China Netcom and Telefonica S.A Sign Memorandum of Understanding to Establish Strategic Alliance.

HONG KONG -- China Netcom Group Corporation (Hong Kong) Limited ("China Netcom" or "the Company") (HKSE: 0906; NYSE: CN), a leading telecommunications operator in China and the Asia Pacific region, is pleased to announce that it formally entered into a memorandum of understanding

With this Memorandum, the Company and Telefonica hope to establish a broad strategic alliance. The parties will explore possible areas of strategic co-operation which would be beneficial to both parties. They will also examine in good faith the form and terms of such co-operation as soon as possible.

The strategic co-operation could cover:

--Fixed-line, broadband, domestic and international long distance communications

--Domestic and international data services and value added services

--Nationwide mobile voice and data services to individual and corporate customers, as will be allowed within the Chinese regulatory environment.

--The exchange of certain managerial, technical and operational skills and resources.

A Chairmen's forum, consisting of the Chairmen of both companies, will be established and will meet on a regular basis (at least once a year) to discuss the possible areas of co-operation which would confer mutual benefits to both parties.

Telefonica shall be entitled to nominate a representative to the board of directors ("the Board") of China Netcom , and the number of representatives that Telefonica is entitled to appoint to the Board shall increase if its ownership stake increases further. Additionally, a director nominated by Telefonica shall be entitled to sit on the audit committee or the strategic planning committee of the Company. The appointment of the directors nominated by Telefonica shall be subject to the compliance qualification requirements of the Hong Kong Stock Exchange's Listing Rules and any applicable laws.

China Netcom indicates that its execution of the Memorandum with Telefonica will be beneficial to both parties as it will enable them to use their respective strengths to establish broad co-operation. It will also be beneficial for China Netcom in implementing its international aspirations, expanding its business and enhancing its competitiveness in the international telecommunications market. At the same time, the co-operation between the parties will also be beneficial for further enhancing competitiveness, realizing synergies and increasing the value of China Netcom.

About China Netcom:

China Netcom Group Corporation (Hong Kong) Limited ("China Netcom") is a leading fixed-line telecommunications operator in China and a leading international data communications operator in the Asia-Pacific region. Its northern service region in China consists of Beijing Municipality, Tianjin Municipality, Hebei Province, Henan Province, Shandong Province and Liaoning Province. Its southern service region in China consists of Shanghai Municipality and Guangdong Province. China Netcom is the dominant provider of fixed-line telephone services, broadband and other Internet-related services, and business and data communications services in its northern service region in China. China Netcom primarily targets business and residential customers in selected high-density areas in its southern service region in China. China Netcom is also the only telecommunications company in China that operates an extensive network and offers international data services in the Asia-Pacific region.

About Telefonica:

Telefonica is a 100% listed company, with more than 1.5 million direct shareholders. Its share capital currently comprises 4,921,130,397 ordinary shares that are traded on the Spanish Stock Market (Madrid, Barcelona, Bilbao and Valencia) and on those in London, Paris, Frankfurt, Tokyo, New York, Lima, Buenos Aires, Sao Paulo and the SEAQ International Exchange in London. Telefonica is one of the largest and most internationally integrated telecommunications operators in the world. At present, Telefonica is valued at EUR 66.5 billion and is the third largest telecommunications operator in the world. Telefonica provides services to 140 million customers worldwide. At the same time, Telefonica is also one of the first telecommunication companies that started operating internationally. Currently, it is one of the telecommunication companies which has the greatest number of operations worldwide, and has extensive experience in international telecommunication operations. Telefonica has developed businesses in more than 40 countries, mostly in the European and Latin American markets. 68% of its customers are international customers and the EBITDA generated from its international operations was 31% and it holds a leading position among major global telecommunication operators.

Disclaimer

This press release includes "forward-looking statements". All statements, other than statements of historical facts, that address activities, events or developments that China Netcom Group Corporation (Hong Kong) Limited ("China Netcom") expects or anticipates will or may occur in the future (including but not limited to projections, targets, estimates and business plans) are forward-looking statements. China Netcom's actual results or developments may differ materially from those indicated by these forward-looking statements as a result of various factors and uncertainties, including but not limited to the level of demand for telecommunications services; competitive forces in more liberalized markets; the effects of tariff reduction initiatives; changes in the regulatory policies and other risks and factors beyond China Netcom's control. In addition, China Netcom makes the forward-looking statements referred to herein as of today and undertakes no obligation to update these statements.