to 2025, 78% of which will be committed to 5G, according to GSMA (Global System for Mobile Communications Association). Firmly established as a first-quadrant 5G player, the Group will continue to play a pivotal role in the innovation of 5G technologies and applications with greater investment in core technologies such as chip, algorithm and network architecture to maintain its technological edge and facilitate the provision of end-to-end solutions that would enable carriers to build highly competitive 5G networks in a speedy manner. Meanwhile, we will work with industry leaders of various sectors to develop innovative 5G applications as part of a mutually beneficial 5G business ecosphere built through cooperation.

In connection with the government and corporate business, the Group will seize opportunities presented by applications in new 5G infrastructure and vertical 5G sectors with a strong focus on the traditional key market sectors of energy, transportation, government affair and finance, incubating business channels to assist in further digital transformation in various industries.

ZTE CORPORATION INTERIM REPORT 2020

Report of the Board of Directors

In connection with the consumer business, the Group will leverage opportunities in the markets for 5G terminals and multi-format terminals. We will enhance our brand promotion effort in key country markets, while making efforts to unveil, innovate, consolidate, explore and broaden major pathways for the generation of commercial value through cooperation with upstream as well as downstream partners along the industry chain, with a view to building a full-scenario smart experience and value chain for consumers.

The Group will be committed to the attainment of qualitative growth. In terms of corporate business operation, we will maintain revenue growth, sound profitability, ample liquidity and a reasonable gearing ratio to ensure healthy operation. In terms of the optimisation of market profile, we will focus on high-worth countries and markets and seek to increase our market shares therein. In terms of product R&D, we will remain committed to the investment in core products, such as 5G and bearer products and chips to establish our leading position in key technologies and enhance product safety for the benefit of business sustainability, while expediting digital transformation of the corporation and bolstering the incubation of innovative businesses. In terms of management processes, compliance control and internal governance will be enhanced to facilitate regulated operations, so as to foster a positive image in the international market and win greater trust among domestic and overseas clients. In terms of corporate value, we will strive for greater trust on the part of shareholders and actively seek to expand financing channels, so as to facilitate stable growth in corporate value by enhancing value management.

2. Risk exposures

Country risks
Given the complex nature of international economic and political conditions and the presence of the Group's business and branch organisations in over 100 countries and regions, as well as the differences in macro-economy, policy and regulation and political and social backgrounds among the countries where the Group's businesses are operated, the Group will continue to be exposed to risks relating to legal compliance, taxation, exchange rates and political developments (such as war and domestic unrest), which might affect the operations of the Group. The Group ensures compliance primarily through the establishment of a complete compliance management regime to identify and comply with trade and taxation policy requirements in these countries (including export control and GDPR (General Data Protection Regulation)); we also work with independent professional organisations to analyse and identify country risks. We take out necessary export insurance for businesses in regions with higher evaluated risks, and we also resort to financing to avoid possible losses.
Risk associated with intellectual property rights
The Group has always attached great importance to product technology research and development as well as the protection and management of intellectual property rights. Trademarks of the Group's products and services are all registered, and such products and services are all protected under relevant patent rights. While the Group has adopted highly stringent measures to protect its intellectual property rights, potential disputes over intellectual property rights between the Group and other telecommunications equipment manufacturers, franchisee companies and carriers under partnerships with the Group cannot be totally ruled out. The Group will continue to drive the solution of related issues with an open-minded, cooperative and mutually beneficial approach.

ZTE CORPORATION INTERIM REPORT 2020

Exchange rate risks
The Group's consolidated financial statements are expressed in RMB. The exchange rate risk of the Group arises mainly from foreign exchange exposures associated with the sales, purchases and financing settled in currencies other than RMB and the volatility of exchange rates, which might affect the operations of the Group. The Group adopts ongoing measures to strengthen foreign exchange risk management based on the whole process of business and seeks to minimise exposures through initiatives such as business strategic guidance, internal settlement management, financing mix design and value-protected derivative exchange instruments. The Group has also strengthened liquidity risk management in countries practicing exchange control and endeavoured to facilitate RMB pricing and settlement for overseas projects to lower its exchange risks in the long term.
Interest rate risk
The interest rate risk of the Group is mainly associated with interest-bearing liabilities. Fluctuations in the interest rates of RMB or foreign currencies will result in changes in the total amount of interest payable by the Group and will therefore affect the Group's profitability. The Group seeks to lower its interest rate risk mainly by managing the total amount and structure of its interest bearing liabilities. Control over the total amount of interest-bearing liabilities is mainly achieved by improving the cash turnover efficiency and increasing the free cash flow of the Group. Structured management of interest-bearing liabilities is achieved mainly through portfolio control of a mixture of long-term/short-term domestic and overseas loans denominated in RMB or foreign currencies with fix or floating interests, complemented by derivative instruments such as interest rate swaps, sought from a diverse range of low-cost financing channels in the global market taking into account the trends of market changes.
Customer credit risk
The Group provides one-stop communications solutions to its customers. With the rapid expansion of its business, the Group is serving a large customer base with differing credit status, and its business will inevitably be affected by the varied credit profiles of these customers. The Group seeks to mitigate the aforesaid impact mainly by identifying and managing credit risks through the adoption of internal credit management measures, such as customer credit search, customer credit rating, customer credit limit management, overall risk control and credit control against customers with faulty payment records, and by transferring credit risks through the purchase of credit insurance and appropriate financial instruments.

ZTE CORPORATION INTERIM REPORT 2020

Material Matters

CORPORATE GOVERNANCE
1. Compliance of the Company's corporate governance with relevant requirements of the CSRC
  The Company has been making improvements to its corporate governance regimes and structures, regulating corporate operations and optimising internal control structures on an ongoing basis in accordance with the requirements of the Company Law, the Securities Law, Corporate Governance Standards for Listed Companies and relevant laws and regulations of the CSRC. The Company
  conducts internal control in accordance with the requirements of provisions such as the "Notice on the Publication of the Corporate Internal Control Supplementary Guide" 《( 關於印發企業內部控制配套指引通知》). During the reporting period, the general meeting, Board of Directors and Supervisory Committee of the Company were operated in compliance with the law, and the corporate governance of the Company was in compliance with provisions set out in the regulatory documents on corporate governance of listed companies issued by the CSRC.
  Company focused its efforts on the following internal control work in the first half of 2020:
2. 1. The conclusion and assessment of the internal control work for 2019 was completed, on which basis the 2019 Internal Control Audit Work Report and 2019 Internal Control Assessment Report were published; the internal control work plans for 2020 was formulated and internal control assessment for 2020 was commenced with stronger effort in pre-emptive supervision and inspection as well as supervision and inspection during the process.
  2. Improvements were made to our internal control organisation with trial implementation of the penetrating management model for internal control; institutional development was strengthened to improve the internal control system and regime; inspection was implemented through a three-tier line of defense comprising business execution, ability building and supervision of implementation, utilising internal control self-assessment and business audit tools.
  3. Risk evaluation methods were optimise and risk classification and hierarchy was developed to strengthen duties of risk management units at all levels, while standardising the risk control process for identifying, assessing and addressing risks; key internal control tasks for various segments were streamlined and launched and the operating model of the internal control system was optimised to enhance the management duties of the internal control ability development modules and improve the process for rectifying deficiencies.
  4. The organisational ability relating to internal control was enhanced as management officers were asked to sign the "internal control undertaking", while activities to foster the culture of internal control among all employees, such as lectures on internal control, seminars on internal control in business operations and sharing of internal control cases were organised on a continuous basis.
3. Information on the convening of general meeting
  On 19 June 2020, the Company convened the 2019 Annual General Meeting by way of a combination of on-site and online voting. For details, please refer to the "Announcement of Resolutions of the 2019 Annual General Meeting" published by the Company on 19 June 2020 on http://www.cninfo.com.cn and in China Securities Journal, Securities Times and Shanghai Securities News.
4. During the period from 1 January to 30 June 2020, the Company had fully complied with all the principles and code provisions of the Corporate Governance Code set out in Appendix 14 of the Hong Kong Listing Rules, save for the deviation described in the below.
  Code Provision A.1.3 stipulates that a notice of at least 14 days should be given of a regular board meeting to give all directors an opportunity to attend.
  Such requirement for the length of notice of meeting was waived, upon the unanimous approval of all Directors on the Board of Directors of the Company, in respect of the notice sent by the Company to the Directors on 15 April 2020 to convene the Sixteenth Meeting of the Eighth Session of the Board of Directors on 24 April 2020 for the purpose of considering and approving the first quarter 2020 results of the Group and its announcement. The Directors' attendance at the meeting has not been affected by the said waiver.

ZTE CORPORATION INTERIM REPORT 2020

1. Securities Transactions by Directors and Supervisors
  The Directors and Supervisors of the Company confirmed that the Company had adopted the Model Code for Securities Transactions by Directors of Listed Issuers (the "Model Code") as set out in Appendix 10 to the Hong Kong Listing Rules. Having made due enquiries with all Directors and Supervisors of the Company, the Company was not aware of any information that reasonably suggested that the Directors and Supervisors had not complied with the requirements in the Model Code during the reporting period.
2. The Audit Committee
  The Audit Committee of the Company has discussed with the management the accounting standards and practices adopted by the Group, and has also discussed and reviewed this report, including the financial statements of the Group for the six months ended 30 June 2020.
PROFIT DISTRIBUTION OR CONVERSION OF CAPITAL RESERVE

According to the Articles of Association of ZTE, aggregate profit distribution of the Company in the form of cash in the past three years shall not be less than 30% of the annual average profit available for distribution in the past three years; the profit distribution plan of the Company shall be formulated by the Board of Directors and approved by the general meeting. Following a resolution on the profit distribution plan by the general meeting, the Board of Directors should complete the distribution of dividend (or shares) within two months after the general meeting; where the Board of Directors of the Company formulates a profit distribution proposal, the views of Independent Non-executive Directors should be sufficiently heard and an independent opinion should be furnished by the Independent Non-executive Directors; after the announcement of the profit distribution plan is published in accordance with the law, the views and propositions of shareholders, the minority shareholders in particular, should be sufficiently heard. If the Board of Directors has not drawn up a cash profit distribution proposal, the reasons for not making the profit distribution and the use of funds not applied to profit distribution and retained at the Company should be disclosed in regular reports, and the Independent Non-executive Directors should furnish an independent opinion thereon.

According to the "Proposal for Profit Distribution for 2019" considered and approved at the Fifteenth Meeting of the Eighth Session of the Board of Directors of the Company held on 27 March 2020: a dividend of RMB2 in cash (before tax) for every 10 shares shall be distributed 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. The proposal was approved at the 2019 Annual General Meeting of the Company held on 19 June 2020. A dividend of RMB2 in cash (before tax) for every 10 shares was distributed based on the total share capital of 4,613,434,898 shares (comprising 3,857,932,364 A shares and 755,502,534 H shares) as at the record date. The record date for A shares is 11 August 2020. The ex-dividend date for A shares is 12 August 2020. The record date for H shares is 30 June 2020. The dividend payment date is 12 August 2020. Profit distribution for 2019 was completed on 12 August 2020.

The aggregate profit distribution of the Company in the form of cash in 2017-2019 accounted for 101.31% of the annual average profit available for distribution in the past three years, in compliance with Article 234 of the Articles of Association which states that "the aggregate profit distribution of the Company in the form of cash in the past three years shall not be less than 30% of the annual average profit available for distribution in the past three years."

The Company did not conduct any adjustments or changes to its profit distribution policy during the reporting period.

The Company does not propose any profit distribution for the six months ended 30 June 2020.

ZTE CORPORATION INTERIM REPORT 2020

Material Matters

(III) MATERIAL LITIGATION AND ARBITRATION

During the reporting period, the Group did not incur any material litigation or arbitration. Details of progress during and subsequent to the reporting period of immaterial litigation and arbitration proceedings incurred prior to the reporting period are set out as follows:

1. On 11 June 2010, A lawsuit on breach of agreement and infringement of rights was instituted against the Company and its wholly-owned subsidiary ZTE (USA), Inc. ("ZTE USA") by Universal Telephone Exchange, Inc. ("UTE") at the district court of Dallas, Texas, the United States, alleging that the Company and ZTE USA had violated a confidential agreement between UTE and ZTE USA, for which UTE was seeking a compensation of USD20 million in actual damages. UTE further claimed that it had lost a telecommunications project contract, which otherwise should have been secured, as a result of inappropriate actions of the Company and ZTE USA, for which UTE was seeking a compensation of USD10 million in actual damages and USD20 million in punitive damages. Upon receipt of the writ of summons from the court, an attorney has been appointed by the Company to defend its case.

On 23 February 2012, the Company and ZTE USA applied to the court for the rejection of UTE's suit on the grounds that there was an arbitration clause under the confidential agreement. On 1 March 2012, the attorney representing UTE concurred with the Company's application to subject the case to the arbitration clause and executed with the Company an agreement which was then submitted to the court. On 1 May 2012, UTE filed an application for arbitration to the American Arbitration Association in respect of the case to demand compensation from the Company. UTE subsequently raised the amount of compensation claimed. On 19 September 2014, the arbitration court declared court trial of the case closed. On 17 February 2017, the arbitration court made a final rule to reject all compensation claims of UTE. On 21 February 2017, the Company submitted a request to the district court of Dallas, Texas for the ratification of the arbitration ruling. On 16 March 2017, UTE filed a motion to the district court of Dallas, Texas for the annulment of the arbitration award. On 19 June 2017, the district court of Dallas, Texas supported the request of UTE and ruled to annul the award of the arbitration court and ordered the case to be returned to the American Arbitration Association to reopen arbitration. On 7 July 2017, the Company filed an appeal with the court of appeal of Dallas, Texas in respect of the aforesaid ruling. On 19 November 2018, the court of appeal of Dallas, Texas ruled to overturn the ruling of the district court of Dallas, Texas of annulling the arbitration award and reinstated the arbitration award. On 4 December 2018, UTE made an application to the court of appeal of Dallas, Texas for review. On 4 January 2019, UTE made an application to the court of appeal of Dallas, Texas for the case to be heard by the full court. On 14 February 2019, the court of appeal of Dallas, Texas ruled to reject the aforesaid application of UTE. On 1 April 2019, UTE made an application to the Supreme Court of Texas for Civil Matters for review. On 4 October 2019, the Supreme Court of Texas for Civil Matters rejected the application for review by UTE. On 2 January 2020, UTE submitted a petition to the U.S. Supreme Court for the review of the case. On 24 February 2020, the U.S. Supreme Court rejected petition of UTE, upon which all litigation procedures relating to the case was closed.

Based on the legal opinion furnished by legal counsels engaged by the Company and the progress of the case, the aforesaid case will not have any material adverse impact on the financial conditions and operating results of the Group for the current period.

ZTE CORPORATION INTERIM REPORT 2020

2. On 26 July 2011, InterDigital Communications, LLC, InterDigital Technology Corporation and IPR Licensing, Inc (all three of which being wholly-owned subsidiaries of InterDigital, Inc. and referred to hereinafter as the "Three Companies") filed a claim with United States International Trade Commission ("ITC") and the Federal District Court of Delaware alleging infringement upon their 3G patent rights by the Company and ZTE USA, a wholly-owned subsidiary of the Company. Defendants in this case included other companies in the industry. In the ITC case, the three said companies demanded the issue of a permanent exclusion and injunction order against certain of the Company's terminal products. In the case filed with the District Court, damages for losses and payments of legal fees were also demanded of the defendants in addition to the plea for injunction order, although no specific amount of compensation was named. The litigation procedure at the District Court has been suspended. On 28 June 2013, ITC issued its preliminary judgment of the case, ruling that one of the patent relating to the case was invalid, while the Company and ZTE USA had not infringed upon the remaining patents relating to the case, and that Section 337 had not been violated. (Section 337 investigation commonly refers to the investigation of unfair acts and unfair measures in the importation of articles into or subsequent sales of articles in the United States). On 19 December 2013, ITC issued its final verdict on the case, ruling that the Company and ZTE USA had not violated Section 337. The three companies filed an appeal with the United States Court of Appeals for the Federal Circuit in respect of the final verdict. On 18 February 2015, the United States Court of Appeals for the Federal Circuit ruled to uphold the final verdict of ITC.

On 2 January 2013, the Three Companies and InterDigital Holdings, Inc. (also a wholly-owned subsidiary of InterDigital, Inc.) filed a claim with ITC and the Federal District Court of Delaware alleging infringement upon their 3G and 4G patent rights by ZTE and ZTE USA. Defendants in this case included other companies in the industry. In the ITC case, the Three Companies and InterDigital Holdings, Inc demanded the issue of a permanent exclusion and injunction order against certain of the Company's terminal products. In the case filed with the District Court, damages for losses and payments of legal fees were also demanded of the defendants in addition to the plea for injunction order, although no specific amount of compensation was named. On 13 June 2014, ITC issued its preliminary judgment of the case, ruling that the Company and ZTE USA had not infringed upon the patents relating to the case, and that Section 337 had not been violated. On 15 August 2014, ITC issued its final verdict on the case, ruling that the Company and ZTE USA had not infringed upon the patents relating to the case and had not violated Section 337. The three companies aforesaid and InterDigital Holdings, Inc. filed an appeal with the United States Court of Appeals for the Federal Circuit in respect of the said final verdict. In June 2015, the three companies aforesaid and InterDigital Holdings, Inc. withdrew their appeal. On 28 October 2014, the Federal District Court of Delaware issued its verdict which ruled that the Company and ZTE USA had infringed upon three out of four patents involved. On 22 April 2015, the Federal District Court of Delaware announced its ruling on another patent involved in the case and ruled that the Company and ZTE USA had not infringed upon the patent. The Company and ZTE USA engaged a legal counsel to conduct active defense of the case and file an appeal to the United States Court of Appeals for the Federal Circuit against the ruling of the Federal District Court of Delaware that the three patents involved in the litigation have been subject to infringement. In November 2017, United States Court of Appeals for the Federal Circuit ruled that the Company and ZTE USA had infringed upon two out of three patents involved in the aforesaid case. No ruling has yet been made in respect of the one remaining patent involved in the case. In January 2020, the court approved the request of the Company and the aforesaid Three Companies and InterDigital Holdings, Inc. to withdraw the case, upon which all litigation procedures relating to the case was closed.

Based on the progress of the case, the aforesaid case will not have any material adverse impact on the financial conditions and operating results of the Group for the current period.

ZTE CORPORATION INTERIM REPORT 2020

Material Matters

In November 2012, ZTE Brazil filed an application with the Civil Court of Brasilia to freeze the assets of a Brazilian company on the grounds that the said Brazilian company had failed to honour purchase payments of approximately BRL31,353,700 (equivalent to approximately RMB40,484,300). On 7 February 2013, the Civil Court of Brasilia ruled to suspend the freezing of the assets of such Brazilian company on the grounds that such company was not currently involved in any significant debt dispute with any other companies and that there was no indication that it would be subject to bankruptcy. In July 2013, ZTE Brazil filed a litigation with the Civil Court of Brasilia to demand an compensation amount of BRL31,224,300 (equivalent to approximately RMB40,317,300) together with accrued interests and legal fees payable immediately by the Brazilian company. In January 2016, the Civil Court of Brasilia handed down the first trial judgement, ruling the Brazilian company to pay a compensation amount of BRL31,224,300 (equivalent to approximately RMB40,317,300) together with accrued interests and an adjustment amount for inflation. In April 2016, the Civil Court of Brasilia notified ZTE Brazil that the said Brazilian company had filed an application for appeal in respect of the aforesaid first trial judgement. On 29 August 2016, ZTE Brazil was notified that the federal district court had handed down a second trial judgement rejecting the appeal of the said Brazilian company. In November 2016, the federal district court ruled to activate provisional enforcement procedures to require the said Brazilian company to pay to ZTE Brazil BRL31,224,300 (equivalent to approximately RMB40,317,300) together with accrued interests and an adjustment amount for inflation. In February 2017, the federal district court ruled to reject the request of the said Brazilian company filed in October 2016 for clarification of the aforesaid second trial judgement. The court trial proceedings of the aforesaid case have ended.
On 30 November 2012, Civil Court No. 15 of Sao Paulo City, Brazil notified ZTE Brazil that the said Brazilian company had filed a lawsuit with the said court alleging that ZTE Brazil had committed fraud and negligence in the course of cooperation and demanding compensation for direct and indirect losses in the aggregate amount of approximately BRL82,974,500 (equivalent to approximately RMB107 million). The Company has appointed a legal counsel to conduct active defense in respect of the said case.
Based on the legal opinion furnished by legal counsels engaged by the Company and the progress of the case, the aforesaid case will not have any material adverse impact on the financial conditions and operating results of the Group for the current period.
On 12 July 2017, the Company received a notice of arbitration filed with the London Court for International Arbitration (LCIA) against the Company by a Sudanese carrier and its Mauritanian
subsidiary (Case No: LCIA No. 173683 and LCIA No. 173696). On the same date, the Company also received a notice of arbitration filed with Dubai International Financial Centre - London Court for International Arbitration (DIFC-LCIA) against the Company by a Mauritanian subsidiary of the said Sudanese carrier (the "Mauritanian Subsidiary") (Case No: DIFC-LCIA No. 17098). The Sudanese carrier and its Mauritanian Subsidiary filed claims against the Company for damages arising from breach of contract amounting to USD31.80 million in aggregate, together with legal fees, arbitration fees and other related costs. Upon receipt of the aforesaid arbitration notices, the Company has appointed an attorney for active response to the case.
On 10 August 2017, the Company submitted its written defences to LCIA and DIFC-LCIA, respectively, for the aforementioned arbitrations. In the meantime, the Company filed counter- arbitration petitions against the Mauritanian Subsidiary for an aggregate amount of approximately USD22,711,900.
In May 2018, the Company received the application for arbitration and other evidences submitted by the Mauritanian Subsidiary to DIFC-LCIA. In the said application for arbitration, the Mauritanian Subsidiary demanded compensation amounting to approximately USD37.45 million and other damages for breach of contract, as well as the settlement of other related costs by the Company. Upon receipt of the said information, the Company submitted a written defense to DIFC-LCIA and made counter-claims against the Mauritanian Subsidiary under the arbitration.
In October 2018, the Company received the application for arbitration and other evidences submitted by the Mauritanian Subsidiary to LCIA. In the said application for arbitration, the Mauritanian Subsidiary demanded compensation amounting to approximately USD31.88 million, as

ZTE CORPORATION INTERIM REPORT 2020

well as the settlement of other related costs by the Company. Upon receipt of the said information, the Company submitted a written defense to LCIA and made counter-claims against the Mauritanian Subsidiary under the arbitration.

In May 2019, the aforesaid Sudanese carrier withdrew its application for LCIA arbitration (Case No: LCIA No.173696).

On 31 January 2020, LCIA made a ruling on case LCIA No.173683 to reject the USD30,060,326 claim of the counterparty and order the payment of USD4,209,877 and GBP260,095.20 together with interests to the Company by the said Mauritanian Subsidiary.

On 23 July 2020, DIFC-LCIA made a ruling on case No: DIFC-LCIA No. 17098 to order the payment of USD6,678,111.29 to the Company by the counterparty and USD1,562,796.50 by the Company to the counterparty with the two parties each assuming its respective arbitration costs.

Upon this ruling, all arbitration procedures for the three arbitration cases were concluded.

5. On 31 October 2018, a natural person filed a litigation with the Guangdong Provincial Higher People's Court ("Guangdong Higher Court") against the Company as defendant and ZTE Integration and Nubia Technology Limited as third parties without independent rights of claim, on the grounds that the Company had infringed upon his interests as a shareholder of ZTE Integration, demanding (1) a RMB200 million compensation payable to him by the Company; and (2) the assumption by the Company of all costs of the litigation (including but not limited to litigation costs and legal fees amounting to RMB200,000).

On 9 April 2019, the Company received judiciary documents from the Guangdong Higher Court, including a notice of response to action, summons for exchange of evidence and a notice requiring the provision of evidence, among others. The Company has appointed an attorney for active response to the case.

Based on the legal opinion furnished by the legal counsel engaged by the Company and the progress of the cases, the aforesaid case will not have any material adverse impact on the financial conditions and operating results of the Group for the current period.

Note: The exchange rates are based on the book exchange rates of the Company as at 30 June 2020 where BRL amounts are translated at the exchange rate of BRL1: RMB1.2912.

(IV) MEDIA QUERIES OF THE COMPANY DURING THE REPORTING PERIOD

□Applicable N/A
APPROPRIATION OF NON-OPERATING CAPITAL OF THE LISTED COMPANY BY THE CONTROLLING SHAREHOLDER AND ITS RELATED PARTIES DURING THE REPORTING PERIOD
□Applicable N/A

(VI) BANKRUPTCY, REORGANISATION OR RELATED ACTIONS OF THE COMPANY DURING THE REPORTING PERIOD

□Applicable N/A

ZTE CORPORATION INTERIM REPORT 2020

Material Matters

(VII) THE COMPANY'S SUBSCRIPTION FOR ZHONGTOU ZHANLU PHASE I FUND

ZTE Zhongchuang (Xi'an) Investment Management Company Limited, a subsidiary of the Company, has

established by way of promotion as general partner Shaanxi Zhongxing Innovative Investment Fund Partnership Enterprise (Limited Partnership) (陝西省中興創新投資基金合夥企業(有限合夥)) (renamed as

"Shaanxi Zhongtou Zhanlu Equity Investment Partnership Phase I (Limited Partnership)" (陝西衆投湛盧一期股權投資合夥企業(有限合夥)), "Zhongtou Zhanlu Phase I") and subscribed for Zhongtou Zhanlu Phase

I with a capital contribution of RMB1 million. The Company has also subscribed for shares in Zhongtou Zhanlu Phase I as limited partner with a capital contribution of RMB39 million. For details, please refer to the "Announcement Resolutions of the Eleventh Meeting of the Eighth Session of the Board of Directors", "Overseas Regulatory Announcement Announcement on the Subscription for Shaanxi Zhongxing Innovative Investment Fund" and "Overseas Regulatory Announcement Announcement on the completion of filing and registration of Shaanxi Zhongxing Innovative Investment Fund" published by the Company on 19 November 2019, 21 November 2019 and 4 December 2019, respectively.

On 5 June 2020, the Company received a notice from ZTE Zhongchuang (Xi'an) Investment Management Company Limited, the fund manager, that the issue fund of Zhongtou Zhanlu Phase I had been completed. For details, please refer to the "Overseas Regulatory Announcement Announcement on the completion of issue fund of Zhongtou Zhanlu Phase I" published by the Company on 8 June 2020.

(VIII) IMPLEMENTATION AND IMPACT OF THE COMPANY'S SHARE OPTION INCENTIVE SCHEME

Approval procedures performed and grant of options
The 2017 Share Option Incentive Scheme has been implemented by the Company to further refine the corporate governance structure of the Company, improve corporate incentive systems of the Company, enhance loyalty and sense of responsibility of the management and key personnel of the Company and retain talent, so as to facilitate sustainable development of the Company and ensure the realisation of its development targets pursuant to the "2017 Share Option Incentive Scheme (Draft) of ZTE Corporation" (the "2017 Share Option Incentive Scheme (Draft)") considered and approved by the 2016 Annual General Meeting, the First A Shareholders' Class Meeting of 2017 and the First H Shareholders' Class Meeting of 2017. Pursuant to the "Resolution on Matters pertaining to the grant of share options under the 2017 Share Option Incentive Scheme" and "Resolution on Adjustments to the list of participants and the number of share options to be granted under the 2017 Share Option Incentive Scheme" considered and passed at the Twentieth Meeting of the Seventh Session of the Board of Directors on 6 July 2017, the date of grant was set for 6 July 2017 (Thursday). The Company granted 149,601,200 share options to 1,996 scheme participants. The exercise price of the share options granted shall be RMB17.06 per A share.
Scheme participants, number of share option and adjustments to the exercise price
Pursuant to the "Resolution on the adjustments to the participants and number of share options granted under the 2017 Share Option Incentive Scheme", "Resolution on the fulfillment of exercise conditions for the first exercise period under the 2017 Share Option Incentive Scheme", "Resolution on the Non-fulfillment of exercise conditions for the second exercise period under the 2017 Share Option Incentive Scheme" and "Resolution on the cancellation of certain share options" considered and passed at the Fifth Meeting of the Eighth Session of the Board of Directors of the Company held on 1 July 2019, the adjustments to participants and volume granted under the 2017 Share Option Incentive Scheme, confirmation of the fulfillment of exercise conditions for the first exercise period, non-fulfillment of exercise conditions for the second exercise period under the 2017 Share Option Incentive Scheme and cancellation of share options previously granted to original participants who no longer fulfilled the conditions to be a participant or share options that did not meet the exercise conditions were approved. The number of participants under the 2017 Share Option Incentive Scheme was adjusted from 1,996 to 1,687, and the number of share options granted was adjusted from 149,601,200 to 119,115,591. The number of participants for the first exercise period was adjusted from 1,996 to 1,684, and the number of exercisable share options was adjusted from 49,866,471 to 39,664,153. A total of 70,210,561 share options, comprising share options previously granted to original participants who no longer qualified as participants, share

ZTE CORPORATION INTERIM REPORT 2020

options previously granted to participants who did not qualify for exercise in the first exercise period under the share option incentive scheme and share options not exercisable as a result of the non- fulfillment of exercise conditions for the second exercise period under the share option incentive scheme, were cancelled. For details, please refer to the "Overseas Regulatory Announcement Announcement on the Adjustment of Participants and Number of Share Options under the 2017 Share Option Incentive Scheme", "Overseas Regulatory Announcement Announcement on the Fulfillment of Exercise Conditions for the First Exercise Period under the 2017 Share Option Incentive Scheme", "Overseas Regulatory Announcement Announcement Non-fulfillment of Exercise Conditions for the Second Exercise Period under the 2017 Share Option Incentive Scheme" and "Overseas Regulatory Announcement Announcement on the Cancellation of Certain Share Options" published by the Company on 1 July 2019.

On 5 July 2019, as verified and confirmed by the Shenzhen Branch of China Securities Depository and Clearing Corporation Limited, the Company completed the cancellation of the 70,210,561 granted share options. For details, please refer to the "Overseas Regulatory Announcement Announcement on the Completion of Cancellation of Certain Share Options" published by the Company on 5 July 2019.

At the Twenty-second Meeting of the Eighth Session of the Board of Directors of the Company held on 28 August 2020, the "Resolution on the cancellation of certain share options" and the "Resolution on the adjustment of the exercise price of Share Options under the 2017 Share Option Incentive Scheme Pursuant to the rules" were considered and approved, pursuant to which the cancellation of 66 share options unexercised as at the close of the exercise period under first exercise period and the adjustment of the exercise price of share options under the 2017 Share Option Incentive Scheme to RMB16.86 were approved. For details, please refer to the "Announcement on the Cancellation of Certain Share Options" and "Announcement on the Adjustment of the Exercise Price of Share Options under the 2017 Share Option Incentive Scheme Pursuant to the Rules" published by the Company on 28 August 2020.

3. Date of grant, validity period, vesting period, exercise period and exercisable percentage

The share option incentive scheme of the Company shall remain in force for 5 years from the date of grant (i.e. 6 July 2017). The closing price of the Company's A shares on the trading date which is 1 day prior to the date of grant was RMB23.52/share. There shall be a vesting period of 2 years from the date of grant, after which share options can be exercised according to the following proportion, subject to the fulfillment of the exercise conditions:

		Exercisable share
		options as a percentage
		of the total number of
Exercise period	Duration	share options granted
First exercise	Commencing from the first trading day after expiry	1/3
period	of the 24-month period from the date of grant
	and ending on the last trading day of the
	36-month period from the date of grant
Second exercise	Commencing from the first trading day after expiry	1/3
period	of the 36-month period from the date of grant
	and ending on the last trading day of the
	48-month period from the date of grant
Third exercise	Commencing from the first trading day after expiry	1/3
period	of the 48-month period from the date of grant
	and ending on the last trading day of the
	60-month period from the date of grant

Pursuant to the "Resolution on the fulfillment of exercise conditions for the first exercise period under the 2017 Share Option Incentive Scheme" and the "Resolution on the Non-fulfillment of exercise conditions for the second exercise period under the 2017 Share Option Incentive Scheme" considered and passed at the Fifth Meeting of the Eighth Session of the Board of Directors of the Company held on 1 July 2019, it was confirmed that the exercise conditions for the first exercise period had been fulfilled and the exercise conditions for the second exercise period had not been fulfilled under the 2017 Share Option Incentive Scheme. For details, please refer to the "Overseas

ZTE CORPORATION INTERIM REPORT 2020

Material Matters

Regulatory Announcement Announcement on the Fulfillment of Exercise Conditions for the First Exercise Period under the 2017 Share Option Incentive Scheme" and "Overseas Regulatory Announcement Announcement Non-fulfillment of Exercise Conditions for the Second Exercise Period under the 2017 Share Option Incentive Scheme" published by the Company on 1 July 2019.

The first exercise period under the 2017 Share Option Incentive Scheme of the Company shall comprise the exercise dates within the period from 16 July 2019 to 5 July 2020. There were 1,684 participants entitled to exercise a total of 39,664,153 exercisable share options. For details, please refer to the "Overseas Regulatory Announcement Announcement on the Commencement of the First Exercise Period under the 2017 Share Option Incentive Scheme" published by the Company on 14 July 2019.

4. Details of share options held by the participants and their exercise during the reporting period

The share options under the 2017 Share Option Incentive Scheme of the Company were exercised on a voluntary basis. During the reporting period, a total of 4,805,995 share options were exercised at an exercise price of RMB17.06. The closing price of A shares as at the end of the reporting period was RMB40.13 and the number of the Company's A shares has increased by 4,805,995 shares accordingly. Proceeds received from the exercise of share options were placed in a designated account of the Company. Details of share options held and exercised by scheme participants during the reporting period are set out in the following table:

		Number of
		unexercised						Number of
		options	Number of	Number of	Number of	Number of	Number of	outstanding
		at the	options	options	options	options	options	options at	Weighted
		beginning	granted	exercisable	exercised	cancelled	lapsed	the end	average
		of the	during the	during the	during the	during the	during the	of the	closing
		reporting	reporting	reporting	reporting	reporting	reporting	reporting	price (RMB/
Name of participant	Position of participant	period	period	period	period	period	period	period	share) Note

Xu Ziyang	Director and President	126,000	0	42,000	42,000	0	0	84,000	39.16
Wang Xiyu	Executive Vice President	133,434	0	45,966	45,966	0	0	87,468	37.00
Li Ying	Executive Vice President and Chief	79,600	0	26,800	26,800	0	0	52,800	39.16
	Financial Officer
Xie Junshi	Executive Vice President	112,468	0	0	0	0	0	112,468	N/A
Ding Jianzhong	Secretary to the Board of Directors	33,160	0	0	0	0	0	33,160	N/A
	and Company Secretary
Other participants	-	44,047,951	0	4,691,361	4,691,229	0	0	39,356,722	41.76

Total	-	44,532,613	0	4,806,127	4,805,995	0	0	39,726,618	41.68

Note: The weighted average closing price of the A shares of the Company on the trading day immediately preceding the date of exercise.

During the period from the end of the reporting period under review to the date of publication of this report, a total of 66 A share options have been exercised by scheme participants under the 2017 Share Option Scheme of the Company, and the cancellation of 66 share options unexercised after the close of the first exercise period under the 2017 Share Option Scheme has yet to be processed.

For details of the date of grant, validity period, vesting period, exercise period and exercise price under the 2017 Share Option Incentive Scheme in respect of the share options set out above, please refer to the above.

5. Accounting policies and impact on the financial conditions and operating results of the Company

For details of the specific accounting treatments of share options and the impact on the Company's financial conditions and operating results for the reporting period and in future are set out in Note XI to the financial statements prepared under PRC ASBEs.

ZTE CORPORATION INTERIM REPORT 2020

(IX) NON-PUBLIC ISSUANCE OF A SHARES BY THE COMPANY

For details of matters pertaining to the Company's non-public issue of A shares, please refer to the announcements of the Company dated 31 January 2018, 1 February 2018, 28 March 2018, 10 April 2018, 29 October 2018, 19 November 2018, 17 January 2019, 23 January 2019, 25 February 2019, 20 March 2019, 5 August 2019, 7 August 2019, 22 August 2019 and 21 October 2019 and the circulars of the Company dated 2 March 2018 and 28 February 2019.

On 15 January 2020, the Company entered into the Subscription Agreement with 10 subscribers. The issue price for the Company's non-public issuance of A shares was set at RMB30.21 per share and a total of 381,098,968 shares were issued, raising gross proceeds of RMB11,512,999,823.28, the net proceeds (after deducting all expenses related to the issuance) is RMB11,459,418,724.31, which will be applied: (1) technology research and product development relating to 5G network evolution; and (2) replenishment of working capital. The subscribers are independent professional or institutional investors in China. The total nominal value of the A Shares issued is RMB381,098,968 and the net price per A Share is RMB30.07. On the signing date of the Subscription Agreement pursuant to which the issue price and other terms of the Proposed Non-public Issuance of A Shares were determined (i.e. 15 January 2020), the closing price of H Shares was HK$27.05 and the closing price of A Shares was RMB36.92. The new shares under the non-public issue of A shares by the Company were listed on the Shenzhen Stock Exchange on 4 February 2020. For details, please refer to the announcements "DETERMINATION OF ISSUE PRICE FOR THE NON-PUBLIC ISSUANCE OF A SHARES AND ENTERING INTO OF SUBSCRIPTION AGREEMENT", "COMPLETION OF NON-PUBLIC ISSUANCE OF A SHARES" and "Announcement on the Adjustment to the Listing Date of Non-public Issuance of New A Shares" published by the Company on 16 January 2020, 23 January 2020 and 2 February 2020, respectively.

On 3 February 2020, the party responsible for the implementation of investment projects utilising issue proceeds of the non-public issue of A shares of the Company entered into the "Agreement for Tripartite Supervision of Issue Proceeds" with CSC Financial Co., Ltd., the sponsor, and various regulatory banks. For details, please refer to the "Overseas Regulatory Announcement Announcement on the Agreement for Tripartite Supervision of Issue Proceeds" published by the Company on 4 February 2020.

On 14 February 2020, the Company applied issue proceeds raised from the non-public issue of A shares in replacement of internal funds previously invested in the projects for which the issue proceeds had been intended with a total fund replacement amount of RMB4,972 million. The application of unused issue proceeds amounting to not more than RMB2,500 million as interim working capital replenishment to be utilised over a term of not more than 12 months from the date of approval by the Board of Directors. The aforesaid matter has been considered and approved by the Fourteenth Meeting of the Eighth Session of the Board of Directors of the Company. For details, please refer to the "Announcement of the Resolutions of the Fourteenth Meeting of the Eighth Session of the Board of Directors", "Overseas Regulatory Announcement Announcement on the Application of Issue Proceeds In Replacement of Internal Funds Previously Invested in Projects for which the Issue Proceeds are Intended" and "Overseas Regulatory Announcement Announcement on the Partial Application of Unutilised Issue Proceeds to the Interim Replenishment of Working Capital" published by the Company on 14 February 2020.

ZTE CORPORATION INTERIM REPORT 2020

Material Matters

The following table sets out the use of the issue proceeds of the non-public issue of A shares of the Company during the reporting period. As at the date of 30 June 2020, the balance of the issue proceeds was RMB93,494,900, and the Company stored the issue proceeds in a special account. For details, please refer to the "Overseas Regulatory Announcement Special report on the storage and use of the issue proceeds in the semi-annual period of 2020" published by the Company on 28 August 2020.

	RMB in ten thousands
Item	Amount

Net proceeds	1,145,941.87
Plus: expenses related to the issuance that have not been replaced	358.11
Net accumulated interest income after deducting service fee	294.66
Minus: net fund replacement amount during the reporting period
(technology research and product development relating to
5G network evolution)	497,245.15
Amount used during the reporting period
(replenishment of working capital)	390,000.00
interim working capital replenishment	250,000.00

Balance of the issue proceeds as at the end of the reporting period	9,349.49

The Company will continue to use the balance of the issue proceeds of the non-public issue of A shares in accordance with the plan for the use of the issue proceeds as disclosed in the Company's circular dated 28 February 2019. The Company has repaid ahead of schedule the aforesaid unused issue proceeds utilised as interim working capital replenishment in the amount of RMB1,280 million to the designated account for issue proceeds, For details, please refer to the "Overseas Regulatory Announcement Announcement on the partial repayment ahead of schedule of the unused issue proceeds utilised as interim working capital replenishment" published by the Company on 28 July 2020.

On 28 July 2020, the Company applied issue proceeds in replacement of internal funds previously invested in the projects for which the issue proceeds had been intended with a total fund replacement amount of RMB1,357 million and further replaced internal funds amounting to RMB3,581,098.97 utilised for the payment of issue expenses. The aforesaid matter has been considered and approved at the Twentieth Meeting of the Eighth Session of the Board of Directors of the Company. For details, please refer to the "Announcement Resolutions of the Twentieth Meeting of the Eighth Session of the Board of Directors" and "Overseas Regulatory Announcement Announcement of the application of issue proceeds in replacement of internal funds previously invested in the projects for which the issue proceeds had been intended and utilised for the payment of issue expenses" published by the Company on 28 July 2020.

ISSUE AND PAYMENT OF THE COMPANY'S MEDIUM TERM NOTES AND SCPS
1. Completion of payment of 2015 tranche I medium term notes
The "Resolution of on the Proposed Registration and Issue of Perpetual Medium Term Notes" was considered and approved at the Twentieth Meeting of the Sixth Session of the Board of Directors and the First Extraordinary General Meeting of 2014 of the Company, granting approval to the Company's application to the National Association of Financial Market Institutional Investors for the registration and issue of Perpetual Medium Term Notes with an amount of not more than RMB9 billion. The National Association of Financial Market Institutional Investors has accepted the registration of the Company's RMB9 billion Medium Term Notes.
On 27 January 2015, the Company completed the issue of 2015 Tranche I Medium Term Notes ("Medium Term Notes") with an amount of RMB6,000 million for a term of 5+N years (maturity upon redemption by the Company pursuant to the terms of the issue). The Medium Term Notes became due on 27 January 2020 (the due payment date coincided with statutory holidays and was rescheduled to 31 January 2020). The Company completed the payment of the principal and interests of the Medium Term Notes with a total amount of RMB6,348,600,000 on 31 January 2020.

ZTE CORPORATION INTERIM REPORT 2020

2. Issue of the Company's 2020 SCPs

The "Resolution on the Proposed Registration and Issue of Perpetual Medium Term Notes" and the "Resolution on the Proposed Registration and Issue of Super and Short-term Commercial Paper ("SCP")" was considered and approved at the Twenty-fourth Meeting of the Seventh Session of the Board of Directors of the Company and the First Extraordinary General Meeting of 2017 of the Company. The Company's Tranche I Medium Term Notes with a registered amount of RMB2,000 million and SCP with a registered amount of RMB8,000 million have been registered with and approved by the National Association of Financial Market Institutional Investors (中國銀行間市場交易商協會) ("NAFMII"). For details, please refer to the "Overseas Regulatory Announcement Announcement on the Approval of Registration for the Medium Term Notes and Super and Short- term Commercial Paper" published by the Company on 10 October 2019.

During the reporting period, the Company completed seven tranches of SCP issue for an aggregate amount of RMB8,000 million. For details, please refer to the relevant announcements published by the Company on 26 March 2020, 22 April 2020, 26 May 2020, 12 June 2020 and 28 June 2020, respectively.

The payment date for Tranche IV SCP 2020 would be 23 August 2020 (which is a statutory holiday, hence the due payment date was rescheduled to 24 August). The payment date for Tranche V SCP 2020 would be 24 August 2020. The Company completed a total payment of RMB2,006,657,534.24 in principal and interests for Tranche IV and Tranche V SCP 2020 on 24 August 2020.

3. The Company's registration and issue of medium term notes

The "Resolution on the Proposed Registration and Issue of Medium Term Notes" was considered and approved at the Fifteen Meeting of the Eighth Session of the Board of Directors of the Company and the 2019 Annual General Meeting of the Company. The registration of the Company's medium term notes with a total registered amount of RMB8,000 million have been approved by NAFMII. For details, please refer to the "Announcement Resolutions of the Fifteenth Meeting of the Eighth Session of the Board of Directors" and "Overseas Regulatory Announcement Announcement on the Proposed Registration and Issue of Medium Term Notes" published on 27 March 2020, "Announcement on Resolutions of the 2019 Annual General Meeting" published on 19 June 2020 "Overseas Regulatory Announcement Announcement on the Approval of Registration for the Medium Term Notes" published on 21 July 2020 by the Company.

(XI) REPURCHASE OF A SHARES BY THE COMPANY

At the Fifteenth Meeting of the Eighth Session of the Board of Directors and the 2019 Annual General Meeting of the Company, the "Resolution on the tabling of the proposed mandate for the repurchase of the Company's A shares at the general meeting for consideration" was considered and approved.

The "Resolution on the plan for the repurchase of the Company's A shares by way of centralised price bidding" was considered and approved at the Twenty-first Meeting of the Eighth Session of the Board of Directors of the Company held on 14 August 2020. The Company has proposed to repurchase its A shares by way of centralised price bidding using internal funds, which A shares will be allotted for the implementation the Company's staff shareholding schemes or as share incentives. The total amount of A share repurchase shall be not less than RMB100 million and not more than RMB120 million. The repurchase may be conducted within 12 months from the date on which it is considered and approved at the Twenty-first Meeting of the Eighth Session of the Board of Directors. The actual number of shares to be repurchased is subject to the actual number of shares repurchased upon the conclusion of the repurchase period. For details, please refer to the "Announcement of the Resolutions of the Twenty-first Meeting of the Eighth Session of the Board of Directors", "Announcement on the plan for the repurchase of the Company's A shares by way of centralised price bidding" published by the Company on 14 August 2020.

In accordance with pertinent provisions of the "Shenzhen Stock Exchange Implementation Rules for the Repurchase of Shares By Listed Companies", the Company published the "Announcement on shareholdings of top ten shareholders and top ten holders not subject to lock-up about the repurchase of A shares" on 20 August 2020 and "Overseas Regulatory Announcement Report on the repurchase of the Company's A shares" on 26 August 2020.

ZTE CORPORATION INTERIM REPORT 2020

Material Matters

(XII) CONNECTED TRANSACTIONS UNDER APPLICABLE LAWS AND REGULATIONS OF THE PRC

1. Connected transactions in the ordinary course of business

The connected transactions disclosed in the following table represent connected transactions reaching the benchmark for public disclosure as defined under the Shenzhen Listing Rules.

As a percentage

Market price

of transactions

Whether

for similar

Counterparty to

Amount

in the same

approved cap

transactions

Domestic

connected

Nature of

(RMB in ten

classification

has been

available

announcement

Domestic announcement

transaction

connection

Classification

Subject matter

Pricing principle

Price (RMB)

thousands)

(%)

exceeded

Settlement

(RMB)

date

index

Zhongxingxin and its	Controlling	Purchase of	The purchase of cabinets and
subsidiaries and	shareholder of the	raw materials	related accessories, cases and
companies in which it	Company and its		related accessories, shelters,
held equity interests	subsidiaries and		railings, antenna poles, optical
of 30% or above	companies in		products, refined-processing
	which it held		products, packaging materials,
	equity interests of		FPC, R-FPC and components by
	30% or above		the Company from the connected
			party

Huatong Technology	Subsidiary of a	Purchase of	The purchase of personnel hiring
Company Limited	company for which	software	and project outsourcing services by
("Huatong")	a connected	outsourcing	the Company from the connected
	natural person of	services	party
	the Company
	acted as director
	and executive vice
	president
ZTE Software	Subsidiary of a	Purchase of	The purchase of personnel hiring
Technology	company for which	software	and project outsourcing services by
(Nanchang) Company	a connected	outsourcing	the Company from the connected
Limited ("Nanchang	natural person of	services	party
Software")	the Company
	acted as director
	and executive vice
	president

Purchase of raw materials by the Company and its subsidiaries from connected parties were conducted at prices determined through arm's length negotiations and on the basis of normal commercial terms. The prices of properties leased to connected parties by the Group were determined through arm's length negotiations based on normal commercial terms. Transaction prices at which products were sold by the Group to connected parties were based on market prices and were not lower than prices at which similar products of similar quantities were purchased by third parties from the Group, taking into consideration of factors relating to the specific transactions such as conditions of the projects, size of transaction and product costs.

Cabinets and related accessories: RMB1-RMB300,000 per unit, cases and related	18,192.35	0.49%	No	Commercial	N/A	2018-12-25	Announcement No. 2018104
accessories: RMB1-RMB15,000 per unit, depending on level of sophistication;				acceptance bill			"Announcement on Projected
Shelters: RMB1,000-RMB100,000 per unit depending on measurement, materials							Continuing Connected
used and configuration;							Transactions under the Rules
Railings: RMB1,000-50,000 per piece depending on level of sophistication and							Governing Listing of Stocks on
functional features;							The Shenzhen Stock Exchange"
Antenna poles: RMB200-2,000 per piece depending on level of sophistication and
functional features;
Optical products: RMB1.3-30,000 per unit depending on level of sophistication
and functional features;
Refined-processing products: RMB0.5-50,000 per unit depending on level of
sophistication and functional features;
Packaging materials: RMB0.01-5,000 per piece depending on level of
sophistication and functional features;
FPC, R-FPC and components: RMB0.5-100 per piece depending on
measurement, level of process sophistication and materials used.
Special-grade engineer at a price ranging from RMB970-1,800 per head/day;	2,323.49	0.06%	No	Tele-transfer	N/A	2020-1-17	Announcement No. 202004
Supervisory engineer at a price ranging from RMB830-1,300 per head/day;							"Announcement on Projected
Senior engineer at a price ranging from RMB520-1,150 per head/day							Continuing Connected
Common engineer at a price ranging from RMB440-750 per head/day;							Transactions under the Rules
Assistant engineer at a price ranging from RMB350-550 per head/day;							Governing Listing of Stocks on
Technician at a price ranging from RMB320-500 per head/day.							The Shenzhen Stock Exchange"
Special-grade engineer at a price ranging from RMB970-1,800 per head/day;	1,203.55	0.03%	No	Tele-transfer	N/A	2020-1-17	Announcement No. 202004
Supervisory engineer at a price ranging from RMB830-1,300 per head/day;							"Announcement on Projected
Senior engineer at a price ranging from RMB520-1,150 per head/day							Continuing Connected
Common engineer at a price ranging from RMB440-750 per head/day;							Transactions under the Rules
Assistant engineer at a price ranging from RMB350-550 per head/day;							Governing Listing of Stocks on
Technician at a price ranging from RMB320-500 per head/day.							The Shenzhen Stock Exchange"

Nanchang Software	Subsidiary of a	Purchase of	The purchase of personnel hiring
	company for which	engineering	services by the Company from the
	a connected	services	connected party
	natural person of
	the Company
	acted as director
	and executive vice
	president

Work delivery personnel ranging from RMB398-1322 per head/day;	-	- No	Tele-transfer	N/A	2018-12-25	Announcement No. 2018104
Ancillary product personnel ranging from RMB401-805 per head/day;						"Announcement on Projected
Core network personnel ranging from RMB485-851 per head/day;						Continuing Connected
Service product personnel ranging from RMB451-793 per head/day;						Transactions under the Rules
Wireless product personnel ranging from RMB418-774 per head/day;						Governing Listing of Stocks on
Fixed-line product personnel ranging from RMB418-735 per head/day;						The Shenzhen Stock Exchange"
Bearer product personnel ranging from RMB418-735 per head/day;
Government and energy product personnel ranging from RMB433-1,197 per head/

day;

Network optimisation personnel ranging from RMB491-958 per head/day.

Zhongxing Hetai or its	A company for	Purchase of	The purchase of hotel services by
subsidiaries	which a connected	hotel services	the Company from the connected
	natural person of		party
	the Company
	acted as director
	and its
	subsidiaries
Zhongxing Hetai or its	A company for	Lease of	The lease of property and related
subsidiaries	which a connected	property and	equipment and facilities by the
	natural person of	equipment and	Company to the connected party
	the Company	facilities
	acted as director
	and its
	subsidiaries
航天歐華	Subsidiary of a	Sale of	The sale of the full range of
	company for which	products	government and enterprise
	a connected		products by the Company to the
	natural person of		connected party
	the Company
	acted as senior
	management

Purchase price not higher than prices at which Zhongxing Hetai sells products (or	1,059.98	0.03%	No	Tele-transfer	N/A	2018-12-25	Announcement No. 2018104
services) to other customers purchasing similar products (or services) in similar							"Announcement on Projected
amounts, subject to the actual agreement signed by the two parties.							Continuing Connected
							Transactions under the Rules
							Governing Listing of Stocks on
							The Shenzhen Stock Exchange"
In 2020 RMB80/sq.m./month for hotel properties in Dameisha in Shenzhen;	3,669.52	14.48%	No	Tele-transfer	N/A	2020-1-17	Announcement No. 202004
RMB62/sq.m./month for hotel properties in Nanjing;							"Announcement on Projected
RMB84/sq.m./month for hotel properties in Shanghai;							Continuing Connected
RMB53/sq.m./month for hotel properties in Xi'an.							Transactions under the Rules
The rental fee for related equipment and facilities required by the hotel operations							Governing Listing of Stocks on
in Shenzhen, Shanghai, Nanjing and Xi'an was 1,370,000/year.							The Shenzhen Stock Exchange"
Based on market prices and not lower than prices at which similar products of	45,638.37	0.97%	No	Tele-transfer or	N/A	2020-1-17	Announcement No. 202004
similar quantities were purchased by third parties from the Company, taking into				bank acceptance			"Announcement on Projected
consideration factors relating to the specific transactions such as conditions of				bill			Continuing Connected
the projects, size of transaction and product costs.							Transactions under the Rules
							Governing Listing of Stocks on
							The Shenzhen Stock Exchange"

Total	-	-	72,087.26	N/A -	-	-	-	-

ZTE CORPORATION INTERIM REPORT 2020

Detailed information of substantial sales return

Necessity and continuity of connected transactions and reasons for choosing to conduct transactions with the connected party (rather than other parties in the market)

Effect of the connected transaction on the independence of the listed company

The Company's dependence on the connected party and relevant solutions (if any)

Projected total amount of continuing connected transaction during the period by type and actual performance during the reporting period (if any)

Reason for the substantial difference between transaction prices and referential market prices (if applicable)

None

The aforesaid connected parties were able to manufacture products required by the Group on a regular basis and provide quality products, services and lease properties in sound conditions at competitive prices. The Company considers trustworthy and cooperative partners as very important and beneficial to the Group's operations.

The Company was not dependent on the connected parties and the connected transactions would not affect the independence of the Company.

The Company was not dependent on the connected parties.

At the Forty-second Meeting of the Seventh Session of the Board of Directors of the Company held on 25 December 2018, it was considered and approved that the estimated purchases of raw materials from Zhongxingxin, a connected party, and its subsidiaries and companies in which it held equity interests of 30% or above by the Group in 2020 be capped at RMB800 million (before VAT);

At the Thirteenth Meeting of the Eighth Session of the Board of Directors of the Company held on 17 January 2020, it was considered and approved that the estimated purchases of software outsourcing services from Huatong and Nanchang Software, both connected parties, in 2020 be capped at RMB86.19 million and RMB52.30 million (before VAT), respectively;

At the Forty-second Meeting of the Seventh Session of the Board of Directors of the Company held on 25 December 2018, it was considered and approved that the estimated purchases of engineering services from Nanchang Software, a connected party during the periods from 1 November 2019 to 31 October 2020 be capped at RMB1 million (before VAT);

At the Forty-second Meeting of the Seventh Session of the Board of Directors of the Company held on 25 December 2018, it was considered and approved that the estimated purchases of hotel services from Zhongxing Hetai, a connected party, or its subsidiaries by the Group in 2020 be capped at RMB36.50 million (before VAT);

At the Thirteenth Meeting of the Eighth Session of the Board of Directors of the Company held on 17 January 2020, it was considered and approved that the estimated lease of properties and equipment and facilities to Zhongxing Hetai or its subsidiaries by the Group in 2020 be capped at RMB73.40 million (before VAT);

At the Thirteenth Meeting of the Eighth Session of the Board of Directors of the Company held on 17 January 2020 and the 2019 Annual General Meeting of the Company held on 19 June 2020, it was considered and approved that the estimated sales of products to 航天歐華, a connected party, by the Group in 2020 be capped at RMB800 million (before VAT); and

Please refer to the above table for details of the execution of the aforesaid continuing connected transactions.

N/A

Note: For details of "Approved Cap", please refer to the section headed "Projected total amount of continuing connected transaction during the period by type and actual performance during the reporting period (if any)".

The Company did not conduct any connected transactions arising from acquisitions or disposals of assets and equity interests during the reporting period.
The Company did not enter into any material connected transactions involving joint investment in third parties during the reporting period.
During the year, the Company did not incur any creditors or debtors with connected parties of a non-operating nature.

(XIII) MATERIAL CONTRACTS AND THEIR PERFORMANCE

1. There was no trust, contract management or lease of assets of other companies by the Company or of the Company's assets by other companies commencing or subsisting during the reporting period.

2 Third-party guarantees of the Group

Third-party guarantees provided by the Company and subsidiaries (excluding guarantees provided by the Company on behalf of subsidiaries and vice versa and by subsidiaries on behalf of fellow subsidiaries)

								Whether
								provided
								on
	Date and index of domestic						Whether	behalf of
	announcement disclosing			Actual amount	Type of		fully	connected
Guaranteed party	the guarantee amount	Amount guaranteed	Date incurred	guaranteed	guarantee	Term of guarantee	performed parties
Beijing Fuhua Yuqi Information	1 December 2016 201678	RMB21,019,250	1 April 2017	RMB21,019,250	Joint liability	From the date on which the Technology Development (Entrustment) Contract comes into	No	No
Technology Co., Ltd Note 1					assurance	effect upon execution and ending on the completion of Fuhua Yuqi's performance of
						obligations under the Technology Development (Entrustment) Contract.

Total amount of third-party guarantee approved during the reporting period (A1)

Total amount of third-party guarantee approved as at the end of the reporting period (A3)

-	Total	amount	of	third-party guarantee actually incurred during the reporting period (A2)	-
RMB21,019,300	Total	amount	of	balance of third-party guarantee actually incurred as at the end of the reporting period (A4)	RMB21,019,300

ZTE CORPORATION INTERIM REPORT 2020

Material Matters

Guarantees provided by the Company on behalf of subsidiaries

									Whether
									provided
									on
	Date and index of domestic						Whether	behalf of
	announcement disclosing			Actual amount	Type of		fully	connected
Guaranteed party	the guarantee amount	Amount guaranteed	Date incurred	guaranteed	guarantee	Term of guarantee	performed parties

ZTE France SASU Note 2	14	December 2011 201152	EUR10 million	N/A	-	Assurance	From maturity to the date on which performance of obligations of ZTE France under the	N/A	No
							"SMS Contract" and "PATES Contract" expires or terminates (whichever is later)
PT. ZTE Indonesia Note 3	13	September 2013 201362	USD40 million	23 October 2013	USD40 million	Joint liability	From maturity to the date on which performance of material obligations of PT. ZTE	No	No
							Indonesia under the "Equipment Purchase Contract" and "Technical Support Contract" is
							completed
PT. ZTE Indonesia Note 3	13	September 2013 201362	USD15 million	11 September	USD15 million	Joint liability	From maturity to 5 March 2017 or the date on which performance of obligations of PT.	No	No
				2013			ZTE Indonesia under the "Equipment Purchase Contract" and "Technical Support
							Contract" is completed (whichever is later)
ZTE (Malaysia) Corporation SDN.	24	September 2014 201440	USD60 million	27 November	USD2,250,000	Joint liability	Commencing on the date on which the "UM Wireless Capacity Expansion Contract"	No	No
BHD Note 4	8 January 2016 201605		2014			comes into effect upon execution and ending on the date on which performance of the
							obligations of ZTE Malaysia under the "UM Wireless Capacity Expansion Contract" is
							completed
ZTE (Malaysia) Corporation SDN.	24	September 2014 201440	USD2 million	4 January 2015	USD520,000	Joint liability	Not more than 6 years from the date on which the bank letter of guarantee comes into	No	No
BHD Note 4	8 January 2016 201605					effect upon issuance
ZTE (Wenzhou) Railway Communication	30	September 2017 201765	RMB3,300,000	28 December	RMB3,152,500	Joint liability	Commencing on the date of issuance of the performance bond and ending on the 30th	No	No
Technology Limited Note 5				2017			day after the due fulfilment of inspection upon completion of the Wenzhou Public Security
							Communications Project with the receipt of an acceptance certificate
ZTE (H.K.) Limited Note 6	16	March 2018 201822	Not more than	1 June 2020	USD300 million	Joint liability	From 1 June 2020 to (1) six months after 1 June 2023, or (2) the irrevocable settlement in	No	No
			USD600 million			assurance	full by ZTE HK of all amounts payable under the loan agreement and other agreements
							and documents thereunder, including the guarantee agreement, from the date of such
							agreements and documents to the long-stop date, whichever period occurs first
PT. ZTE Indonesia Note 7	15	October 2018 201890	USD40 million	25 October 2018	USD40 million	Joint liability	Commencing on the date of issuance of the guarantee letter of the parent company and	No	No
							ending on the date on which the parent company is fully released from its assurance
							obligations under the guarantee
PT. ZTE Indonesia Note 7	15	October 2018 201890	IDR300 billion	26 April 2019	IDR300 billion	Joint liability	Commencing on the date of issuance of the bank guarantee letter and ending upon the	No	No
							conclusion of an effective term of 3 years and 6 months or the date on which
							performance of obligations of PT. ZTE Indonesia under the "Equipment Purchase
							Contract" and "Technical Support Contract" is completed, whichever is later

Total amount of guarantee approved during the reporting period (B1)	RMB1,414,060,000 Note 8
Total amount of guarantee approved as at the end of the reporting	RMB6,997,424,200 Note 8
period (B3)

Total	amount	of	guarantee	actually	incurred	during the reporting period (B2)	RMB2,121,090,000
Total	amount	of	guarantee	actually	incurred	as at the end of the reporting period (B4)	RMB2,963,812,900

Guarantees provided by subsidiaries on behalf of fellow subsidiaries

							Whether
							provided
	Date and index of						on behalf
	domestic announcement					Whether	of
	disclosing the guarantee		Actual amount	Type of		fully	connected
Guaranteed party	amount	Amount guaranteed Date incurred	guaranteed	guarantee	Term of guarantee	performed parties

西安中興通訊終端科技有限公司 Note 9 Shenzhen Zhongxin New Energy

Technology Company Limited Note 10 (formerly known as Zhongxing New Energy Automobile Company Limited)

西安克瑞斯半導體技術有限公司 Note 11

Netas Bilişim Teknolojileri A.Ş. Note 12

BDH Bilişim Destek Hizmetleri Sanayi ve Ticaret A.Ş. Note 12

NetaşBilişim Teknolojileri A.Ş Note 13

BDH Bilişim Destek Hizmetleri Sanayi ve Ticaret.A.Ş. Note 13

NETAŞ TELEKOMÜNİKASYON

A.Ş. Note 13

ZTE ICT (Guangxi) Company

Limited Note 14

ZTE ICT Company Limited Note 15

ZTE ICT Company Limited Note 16

N/A	RMB60,005,000	13 March 2015	RMB60,005,000	Joint liability	5 years	Yes	No
N/A	RMB60 million	29 December	-	Joint liability	Commencing on the date on which the "CDB Development Fund Investment Agreement"	Yes	No
		2015		assurance	comes into effect and ending upon on the conclusion of a period of 2 years from the date
					on which the amounts payable by Zhongxing New Energy Automobile Company Limited
					under the contract are settled in full
N/A	USD30 million	26 January 2017	USD7,932,000	Joint liability	Commencing on the date on which the "Guarantee Contract" comes into effect and	No	No
					ending upon on the conclusion of a 2-year period during which Cris has not ordered any
			-		manufacturing service from TSMC provided that no debt payment is due and outstanding.
N/A	USD2,153,300	14 November	Joint liability	Commencing on the date on which the "Systems Integration Agreement" comes into	No	No
		2012			effect upon execution and ending on the date on which performance of the obligations of
					Netas Bilişim under the "Systems Integration Agreement" is completed.
N/A	EUR10,753,800	5 May 2017	EUR10,753,800	Joint liability	Commencing on 5 May 2017 and ending on the date on which the performance of	No	No
					obligations of BDH under the "Procurement and Installation Agreement" is completed
6 May 2020 202036	USD93 million	7 May 2020	USD3,201,600	Joint liability	Ending on the date on which the repayment of debt relating to the guarantee is	No	No
					competed
	USD18 million	30 June 2020	USD298,200	Joint liability	Ending on the date on which the repayment of debt relating to the guarantee is competed	No	No
	USD28 million	-	-	Joint liability	Ending on the date on which the repayment of debt relating to the guarantee is competed	No	No
19 March 2019 201916	RMB10 million	20 March 2019	RMB10 million	Joint liability	Commencing on the date on which the "Maximum Guarantee Contract" comes into effect	No	No
				assurance	upon execution and ending on the date on which a period of 3 years has lapsed since the
					conclusion of the performance period for the primary creditor rights guaranteed
27 May 2019 201937	RMB80 million	4 June 2019	RMB80 million	Guarantee with	During the incurrence of the primary creditor rights	Yes	No
				pledge
24 April 2020 202032	RMB100 million	7 May 2020	RMB100 million	Mortgage	Commencing on the date on which the "Maximum Mortgage Contract" comes into effect	No	No
				guarantee	and ending on 3 January 2023

Total amount of guarantee for subsidiary approved during the	RMB1,082,771,700
reporting period (C1)
Total amount of guarantee for subsidiary approved as at the end of	RMB1,605,645,900
the reporting period (C3)

Total	amount	of	guarantee	for	subsidiary actually incurred during the reporting period (C2)	RMB180,826,300
Total	amount	of	guarantee	for	subsidiaries actually incurred as at the end of the reporting period (C4)	RMB276,362,000

Total amount guaranteed by the Company (sum of the three categories set out above)

Total amount of guarantee approved during the reporting period	RMB2,496,831,700
(A1+B1+C1)
Total amount of guarantee approved as at the end of the reporting	RMB8,624,089,400
period (A3+B3+C3)

Total amount of guarantee (A4+B4+C4) as a percentage of net assets of the Company Including:

Amount of guarantee provided on behalf of shareholders, de facto controllers and their connected parties (D) Amount of debt guarantee provided directly or indirectly on behalf of parties with a gearing ratio exceeding 70% (E)

Amount of total guarantee exceeding 50% of net assets (F)

Aggregate amount of the three guarantee amounts stated above (D+E+F)

Statement on liability incurred during the reporting period or potential joint liability for debt settlement (if any) in respect of outstanding guarantees

Statement on provision of guarantee to third parties in violation of stipulated procedures (if any)

Total amount of guarantee actually incurred during the reporting period (A2+B2+C2)	RMB2,301,916,300
Total amount of balance of guarantee actually incurred as at the end of the reporting period (A4+B4+C4)	RMB3,261,194,200
	7.92%

RMB2,983,296,600

N/A

ZTE CORPORATION INTERIM REPORT 2020

Note 1: It was considered and approved at the Tenth Meeting of the Seventh Session of the Board of Directors of the Company that guarantee be provided by the Company by way of joint liability assurance for the performance of obligations by Beijing Fuhua Yuqi Information Technology Co., Ltd. ("Fuhua Yuqi") under the Technology Development (Entrustment) Contract for a guarantee amount of not more than RMB21,019,250 for a term commencing on the date on which the Technology Development (Entrustment) Contract comes into effect upon execution and ending on the completion of Fuhua Yuqi's performance of obligations under the Technology Development (Entrustment) Contract. The Technology Development (Entrustment) Contract came into effect on 1 April 2017 upon execution. Fuhua Yuqi has provided a third- party counter-guarantee to the Company in respect of the aforesaid guarantee.

Note 2: It was approved at the Twenty-fourth Meeting of the Fifth Session of the Board of Directors of the Company that a guarantee for an amount of not more than EUR10 million in respect of the performance obligations of ZTE France SASU ("ZTE France"), a wholly-owned subsidiary of the Company under the 2010 SMS Execution Contract ("SMS Contract") and the PATES-NG Execution Contract ("PATES Contract"). As at the end of the reporting period, the PATES Contract was completed and the guarantee provided by the Company in respect of the performance obligations of ZTE France was undergoing registration procedures of the State Administration of Foreign Exchange and had yet to be performed.

Note 3: It was considered and approved at the Ninth Meeting of the Sixth Session of the Board of Directors of the Company and the Third Extraordinary General Meeting of 2013 of the Company that a performance guarantee of USD40 million be provided by the Company for ZTE Indonesia, a wholly-owned subsidiary of the Company, and application be made by the Company to the relevant bank for the issuance of a letter of performance guarantee with an amount of USD15 million. As at the end of the reporting period, the aforesaid guarantee was under normal performance.

Note 4: At the Twenty-first Meeting of the Sixth Session of the Board of Directors of the Company, it was considered and approved that the Company would provide a USD20 million performance guarantee for ZTE Malaysia, a wholly-owned subsidiary of the Company, and apply to relevant banks for the issuance of a USD2 million bank letter of guarantee. As the gearing ratio of ZTE Malaysia was above 70%, the aforesaid guarantee was considered and approved at the First Extraordinary General Meeting of 2014 of the Company. At the Thirty-ninth Meeting of the Sixth Session of the Board of Directors and the First Extraordinary General Meeting of 2016 of the Company, it was considered and approved that the Company would increase the USD20 million performance guarantee for ZTE Malaysia, a wholly-owned subsidiary of the Company, by USD40 million (namely, a total of not more than USD60 million) and to extend the valid period of the USD2 million bank letter of guarantee to 6 years after the date of issuance. As at the end of the reporting period, USD2.25 million of the USD60 million performance guarantee provided by the Company for ZTE Malaysia had come into effect, while USD520,000 bank letter of guarantee issued by relevant banks and applied for by the Company on behalf of ZTE Malaysia remained in effect.

Note 5: As considered and passed at the Twenty-third Meeting of the Seventh Session of the Board of Directors of the Company, the provision by the Company of a guarantee by way of performance bond amounting to not more than RMB3.30 million in respect of the performance obligations of ZTE (Wenzhou) Railway Communication Technology Limited ("ZTE Wenzhou") under the "Wenzhou Public Security Communications Contract" for a period commencing on the date of issuance of the performance bond and ending on the 30th day after the due fulfilment of inspection upon completion of the Wenzhou Public Security Communications Project with the receipt of an acceptance certificate was approved. The Company has applied to the relevant bank for the issuance of a bank guarantee letter providing guarantee by way of performance bond with a cumulative maximum amount of RMB3,152,500 in respect of the performance obligations of ZTE Wenzhou under the "Wenzhou Public Security Communications Contract". As at the end of the reporting period, the performance bond had come into effect. ZTE Wenzhou had provided counter-guarantees in equivalent amounts to the Company in respect of the aforesaid guarantees. As at the end of the reporting period, the aforesaid guarantee was under normal performance.

Note 6: The Company sought medium/long-term debt financing (including but not limited to syndicate loans, bank facilities and the issue of corporate bonds) in Hong Kong, with ZTE HK, a wholly-owned subsidiary of the Company, as the principal. The Company provided guarantee by way of joint liability assurance for an amount of not more than USD600 million. The aforesaid guarantee was considered and passed at the Twenty-eighth Meeting of the Seventh Session of the Board of Directors and the 2017 Annual General Meeting of the Company. In June 2020, ZTE HK entered a USD300 million loan agreement with 8 Chinese/foreign banks headed by Bank of China, Macau Branch ("BOC Macau"). At the same time, the Company entered into a guarantee agreement with BOC Macau to provide guarantee by way of joint liability assurance in respect of the debt of ZTE HK under the loan agreement and the agreements and documents thereunder.

Note 7: As considered and passed at the Thirty-ninth Meeting of the Seventh Session of the Board of Directors of the Company, the provision of USD40 million performance guarantee and the application to the relevant bank for the issuance of an IDR300 billion bank letter of guarantee by the Company for ZTE Indonesia, a wholly-owned subsidiary, was approved. The aforesaid guarantee was within the limit of USD200 million for the guarantee of contract performance provided for wholly-owned overseas subsidiaries as considered and passed at the 2017 Annual General Meeting. The aforesaid performance guarantee and letter of guarantee have come into effect. As at the end of the reporting period, the aforesaid guarantee was under normal performance.

ZTE CORPORATION INTERIM REPORT 2020

Material Matters

Note 8: As considered and passed at the Fifteen Meeting of the Eighth Session of the Board of Directors of the Company and the 2019 Annual General Meeting, the Company would provide a guarantee amount for contract performance (including but not limited to the execution of guarantee agreements by the parent company and the provision of bank letters of guarantee) of not exceeding USD200 million in aggregate for 7 wholly-owned overseas subsidiaries. The aforesaid guarantee amount may be applied on a revolving basis during an effective period commencing on the date on which the limit of performance guarantee provided by the Company for wholly-owned overseas subsidiaries is considered and approved at the 2019 Annual General Meeting of the Company and ending on the date on which the Company's 2020 Annual General Meeting is convened. After the limit of performance guarantee provided by the Company for wholly- owned overseas subsidiaries has been considered and approved at the Company's Annual General Meeting, specific guarantees within the limit shall be approved by the Board of Directors of the Company, which shall be responsible for disclosing relevant information. The computations of the total amount of guarantee on behalf of subsidiaries approved during the reporting period (B1) and the total amount of guarantee on behalf of subsidiaries approved as at the end of the reporting period (B3) include a USD200 million guarantee provided for overseas wholly-owned subsidiaries. As at the end of the reporting period, the aforesaid guarantee had not been applied.

Note 9: It was considered and approved at the board meeting of ZTE Group Finance, a wholly-owned subsidiary of the Company,

that ZTE Group Finance would provide joint liability guarantee for an amount of not more than RMB60.005 million in respect of the performance of the "Smart Phone Manufacturing Equipment Lease Contract" by 西安中興通訊終端科技

有限公司, a wholly-owned subsidiary of the Company, for a term of 5 years. The term of the aforesaid guarantee expired and the guarantee was released during the reporting period.

Note 10: It was considered and approved at the board meeting and general meeting of Zhongxing New Energy Automobile Company Limited, a subsidiary of the Company, that Zhongxing New Energy Automobile Company Limited would provide guarantee by way of joint liability assurance for an amount of not more than RMB60 million in respect of a project financing for Zhongxing New Energy Automobile Company Limited (now renamed "Shenzhen Zhongxin New Energy Technology Company Limited"), its wholly-owned subsidiary, for a term commencing on the date on which the "CDB Development Fund Investment Agreement" comes into effect and ending upon on the conclusion of a period of 2 years from the date on which the amounts payable by Zhongxing New Energy Automobile Company Limited are settled in full. As at the end of the reporting period, the amounts payable by Shenzhen Zhongxin New Energy Technology Company Limited were settled in full and the guarantee was released.

Note 11: It was considered and approved at the board meeting of ZTE Micro-electronics, a subsidiary of the Company, that ZTE

Micro-electronics would provide joint liability guarantee for an amount of not more than USD30 million in connection with the procurement orders between 西安克瑞斯半導體技術有限公司, its wholly-owned subsidiary, and Taiwan

Semiconductor Manufacturing Company Limited ("TSMC") for a term commencing on the date on which the "Guarantee Contract" comes into effect and ending upon on the conclusion of a 2-year period during which Cris has not ordered any manufacturing service from TSMC provided that no debt payment is due and outstanding. As at the end of the reporting period, the aforesaid guarantee was under normal operation and guarantee for an amount of USD7,932,000 had come into effect.

Note 12: The Company completed the acquisition of Netaş, a listed Turkish company, on 28 July 2017. Prior to the acquisition of Netaş by the Company, Netaş had provided the following guarantee for its subsidiaries Probil Bilgi İşlem Destek ve Danışmanlık San.ve Tic.A.Ş. (renamed Netas Bilişim Teknolojileri A.Ş and hereinafter as "Netas Bilişim") and BDH Bilişim Destek Hizmetleri Sanayi ve Ticaret A.Ş. ("BDH"): (1) guarantee in respect of the performance obligations of Netas Bilişim under the "Systems Integration Agreement" for an amount of approximately USD2,153,300 for a term commencing on the date on which the "Systems Integration Agreement" comes into effect upon execution and ending on the date on which the performance of the obligations of Netas Bilişim under the "Systems Integration Agreement" are completed. As at the end of the reporting period, the actual amount of guarantee incurred by Netas Bilişim was 0;

guarantee in respect of the performance obligations of BDH under the "Procurement and Installation Agreement" for an amount of EUR10,753,800 for a term commencing on 5 May 2017 and ending on the date on which the performance of obligations of BDH under the "Procurement and Installation Agreement" is completed. As at the end of the reporting period, the aforesaid guarantees were under normal performance.

Note 13: As considered and approved at the Seventeenth Meeting of the Eighth Session of the Board of Directors of the Company and the Netaş board of directors, it was approved that a reciprocal joint-liability guarantee would be effected among Netaş and its subsidiaries in respect of composite credit facilities sought from financial institutions for an amount of not more than USD139 million. The guaranteed entities would apply to financial institutions for credit facilities such as loans, letter of guarantee and reverse supply chain financing, among others. As at the end of the reporting period, Netaş and BDH had provided guarantee for credit facilities amounting to USD3,201,600 for Netaş Bilişim; while Netaş and Netaş Bilişim had provided guarantee for credit facilities amounting to USD298,200 for BDH.

Note 14: As considered and approved at the Forty-fifth Meeting of the Seventh Session of the Board of Directors of the Company and by the board of directors and general meeting of ZTE ICT, ZTE ICT would provide guarantee by way of assurance with an amount of RMB10 million in respect of the obligations of ZTE ICT (Guangxi) Company Limited ("Guangxi ICT"), under the "Working Capital Maximum Borrowing Contract" in favour of Guilin Bank, Wuzhou Branch, for a term commencing on the date on which the "Maximum Guarantee Contract" comes into effect and ending on the date on which a period of 3 years has lapsed since the conclusion of the performance period for the primary creditor rights guaranteed. On 20 March 2019, ZTE ICT entered into a "Maximum Guarantee Contract" with Guilin Bank, Wuzhou Branch and the aforesaid guarantee documents has come into effect.

ZTE CORPORATION INTERIM REPORT 2020

Note 15: As considered and approved at the Third Meeting of the Eighth Session of the Board of Directors of the Company and by the board of directors and general meeting of Shenzhen Zhongxing Zhiping Technology Company Limited ("Zhongxing Zhiping"), Zhongxing Zhiping would provide an RMB80 million guarantee pledged by trade receivables in favour of China Minsheng Banking Corp., Ltd., Shenzhen Branch ("Minsheng Bank") in respect of a loan extended to ZICT by Minsheng Bank. On 4 June 2019, Zhongxing Zhiping entered into the Contract for Maximum Pledge Secured by Trade Receivables with Minsheng Bank. The aforesaid guarantee was released after ZICT had settled the loans with Minsheng Bank in full and filed registration for the cancellation of the pledge in June 2020.

Note 16: As considered and approved at the Sixteenth Meeting of the Eighth Session of the Board of Directors of the Company and by the board of directors and general meeting of Hunan ZICT Technology Co., Ltd ("Hunan ZICT"), Hunan ZICT would provide guarantee backed by real estate mortgages with an amount of not more than RMB100 million in favour of Shanghai Pudong Development Bank Corporation Shenzhen Branch ("PDB") in respect of financing for ZICT. The real estate mortgage came into effect after ZICT entered into a Finance Facility Agreement with PDB and Hunan ZICT entered into a Maximum Mortgage Contract with PDB and completed registration of the mortgage on 7 May 2020.

Note 17: The guaranteed amounts are translated at the following book exchange rates of the Company as at 30 June 2020: USD1: RMB7.0703, EUR1: RMB7.954, IDR1: RMB0.000494357.

For details of the special statement and independent opinion on the fund transfer between the Company and connected parties and third-party guarantees of the Company furnished by Independent Non-Executive Directors of the Company, please refer to the "Independent opinion on Matters pertaining to the Twenty-second Meeting of the Eighth Session of the Board of Directors" published on 28 August 2020.
Progress of material contracts entered into during or prior to the reporting period

□Applicable N/A

(XIV) UNDERTAKING

1. Undertakings by relevant undertaking parties including the shareholders, connected parties, acquirers of the Company and the Company completed during the reporting period and outstanding as at the end of the reporting period

Undertaking given upon the initial public offering or any refinancing exercise
1. Zhongxingxin, the controlling shareholder of the Company, entered into "Non-Competition Agreement" with the Company on 19 November 2004, pursuant to which Zhongxingxin has undertaken to the Company that: Zhongxingxin will not, and will prevent and preclude any of its other subsidiaries from carrying on or participating in any activities in any businesses deemed to be competing with existing and future businesses of the Company in any form (including but not limited to sole ownership, equity joint venture or co-operative joint venture and direct or indirect ownership of equity or other interests in other companies or enterprises, other than through ZTE); Zhongxingxin will immediately terminate and/or procure any of its subsidiaries to terminate any participation in, management or operation of any competing businesses or activities that Zhongxingxin and/or such subsidiaries are participating in or carrying on in any manner at any time.
2. Zhongxingxin, the controlling shareholder of the Company, provided the following undertaking on 31 January 2018 in respect of the implementation of remedial measures to address the dilution of return for the current period due to the non-public issuance of A shares in 2018: (1) that it will not, for so long as it remains the controlling shareholder of the Company, act beyond its powers to interfere with the Company's operating and management activities or infringe upon the Company's interests; (2) that it will willingly assume the liability for compensating the Company or other shareholders in accordance with the law in the event of losses incurred by the Company or other shareholders as a result of its violation of or refusal to honour its undertaking.

ZTE CORPORATION INTERIM REPORT 2020

Material Matters

1. 1. On 7 August 2019, the Company gave an undertaking in respect of the Company's proposed non-public issue of A Shares in accordance with the pertinent requirements of set out in the "Answers to Certain Questions on Refinancing Business" published by the CSRC: If the non-public issuance of A shares is approved by the competent authorities, including the CSRC and is implemented, prior to the utilisation in full of proceeds from the non-public issuance of A shares or within 36 months from the date of receipt of the issue proceeds, the Company shall not commit new funds into the quasi-financial business (including fund commitments in various forms such as capital increase, loans and guarantees, among others).
2. Other undertaking given to minority shareholders of the Company
  On 10 December 2007, Zhongxingxin gave an undertaking that it shall disclose any intention in future to dispose of unlocked shares in the Company held via the securities trading system to sell down shareholdings by a volume equivalent to 5% or more within six months after the first sell-down, by way of an indicative announcement to be published by the Company within two trading days before the first sell-down.
Undertaking by the Directors and senior management of the Company in relation to the implementation of remedial measures to address the dilution of return for the current period due to the non-public issuance of A shares of the Company in 2018
The Directors and senior management of the Company provided the following undertaking on 31 January 2018 in respect of the implementation of remedial measures to address the dilution of return for the current period due to the non-public issuance of A shares in 2018: (1) that they will not be engaged in tunneling in favour of other units or individuals on a no-payment basis or upon unfair terms, or otherwise compromise the interests of the Company in any other manner; (2) that they will exercise restraint in spending when performing duties of their office; (3) that they will not misappropriate Company assets for investing activities or expenses not related to the performance of their duties; (4) that they will procure the linking of the remuneration regime formulated by the Board of Directors or the Remuneration and Evaluation Committee of the Board of Directors with the implementation of the Company's measures relating to compensation for return; (5) that they will procure the linking of the exercise conditions under the Company's share option incentives to be announced with the implementation of the Company's measures relating to compensation for return;
1. that they will willingly assume the liability for compensating the Company or shareholders in accordance with the law in the event of losses incurred by the Company or shareholders as a result of their violation of or refusal to honour their undertaking.
Company statement on meeting original profit forecasts for assets or projects and the reasons therefor, where such profit forecasts have been made and the reporting period falls within the profit forecast period
□Applicable N/A

(XV) EXPLANATORY STATEMENT BY THE BOARD OF DIRECTORS AND THE SUPERVISORY COMMITTEE OF THE COMPANY ON THE ACCOUNTANT'S "QUALIFIED OPINION" FOR THE REPORTING PERIOD

□Applicable N/A

(XVI) EXPLANATORY STATEMENT BY THE BOARD OF DIRECTORS AND THE SUPERVISORY COMMITTEE OF THE COMPANY ON THE CHANGES IN AND HANDLING OF MATTERS RELATING TO ACCOUNTANT'S "QUALIFIED OPINION" FOR THE PREVIOUS YEAR

□Applicable N/A

ZTE CORPORATION INTERIM REPORT 2020

(XVII) EXPLANATORY STATEMENT ON CHANGES IN ACCOUNTING POLICIES, ACCOUNTING ESTIMATES AND AUDITING METHODS FOR THE REPORTING PERIOD IN COMPARISON WITH THE PREVIOUS ANNUAL FINANCIAL REPORT

□Applicable N/A

(XVIII) EXPLANATORY STATEMENT ON RECTIFICATION OF SIGNIFICANT ACCOUNTING ERRORS FOR THE REPORTING PERIOD REQUIRING RETROSPECTIVE RESTATEMENT.

□Applicable N/A

(XIX) EXPLANATION STATEMENT ON CHANGES TO THE SCOPE OF CONSOLIDATED FINANCIAL STATEMENT IN COMPARISON WITH THE LAST ANNUAL FINANCIAL REPORT

Subsidiaries deregistered during the reporting period included: tier-one subsidiaries Shenzhen Zhongrui Detection Technology Co., Ltd; tier-two subsidiaries ZTE (Albania) Limited, ZTE (Lithuania) Limited, Foshan Zhongxing Gaojian New Energy Technology Limited and tier-three subsidiaries ZTE Singapore Pte Ltd and ZICT (Nigeria) Limited.

For details of changes to the scope of consolidated financial statement in comparison with the annual financial report for the previous year, please refer to Note VI to the financial report prepared under PRC ASBEs.

REPLACEMENT OR DISMISSAL OF ACCOUNTANT FIRMS BY THE COMPANY DURING THE REPORTING PERIOD.

□Applicable N/A

(XXI) INVESTIGATION BY COMPETENT AUTHORITIES, ENFORCEMENT BY JUDICIARY OR DISCIPLINARY AUTHORITIES, DETAINMENT BY JUDICIAL AUTHORITIES OR PROSECUTION FOR CRIMINAL CHARGES, CASE INVESTIGATION OR ADMINISTRATIVE PENALTY BY CSRC, PROHIBITION FROM PARTICIPATION IN THE SECURITIES MARKET, OPINION OF DEEMED INAPPROPRIATENESS, MATERIAL ADMINISTRATIVE PUNISHMENT BY ENVIRONMENTAL PROTECTION, SECURITY SUPERVISION, TAXATION OR OTHER ADMINISTRATIVE AUTHORITIES OR PUBLIC CENSURE BY THE STOCK EXCHANGE AGAINST THE COMPANY, ITS INCUMBENT DIRECTORS, SUPERVISORS, SENIOR MANAGEMENT, CONTROLLING SHAREHOLDER DURING THE REPORTING PERIOD.

□Applicable N/A

(XXII) NON-COMPLIANCE WITH VALID COURT JUDGEMENT ON THE PART OF OR OVERDUE DEBTS OF A SUBSTANTIAL NATURE OWED BY THE COMPANY OR ITS CONTROLLING SHAREHOLDER DURING THE REPORTING PERIOD

□Applicable N/A

ZTE CORPORATION INTERIM REPORT 2020

Material Matters

(XXIII) RISK OF DELISTING TO WHICH THE COMPANY WAS SUBJECT AS A RESULT OF VIOLATIONS OF LAWS AND REGULATIONS DURING THE REPORTING PERIOD

□Applicable N/A

(XXIV) PUBLIC ISSUE OF CORPORATE BONDS BY THE COMPANY FOR LISTING ON A STOCK EXCHANGE DURING THE REPORTING PERIOD

□Applicable N/A

(XXV) ENVIRONMENTAL PROTECTION

Whether the listed company and its key subsidiaries are major pollution discharging units announced by environmental protection authorities

□Applicable N/A

The Company is concerned with the environmental impact of its operations. We have streamlined and improved the environmental management systems in our production and operations and strived to reduce the environmental impact through the entire life cycle of our products by exercising control at the source of production. In the meantime, in active response to climate changes, the Company has introduced clean energy and reduced the discharge of waste on the back of its formidable strengths in technology. In active fulfilment of our environmental responsibility, we have given careful consideration to the environmental implications of every stage in our operations and taken environmental requirements into full account during the entire life cycle of our products to ensure implementation of the green strategy in all business segments of our Company. We have also launched new products and services with higher commercial value and environmental efficiency so that our supply chain and the community can fulfill environmental responsibilities together.

(XXVI)OTHER MATERIAL MATTERS

Save as aforesaid, there were no other material matters of the Company during the reporting period as defined under the Securities Law or Measures for the Administration of Information Disclosure by Listed Companies and matters considered material according to the judgement of the Board of Directors of the Company.

(XXVII) OTHER DISCLOSEABLE MATERIAL MATTERS OCCURRING TO THE SUBSIDIARIES OF THE COMPANY DURING THE REPORTING PERIOD THAT REMAINED UNDISCLOSED

□Applicable N/A

ZTE CORPORATION INTERIM REPORT 2020

Changes in Shareholdings and Information of Shareholders

CHANGES IN SHAREHOLDINGS DURING THE REPORTING PERIOD

Unit: share

				31 December 2019	Increase/decrease as a result of the change during the reporting period (+, -)	30 June 2020

				Number of	Percentage	New issue Note	Bonus issue	Transfer from	Others	Sub-total	Number of	Percentage
				shares	capital reserve	shares
	I.	Shares subject to lock-up	493,522	0.01%		+381,185,042	-	-	-	+381,185,042	381,678,564	8.27%
		1.	State-owned shares	-	-	-	-	-	-	-	-	-
		2.	State-owned corporate shares	-	-	+43,032,108	-	-	-	+43,032,108	43,032,108	0.93%
		3.	Other domestic shares	-	-	+338,066,860	-	-	-	+338,066,860	338,066,860	7.33%
			Comprising: domestic non-state-	-	-		-	-	-
			owned corporate shares	+338,066,860	+338,066,860	338,066,860	7.33%
			Domestic natural person shares	-	-	-	-	-	-	-	-	-
		4.	Foreign shares	-	-	-	-	-	-	-	-	-
			Comprising:	-	-	-	-	-	-	-	-	-
			Foreign corporate shares
			Foreign natural person shares	-	-	-	-	-	-	-	-	-
II.	5.	Senior management shares	493,522	0.01%		+86,074	-	-	-	+86,074	579,596	0.01%
Shares not subject to lockup	4,227,036,347	99.99%		+4,719,921	-	-	-	+4,719,921	4,231,756,268	91.73%
		1.	RMB ordinary shares	3,471,533,813	82.12%		+4,719,921	-	-	-	+4,719,921	3,476,253,734	75.35%
		2.	Domestic-listed foreign shares	-	-	-	-	-	-	-	-	-
		3.	Overseas-listed foreign shares				-	-	-	-	-
			(H shares)	755,502,534	17.87%		755,502,534	16.38%
III.	4.	Others	-	-	-	-	-	-	-	-	-
Total number of shares	4,227,529,869	100.00%	+385,904,963	-	-	-	+385,904,963	4,613,434,832	100.00%

Note: The A share capital of the Company was increased by 385,904,963 shares following the non-public issue of 381,098,968 A shares by the Company and the exercise of 4,805,995 A share options by scheme participants under the 2017 Share Option Incentive Scheme of the Company during the reporting period.

CHANGES IN SHARES SUBJECT TO LOCK-UP DURING THE REPORTING PERIOD

								Unit: share
			Number of	Number of A shares	Increase in the	Number of
			number of
		Name of shareholders	A shares subject to	released from lock-up	A shares subject to	A shares subject to
No.	lock-up as at	during the reporting	lock-up during the	lock-up at
subject to lock-up	31 December 2019	period	reporting period	30 June 2020 Reason for lock-up Date of unlocking
1	New China Life Insurance	-	-	43,032,108	43,032,108
		Company Limited -New
		Traditional Products 2	-	-
2	Shenzhen Investment Holding	43,032,108	43,032,108
		Capital Co., Ltd. -
		Shenzhen Investment
		Holding Win-win Equity
		Investment Fund
		Partnership
		(Limited Partnership)	-	-
3	Guangdong Hengjian Asset	43,032,108	43,032,108
		Management Co., Ltd. -
		Guangdong Henghui
		Equity Investment Fund					Restricted shares
		(Limited Partnership)					Note 1
		-	-			under non-public
4	Shenzhen Huitong Rongxin	43,032,108	43,032,108
issue
		Investment

		Co., Ltd.	-	-
5	Nanjing Xinchuangxing	43,032,108	43,032,108
		Consulting and
		Management Partnership
		(Limited Partnership)	-	-
6	NSSF Portfolio #101	42,204,567	42,204,567
7	NSSF Portfolio #108	-	-	18,205,892	18,205,892
8	Basic Pension Insurance Fund	-	-	7,447,864	7,447,864
		Portfolio #808	-	-
9	NSSF Portfolio #115	6,620,324	6,620,324
10	NSSF Portfolio #401	-	-	6,620,324	6,620,324
11	Other restricted shares under	-	-	84,839,457	84,839,457
		non-public issue		-
12	Other restricted senior	493,522	86,074	579,596	Restricted senior
		management shares					management	-
							shares Note 2

-	Total	493,522	-	381,185,042	381,678,564	-	-

Note 1: New shares issued under the Company's non-public issuance of A shares were listed on Shenzhen Stock Exchange on 4 February. The aforesaid restricted shares under the non-public issuance is subject to a 12-month moratorium from 4 February 2020. Thereafter, any trading should be conducted in accordance with the provisions of CSRC and Shenzhen Stock Exchange.

Note 2: The increase in the number of shares subject to lock-up is attributable to the exercise of 2017 A share options by the Directors and senior management of the Company. In accordance with relevant domestic regulations, 75% of unrestricted shares newly acquired by the Directors, Supervisors and senior management shall be subject to automatic lock-up.

ZTE CORPORATION INTERIM REPORT 2020

Changes in Shareholdings and Information of Shareholders

(III) ISSUE AND LISTING OF SECURITIES DURING THE REPORTING PERIOD

1 The Company granted 149,601,200 A share options to 1,996 participants on 6 July 2017. The registration of the grant of such A share options was completed on 20 July 2017. The code of the options is "037050" and the abbreviated name is "中兴JLC2". For details of the exercise and cancellation of the aforesaid share options, please refer to the section headed "Material Matters -

(VIII) IMPLEMENTATION AND IMPACT OF THE COMPANY'S SHARE OPTION INCENTIVE SCHEME" in this report. During the reporting period, a total of 4,805,995 A share options were exercised by scheme participants under the 2017 Share Option Incentive Scheme of the Company, and the total share capital of the Company was increased by 4,805,995 shares accordingly. Subsequent to the end of the reporting period up to the date of publication of this report, 66 A share options were exercised by the scheme participants under the 2017 Share Option Incentive Scheme of the Company, and the total share capital of the Company was increased by 66 shares accordingly.

On 15 January 2020, the Company entered into the Subscription Agreement with 10 subscribers. The issue price for the Company's non-public issuance of A shares was set at RMB30.21 per share and a total of 381,098,968 shares were issued, raising gross proceeds of RMB11,512,999,823.28. The new shares under the non-public issue of A shares by the Company were listed on the Shenzhen Stock Exchange on 4 February 2020.
The Company had no employees' shares.

(IV) SHAREHOLDERS AND DE FACTO CONTROLLERS OF THE COMPANY AS AT THE END OF THE REPORTING PERIOD

1. Total number of shareholders, shareholdings of top ten shareholders and top ten holders that were not subject to lock-up as at the end of the reporting period

Total number of shareholders

				There were 513,906 shareholders (comprising 513,585 holders of A shares and 321 holders of H
As at 30 June 2020			shares)
		Shareholdings of top 10 shareholders or shareholders holding 5% or above of the shares

				Total number of
				shares held as at		Increase/decrease	Number of shares
				the end of the		during the	held subject to	Number of shares
		Nature of	Percentage of	reporting period		reporting period	lock-up	pledged or frozen
Name of shareholders	shareholders	shareholdings	(shares)	Type of shares	(shares)	(shares)	(shares)

1.	Zhongxingxin	Domestic general	23.40%	1,077,531,700	A share	-69,279,900	-	98,667,983 Note 2
		corporation		2,038,000 Note 1	H share	-	-	Nil
2.	HKSCC Nominees Limited Note 3	Foreign	16.31%	752,327,016	H share	+15,630	-	Unknown
		shareholders				-3,998,471	-
3.	Hong Kong Securities Clearing	Overseas	1.38%	63,869,835	A share	Nil
	Company Limited Note 4	corporation
4.	NSSF Portfolio #101	Others	1.27%	58,524,205	A share	+42,204,567	42,204,567	Nil
5.	Bank of China Limited - Huaxia	Others	1.27%	58,362,288	A share	+36,897,586	-	Nil
	Securities 5G Themed Traded
	Open-ended Index Securities Fund					-	-
6.	Central Huijin Asset Management	State-owned	1.14%	52,519,600	A share	Nil
	Co. Ltd.	corporation
7.	Shenzhen Huitong Rongxin	State-owned	0.93%	43,032,108	A share	+43,032,108	43,032,108	Nil
	Investment Co., Ltd.	corporation
8.	Nanjing Xinchuangxing Consulting	Domestic general	0.93%	43,032,108	A share	+43,032,108	43,032,108	Nil
	and Management Partnership	corporation
	(Limited Partnership)
9.	New China Life Insurance Company	Others	0.93%	43,032,108	A share	+43,032,108	43,032,108	Nil
	Limited - New Traditional
	Products 2
10.	Shenzhen Investment Holding	Others	0.93%	43,032,108	A share	+43,032,108	43,032,108	Nil
	Capital Co., Ltd. - Shenzhen
	Investment Holding Win-win Equity
	Investment Fund Partnership
	(Limited Partnership)
11.	Guangdong Hengjian Asset	Others	0.93%	43,032,108	A share	+43,032,108	43,032,108	Nil

Management Co., Ltd. -

Guangdong Henghui Equity

Investment Fund (Limited

Partnership)

ZTE CORPORATION INTERIM REPORT 2020

Shareholdings of top 10 holders of shares that were not subject to lock-up

		Number of shares not
Name of shareholders	subject to lock-up (shares)	Class of shares

1.	Zhongxingxin	1,077,531,700	A share
		2,038,000	H share
2.	HKSCC Nominees Limited	752,327,016	H share
3.	Hong Kong Securities Clearing Company Limited	63,869,835	A share
4.	Bank of China Limited - Huaxia Securities 5G Themed Traded Open-ended Index
	Securities Fund	58,362,288	A share
5.	Central Huijin Asset Management Co. Ltd.	52,519,600	A share
6.	Hunan Nantian (Group) Co., Ltd.	41,516,065	A share
7.	China Life Insurance Company Limited - Dividend - Personal Dividend -
	005L-FH002 Shen	26,377,623	A share
8.	China Mobile No. 7 Research Institute	19,073,940	A share
9.	China Construction Bank Corporation - China-Europe New Blue-chip Flexible Allocation
	Hybrid Securities Fund	18,070,440	A share
10. NSSF Portfolio #101	16,319,638	A share

Descriptions of any connected party relationships or concerted actions among the above shareholders

Zhongxingxin was neither a connected party nor a party of concerted action of any of the top ten shareholders and top ten holders of shares that were not subject to lock-up set out in the table above.
Save for the above, the Company is not aware of any connected party relationships or concerted party relationships among the top ten shareholders and the top ten holders of shares that were not subject to lock-up.

Description of involvement in financing and	N/A
securities lending businesses of top 10
shareholders (if any)

Note 1: 2,038,000 H shares in the Company held by Zhongxingxin were held by HKSCC Nominees Limited as nominee.

Note 2: Zhongxingxin pledged its holdings of 98,667,983 A shares in the Company for financing requirements on 20 December 2018. As a result of the expiry and renewal of the relevant financing agreement, Zhongxingxin released the aforesaid pledge and created a new pledge on 25 March 2020, which was subsequently released on 14 July 2020. For details, please refer to the "Overseas Regulatory Announcement Announcement on the Release of Pledge and Creation of New Pledge against Shares held by the Controlling Shareholder" and "Overseas Regulatory Announcement Announcement on the Release of Pledge on Shares held by the Controlling Shareholder" published by the Company on 26 March 2020 and 15 July 2020, respectively.

Note 3: Shares held by HKSCC Nominees Limited represented the sum of shares held in the accounts of the H shareholders of the Company traded on the trading platform of HKSCC Nominees Limited. To avoid repetition in counting, 2,038,000 H shares in the Company held by Zhongxingxin have been excluded from the number of shares held HKSCC Nominees Limited.

Note 4: Shares held by Hong Kong Securities Clearing Company Limited represented the sum of A shares in the Company purchased through Shenzhen Hong Kong Stock Connect (Northbound).

Note 5: During the reporting period, there was no placing of new shares in the Company to any strategic investors or ordinary legal persons that required shareholding for a designated period.

Note 6: Shareholders holding 5% or above of the Company's shares - Zhongxingxin, holding 1,079,569,700 shares in the Company in aggregate, representing 23.40% of the total share capital of the Company as at the end of the reporting period, is the controlling shareholder of the Company. Changes in the shareholdings of the Zhongxingxin during the reporting period are as follows:

					Number of
	Increase/decrease	Number of		Number of	shares not
	of number of	shares held at		shares subject to	subject to	Number of
	shares held during	the end of the		lock-up held at	lock-up held at	shares
	the reporting	reporting	Class of	the end of the	the end of the	pledged or
Name of	period	period	shares	reporting period	reporting period	frozen
shareholder	(shares)	(shares)	held	(shares)	(shares)	(shares)

Zhongxingxin	-69,279,900	1,077,531,700	A shares	0	1,077,531,700	98,667,983
	0	2,038,000	H shares	0	2,038,000	Nil

ZTE CORPORATION INTERIM REPORT 2020

Changes in Shareholdings and Information of Shareholders

Note: Zhongxingxin conducted a sell-down of 48,913,100 A shares in the Company through block trading at the stock exchange during the period from 2 April 2020 to 7 April 2020. On 22 June 2020, Zhongxingxin conducted a sell-down of 20,366,800 A shares in the Company through block trading at the stock exchange. As of 30 June 2020, Zhongxingxin held 1,079,569,700 shares in the Company in aggregate. On 1 July 2020, Zhongxingxin completed a sell-down of 44,089,500 A shares in the Company by way of block trading at the Stock Exchange. As at the date of the publication of this report, Zhongxingxin held 1,035,480,200 shares in the Company in aggregate, accounting for 22.44% of the Company's total share capital.

Whether top 10 shareholders and top 10 holders of shares that were not subject to lock-up of the Company conducted any transactions on agreed repurchases during the reporting period

□Yes No

The Company had no preferential shares.

2. Controlling shareholder of the Company

During the reporting period, there was no change to the Company's controlling shareholder, the details of which are as follows:

Name of controlling shareholder:	Zhongxingxin
Legal representative:	Wei Zaisheng
Date of incorporation:	29 April 1993
Uniform social credit code:	91440300192224518G
Registered capital:	RMB100 million
Scope of business:	R&D of machine vision systems integration; design and
	production of optical instruments, industrial cameras and
	instruments and high-end mechanical equipment; computer
	systems integration; R&D, technology development, technology
	transfer, technical services, technical consultation and import
	and export of technologies in relation to software and
	hardware; electronic components and raw materials of
	computer vision data processing systems; leasing of owned
	housing properties; industrial investment; import and export
	business.

3. The shareholders (or de facto controllers) of the controlling shareholders of the Company

Zhongxingxin, the controlling shareholder of the Company, was jointly formed by three shareholders, Xi'an Microelectronics, Aerospace Guangyu and Zhongxing WXT. In April 2017, Aerospace Guangyu transferred 2.5% equity interests in Zhongxingxin to Guoxing Ruike. Upon closing of the transfer, each of Xi'an Microelectronics, Aerospace Guangyu, Zhongxing WXT and Guoxing Ruike held a 34%, 14.5%, 49% and 2.5% stake in Zhongxingxin, respectively. Zhongxingxin currently has 9 directors, of which 3 have been nominated by Xi'an Microelectronics, 2 by Aerospace Guangyu and 4 by Zhongxing WXT, representing 33.33%, 22.22% and 44.45% of the board of directors of Zhongxingxin, respectively. Therefore, no shareholder of Zhongxingxin has the right to control the financial and operating decisions of the Company whether in terms of shareholding or corporate governance structure. Therefore, the Company does not have any de facto controller and no party has effective control over the Company, whether by way of trust or other asset management. Details of the four shareholders of Zhongxingxin are as follows:

Xi'an Microelectronics, a subsidiary of China Aerospace Electronics Technology Research Institute, is a large-scalestate-owned research institute established in 1965 with a start-up capital of RMB198,530,000. Its legal representative is Tian Dongfang and its uniform social credit code is

ZTE CORPORATION INTERIM REPORT 2020

12100000H0420141X7. It is the only large-scale integrated research institute in China which features the complementary integration of the research and development, commercial production and inspection/testing of semi-conductor integrated circuits, hybrid integrated circuits and computers.

Aerospace Guangyu, a subsidiary of CASIC Shenzhen (Group) Company Limited, is a wholly state- owned enterprise established on 17 August 1989. The legal representative is Liu Hao and the registered capital amounts to RMB17,950,000. Its uniform social credit code is 91440300192175031U. The scope of business includes sales of aerospace technology products, machinery equipment, electrical appliances, apparatuses and instruments, electronic products, plastic products, chemical products, hoisting and transportation products, hardware and furniture, construction materials, magnetic materials, powder metallurgy, raw materials for textile, raw materials for chemical fibre, apparel, textile and automobile. Domestic trade and import and export operations; trade brokerage and agency; lease of owned properties; wholesale of aqua-products; sales of mining products (other than mining products required to be centrally purchased by entities designated by the State) and timber; sales of goldware and silverware; logistics information service (excluding dangerous items) and sales of construction materials (other than items prohibited under laws, administrative regulations or State Council decisions and subject to the obtaining of relevant permits for restricted items). Cargo freight and warehousing; wholesale of pre-packaged food; wholesale of agricultural by-products; sales of coal products; sales of pre-packaged food (including refrigerated food) and sales of bulk food (including refrigerated food); sales of medical equipment; sales of Class II and Class III radioactive devices; sales of light cycle oil (excluding dangerous chemicals).

Zhongxing WXT is a private enterprise incorporated on 23 October 1992. Its legal representative is Hou Weigui and its registered capital amounts to RMB10 million. Its uniform social credit code is 9144030027941498XF. The scope of business includes the development and production of telecommunications and transmission equipment, ancillary equipment, computer and peripheral equipment (excluding restricted projects); investment in industrial operations (subject to separate applications for specific projects).

Guoxing Ruike is a limited partnership established on 2 December 2016 with Guoxing Ruike Capital Management Company Limited as executive partner and a registered capital of RMB500 million. Its uniform social credit code is 91440400MA4W1GHE5H and its scope of operation includes capital management, investment with owned funds and project investment (commencement of operations subject to approval of relevant authorities if so required under the law).

The following diagram shows the shareholding and controlling relationships between the aforesaid entities and the Company as at 30 June 2020.

Xi'an Microelectronics		Aerospace Guangyu		Zhongxing WXT	Guoxing Ruike

	34%		14.5%			49%	2.5%

Zhongxingxin

23.40% Note

ZTE

Note: As at the date of the publication of this report, Zhongxingxin held 1,035,480,200 shares in the Company in aggregate, accounting for 22.44% of the Company's total share capital.

ZTE CORPORATION INTERIM REPORT 2020

Changes in Shareholdings and Information of Shareholders

The Company had no other corporate shareholder which was interested in more than 10% of its shares.
Interests of substantial shareholders of the Company in shares and underlying shares
As at 30 June 2020, the following shareholders held interests or short positions in 5% or more in various class of the issued share capital of the Company, as shown in the share register maintained by the Company in accordance with Section 336 of the SFO.

			Approximate shareholding
			as a percentage (%) of Note
			Total share
Name	Capacity	Number of shares held	capital	Class shares

Zhongxingxin	Beneficial owner	1,077,531,700 A share (L)	23.36%(L)	27.93%(L)
Zhongxing WXT	Interests of corporation controlled by you	1,077,531,700 A share (L)	23.36%(L)	27.93%(L)
Xi'an Microelectronics	Interests of corporation controlled by you	1,077,531,700 A share (L)	23.36%(L)	27.93%(L)
China Aerospace Electronics Technology	Interests of corporation controlled by you	1,077,531,700 A share (L)	23.36%(L)	27.93%(L)
Research Institute
China Aerospace Science and Technology	Interests of corporation controlled by you	1,077,531,700 A share (L)	23.36%(L)	27.93%(L)
Corporation
BlackRock, Inc.	Interests of corporation controlled by you	44,814,284 H share (L)	0.97%(L)	5.93%(L)
	Interests of corporation controlled by you	2,592,480 H share (S)	0.06%(S)	0.34%(S)
Citigroup Inc.	Person having a security interest in shares/	41,198,644 H share (L)	0.89%(L)	5.45%(L)
	Interest of corporation controlled by you/
	Approved lending agent
	Interests of corporation controlled by you	1,898,600 H share (S)	0.04%(S)	0.25%(S)
	Approved lending agent	36,816,391 H share (P)	0.80%(P)	4.87%(P)
Capital Research and Management	Investment manager	38,410,000 H share (L)	0.83%(L)	5.08%(L)
Company

(L) - long position, (S) - short position, (P) - lending pool

Note: Shareholdings as percentage of total share capital and relevant class of shares was calculated on the basis of the Company's total share capital of 4,613,434,832 shares, comprising 3,857,932,298 A shares and 755,502,534 H shares, as at 30 June 2020.

Save as disclosed above, as at 30 June 2020, so far as the Directors, Supervisors and Chief Executive Officer of the Company are aware, except them, no person had an interest or short position in the shares and underlying shares of the Company that was required to be recorded in the register maintained pursuant to Section 336 of the SFO.

6. Purchase, sale and redemption of securities

During the reporting period, the Company and its subsidiaries did not purchase, sell or redeem any tradable listed securities of the Company.

ZTE CORPORATION INTERIM REPORT 2020

Directors, Supervisors and Senior Management

CHANGES IN THE SHAREHOLDINGS AND SHARE OPTIONS OF THE COMPANY'S DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT

								Number of			Number of
								A shares			A shares
								held at the	Increase in	Decrease in	held at the
								beginning	the number	the number	end
								of the	of A shares	of A shares	of the
						Term of office	Term of office	reporting	held during	held during	reporting
					Status of	commencing	ending	period	the period	the period	period	Reasons for
No.	Name	Gender	Age	Title	office	on Note 1	on Note 1	(shares)	(shares)	(shares)	(shares)	changes

Directors of the Company
1	Li Zixue	Male	56	Chairman	Incumbent	3/2019	3/2022	-	-	-	-	-
2	Xu Ziyang	Male	48	Director	Incumbent	3/2019	3/2022	42,000	42,000	-	84,000	Note 3
				President		4/2019	3/2022
3	Li Buqing	Male	48	Director	Incumbent	3/2019	3/2022	-	-	-	-	-
4	Gu Junying	Male	53	Director	Incumbent	3/2019	3/2022	-	-	-	-	-
				Executive Vice President		4/2019	3/2022
5	Zhu Weimin	Male	54	Director	Incumbent	3/2019	3/2022	-	-	-	-	-
6	Fang Rong	Female	56	Director	Incumbent	3/2019	3/2022	-	-	-	-	-
7	Cai Manli	Female	47	Independent	Incumbent	3/2019	3/2022	-	-	-	-	-
				Non-executive Director
8	Gordon Ng	Male	56	Independent	Incumbent	3/2019	3/2022	-	-	-	-	-
				Non-executive Director
9	Zhuang Jiansheng Note 2	Male	55	Independent	Incumbent	6/2020	3/2022	-	-	-	-	-
				Non-executive Director
10	Yuming Bao Note 2	Male	48	Independent	Resigned	3/2019	6/2020	-	-	-	-	-
				Non-executive Director
Supervisors of the Company
11	Xie Daxiong	Male	57	Chairman of	Incumbent	3/2019	3/2022	495,803	-	-	495,803	-
				Supervisory Committee
12	Xia Xiaoyue	Female	45	Supervisor	Incumbent	3/2019	3/2022	50,927	-	-	50,927	-
13	Li Quancai	Male	59	Supervisor	Incumbent	3/2019	3/2022	-	-	-	-	-
14	Shang Xiaofeng	Male	45	Supervisor	Incumbent	3/2019	3/2022	-	-	-	-	-
15	Zhang Sufang	Female	46	Supervisor	Incumbent	3/2019	3/2022	-	-	-	-	-
Senior management of the Company
16	Wang Xiyu	Male	46	Executive Vice President	Incumbent	4/2019	3/2022	41,500	45,966	-	87,466	Note 3
17	Li Ying	Female	42	Executive Vice President	and Incumbent	4/2019	3/2022	27,800	26,800	-	54,600	Note 3
				Chief Financial Officer
18	Xie Junshi	Male	45	Executive Vice President	Incumbent	9/2019	3/2022	-	-	-	-	-
19	Ding Jianzhong	Male	44	Secretary to the	Incumbent	7/2019	3/2022	-	-	-	-	-
				Board of Directors

-	Total	-	-	-	-	-	-	658,030	114,766	-	772,796	-

Note 1: The starting and ending dates of the term of office set out in this table are the starting and ending dates of the term of office of the Directors of the Eighth Session of the Board of Directors, Supervisors of the Eighth Session of the Supervisory Committee and senior management of the Company appointed by the Eighth Session of the Board of Directors.

Note 2: Mr. Yuming Bao resigned as Independent Non-executive Director of the Company on 10 April 2020, which resignation would become effective after the election of a new Independent Non-executive Director at the 2019 Annual General Meeting of the Company. At the 2019 Annual General Meeting of the Company held on 19 June 2020, Mr. Zhuang Jiansheng was elected as Independent Non-executive Director of the Eighth Session of the Board of Directors of the Company for a term commencing on 19 June 2020 and ending on 29 March 2022.

Note 3: Exercise of 2017 A share options by the Directors and senior management of the Company during the reporting period.

Note 4: None of the Directors, Supervisors and senior management personnel in office as at the end of the year held any H shares in the issued share capital of the Company during the reporting period.

For details of the share options of A shares of the Company held by Directors and senior management of the Company during the reporting period, please refer to the section headed "Material Matters - (VIII) IMPLEMENTATION AND IMPACT OF THE COMPANY'S SHARE OPTION INCENTIVE SCHEME" in this report.

ZTE CORPORATION INTERIM REPORT 2020

Directors, Supervisors and Senior Management

INFORMATION CONCERNING DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT OF THE COMPANY HOLDING POSITIONS IN CORPORATE SHAREHOLDERS OF THE COMPANY AS AT THE END OF THE REPORTING PERIOD

					Whether
					receiving
			Commencement	Conclusion of	remuneration
	Name of		of term of	term of	from
Name	shareholder	Position with the shareholder	office Note	office Note	Zhongxingxin

Zhu Weimin	Zhongxingxin	Director	August 2018	August 2021	Yes
Shang Xiaofeng	Zhongxingxin	Supervisor	August 2018	August 2021	Yes
Zhang Sufang	Zhongxingxin	Secretary to the board of directors	August 2018	August 2021	Yes

Note: The starting and ending dates of the term of office set out in this table are the starting and ending dates of the term of office of the directors of the ninth session of the board of directors, supervisors of the ninth session of the supervisory committee and senior management appointed by the ninth session of the board of directors of Zhongxingxin.

INFORMATION CONCERNING CURRENT DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT OF THE COMPANY HOLDING MAJOR POSITIONS IN OTHER ENTITIES AS AT THE DATE OF THIS REPORT

			Whether
			remuneration
			is received
			from other
Name	Name of other entities	Position in other entities	entities

Xu Ziyang	ZTE Microelectronics	Chairman	No
Li Buqing Note 1	Shenzhen Aerospace Industrial Technology Research Institute	Chief accountant	Yes
	Limited
	CASIC Shenzhen (Group) Company Limited	Director and Chief accountant	No
	Shenzhen Aerospace Property Management Co., Ltd	Director	No
	HT-Hysa Security Technology Engineering Co., Ltd.	Supervisor	No
	Shenzhen Aerospace Liye Industry Development Co., Ltd.	Chairman	No
	Shenzhen Zhongxing Information Company Limited	Director	No
Zhu Weimin	Shenzhen ZTE International Investment Limited	Chairman	Yes
	Held positions in 7 subsidiaries of Shenzhen ZTE International	Chairman/Director	No
	Investment Limited including Beijing United ZTE
	International Investment Limited
	Zhongxing WXT	Director	No
	Shenzhen Techaser Technologies Co., Ltd.	Director	No
	Shenzhen Xinyu Tengyue Electronics Co., Ltd	Director	No
Fang Rong Note 2	Zhongxing Development Company Limited	Director and Executive vice president	Yes
	Shenzhen ZTE International Investment Limited	Director	No
	Held positions in 11 subsidiaries or investees of Zhongxing	Director	No
	Development including Beijing Holi Health Information
	Scientific and Technological Co., Ltd.
	Beijing United ZTE International Investment Limited	Director	No
Cai Manli Note 3	HEYI Rising Assets Management Co., Ltd	General manager	Yes
	浙江財和通易企業發展有限公司	Chairman	No
	上海和易諮詢管理集團有限公司	General manager	No
	King & Wood Mallesons	Senior consultant	No
	Sichuan Xinwang Bank Co., Ltd	External supervisor	Yes
	Shanghai Flyco Electrical Appliance Co., Ltd	Independent director	Yes
	SF Diamond Co., Ltd.	Independent director	Yes
	Hubei Broadcasting and Television Information Network Co.,	Independent director	Yes
	Ltd.
	New Hope Liuhe Co., Ltd.	Independent director	Yes
Gordon Ng	Dentons Hong Kong LLP	Partner	Yes
	China Energine International (Holdings) Limited	Independent non-executive director	Yes
	Mainland Headwear Holdings Limited	Independent non-executive director	Yes
Zhuang Jiansheng	Hui Ye Law Firm, Shanghai	Partner	Yes
Xie Daxiong	Held positions in 2 subsidiaries including Guangdong ZTE	Chairman	No
	Newstart Technology Co., Ltd.

ZTE CORPORATION INTERIM REPORT 2020

			Whether
			remuneration
			is received
			from other
Name	Name of other entities	Position in other entities	entities

Li Quancai Note 4

Shang Xiaofeng Note 5

Zhang Sufang Note 6

Wang Xiyu Note 7 Li Ying

深圳市中興宜和投資發展有限公司	Chairman	No
深圳市益和天成投資發展有限公司	Supervisor	No
Shenzhen Aerospace Guangyu Industrial Company Limited	Director and general manager	Yes
廣東歐科空調製冷有限公司	Director	No
Held positions in 18 subsidiaries or investee companies of	Director/Chairman of the supervisory	No
Zhongxingxin including Sindi Technologies Co., Ltd.	committee/Supervisor/General
	manager/Representative of
	executive partner
Held positions in 15 subsidiaries including Zhongxing Software	Chairman/Director	No
Held positions in 4 subsidiaries including ZTE Group Finance	Chairman/Director	No

Note 1: Mr. Li Buqing has ceased to be director of Shenzhen Aerospace Guangyu Industrial Company Limited as from June 2020 Director.

Note 2: Ms. Fang Rong has ceased to be director of Zhongxing Nonggu Hubei Company Limited as from January 2020 and of Zhongxing Food & Oil (Honghu) Company Limited as from March 2020.

Note 3: Ms. Cai Manli has ceased to be independent director Beijing Yadii Media Co., Ltd. as from January 2020 and has been appointed as chairman of 浙江財和通易企業發展有限公司 since June 2020.

Note 4: Mr. Li Quancai has ceased to be director of 深圳市小禾科技有限公司 as from January 2020.

Note 5: Mr. Shang Xiaofeng has ceased to be director of Aerospace Yinshan Electric Co., Ltd. and 深圳航天科創實業有限公司, respectively, as from January 2020; and has ceased to be general manager of the international operations of Shenzhen Aerospace Industrial Technology Research Institute Limited as from June 2020 and has been appointed as director and general manager of Shenzhen Aerospace Guangyu Industrial Company Limited since June 2020.

Note 6: Ms. Zhang Sufang has been appointed as representative of the executive partner of Hefei Zhongxing Hechuang Semiconductor Venture Investment Fund (Limited Partnership) since April 2020 and has ceased to be supervisor of Shenzhen Xinyu Tengyue Electronics Co., Ltd as from May 2020.

Note 7: Mr. Wang Xiyu has ceased to be chairman of Wuhan Zhongxing Software Company Limited as from June 2020.

Note 8: Mr. Xie Junshi has ceased to be chairman of Shenzhen Zhongrui Detection Technology Co., Ltd. as from May 2020. As at the end of the reporting period, Mr. Xie Junshi did not hold any position with other entities.

(IV) DECISION-MAKING PROCESS, BASES FOR DETERMINATION AND ACTUAL PAYMENT OF REMUNERATION FOR DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT OF THE COMPANY

Allowances for Directors are based on recommendations made to the Board of Directors of the Remuneration and Evaluation Committee of the Board of Directors with reference to the duties of Directors at the Company and markets levels represented by other listed companies in the same industry and determined upon consideration and approval by the Board of Directors and the general meeting.

Allowances for Supervisors are based on recommendations of the Supervisory Committee made with reference to the duties of Supervisors and markets levels represented by other listed companies in the same industry and determined upon consideration and approval by the general meeting.

The remuneration for senior management personnel is based on the results of their annual performance appraisals conducted by the Remuneration and Evaluation Committee and determined upon consideration by the Board of Directors.

Remuneration for the Directors, Supervisors and senior management are determined and payable by the Company in accordance with the aforesaid provisions and procedures.

ZTE CORPORATION INTERIM REPORT 2020

Directors, Supervisors and Senior Management

CHANGES IN DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT OF THE COMPANY DURING THE REPORTING PERIOD

On 10 April 2020, Independent Non-executive Director Mr. Yuming Bao tendered his resignation to the Company to resign as Independent Non-executive Director, as well as the member of each of the specialist committees of the Board of Directors of the Company due to personal reasons. Following his resignation, Mr. Bao did no longer hold any positions with the Company. For details, please refer to the "Announcement on Resignation of Independent Non-executive Director" published by the Company on 13 April 2020.

At the 2019 Annual General Meeting of the Company held on 19 June 2020, Mr. Zhuang Jiansheng was elected as Independent Non-executive Director of the Eighth Session of the Board of Directors of the Company for a term commencing on the date on which his appointment was considered and approved at the said general meeting and ending concurrently with the conclusion of the Eighth Session of the Board of Directors of the Company (namely, 29 March 2022). For details, please refer to the "Announcement on Resolutions of the 2019 Annual General Meeting" published by the Company on 19 June 2020.

Details of positions at corporate shareholders and major positions at other entities held by Directors, Supervisors and senior management of the Company are set out in sections (II) and (III) in this chapter.

(VI) INTERESTS OF DIRECTORS, SUPERVISORS AND CHIEF EXECUTIVE OFFICER OF THE COMPANY IN SHARES OR DEBENTURES

The interests in shares of the Company held by Directors, Supervisors and Chief Executive Officer of the Company as at 30 June 2020 are set out in the section of this chapter headed "(I) Changes in the shareholdings and share options of the Company's Directors, Supervisors and senior management".

Save as disclosed above, as at 30 June 2020, none of the Directors, Supervisors and Chief Executive Officer of the Company had any interest or short position in the shares, underlying shares and debentures of the Company and its associated corporations (within the meaning of Part XV of the SFO) that is required to be recorded in the register to be kept under Section 352 of the SFO, or otherwise notified to the Company and the Hong Kong Stock Exchange pursuant to the Model Code as set out in Appendix 10 to the Hong Kong Listing Rules.

Save as disclosed above, as at 30 June 2020, none of the Directors, Supervisors or the Chief Executive Officer of the Company, or their respective spouses or children under the age of 18 had been granted or had exercised any rights to subscribe for the share capital or debentures of the Company or its associated corporations.

ZTE CORPORATION INTERIM REPORT 2020

Consolidated Balance Sheet

(Prepared under PRC ASBEs) (Currency: RMB'000 unless otherwise stated)

(English translation for reference only)

			30 June	31 December
			2020	2019
Assets	Note V	(unaudited)	(audited)
Current assets
Cash	1		45,867,997	33,309,347
Trading financial assets	2		1,066,532	560,662
Derivative financial assets	3		31,147	106,065
Trade receivables	4A	16,898,230	19,778,280
Receivable financing	4B	3,987,386	2,430,389
Factored trade receivables	4A	252,220	308,710
Prepayments	5		445,058	402,525
Other receivables	6		891,418	1,023,271
Inventories	7		37,179,092	27,688,508
Contract assets	8		10,203,533	9,537,850
Other current assets	20		8,430,637	7,421,567
Total current assets			125,253,250	102,567,174
Non-current assets
Long-term receivables	9		3,110,970	2,819,606
Factored long-term receivables	9		310,393	200,671
Long-term equity investments	10		2,292,452	2,327,288
Other non-current financial assets	11		1,530,232	1,594,254
Investment properties	12		1,960,864	1,957,242
Fixed assets	13		10,314,505	9,383,488
Construction in progress	14		845,174	1,171,716
Right-of-use assets	15		986,362	1,063,781
Intangible assets	16		8,257,755	7,718,820
Development costs	17		1,829,046	1,876,409
Goodwill	18		186,206	186,206
Deferred tax assets	19		2,472,641	2,511,372
Other non-current assets	20		6,082,514	5,824,108
Total non-current assets			40,179,114	38,634,961
TOTAL ASSETS			165,432,364	141,202,135

The notes to the financial statements appended hereto form part of these financial statements.

ZTE CORPORATION INTERIM REPORT 2020

Consolidated Balance Sheet (continued)

(Prepared under PRC ASBEs) (Currency: RMB'000 unless otherwise stated)

(English translation for reference only)

			30 June	31 December
			2020	2019
Liabilities	Note V	(unaudited)	(audited)
Current liabilities
Short-term loans	21		16,619,177	26,645,966
Bank advances on factored trade receivables	4A	254,444	310,024
Derivative financial liabilities	22		131,527	126,223
Bills payable	23A	8,659,782	9,372,940
Trade payables	23B	26,907,622	18,355,610
Short-term bonds payable	24		8,000,000	-
Contract liabilities	25		14,562,034	14,517,057
Salary and welfare payables	26		8,169,854	8,954,005
Taxes payable	27		851,788	888,848
Other payables	28		5,101,267	4,621,118
Provisions	29		2,008,730	1,966,464
Non-current liabilities due within one year	30		718,638	612,261
Total current liabilities			91,984,863	86,370,516
Non-current liabilities
Long-term loans	31		21,835,076	10,045,093
Bank advances on factored long-term trade receivables	9		310,727	200,858
Lease liabilities	32		660,325	645,294
Provision for retirement benefits			142,296	144,505
Deferred income			3,107,353	2,656,024
Deferred tax liabilities	19		139,938	172,060
Other non-current liabilities	33		2,974,991	3,013,487
Total non-current liabilities			29,170,706	16,877,321
Total liabilities			121,155,569	103,247,837

The notes to the financial statements appended hereto form part of these financial statements.

ZTE CORPORATION INTERIM REPORT 2020

Consolidated Balance Sheet (continued)

(Prepared under PRC ASBEs) (Currency: RMB'000 unless otherwise stated)

(English translation for reference only)

			30 June	31 December
			2020	2019
Shareholder's equity	Note V	(unaudited)	(audited)
Shareholder's equity
Share capital	34		4,613,435	4,227,530
Capital reserves	35		23,272,245	12,144,432
Other comprehensive income	36		(2,120,052)	(2,000,980)
Surplus reserve	37		2,775,521	2,775,521
Retained profits	38		12,614,967	11,680,365
Total equity attributable to holders of ordinary shares
of the parent			41,156,116	28,826,868
Other equity instruments
Including: perpetual capital instruments	39		-	6,252,364
Non-controlling interests			3,120,679	2,875,066
Total shareholders' equity			44,276,795	37,954,298
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY			165,432,364	141,202,135

The notes to the financial statements appended hereto form part of these financial statements.

Legal Representative:	Chief Financial Officer:	Head of Finance Division:
Li Zixue	Li Ying	Xu Jianrui

ZTE CORPORATION INTERIM REPORT 2020

Consolidated Income Statement

(Prepared under PRC ASBEs) (Currency: RMB'000 unless otherwise stated)

(English translation for reference only)

				Six months	Six months
				ended	ended
				30 June 2020	30 June 2019
		Note V	(unaudited)	(unaudited)
Operating revenue	40		47,199,373	44,609,219
Less: Operating costs	40		31,418,303	27,119,296
	Taxes and surcharges	41		311,846	595,289
	Selling and distribution costs	42		3,940,595	4,025,746
	Administrative expenses	43		2,265,126	2,538,508
	Research and development costs	44		6,637,376	6,471,866
	Finance costs	45		632,833	662,809
	Including: Interest expense			847,922	823,053
	Interest income			581,860	322,233
Add:	Other income	46		860,171	860,800
	Investment income	47		30,257	315,397
	Including: Share of losses of associates and joint			(63,816)
	ventures			(158,146)
	Losses from derecognition of financial			(69,797)
	assets at amortised cost			(84,063)
	Gains/(losses) from changes in fair values	48		377,724	(142,604)
	Credit impairment losses	49		(279,143)	(1,416,091)
	Impairment losses	50		(141,703)	(469,998)
Operating profit			2,840,600	2,343,209
Add:	Non-operating income	51		55,659	74,308
Less: Non-operating expenses	51		55,288	180,040
Total profit			2,840,971	2,237,477
Less: Income tax	53		517,590	412,914
Net profit			2,323,381	1,824,563
Analysed by continuity of operations			2,323,381
Net profit from continuing operations			1,824,563
Analysed by ownership			1,857,289
Holders of ordinary shares of the parent			1,470,699
Holders of perpetual capital instruments			16,236	172,867
Non-controlling interests			449,856	180,997
Other comprehensive income, net of tax			(115,505)	51,077
Other comprehensive income attributable to holders of ordinary			(119,072)
shares of the parent company, net of tax	36		51,829
Other comprehensive income that cannot be reclassified to
profit or loss
Change in net assets arising from the re-measurement of			-	-
	defined benefit plans
				-	-
Other comprehensive income that will be reclassified to
profit or loss			(119,072)
Exchange differences on translation of foreign operations			51,829
				(119,072)	51,829
Other comprehensive income attributable to non-controlling			3,567
interests, net of tax			(752)
Total comprehensive income			2,207,876	1,875,640
Attributable to:			1,738,217
Holders of ordinary shares of the parent			1,522,528
Holders of perpetual capital instruments			16,236	172,867
Non-controlling interests			453,423	180,245
Earnings per share (RMB/share)			RMB0.40
Basic	54		RMB0.35
Diluted	54		RMB0.40	RMB0.35

The notes to the financial statements appended hereto form part of these financial statements.

ZTE CORPORATION INTERIM REPORT 2020

Consolidated Statement of Changes in Equity

(Prepared under PRC ASBEs) (Currency: RMB'000 unless otherwise stated)

(English translation for reference only)

Six months ended 30 June 2020 (Unaudited)

Other equity

Equity attributable to holders of ordinary shares of the parent

instruments

Including:

Other

Perpetual

Non-

Total

Capital

comprehensive

Surplus

Retained

capital

controlling

shareholders'

Share capital

reserves

income

reserve

profits

Sub-total

instruments

interests

equity

Previous period's closing balance

4,227,530

12,144,432

(2,000,980)

2,775,521

11,680,365

28,826,868

6,252,364

2,875,066

37,954,298

Changes during the period

(I)

Total comprehensive income

(119,072)

1,857,289

1,738,217

16,236

453,423

2,207,876

Shareholder's capital injection and capital reduction

1. Capital injection from

		shareholders	385,905	11,203,859	-	-	-	11,589,764		-	15,098	11,604,862
	2.	Equity settled share expenses
		charged to equity		-	5,252	-	-	-	5,252		-	-	5,252
	3.	Capital reduction by
		shareholders		-	-	-	-	-	-	-	(90,574)	(90,574)
	4.	Acquisition of non-controlling
		interests		-	(1,298)	-	-	-	(1,298)	-	(5,212)	(6,510)
	5.	Redemption of perpetual
		capital instruments		-	(80,000)	-	-	-	(80,000)	(5,920,000)		-	(6,000,000)
	(III) Profit appropriation
	1.	Distribution to shareholders		-	-	-	-	(922,687)	(922,687)	(348,600)		(127,122)	(1,398,409)

III.	Current period's closing balance	4,613,435	23,272,245	(2,120,052)	2,775,521	12,614,967	41,156,116		-	3,120,679	44,276,795

						Six months ended 30 June 2019 (Unaudited)

											Other equity
					Equity attributable to holders of ordinary shares of the parent			instruments

											Including:
						Other					Perpetual	Non-	Total
					Capital	comprehensive	Surplus	Retained			capital	controlling	shareholders'
			Share capital	reserves	income	reserve	profits	Sub-total	instruments	interests	equity

I.	Previous period's closing balance	4,192,672	11,444,456	(2,047,561)	2,324,748	6,983,261	22,897,576	6,252,364	3,810,735	32,960,675

Changes during the period

(I)

Total comprehensive income

51,829

1,470,699

1,522,528

172,867

180,245

1,875,640

Shareholder's capital injection and capital reduction

1. Capital injection from

	shareholders	-	43,434	-	-	-	43,434	-	111,917	155,351
2.	Equity settled share expenses
	charged to equity	-	150,266	-	-	-	150,266	-	-	150,266
3.	Capital reduction by
	shareholders	-	-	-	-	-	-	-	(584,836)	(584,836)
4.	Acquisition of non-controlling
	interests	-	(93,494)	-	-	-	(93,494)	-	(24,790)	(118,284)
(III) Profit appropriation
1.	Distribution to shareholders	-	-	-	-	-	-	(348,599)	(273,581)	(622,180)
III. Current period's closing balance
4,192,672	11,544,662	(1,995,732)	2,324,748	8,453,960	24,520,310	6,076,632	3,219,690	33,816,632

The notes to the financial statements appended hereto form part of these financial statements.

ZTE CORPORATION INTERIM REPORT 2020

Consolidated Cash Flow Statement

(Prepared under PRC ASBEs) (Currency: RMB'000 unless otherwise stated)

(English translation for reference only)

				Six months	Six months
				ended	ended
				30 June 2020	30 June 2019
		Note V	(unaudited)	(unaudited)
I.	Cash flows from operating activities			51,930,178
	Cash received from sale of goods or rendering of services			43,797,682
	Refunds of taxes			1,970,019	2,853,112
	Cash received relating to other operating activities			2,686,249	2,912,413
	Sub-total of cash inflows			56,586,446	49,563,207
	Cash paid for goods and services			36,597,288	30,226,065
	Cash paid to and on behalf of employees			11,013,040	8,740,820
	Cash paid for various types of taxes			3,543,500	5,289,879
	Cash paid relating to other operating activities			3,391,848	4,039,826
	Sub-total of cash outflows			54,545,676	48,296,590
	Net cash flows from operating activities	56		2,040,770	1,266,617
II. Cash flows from investing activities			1,342,817
	Cash received from sale of investments			1,227,875
	Cash received from return on investment			214,682	101,557
	Net cash received from the disposal of fixed assets, intangible			7,898
	assets and other long-term assets			14,593
	Net cash received from the disposal of subsidiaries and other			377
	operating units			445,907
	Cash received relating to other investing activities	55		245,000	-
	Sub-total of cash inflows			1,810,774	1,789,932
	Cash paid to acquisition of fixed asset, intangible assets and			2,722,869
	other long-term assets			4,263,060
	Cash paid for acquisition of investments			6,702,118	194,901
	Other cash paid in relation to investing activities	55		33,709	2,200,000
	Sub-total of cash outflows			9,458,696	6,657,961
	Net cash flows from investing activities			(7,647,922)	(4,868,029)
III. Cash flows from financing activities			11,557,524
	Cash received from capital injection			4,570
	Including: Capital injection into subsidiaries by minority			12,000
	shareholders			4,570
	Cash received from borrowings			35,976,266	23,776,919
	Other cash received in relation to financing activities	55		3,000	26,280
	Sub-total of cash inflows			47,536,790	23,807,769
	Cash repayment of borrowings			26,178,820	12,468,044
	Cash payments for perpetual capital instruments			6,000,000	-
	Cash payments for distribution of dividends, profits and for			1,157,063
	interest expenses			1,661,520
	Including: Distribution of dividends, profits by subsidiaries to			141,424
	minority shareholders			273,581
	Other cash paid relating to financing activities	55		270,570	652,159
	Sub-total of cash outflows			33,606,453	14,781,723
	Net cash flows from financing activities			13,930,337	9,026,046
IV. Effect of changes in foreign exchange rate on cash
	and cash equivalents			146,027	77,915
V. Net increase in cash and cash equivalents			8,469,212	5,502,549
	Add: cash and cash equivalents at beginning of period			28,505,800	21,134,111
VI. Net balance of cash and cash equivalents at the
	end of period	56		36,975,012	26,636,660

The notes to the financial statements appended hereto form part of these financial statements.

ZTE CORPORATION INTERIM REPORT 2020

Balance Sheet

(Prepared under PRC ASBEs) (Currency: RMB'000 unless otherwise stated)

(English translation for reference only)

			30 June	31 December
			2020	2019
Assets	Note XIV	(unaudited)	(audited)
Current assets
Cash			28,823,194	13,001,412
Derivative financial assets			27,151	103,889
Trade receivables	1		20,417,335	24,893,537
Receivable financing			3,690,373	1,980,798
Factored trade receivables	1		229,167	230,035
Prepayments			17,095	7,559
Other receivables	2		30,506,245	32,126,268
Inventories			24,867,246	19,692,914
Contract assets			5,098,868	4,460,977
Other current assets			4,172,733	3,516,370
Total current assets			117,849,407	100,013,759
Non-current assets
Long-term trade receivables	3		8,174,674	7,736,877
Factored long-term trade receivables	3		252,084	200,671
Long-term equity investments	4		12,216,466	12,270,582
Other non-current financial assets			725,501	725,125
Investment properties			1,565,182	1,562,380
Fixed assets			6,090,347	5,717,601
Construction in progress			243,835	154,636
Right-of-use assets			516,598	534,988
Intangible assets			3,079,006	3,064,383
Development costs			479,319	479,320
Deferred tax assets			1,018,329	1,063,838
Other non-current assets			4,959,003	4,749,554
Total non-current assets			39,320,344	38,259,955
TOTAL ASSETS			157,169,751	138,273,714

The notes to the financial statements appended hereto form part of these financial statements.

ZTE CORPORATION INTERIM REPORT 2020

Balance Sheet (continued)

(Prepared under PRC ASBEs) (Currency: RMB'000 unless otherwise stated)

(English translation for reference only)

			30 June	31 December
			2020	2019
Liabilities and shareholders' equity	Note XIV	(unaudited)	(audited)
Current liabilities
Short-term loans			9,426,546	11,729,902
Bank advances on factored trade receivables			229,438	230,323
Derivative financial liabilities			123,319	115,811
Bills payable			12,773,708	19,363,815
Trade payables			38,226,034	29,734,983
Short-term bonds payable			8,000,000	-
Contract liabilities			8,808,085	9,347,162
Salary and welfare payables			4,189,957	5,223,312
Taxes payable			219,484	97,735
Other payables			20,542,385	21,362,474
Provisions			1,790,902	1,786,167
Non-current liabilities due within one year			199,692	309,489
Total current liabilities			104,529,550	99,301,173
Non-current liabilities
Long-term loans			16,449,709	7,550,990
Bank advances on factored long-term trade receivables			252,418	200,858
Lease liabilities			356,393	337,764
Provision for retirement benefits			142,296	144,505
Deferred income			706,980	849,320
Other non-current liabilities			2,376,825	2,393,468
Total non-current liabilities			20,284,621	11,476,905
Total liabilities			124,814,171	110,778,078
Shareholders' equity
Share capital			4,613,435	4,227,530
Capital reserves			21,125,836	9,996,674
Other comprehensive income			696,439	696,467
Surplus reserve			2,113,765	2,113,765
Retained profits			3,806,105	4,208,836
Shareholders' equity attributable to holders of ordinary shares			32,355,580	21,243,272
Other equity instruments
Including: perpetual capital instruments			-	6,252,364
Total shareholders' equity			32,355,580	27,495,636
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY			157,169,751	138,273,714

The notes to the financial statements appended hereto form part of these financial statements.

ZTE CORPORATION INTERIM REPORT 2020

Income Statement

(Prepared under PRC ASBEs) (Currency: RMB'000 unless otherwise stated)

(English translation for reference only)

				Six months	Six months
				ended	ended
				30 June 2020	30 June 2019
		Note XIV	(unaudited)	(unaudited)
Operating revenue	5		43,309,434	39,475,276
Less:	Operating costs	5		37,477,589	32,290,242
	Taxes and surcharges			95,051	344,033
	Selling and distribution costs			2,256,304	2,138,680
	Administrative expenses			1,884,914	2,071,946
	Research and development costs			553,072	1,935,014
	Finance costs			389,750	542,245
	Including: Interest expense			601,126	475,331
	Interest income			261,988	108,109
Add:	Other income			218,101	27,253
	Investment income	6		80,218	113,190
	Including: Share of losses of associates and
	joint ventures	6		(56,186)	(98,657)
	Losses from derecognition of financial
	assets at amortised cost	6		(7,504)	(21,067)
	Losses from changes in fair values			(85,498)	(82,272)
	Credit impairment losses			(117,831)	(1,330,901)
	Impairment losses			(116,972)	(392,017)
Operating profit/(loss)			630,772	(1,511,631)
Add:	Non-operating income			35,546	38,226
Less:	Non-operating expenses			20,785	106,330
Total profit/(loss)			645,533	(1,579,735)
Less:	Income tax			109,341	(58,586)
Net profit/(loss)			536,192	(1,521,149)
Including: net profit/(loss) from continuing operations			536,192	(1,521,149)
Analysed by ownership
Attributable to holders of ordinary shares			519,956	(1,694,016)
Attributable to holders of perpetual capital instruments			16,236	172,867
Other comprehensive income, net of tax			(28)	(1,067)
Other comprehensive income that cannot be reclassified to
profit and loss
Change in net assets arising from the re-measurement of
	defined benefit plans			-	-
Other comprehensive income that will be reclassified to
profit and loss
Exchange differences on translation of foreign operations			(28)	(1,067)
Total comprehensive profit/(loss)			536,164	(1,522,216)
Attributable to:
Holders of ordinary shares			519,928	(1,695,083)
Holders of perpetual capital instruments			16,236	172,867

The notes to the financial statements appended hereto form part of these financial statements.

ZTE CORPORATION INTERIM REPORT 2020

Statement of Changes in Equity

(Prepared under PRC ASBEs) (Currency: RMB'000 unless otherwise stated)

(English translation for reference only)

				Six months ended 30 June 2020 (unaudited)
								Other equity
							Total equity of	instruments
				Other			holders of	- Perpetual	Total
			Capital	comprehensive	Surplus	Retained	ordinary	capital	shareholders'
		Share capital	reserves	income	reserve	profits	shares	instruments	equity

I.	Closing balance of previous period	4,227,530	9,996,674	696,467	2,113,765	4,208,836	21,243,272	6,252,364	27,495,636
II. Changes during the period
	(I) Total comprehensive income	-	-	(28)	-	519,956	519,928	16,236	536,164

Shareholder's capital injection and capital reduction

		1.	Shareholders' capital contribution	385,905	11,203,910	-	-	-	11,589,815	-	11,589,815
		2.	Equity settled share expenses
			charged to equity	-	5,252	-	-	-	5,252	-	5,252
		3.	Redemption of perpetual
			capital instruments	-	(80,000)	-	-	-	(80,000)	(5,920,000)	(6,000,000)
	(III)	Profit appropriation
		1.	Distribution to shareholders	-	-	-	-	(922,687)	(922,687)	(348,600)	(1,271,287)

III.	Current period's closing balance	4,613,435	21,125,836	696,439	2,113,765	3,806,105	32,355,580	-	32,355,580

						Six months ended 30 June 2019 (unaudited)

										Other equity
										instruments
						Other			Total equity of	- Perpetual	Total
						comprehensive			holders of	capital	shareholders'
				Share capital	Capital reserves	income	Surplus reserve	Retained profits	ordinary shares	instruments	equity

I.	Closing balance of previous period	4,192,672	9,244,984	704,686	1,662,992	(3,101,864)	12,703,470	6,252,364	18,955,834
II. Changes during the period
	(I)	Total comprehensive income	-	-	(1,067)	-	(1,694,016)	(1,695,083)	172,867	(1,522,216)

Shareholder's capital injection and capital reduction

1. Equity settled share expenses

charged to equity	-	150,266	-	-	-	150,266	-	150,266
(III) Profit appropriation
1. Distribution to shareholders	-	-	-	-	-	-	(348,599)	(348,599)
III. Current period's closing balance
4,192,672	9,395,250	703,619	1,662,992	(4,795,880)	11,158,653	6,076,632	17,235,285

The notes to the financial statements appended hereto form part of these financial statements.

ZTE CORPORATION INTERIM REPORT 2020

Cash Flow Statement

(Prepared under PRC ASBEs) (Currency: RMB'000 unless otherwise stated)

(English translation for reference only)

				Six months	Six months
				ended	ended
				30 June 2020	30 June 2019
				(unaudited)	(unaudited)
I.	Cash flows from operating activities
	Cash received from sale of goods or rendering of services	46,987,381	44,767,563
	Refunds of taxes	1,449,017	2,072,501
	Cash received relating to other operating activities		807,272	973,060
	Sub-total of cash inflows		49,243,670	47,813,124
	Cash paid for goods and services		45,214,325	34,880,732
	Cash paid to and on behalf of employees	3,479,049	2,659,160
	Cash paid for various types of taxes	924,655	2,366,021
	Cash paid relating to other operating activities		2,235,172	2,588,942
	Sub-total of cash outflows		51,853,201	42,494,855
	Net cash flows from operating activities		(2,609,531)	5,318,269
II. Cash flows from investing activities
	Cash received from sale of investments	861,230	611,851
	Cash received from return on investments	3,792,067	240,311
	Net cash received from the disposal of fixed assets, intangible
	assets and other long-term assets	5,586	10,258
	Cash received relating to other investing activities		3,125,000	-
	Sub-total of cash inflows		7,783,883	862,420
	Cash paid to acquisition of fixed asset, intangible assets and
	other long-term assets	1,039,365	3,065,420
	Cash paid for acquisition of investments	4,040,600	70,735
	Other cash paid in relation to investing activities		6,050,000	2,200,000
	Sub-total of cash outflows		11,129,965	5,336,155
	Net cash flows from investing activities		(3,346,082)	(4,473,735)
III. Cash flows from financing activities
	Cash received from capital injection	11,545,524	-
	Cash received from borrowings		27,079,645	12,387,166
	Sub-total of cash inflows		38,625,169	12,387,166
	Cash repayment of borrowings		12,664,267	9,468,566
	Cash payment for perpetual capital instruments	6,000,000	-
	Cash payments for distribution of dividends and profits or
	for interest expenses	856,609	818,775
	Other cash paid in relation to financing activities		71,492	61,378
	Sub-total of cash outflows		19,592,368	10,348,719
	Net cash flows from financing activities		19,032,801	2,038,447
IV. Effect of changes in foreign exchange rate on cash and
	cash equivalents		85,535	(18,497)
V. Net increase in cash and cash equivalents		13,162,723	2,864,484
	Add: cash and cash equivalents at the beginning of the period		10,032,692	10,147,946
VI. Net balance of cash and cash equivalents at the end of
	the period	23,195,415	13,012,430

The notes to the financial statements appended hereto form part of these financial statements.

ZTE CORPORATION INTERIM REPORT 2020

Notes to Financial Statements

(Prepared under PRC ASBEs) (All amounts in RMB'000 unless otherwise stated)

(English translation for reference only)

CORPORATE BACKGROUND

ZTE Corporation (the "Company") was a limited liability company jointly founded by Zhongxingxin Telecom Company Limited, China Precision Machinery Import & Export Shenzhen Company, Lishan Microelectronics Corporation, Shenzhen Zhaoke Investment Development Company Limited, Hunan Nantian (Group) Company Limited, Shanxi Telecom Industrial Corporation, China Mobile No. 7 Research Institute, Jilin Posts and Telecommunications Equipment Company and Hebei Posts and Telecommunications Equipment Company and incorporated through a public offering of shares to the general public. On 6 October 1997, the Company issued ordinary shares to the general public within the network through the Shenzhen Stock Exchange and the shares were listed and traded on the Shenzhen Stock Exchange on 18 November 1997.

The Company and its subsidiaries (collectively the "Group") are mainly engaged in production of remote control switch systems, multimedia communications systems and communications transmission systems; research and production of mobile communications systems equipment, satellite communications, microwave communications equipment and beepers, technical design, development, consultation and related services for computer hardware and software, closed-circuit TVs, microwave communications, automated signal control, computer information processing, process monitoring systems, fire alarm systems, new energy power generation and application systems; provision of technical design, development, consultation and related services for wireline and wireless communications projects of railways, underground railways, urban rail transit, highways, plants and mines, ports and terminals and airports (excluding restricted projects); research and development, production, sales, technical services, engineering installation and maintenance in connection with communication power sources and power distribution systems; research and development, production, sales, technical services, engineering installation and maintenance in connection with data centre infrastructure facilities and ancillary products (including power supply and distribution, air-conditioning refrigeration equipment, cold passages and intelligent management systems); purchase and sale of electronics devices, micro-electronics components (excluding franchised, state-controlled and monopolised merchandises); sub-contracting of communications and related projects outside the PRC and global tendering projects within the PRC, as well as import and export of the equipment and materials required by the aforesaid projects outside the PRC and deployment of labors and workers for carrying out the aforesaid projects outside the PRC; technical development and sale of electronics systems equipment (excluding restricted items and franchised, state controlled and monopolised merchandises); operations of import and export businesses (implemented in accordance with the provision under the certificate of qualifications approved and issued by Shenzhen Bureau of Trade and Development); specialised subcontracting of telecommunications projects (subject to obtaining relevant certificate of qualification); lease of owned properties.

The controlling shareholder of the Group is Zhongxingxin Telecom Company Limited, a company incorporated in the PRC.

The financial statements were approved by the Board of Directors of the Company by way of resolution on 28 August 2020.

The consolidation scope for consolidated financial statement is determined based on the concept of control. For details of changes during the period, please refer to Note VI.

ZTE CORPORATION INTERIM REPORT 2020

Notes to Financial Statements

(Prepared under PRC ASBEs) (All amounts in RMB'000 unless otherwise stated)

(English translation for reference only)

BASIS OF PREPARATION OF THE FINANCIAL STATEMENTS

These financial statements have been prepared in accordance with the "Accounting Standards for Business Enterprises - Basic Standards" promulgated by the Ministry of Finance and the specific accounting standards, subsequent practice notes, interpretations and other relevant regulations subsequently announced and revised (collectively "ASBEs").

The financial statements are prepared on a going concern basis.

In the preparation of the financial statements, all items are recorded by using historical cost as the basis of measurement except for some financial instruments and investment properties. Impairment provision is made according to relevant regulation if the assets are impaired.

III. PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES

The specific accounting policies and accounting estimation prepared by the Group based on actual production and operation characteristics mainly include provisions for trade receivables and bad debts, inventory pricing, government grants, revenue recognition and measurement, deferred development costs, depreciation of fixed assets, amortisation of intangible assets and measurement of investment properties.

Statement of compliance
The financial statements truly and completely reflect the financial position of the Group and the Company as at 30 June 2020 and the results of their operations and their cash flows for the six months ended 30 June 2020.
Financial year
The financial year of the Group is from 1 January to 31 December of each calendar year.
Reporting currency
The Company's reporting currency and the currency used in preparing the financial statements were Renminbi. The amounts in the financial statements were denominated in thousands of Renminbi, unless otherwise stated.
The Group's subsidiaries, jointly-controlled entities and associates determine their reporting currency according to the major economic environment in which they operate the business, and translate into Renminbi when preparing the financial statements.

ZTE CORPORATION INTERIM REPORT 2020

Notes to Financial Statements

(Prepared under PRC ASBEs) (All amounts in RMB'000 unless otherwise stated)

(English translation for reference only)

PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED)
4. Business combination
Business combinations are classified into business combinations involving entities under common control and business combinations not involving entities under common control.
Business combinations involving entities under common control
A business combination involving entities under common control is a business combination in which all of the combining entities are ultimately controlled by the same party or parties both before and after the business combination, and that control is not transitory. The acquirer is the entity that obtains control of the other entities participating in the combination at the combination date, and the other entities participating in the combination are the acquirees. The combination date is the date on which the combining party effectively obtains control of the parties being combined.
Assets and liabilities obtained by combining party in the business combination involving entities under common control (including goodwill arising from the acquisition of the merged party by the ultimate controller) are recognised on the basis of their carrying amounts at the combination date recorded on the financial statements of the ultimate controlling party. The difference between the carrying amount of the consideration paid for the combination (or aggregate face values of the shares issued) and the carrying amount of the net assets obtained is adjusted to capital reserves. If the capital reserve is not sufficient to absorb the difference, any excess is adjusted to retained profits.
Business combinations not involving entities under common control
A business combination not involving entities under common control is a business combination in which all of the combining entities are not ultimately controlled by the same party or parties both before and after the business combination. The acquirer is the entity that obtains control of the other entities participating in the combination at the acquisition date, and the other entities participating in the combination are the acquirees. The acquisition date is the date on which the acquirer effectively obtains control of the acquiree.
The acquiree's identifiable assets, liabilities and contingent liabilities are recognised at their fair values at the acquisition date.
The excess of the sum of the consideration paid (or equities issued) for business combination and equity interests in the acquiree held prior to the date of acquisition over the share of the attributable net identifiable assets of the acquiree, measured at fair value, was recognised as goodwill, which is subsequently measured at cost less cumulative impairment loss. In case the fair value of the sum of the consideration paid (or equities issued) and equity interests in the acquire held prior to the date of acquisition is less than the fair value of the share of the attributable net identifiable assets of the acquiree, a review of the measurement of the fair values of the identifiable assets, liabilities and contingent liabilities, the consideration paid for the combination (or equity issued) and the equity interests in the acquiree held prior to the date of acquisition is conducted. If the review indicates that the fair value of the sum of the consideration paid (or equities issued) and equity interests in the acquiree held prior to the date of acquisition is indeed less than the fair value of the share of the attributable net identifiable assets of the acquiree, the difference is recognised in current profit or loss.

ZTE CORPORATION INTERIM REPORT 2020

Notes to Financial Statements

(Prepared under PRC ASBEs) (All amounts in RMB'000 unless otherwise stated)

(English translation for reference only)

PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED)
1. Consolidated financial statements
  The consolidation scope for consolidated financial statement is determined based on the concept of control, including the Company and all subsidiaries' financial statements are those enterprises or entities which the Company has control over (including enterprises, separable components of investee units and structured entities controlled by the Company).
  The financial statements of the subsidiaries are prepared for the same reporting period as the Company, using consistent accounting policies. All assets, liabilities, equities, income, costs and cash flows arising from intercompany transactions, and dividends are eliminated on consolidation.
  The excess of current loss attributable to minority shareholders of a subsidiary over their entitlements to the opening balance of shareholders' equity shall be charged to minority interests.
  For subsidiaries obtained through a business combination not involving entities under common control, the operating results and cash flows of the acquirees will be recognised in consolidated financial statements from the date the Group effectively obtains the control until the date that control is terminated. When consolidated financial statement is prepared, the subsidiaries' financial statements will be adjusted based on the fair values of the identifiable assets, liabilities and contingent liabilities at the acquisition date.
  For subsidiaries obtained through a business combination involving entities under common control, the operating result and cash flow of the party being combined will be recognised in consolidated financial statement from the beginning of the period during which the combination occurs. In preparing the comparative consolidated financial statements, adjustments were made to relevant items in financial statements in previous periods as if the reporting entity formed after the consolidation had been in existence since the ultimate controlling party started to exercise effective control.
  In the event of the change in one or more elements of control as a result of changes in relevant facts and conditions, the Group reassesses whether it has control over the investee.
2. Classification of joint venture arrangements and joint operation
  Joint venture arrangements are in the form of joint operation or joint venture enterprise. A joint operation is a joint venture arrangement under which the joint venture parties are entitled to assets and undertake liabilities under the arrangement. A joint venture enterprise is a joint venture arrangement under which the joint venture parties are only entitled to the net assets under such arrangement.
  The following items should be recognised by a joint venture party in relation to its share of profit in the joint operation: solely held assets, as well as jointly held assets according to its share; solely assumed liabilities, as well as jointly assumed liabilities according to its share; income derived from its entitled share of production of the joint operation; income derived from the sales of production of production of the joint operation according to its share; solely incurred expenses, as well as expenses incurred by the joint operation according to its share.

ZTE CORPORATION INTERIM REPORT 2020

Notes to Financial Statements

(Prepared under PRC ASBEs) (All amounts in RMB'000 unless otherwise stated)

(English translation for reference only)

PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED)
1. Cash and cash equivalents
  Cash comprises cash on hand and deposits readily available for payments. Cash equivalents represent short-term highly liquid investments which are readily convertible to known amounts of cash, and subject to an insignificant risk of changes in value.
2. Foreign currency translation
  For foreign currency transactions, the Group translates the foreign currency into its functional currency.
  Upon initial recognition, foreign currency transactions are translated into the functional currency using the median exchange rate published by the PBOC at the beginning of the month in which transactions occur. At the balance sheet date, foreign currency monetary items are translated using the spot exchange rate at the balance sheet date. The translation differences arising from the settlement and foreign currency monetary items, except those relating to foreign currency monetary items eligible for the capitalisation shall be dealt with according to the principle of capitalisation of borrowing costs, are recognised in profit or loss. Also at the balance sheet date, foreign currency non-monetary items measured at historical cost continue to be translated using the spot exchange rate at the dates of the transactions and it does not change its carrying amount in functional currency. Foreign currency non monetary items measured at fair value are translated using the spot exchange rate. The differences arising from the above translations are recognised in current profit or loss or other comprehensive income according to the nature of foreign currency non-monetary items.
  The Group translates the functional currencies of foreign operations into Renminbi when preparing the financial statements. Asset and liability items in the balance sheet are translated at the spot exchange rate prevailing at the balance sheet date. Shareholders' equity items, except for retained profits, are translated at the spot exchange rates at the date when such items arose. Income and expense items in the income statement are translated using the average exchange rate for the periods when transactions occur. Translation differences arising from the aforesaid translation of financial statements denominated in foreign currency shall be recognised as other comprehensive income. When foreign operations are disposed, other comprehensive income relating to the foreign operation is transferred to current profit or loss. Partial disposal shall be recognised on a pro-rata basis.
  Cash flows denominated in foreign currencies and foreign subsidiaries' cash flows are translated using the average exchange rate for the period when cash flows occur. The impact on cash by the fluctuation of exchange rates is presented as a separate line item of reconciliation in the cash flow statement.
3. Financial instruments
  Financial instruments refer to the contracts which give rise to a financial asset in one entity and a financial liability or equity instrument in another entity.
  Recognition and derecognition of financial instruments
  The Group recognises a financial asset or a financial liability when it becomes a party to the contractual provisions of the financial instrument.

ZTE CORPORATION INTERIM REPORT 2020

Notes to Financial Statements

(Prepared under PRC ASBEs) (All amounts in RMB'000 unless otherwise stated)

(English translation for reference only)

PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED)
9. Financial instruments (continued)
Recognition and derecognition of financial instruments (continued)
A financial asset (or part of it, or a part of a group of similar financial asset) is derecognised when one of the following criteria is met, that is, when a financial asset is written off from its account and balance sheet:
1. The right of receiving the cash flow generated from the financial asset has expired;
2. The right of receiving cash flow generated by the financial assets is transferred, or an obligation of paying the full amount of cash flow received to third parties in a timely manner has been undertaken under "pass-through" agreements, where (a) substantially all risks and rewards of the ownership of Such type of financial assets have been transferred, or (b) control over Such type of financial assets has not been retained even though substantially all risks and rewards of the ownership of Such type of financial assets have been neither transferred nor retained.

If the obligation of financial liability has been fulfilled, cancelled or expired, the financial liability is derecognised. If the present financial liability is substituted by the same debtor with another liability differing in substance, or the terms of the present liability have been substantially modified, this substitution or modification is treated as derecognition of a present liability and recognition of a new liability with any arising differences recognised in profit or loss.

Conventional dealings in financial assets are recognised or derecognised under the trade day accounting method. Conventional dealings refer to the receipt or delivery of financial assets within periods stipulated by the law and according to usual practices. The trade day is the date on which the Group undertakes to buy or sell a financial asset.

Classification and valuation of financial assets

At initial recognition, the Group classifies its financial assets into: financial assets at fair value through profit or loss, financial assets at amortised cost, or financial assets at fair value through other comprehensive income, according to the Group's business model for managing financial assets and the contract cash flow characteristics of the financial assets. Financial assets are measured at fair value at initial recognition, provided that trade receivables or bills receivable not containing significant financing components or for which financing components of not more than 1 year are not taken into consideration shall be measured at their transaction prices at initial recognition.

For financial assets at fair value through profit or loss, the relevant transaction costs are directly recognised in profit or loss; for other financial assets, the relevant transaction costs are recognised in their initial recognition amount.

ZTE CORPORATION INTERIM REPORT 2020

Notes to Financial Statements

(Prepared under PRC ASBEs) (All amounts in RMB'000 unless otherwise stated)

(English translation for reference only)

PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED)
9. Financial instruments (continued)
Classification and valuation of financial assets (continued)
The subsequent measurement of financial assets is dependent on its classification: Debt instruments at amortised cost
Financial assets fulfilling all of the following conditions are classified as financial assets at amortised cost: the objective of the Group's business management model in respect of Such type of financial assets is to generate contract cash flow; the contract terms of Such type of financial assets provide that cash flow generated on specific dates represents interest payment in relation to principal amounts based on outstanding principal amounts only. Interest income from Such type of financial assets are recognised using the effective interest rate method, and any profit or loss arising from derecognition, amendments or impairment shall be charged to current profit or loss. Such type of financial assets includes mainly cash, trade receivables, factored trade receivables, other receivables and long-term receivables. The Group shall classify debt investment and long-term receivables with a maturity of less than 1 year from the balance sheet date as non-current assets with a maturity of less than 1 year. Debt investment with an original maturity of less than 1 year shall be classified as other current assets.
Debt instrument at fair value through other comprehensive income
Financial assets fulfilling all of the following conditions are classified as financial assets at fair value through other comprehensive income: the objective of the Group's business management model in respect of Such type of financial assets is both to generate contract cash flow and to sell Such type of financial assets; the contract terms of Such type of financial assets provide that cash flow generated on specific dates represents interest payment in relation to principal amounts based on outstanding principal amounts only. Interest income from this type of financial assets are recognised using the effective interest rate method. Other than interest income, impairment loss and exchange differences which shall be recognised as current profit or loss, other fair value changes shall be included in other comprehensive income. Upon derecognition of the financial assets, the cumulative gains or losses previously included in other comprehensive income shall be transferred from other comprehensive income to current profit or loss. Such type of financial assets shall be classified as receivable financing.
Financial assets at fair value through current profit or loss
Other than financial assets measured at amortised cost and financial assets at fair value through other comprehensive income as aforementioned, all financial assets are classified as financial assets at fair value through current profit or loss, which are subsequently measured at fair value, any changes of which are recognised in current profit or loss. Such type of financial assets shall be classified as trading financial assets. Financial assets with a maturity of over 1 year from the balance sheet date and expect to be held for over 1 year shall be classified as other non-current financial assets.
A financial asset which has been designated as financial asset at fair value through current profit or loss upon initial recognition cannot be reclassified as other types of financial assets; neither can other types of financial assets be redesignated, after initial recognition, as financial assets at fair value through current profit or loss.

ZTE CORPORATION INTERIM REPORT 2020

Notes to Financial Statements

(Prepared under PRC ASBEs) (All amounts in RMB'000 unless otherwise stated)

(English translation for reference only)

PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED)
9. Financial instruments (continued)
Classification and valuation of financial assets (continued) Financial assets at fair value through current profit or loss (continued)
In accordance with the aforesaid criterion, financial assets designated by the Group as such include mainly equity investments, and have not been designated as at fair value through other comprehensive income at initial measurement.
Classification and valuation of financial liabilities
The Group classifies its financial liabilities at initial recognition: financial liabilities at fair value through profit or loss, other financial liabilities and derivatives designated as effective hedging instruments. For financial liabilities at fair value through profit or loss, the relevant transaction costs are directly recognised in profit or loss; for other financial liabilities, the relevant transaction costs are recognised in their initial recognition amount.
The subsequent measurement of financial liabilities is dependent on its classification: Financial liabilities at fair value through profit or loss
Financial liabilities at fair value through profit or loss include mainly derivative financial liabilities (comprising derivatives classified as financial liabilities) and financial liabilities designated at initial recognition to be measured at fair value through current profit or loss.
Trading financial liabilities (comprising derivatives classified as financial liabilities) are subsequently measured at fair value and all changes, other than those relating to hedge accounting, are recognised in current period's profit or loss.
Other financial liabilities
Subsequent to initial recognition, these financial liabilities are carried at amortised cost using the effective interest method.
Impairment of financial instruments
The Group performs impairment treatment on financial assets at amortised cost, debt instruments at fair value through other comprehensive income and contract assets based on expected credit losses and recognises provision for losses.
Credit loss refers to the difference between all contract cash flow receivable from the contract and all cash flow expected to be received discounted at the original effective, namely, the present value of the full amount of cash shortfall. Financial assets purchased by or originated from the Group to which credit impairment has occurred should be discounted at the credit-adjusted effective interest rate of the financial assets.
For receivables, contract assets and bills receivable under other current assets that do not contain significant financing components, the Group adopts a simplified measurement method to measure provision for losses based on an amount equivalent to expected credit losses for the entire period.

ZTE CORPORATION INTERIM REPORT 2020

Notes to Financial Statements

(Prepared under PRC ASBEs) (All amounts in RMB'000 unless otherwise stated)

(English translation for reference only)

PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED)
9. Financial instruments (continued)
Impairment of financial instruments (continued)
For trade receivables and contract assets that contain a significant financing component and lease receivables, the Group chooses as its accounting policy to adopt the simplified approach in calculating ECLs with policies as described above.
Financial assets other than those measured with simplified valuation methods, the Group evaluates at each balance sheet date whether its credit risk has significantly increased since initial recognition. The period during which credit risk has not significantly increased since initial recognition is considered the first stage, at which the Group shall measure loss provision based on the amount of expected credit loss for the next 12 months and shall compute interest income according to the book balance and effective interest rate; the period during which credit risk has significantly increased since initial recognition although no credit impairment has occurred is considered the second stage, at which the Group shall measure loss provision based on the amount of expected credit loss for the entire valid period and shall compute interest income according to the book balance and effective interest rate; The period during which credit impairment has occurred after initial recognition is considered the third stage, at which the Group shall measure loss provision based on the amount of expected credit loss for the entire period and shall compute interest income according to the amortised cost and effective interest rate. For financial instruments with relatively low credit risk at the balance sheet date, the Group assumes its credit risk has not significantly increase since initial recognition.
The Group estimates the expected credit loss of financial instruments individually and on a group basis. The Group considers the credit risk features of different customers and estimates the expected credit loss of amounts receivable, contract assets and bills receivable in other current assets based on customers' credit rating portfolio and aging portfolio of overdue debts.
The Group considers past events, current conditions and reasonable and evidenced information pertaining to future economic forecasts when assessing expected credit losses.
For the Group's criteria for judging whether credit risks have significantly increased, the definition of assets subjected to credit impairment, and assumptions underlying the measurement of expected credit losses, please refer to Note VIII.3.
When the Group no longer reasonably expects to be able to fully or partially recover the contract cash flow of financial assets, the Group directly writes down the book balance of such financial assets.
Financial guarantee contracts
A financial guarantee contract is a contract under which the issuer shall indemnify the contract holder suffering losses with a specified amount in the event that the debtor fails to repay its debt in accordance with the terms of the debt instrument. Financial guarantee contracts are measured at fair value at initial recognition, other than financial guarantee contracts designated as financial liabilities at fair value through current profit or loss, other financial guarantee contracts shall be subsequently measured at the higher of the amount of provision for expected credit loss determined as at the balance sheet date after initial recognition and the amount at initial recognition less the cumulative amortised amount determined in accordance with revenue recognition principles.

ZTE CORPORATION INTERIM REPORT 2020

Notes to Financial Statements

(Prepared under PRC ASBEs) (All amounts in RMB'000 unless otherwise stated)

(English translation for reference only)

PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED)
1. Financial instruments (continued) Derivative financial instruments
  The Group uses derivative financial instruments such as forward currency contracts. Such derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently re-measured at fair value. Derivatives are carried as assets when the fair value is positive and as liabilities when the fair value is negative.
  Other than to the extent related to hedge accounting, profit or loss arising from changes in the fair value of derivative instruments shall be directly recognised in current profit or loss.
  Transfer of financial assets
  If the Group has transferred substantially all the risks and rewards associated with the ownership of a financial asset to the transferee, the asset should be derecognised. If the Group retains substantially all the risks and rewards of ownership of a financial asset, the asset should not be derecognised.
  When the Group has neither transferred nor retained substantially all the risks and rewards of ownership of the financial asset, it may either derecognise the financial asset and recognise any associated assets and liabilities if control of the financial asset has not been retained; or recognises the financial asset to the extent of its continuing involvement in the transferred financial asset and recognises an associated liability if control has been retained.
  Assets formed by the continuing involvement by way of the provision of financial guarantee in respect of the transferred financial assets shall be recognised as the lower of the carrying value of the financial asset and the amount of financial guarantee. The amount of financial guarantee means the maximum amount among considerations received to be required for repayment.
2. Inventories
  Inventories include raw materials, materials sub-contracted for processing, work-in-progress, finished goods, product deliveries and cost of contract performance.
  Inventories are initially recorded at costs. Inventories' costs include purchasing costs, processing costs and other costs. Actual costs of goods delivered are recognised using the weighted moving average method.
  Inventories are valued using the perpetual inventories stock-take system.
  Inventories at the end of the year are stated at the lower of cost or net realisable value. Provision for impairment of inventories is made and recognised in profit or loss when the net realisable value is lower than cost. If the factors that give rise to the provision in prior years are not in effect in current year, as a result that the net realisable value of the inventories is higher than cost, provision should be reversed within the impaired cost, and recognised in profit or loss.
  Net realisable values represent estimated selling prices less any estimated costs to be incurred to completion, estimated selling expenses and relevant tax amounts. Provision for impairment of inventories is made on the basis of individual categories.

ZTE CORPORATION INTERIM REPORT 2020

Notes to Financial Statements

(Prepared under PRC ASBEs) (All amounts in RMB'000 unless otherwise stated)

(English translation for reference only)

PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED)
11. Long-term equity investments
Long-term equity investments include equity investments in subsidiaries, joint ventures and associates.
Long-term equity investments were recorded at initial investment cost on acquisition. For long-term equity investments acquired through the business combination of entities under common control, the initial investment cost shall be the share of carrying value of the owners' equity of the merged party at the date of combination as stated in the consolidated financial statements of the ultimate controlling party. Any difference between the initial investment cost and the carrying value of the consideration for the combination shall be dealt with by adjusting the capital reserve (if the capital reserve is insufficient for setting off the difference, such difference shall be further set off against retained profits). Upon disposal of the investment, other comprehensive income prior to the date of combination shall be dealt with on the same basis as if the relevant assets or liabilities were disposed of directly by the investee. Shareholders' equity recognised as a result of changes in shareholders' equity other than the set-off of profit and loss, other comprehensive income and profit allocation of the investee shall be transferred to current profit and loss upon disposal of the investment. Items which remain long-term equity investments after the disposal shall be accounted for on a pro-rata basis, while items reclassified as financial instruments following the disposal shall be accounted for in full. For long-term equity investments acquired through the business combination of entities not under common control, the initial investment cost shall be the cost of combination (for business combinations of entities not under common control achieved in stages through multiple transactions, the initial investment cost shall be the sum of the carrying value of the equity investment in the acquired party held at the date of acquisition and new investment cost incurred as at the date of acquisition). The cost of combination shall be the sum of assets contributed by the acquiring party, liabilities incurred or assumed by the acquiring party and the fair value of equity securities issued. Upon disposal of the investment, other comprehensive income recognised under the equity method held prior to the date of acquisition shall be dealt with on the same basis as if the relevant assets or liabilities were disposed of directly by the investee. Shareholders' equity recognised as a result of changes in shareholders' equity other than the set-off of profit and loss, other comprehensive income and profit allocation of the investee shall be transferred to current profit and loss upon disposal of the investment. Items which remain long-term equity investments after the disposal shall be accounted for on a pro-rata basis, while items reclassified as financial instruments following the disposal shall be accounted for in full. The accumulated fair value change of equity investments held prior to the date of acquisition and included in the other comprehensive income as financial instruments shall be transferred in full to current profit and loss upon the change to cost method. The initial investment cost of long-term equity investments other than those acquired through business combination shall be recognised in accordance with the following: for those acquired by way of cash payments, the initial investment cost shall be the consideration actually paid plus expenses, tax amounts and other necessary outgoings directly related to the acquisition of the long-term equity investments. For long-term equity investments acquired by way of the issue of equity securities, the initial investment cost shall be the fair value of the equity securities issued. For long-term equity investments acquired by way
of the swap of non-monetary assets, the initial investment cost shall be determined in accordance with "ASBE No. 7 - Swap of Non-monetary Assets." For long-term equity investments acquired by
way of debt restructuring, the initial investment cost shall be determined in accordance with "ASBE No. 12 - Debt Restructuring."

ZTE CORPORATION INTERIM REPORT 2020

Notes to Financial Statements

(Prepared under PRC ASBEs) (All amounts in RMB'000 unless otherwise stated)

(English translation for reference only)

PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED)
11. Long-term equity investments (continued)
In the financial statements of the Company, the cost method is used for long term equity investments in investees over which the Company exercises control. Control is defined as the power exercisable over the investee, the entitlement to variable return through involvement in the activities of the investee and the ability to influence the amount of return using the power over the investee.
When the cost method is used, long-term equity investments are measured at initial cost on acquisition. When additional investments are made or investments are recouped, the cost of long- term equity investments shall be adjusted. Cash dividend or profit distribution declared by the investee shall be recognised as investment gains for the period.
The equity method is used to account for long-term equity investments when the Group can jointly control or has significant influence over the invested entity. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control. Significant influence means having the authority to take part in the decision over the financial and operational policies but not the authority to control or jointly control with other parties the formulation of such policies.
Under the equity method, any excess of the initial investment cost over the Company's share of the net fair value of the investment's identifiable assets and liabilities is included in the initial investment cost of the long-term equity investment. When the carrying amount of the investment is less than the Company's share of the fair value of the investment's identifiable net assets, the difference is recognised in profit or loss of the current period and debited to long-term equity investment.
Under the equity method, after the long-term equity investments are acquired, investment gains or losses and other comprehensive income are recognised according to the entitled share of net profit or loss and other comprehensive income of the investee and the carrying amount of the long-term equity investment is adjusted accordingly. When recognising the Group's share of the net profit or loss of the invested entity, the Group makes adjustments based on fair values of the investees' identifiable assets and liabilities at the acquisition date in accordance with the Group's accounting policy and accounting period to investee's net profits, eliminating pro-rata profit or loss from internal transactions with associates and joint ventures attributed to investor (except that loss from inter-group transactions deemed as asset impairment loss shall be fully recognised), provided that invested or sold assets constituting businesses shall be excluded. When the invested enterprise declares profit appropriations or cash dividends, the carrying amount of investment is adjusted down by the Group's share of the profit appropriations and dividends. The Group shall discontinue recognising its share of the losses of the investee after the long-term equity investment together with any long-term interests that in substance forms part of the Group's net investment in the investee are reduced to zero, except to the extent that the Group has incurred obligations to assume additional losses. The Group also adjusts the carrying amount of long-term equity investments for other changes in owner's equity of the investees (other than the net-off of net profits or losses, other comprehensive income and profit allocation of the investee), and includes the corresponding adjustment in equity.

ZTE CORPORATION INTERIM REPORT 2020

Notes to Financial Statements

(Prepared under PRC ASBEs) (All amounts in RMB'000 unless otherwise stated)

(English translation for reference only)

PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED)
1. Long-termequity investments (continued)
  On disposal of the long-term equity investments, the difference between carrying value and market price is recognised in profit or loss for the current period. For long-term equity investments under equity method, when the use of the equity method is discontinued, other comprehensive income previously accounted for under the equity method shall be dealt with on the same basis as if the relevant assets or liabilities were disposed of directly by the investee. Shareholders' equity recognised as a result of changes in shareholders' equity other than the net-off of profit and loss, other comprehensive income and profit allocation of the investee shall be transferred in full to current profit and loss. If the equity method remains in use, other comprehensive income previously accounted for under the equity method shall be dealt with on the same basis as if the relevant assets or liabilities were disposed of directly by the investee and transferred to current profit and loss on a pro-rata basis. Shareholders' equity recognised as a result of changes in shareholders' equity other than the net-off of profit and loss, other comprehensive income and profit allocation of the investee shall be transferred to current profit and loss on a pro-rata basis.
2. Investment properties
  Investment properties are properties held to earn rentals and/or for capital appreciation. Investment properties of the Group included houses and buildings leased to other parties.
  Investment properties are initially measured at cost. Subsequent expenses relating to the investment properties are charged to investment property costs if there is a probable inflow of economic benefits relating to the asset and its cost can be reliably measured; otherwise, those expenditure are recognised in profit or loss as incurred.
  Investment properties of the Group represented owned properties reclassified to investment properties measured at fair value. The amount of fair value in excess of the carrying value as at the date of reclassification is included in the other comprehensive income. After initial recognition, investment properties will be subsequently measured and presented in fair value. The difference between the fair value and the original carrying value shall be included in current profit or loss. Fair values are assessed and determined by independent valuers based on open market prices of properties of the same or similar nature and other relevant information.
3. Fixed Assets
  A fixed asset is recognised when, and only when, it is probable that future economic benefits that are associated with the fixed asset will flow to the Group and the cost can be measured reliably. Subsequent expenditures related to a fixed asset are recognised in the carrying amount of the fixed asset if the above recognition criteria are met, and the carrying value of the replaced part is derecognised; otherwise, those expenditures are recognised in profit or loss as incurred.
  Fixed assets are initially recognised at cost taking into account the impact of expected future disposal expenditure. Cost of purchased fixed assets includes purchasing price, relevant taxes, and any directly attributable expenditure for bringing the asset to working conditions for its intended use.

ZTE CORPORATION INTERIM REPORT 2020

Notes to Financial Statements

(Prepared under PRC ASBEs) (All amounts in RMB'000 unless otherwise stated)

(English translation for reference only)

PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED)
13. Fixed Assets (continued)
Fixed assets are depreciated on a straight-line basis, and the respective estimated useful lives, estimated residual values and annual depreciation rates are as follows:

			Estimated	Annual
			residual value	depreciation
	Useful life	ratio	rate

Freehold land	Indefinite	-	N/A
Buildings	30-50 years	5%	1.90%-3.17%
Electronic equipment	3-5	years	5%	19%-32%
Machinery equipment	5-10	years	5%	9.5%-19%
Motor vehicles	5-10	years	5%	9.5%-19%
Other equipment	5	years	5%	19%

The Group reviews, at least at each year end, useful lives, estimated residual values and depreciation methods of fixed assets and makes adjustments if necessary.

Construction in progress
Construction in progress is measured at the actual construction expenditures, including necessary project work expenses incurred during the period while construction is in progress, borrowing costs subject to capitalisation before they can be put into use and other related fees.
Construction-in-progress is transferred into fixed assets when it is ready for its intended use.
Borrowing costs
Borrowing costs are interest and other costs incurred by the Group in connection with the borrowings of funds, which include borrowing interest, amortisation of discount or premium on debt, other supplementary costs and certain foreign exchange differences that occurred from the borrowings in foreign currencies.
Borrowing costs directly attributable to the acquisition or construction of assets qualified for capitalisation, i.e., fixed assets, investment properties and inventories that necessarily take a substantial period of time to get ready for their intended use or sale, are capitalised as part of the cost of those assets. Other borrowing costs are charged to current profit or loss.
Capitalisation of borrowing costs begins where:
1. Capital expenditure has already happened;
2. Borrowing expenses has already incurred;
3. Purchasing or production activities to get the assets ready for their intended use or sale have already happened.

ZTE CORPORATION INTERIM REPORT 2020

Notes to Financial Statements

(Prepared under PRC ASBEs) (All amounts in RMB'000 unless otherwise stated)

(English translation for reference only)

PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED)
15. Borrowing costs (continued)
The capitalisation of such borrowing costs ceases when the assets are substantially ready for their intended use or sale. Borrowing costs incurred afterwards are recognised in profit or loss.
During capitalisation, interest of each accounting period is recognised using the following methods:
1. Where funds are borrowed specifically, costs eligible for capitalisation are the actual costs incurred less any income earned on the temporary investment of such borrowings.
2. Where funds are part of a general pool, the eligible amount is determined by applying a capitalisation rate to the expenditure on that asset. The capitalisation rate will be the weighted average of the borrowing costs applicable to the general pool.

Except for expected suspension under normal situation of qualifying assets, capitalisation should be suspended during periods in which abnormal interruption has lasted for more than three months during the process of acquisition, construction or production. The borrowing cost incurred during interruption should be recognised as expenses and recorded in the income statement until the construction resumes.

16. Intangible assets

Intangible assets are recognised only when it is probable that economic benefits relating to such intangible assets would flow into the Group and that their cost can be reliably measured. Intangible assets are initially measured at cost, provided that intangible assets which are acquired in a business combination not under common control and whose fair value can be reliably measured shall be separately recognised as intangible assets at fair value.

Useful life of an intangible asset is determined by the period over which it is expected to bring economic benefits to the Group. For an intangible asset with no foreseeable limit to the period over which it is expected to bring economic benefits to the Group, it is treated as an intangible asset with indefinite useful life.

Useful life of respective intangible assets is as follows:

Estimated useful life

Software	2-5 years
Technology know-how	2-10	years
Land use rights	30-70	years
Franchise	2-10	years
Development expenses	3-5	years

ZTE CORPORATION INTERIM REPORT 2020

Notes to Financial Statements

(Prepared under PRC ASBEs) (All amounts in RMB'000 unless otherwise stated)

(English translation for reference only)

PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED)
1. Intangible assets (continued)
  Land use rights acquired by the Group are normally accounted for as intangible assets. Land use rights and buildings relating to plants constructed by the Group are accounted for as intangible assets and fixed assets, respectively. The costs for acquiring land and buildings are apportioned between the land use rights and buildings, or accounted for as fixed assets if they cannot be apportioned.
  Straight-line amortisation method is used during the useful life period for intangible assets with definite useful lives. The Group reviews, at least at each year end, useful lives and amortization method for intangible assets with definite lives and makes adjustment when necessary.
  The Group classifies the expenses for internal research and development as research costs and development costs. All research costs are charged to the current profit or loss as incurred. Expenditure incurred on projects to develop new products is capitalised and deferred only when the Group can demonstrate the technical feasibility of completing the intangible asset so that it will be available for use or sale, its intention to complete and its ability to use or sell the asset, how the asset will generate future economic benefits (including demonstration that the product derived from the intangible asset or the intangible asset itself will be marketable or, in the case of internal use, the usefulness of the intangible asset as such), the availability of technical and financial resources to complete the project and procure the use or sale of the intangible asset, and the ability to measure reliably the expenditure during the development. Product development expenditure which does not meet these criteria is expensed when incurred.
  Corresponding projects that meet the above conditions in the Group are formed after technical feasibility and economic feasibility studies. Then, those projects are progressed into the development phase.
2. Provisions
  Other than contingent consideration and assumed contingent liabilities in a business combination involving parties not under common control, the Group recognises as provision an obligation that is related to contingent matters when all of the following criteria are fulfilled:
3. 1. the obligation is a present obligation of the Group;
  2. the obligation would probably result in an outflow of economic benefits from the Group;
  3. the obligation could be reliably measured.

Provisions are initially valued according to the best estimate of expenses on fulfilling the current liabilities, in connection with the risk, uncertainty and timing value of the currency. The carrying value of the provisions would be reassessed on every balance sheet date. The carrying value will be adjusted to the best estimated value if there is certain evidence that the current carrying value is not the best estimate.

ZTE CORPORATION INTERIM REPORT 2020

Notes to Financial Statements

(Prepared under PRC ASBEs) (All amounts in RMB'000 unless otherwise stated)

(English translation for reference only)

PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED)
1. Share-basedpayments
  Share-based payments can be distinguished into equity-settledshare-based payments and cash- settled share-based payments. Equity-settledshare-based payments are transactions of the Group settled through the payment of shares or other equity instruments in consideration for receiving services.
  Equity-settledshare-based payments made in exchange for services rendered by employees are measured at the fair value of equity instruments granted to employees. Instruments which are vested immediately upon the grant are charged to relevant costs or expenses at the fair value on the date of grant and the capital reserve is credited accordingly. Instruments of which vesting is conditional upon completion of services or fulfillment of performance conditions are measured by recognising services rendered during the period in relevant costs or expenses and crediting the capital reserve accordingly at the fair value on the date of grant according to the best estimates conducted by the Group at each balance sheet date during the pending period based on subsequent information such as latest updates on the change in the number of entitled employees and whether performance conditions have been fulfilled, and etc. The fair value of equity instruments is determined using the binomial option pricing model. For details see Note XI. Share- based payment.
  The cost of equity-settled transactions is recognised, together with a corresponding increase in capital reserve, over the period in which the performance and service conditions are fulfilled. The cumulative expense recognised for equity-settled transactions at the end of each reporting period until the vesting date reflects the extent to which the vesting period has expired and the Group's best estimate of the number of equity instruments that will ultimately vest.
  No expense is recognised for awards that do not ultimately vest due to non-fulfillment of non- market conditions and/or vesting conditions. For the market or non-vesting condition under the share-based payments agreement, it should be treated as vesting irrespective of whether or not the market or non-vesting condition is satisfied, provided that other performance condition and/or vesting conditions are satisfied.
  Where the terms of an equity-settledshare-based payment are modified, as a minimum, services obtained are recognised as if the terms had not been modified. In addition, an expense is recognised for any modification which increases the total fair value of the instrument ranted, or is otherwise beneficial to the employee as measured at the date of modification.
  Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not yet recognised for the award is recognised immediately. Where employees or other parties are permitted to choose to fulfill non-vesting conditions but have not fulfilled during the pending period, equity-settledshare-based payments are deemed cancelled. However, if a new award is substituted for the cancelled award, and designated as a replacement award on the date that it is granted, the new awards are treated as if they were a modification of the original award.
2. Other equity instrument
  The perpetual capital instruments issued by the Group, the term of which can be extended by the Group for an unlimited number of times upon maturity, the coupon interest payment for which can be deferred by the Group and for which the Group has no contractual obligation to pay cash or other financial assets, are classified as equity instruments.

ZTE CORPORATION INTERIM REPORT 2020

Notes to Financial Statements

(Prepared under PRC ASBEs) (All amounts in RMB'000 unless otherwise stated)

(English translation for reference only)

PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED)
20. Revenue
The Group recognises its revenue upon the fulfilment of contractual performance obligations under a contract, namely, when the customer obtains control over the relevant products or services. The acquisition control over relevant products or services shall mean the ability to direct the use of the products or the provision of the services and receive substantially all economic benefits derived therefrom.
Contract for the sales of products
The product sales contract between the Group and its customers typically includes contractual performance obligations for the transfer of products. The Group typically recognises its revenue at the time of delivery and acceptance upon inspection taking into account the following factors: the acquisition of the current right to receive payments for the products, the transfer of major risks and rewards of ownership, the transfer of the legal title of the products, the transfer of the physical assets of the products, and customers' acceptance of the products.
Contract for the rendering of services
The service contract between the Group and its customers includes contractual performance obligations for maintenance service, operational service and engineering service. As the customer is able to forthwith obtain and consume the economic benefits brought by the Group's contractual performance when the Group performs a contract, the Group considers such contractual performance obligations to be obligations performed over a period of time, and revenue shall be recognised according the progress of performance. For contracts with specific output indicators, such as contracts for maintenance service and operational service, the Group determines the progress of performance of the service according to the output method. For a small number of contracts which do not specify output indicators, the progress of performance is determined using the input method.
Telecommunication system construction contract
The Group's Telecommunication system construction contract typically includes a range of contractual performances, such as equipment sales and installation service and their combinations. Equipment sales and installation service that are distinctly separable are accounted for standalone contractual performances. Combinations of equipment sales and installation services that are not individually separable are accounted for as standalone contractual performances, as customer can benefit from the individual use of such combinations or their use together with other readily available resources and such combinations among themselves are distinctly separable from one another. As the control of such combination of equipment and installation service is transferred to the customer upon acceptance by the customer, revenue of each standalone contractual performance is recognised after the fulfillment of such standalone contractual obligation corresponding to each combination of equipment sales and installation service.

ZTE CORPORATION INTERIM REPORT 2020

Notes to Financial Statements

(Prepared under PRC ASBEs) (All amounts in RMB'000 unless otherwise stated)

(English translation for reference only)

PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED)
20. Revenue (continued) Variable consideration
Certain contracts between the Group and its customers contain cash discount and price guarantee clauses which will give rise to variable consideration. Where a contract contains variable consideration, the Group determines the best estimates on the variable consideration based on expected values or the most probable amount, provided that transaction prices including variable consideration shall not exceed the cumulative amount of recognised revenue upon the removal of relevant uncertainties in connection with which a significant reversal is highly unlikely.
Consideration payable to customers
Where consideration is payable by the Group to a customer, such consideration payable shall be deducted against the transaction price, and against current revenue upon the recognition of revenue or the payment of (or the commitment to pay) the consideration to the customer (whichever is later), save for consideration payable to the customer for the purpose of acquiring from the customer other clearly separable products.
Return clauses
In connection with sales with a return clause, revenue is recognised according to the amount of consideration it expects to be entitled to for the Transfer to a customer when the customer acquires control of the relevant. Amounts expected to be refunded for the return of sales are recognised as liabilities. At the same time, the balance of the carrying value of the product expected to be returned upon transfer less expected costs for the recall of such product (including impairment loss of the recalled product) shall be recognised as an asset (i.e. cost of return receivables), and the net amount of the carrying value of the transferred product upon the transfer less the aforesaid asset cost shall be transferred to cost. At each balance sheet date, the Group reassess the future return of sales and remeasured the above assets and liabilities.
Significant financing component
Where a contract contains a significant financing component, the Group determines transaction prices based on amounts payable assumed to be settled in cash by customers immediately upon the acquisition of control over the products. The difference between such transaction price and contract consideration is amortised over the contract period using the effective interest rate method based on a ratio that discounts the nominal contractual consideration to the current selling price of the products.
The Group shall not give consideration to any significant financing component in a contract if the gap between the customer's acquisition of control over the products and payment of consideration is expected to be less than 1 year.

ZTE CORPORATION INTERIM REPORT 2020

Notes to Financial Statements

(Prepared under PRC ASBEs) (All amounts in RMB'000 unless otherwise stated)

(English translation for reference only)

PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED)
1. Revenue (continued) Warranty clauses
  The Group provides quality assurance for products sold and assets built in accordance with contract terms and laws and regulations. The accounting treatment of quality assurance in the form of warranty assuring customers products sold are in compliance with required standards is set out in Note III.17. Where the Group provides a service warranty for a standalone service in addition to the assurance of compliance of products with required standards, such warranty is treated as a standalone contractual performance obligation, and a portion of the transaction price shall be allocated to the service warranty based on a percentage of the standalone price for the provision of product and service warranty. When assessing whether a warranty is rendering a standalone service in addition to providing guarantee to customers that all sold goods are in compliance with required standards, the Group will consider whether or not such warranty is a statutory requirement, the term of the warranty and the nature of the Group's undertaking to perform its obligations.
  Contract changes
  In the event of contract changes to the construction contracts between the Group and its customers:
2. 1. Where contract changes have added distinctly separable construction services and contract price clause that representing the standalone selling prices of newly added construction services, such contract changes are accounted for as a separate contract;
  2. Where contract changes do not fall under the description in (1) and construction services transferred are clearly separable from construction services not transferred as at the date on which contract changes occur, such changes should be deemed as the termination of the original contract, and the unfulfilled portion of the original contract and the changed portion of the contract shall be combined as a new contract for accounting treatment;
  3. Where contract changes do not fall under the description in (1) and construction services transferred are not clearly separable from construction services not transferred as at the date on which contract changes occur, the changed portion of the contract shall be accounted for as an integral part of the original contract, and the impact on recognised revenue shall be reflected by adjusting current revenue as at the date of contract changes.
3. Contract assets and contract liabilities
  The Group presents contract assets or contract liabilities on the balance sheet according to the relationship between contractual performance obligations and customer payments.
  Contract assets
  The unconditional (namely, dependent only on the passage of time) right to receive consideration from customers owned by the Group shall be presented as amounts receivable. The right to receive consideration following the transfer of products to customers which is dependent on factors other than the passage of time is presented as contract assets.
  For details of the Group's determination and accounting treatment of expected credit losses from contract assets, please refer to Note III.9.

ZTE CORPORATION INTERIM REPORT 2020

Notes to Financial Statements

(Prepared under PRC ASBEs) (All amounts in RMB'000 unless otherwise stated)

(English translation for reference only)

PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED)
1. Contract assets and contract liabilities (continued) Contract liabilities
  The obligation to pass products to customers in connection with customer consideration received or receivable is presented as contract liabilities, for example, amounts received prior to the transfer of the promised products.
  Contract assets and contract liabilities under the same contract are presented on a net basis after set-off.
2. Assets relating to contract cost
  The Group's assets relating to contract costs include the contract acquisition costs and contract performance costs, presented respectively under inventories, other current assets and other non- current assets.
  Where the Group expects the incremental costs for acquiring a contract to be recoverable, such contract acquisition costs are recognised as an asset (unless the amortisation period of the asset is not more than 1 year).
  Costs incurred by the Group for the performance of a contract are recognised as an asset as contract performance costs if they do not fall under the scope of the relevant standards for inventories, fixed assets or intangible assets but meet all the following conditions:
3. 1. they are directly related to a current or anticipated contract, including direct labour, direct materials, manufacturing expenses (or similar expenses), to be borne by customers as specifically stipulated, and otherwise incurred solely in connection with the contract;
  2. they will increase the resources to be utilised in the Company's future performance of its contractual obligations;
  3. they are expected to be recoverable.

The Group amortises assets relating contract costs on the same basis as that for the recognition of revenue relating to such assets and recognises the amortised assets in current profit or loss.

For assets relating to contract costs whose carrying value is higher than the difference between the following two items, the Group makes provision for impairment for the excess to be recognised as asset impairment losses:

The remaining consideration expected to be obtained as a result of the transfer of goods relating to such assets;
Estimated costs to be incurred in connection with the transfer of relevant goods.

In the event that the difference between (1) and (2) becomes higher than the carrying value of such assets as a result of changes in the factors of impairment for previous periods, previous provisions for asset impairment losses should be written back and included in current profit or loss, provided that the carrying asset value following the write-back shall not exceed the carrying value such assets would have on the date of write-back were there no provision for impairment.

ZTE CORPORATION INTERIM REPORT 2020

Notes to Financial Statements

(Prepared under PRC ASBEs) (All amounts in RMB'000 unless otherwise stated)

(English translation for reference only)

PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED)
1. Government grants
  Government grants are recognised when there is reasonable assurance that the grant will be received and all attaching conditions will be complied with. The grant is measured as the amount received or receivable where it takes the form of a cash asset, or at fair value where it is not a cash asset. Where the fair value cannot be reliably obtained, it should be measured at the nominal value.
  In accordance with the stipulations of the government instruments, government grants applied towards acquisition or the formation of long-term assets in other manners are asset-related government grants; the instruments unspecifically refer to the exercise of judgement based on the basic conditions for receiving the asset-related grant applied towards or the formation of long-term assets in other manners. All other grants are recognised as income-related government grants.
  Government grants relating to income and applied to make up for related costs or losses in future periods shall be recognised as deferred income, and shall be recognised in current profit or loss or written off against related costs of the period for which related costs or loss are recognised. Government grants specifically applied for the reimbursement of incurred related costs and expenses shall be directly recognised in current profit or loss or set off against related costs.
  Government grants relating to assets shall be written off against the carrying value of the asset concerned or recognised as deferred income and credited to profit or loss over the useful life of the asset concerned by reasonable and systematic instalments (provided that government grants measured at nominal value shall be directly recognised in current profit or loss). Where the asset concerned is disposed of, transferred, retired or damaged prior to the end of its useful life, the balance of the deferred income yet to be allocated shall be transferred to "asset disposal" under current profit or loss.
  Loans extended to the Group by borrowing banks at favourable interest rates mandated by government policies under which the borrowing banks receive interest rate subsidies from the financial authorities shall be recognised based on the actual amount of loans received, and borrowings costs shall be recognised based on the principal amount of the loan and the policy- mandated favourable interest rates.
2. Income tax
  Income taxes include current and deferred tax. Income taxes are recognised in current period's profit or loss as income tax expense or income tax benefit, except for the adjustment made for goodwill in a business combination and income tax from transactions or items that directly related to equity.
  For current period's deferred tax assets and liabilities arising in current and prior periods, the Group measures them at the amount expected to be paid or recovered according to the relevant taxation regulations.
  The Group recognises deferred tax assets and liabilities based on temporary differences using balance sheet liability method. Temporary differences are differences between the carrying amount of assets or liabilities in the balance sheet and their tax base on the balance sheet date. Temporary differences also include the differences between the carrying values and tax bases of items not recognised as assets or liabilities where the tax base can be calculated according to the relevant tax regulations.

ZTE CORPORATION INTERIM REPORT 2020

Notes to Financial Statements

(Prepared under PRC ASBEs) (All amounts in RMB'000 unless otherwise stated)

(English translation for reference only)

PRINCIPAL ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES (CONTINUED)
24. Income tax (continued)
Deferred tax liabilities are recognised for all taxable temporary differences, except:
1. where the taxable temporary difference arises from goodwill or the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss.
2. in respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

Deferred tax assets are recognised for all deductible temporary differences, carryforward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carryforward of unused tax credits and unused tax losses can be utilised except:

where the deductible temporary difference arises from transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss.
deductible temporary differences associated with investments in subsidiaries, associates and interests in joint ventures are recognised when all following conditions are met: it is probable that the temporary differences will reverse in the foreseeable future, it is probable that taxable profit against the deductible temporary differences will be available.

As at balance sheet date, deferred tax assets and liabilities are measured in accordance with relevant tax laws at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, and reflects the tax consequences that would follow the manner in which the Group expects, at the balance sheet date, to recover the assets or settle the carrying amount of its assets and liabilities.

The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised deferred tax assets are reassessed at the end of each reporting period and are recognised to the extent that it has become probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be recovered.

Deferred tax assets and deferred tax liabilities are offset and presented as a net amount if all of the following conditions are met: the Group has the legal right to set off current tax assets current tax liabilities and the deferred tax assets and deferred tax liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities, provided that the taxable entity concerned intends either to settle current tax liabilities and assets on a net basis, or to realise the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax liabilities or assets are expected to be settled or recovered.

This is an excerpt of the original content. To continue reading it, access the original document here.

Attachments

Original document
Permalink

Disclaimer

ZTE Corporation published this content on 10 September 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 10 September 2020 14:19:10 UTC

Latest news about ZTE Corporation

Ying Li Returns to Profit in 2023 as Revenue Rises 25.5%	Apr. 14	MT
China Telecom Research Institute, ZTE Corporation and Yangtze Optical Fibre and Cable Joint Stock Limited Company Jointly Set World Record for Real-Time Transmission of over 120Tbit/s on A Single Fibre in S+C+L Band	Apr. 11	CI
Ying Li International Appoints Acting CEO	Apr. 04	MT
Telecom sector opposes US plan to reinstate net neutrality rules	Apr. 03	RE
FCC to vote to restore net neutrality rules, reversing Trump	Apr. 02	RE
Jefferies Downgrades ZTE to Underperform From Buy, Adjusts Price Target to HK$10.30 From HK$23.22	Apr. 02	MT
Ying Li International, Indirect Unit Secure Loans from China Everbright Subsidiaries	Mar. 11	MT
Jefferies Adjusts ZTE Corp.’s Price Target to HK$23.22 From HK$24.97, Keeps at Buy	Mar. 11	MT
Nomura Adjusts ZTE Corp’s Price Target to HK$23 From HK$32.50, Keeps at Buy	Mar. 11	MT
ZTE's 2023 Profit Rises on Higher Revenue	Mar. 10	MT
ZTE's Profit Rises as Margins Improve	Mar. 10	DJ
Zte Corporation Announces Final Dividend for the Year Ended 31 December 2023	Mar. 08	CI
ZTE Corporation Reports Earnings Results for the Full Year Ended December 31, 2023	Mar. 08	CI
China's Huawei and Amazon in patent licencing agreement	Mar. 04	RE
US says to investigate national security data risks from Chinese vehicles	Feb. 29	RE
ZTE, China Network Maker Shares Rise After U.S. Allies Unveil 6G Principles	Feb. 27	DJ
ZTE Corporation to Unveil Ultra-Efficient, Green and Intelligent Innovations At MWC 2024	Feb. 25	CI
ZTE Renews Purchase Agreement With Controlling Shareholder; Shenzhen Shares Up 7%	Dec. 28	MT
Ying Li International Dissolves Dormant Chinese Subsidiary	Dec. 26	MT
ZTE to Develop New Generation of Smart Computing Equipment for Large Language Models	Dec. 12	MT
Huawei to start building first European factory in France next year -source	Dec. 11	RE
Huawei to start building first European factory in France next year -source	Dec. 11	RE
Chinese companies still see promise in EU despite de-risking - survey	Nov. 14	RE
US lawmakers want Biden to hike tariffs on Chinese-made vehicles	Nov. 08	RE
Jefferies Adjusts ZTE’s Price Target to HK$24.97 From HK$32.30, Keeps at Buy	23-10-30	MT

Chart ZTE Corporation

Duration

Period

More charts

Company Profile

ZTE Corporation specializes in the design, manufacturing and marketing of telecommunications equipment and solutions. Net sales break down by market as follows: - wired and mobile network operators (73%): sales of network systems and equipment (routers, switches, modems, servers, WLAN products, Ethernet gateways, broadband access systems, optical products, etc.); - individuals (15.9%): manufacturing and sales of mobile devices (smartphones, phones, tablets, mobile video game terminals, smart projectors, cameras, very high speed mobile modems, etc.); - enterprises and government organizations (11.1%): design and development of computerization solutions, interconnection and data transmission systems, data center solutions, video surveillance systems, videoconferencing equipment, network products, cloud computing architectures, etc. Net sales are distributed geographically as follows: China (67.1%), Asia (14.5%), Europe-Americas-Oceania (13.6%) and Africa (4.8%).

Sector

Communications & Networking

Calendar

2024-04-24 - Q1 2024 Earnings Release

More about the company

Income Statement Evolution

More financial data

Ratings for ZTE Corporation

Trading Rating

Investor Rating

ESG Refinitiv

A-

More Ratings

Analysts' Consensus

Sell

Buy

Mean consensus

OUTPERFORM

Number of Analysts

Last Close Price

28.24 CNY

Average target price

33.8 CNY

Spread / Average Target

+19.69%

Consensus

EPS Revisions

Estimates Revisions

Quarterly earnings - Rate of surprise

Company calendar

Sector Other Communications & Networking

	1st Jan change	Capi.
ZTE CORPORATION	+6.65%	16.81B
CISCO SYSTEMS, INC.	-4.30%	196B
ARISTA NETWORKS, INC.	+8.18%	78.53B
MOTOROLA SOLUTIONS, INC.	+10.23%	57.57B
FOXCONN INDUSTRIAL INTERNET CO., LTD.	+47.09%	56.45B
GARMIN LTD.	+11.09%	27.33B
NOKIA OYJ	+11.73%	20.17B
ZHONGJI INNOLIGHT CO., LTD.	+49.03%	17.1B
JUNIPER NETWORKS, INC.	+19.95%	11.64B
HIKARI TSUSHIN, INC.	+6.59%	7.12B

Other Communications & Networking

ZTE Corporation

Equities

000063

CNE000000TK5

Communications & Networking

ZTE : INTERIM REPORT 2020

EPS Revisions