Beijing Beida Jade Bird Universal Sci-Tech Company Limited

THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

This circular appears for information purposes only and does not constitute an invitation, purchase or subscription for the securities.

If you are in any doubt as to any aspect of this circular or as to the action to be taken, you should consult a stockbroker or other registered dealer in securities, bank manager, solicitor, professional accountant or other professional adviser.

If you have sold or transferred all your H Shares in Beijing Beida Jade Bird Universal Sci-Tech Company Limited (the “Company”), you should at once hand this circular and the accompanying form of proxy to the purchaser or the transferee, or to the bank, stockbroker or other agent through whom the sale was effected for transmission to the purchaser or the transferee.

The Stock Exchange of Hong Kong Limited takes no responsibility for the contents of this circular, make no representation as to its accuracy or completeness and expressly disclaims any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this circular.

==> picture [73 x 41] intentionally omitted <==

北京北大青鳥環宇科技股份有限公司 BEIJING BEIDA JADE BIRD UNIVERSAL SCI-TECH COMPANY LIMITED

(a joint stock limited company incorporated in the People’s Republic of China with limited liability)

(Stock code: 8095)

MAJOR AND CONNECTED TRANSACTION RELATING TO THE PROPOSED ACQUISITION OF 44% EQUITY INTEREST IN BEIJING CHENGJIAN DONGHUA REAL ESTATE DEVELOPMENT COMPANY LIMITED

Financial adviser to Beijing Beida Jade Bird Universal Sci-Tech Company Limited

融資 Tai Fook Capital Limited

Independent financial adviser to the Independent Board Committee and the Independent Shareholders

G.K. Goh Securities (H.K.) Ltd

A letter from the board of directors of Beijing Beida Jade Bird Universal Sci-Tech Company Limited dated 30 June 2005 is set out on pages 4 to 18 of this circular.

A notice convening a special general meeting of Beijing Beida Jade Bird Universal Sci-Tech Company Limited to be held at Room 301, Beida Jade Bird Building, No. 207 Chengfu Road, Haidian District, Beijing, the PRC on Friday, 19 August 2005 at 11:00 a.m. is set out on pages 115 to 116 in this circular. For holders of H Shares, whether or not you are able to attend the meeting, please complete and return the enclosed reply slip to the Company’s H Share registrar in Hong Kong, Hong Kong Registrars Limited, at 46th Floor, Hopewell Centre, 183 Queen’s Road East, Hong Kong on or before Friday, 29 July 2005 and the form of proxy in accordance with the instructions printed thereon to the office of the Company’s H Share registrar in Hong Kong, Hong Kong Registrars Limited, at 46th Floor, Hopewell Centre, 183 Queen’s Road East, Hong Kong not less than 24 hours before the time appointed for the holding of the special general meeting. For holders of Promoter Shares, whether or not you are able to attend the meeting, please complete and return the enclosed reply slip and form of proxy in accordance with the instructions printed thereon to the place of business of the Company in Beijing at 3rd Floor, Beida Jade Bird Building, No. 207 Chengfu Road, Haidian District, Beijing 100871, PRC as soon as practicable but in any event, for the reply slip, on or before Friday, 29 July 2005 and the form of proxy not less than 24 hours before the time appointed for the holding of the special general meeting. Completion of the form of proxy will not preclude you from attending and voting at the meeting or any adjourned meeting should you so wish.

30 June 2005

CHARACTERISTICS OF GEM OF THE STOCK EXCHANGE

GEM has been established as a market designed to accommodate companies to which a high investment risk may be attached. In particular, companies may list on GEM with neither a track record of profitability nor any obligation to forecast future profitability. Furthermore, there may be risks arising out of the emerging nature of companies listed on GEM and the business sectors or countries in which the companies operate. Prospective investors should be aware of the potential risks of investing in such companies and should make the decision to invest only after due and careful consideration. The greater risk profile and other characteristics of GEM mean that it is a market more suited to professional and other sophisticated investors.

Given the emerging nature of companies listed on GEM, there is a risk that securities traded on GEM may be more susceptible to high market volatility than securities traded on the Main Board and no assurance is given that there will be a liquid market in the securities traded on GEM.

The principal means of information dissemination on GEM is publication on the internet website operated by the Stock Exchange. GEM-listed companies are not generally required to issue paid announcements in gazetted newspapers. Accordingly, prospective investors should note that they need to have access to the GEM website at www.hkgem.com in order to obtain up-to-date information on GEM-listed issuers.

– i –

	Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4
The Share Transfer Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
Information of Donghua . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	9
Financial effects of the Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	14
Shareholding structure of Donghua . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	14
The Vendor’s and its associates’ interest in the Project . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	16
Reasons for and the benefits of the Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	16
GEM Listing Rules implications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	17
SGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	17
Recommendation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	18
Additional information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	18
Letter from the Independent Board Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	19
Letter from G.K. Goh . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	20
Appendix I – Financial information of the Group. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	26
Appendix II – Accountants’ report of Donghua. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	78
Appendix III – Unaudited pro forma statement of assets and liabilities of the Group. . .	95
Appendix IV – Property valuation report. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	100
Appendix V – General information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	106
Notice of special general meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	115

– ii –

DEFINITIONS

In this circular, the following expressions have the meanings set out below unless the context requires otherwise:

“Acquisition”	the proposed acquisition of the Sale Shares, representing 44%
	equity interest in Donghua, and the Sale Loan by the Company
	from the Vendor pursuant to the Share Transfer Agreement
“associate”	has the meaning ascribed to it under the GEM Listing Rules
“Board”	the board of Directors
“Company”	北京北大青鳥環宇科技股份有限公司(Beijing Beida Jade Bird
	Universal Sci-Tech Company Limited), a sino-foreign joint stock
	limited company incorporated in the PRC with limited liability
	with its H Shares listed on GEM
“Completion”	completion of the Acquisition in accordance with the terms of the
	Share Transfer Agreement
“connected person(s)”	has the meaning ascribed to it under the GEM Listing Rules
“Cooperative Agreement”	the agreement dated 6 February 2005 in respect of the development
	of the Project entered into between Dongcheng Residential Centre
	and Donghua
“Directors”	directors of the Company
“Dongcheng Residential Centre”	北京市東城區住宅發展中心(Beijing Dongcheng Residential
	Centre) which is under the supervision of Dongcheng District of
	the Beijing Municipal Government
“Donghua”	北京城建東華房地產開發有限責任公司(Beijing Chengjian
	Donghua Real Estate Development Company Limited), a company
	incorporated in the PRC with limited liability
“GEM”	The Growth Enterprise Market of the Stock Exchange
“GEM Listing Rules”	the Rules Governing the Listing of Securities on GEM
“G.K. Goh”	G.K. Goh Securities (H.K.) Limited, a corporation licensed to
	conduct types 1 (dealing in securities), 4 (advising on securities)
	and 6 (advising on corporate finance) regulated activities under
	the SFO (Chapter 571 of the Laws of Hong Kong)
“Group”	the Company and its subsidiaries

– 1 –

DEFINITIONS

“H Shares”	overseas-listed foreign shares in the ordinary share capital of the
	Company, with a nominal value of RMB0.10 each and which are
	listed on GEM and traded in Hong Kong dollars
“HK$”	Hong Kong dollars, the lawful currency of Hong Kong
“Hua Yuen”	北京市華遠地產股份有限公司(Beijing Hua Yuen Real Estate
	Joint Stock Company Limited), a company incorporated in the
	PRC
“Independent Board Committee”	the committee of Directors to be established to advise the
	Independent Shareholders in respect of the terms of the Share
	Transfer Agreement
“Independent Shareholders”	Shareholders other than the Vendor and its associates
“Latest Practicable Date”	28 June 2005, being the latest practicable date prior to the printing
	of this circular for ascertaining certain information contained herein
“Land”	a parcel of land with a site area of about 143,000 m2located at
	Dong Zhi Men Wai, Dongcheng District, Beijing (北京市東城區
	東直門外)
“m2”	square metres
“PRC”	People’s Republic of China
“Promoter Shares”	ordinary shares issued by the Company with a nominal value of
	RMB0.10 each, which have been subscribed for by the promoters
	of the Company
“Project”	the development of the Land into a transportation terminal for
	high-speed trains linking the city and the airport and other
	transports and a large-scale commercial and residential complex
	having a total gross floor area of about 790,800 m2
“RMB”	Reminbi, the lawful currency of the PRC
“Sale Loan”	44% of the Shareholder’s Loan to be assigned to the Company
	pursuant to the Share Transfer Agreement
“Sale Shares”	44% of the registered capital of Donghua to be acquired by the
	Company pursuant to the Share Transfer Agreement
“SFO”	Securities and Futures Ordinance

– 2 –

DEFINITIONS

“SGM” the special general meeting of the Company to be convened for the purpose of approving the Share Transfer Agreement and the transactions contemplated therein by the Independent Shareholders “Shares” H Shares and Promoter Shares “Shareholders” the holders of H Shares and Promoter Shares “Share Transfer Agreement” the conditional share transfer agreement dated 24 March 2005 and entered into between the Vendor and the Company in relation to the Acquisition “Shareholder’s Loan” the loan in the aggregate amount of RMB140 million (approximately HK$132.1 million) that was originally due by Donghua to Hua Yuen, which had subsequently agreed to assign the loan to the Vendor pursuant to a share transfer agreement entered into between Hua Yuen and the Vendor in February 2005 “Stock Exchange” The Stock Exchange of Hong Kong Limited “Vendor” 北京北大青鳥有限責任公司 (Beijing Beida Jade Bird Limited), a company incorporated with limited liability in the PRC and a promoter of the Company

Unless otherwise specified in this circular and for the purpose of illustration only, RMB is translated to HK$ at the rate of HK$1.00 = RMB1.06. No representation is made that any amounts in RMB have been or could be converted at the above rate or at any other rates or at all.

– 3 –

LETTER FROM THE BOARD

==> picture [73 x 42] intentionally omitted <==

北京北大青鳥環宇科技股份有限公司 BEIJING BEIDA JADE BIRD UNIVERSAL SCI-TECH COMPANY LIMITED

(a joint stock limited company incorporated in the People’s Republic of China with limited liability) (Stock code: 8095)

Executive Directors: Mr. Xu Zhen Dong (Chairman) Mr. Xu Zhi Xiang Mr. Zhang Wan Zhong

Non-Executive Directors: Mr. Lo Lin Shing, Simon Mr. Liu Yong Jin Mr. Hao Yi Long Mr. Li Li Xin

Independent Non-Executive Directors:

Mr. Wang Chao Yong Prof. Nan Xiang Hao Prof. Chin Man Chung, Ambrose

Legal Address: Rooms 1117/1119 Zhongcheng Building Haidian Road Beijing 100080 PRC

Principal place of business in the PRC: 3rd Floor, Beida Jade Bird Building No. 207 Chengfu Road Haidian District Beijing 100871 PRC

Place of business in Hong Kong: Unit 02, 7th Floor Asia Pacific Centre 8 Wyndham Street Central Hong Kong 30 June 2005

To: the Independent Shareholders

Dear Sir,

MAJOR AND CONNECTED TRANSACTION RELATING TO THE PROPOSED ACQUISITION OF 44% EQUITY INTEREST IN BEIJING CHENGJIAN DONGHUA REAL ESTATE DEVELOPMENT COMPANY LIMITED

INTRODUCTION

As announced by the Board on 24 March 2005, the Company and the Vendor entered into the Share Transfer Agreement on 24 March 2005 pursuant to which the Vendor conditionally agreed to sell and the Company conditionally agreed to purchase the Sale Shares, representing 44% of the registered capital of Donghua, and the Sale Loan for an aggregate cash consideration of RMB314.19 million (approximately HK$296.4 million).

– 4 –

LETTER FROM THE BOARD

The purpose of this circular is to provide you with further details regarding, among other things, the Acquisition, to set out the recommendation of the Independent Board Committee to the Independent Shareholders and the letter of advice from G.K. Goh to the Independent Board Committee and the Independent Shareholders in relation to the Acquisition and to give you the notice of the SGM.

THE SHARE TRANSFER AGREEMENT

Date

24 March 2005

Parties

Purchaser : The Company Vendor : 北京北大青鳥有限責任公司(Beijing Beida Jade Bird Limited)

The Vendor is one of the promoters of the Company and is therefore a connected person of the Company. As at the Latest Practicable Date, the Vendor and its associates collectively hold approximately 26.16% of the total issued share capital of the Company.

The principal business of the Vendor is high technology and telecommunications related businesses, which include business activities relating to or investments in software, microelectronics, system integration, telecommunications, network operation, education and real estate, etc.

Assets to be acquired

44% of the registered capital of Donghua and 44% of the Shareholder’s Loan

Consideration

The consideration for the Sale Shares is RMB252.59 million (approximately HK$238.3 million) and the consideration for the Sale Loan is RMB61.6 million (approximately HK$58.1 million).

The consideration for the Sale Shares has been agreed between the parties by making reference to the acquisition cost of the Vendor. On 23 March 2005, the Vendor entered into an agreement with Dongcheng Residential Centre, which is under the supervision of Dongcheng District of the Beijing Municipal Government, pursuant to which the Vendor agreed to acquire from Dongcheng Residential Centre 54% of the registered capital of Donghua for an aggregate cash consideration of RMB310 million (approximately HK$292.5 million). The acquisition cost of the Sale Shares to the Vendor is therefore RMB252.59 million (approximately HK$238.3 million).

The consideration for the Sale Loan has been agreed between the parties by making reference to the book value of the Shareholder’s Loan of RMB140 million (approximately HK$132.1 million) and is equal to 44% of such book value. The Shareholder’s Loan was assigned by Hua Yuen, a then shareholder of Donghua, to the Vendor in February 2005. The consideration for such assignment in the amount of RMB140 million had been paid in advance to Hua Yuen by the Vendor on 30 November 2004.

– 5 –

LETTER FROM THE BOARD

Pursuant to the Share Transfer Agreement, the consideration for the Sale Shares and the Sale Loan shall be fully satisfied in cash upon signing of the Share Transfer Agreement, which amount shall be fully refunded to the Company without interest within 10 business days if the conditions of the Share Transfer Agreement cannot be fulfilled or are not waived by the Company and Completion does not take place within 180 days from the date of the Share Transfer Agreement.

Given the prime location and sizable scale of the Project and its importance of being part of the major infrastructure projects for the Olympic Games in Beijing in 2008, the Directors consider that the commercial prospect of the Project is tremendous. Also, given the fact that the Project will include a transportation terminal connecting to the Beijing Capital Airport, the Directors believe that it is in the interest of the Beijing Municipal Government to ensure the Project to be completed on time so as to meet the expected high volume of passengers at the time of the Olympic Games in 2008. Therefore, Dongcheng Residential Centre, which is under the supervision of Dongcheng District of the Beijing Municipal Government, is involved in the Project. The Directors believe that Dongcheng Residential Centre would not consider any potential buyers unless they are of good reputation and have the financial capability to complete the Project. In order to demonstrate its financial commitment, the Vendor was required by Dongcheng Residential Centre to pay earnest money as a pre-requisite to commence negotiation of the acquisition of the 54% interest in Donghua. The Company, which intended to acquire a significant interest in Donghua through the Vendor, was therefore required to contribute its stake in the earnest money.

Although the Company has not yet completed the due diligence on the Project before making the payment for the earnest money, the Directors have reviewed the valuation report of the Land (the “PRC Valuation Report”) prepared by a PRC valuer, which reported a valuation of RMB3.5 billion. Based on such valuation, the Directors believed that the Project has tremendous potential and the fact that Dongcheng Residential Centre is a government entity gave further comfort to the Company. Therefore the Directors considered paying a significant amount of earnest money before completion of due diligence, signing of the Share Transfer Agreement and obtaining shareholders’ approval was commercially justifiable, particularly considering the possibility of losing the opportunity to invest in the Project to other potential buyers who were willing to pay the earnest money.

Accordingly, in order to secure the right to participate in the Project via the Vendor, the Company had paid as earnest money to the Vendor, which had then paid such earnest money to Dongcheng Residential Centre in respect of the Sales Shares. Set out below is the schedule of the earnest money paid by the Company to the Vendor.

Time of payment Payment amount 6 July 2004 RMB75 million (approximately HK$70.8 million) 6 September 2004 RMB225 million (approximately HK$212.2 million) 29 October 2004 RMB22 million (approximately HK$20.8 million) 16 December 2004 RMB11 million (approximately HK$10.4 million) Total RMB333 million (approximately HK$314.2 million)

– 6 –

LETTER FROM THE BOARD

As set out above, the Company paid a total of RMB333 million (approximately HK$314.2 million), while in November 2004, the Vendor refunded RMB13 million (approximately HK$12.3 million) to the Company, resulting in a net amount of RMB320 million (approximately HK$301.9 million) earnest money paid by the Company for the acquisition of the Sale Shares. The reason for the Company to have paid an amount in excess of the required earnest money to the Vendor was due to the fact that the parties had only agreed on the consideration for the 54% interest in Donghua until March 2005. By October 2004, the Vendor expected that the consideration for 54% interest in Donghua would be in the region of RMB400 million and therefore requested the Company to pay pro-rata earnest money in the aggregate amount of RMB322 million. In November 2004, the Vendor refunded RMB13 million to the Company since the Vendor then expected a lower consideration. Subsequently in December 2004 when the Vendor expected a higher consideration, it requested the Company to make a further payment of RMB11 million. Also, given that both 北京城建股份有限公司 (which was then a shareholder of Donghua and was subsequently renamed as 北京城建投資發展股份有限公司) (“Beijing Cheng Jian”) and Dongcheng Residential Centre are under the supervision of the Beijing Municipal Government, the Directors considered that it is acceptable to make the payment of earnest money to Dongcheng Residential Centre, which would be the owner of the 54% interest immediately prior to the disposal of such interest to the Vendor.

On 9 September and 30 November 2004, the Vendor paid earnest money of RMB200 million and RMB120 million respectively to Dongcheng Residential Centre for the 44% interest in Donghua on behalf of the Company. In addition, on 30 November 2004, the Vendor paid to Dongcheng Residential Centre earnest money of RMB180 million (approximately HK$169.8 million).

Upon signing of the Share Transfer Agreement, an amount of RMB314.19 million (approximately HK$296.4 million) of the earnest money has been applied by the Vendor as full payment for the consideration of the Acquisition. The remaining balance of the earnest money of RMB5.81 million (approximately HK$5.5 million) over the aggregate consideration for the Acquisition has been repaid to the Company on 7 April 2005.

The earnest money and hence the consideration has been paid by the Company from its internal cash resources.

The Directors consider that the earnest money, which was paid via the Vendor, was ultimately received by Dongcheng Residential Centre, should not constitute an advance to the Vendor. However, the Stock Exchange noted that (i) the Vendor had retained the funds paid by the Company for a period of time before paying to Dongcheng Residential Centre; (ii) the amount of earnest money paid by the Company to the Vendor exceeded the amount of money paid to Doncheng Residential Centre; and (iii) the excessive funds paid by the Company to the Vendor were not refunded to the Company timely. Accordingly, the Stock Exchange is of the view that the payment of the earnest money to the Vendor constituted an advance to an entity under Rule 17.15 of the GEM Listing Rules as well as a provision of financial assistance to a connected person under Rule 20.13(2)(a)(i), and should be subject to disclosure and shareholders’ approval requirements. Therefore, the payment of the earnest money by the Company constituted a breach of the GEM Listing Rules. The Stock Exchange reserves the right to take action against the Company and/or its Directors.

– 7 –

LETTER FROM THE BOARD

Mr. Xu Zhi Xiang (“Mr. Xu”), an executive Director, was publicly censured by the Shanghai Stock Exchange in June 2005 in relation to the provision of financial assistance by 北京天橋北大青鳥科技股份有限公司 (Beijing Tianqiao Beida Jade Bird Sci-Tech Co., Ltd.) (“Tianqiao Beida”) to connected persons (as defined in the listing rules of the Shanghai Stock Exchange). Mr. Xu is a director and the Chairman of the board of directors of Tianqiao Beida.

Conditions

Completion is conditional upon the following conditions:

completion of the acquisition of 54% of the registered capital of Donghua by the Vendor from Dongcheng Residential Centre;
due execution of the Share Transfer Agreement by the authorised signatory of the Company and the Vendor;
approval of the transfer of the Sale Shares to the Company by the shareholders of Donghua;
approval by the shareholders of the Vendor of the Share Transfer Agreement and the transactions contemplated therein;
approval by the Independent Shareholders of the Share Transfer Agreement and the transactions contemplated therein at the SGM;
all necessary approvals and permissions from the relevant government and/or regulatory authorities to give effect to the transactions contemplated under the Share Transfer Agreement being obtained, including but not limited to, the amendment of the articles of association and business licence of Donghua to reflect the change in its shareholders;
the fair market value of the Land as valued by an independent qualified valuer is not less than RMB3,500 million;
a bank loan of not less than RMB2 billion has been obtained by Donghua to partially finance the Project; and
the Company being satisfied with its due diligence review of the legal and financial affairs of Donghua.

– 8 –

LETTER FROM THE BOARD

If any of the above conditions is not fulfilled or waived by the Company within 180 days from the date of the Share Transfer Agreement (or such later date as the parties may agree), the Share Transfer Agreement shall terminate.

Subject to fulfillment (or waiver) of the above conditions (other than conditions 1 to 5 above which cannot be waived) within 180 days from the date of the Share Transfer Agreement on or before 20 September 2005 (or such other date as the parties may agree), Completion shall take place on the 20th business day after all the conditions have either been fulfilled or waived or at such other time as the parties shall agree. The Directors do not intend to waive condition 8. It is currently expected that Completion shall take place on or before 30 September 2005.

Up to the Latest Practicable Date, conditions 1, 2, 3 and 4 have been satisfied, and condition 7 was waived by the Company. The condition 7 was agreed upon between the parties with reference to the PRC Valuation Report. In the course of the due diligence review of Donghua by the Company, the PRC legal advisers to the Company advised that pursuant to the Cooperative Agreement, Donghua is required to pass at nil consideration the ownership of a total constructed floor area of 18,000 m[2] to Dongcheng Residential Centre. Accordingly, Chesterton Petty Ltd, the independent qualified valuer, did not take into consideration the potential commercial value of the said 18,000m[2] constructed floor area when assessing the value of the Land and valued the Land at RMB3.29 billion (approximately HK$3.1 billion) after taking into account the exclusion of the value of the constructed floor area of 18,000 m[2] from the valuation. The Directors consider that though the fair value of the Land as valued by the Chesterton Petty Ltd is lower than the originally expected value of RMB3.5 billion (approximately HK$3.3 billion), it is still in the interest of the Company to proceed with the Acquisition. As such, the Company agreed to waive condition 7.

Any alteration of the major terms of the Acquisition or action to waive the above conditions (except for condition 7) after the SGM will be subject to shareholder’s approval of the Company.

INFORMATION OF DONGHUA

Donghua was incorporated with limited liability in the PRC on 29 March 2000 and has a registered capital of RMB50 million (approximately HK$47.2 million), which amount has been fully paid up. The principal business of Donghua is property development in the PRC.

When Donghua was established, it was owned as to 40% by 海南京灝實業有限公司(“Hainan Jinghao Company”), an associate of the Vendor since February 2005, as to 30% by Beijing Cheng Jian and as to 30% by 北京市城市建設工程開發公司 (“Beijing City Construction”). Both Beijing Cheng Jian and Beijing City Construction are parties independent of and not connected with the Company. Among the three original shareholders of Donghua, only Hainan Jinghao Company remains as an existing shareholder of Donghua with an equity interest of 31.5% in Donghua. Hainan Jinghao Company became an associate of the Vendor in February 2005 when Beijing Beida Education Investment Co., Ltd. and Hainan Beida Jade Bird Software Company Limited, both being associates of the Vendor, acquired 80% and 20% interest in Hainan Jinghao Company respectively..

After the establishment of Donghua and prior to the transfer of the 54% equity interest by Dongcheng Residential Centre to the Vendor, there were certain share transfers of Donghua.

– 9 –

LETTER FROM THE BOARD

In March 2001, Beijing City Construction transferred its 30% equity interest in Donghua to Beijing Cheng Jian. Subsequently, Beijing Cheng Jian transferred its 6% equity interest in Donghua to Dongcheng Residential Centre.

In November 2001, Donghua entered into a co-operation agreement with Strong Ground Investment Limited (“Strong Ground”), which was then a party independent of and not connected with the Company and the Vendor. Pursuant to the co-operation agreement, Donghua and Strong Ground agreed to jointly develop the Project by establishing a joint venture company named 北京東華廣場置業有限公司 (“Beijing Donghua Company”). In consideration of Donghua’s assignment of the right to develop the Land to Beijing Donghua Company, Strong Ground agreed to pay RMB1.3 billion (approximately HK$1.2 billion) to Donghua. Pursuant to a supplemental agreement entered into between Donghua and Strong Ground, it was agreed that the RMB1.3 billion was to be paid by instalments. In September 2003, Strong Ground paid RMB700 million (approximately HK$660.4 million) to Donghua as initial payment accordingly. In the second half of 2004, the Vendor intended to invest in the Project through Strong Ground and therefore acquired, through its subsidiary, a 60% indirect interest in Strong Ground. However, due to the difficulty in pursuing the Project via Beijing Donghua Company, Strong Ground and Donghua did not proceed with the co-operation arrangement. Accordingly, in December 2004, Donghua and Strong Ground entered into a cancellation agreement to cancel the co-operation in respect of the joint development of the Project. Pursuant to the cancellation agreement, the two parties have no further obligations, liabilities and commitments under the co-operation agreement and the supplemental agreement except Donghua is required to repay the RMB700 million initial payment to Beijing Donghua Company, which registered capital was solely contributed by Strong Ground. Pursuant to a repayment agreement and the supplemental agreement entered into between Beijing Donghua Company and Donghua in May 2005, Donghua is only required to repay the debt of RMB700 million to Beijing Donghua Company until the Project is completed and the relevant properties are sold to the market in 2008. Donghua intends to use the proceeds from the sale of the relevant properties to finance the repayment of such debt. Please refer to note (f)(i) to “IV. Balance Sheets” in Appendix II - “Accountants’ report of Donghua” for further details of the aforesaid co-operation arrangement between Strong Ground and Donghua.

In June 2004, Hua Yuen intended to acquire 54% equity interest in Donghua from Beijing Cheng Jian. Subsequently, Hua Yuen advanced a loan in the amount of RMB140 million (approximately HK$132 million) to Donghua to finance the Project. However, such share transfer had not been registered with the local government and was subsequently cancelled in February 2005 based on mutual agreement. Please refer to note (f)(ii) to “IV. Balance Sheets” in Appendix II – “Accountants’ report of Donghua” for further details of the aforesaid share transfer between Hua Yuen and Beijing Cheng Jian.

In February 2005, Hua Yuen became a shareholder of Donghua through an acquisition of 4.5% equity interest in Donghua from 北京凌波子科貿有限公司 (“Beijing Ning Bo Zhi Trading Company”), a then shareholder of Donghua. Also in February 2005, Hua Yuen and the Vendor entered into a share transfer agreement, pursuant to which Hua Yuen agreed to transfer its 4.5% equity interest in Donghua to the Vendor for a consideration of RMB27 million (approximately HK$25.5 million). Also pursuant to such share transfer agreement, Hua Yuen agreed to assign the loan of RMB140 million due from Donghua to the Vendor at the face value. The consideration for such assignment in the amount of RMB140 million had been paid in advance to Hua Yuen by the Vendor on 30 November 2004. According to the legal opinion issued by the Company’s PRC legal advisers, the Vendor had already paid to Hua Yuen the consideration for the assignment, which was equal to the face value of the Shareholder’s Loan (i.e. RMB140 million), and accordingly, the Shareholder’s Loan has been legally assigned to the Vendor.

– 10 –

LETTER FROM THE BOARD

In February 2005, Dongcheng Residential Centre acquired 54% equity interest in Donghua from Beijing Cheng Jian. As advised by the PRC legal advisors of the Company, Dongcheng Residential Centre had legally obtained the ownership of the 54% equity interest in Donghua after completion of the share transfer of the said 54% from Beijing Cheng Jian to Dongcheng Residential Centre. Subsequently in March 2005, Dongcheng Residential Centre and the Vendor entered into a share transfer agreement, pursuant to which the Vendor agreed to acquire 54% equity interest in Donghua from Dongcheng Residential Centre and such share transfer was completed in April 2005.

As at the Latest Practicable Date, the only major asset of Donghua is the right to develop the Land. The Land is located at Dong Zhi Men Wai, Dongcheng District, Beijing (北京市東城區東直門外 ) and has a site area of about 143,000 m[2] . The indicative valuation of the Land as at 30 April 2005 as valued by Chesterton Petty Ltd, an independent valuer, was about RMB3,290 million (approximately HK$3,103.8 million). Planning approvals have been given by北京市規劃委員會 (Beijing Planning Commission) for the Project.

The Land premium has recently been determined at RMB636.9 million (approximately HK$600.8 million) by Beijing Land and Resources Bureau. The amount has been fully settled by Donghua on 20 June 2005. As at the Latest Practicable Date, Donghua has not yet obtained the land use right certificate for the Land.

Based on the current development plan, the Project will comprise the following structures:

Usage Transportation terminal_(Note 1)_ Commercial arcade Hotel Office buildings Residential buildings Ground floor arcade Basement car parks Basement air defence Basement ancillary facilities Total:	Gross floor area (m2) 82,000 48,000 73,000 209,000 145,000 10,000 167,349 28,200 28,251
	790,800

Notes:

As stated in the legal opinion issued by the Company’s PRC legal advisers, the PRC legal advisers are of the view that, pursuant to relevant approved development plans, ownership of the transportation terminal will belong to the Dongcheng District of the Beijing Municipal Government.
Pursuant to the Cooperative Agreement, Dongcheng Residential Centre will assist Donghua in obtaining the development right, land use right, demolition of the old buildings on the Land, relocation of the original residents and tenants of the Land, and negotiating with the local government for any issues arising during the construction of the Project, while Donghua will undertake all construction costs and fees and complete the Project before the Olympic Games in Beijing in 2008 and that it will have to assign the legal title of the properties constructed on certain part of the Land with a floor area of 18,000 m[2] to Dongcheng Residential Centre.

According to the valuation report prepared by Chesterton Petty Ltd, the valuation of the property interest in relation to the Land as at 30 April 2005 is RMB3.29 billion (approximately HK$3.1 billion). Accordingly, the value of the Land attributable to the Group is approximately RMB1.45 billion (approximately HK$1.4 billion). For the purpose of the valuation, the valuer has assumed (i) Donghua has proper legal title to the property and the property can be transferred freely in the market with the residual term of its land use rights at no additional land premium and without any other associated

– 11 –

LETTER FROM THE BOARD

charges payable to the government; (ii) the design and construction of the property are in compliance with the local planning regulations and any prescribed approvals have been obtained from the relevant government authorities; (iii) the property may be freely transferable/assignable to local or overseas purchasers; and (iv) the land use right of the property have been granted for various terms of 40, 50 and 70 years for commercial (hotel and commercial), composite (office and car parking) and residential uses, respectively.

According to the PRC legal opinion, Donghua has obtained all necessary approvals and permits from relevant authorities and submitted the land use right grant application for the Land to Beijing Land and Resources Bureau, as well as possessed the development right to the property in relation to the Land. As at the Latest Practicable Date, Donghua has not obtained state-owned land use right certificate yet. However, the PRC legal advisers of the Company are of the view that there is no legal impediment for Donghua to obtain the land use right certificate. As advised by Donghua, it is expected that the land use right certificate for the Land could be obtained within two to three months after the payment of the relevant premium of the Land.

As at the Latest Practicable Date, demolition of the old buildings on the site, relocation of the original residents and tenants and leveling works of the Land have been completed. The foundation and piling works for the transportation terminal have been done. Construction of the transportation terminal, the hotel, the office towers and the various buildings has not yet commenced. Although Donghua was established in 2000, the Directors believe that the slow progress of the Project in the past few years was due to the inability of Strong Ground to honor on time its obligations under the initial agreement and the subsequent financial scandal related to Strong Ground.

According to the current plan, construction of the Project will be completed in 2008. Total development cost of the Project (including the expenses at the initial stage and the land cost) is estimated to be about RMB6 billion (approximately HK$5.7 billion), which is expected to be incurred at different stages as set out below:

		(in RMB’ billion)
Prior to	2002	0.72
2003		0.11
2004		0.02
2005		1.00
2006		1.89
2007		1.86
2008		0.40
		6.00

As at the Latest Practicable Date, the shareholders of Donghua have invested an aggregate amount of RMB190 million (approximately HK$179.2 million) in Donghua, which represents the registered capital of RMB50 million (approximately HK$47.2 million) invested contributed by the original shareholders of Donghua and the Shareholder’s Loan of RMB140 million (approximately HK$132.1 million) that was originally contributed by Hua Yuen and has been subsequently assigned to the Vendor.

– 12 –

LETTER FROM THE BOARD

On 20 June 2005, Donghua had entered into a fund utilitisation agreement with Beijing Donghua Company (the “Fund Utilisation Agreement”), pursuant to which Donghua had obtained funding of RMB850 million (approximately HK$801.9 million) from Beijing Donghua Company. Pursuant to the Fund Utilisation Agreement, the interest on the RMB850 million will be determined based on the borrowing rate of the People’s Bank of China for one year term loan. On 20 June 2005, Donghua had used part of the RMB850 million to finance the payment of the land premium of the Land.

Donghua had already incurred development costs of approximately RMB0.9 billion (approximately HK$0.8 billion) as at 31 December 2004. Accordingly, there is still an amount of approximately RMB5.1 billion (approximately HK$4.8 billion) development costs to be incurred in relation to the Project. At present, Donghua is in the process of securing bank loans of not less than RMB2 billion (approximately HK$1.9 billion) from a PRC Bank to partially finance the development cost of the beginning part of Project. It is also the present intention of Donghua to utilize part of the RMB2 billion bank loans to finance repayment of the RMB850 million fund due to Beijing Donghua Company. The Group did not and will not pledge any of its assets or provide guarantee to either of the above-mentioned loan facilities. Also, the Vendor did not and will not pledge any of its shareholdings in the Company as security for either of the above-mentioned loan facilities. Accordingly, the Directors are of the view that the obtaining of the loans by Donghua to finance the Project will not have any impact on the Group, either financially or operationally. After completing part of the Project with the RMB2 billion loans obtained, Donghua may then pre-sell the uncompleted units and utilize the sale proceeds therefrom to complete the remaining part of the Project. In other words, the balance of the development cost of approximately RMB3.1 billion (approximately HK$2.9 billion) is expected to be financed by the proceeds from the pre-sale of the commercial units of the Project. As at the Latest Practicable Date, Donghua has not yet obtained the presale permit since the application of which will require the submission of the land use right certificate for the Land by Donghua. It is expected that the pre-sale of the commercial units will commence in mid 2006. In the event that the proceeds from the pre-sale of the commercial units is less than RMB3.1 billion, Donghua will need to seek other sources of funding to finance the Project. At present, the Company does not expect to make further financial contribution to Donghua in relation to the development cost of the Project after Completion.

The financial position and the results of Donghua for the two years ended 31 December 2004, as extracted from its audited results of Donghua set out in Appendix II – “Accountants’ report of Donghua” of this circular, are summarised below:

	For the year ended	For the year ended
	31 December 2004	31 December 2003
	RMB’million	RMB’million
Loss before taxation	(15.0)	(19.4)
Loss after taxation	(15.0)	(19.4)
	As at 31 December	As at 31 December
	2004	2003
	RMB’million	RMB’million
Net assets	10.2	25.2

Upon Completion, the Company will be interested in 44% of the equity interest of Donghua and Donghua will become an associated company of the Company. Accordingly, the results of Donghua will be equity accounted for in the Company’s accounts so long as Donghua remains as an associated company of the Company. Given the fact that the Company will become the single largest shareholder of Donghua upon Completion, the Company will actively participate in the management of Donghua.

– 13 –

LETTER FROM THE BOARD

FINANCIAL EFFECTS OF THE ACQUISITION

The Company has settled the consideration for the Acquisition by internal resources of the Group. Following Completion, the Group will share the profit or loss of Donghua to the extent of its interests in Donghua. As illustrated in Appendix III “Unaudited pro forma statement of assets and liabilities of the Group”, immediately upon Completion, the net asset value of the Group will remain unchanged as the increase in “interests in an associate” will be offset by a reduction in “due from related parties”, which represents the earnest money paid by the Company before the Acquisition.

SHAREHOLDING STRUCTURE OF DONGHUA

The following table shows the shareholding structure of Donghua as at the Latest Practicable Date and immediately after Completion (assuming no other changes to the shareholding structure of Donghua from the Latest Practicable Date to the date of Completion, other than pursuant to the transaction contemplated by the Share Transfer Agreement):

As at the Latest Shareholder Practicable Date The Company 0% Dongcheng Residential Centre (Note 1 & 2) 10% The Vendor_(Note 2 & 3) 58.5% Hainan Jinghao Company(Note 4)_ 31.5% 100.0%	Immediately after Completion 44.0% 10.0% 14.5% 31.5% 100.0%	Interest in the Investment cost Shareholder’s Equity Shareholder’s Loan interest Loan (RMB’ million) (RMB’ million) (Note 5) 44% 252.59 61.6 Nil Nil N/A 56% 84.4 78.4 Nil 15.8 N/A 100%

– 14 –

LETTER FROM THE BOARD

Notes:

Dongcheng Residential Centre is under the supervision of the Dongcheng District of the Beijing Municipal Government and is an independent party not connected with the Company and connected persons (as defined in the GEM Listing Rules) of the Company.
Pursuant to the share transfer agreement dated 6 February 2005 entered into between the Vendor and Hua Yuen, the Vendor agreed to acquire and Hua Yuen agreed to sell 4.5% equity interest in Donghua, which sale and purchase was completed on 14 March 2005. Then pursuant to the transfer agreement dated 23 March 2005 entered into between the Vendor and Dongcheng Residential Centre, the Vendor agreed to acquire and Dongcheng Residential Centre agreed to sell 54% equity interest in Donghua, which sale and purchase was completed on 30 April 2005.
The investment cost of the Vendor in the 14.5% equity interest in Donghua is calculated by aggregation of the following two items:
(i) RMB57.4 million, being the consideration paid by the Vendor to Dongcheng Residential Centre for 54% of the registered capital of Donghua minus the consideration paid by the Company for the Sale Shares (i.e. net acquisition cost for 10% of the registered capital of Donghua); and
(ii) RMB27 million, being the consideration paid by the Vendor to Hua Yuen for 4.5% of the registered capital of Donghua.
Hainan Jinghao Company was one of the founders of Donghua and had invested RMB15.75 million in cash for its 31.5% equity interest in Donghua. In February 2005, the Vendor, through its associates, acquired 100% equity interest of Hainan Jinghao Company at the consideration of RMB189.6 million, At present, Hainan Jinghao Company is owned as to 80% by Beijing Beida Education Investment Co., Ltd, and 20% by Hainan Beida Jade Bird Software Company Limited. Beijing Beida Education Investment Co., Ltd, and Hainan Beida Jade Bird Software Company Limited are associates of the Vendor. The sole asset of Hainan Jinghao Company is its 31.5% interest in Donghua.
The Directors consider that it is fair for the Company to bear a pro-rata portion of the Shareholder’s Loan given that the loan represents a form of investment by shareholders. Apart from the Company, the other shareholders of Donghua are the Vendor, Hainan Jinghao Company and Dongcheng Residential Centre. However, given that Dongcheng Residential Centre is only responsible for procuring the transfer of the land use rights of the Land to Donghua, it will not be required to make any financial contribution to Donghua. Accordingly, Dongcheng Residential Centre will not bear any portion of the Shareholder’s Loan. As for Hainan Jinghao Company, since it is an associate of the Vendor, the Vendor does not consider it necessary to assign a portion of the Shareholder’s Loan to Hainan Jinghao Company.

– 15 –

LETTER FROM THE BOARD

THE VENDOR’S AND ITS ASSOCIATES’ INTEREST IN THE PROJECT

In February 2005, the Vendor, through its associates, acquired 100% equity interest of Hainan Jinghao Company. Since then, Hainan Jinghao Company became an associate of the Vendor. Hainan Jinghao Company is one of the original shareholders of Donghua when it was established on 29 March 2000. At the time of establishment, Donghua had a registered capital amounting to RMB50 million, of which Hainan Jinghao Company invested RMB20 million for 40% equity interest in Donghua. In June 2000, Hainan Jinghao Company transferred its 5% equity interest in Donghua to Beijing Ning Bo Zhi Trading Company and subsequently in March 2001, Hainan Jinghao Company transferred its 3.5% equity interest in Donghua to Dongcheng Residential Centre. Currently, Hainan Jinghao Company has 31.5% equity interest in Donghua.

As stated in the paragraph headed “Information of Donghua” in this section, the Vendor intended to participate in the Project in the second half of 2004 through acquisition of 60% indirect interest in Strong Ground at a consideration of RMB250 million. However, due to the difficultly in pursuing the Project via Beijing Donghua Company, Strong Ground and Donghua ceased to proceed with the cooperation arrangement and accordingly a cancellation agreement was entered into between the parties in December 2004. Before the cancellation of the co-operation arrangement by the parties, Strong Ground had paid RMB700 million to Donghua in consideration of its assignment of the right to develop the Land to Beijing Donghua Company. Pursuant to the repayment agreement entered into between Donghua and Beijing Donghua Company, which is an associate of the Vendor, such amount of money will be repaid by Donghua to Beijing Donghua Company in 2008 when the Project is completed and the properties of the Project are sold to the market.

In February 2005, the Vendor acquired 4.5% equity interest in Donghua from Hua Yuen at a consideration of RMB27 million (approximately HK$25.5 million). Also, Hua Yuen assigned the Shareholder’s Loan to the Vendor at the face value of the loan.

REASONS FOR AND THE BENEFITS OF THE ACQUISITION

The Group is principally engaged in the research, development, production, marketing and sales of embedded systems, including network security products, wireless fire alarm systems, smart card application systems, remote automatic meter-reading systems and related products. The Group is also engaged in the sales of computer products and the provision of total solution services through application of its existing embedded system products. To diversify and enhance the Group’s long-term earnings base, the Directors consider it appropriate to invest in other projects in the PRC, particularly in areas in which the Group is familiar with. Given the fact that the Group is headquartered in Beijing and the Directors’ belief in the potential of the property sector of Beijing, the Directors consider investing in property-related projects in Beijing fits the Group’s investment strategy. Also, the Group’s management has the expertise in property development. The Chairman of the Company, Mr. Xu Zhen Dong, has over 10 years of experience in the property market in the PRC and is currently a director of 3 property companies in the PRC.

– 16 –

LETTER FROM THE BOARD

The Directors consider that the Project, which is located in Beijing and is one of the major largescale projects relating to the Olympic Games in Beijing in 2008, offers tremendous investment potential. The Directors are optimistic about the mass usage of the transportation terminal of the Project, which will only take about 8 minutes to be traveled from the Beijing Capital Airport (via high-speed train). The transportation terminal will also be the major transportation interchange for city subway and long distance buses, will be easily accessible and is expected to command a high-volume traffic of passengers. The Directors also consider that the hotel, residential units and office buildings of the Project will be of great demand as it is located at a prime location which will be constructed with adequate transport facilities. Besides, high standard hotel and office units are generally lacked in the Dongcheng region where the Project is located. With the Olympic Games in Beijing in 2008, the Directors expect that the economic condition of Beijing including the property sector will continue to prosper in the next few years. The Directors believe that the Group, through its participation in the Project, will be able to capture part of the economic growth of Beijing in the next few years and generate attractive returns to the Shareholders.

The Board considers that the terms of the Share Transfer Agreement are fair and reasonable having regard to the consideration for the Acquisition which is determined with reference to the investment cost paid by the Vendor and the valuation of the Land attributable to the Group and are in the interest of the Group and the Shareholders as a whole.

GEM LISTING RULES IMPLICATIONS

The Vendor is one of the promoters of the Company and hence a connected person of the Company. Both the asset ratio and the consideration ratio for the Acquisition exceed 25% but are below 100%. Pursuant to Rule 20.13(1)(a) and Rule 19.08 of the GEM Listing Rules, the Acquisition constitutes a major and connected transaction of the Company and is subject to approval by the Independent Shareholders at the SGM. The Vendor and its associates, which collectively hold approximately 26.16% of the total issued share capital of the Company, will abstain from voting on the resolution to approve the Share Transfer Agreement and the transactions contemplated therein and any vote exercised by Independent Shareholders at the SGM shall be taken by poll.

SGM

A notice of SGM to be held at 11:00 a.m. on Friday, 19 August 2005 at Room 301, Beida Jade Bird Building, No. 207 Chengfu Road, Haidian District, Beijing, the PRC, for the purpose of considering and, if thought fit, approving the Share Transfer Agreement and the transactions contemplated therein by the Independent Shareholders is set out on pages 115 to 116 of this circular.

A reply slip for the SGM to be held at Room 301, Beida Jade Bird Building, No. 207 Chengfu Road, Haidian District, Beijing, the PRC at 11:00 a.m. on Friday, 19 August 2005 is enclosed. Whether or not you intend to attend the SGM, you are requested to complete and return the reply slip, for holders of H shares, to the Company’s H Share registrar in Hong Kong, Hong Kong Registrars Limited, at 46th Floor, Hopewell Centre, 183 Queen’s Road East, Hong Kong on or before Friday, 29 July 2005 and for holder of Promoter Shares to the principal place of business of the Company in Beijing at 3rd Floor, Beida Jade Bird Building, No. 207 Chengfu Road, Haidian District, Beijing 100871, PRC on or before Friday, 29 July 2005.

– 17 –

LETTER FROM THE BOARD

A proxy form for use at the SGM to be held at Room 301, Beida Jade Bird Building, No. 207 Chengfu Road, Haidian District, Beijing, the PRC at 11:00 a.m. on Friday, 19 August 2005 is also enclosed. Whether or not you intend to attend the SGM, you are requested to complete and return the proxy form, for holders of H Shares, to the Company’s H Share registrar in Hong Kong, Hong Kong Registrars Limited, at 46th Floor, Hopewell Centre, 183 Queen’s Road East, Hong Kong, and for holders of Promoter Shares, to the Company’s principal place of business in Beijing at 3rd Floor, Beida Jade Bird Building, No. 207 Chengfu Road, Haidian District, Beijing 100871, PRC not less than 24 hours before the time appointed for the holding of the SGM. Completion and return of the proxy form will not preclude you from attending and voting in person at the SGM or at any adjourned meeting should you so wish.

RECOMMENDATION

An independent board committee comprising all the independent non-executive Directors has been appointed to consider and advise the Independent Shareholder in respect of the Acquisition, G.K. Goh has been appointed as the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders in this respect.

Your attention is drawn to the letter from the Independent Board Committee as set out on page 19 of this circular and the letter from G.K. Goh as set out on pages 20 to 25 of this circular.

G.K. Goh considers that the terms of the Share Transfer Agreement are fair and reasonable so far as the Independent Shareholders are concerned. Accordingly, the Independent Board Committee recommends the Independent Shareholders to vote in favour of the ordinary resolution to be proposed at the SGM approving the Share Transfer Agreement.

The Directors (excluding the independent non-executive Directors) consider the terms of the Share Transfer Agreement fair and reasonable and are in interest of the Independent Shareholders and the Company as a whole.

ADDITIONAL INFORMATION

Your attention is also drawn to the additional information contained in the appendices to this circular.

Yours faithfully, By Order of the Board Xu Zhen Dong Chairman

– 18 –

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

==> picture [73 x 42] intentionally omitted <==

北京北大青鳥環宇科技股份有限公司 BEIJING BEIDA JADE BIRD UNIVERSAL SCI-TECH COMPANY LIMITED

(a joint stock limited company incorporated in the People’s Republic of China with limited liability) (Stock code: 8095)

30 June 2005

To the Independent Shareholders

Dear Sir or Madam,

We refer to the letter from the Board set out on pages 4 to 18 of the circular dated 30 June 2005 (the “Circular”) of which this letter forms part. Capitalised terms used herein shall have the same meanings as those defined in the Circular unless the context otherwise requires.

We have been appointed as members of the Independent Board Committee to consider the Acquisition and to advise the Independent Shareholders as to whether or not it would be fair and reasonable and in the interests of the Independent Shareholders to vote in favour of the ordinary resolution to be proposed at the SGM to approve the Share Transfer Agreement and the transactions contemplated therein. G.K. Goh has been appointed to advise the Independent Board Committee and the Independent Shareholders in relation to the Acquisition.

We wish to draw your attention to the letter from the Board and the letter from G.K. Goh to the Independent Board Committee and the Independent Shareholders which contains its advice to us in relation to the Acquisition as set out in the Circular.

Having taken into account the principal factors and reasons considered by and the opinion of G.K. Goh as stated in its letter of advice as set out on pages 20 to 25 of the Circular, we consider that it would be fair and reasonable and in the interests of the Independent Shareholders to approve the Acquisition. We therefore recommend the Independent Shareholders to vote in favour of the ordinary resolution approving the Share Transfer Agreement to be proposed at the SGM.

Yours faithfully, Independent Board Committee

Mr. Wang Chao Yong

Prof. Nan Xiang Hao

Independent non-executive Director Independent non-executive Director

Prof. Chin Man Chung, Ambrose

Independent non-executive Director

– 19 –

LETTER FROM G.K. GOH

==> picture [48 x 49] intentionally omitted <==

G.K. Goh Securities (H.K.) Limited

Suite 1808 Alexandra House 16-20 Chater Road Central Hong Kong

30 June 2005

To the Independent Board Committee and the Independent Shareholders of Beijing Beida Jade Bird Universal Sci-Tech Company Limited

Dear Sirs,

MAJOR AND CONNECTED TRANSACTION RELATING TO THE PROPOSED ACQUISITION OF 44% EQUITY INTEREST IN BEIJING CHENGJIAN DONGHUA REAL ESTATE DEVELOPMENT COMPANY LIMITED

We refer to our engagement as the independent financial adviser to the Independent Board Committee and the Independent Shareholders in relation to the Acquisition, details of which are contained in a circular (the “Circular”) to the Shareholders dated 30 June 2005, of which this letter forms part. Expressions used in this letter have the same meanings as defined in the Circular unless the context otherwise requires.

As at the Latest Practicable Date, the Vendor and its associates collectively held approximately 26.16% in the total issued share capital of the Company, hence, the entering into of the Share Transfer Agreement constitutes a connected transaction for the Company under the Listing Rules. The Independent Board Committee comprising Mr. Wang Chao Yong, Prof. Nan Xiang Hao and Prof. Chin Man Chung, Ambrose, being the independent non-executive Directors, has been formed to advise the Independent Shareholders in relation to the Acquisition. Any vote of the Independent Shareholders at the SGM shall be taken by poll. The Vendor and its associates will abstain from voting in relation to the resolutions approving the Acquisition.

In formulating our recommendation, we have relied on the information and facts contained or referred to in the Circular. The Directors have declared in a responsibility statement set out in Appendix V to the Circular that they collectively and individually accept full responsibility for the accuracy of the information contained in the Circular. We have also assumed that the information and representations contained or referred to in the Circular were true and accurate at the time they were made and continue to be so at the date of the dispatch of the Circular. We have no reason to doubt the truth, accuracy and completeness of the information and representations provided to us by the Directors. We have also been advised by the Directors and believe that no material facts have been omitted from the Circular.

We consider that we have reviewed sufficient information to reach an informed view, to justify reliance on the accuracy of the information contained in the Circular and to provide a reasonable basis for our recommendation. We have not, however, conducted an independent verification of the information

– 20 –

LETTER FROM G.K. GOH

nor have we conducted any form of in-depth investigation into the businesses and affairs or the prospects of the Company or Donghua or any of their respective subsidiaries or associates.

THE ACQUISITION

In arriving at our opinion for the Acquisition, we have considered the following principal factors and reasons:

Reasons

The Group is principally engaged in the research, development, production, marketing and sales of embedded systems and related products. The Group is also engaged in the sales of computer products and the provision of total solution services through application of its existing embedded system products.

The Directors consider that apart from engaging in the principal business of the Group, it is the Group’s business strategy to diversify and enhance its long-term earnings base. As noted from the annual report of the Company for the year ended 31 December 2004 and the first quarterly results report of the Company for the three months ended 31 March 2005, the Group experienced a decrease in turnovers of approximately 34.7% and 27.6% for the year ended 31 December 2004 and the three months ended 31 March 2005 respectively, as compared to the same periods in prior year.

To implement the long-term earnings diversification strategy, the Directors consider it appropriate to invest in other projects in the PRC, particularly in areas which the Directors and the Group are familiar with. Given the fact that the Group is headquartered in Beijing and the Directors’ belief in the potential of the property sector of Beijing, the Directors consider investing in property-related projects in Beijing fits the Group’s investment strategy. As advised by the Directors, the Chairman of the Group, Mr. Xu Zhen Dong, has over 10 years of experience in the property market in the PRC and is currently a director of 3 property companies in the PRC. The Directors consider that the Project, which is located in Beijing and is one of the major large-scale projects relating to the Olympic Games in Beijing in 2008, offers tremendous investment potential. The principal business of Donghua is property development in the PRC. As at the Latest Practicable Date, the only major asset of Donghua is the right to develop the Land. The Land is located at Dong Zhi Men Wai, Dongcheng District, Beijing with a site area of approximately 143,000 m[2] . We understand from the Company that planning approvals have been given for the development of the Land into a transportation terminal for high-speed trains linking the city and the airport and other transports and a large-scale commercial and residential complex having a total gross floor area of about 790,800 m[2] . Details of the Project are set out on page 11 of the Circular.

According to the PRC legal opinion issued by the legal advisers to Company as to the PRC law, Donghua has possessed the development rights to the property in relation to the Land. Donghua has also submitted an application to the Beijing Land and Resources Bureau for the land use rights certificate. As advised by the Directors, as at the Latest Practicable Date, Donghua has paid the relevant land use rights grant fee of the Land to the relevant government authority, and the Directors have been advised by Donghua that according to normal practice, the land use rights certificate for the Land could be obtained within two to three months thereafter. We note that in the view of the PRC legal advisers to the Company in respect of the Acquisition, there is no legal impediment for Donghua to obtain the land use rights certificate for the Land. We also noted from the accountants’ report of Donghua set out in Appendix II to

– 21 –

LETTER FROM G.K. GOH

the Circular, Donghua was involved in a pending litigation and has been claimed for an outstanding payment of compensation of approximately RMB7.2 million (approximately HK$6.8 million) for demolition of the old buildings on the Land. Such amount of claims has been recorded as trade payables in the accounts of Donghua as at 31 December 2003 and 2004.

We understand from the Company that as at the Latest Practicable Date, demolition of the old buildings on site, relocation of the original residents and tenants, leveling works of the Land and the foundation and piling works for the transportation terminal have been completed. However, construction of the transportation terminal, the hotel, the office towers and various buildings have not yet commenced, thus Donghua had not recorded any turnover for the Project for the year ended 31 December 2004.

As noted from the Letter from the Board, the total development costs of the Project is estimated to be approximately RMB6 billion (approximately HK$5.7 billion), and as at the Latest Practicable Date, the shareholders of Donghua have invested an aggregate amount of RMB190 million (approximately HK$179 million) in Donghua by way of registered capital and shareholders’ loans. We note that one of the conditions precedent for Completion is for Donghua to secure a bank loan of not less than RMB2 billion (approximately HK$1.9 billion) to partially finance the Project, and as stated in the Letter from the Board, the Directors have no intention to waive this condition precedent.

On 20 June 2005, Donghua had entered into a fund utilitisation agreement (the “Utilization Agreement”) with Beijing Donghua Company (as advised by the Company, a joint venture established by Donghua and Strong Ground Investment Limited (“Strong Ground”), which is effectively wholly-owned by Strong Ground, a non-wholly owned subsidiary of the Vendor and a connected person of the Company). As stated in the Letter from the Board of this Circular, Beijing Donghua Company was established to develop the Project. Pursuant to the Utilization Agreement, Donghua had obtained a loan of RMB850 million (approximately HK$801.9 million) from Beijing Donghua Company, the interest of the RMB850 million loan will be determined based on the borrowing rate of the People’s Bank of China for one year term loan. On 20 June 2005, Donghua had used part of the RMB850 million to finance the payment of the premium of the Land. In addition, we have been advised by the Directors who have been advised by the Vendor that Donghua is in the process of securing bank loans of not less than RMB2 billion (approximately HK$1.9 billion) from a PRC bank to partially finance the Project and it is the present intention of Donghua to utilize part of the RMB2 billion bank loans to finance repayment of the RMB850 million loan due to Beijing Donghua Company.

As advised by the Company and as noted from the accountants’ report of Donghua set out in Appendix II to the Circular, Donghua incurred development costs of approximately RMB0.9 billion (approximately HK$0.8 billion) as at 31 December 2004. The Directors expect the balance of the development cost of approximately RMB5.1 billion (approximately HK$4.8 billion) to be financed from the RMB2 billion bank loans and the proceeds from the pre-sale of the commercial units to be erected on the Land. Donghua advised that it intends to commence such pre-sale of units from mid-2006.

Given the above, we concur with the views of the Directors that they presently do not expect the Company to make any additional financial contribution to Donghua in relation to the development cost of the Project after Completion. According to the current plan, construction of the Project will be completed by the end of 2008.

– 22 –

LETTER FROM G.K. GOH

We note from the Letter from the Board that the Project is at a prime location being part of the major infrastructure projects for the Olympic Games in Beijing in 2008. As noted from various research reports for the Beijing offices and residential markets prepared by Chesterton Petty Ltd (“Chesterton”), the independent valuer to the Acquisition, the Beijing property market in general performed satisfactorily in 2004. Looking ahead, Chesterton believes that due to strong demand, rentals and occupancies for grade A offices in Beijing are expected to continue to rise and sales for residential properties are also expected to remain stable in the near-term.

Based on the recent financial performance of the Group, the historical performance and prospects of the property market in Beijing as noted from various research reports issued by Chesterton and the Chairman’s expertise in the PRC property market, we consider the Acquisition is in line with the Group’s stated business strategy to diversify and enhance its long-term earnings base, which is in the interests of the Company and the Shareholders as a whole.

The Consideration

The consideration for the Acquisition of RMB314.19 million (approximately HK$296.4 million) (the “Consideration”) has been agreed between the parties thereto and represents the acquisition cost of the Sale Shares paid by the Vendor of RMB252.59 million (approximately HK$238.3 million) and the book value of the Sale Loan of RMB61.6 million (approximately HK$58.1 million). Although we note from the Letter from the Board that other shareholders of Donghua have not made their pro-rata contribution to the Shareholder’s Loan, as the consideration for the Sale Loan is proportional to the Company’s 44% attributable interest in the issued share capital of Donghua as represented by the Sale Shares, in assessing the fairness of the Consideration, we have taken the consideration for the Sale Shares and the Sale Loan as a whole.

Based on the property valuation prepared by Chesterton as set out in Appendix IV to the Circular, the open market value of the Land amounted to approximately RMB3,290.0 million (approximately HK$3,103.8 million) as at 30 April 2005 (the “Valuation”). Chesterton has valued the property on the basis that the property will be developed and completed in accordance with Donghua’s latest development proposal. As advised by the Company and as noted from the accountants’ report of Donghua set out in Appendix II to the Circular, the net assets value (“NAV”) of Donghua was approximately RMB10.2 million (approximately HK$9.6 million) as at 31 December 2004. When taking account of the Valuation, less the amount for the land premium of approximately RMB636.9 million (approximately HK$600.8 million), less the estimated PRC deed tax (3% of the land premium amount) of approximately RMB19.1 million (approximately HK$18.0 million) and less the costs of resettlement and public utilities services of approximately RMB851.8 million (approximately HK$803.6 million), which was recorded as “Interests in properties under development” in the accountants’ report of Donghua for the year ended 31 December 2004, the NAV of Donghua as at 31 December 2004 would be adjusted to approximately RMB1,792.4 million (approximately HK$1,690.9 million) and 44% of such value would have amounted to approximately RMB788.7 million (approximately HK$744.1 million). The Consideration represents a discount of approximately 60.2% to 44% attributable interests in the NAV of Donghua as at 31 December 2004, after taking account of the above adjustments.

Having taking into account the above, we consider that the Consideration is fair and reasonable so far as the Company and the Independent Shareholders are concerned.

– 23 –

LETTER FROM G.K. GOH

Pursuant to the Share Transfer Agreement, the Consideration shall be satisfied in full upon signing of the Share Transfer Agreement. As noted from the Letter from the Board, to secure the right to participate in the Project via the Vendor, the Company had paid as earnest money to the Vendor for a net amount of RMB320 million (approximately HK$301.9 million) as at 31 December 2004, and the Vendor had then paid such earnest money to Dongcheng Residential Centre in respect of the Sale Shares. The Company has applied the same amount of earnest money to fully satisfy the Consideration on the date of the Share Transfer Agreement. As stated in the Share Transfer Agreement, if the Share Transfer Agreement cannot become unconditional, the Vendor shall fully refund the Consideration to the Company. Whilst we are not in a position to ascertain the financial resources of the Vendor in making such refund (if required), we note that the auditors of the Company has given a qualified opinion on the accounts of the Group arising from the limitation of audit scope in obtaining sufficient evidence concerning the recoverability of the amounts due from related parties of approximately RMB320 million for the year ended 31 December 2004.

POSSIBLE FINANCIAL EFFECT

Earnings and net asset value

Donghua will be treated as an associated company of the Company upon Completion, and the Company would equity account for the results of Donghua. Immediately upon Completion, there would not be any financial effect on the profit and loss accounts of the Group. In addition, as stated in the unaudited pro forma statement of assets and liabilities of the Group in Appendix II to the Circular, the Acquisition would not have an adverse impact on the net asset value of the Group.

Working capital

The Acquisition has been financed by the application of the RMB320 million (approximately HK$301.9 million) earnest money paid by the Company to the Vendor in 2004 without incurring any further actual cash outflow. We note from the accountants’ report of Donghua set out in Appendix II to the Circular that the financial statements of Donghua have been prepared on a going concern basis for the year ended 31 December 2004, the validity of which depends upon future funding being available. As explained in subparagraph headed “Reasons” above, we note Beijing Donghua Company has entered into the Utilization Agreement with Donghua, pursuant to which Donghua obtained a loan of RMB850 million (approximately HK$801.9 million) from Beijing Donghua Company for the payment of RMB636.9 million (approximately HK$600.8 million) premium of the Land. Furthermore, as stated in the Letter from the Board, the Company has no intention to waive the condition precedent of the Share Transfer Agreement relating to the obtaining of not less than RMB2 billion (approximately HK$1.9 billion) bank loans by Donghua. The Directors have been advised by Donghua that it expects additional financing could be raised from proceeds of the pre-sale of the commercial units to be erected on the Land. Given the above, the Directors presently do not expect the Company to make any additional financial contribution to Donghua in relation to the development cost of the Project after Completion.

We also note from the accountants’ report of Donghua set out in Appendix II to the Circular that as at 31 December 2004, an amount of approximately RMB700 million (approximately HK$660.4 million) was due to Beijing Donghua Company. We note from the information provided by the Company that

– 24 –

LETTER FROM G.K. GOH

pursuant to a repayment agreement and a supplemental agreement entered into between Beijing Donghua Company and Donghua in May 2005 and June 2005 respectively, Beijing Donghua Company agreed that Donghua does not need to repay the loan of RMB700 million to Beijing Donghua Company until the Project is completed and the relevant properties are sold in the market in 2008.

In addition to the above, we have been advised by the Company that, the Directors, including independent non-executive Directors, are of the opinion that, following completion of the Acquisition, taking into account the financial resources available to the Group, including internally generated funds and the present available banking facilities, and in the absence of unforeseen circumstances, the Group will have sufficient working capital for its present requirements. Having considered the above, in particular the fact that the RMB2 billion bank loans to be obtained to finance the Project is a condition precedent for the completion of the Share Transfer Agreement and the Company has no intention to waive this condition and the fact that Donghua will not need to repay the loan of RMB700 million until 2008, we concur with the views of the Directors and consider that the Acquisition would not have a material adverse impact on the normal operations of the Group immediately after Completion.

RECOMMENDATION

Having considered the principal factors and reasons referred to the above, we consider that the Acquisition is in the interests of the Company and the Shareholders as a whole and the terms thereof are fair and reasonable so far as the Company and the Independent Shareholders are concerned. Accordingly, we advise the Independent Board Committee to recommend the Independent Shareholders, and the Independent Shareholders, to vote in favour of the ordinary resolution to be proposed at the SGM to approve the Share Transfer Agreement.

Yours faithfully, For and on behalf of G. K. Goh Securities (H.K.) Limited Alex Lau Flavia Hung Executive Vice President Senior Vice President

– 25 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

1. FINANCIAL SUMMARY

(i) According to the respective annual reports of the Company, the Company has obtained unqualified opinion for its financial statements for each of the two years ended 31 December 2002 and 2003. However, there is a qualified opinion arising from limitation of audit scope for the financial statements of the Company for the year ended 31 December 2004. The following is the report of the auditors dated 30 March 2005 for the financial statements for the year ended 31 December 2004 as extracted from the Group’s 2004 annual report.

To the members

(Incorporated in the People’s Republic of China with limited liability)

We have audited the financial statements on pages 30 to 84 which have been prepared in accordance with the accounting principles generally accepted in Hong Kong.

RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS

The Company’s directors are responsible for the preparation of financial statements which give a true and fair view. In preparing financial statements which give a true and fair view it is fundamental that appropriate accounting policies are selected and applied consistently. It is our responsibility to form an independent opinion, based on our audit, on those financial statements and to report our opinion solely to you, as a body, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report.

BASIS OF OPINION

We conducted our audit in accordance with Statements of Auditing Standards issued by the Hong Kong Institute of Certified Public Accountants, except that the scope of our work was limited as explained below. An audit includes an examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgements made by the directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the Company’s and the Group’s circumstances, consistently applied and adequately disclosed.

We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance as to whether the financial statements are free from material misstatement. However, the evidence made available to us by the Group was limited because sufficient information and explanations necessary to enable us to understand and assess the recoverability of the amounts due from related parties of RMB320 million have not been available. Details of the amounts due from related parties are set out in note 21 to the financial statements. There were no other satisfactory audit procedures that we could adopt to understand and assess the recoverability of the aforesaid amounts due from related parties.

– 26 –

APPENDIX I FINANCIAL INFORMATION OF THE GROUP

In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements. We believe that our audit provides a reasonable basis for our opinion.

QUALIFIED OPINION ARISING FROM LIMITATION OF AUDIT SCOPE

Except for any adjustments that might have been found to be necessary had we been able to obtain sufficient evidence concerning the recoverability of the amounts due from related parties of approximately RMB320 million, in our opinion the financial statements give a true and fair view of the state of affairs of the Company and of the Group as at 31 December 2004 and of the profit and cash flows of the Group for the year then ended and have been properly prepared in accordance with the disclosure requirements of the Hong Kong Companies Ordinance.

In respect alone of the limitation of our work relating to the recoverability of the amounts due from related parties, we have not obtained all the information and explanations that we considered necessary for the purpose of our audit.

– 27 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(ii) The following is a summary of the audited consolidated profit and loss accounts and condensed consolidated balance sheets of the Group for the three years ended 31 December 2002, 2003 and 2004 as extracted from the relevant annual reports of the Group for the years presented.

RESULTS

TURNOVER Investment income, other revenue and gains Operating expenses: Materials and equipment Employee costs Depreciation of property, plant and equipment Amortisation of goodwill and intangible assets Impairment of goodwill Other operating expenses Total operating expenses PROFIT FROM OPERATING ACTIVITIES Finance income/(cost) Interest income Interest expense PROFIT BEFORE TAX Tax PROFIT BEFORE MINORITY INTERESTS Minority interests NET PROFIT FROM ORDINARY ACTIVITIES ATTRIBUTABLE TO SHAREHOLDERS DIVIDENDS Interim EARNINGS PER SHARE – Basic_(RMB cents)_	For the year ended 31 2004 2003 RMB’000 RMB’000 130,503 199,740 293,535 1,877 (102,442) (148,037) (18,406) (18,021) (3,190) (3,203) (5,886) (6,230) (3,556) – (47,379) (9,814) (180,859) (185,305) 243,179 16,312 3,095 3,020 (11,328) (12,425) 234,946 6,907 (3,280) (2,399) 231,666 4,508 2,519 2,628 234,185 7,136 (11,848) – 222,337 7,136 20.4 0.7	December 2002 RMB’000 250,463 1,260 (138,334) (20,595) (3,494) (5,619) – (20,113) (188,155) 63,568 4,851 (24,268) 44,151 (1,300) 42,851 (205) 42,646 – 42,646 4.4

– 28 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

ASSETS AND LIABILITIES

Non-current assets Current assets Total assets Current liabilities Minority interests Shareholders’ funds	2004 RMB’000 379,850 808,632 1,188,482 (366,614) (3,470) 818,398	Audited As at 31 December 2003 RMB’000 534,372 460,683 995,055 (454,757) (6,131) 534,167	2002 RMB’000 545,498 332,457 877,955 (427,373) (8,759) 441,823

– 29 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

2. AUDITED CONSOLIDATED FINANCIAL STATEMENTS

There is a qualified opinion arising from limitation of audit scope for the financial statements of the Company for the year ended 31 December 2004, and the report of auditors for which has been set out on page 26 to 27 under the paragraph of “Financial Summary” in this appendix of this circular. Set out below is the audited consolidated financial statements of the Group for each of the two years ended 31 December 2003 and 2004 together with notes thereto as extracted from the Group’s 2004 annual report:

CONSOLIDATED PROFIT AND LOSS ACCOUNT

Year ended 31 December 2004

Notes TURNOVER 5 Investment income, other revenue and gains 5 Operating expenses Materials and equipment Employee costs Depreciation of property, plant and equipment 13 Amortisation of goodwill and intangible assets 14 & 15 Impairment of goodwill Other operating expenses Total operating expenses PROFIT FROM OPERATING ACTIVITIES 6 Finance income/(costs) Interest income Interest expense PROFIT BEFORE TAX Tax 9 PROFIT BEFORE MINORITY INTERESTS Minority interests NET PROFIT FROM ORDINARY ACTIVITIES ATTRIBUTABLE TO SHAREHOLDERS 10 DIVIDENDS Interim 11(2) EARNINGS PER SHARE – Basic (RMB cents) 12	2004 RMB’000 130,503 293,535 (102,442) (18,406) (3,190) (5,886) (3,556) (47,379) (180,859) 243,179 3,095 (11,328) 234,946 (3,280) 231,666 2,519 234,185 (11,848) 222,337 20.4	2003 RMB’000 199,740 1,877 (148,037) (18,021) (3,203) (6,230) – (9,814) (185,305) 16,312 3,020 (12,425) 6,907 (2,399) 4,508 2,628 7,136 – 7,136 0.7

– 30 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

CONSOLIDATED BALANCE SHEET

31 December 2004

Notes NON-CURRENT ASSETS Property, plant and equipment 13 Intangible assets 14 Goodwill 15 Long term investment 16 CURRENT ASSETS Inventories 18 Trade receivables 19 Due from shareholders 20 Due from related parties 21 Prepayments, deposits and other receivables Short term investments 22 Bills receivable Cash and cash equivalents 23 CURRENT LIABILITIES Short term bank loans 24 Trade payables 25 Advances from customers Accrued liabilities and other payables Due to shareholders 20 Due to related parties 21 Tax payable NET CURRENT ASSETS TOTAL ASSETS LESS CURRENT LIABILITIES MINORITY INTERESTS CAPITAL AND RESERVES Issued capital 26 Reserves	2004 RMB’000 9,656 280 7,333 362,581 379,850 22,813 27,578 43,781 381,753 8,641 2,000 – 322,066 808,632 310,017 14,991 9,827 22,212 1,261 1,993 6,313 366,614 442,018 821,868 3,470 818,398 118,480 699,918 818,398	2003 RMB’000 6,319 520 16,535 510,998
		534,372
		19,538 71,915 31,328 25,374 25,793 – 8,726 278,009
		460,683
		396,203 16,904 11,783 23,794 1,692 742 3,639
		454,757
		5,926
		540,298
		6,131
		534,167

		110,400 423,767
		534,167

– 31 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Year ended 31 December 2004

Notes 31 December 2002 and 1 January 2003 Issue of H shares Share issue expenses Payable written back* Net profit for the year Transfer from/(to) reserves 11(1) 31 December 2003 and 1 January 2004 Issue of H shares 26 Share issue expenses 26 Net profit for the year Transfer to a capital reserve (i) Transfer from/(to) reserves 11(1) Interim dividend 11(2) 31 December 2004	Issued share capital RMB’000 96,400 14,000 – – – – 110,400 8,080 – – – – – 118,480	Capital reserve RMB’000 251,271 75,164 (5,610) 1,654 – – 322,479 56,210 (2,396) – 1,427 – – 377,720#	Statutory reserve funds RMB’000 16,649 – – – – 1,218 17,867 – – – – 35,084 – 52,951#	Retained profits RMB’000 77,503 – – – 7,136 (1,218) 83,421 – – 234,185 (1,427) (35,084) (11,848) 269,247#	Total RMB’000 441,823 89,164 (5,610) 1,654 7,136 – 534,167 64,290 (2,396) 234,185 – – (11,848) 818,398

In 2003, the Company reached a wavier agreement with an unrelated party, who had provided services to the Company during the listing of the Company’s H shares on the Growth Enterprise Market (the “GEM”) of The Stock Exchange of Hong Kong Limited (the “Stock Exchange”) in July 2000. Pursuant to the waiver agreement, the amount had been recorded as part of the issuance expenses for the listing in 2000 and in accordance with the prevailing accounting principles and regulations in the People’s Republic of China, the amount waived was included in the capital reserve account in 2003 accordingly.
(i) In the current year, Hebei Beida Jade Bird Universal Fire Alarm Device Company Limited (“Hebei Fire Alarm”), a subsidiary of the Company, reached an agreement with a bank to restructure a bank loan of RMB3,060,000. Pursuant to the agreement, Hebei Fire Alarm was allowed to settle the bank loan by certain of its property with a total carrying amount of approximately RMB1,158,000, leading to a gain of approximately RMB1,902,000 recognised in the profit and loss account for the year. After taking into account minority interests and income tax effect, the net gain resulting from this debt restructuring attributable to the shareholders of the Company is approximately RMB965,000 which is required to be transferred to a capital reserve in accordance with PRC accounting principles and regulations.
These reserve accounts comprise the consolidated reserves of RMB699,918,000 (2003: RMB423,767,000) in the consolidated balance sheet.

– 32 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

CONSOLIDATED CASH FLOW STATEMENT

Year ended 31 December 2004

Notes CASH FLOWS FROM OPERATING ACTIVITIES Profit from operating activities Adjustments for: Exchange losses/(gains), net 6 Provision for/(write-back of) doubtful debts 6 Provision against obsolete and slow-moving inventories 6 Loss on disposal of property, plant and equipment 6 Gain of disposal of a business 29(c) Gain on disposal of a subsidiary 29(b) Gain on disposal of long term investment 5 Gain on debt restructuring 5 Depreciation of property, plant and equipment 6 Amortisation of goodwill and intangible assets 6 Impairment of goodwill 6 Operating profit before working capital changes Increase in inventories Decrease in trade receivables Increase/(decrease) in bills receivable Increase in amounts due from shareholders Increase in amounts due from related parties Decrease/(increase) in prepayments, deposits and other receivables Increase/(decrease) in trade payables Increase in advances from customers Increase in accrued liabilities and other payables Decrease in amounts due to shareholders Increase/(decrease) in amounts due to related parties Cash used in operations PRC corporate income tax paid Net cash outflow from operating activities	2004 RMB’000 243,179 864 34,534 338 1,246 – (1,254) (289,214) (1,902) 3,190 5,886 3,556 423 (8,452) 9,667 8,726 (12,453) (355,179) 8,130 (1,135) 1,295 5,801 (431) 520 (343,088) (606) (343,694)	2003 RMB’000 16,312 (1,646) (1,603) 336 719 (1,362) – – – 3,203 6,230 – 22,189 (3,734) 2,637 (8,726) (21,956) (14,939) (6,609) 545 4,134 1,572 (9,612) (1,558) (36,057) (54) (36,111)

– 33 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

CONSOLIDATED CASH FLOW STATEMENT

Year ended 31 December 2004

Notes CASH FLOWS FROM INVESTING ACTIVITIES Decrease/(increase) in bank deposits with maturity of over three months Purchases of property, plant and equipment 13 Purchase of a long term investment Purchases of a short term investment 22 Acquisitions of a subsidiary 29(a) Disposal of a subsidiary 29(b) Disposal of a long term investment 16 Interest received Net cash inflow/(outflow) from investing activities CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issue of H shares 26 Share issue expenses 26 New bank loans Repayment of bank loans Dividend paid Interest paid Net cash inflow/(outflow) from financing activities NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS Cash and cash equivalents at beginning of year Effect of foreign exchange rate changes CASH AND CASH EQUIVALENTS AT END OF YEAR ANALYSIS OF BALANCES OF CASH AND CASH EQUIVALENTS Cash and bank balances 23 Non-pledged time deposits with original maturity of not longer than three months when acquired 23	2004 RMB’000 32,163 (7,867) – (2,000) 731 1,504 437,631 3,961 466,123 64,290 (2,396) – (84,284) (11,848) (11,407) (45,645) 76,784 88,322 (564) 164,542 101,739 62,803 164,542	2003 RMB’000 (92,941) (983) (30) – – – – 2,869 (91,085) 89,164 (5,610) 393,143 (360,000) – (12,780) 103,917 (23,279) 109,955 1,646 88,322 82,977 5,345 88,322

– 34 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

BALANCE SHEET

31 December 2004

Notes NON-CURRENT ASSETS Property, plant and equipment 13 Interests in subsidiaries 17 CURRENT ASSETS Inventories 18 Trade receivables Due from shareholders 20 Due from related parties 21 Prepayments, deposits and other receivables Short term investments 22 Bills receivable Cash and cash equivalents 23 CURRENT LIABILITIES Short term bank loans 24 Trade payables Advances from customers Accrued liabilities and other payables Due to shareholders 20 Due to a related party 21 Tax payable NET CURRENT LIABILITIES TOTAL ASSETS LESS CURRENT LIABILITIES CAPITAL AND RESERVES Issued capital 26 Reserves 28	2004 RMB’000 3,633 580,785 584,418 2,149 9,460 42,781 59,755 – 2,000 – 152,087 268,232 310,017 181 1,037 15,637 909 465 – 328,246 (60,014) 524,404 118,480 405,924 524,404	2003 RMB’000 2,213 571,705 573,918 5,714 48,947 31,328 24,006 20,966 – 8,726 238,952 378,639 393,143 1,982 7,723 15,683 1,010 355 494 420,390 (41,751) 532,167 110,400 421,767 532,167

– 35 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

NOTES TO FINANCIAL STATEMENTS

31 December 2004

1. CORPORATE INFORMATION AND PRINCIPAL ACTIVITIES

Beijing Beida Jade Bird Universal Sci-Tech Company Limited (the “Company”) was incorporated as a Sinoforeign joint stock limited liability company in Beijing, the People’s Republic of China (the “PRC”), on 29 March 2000. The Company’s H shares have been listed on the GEM of the Stock Exchange since 27 July 2000 .

During the year, the Company and its subsidiaries (collectively referred to as the “Group”) were engaged in the research, development, manufacturing, marketing and sale of embedded systems products, including network security products (“NET”), wireless fire alarm systems (“WFAS”), application specific integrated circuits (“ASIC”), global positioning system application systems (“GPS”), smart card application systems (“IC”), remote automatic metre-reading systems (“RMR”) and related products. The Group was also engaged in the sale of computer products (“Computer”) and the provision of total solution services through the application of its existing embedded system products during the year.

In the opinion of the directors, the ultimate controlling shareholder is Peking University, a university in Beijing, the PRC.

2. IMPACT OF RECENTLY ISSUED HONG KONG FINANCIAL REPORTING STANDARDS (“HKFRSs”)

The Hong Kong Institute of Certified Public Accountants has issued a number of new Hong Kong Financial Reporting Standards and Hong Kong Accounting Standards, herein collectively referred to as the new HKFRSs, which are generally effective for accounting periods beginning on or after 1 January 2005. The Group has not early adopted these new HKFRSs in the financial statements for the year ended 31 December 2004.

The Group is in the process of making an assessment of the impact of these new HKFRSs and has so far concluded that the adoption of Hong Kong Accounting Standard 39 “Financial Instruments: Recognition and Measurement” would have the following significant effects. According to this standard, long term investment of the Group will be classified as available-for-sale financial asset which is measured at fair value instead of measuring at historical cost according to the existing accounting policy of the Group. Any adjustment of the previous carrying amount should be recognised as an adjustment of the balance of retained earnings at the beginning of the financial year in which the above standard is initially applied. As at 31 December 2004, the fair value of the long term investment was higher than the historical cost by approximately RMB285 million (note 16) . The Group will be continuing with the assessment of the impact of the other new HKFRSs and other significant changes may be identified as a result.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of preparation

These financial statements have been prepared in accordance with Hong Kong Financial Reporting Standards (which also include Statements of Standard Accounting Practice and Interpretations) issued by the Hong Kong Institute of Certified Public Accountants, accounting principles generally accepted in Hong Kong and the disclosure requirements of the Hong Kong Companies Ordinance. They have been prepared under the historical cost convention.

Basis of consolidation

The consolidated financial statements include the financial statements of the Company and its subsidiaries for the year ended 31 December 2004. The results of subsidiaries acquired or disposed of during the year are consolidated from or to their effective dates of acquisition or disposal, respectively. All significant intercompany transactions and balances within the Group are eliminated on consolidation.

Minority interests represent the interests of outside shareholders in the results and net assets of the Company’s subsidiaries.

Subsidiaries

A subsidiary is a company whose financial and operating policies the Company controls, directly or indirectly, so as to obtain benefits from its activities.

The results of subsidiaries are included in the Company’s profit and loss account to the extent of dividends received and receivable. The Company’s interests in subsidiaries are stated at cost less any impairment losses.

– 36 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Related parties

Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control or common significant influence. Related parties may be individuals or corporate entities.

Goodwill

Goodwill arising on the acquisition of subsidiaries or business represents the excess of the cost of the acquisition over the Group’s and the Company’s share of the fair values of the identifiable assets and liabilities acquired as at the date of acquisition.

Goodwill arising on acquisition is recognised in the consolidated balance sheet and balance sheet as an asset and amortised on the straight-line basis over its estimated useful life of five years.

On disposal of subsidiaries or business, the gain or loss on disposal is calculated by reference to the net assets at the date of disposal, including the attributable amount of goodwill which remains unamortised and any relevant reserves, as appropriate.

The carrying amount of goodwill is reviewed annually and written down for impairment when it is considered necessary. A previously recognised impairment loss for goodwill is not reversed unless the impairment loss was caused by a specific external event of an exceptional nature that was not expected to recur, and subsequent external events have occurred which have reversed the effect of that event.

Impairment of assets

An assessment is made at each balance sheet date of whether there is any indication of impairment of any asset, or whether there is any indication that an impairment loss previously recognised for an asset in prior years may no longer exist or may have decreased. If any such indication exists, the asset’s recoverable amount is estimated. An asset’s recoverable amount is calculated as the higher of the asset’s value in use or its net selling price.

An impairment loss is recognised only if the carrying amount of an asset exceeds its recoverable amount. An impairment loss is charged to the profit and loss account in the period in which it arises.

A previously recognised impairment loss is reversed only if there has been a change in the estimates used to determine the recoverable amount of an asset, however not to an amount higher than the carrying amount that would have been determined (net of any depreciation/amortisation), had no impairment loss been recognised for the asset in prior years. A reversal of an impairment loss is credited to the profit and loss account in the period in which it arises.

Property, plant and equipment and depreciation

Property, plant and equipment are stated at cost less accumulated depreciation and any impairment losses. The cost of an asset comprises its purchase price and any directly attributable costs of bringing the asset to its working condition and location for its intended use. Expenditure incurred after property, plant and equipment have been put into operation, such as repairs and maintenance, is normally charged to the profit and loss account in the period in which it is incurred. In situations where it can be clearly demonstrated that the expenditure has resulted in an increase in the future economic benefits expected to be obtained from the use of the property, plant and equipment, the expenditure is capitalised as an additional cost of that asset.

Depreciation is calculated on the straight-line basis to write off the cost of each asset over its estimated useful life. The estimated useful lives of property, plant and equipment have been taken as follows:

Leasehold land	10 years
Buildings	20 years
Machinery and equipment	3-10 years
Leasehold improvements, furniture and office equipment	2-5 years
Motor vehicles	5 years

The gain or loss on disposal or retirement of a property, plant and equipment recognised in the profit and loss account is the difference between the net sales proceeds and the carrying amount of the relevant asset.

– 37 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Intangible assets

Information technology rights are stated at cost and amortised on the straight-line basis over their estimated useful lives of five years.

Research and development costs

All research costs are charged to the profit and loss account as incurred.

Expenditure incurred on projects to develop new products is capitalised and deferred only when the projects are clearly defined; the expenditure is separately identifiable and can be measured reliably; there is reasonable certainty that the projects are technically feasible; and the products have commercial value. Product development expenditure which does not meet these criteria is expensed when incurred.

Long term investments

Long term investments in listed and unlisted equity securities, intended to be held for a continuing strategic or long term purpose, are stated at cost less any impairment losses, on an individual investment basis.

When a decline in the fair value of a security below its carrying amount has occurred, unless there is evidence that the decline is temporary, the carrying amount of the security is reduced to its fair value, as estimated by the directors. The amount of the impairment is charged to the profit and loss account for the period in which it arises. When the circumstances and events which led to the impairment in value cease to exist and there is persuasive evidence that the new circumstances and events will persist for the foreseeable future, the amount of the impairment previously charged is credited to the profit and loss account to the extent of the amount previously charged.

Inventories

Inventories are stated at the lower of cost and net realisable value. Cost is determined on the weighted average basis and, in the case of work in progress and finished goods, comprises direct materials, direct labour and an appropriate proportion of overheads. Net realisable value is based on estimated selling prices less any estimated costs to be incurred to completion and disposal.

Contracts for services

Contract revenue on the rendering of services comprises the agreed contract amount. Costs of rendering services comprise labour and other costs of personnel directly engaged in providing the services and attributable overheads.

Revenue from the rendering of services is recognised based on the percentage of completion of the transaction, provided that the revenue, the costs incurred and the estimated costs to completion can be measured reliably. The percentage of completion is established by reference to the costs incurred to date as compared to the total costs to be incurred under the transaction.

When the outcome of a contract cannot be estimated reliably, contract revenues are recognised only to the extent of contract costs incurred that are probable of recovery, and contract costs are recognised as an expense in the period in which they are incurred.

Provision is made for foreseeable losses as soon as they are anticipated by management.

Where contract costs incurred to date plus recognised profits less recognised losses exceed progress billings, the surplus is treated as an amount due from contract customers.

Where progress billings exceed contract costs incurred to date plus recognised profits less recognised losses, the surplus is treated as an amount due to contract customers.

– 38 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Cash and cash equivalents

For the purpose of the consolidated cash flow statement, cash and cash equivalents comprise cash on hand and demand deposits, and short term highly liquid investments which are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value, and have a short maturity of generally within three months when acquired, less bank overdrafts which are repayable on demand and form an integral part of the Group’s cash management.

For the purpose of the balance sheet, cash and cash equivalents comprise cash on hand and at banks, including time deposits, and assets similar in nature to cash, which are not restricted as to use.

Provisions

A provision is recognised when a present obligation (legal or constructive) has arisen as a result of a past event and it is probable that a future outflow of resources will be required to settle the obligation, provided that a reliable estimate can be made of the amount of the obligation.

When the effect of discounting is material, the amount recognised for a provision is the present value at the balance sheet date of the future expenditures expected to be required to settle the obligation. The increase in the discounted present value amount arising from the passage of time is included in finance costs in the profit and loss account.

Income tax

Income tax comprises current and deferred tax. Income tax is recognised in the profit and loss account, or in equity if it relates to items that are recognised in the same or a different period directly in equity.

Deferred tax is provided, using the liability method, on all temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

Deferred tax liabilities are recognised for all taxable temporary differences:

except where the deferred tax liability 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; and
in respect of taxable temporary differences associated with investments in subsidiaries, except 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 assets and unused 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 assets and unused tax losses can be utilised:

except where the deferred tax asset relating to the deductible temporary differences arises from 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; and
in respect of deductible temporary differences associated with investments in subsidiaries, deferred tax assets are only recognised to the extent that it is probable that temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised.

The carrying amount of deferred tax assets is reviewed at each balance sheet date 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. Conversely, previously unrecognised deferred tax assets are recognised to the extent that it is probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date.

– 39 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Revenue recognition

Revenue is recognised when it is probable that the economic benefits will flow to the Group and when the revenue can be measured reliably, on the following bases:

(a) from the sale of embedded systems and related products, when the installation work is completed, the customer has accepted the systems and products and the significant risks and rewards of ownership have been transferred to the customer, provided that the Group maintains neither managerial involvement to the degree usually associated with ownership, nor effective control over the embedded systems and related products sold;
(b) from the sale of computer products, when the merchandise is shipped, the title of which has passed and the significant risks and rewards of ownership have been transferred to the buyer, provided that the Group maintains neither managerial involvement to the degree usually associated with ownership, nor effective control over the computer products sold;
(c) from the rendering of total solution services, on the basis as set out under the heading “Contracts for services” above;
(d) rental income, on a time proportion basis over the lease terms; and
(e) interest income, on a time proportion basis taking into account the principal outstanding and the effective interest rate applicable.

Revenue is recorded net of sales surtaxes, where applicable.

Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, i.e. assets 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. The capitalisation of such borrowing costs ceases when the assets are substantially ready for their intended use or sale. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs capitalised.

Dividends

Final dividends proposed by the directors are classified as a separate allocation of retained profits within the capital and reserves section of the balance sheet, until they have been approved by the shareholders in a general meeting. When these dividends have been approved by the shareholders and declared, they are recognised as a liability.

Foreign currencies

The books and records of the Group are maintained in Renminbi (“RMB”). Foreign currency transactions are recorded at the applicable exchange rates ruling at the transaction dates. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated at applicable exchange rates ruling at that date. Exchange differences are dealt with in the profit and loss account.

On consolidation, the financial statements of overseas subsidiaries are translated into RMB using the net investment method. The profit and loss accounts of overseas subsidiaries are translated into RMB at the weighted average exchange rates for the year, and their balance sheets are translated into RMB at the exchange rates ruling at the balance sheet date. The resulting translation differences are included in the exchange fluctuation reserve.

For the purpose of the consolidated cash flow statement, the cash flows of overseas subsidiaries are translated into RMB at the exchange rates ruling at the dates of the cash flows. Frequently recurring cash flows of overseas subsidiaries which arise throughout the year are translated into RMB at the weighted average exchange rates for the year.

Operating leases

Leases where substantially all the rewards and risks of ownership of assets remain with the lessor are accounted for as operating leases. Rentals payable to such operating leases are charged to the profit and loss account on the straight-line basis over the lease terms.

– 40 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Short term investments

Short term investments are investments in equity securities held for trading purposes and are stated at their fair values on the basis of their quoted market prices at the balance sheet date, on an individual investment basis. The gains or losses arising from changes in the fair value of a security are credited or charged to the profit and loss account in the period in which they arise.

Employee benefits

Retirement benefits schemes

The Company and its PRC subsidiaries participate in defined contribution retirement schemes organised by the local government authorities in the PRC. All of the PRC employees are entitled to an annual pension equivalent to a fixed portion of their basic salaries at their retirement dates. The Company and its PRC subsidiaries are required to make contributions to the retirement schemes at a rate of 20% of the basic salaries of their PRC employees and have no further obligation for post-retirement benefits. The contributions are charged to the profit and loss account of the Group as they become payable in accordance with the rules of the scheme.

The Group operates a defined contribution Mandatory Provident Fund retirement benefits scheme (the “MPF Scheme”) under the Mandatory Provident Fund Schemes Ordinance, for all of its employees in Hong Kong. Contributions are made based on a percentage of the employees’ basic salaries and are charged to the profit and loss account as they become payable in accordance with the rules of the MPF Scheme. The assets of the MPF Scheme are held separately from those of the Group in an independently administered fund. The Group’s employer contributions vest fully with the employees when contributed into the MPF Scheme.

Share option scheme

The Company operates a share option scheme for the purpose of providing incentives and rewards to eligible participants who contribute to the success of the Group’s operations. The financial impact of share options granted under the share option scheme is not recorded in the Company’s or the Group’s balance sheet until such time as the options are exercised, and no charge is recorded in the profit and loss account or balance sheet for their cost. Upon the exercise of share options, the resulting shares issued are recorded by the Company as additional share capital at the nominal value of the shares, and the excess of the exercise price per share over the nominal value of the shares is recorded by the Company in the capital reserve account. Options which are cancelled prior to their exercise date, or which lapse, are deleted from the register of outstanding options.

4. SEGMENT INFORMATION

Segment information is presented by way of two segment formats: (i) on a primary segment reporting basis, by business segment; and (ii) on a secondary segment reporting basis, by geographical segment.

The Group’s operating businesses are structured and managed separately, according to the nature of their operations and the products and services they provide. Each of the Group’s business segments represents a strategic business unit that offers products and services which are subject to risks and returns that are different from those of the other business segments. Summary details of the business segments are as follows:

(a) the manufacture and sale of NET
(b) the manufacture and sale of WFAS
(c) the manufacture and sale of ASIC
(d) the manufacture and sale of GPS
(e) the manufacture and sale of IC
(f) the manufacture and sale of RMR
(g) the trading of Computer

In determining the Group’s geographical segments, revenues are attributed to the segments based on the location of the customers, and assets are attributed to the segments based on the location of the assets.

Intersegment sales and transfers are transacted with reference to the selling prices used for sales made to third parties at the then prevailing market prices.

– 41 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(a) Business segments

The following tables present revenue, profit and certain asset, liability and expenditure information for the Group’s business segments:

Group

NET REVENUE Sales to external customers 9,430 RESULTS Segment results (4,325) Investment income and unallocated gain Interest income Interest expense Unallocated corporate expenses Profit before tax Tax Profit before minority interests Minority interests Net profit from ordinary activities attributable to shareholders ASSETS Segment assets 16,766 _Less:_Intersegment assets – Unallocated corporate assets Total assets LIABILITIES Segment liabilities 4,112 _Less:_Intersegment liabilities (186) Unallocated corporate liabilities – Total liabilities OTHER SEGMENT INFORMATION Capital expenditure 92 Depreciation of property, plant and equipment 504 Amortisation of goodwill 439 Amortisation of intangible assets – Impairment of goodwill – Provision for/(write-back of) doubtful debts, net 29,921 Provision against obsolete and slow-moving inventories –			2004 *RMB’000*	2004 *RMB’000*			Total 130,503 1,697 289,214 3,095 (11,328) (47,732) 234,946 (3,280) 231,666 2,519 234,185 558,982 (96,460) 725,960 1,188,482 56,880 (14,192) 323,926 366,614 7,867 3,190 5,646 240 3,556 34,534 338
	WFAS 44,244 7,302 45,007 – 28,110 (13,507) – 5,234 1,746 3,500 – – 2,631 –	ASIC 25,434 787 558 – – – – – 295 – 240 – 271 –	GPS – – 1,019 – 1,064 – – – 40 – – – – –	IC 106 (39) 77 – 49 – – – 2 – – – 515 –	RMR 420 (2,390) 3,035 – 4,437 (499) – – 38 1,707 – 3,556 1,456 338	Computer 50,869 362 492,520 (96,460) 19,108 – – 2,541 565 – – – (260) –

– 42 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Group

		2003 RMB’000	2003 RMB’000
WFAS 31,077 3,583 34,802 – 27,422 (13,549) 585 462 3,500 – 116 –	ASIC 58,151 (2,165) 36,234 (7,180) 18,212 (2,783) 139 1,565 – 240 418 –	GPS – (193) 967 – 1,757 – – 40 – – – –	IC 2,730	DVR 1,212 477 – – – – – 56 343 – (203) –	RMR 89	Total 199,740

			1,480			20,708 3,020 (12,425) (4,396)

			981 – 139 – – 10 – – (50) 114
						6,907 (2,399)
						4,508 2,628
						7,136

						169,366 (7,180) 832,869
						995,055

						72,738 (17,107) 399,126
						454,757

						983 3,203 5,990 240 (1,603) 336

– 43 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(b) Geographical segments

The following table presents revenue and certain asset and capital expenditure information for the Group’s geographical segments:

Group REVENUE Sales to external customers OTHER SEGMENT INFORMATION Segment assets Capital expenditure	Mainland China 2004 2003 RMB’000 RMB’000 100,220 155,994 1,173,846 987,629 7,867 983	Hong Kong 2004 2003 RMB’000 RMB’000 30,283 43,746 14,636 7,426 – –	Total 2004 2003 RMB’000 RMB’000 130,503 199,740 1,188,482 995,055 7,867 983	Total 2004 2003 RMB’000 RMB’000 130,503 199,740 1,188,482 995,055 7,867 983

				995,055

				983

5. TURNOVER, INVESTMENT INCOME, OTHER REVENUE AND GAINS

Turnover represents the net invoiced value of goods sold, after allowances for returns and trade discounts; and the value of services rendered, net of sales surtaxes, during the year. All significant intra-group transactions have been eliminated on consolidation.

An analysis of turnover, investment income, other revenue and gains is as follows:

Turnover Sale of embedded systems and related products Sale of computer products Rendering of total solution services Investment income Gain on disposal of long term investment_(note 16) Other revenue Gross rental income(note 32(b)) Others Gains Gain on disposal of a subsidiary(note 29(b)) Gain on debt restructuring* Gain on disposal of a business(note 29(c))_	2004 RMB’000 77,206 50,869 2,428 130,503 289,214 – 1,165 1,165 1,254 1,902 – 3,156 293,535	Group 2003 RMB’000 114,926 70,421 14,393
		199,740

		–
		315 200
		515
		– – 1,362
		1,362
		1,877

* In the current year, Hebei Fire Alarm, a subsidiary of the Company, reached an agreement with a bank to restructure a bank loan of RMB3,060,000. Pursuant to the agreement, Hebei Fire Alarm was allowed to settle the bank loan by certain of its property with a total carrying amount of approximately RMB1,158,000, leading to a gain of approximately RMB1,902,000 recognised in the profit and loss account for the year.

– 44 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

6. PROFIT FROM OPERATING ACTIVITIES

The Group’s profit from operating activities is arrived at after charging/(crediting):

Notes Cost of inventories sold Cost of services provided, and which included: Employees costs Depreciation of property, plant and equipment Office expenses Others Employees costs (excluding directors’ and supervisors’ remuneration): Wages, salaries and bonuses Social security costs Retirement benefit contributions 7 Auditors’ remuneration Depreciation of property, plant and equipment 13 Research and development costs Advertising and promotion costs Exchange gains/(losses), net Interest expense on bank loans wholly repayable within one year Interest income from bank deposits Interest income on an amount due from a related party 32(b) Operating lease rental income in respect of equipment 32(b) Loss on disposal of property, plant and equipment Gain on disposal of a business 29(c) Gain on disposal of a subsidiary 29(b) Amortisation of goodwill 15 Amortisation of intangible assets 14 Impairment of goodwill 15 Operating lease rentals in respect of: Land and buildings Equipment 32(b) Provision for/(write-back of) doubtful debts, net Provision against obsolete and slow-moving inventories 18 Research and development costs included: Employees costs Depreciation of property, plant and equipment Operating lease rentals of equipment 32(b) Office expenses Others	2004 RMB’000 102,307 1,301 279 9 303 13,575 1,676 852 954 3,190 6,177 4,498 864 11,328 (2,330) (765) – 1,246 – (1,254) 5,646 240 3,556 1,997 – 34,534 338 4,278 707 – 692 500	2003 RMB’000 147,850 417 516 4 3 12,837 2,041 1,251 956 3,203 6,936 4,360 (1,646) 12,425 (2,255) (765) (315) 719 (1,362) – 5,990 240 – 2,340 315 (1,603) 336

		3,427 2,044 315 617 533

7. RETIREMENT BENEFITS

During the year ended 31 December 2004, the aggregate contributions of the Group to its retirement benefit schemes were approximately RMB852,000 (2003: RMB1,251,000). As at 31 December 2004, the Group had no forfeited contributions available to reduce its contributions to the pension schemes in future years (2003: Nil).

– 45 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

8. DIRECTORS’, SUPERVISORS’ AND SENIOR EXECUTIVES’ REMUNERATION

(a) Directors’ and supervisors’ remuneration:

Directors’ and supervisors’ remuneration for the year, as required to be disclosed pursuant to the GEM Listing Rules and Section 161 of the Companies Ordinance, is as follows:

Fees Basic salaries, housing benefits, other allowances and benefits in kind Bonuses* Retirement benefits scheme contributions	Group 2004 2003 RMB’000 RMB’000 350 500 1,052 1,092 900 300 4 – 2,306 1,892	Group 2004 2003 RMB’000 RMB’000 350 500 1,052 1,092 900 300 4 – 2,306 1,892
		1,892

The bonuses were paid to executive directors and calculated at approximately 0.4% (2003: 4.0%) of the consolidated net profit from ordinary activities attributable to shareholders before the provision of such bonuses. Pursuant to the service contracts entered into between the Company and its executive directors, the Company’s executive directors are entitled to an aggregate amount of bonuses of not more than 5% of the consolidated profit after tax but before the provision of such bonuses.

The four executive directors of the Company received emoluments of approximately RMB649,000, RMB599,000, RMB558,000 and nil for the year ended 31 December 2004, and the five executive directors received emoluments of approximately RMB432,000, RMB382,000, RMB343,000, RMB235,000 and nil for the year ended 31 December 2003.

The five non-executive directors of the Company received individual fees of RMB50,000 each for the year ended 31 December 2004. One of the non-executive directors of the Company received an individual fee of RMB50,000 and the remaining eight non-executive directors of the Company received individual fees of RMB25,000 each for the year ended 31 December 2003.

The five supervisors of the Company received emoluments of approximately RMB30,000 each for the year ended 31 December 2004. The seven supervisors of the Company received emoluments of approximately RMB30,000, RMB30,000, RMB30,000, RMB15,000, RMB15,000, RMB15,000 and RMB15,000 for the year ended 31 December 2003.

The three independent non-executive directors received individual fees of approximately RMB50,000, RMB50,000 and nil for the year ended 31 December 2004, and the two independent non-executive directors received individual fees of approximately RMB50,000 each for the year ended 31 December 2003.

There was no arrangement under which a director or a supervisor waived or agreed to waive any remuneration during the year.

There was no emolument paid by the Group to the directors and supervisors as an inducement to join or upon joining the Group or as compensation for loss of office during the year.

– 46 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(b) Five highest paid employees:

The five highest paid employees during the year included three (2003: three) executive directors, details of whose remuneration are also set out in the directors’ and supervisors’ remuneration in (a) above. Details of the remuneration of the five highest paid employees are as follows:

Basic salaries, housing benefits, other allowances and benefits in kind Bonuses Retirement benefits scheme contributions	Group 2004 2003 RMB’000 RMB’000 2,052 1,817 900 225 16 9 2,968 2,051	Group 2004 2003 RMB’000 RMB’000 2,052 1,817 900 225 16 9 2,968 2,051
		2,051

There was no emolument paid by the Group to the employees as an inducement to join or upon joining the Group or as compensation for loss of office during the year.

The remuneration of each of the highest paid individuals for the year ended 31 December 2004 fell within the band of nil to RMB1,060,000 (equivalent to Hong Kong dollars 1,000,000).

9. TAX

Hong Kong profits tax has not been provided as the Group had no assessable profits arising in Hong Kong during the year (2003: Nil).

Taxes on profits assessable elsewhere have been calculated at the rates of tax prevailing in the countries in which the Group operates, based on existing legislation, interpretations, and practices in respect thereof.

Current – Hong Kong – Mainland China Total tax charge for the year	2004 RMB’000 – 3,280 3,280	Group 2003 RMB’000 – 2,399
		2,399

A reconciliation of the tax expense applicable to profit before tax using the statutory rates for the locations in which the Company and its subsidiaries are situated to the tax expense at the effective tax rates, and a reconciliation of the applicable rates (i.e. the statutory tax rates) to effective tax rates, are as follows:

Profit before tax Tax at the statutory tax rate Lower tax rate for specific provinces or local authority Income not subject to tax Expenses not deductible for tax Tax exemptions Benefit from operating losses not recorded Tax charge at the Group’s effective rate	2004 RMB’000 234,946 77,532 (268) (95,441) 898 (134) 20,693 3,280	Group % 33.0 (0.1) (40.6) 0.4 (0.1) 8.8 1.4	2003 RMB’000 6,907 2,280 (1,695) (330) 985 (1,036) 2,195 2,399	% 33.0 (24.5 (4.8 14.3 (15.0 31.7
				34.7

– 47 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The Company is registered in the Beijing New Technology Enterprise Development Zone and has been certified by the relevant PRC authorities as a high technology enterprise. Pursuant to the Income Tax Law in the PRC, the Company is subject to corporate income tax at a rate of 15%. In accordance with an approval document issued by the relevant tax bureau, the Company has been granted income tax exemption for the three years ended 31 December 2002 and 50% reduction in corporate income tax for the three years ending 31 December 2005.

Beijing Jade Bird Haodi Electric System Company Limited (“Jade Bird Haodi”) is registered in the Beijing New Technology Enterprise Development Zone and has been certified by the relevant PRC authorities as a high technology enterprise. Pursuant to the Income Tax Law in the PRC, Jade Bird Haodi is subject to corporate income tax at a rate of 15%. In accordance with an approval document issued by the relevant tax bureau, Jade Bird Haodi was granted income tax exemption for the three years ended 31 December 2000 and 50% reduction in corporate income tax for the three years ended 31 December 2003. From 1 January 2004 onwards, Jade Bird Haodi is subject to income tax at a rate of 33%.

As at 31 December 2004, the Group had an aggregate amount of provision for doubtful debts and provision against obsolete and slow-moving inventories of approximately RMB38,226,000. Deferred tax assets have not been recognised in respect of these provisions as adequate future taxable profit available against which these deductible temporary differences can be utilised is beyond reasonable doubt.

At 31 December 2004, there was no significant unrecognised deferred tax liability (2003: Nil) for taxes that would be payable on the unremitted earnings of certain of the Group’s subsidiaries, as the directors do not have intention to remit such earnings to the Company in the foreseeable future.

10. NET PROFIT FROM ORDINARY ACTIVITIES ATTRIBUTABLE TO SHAREHOLDERS

The net loss from ordinary activities attributable to shareholders for the year ended 31 December 2004 dealt with in the financial statements of the Company was approximately RMB57,809,000 (2003: net profit of RMB9,091,000) (note 28) .

11. PROFIT APPROPRIATIONS

(1) Under the PRC Company Law and the respective companies’ articles of association, the net profit after tax as reported in the PRC statutory financial statements, prepared in accordance with PRC accounting principles and regulations, can only be distributed as dividends after allowance has been made for the following:
(i) Making up prior years’ cumulative losses, if any
(ii) Allocations to the statutory common reserve fund of at least 10% of profit after tax, until the fund aggregates 50% of the Company’s registered capital. For the purpose of calculating the transfer to this reserve, the profit after tax shall be the amount determined under PRC accounting principles and regulations. The transfer to this reserve must be made before any distribution of dividends to shareholders.

The statutory common reserve fund can be used to offset prior years’ losses, if any, and part of the statutory common reserve fund can be capitalised as the Company’s share capital provided that the amount of such reserve remaining after the capitalisation shall not be less than 25% of the registered capital of the Company.

(iii) Allocations of 5% to 10% of profit after tax, as determined under PRC accounting principles and regulations, to the Company’s statutory public welfare fund, which will be established for the purpose of providing collective welfare benefits to the Company’s employees such as the construction of dormitories, canteens and other staff welfare facilities. The fund forms part of the shareholders’ equity as individual employees can only use these facilities, while the title of which will remain with the Company. The transfer to this fund must be made before any distribution of dividends to shareholders.
(iv) Allocations to the discretionary reserve fund if approved by the shareholders. The discretionary reserve fund can be used to offset prior years’ losses, if any, and capitalised as the Company’s share capital.

– 48 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(2) Dividend

An interim dividend of RMB11,848,000 (RMB1 cent per share) was declared and paid in 2004 (2003: Nil).

The board of directors do not recommend the payment of a final dividend (2003: Nil).

In accordance with the articles of association of the Company, the net profit after tax of the Company for the purpose of profit distribution will be deemed to be the lesser of (i) the net profit determined in accordance with PRC accounting principles and regulations, and (ii) the net profit determined in accordance with Hong Kong accounting standards.

Cash dividend to shareholders in Hong Kong will be paid in Hong Kong dollars.

12. EARNINGS PER SHARE

The calculation of basic earnings per share is based on the net profit from ordinary activities attributable to shareholders for the year ended 31 December 2004 of RMB234,185,000 (2003: RMB7,136,000), and the weighted average of 1,146,828,415 (2003: 1,032,273,973) ordinary shares in issues during the year as reflected in the new placement of H shares during the year.

The weighted average number of shares used to calculate the current year’s basic earnings per share includes 1,104,000,000 shares issued from the beginning of 2004 to 20 June 2004 and the new placement of 80,800,000 H shares by the Company on 21 June 2004.

A diluted earnings per share amount for the year ended 31 December 2004 has not been disclosed as no diluting events existed during the year.

13. PROPERTY, PLANT AND EQUIPMENT

Group

Cost: At 1 January 2004 Additions Disposal of a subsidiary_(note 29(b)) Disposals At 31 December 2004 Accumulated depreciation: At 1 January 2004 Provided during the year Disposal of a subsidiary (note 29(b))_ Disposals At 31 December 2004 Net book value: At 31 December 2004 At 31 December 2003	Leasehold Land RMB’000 (i) 216 – – (216) – 52 18 – (70) – – 164	Buildings RMB’000 (i) and (ii) 2,343 346 – (1,412) 1,277 253 465 – (563) 155 1,122 2,090	Leasehold improvements, Machinery furniture and and office equipment equipment RMB’000 RMB’000 (ii) 23,403 3,282 958 173 (150) – (1,380) (5) 22,831 3,450 20,491 2,553 1,335 790 (56) – (1,166) (7) 20,604 3,336 2,227 114 2,912 729	Motor Construction vehicles in progress RMB’000 RMB’000 1,062 – 2,951 3,439 – – (117) – 3,896 3,439 638 – 582 – – – (78) – 1,142 – 2,754 3,439 424 –	Total RMB’000 30,306 7,867 (150) (3,130)
					34,893
					23,987 3,190 (56) (1,884)
					25,237
					9,656

					6,319

– 49 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Company

Cost: At 1 January 2004 Additions Disposals At 31 December 2004 Accumulated depreciation: At 1 January 2004 Provided during the year Disposals At 31 December 2004 Net book value: At 31 December 2004 At 31 December 2003	Buildings RMB’000 (i) and (ii) 878 – – 878 93 42 – 135 743 785	Leasehold improvements, Machinery furniture and and office equipment equipment RMB’000 RMB’000 (ii) 20,307 3,052 74 10 (6) – 20,375 3,062 19,546 2,460 431 338 (5) – 19,972 2,798 403 264 761 592	Motor vehicles RMB’000 419 2,496 – 2,915 344 348 – 692 2,223 75	Total RMB’000 24,656 2,580 (6)
				27,230
				22,443 1,159 (5)
				23,597
				3,633

				2,213

(i) The Group’s leasehold land and a building with an aggregate net book value of RMB994,200 (2003: RMB1,144,000) are located in Zhuo Lu, Hebei Province, the PRC, and are held under a land use right for a period of 40 years up to 31 December 2041. The other buildings with net book values of RMB668,000 (2003: RMB710,000) and RMB380,000 (2003: RMB400,000) are located in Beijing and Wuhan, the PRC, respectively. As of the date of these financial statements, the building ownership certificates of certain buildings with an aggregate net book value of RMB380,000 have yet to be obtained. The directors of the Company are of the view that the Group is entitled to lawfully and validly occupy and use the abovementioned buildings. The directors of the Company are of the opinion that the aforesaid matter will not have any significant impact on the Group’s financial position as at 31 December 2004.

(ii) As at 31 December 2004, the Group did not have any buildings, machinery and equipment pledged as collateral for the Group’s banking facilities. As at 31 December 2003, the Group’s buildings, machinery and equipment with an aggregate net book value of approximately RMB1,097,000 were pledged as collateral for the Group’s banking facilities (note 24).

– 50 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

14. INTANGIBLE ASSETS

Intangible assets comprising information technology rights are as follows:

Cost: At 1 January 2004 and 31 December 2004 Accumulated amortisation: At 1 January 2004 Provided during the year At 31 December 2004 Net book value: At 31 December 2004 At 31 December 2003	Group RMB’000 1,200
	680 240
	920
	280

	520

15. GOODWILL

The amount of goodwill capitalised as an asset in the consolidated balance sheet, arising from the acquisition of subsidiaries, is as follows:

Cost: At 1 January 2004 and 31 December 2004 Accumulated amortisation and impairment: At 1 January 2004 Amortisation provided during the year Impairment provided during the year At 31 December 2004 Net book value: At 31 December 2004 At 31 December 2003	Group RMB’000 28,231
	11,696 5,646 3,556
	20,898
	7,333

	16,535

The amount of goodwill is stated at its cost, less accumulated amortization and impairment of RMB3,556,285 provided in 2004.

– 51 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

16. LONG TERM INVESTMENT

Listed equity investment, at cost: Hong Kong Unlisted equity investment, at cost Market value of listed equity investment included above at cost	2004 RMB’000 362,581 – 647,546	2003 RMB’000 –

		510,998

		–

Long term investment consists of a listed equity investment, at cost. The directors are of the opinion that the investment in Semiconductor Manufacturing International Corporation (“SMIC”), a company incorporated in the Cayman Islands, is to be held for long term purposes and as such, continues to be carried at historical cost as at 31 December 2004.

In 2001, the Group acquired 54,000,540 Series A Preference Shares (with voting rights and being convertible into ordinary shares) which were converted and then split into 540,005,400 ordinary shares, and acquired 54,000,540 non-voting, non-convertible and non-transferable Series A-1 preference shares of SMIC, for a cash consideration of US$60 million (equivalent to approximately RMB497 million) and US$540 (equivalent to approximately RMB4,500), respectively. The principal activities of SMIC and its subsidiaries are the manufacturing and marketing of advanced technology semiconductors in the PRC. Upon the initial public offering (the “IPO”) of SMIC in March 2004, among the 540,005,400 ordinary shares held by the Group, a total number of 156,842,000 ordinary shares with the carrying amount of approximately RMB148 million were sold by the Group at a price of HK$2.69 per ordinary share, giving rise to a net proceeds of approximately RMB437 million and a gain on disposal of long term investment of approximately RMB289 million. Subsequent to the aforesaid disposal of SMIC’s ordinary shares, the Group still holds 383,163,400 ordinary shares of SMIC.

As at 31 December 2004, as agreed among the Group, SMIC and its certain shareholders upon the IPO of SMIC in March 2004, out of the Group’s total shareholding in SMIC of 383,163,400 ordinary shares, 302,162,590 ordinary shares were subject to respective lock-up periods (restricting the public sale of the Group’s holding in SMIC), details of which are set out below:

Lock-up period expiring: In March 2005 In September 2005 In March 2006 In August 2006	Shareholding of SMIC shares 81,000,810 shares 81,000,810 shares 81,000,810 shares 59,160,160 shares
	302,162,590 shares

Upon the expiry of the respective lock-up periods, the relevant SMIC ordinary shares will be available for public trading.

* SMIC was listed during 2004 and hence, investment in SMIC changed from unlisted equity investment in 2003 to listed equity investment in 2004.

17. INTERESTS IN SUBSIDIARIES

Equity interests, at cost Due from subsidiaries Due to a subsidiary Provision for impairment	Company 2004 2003 RMB’000 RMB’000 22,933 27,433 561,408 551,452 – (7,180) 584,341 571,705 (3,556) – 580,785 571,705	Company 2004 2003 RMB’000 RMB’000 22,933 27,433 561,408 551,452 – (7,180) 584,341 571,705 (3,556) – 580,785 571,705
		571,705 –
		571,705

– 52 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The balances with subsidiaries at 31 December 2004 were interest-free, unsecured and did not have fixed repayment terms.

Particulars of the Company’s subsidiaries as at 31 December 2004 are as follows:

				Percentage
	Place of			of equity
	incorporation/		Nominal value	interest directly
	establishment		of registered	attributable to
Name	and operations	Legal status	capital	the Company	Principal activities
Cayman Development	Cayman Islands/	Limited liability	US$10,000	100%	Technology research,
	Hong Kong	company			development and sale of
					integrated circuits, computer
					products and related products
Hebei Beida Jade Bird	Hebei Province,	Limited liability	RMB10,000,000	75%	Technology research,
Universal Fire Alarm	the PRC	company			development, manufacture
Device Company					and sale of fire alarm
Limited					system products
Jade Bird Haodi	Beijing, the PRC	Limited liability	RMB5,000,000	51%	Development, manufacture
		company			and sale of remote automatic
					metre-reading systems
Wuhan Beida Jade Bird	Wuhan, the PRC	Limited liability	RMB10,000,000	51%	Research, development,
Netsoft Company		company			production and sale of
Limited					network management products,
(“Wuhan Netsoft”)					and provision of the network
					systems integration services
Cayman Investment	Cayman Islands/	Limited liability	US$100	100%*	Investment holding
	Hong Kong	company
Beida Jade Bird Overseas	British Virgin	Limited liability	US$50,000	100%*	Investment holding
Education Limited	Islands/	company
	Hong Kong

* Indirect holding

18. INVENTORIES

Raw materials Work in progress Finished goods _Less:_Provision against obsolete and slow-moving inventories	Group 2004 2003 RMB’000 RMB’000 5,406 3,305 1,560 3,844 16,729 12,933 23,695 20,082 (882) (544) 22,813 19,538	Company 2004 2003 RMB’000 RMB’000 785 537 588 601 1,320 5,120 2,693 6,258 (544) (544 2,149 5,714	Company 2004 2003 RMB’000 RMB’000 785 537 588 601 1,320 5,120 2,693 6,258 (544) (544 2,149 5,714
			6,258 (544
			5,714

The carrying amount of inventories (the Group and the Company) carried at net realisable value included in the above balance was nil (2003: RMB5,657,000) as at the balance sheet date.

– 53 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

19. TRADE RECEIVABLES

The Group’s trading terms with its customers are mainly on credit, except for new customers, where payment in advance is sometimes required. The credit period generally ranges from three to six months, starting from the date on which the significant risks and rewards of ownership of products were transferred by the Group to customers or the date of completion of services provided or the payment due date as defined in the contracts, whichever is the later. Each customer has a maximum credit limit. The group seeks to maintain strict control over its outstanding receivables and has a credit control department to minimise credit risk. Overdue balances are reviewed regularly by senior management.

An aged analysis of the trade receivables of the Group as at the balance sheet date, based on the date on which the significant risks and rewards of ownership of products were transferred by the Group to customers or the date of completion of services provided or the payment due date as defined in the contracts, whichever is the later, is as follows:

Outstanding balances aged: 0 to 3 months 3 to 6 months 6 to 12 months Over 12 months _Less:_Provision for doubtful debts	Group 2004 2003 RMB’000 RMB’000 13,195 33,275 11,260 15,223 4,328 17,851 36,139 8,376 64,922 74,725 (37,344) (2,810) 27,578 71,915	Group 2004 2003 RMB’000 RMB’000 13,195 33,275 11,260 15,223 4,328 17,851 36,139 8,376 64,922 74,725 (37,344) (2,810) 27,578 71,915
		74,725 (2,810)
		71,915

Included in the trade receivables of the Group are the following amounts due from a shareholder and related parties which are repayable on similar credit terms to those offered to independent third party customers:

Amount due from a shareholder_(note 32(h)) Amounts due from related parties(note 32(h))_	2004 RMB’000 – 207	2003 RMB’000 152 129

20. BALANCES WITH SHAREHOLDERS

The balances with shareholders at 31 December 2004 were interest-free, unsecured and did not have fixed repayment terms.

Subsequent to the balance sheet date, an aggregate amount of balances due from shareholders of approximately RMB41,000,000 has been received by the Group.

– 54 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

21. BALANCES WITH RELATED PARTIES

Except for the amount due from Beijing Beida On-line Network Company Limited (“Beida On-line”) which bears interest at an annual interest rate of 5.13%, all other balances with related parties at 31 December 2004 were interest-free. All balances with related parties were unsecured and did not have fixed repayment terms.

Subsequent to the balance sheet date, an aggregate amount of balances due from related parties of approximately RMB92,000,000 has been received by the Group.

Included in the amounts due from related parties as at 31 December 2004 was a sum of approximately RMB320 million, representing approximately RMB287 million as to Hong Kong Jade Bird Sci-Tech Limited and approximately RMB33 million as to Wisdom New Group Limited, both of which are controlled by Beijing Beida Jade Bird Limited (“Beida Jade Bird”). Pursuant to a share transfer agreement (the “Agreement”) entered into with Beida Jade Bird on 24 March 2005, the sum was utilised as earnest money for acquiring a 44% equity interest in a property development company in Beijing. The Directors expect that the proposed acquisition transaction shall take place on or before 31 July 2005. In connection with the Agreement and the proposed acquisition, the Company has made an announcement to that effect on 24 March 2005. Pursuant to the Agreement, the earnest money shall be fully refunded to the Company, without interest, if the conditions set forth in the Agreement have not either been fulfilled or waived and hence, the proposed acquisition does not take place. In the opinion of the Directors, Beida Jade Bird is able to repay the earnest money, if so required, and a guarantee for repayment has been obtained from a company controlled by the Peking University.

Should the conditions precedent (including but not limited to approval by the independent shareholders of the Company and all necessary approvals and permissions from the relevant government and/or regulatory authorities) of the Agreement be fulfilled or waived by the Company, the earnest money would be applied and recorded in the consolidated balance sheet of the Group as interest in an associate.

22. SHORT TERM INVESTMENTS

Unlisted investments, at cost	Company 2004 2003 RMB’000 RMB’000 2,000 –

Short term unlisted investments comprise two investment funds in the PRC of RMB1,000,000 each.

23. CASH AND CASH EQUIVALENTS

Cash and bank balances Time deposits Cash and cash equivalents	Group 2004 2003 RMB’000 RMB’000 101,739 82,977 220,327 195,032 322,066 278,009	Company 2004 2003 RMB’000 RMB’000 49,735 43,920 102,352 195,032 152,087 238,952	Company 2004 2003 RMB’000 RMB’000 49,735 43,920 102,352 195,032 152,087 238,952
			238,952

24. SHORT TERM BANK LOANS

Short term bank loans of the Group and the Company bore interest at rates ranging from approximately 2.84% to 5.31% per annum at 31 December 2004 (2003: 2.84% to 5.31%).

A shareholder of the Company and a subsidiary of Peking University, the ultimate controlling shareholder of the Company, have jointly guaranteed certain of the Group and the Company’s bank loans of up to US$37.5 million, or equivalent to approximately RMB310 million (2003: RMB393 million), as at the balance sheet date (note 32(g)) .

As at 31 December 2003, there were also short term bank loans of the Group of RMB3,060,000 secured by mortgages over certain of the Group’s buildings, machinery and equipment with an aggregate net book value of approximately RMB1,097,000 (note 13) .

– 55 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

25. TRADE PAYABLES

An aged analysis of the trade payables of the Group as at the balance sheet date, based on the date on which the significant risks and rewards of ownership of materials were transferred by the suppliers to the Group, is as follows:

Outstanding balances aged: 0 to 3 months 3 to 6 months 6 to 12 months Over 12 months Included in the trade payables of the Group is the following amount due to Amount due to a shareholder_(note 32(h))_	Group 2004 2003 RMB’000 RMB’000 5,353 9,917 1,210 184 18 2,841 8,410 3,962 14,991 16,904 a shareholder: 2004 2003 RMB’000 RMB’000 32 1,170	Group 2004 2003 RMB’000 RMB’000 5,353 9,917 1,210 184 18 2,841 8,410 3,962 14,991 16,904 a shareholder: 2004 2003 RMB’000 RMB’000 32 1,170
		16,904

		2003 RMB’000 1,170

The amount due to a shareholder as at 31 December 2004 was interest-free, unsecured and did not have fixed repayment terms.

26. SHARE CAPITAL

Registered, issued and fully paid: 700,000,000 (2003: 700,000,000) legal person shares of RMB0.10 each 484,800,000 (2003: 404,000,000) H shares of RMB0.10 each	2004 RMB’000 70,000 48,480 118,480	2003 RMB’000 70,000 40,400
		110,400

On 21 June 2004, 80,800,000 new H shares of the Company with a par value of RMB0.1 each were issued to the public and listed on the GEM by way of placing at a price of HK$0.75 (equivalent to approximately RMB0.80) per H share.

– 56 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

A summary of the transactions during the year with reference to the above movement in the Company’s issued share capital is as follows:

At 31 December 2003 and 1 January 2004 Placement of new H shares Share issue expenses Transfer to a capital reserve_(i)_ At 31 December 2004	Number of shares in issue 1,104,000,000 80,800,000 1,184,800,000 – – 1,184,800,000	Issued share capital RMB’000 110,400 8,080 118,480 – – 118,480	Capital reserve RMB’000 322,479 56,210 378,689 (2,396) 1,427 377,720	Total RMB’000 432,879 64,290
				497,169 (2,396) 1,427
				496,200

Details of the Company’s share option scheme are included in note 27 to the financial statements.

(i) Details are set out in note (i) in the consolidated statement of changes in equity.

27. EMPLOYEE SHARE OPTIONS

The Company has a share option scheme, pursuant to which the board of directors of the Company may grant options to full-time employees of the Group (including directors of the Company) to subscribe for H shares, subject to a maximum of 30% of the nominal value of the issued share capital of the Company from time to time, excluding for this purpose shares issued on the exercise of options. The subscription price will be determined by the Company’s board of directors, and will not be less than the highest of (i) the nominal value of an H share, (ii) the average of the closing prices of the H shares quoted on the GEM on the five trading days immediately preceding the date of grant, and (iii) the closing price of the H shares quoted on the GEM on the date of grant, which must be a business day. However, employees who are PRC nationals shall not be entitled to exercise the option until the current restrictions on these persons from subscribing or dealing in H shares imposed by the laws and regulations in the PRC have been abolished or removed.

As of the date of these financial statements, no share options have been granted under the aforesaid scheme.

28. RESERVES

Company

Notes 31 December 2002 and 1 January 2003 Issue of H shares Share issue expenses Payable written back** Net profit for the year Transfer from/(to) reserves 31 December 2003 and 1 January 2004 Issue of H shares 26 Share issue expenses 26 Net loss for the year Transfer to a capital reserve (i) Transfer from/(to) reserves 11(1) Interim dividend 11(2) 31 December 2004	Capital reserve RMB’000* 251,271 75,164 (5,610) 1,654 – – 322,479 56,210 (2,396) – 1,427 – – 377,720	Statutory reserve funds RMB’000 16,649 – – – – 1,034 17,683 – – – – 34,896 – 52,579	Retained profits RMB’000 73,548 – – – 9,091 (1,034) 81,605 – – (57,809) (1,427) (34,896) (11,848) (24,375)	Total RMB’000 341,468 75,164 (5,610) 1,654 9,091 –
				421,767 56,210 (2,396) (57,809) – – (11,848)
				405,924

– 57 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The capital reserve may only be used to increase share capital.
** In 2003, the Company reached a wavier agreement with an unrelated party, who had provided services to the Company during the listing of the Company’s H shares on the GEM of the Stock Exchange in July 2000. Pursuant to the waiver agreement, the amount had been recorded as part of the issuance expenses for the listing in 2000 and in accordance with the prevailing accounting principles and regulations in the PRC, the amount waived was included in the capital reserve account in 2003 accordingly.
(i) Details are set out in note (i) in the consolidated statement of changes in equity.

29. NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT

(a) Acquisition of a subsidiary

	2004	2003
	RMB’000	RMB’000
Net assets acquired:
Cash and bank balances	1,144	–
Due to a related party	(731)	–
	413	–

Satisfied by:
Cash	413	–

An analysis of the net inflow of cash and cash equivalents in respect of the acquisition of a subsidiary is
as follows:
	2004	2003
	RMB’000	RMB’000
Cash consideration	(413)	–
Cash and bank balances acquired	1,144	–
Net inflow of cash and cash equivalents in respect of
the acquisition of a subsidiary	731	–

– 58 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(b) Disposal of a subsidiary

In 2004, the Company disposed of its entire shareholding interest in Beijing Beida Jade Bird Silicon Innovation Company Limited (“Beijing Silicon Innovation”), a 60% owned subsidiary of the Company, for a consideration of RMB3,600,000.

Net assets disposed of: Property, plant and equipment, net Trade receivables Prepayments, deposits and other receivables Inventories Cash and bank balances Trade payables Advances from customers Accrued liabilities and other payables Minority interests Net assets Gain on disposal of a subsidiary_(note 5) Satisfied by: Due from a related party(note 32(b))_ Cash	2004 RMB’000 94 136 8,778 4,839 896 (778) (3,251) (6,804) (1,564) 2,346 1,254 3,600 1,200 2,400 3,600	2003 RMB’000 – – – – – – – – –
		– –
		– – –
		–

An analysis of the net inflow of cash and cash equivalents in respect of the disposal of a subsidiary is as follows:

Cash consideration Cash and bank balances disposed Net inflow of cash and cash equivalents in respect of the disposal of a subsidiary	2004 RMB’000 2,400 (896) 1,504	2003 RMB’000 – –
		–

– 59 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(c) Disposal of a business

In 2003, the Company disposed of its entire assets and business of DVR to Shenzhen Jade Bird, a related party of the Company, for a consideration of RMB3,000,000.

Net assets disposed of: Property, plant and equipment, net Intangible assets, net Trade receivables Prepayments, deposits and other receivables Inventories Accrued liabilities and other payables Gain on disposal of a business_(note 5) Satisfied by: Due from a related party(note 32(h))_	2004 RMB’000 – – – – – – – – –	2003 RMB’000 146 1,841 126 193 508 (1,176)
		1,638 1,362
		3,000

30. COMMITMENTS

(a) Operating lease commitments

The Group leases certain of its office properties under operating lease arrangements. Leases for properties are negotiated for terms ranging from one to two years

As at 31 December 2004, the Group and the Company had the following minimum lease payments under non-cancellable operating leases in respect of land and buildings:

Within one year In the second to fifth years, inclusive Within one year In the second to fifth years, inclusive	Group 2004 2003 RMB’000 RMB’000 1,007 1,256 170 1,241 1,177 2,497 Company 2004 2003 RMB’000 RMB’000 475 436 119 546 594 982	Group 2004 2003 RMB’000 RMB’000 1,007 1,256 170 1,241 1,177 2,497 Company 2004 2003 RMB’000 RMB’000 475 436 119 546 594 982
		982

As at 31 December 2004, save as disclosed above, the Group and the Company did not have future lease payments under non-cancellable operating leases.

– 60 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(b) Capital commitment

Within one year In the second to fifth years, inclusive	Group 2004 2003 RMB’000 RMB’000 2,461 – – – 2,461 –	Group 2004 2003 RMB’000 RMB’000 2,461 – – – 2,461 –
		–

31. CONTINGENT LIABILITIES

At the balance sheet date, neither the Group nor the Company had any significant contingent liabilities.

– 61 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

32. RELATED PARTY TRANSACTIONS

(a) A list of related parties and their relationship with the Group are as follows:

Name of related party

Relationship

Peking University The Institute Beijing Beida Jade Bird Limited (“Beida Jade Bird”)

The ultimate controlling shareholder

A department of Peking University
A shareholder of the Company; also a company controlled by Peking University

Beijing Beida Yu Huan Microelectronics System Engineering Company (“Beida Yu Huan”) Beijing Tianqiao Beida Jade Bird Sci-Tech Company Limited (“Beijing Tianqiao”) Shanghai Beida Jade Bird Sci-Tech Limited (“Shanghai Jade Bird”) Chengdu Beida Jade Bird Nuclear Application Research Institute Co., Ltd. (“Chengdu Jade Bird”) Shenyang Beida Jade Bird Sci-Tech Limited (“Shenyang Jade Bird”) Hong Kong Jade Bird Sci-Tech Limited (“HK Jade Bird Sci-Tech”) Wisdom New Group Limited (“Wisdom New Group”) Shenzhen Beida Jade Bird Sci-Tech Company Limited (“Shenzhen Jade Bird”) Hainan Jade Bird Safeguard Fire Alarm and Monitor Technologies Company Limited (“Hainan Jade Bird”) Weifang Beida Jade Bird Huaguang Sci-Tech Company Limited (“Jade Bird Huaguang”) Beida On-line Sichuan Tian Mu Monitored Security Company Limited (“Tian Mu”) Zhuhai Beida Education and Science Park Company Limited (“Zhuhai Beida Education”) Guangzhou Beida Jade Bird BIS Company Limited (“Guangzhou Jade Bird”)

A shareholder of the Company; also a company controlled by Peking University
A shareholder of the Company; also a company controlled by Peking University
A shareholder of the Company; also a company controlled by Peking University
A subsidiary of Beida Jade Bird

A subsidiary of Beida Jade Bird

A subsidiary of Beida Jade Bird
A subsidiary of Beida Jade Bird

An associate of Beida Jade Bird

A subsidiary of Beida Jade Bird

An associate of Beida Jade Bird

A subsidiary of Beida Jade Bird
A company indirectly controlled by Peking University

Beijing Beida Jade Bird Software System Company (“Jade Bird Software”)

A shareholder of the Company; also a company controlled by Peking University

Beida Jade Bird Security System Company Limited (“Security System”)

A subsidiary of Beida Jade Bird
Beijing Science and Technology Enterprise Development Center of Peking University (“Beida Sci-Tech”)
A company controlled by Peking University

– 62 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(b) Peking University is the ultimate controlling shareholder of the Company. In addition to the transactions and balances detailed elsewhere in these financial statements, the Group had the following material transactions with Peking University and the companies and parties under the control of Peking University during the year:

2004 RMB’000 Sale of embedded systems products and provision of total solution services to: Beijing Tianqiao 424 Beida Jade Bird 239 Peking University – 663 Disposal of the business of DVR to Shenzhen Jade Bird_(note 29 (c)) – Rental expense for an office building charged by Beida Jade Bird 976 Interest income on an amount due from Beida On-line(note 6) 765 Rental expense for equipment charged by the Institute(note 6) – Rental income for equipment earned from the Institute(note 6) – Purchase of a 100% equity interest in Beida Jada Bird Overseas Education Limited from HK Jade Bird Sci-Tech(note 29(a)) 413 Disposal of a 20% equity interest in Beijing Silicon Innovation to Beida Yu Huan(note 29(b))_ 1,200	2003 RMB’000 981 217 179
	1,377

	3,000 816 765 315 315 – –

Pursuant to the equipment lease agreements entered into between the Company and the Institute dated 17 April 2000, the Institute leased certain equipment to the Company for a period of five years at an hourly rate of RMB120, and the Company leased certain equipment to the Institute for a period of five years for an annual fee of RMB1,260,000. The aforesaid agreements were terminated on 16 April 2003.

The directors of the Company are of the opinion that the above transactions with related parties were conducted in the usual course of business.

(c) Pursuant to the technology licence agreement entered into between the Company and Beijing Tianqiao dated 17 April 2000, Beijing Tianqiao has granted an exclusive licence to the Company for the use of certain GPS technology for a period of 10 years, in return for a royalty fee calculated at 3% on the total sales of products using this technology. No royalty fee was charged by Beijing Tianqiao to the Group in 2004 and 2003 as the Group did not have any sales of products using GPS technology in these years.
(d) Pursuant to the JB-CASE Technology Licence Agreement and Trademark Licence Agreement entered into between the Company and Jade Bird Software dated 17 April 2000, Jade Bird Software granted to the Company a non-exclusive licence to use the JB-CASE technology and certain of its trademarks for a period of 10 years for nil consideration.
(e) During the year ended 31 December 2004, the Group purchased certain computer products amounting to RMB45,600,000 (2003: RMB32,029,000) which were handled by Beijing Tianqiao on behalf of the Group at no charge.
(f) During the year, the Company entered into an office building operating lease agreement with Beida Jade Bird, with a right of renewal exercisable by the Company. Pursuant to this agreement, the expiry date is 1 April 2006 and the annual rental expense is approximately RMB475,200.

– 63 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(g) As at 31 December 2004, the Group had banking facilities of USD37.5 million (equivalent to approximately RMB310 million) for short term loans (note 33) . These short term bank loans were jointly guaranteed by a shareholder of the Company and a subsidiary of Peking University, the ultimate controlling shareholder of the Company.
(h) Included in the consolidated balance sheet and the balance sheet are the following balances with shareholders and related parties:

Trade receivables from a shareholder_(note 19): Beida Jade Bird Trade receivables from related parties(note 19)_: Security System Hainan Jade Bird Guangzhou Jade Bird Chengdu Jade Bird Shenyang Jade Bird	Group 2004 2003 RMB’000 RMB’000 – 152 5 129 12 – 117 – 12 – 61 – 207 129	Company 2004 2003 RMB’000 RMB’000 – 152 5 129 12 – 117 – 12 – 61 – 207 129	Company 2004 2003 RMB’000 RMB’000 – 152 5 129 12 – 117 – 12 – 61 – 207 129

			129 – – – –
			129

– 64 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Prepayments, deposits and other receivables from a related party: Jade Bird Huaguang Due from shareholders_(note 20): Beijing Tianqiao Beida Jade Bird Peking University Shanghai Jade Bird Due from related parties(note 21): Beida Sci-Tech Beida On-line HK Jade Bird Sci-Tech Shenzhen Jade Bird Security System Jade Bird Huaguang Hainan Jade Bird Guangzhou Jade Bird Zhuhai Beida Education Ltd. Wisdom New Group Limited Trade payable to a shareholder(note 25)_: Beijing Tianqiao Advances from customers (from shareholders): Beijing Tianqiao Peking University Shanghai Jade Bird Advances from customers (from a related party): Tian Mu	Group 2004 2003 RMB’000 RMB’000 200 200 40,000 30,407 1,781 879 – 42 2,000 – 43,781 31,328 47,000 8,600 8,313 7,859 287,321 3,265 3,600 3,000 1,817 1,429 842 842 – 250 – 99 – 30 32,860 – 381,753 25,374 32 1,170 266 150 – 42 123 – 389 192 – 110	Company 2004 2003 RMB’000 RMB’000 200 200 40,000 30,407 781 879 – 42 2,000 – 42,781 31,328 47,000 8,600 8,313 7,859 – 3,265 3,600 3,000 – 62 842 842 – 250 – 99 – 29 – – 59,755 24,006 – – 190 150 – – 6 – 196 150 – 110	Company 2004 2003 RMB’000 RMB’000 200 200 40,000 30,407 781 879 – 42 2,000 – 42,781 31,328 47,000 8,600 8,313 7,859 – 3,265 3,600 3,000 – 62 842 842 – 250 – 99 – 29 – – 59,755 24,006 – – 190 150 – – 6 – 196 150 – 110

			30,407 879 42 –
			31,328

			8,600 7,859 3,265 3,000 62 842 250 99 29 –
			24,006

			–

			150 – –
			150

			110

– 65 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Due to shareholders_(note 20): Beida Jade Bird Beijing Tianqiao Shanghai Jade Bird Peking University Due to related parties(note 21)_: Security System Shenzhen Jade Bird HK Jade Bird Sci-Tech Guangzhou Jade Bird	Group 2004 2003 RMB’000 RMB’000 860 1,113 120 179 281 – – 400 1,261 1,692 387 387 355 355 1,141 – 110 – 1,993 742	Company 2004 2003 RMB’000 RMB’000 583 431 45 179 281 – – 400 909 1,010 – – 355 355 – – 110 – 465 355	Company 2004 2003 RMB’000 RMB’000 583 431 45 179 281 – – 400 909 1,010 – – 355 355 – – 110 – 465 355
			1,010

			– 355 – –
			355

33. BANKING FACILITIES

As at 31 December 2004, the Group had banking facilities of approximately USD37.5 million (equivalent to approximately RMB310 million) (2003: RMB396 million) for short term bank loans, which were all utilised. These facilities are secured by joint guarantees by a shareholder of the Company and a subsidiary of Peking University, the ultimate controlling shareholder of the Company, in respect of a loan of USD37.5 million, equivalent to approximately RMB310 million (2003: RMB393 million) (note 32(g)) .

In addition, as at 31 December 2003, the Group’s buildings, machinery and equipment with an aggregate net book value of approximately RMB1,097,000 were pledged as collateral for the Group’s banking facilities (note 13) .

34. POST BALANCE SHEET EVENTS

The Company entered into an Agreement with Beida Jade Bird on 24 March 2005. In this connection, the amounts due from related parties as at 31 December 2004 in an aggregate amount of approximately RMB320 million was utilised as earnest money for acquiring a 44% equity interest in a property development company in Beijing, details of which are set out in note 21 to these financial statements.

35. APPROVAL OF THE FINANCIAL STATEMENTS

The financial statements were approved and authorised for issue by the board of directors on 30 March 2005.

– 66 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

FIRST QUARTERLY RESULTS (UNAUDITED)

The board of directors (the “Board”) of Beijing Beida Jade Bird Universal Sci-Tech Company Limited (the “Company”) and its subsidiaries (collectively as the “Group”) is pleased to announce the unaudited consolidated results of the Group for the three months ended 31 March 2005 together with the unaudited comparative figures for the corresponding period in 2004 as follows:

		For the three	months ended
		31 March	31 March
		2005	2004
	Notes	RMB’000	RMB’000
Turnover	2	16,090	22,212
Investment income, other revenue and gains	3	100	289,223
Operating expenses:
Materials and equipment		(12,468)	(17,560)
Employee costs		(4,822)	(5,331)
Depreciation of property, plant and equipment		(471)	(467)
Amortisation of goodwill and intangible assets		(60)	(1,472)
Other operating expenses		(1,662)	(2,766)
Total operating expenses		(19,483)	(27,596)
(LOSS)/PROFIT FROM OPERATING ACTIVITIES		(3,293)	283,839
Finance income/(costs)
Interest income		813	508
Interest expense		(3,624)	(2,875)
Exchange loss		(485)	(1,288)
(Loss)/profit before tax		(6,589)	280,184
Tax	4	–	–
(Loss)/profit before minority interests		(6,589)	280,184
Minority interests		982	1,236
(Loss)/profit attributable to shareholders		(5,607)	281,420
(Loss)/earnings per share – basic (RMB cents)	5	(0.5)	25.5

– 67 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

1. PRINCIPAL ACTIVITIES AND BASIS OF PRESENTATION

The Group is principally engaged in the research, development, production, marketing and sales of embedded systems, including network security products, wireless fire alarm systems, application specific integrated circuits, smart card application systems, remote automatic meter-reading systems and related products. The Group is also engaged in the sales of computer products and the provision of total solution services through application of its existing embedded system products.

The Unaudited Quarterly Results of the Group have been prepared in accordance with Hong Kong Financial Reporting Standards (“HKFRSs”) (which also include Hong Kong Accounting Standards (“HKAS”) and Interpretations) issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”), accounting principles generally accepted in Hong Kong and the disclosure requirements of the Rules Governing the Listing of Securities on the Growth Enterprises Market of The Stock Exchange of Hong Kong Limited. They have been prepared under historical cost convention, except for available-for-sale financial assets that have been measured at fair value. The principal accounting policies used in the preparation of the Unaudited Quarterly Results are consistent with those adopted in the preparation of the consolidated annual financial statements of the Group for the year ended 31 December 2004, except for those mentioned below.

In the first quarter of 2005, the Group has adopted, for the first time, a number of new and revised Hong Kong Financial Reporting Standards and Hong Kong Accounting Standards, herein collectively referred to as the new HKFRSs, which are generally effective for the accounting periods beginning on or after 1 January 2005.

The major effects of the new HKFRSs, which have had a material impact on the Unaudited Quarterly Results, are set out below:

The adoption of HKAS 39 “Financial Instruments: Recognition and Measurement” requires the Group’s long term investment be classified as available-for-sale financial asset which is measured at fair value instead of measuring at historical cost according to the Group’s accounting policy adopted before. The fair value amount is estimated using the market information and valuation methodologies considered appropriate. However, considerable judgement is required to interpret market data to develop the estimates of fair value amount. Accordingly, the estimates made by the Group are not necessarily indicative of the amounts the Group could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amount. The effect of adopting HKAS 39 was to increase the consolidated investment revaluation reserve as at 1 January 2005 by approximately RMB286 million. As at 31 March 2005, the fair value of the long term investment was decreased by approximately RMB60 million as compared to that on 1 January 2005.

The adoptions of HKFRS 3 “Business Combinations” and HKAS 36 “Impairment of Assets” have resulted in ceasing goodwill amortisation and to test for impairment annually at the cash generating unit level (unless an event occurs during the year which requires the goodwill to be tested more frequently) from 1 January 2005. The transitional provisions of HKFRS 3 have required the Group to eliminate the carrying amount of accumulated amortisation of RMB17,342,000 with a corresponding decrease in goodwill.

2. TURNOVER

Turnover represents the net invoiced value of goods sold, after allowances for returns and trade discounts; and the value of services rendered, net of sales surtaxes. All significant intra-group transactions have been eliminated on consolidation.

Turnover Sales of embedded systems and related products Sales of computer products Provision of total solution services	For the three months ended 31 March 31 March 2005 2004 RMB’000 RMB’000 6,933 20,721 9,136 893 21 598 16,090 22,212	For the three months ended 31 March 31 March 2005 2004 RMB’000 RMB’000 6,933 20,721 9,136 893 21 598 16,090 22,212
		22,212

– 68 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

3. INVESTMENT INCOME, OTHER REVENUE AND GAINS

Gain on disposal of long term investment_(Note a)_ Others	For the three months ended 31 March 31 March 2005 2004 RMB’000 RMB’000 – 289,214 100 9 100 289,223	For the three months ended 31 March 31 March 2005 2004 RMB’000 RMB’000 – 289,214 100 9 100 289,223
		289,223

Note (a) Gain on disposal of long term investment for the three months ended 31 March 2004 represents the gain of approximately RMB289,214,000 on disposal of 156,842,000 ordinary shares in Semiconductor Manufacturing International Corporation (“SMIC”) in March 2004.

4. TAXATION

Hong Kong profits tax has not been provided as the Group has no assessable profits arising in Hong Kong during the period (2004: Nil). Taxes on profits assessable elsewhere have been calculated at the rates of tax prevailing in the countries in which the Group operates, based on existing legislation, interpretations, and practices in respect thereof. No profits tax or income tax has been provided for the three months ended 31 March 2005 (2004: Nil).

There was no material unprovided deferred tax for the three months ended 31 March 2005 (2004: Nil).

5. (LOSS)/EARNINGS PER SHARE

The calculation of loss per share of RMB0.5 cents (2004: earnings per share of RMB25.5 cents) for the three months ended 31 March 2005 was based on loss attributable to shareholders of RMB5,607,000 (2004: profit attributable to shareholders of RMB281,420,000) and on the weighted average number of 1,184,800,000 shares (2004: 1,104,000,000 shares) in issue.

– 69 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

3. STATEMENT OF INDEBTEDNESS

At the close of business on 30 April 2005, being the latest practicable date for ascertaining information regarding this indebtedness statement, the Group had total outstanding borrowings of approximately RMB288.6 million, consisting of short-term bank loan and long-term bank loans of approximately RMB268.6 million and RMB20 million, respectively. Among these bank loans, approximately RMB268.6 million and RMB20 million were denominated in the US dollars and Renminbi, respectively.

Bank loans of the Group of RMB20 million were secured by mortgages over certain of the Group’s buildings, machinery and equipment with an aggregate net book value of approximately RMB30.2 million as at 30 April 2005. Beijing Beida Jade Bird Limited, a shareholder of the Company, and Peking University Resource Group, a subsidiary of Peking University which is the ultimate controlling shareholder of the Company, have jointly guaranteed certain of the Group’s bank loan of US$32.5 million, or equivalent to approximately RMB268.6 million as at 30 April 2005.

Apart from intra-group liabilities and those mentioned above, as at the close of business on 30 April 2005, the Group did not have any outstanding mortgages, charges, pledges, debentures, loan capital, bank loans and overdrafts, debt securities or other similar indebtedness, finance leases or hire purchase commitments, acceptance liabilities or acceptance credits, any guarantees or other material contingent liabilities.

Save as aforesaid or as otherwise mentioned in this circular, the Directors confirmed that there has been no material change in the indebtedness and guarantees of the Group since 30 April 2005.

4. WORKING CAPITAL

The Directors, including independent non-executive Directors, are of the opinion that, following completion of the Acquisition, taking into account the financial resources available to the Group, including internally generated funds and the present available banking facilities, and in the absence of unforeseen circumstances, the Group will have sufficient working capital for its present requirements.

5. RULES 17.15 TO 17.21 OF THE GEM LISTING RULES

Save as disclosed under the section headed “Letter from the Board” in this circular, the Directors have confirmed that, as at the Latest Practicable Date, the Group was not aware of any circumstances that would give rise to a disclosure requirement under Rules 17.15 to 17.21 of the GEM Listing Rules.

6. MATERIAL ADVERSE CHANGE

The Directors are not aware of any material adverse change in the financial or trading position of the Group since 31 December 2004, being the date to which the latest published audited financial statements of the Company were made up.

– 70 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

7. MANAGEMENT DISCUSSION AND ANALYSIS OF THE GROUP

(a) Financial overview

Turnover

The audited consolidated turnover of the Group for the year ended 31 December 2004 amounted to RMB130,503,000 (2003: RMB199,740,000).

The decrease in turnover was primarily due to a substantial reduction in both the sales of embedded systems and related products which recorded a decrease of RMB37.7 million to RMB77.2 million from RMB114.9 million in last year, as well as the sale of computer products which recorded a decrease of RMB19.5 million to RMB50.9 million from RMB70.4 million in last year The higher margin total solution services business also experienced a significant decrease of RMB12.0 million to RMB2.4 million from RMB14.4 million in last year. The overall decrease is mainly attributable to the competitive market in the PRC and the lower than expected revenue achieved by a subsidiary disposed near the year end which was engaged in integrated circuits business. For the year ended 31 December 2004, the turnover from the sales of embedded system products and related products, sales of computer products and total solution services were approximately 59%, 39% and 2% respectively as compared to the more evenly distributed sales mix of 57%, 35% and 8% respectively in the last year.

Operating Profit

The operating profit of the Group for the year ended 31 December 2004 amounted to RMB243,179,000 (2003: RMB16,312,000). The significant increase was due to the recording of the investment income of RMB289,214,000 (2003: Nil) on disposal of part of the Group’s interest in Semiconductor Manufacturing International Corporation (“SMIC”) in March 2004.

On the other hand, the operating results of the Group in other areas were affected by the decrease in the revenue of total solution services which carried a higher margin. In addition, sales of embedded systems as well as sales of computer products also recorded decrease in gross profit margin. During the year, the Group also recorded a substantial provision for doubtful debts of RMB34,534,000 (2003: write-back of RMB1,603,000) because the management adopted a conservative approach in one-off re-assessing the recoverable value of long outstanding accounts receivable.

Finance Cost

The interest expense recorded a slight decrease of RMB1.1 million to RMB11.3 million from RMB12.4 million in last year. It was mainly due to the USD 10 million partial repayment of the Group’s bank loan during the year.

– 71 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Profit Attributable to Shareholders

The profit attributable to shareholders and earnings per share of the Group for the year ended 31 December 2004 were RMB234,185,000 (2003: RMB7,136,000) and RMB20.4 cents (2003: RMB0.7 cent) respectively.

(b) Business overview

Network Security System

During the year, the Group completed the research and development of H323 agent technology and continued develop centralised control channel technology. The Group has completed the production of 70 units of JB-FW1/100 and 8 units of JB-FW1/1000. During the period, the Group completed the grading assessment by China Ministry of Public Security.

During the year, Wuhan Beida Jade Bird Netsoft Company Limited (“Wuhan Netsoft”), a subsidiary of the Company, has completed the research and development of the network management platform software NetSureExpert5.3 version (enhanced version with supporting the multi-layer infrastructure technology) and also NetSureExpert5.31 version. Wuhan Netsoft is currently developing the desktop management function module technology (WMI) and plans to develop NetSureExpert5.4 version, VLAN and MPLS VPN technology. During the year, the following projects were completed: Service contracts with The People’s Procuratorate of Wuhan, China Southern Aviation Industry Co., Ltd, PetroChina South China Distribution Ltd, Shandong Tobacco Ltd, North China Pharmaceutical Group Corporation, Department of Education of Guangzhou, Nanjing University of Posts, Harbin Normal University, Handan Municipal Government etc.

For the year ended 31 December 2004, the turnover and loss incurred by the network security system products were RMB9,430,000 and RMB4,325,000 respectively.

Wireless Fire Alarm System

In term of the network, during the period, the Group had completed the research and development of the municipal concentrative fire protection application technology. The Group is researching the application of embedded system on the fire protection application technology, as well as the low-pressured carbon dioxide controller technology. In term of the hardware, during the period, the Group had completed the research and development of the network communication card, the fire alarm controller (linkage), the non-address feeling smoke detector, the non-establishment feeling warm detector product, right now researches and develops the feeling smoke detector (the PIC16F676 chip) the product.

During the period, the Group manufactured 20 units of the JB-QB-JBF-11S/CD6 fire alarm controller (linkage) and 8,600 units of the JTW-ZD-LN2110/C non-address feeling warm detector.

– 72 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

During the period, the Group completed the major project for Jingmen Project of Beijing Longjian Group Ltd., Beijing Century Spring Garden Project of Shanghai Hehe Engineering Technology Ltd., State Administration Taxation Huairou Training Centre of Huaian Fair Protection Co., Ltd. and Shuang Garden Project of Beijing Andisheng Security System Autoimmunization Ltd.

During the period, the Group participated in various types of exhibitions, such as the 10th International Fire Fighting Equipment Technological Exchange Exhibition held by China Fire Protection Association, and National Fire Prevention Standardization Technical Committee Sixth Technical Sub-Committee held by National Technical Committee for Fire Protection Standardization, establishment meeting of China Fire Protection Association Electronic Profession Branch held by China Fire Protection Association Fire Prevention Electronic Profession Branch; “Fire Auto-alarm System Construction and Approval Standard” (revision for approval manuscript) the examining committee held by Shenyang Fire Prevention Research Institute of China Ministry of Public Security. As a consequence, the Group’s fire protection products were extensively promoted and their brand images were well established in the industry.

For the year ended 31 December 2004, the turnover and profit contributed from the wireless fire alarm system products were RMB44,244,000 and RMB7,302,000 respectively.

Security ICs

During the year, the Group disposed of a 60% held subsidiary, Beijing Silicon Innovation Company Limited for a cash consideration of RMB3,600,000 and at a gain of RMB1,254,000. The disposal was made due to the lower than expected revenue achieved since establishment of the subsidiary few years ago.

For the year ended 31 December 2004, the turnover and profit contributed from the security ICs products were RMB25,434,000 and RMB787,000 respectively.

Smart Card Application System

For the year ended 31 December 2004, the turnover and loss incurred by the smart cards application system products were RMB106,000 and RMB39,000 respectively.

Remote Meter Reading System

For the year ended 31 December 2004, the turnover and loss remote meter reading system products were RMB420,000 and RMB2,390,000 respectively.

Computer products

The significant drop in sale of computer products was predominantly owing to less efforts spent in promoting the sale of computer products in light of the slimmer profit margin under the prevailing highly competitive IT market in the PRC.

– 73 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

For the year ended 31 December 2004, the turnover and profit contributed from computer products were RMB50,869,000 and RMB362,000 respectively.

Semiconductor Manufacturing International Corporation (“SMIC”)

2004 was a remarkable year with significant achievements for SMIC. In January 2004, SMIC completed the acquisition of Fab 7, an 8-inch wafer fab located in Tianjin, China, and commenced mass production in May 2004. In March 2004, SMIC successfully completed initial public offering on both the New York Stock Exchange and the Hong Kong Stock Exchange, raising approximately US$1 billion. In July 2004, SMIC commenced pilot production at Fab 4, being China’s first 12-inch fab, in Beijing. For the year ended 31 December 2004, SMIC also achieved its first year of profitability.

While 2005 looks to be a year of flat growth for the semiconductor industry with demand improving as the year progresses, SMIC will continue to aggressively pursue new customers both globally and domestically by offering them leading edge foundry services. SMIC believe that the Greater China region will continue to exhibit strong growth and demand.

Government Approval and Awards

In November 2004, the Beida Jade Bird gateway firewall JB-FW1/100 and JB-FW1/ 1000 was awarded computer information system security specialized product sale permission certificate issued by the China Ministry of Public Security Public Information Network Security Supervision Bureau.

Feeling smoke detector JBF-LN-2100/C and JBF-LN-2110/C obtained the quality approval examination certificate issued by the National Fire Prevention Electronic Products Quality Surveillance Test Center.

(c) Liquidity and financial resources

The Group has financed its operation mainly by equity, funds generated from operating activities and short term bank loans.

As at 31 December 2004, the Group had cash on hand of RMB322 million and USD short term bank loans totaling RMB310 million (USD37.5 million) borrowed for financing the investment in SMIC. The aforesaid USD short term bank loans were guaranteed by a shareholder of the Company and a subsidiary of Peking University.

On 8 June 2004, the Company entered into a placing agreement with a placing agent for the placing of 80,800,000 new H Shares at a price of HK$0.75 per H share (“the Placing”). On 18 June 2004, the Company completed the Placing and obtained the approval from GEM Listing Committee for the listing of and permission to deal in the 80,800,000 new H Shares. The proceeds from the Placing were credited to the books of the Company in June 2004 and was used for general working capital purpose. The dealings of new H shares commenced on 21 June 2004.

– 74 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

As at 31 December 2004, the Group had a gearing ratio (the ratio of total borrowings to total equity) and net current ratio (the ratio of current liabilities to total assets of 38% and 31%, respectively.

(d) Charge on Group assets

As at 31 December 2004, the Group did not have any buildings, machinery and equipment pledged as collateral for the Group’s banking facilities. As at 31 December 2003, the Group’s buildings, machinery and equipment with an aggregate net book value of approximately RMB1,097,000 were pledged as collateral for the Group’s banking facilities.

(e) Contingent liabilities

As at 31 December 2004, the Group had capital commitments of RMB2,461,000 (2003: Nil) and no contingent liabilities. (2003: Nil).

(f) Employee information

As at 31 December 2004, the Group has approximately 225 (2003: 202) employees, of which 2 possess the doctorate degree, 28 possess the master degree and 122 possess the bachelor degree. Under the Group’s existing organization structure, the research, development and technical support team has over 117 members, while the marketing and sales team has 52 members.

8. FUTURE PLANS AND PROSPECTS OF THE GROUP

The prevailing information technology (“IT”) market is very competitive in the PRC and most of the IT participants are confronting with new challenge. Under these circumstances, the Group is finding its way to diversify and explore new avenue. In March 2005, the Group had taken its move to sign up a conditional agreement to invest into a transportation hub property project in city centre of Beijing based on the Board’s belief in the potential of property sector of Beijing before and after the 2008 Olympics Games. The Board also considers that this property project, after the Group’s equity interest is secured in the future, could bring in new opportunity to the Group’s existing IT businesses in terms of, for example provision of wireless fire alarm systems and network security systems etc.

9. MANAGEMENT DISCUSSION AND ANALYSIS OF DONGHUA

The following discussion should be read in conjunction with the accountants’ report of Donghua as set out in Appendix II to this circular. The following discussion contains certain forward-looking statements that involve risks and uncertainties. For the purposes of this section, unless the context otherwise requires, references to “2004”, “2003” and “2002” refer to Donghua’s financial year ended 31 December of such year.

Overview

Donghua is engaged in the property development business in the PRC. Its major asset is the right to develop a parcel of land (the “Land Interest”), which is located at Dong Zhi Men Wai, Doncheng District, Beijing (北京市東城區東直門外 ) and has a site area of about 143,000 m[2] . Governmental approvals have been obtained by Donghua in 2000 for the development of the Land into a transportation terminal and a large-scale commercial and residential complex (the “Project”), which is expected to be completed in 2008.

– 75 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Up to the Latest Practicable Date, demolition of the old buildings on the Land, relocation of the original residents and tenants of the Land, leveling works of the Land have been completed and the foundation and piling works of the transportation terminal have been completed. Construction of the transportation terminal, the hotel, the office towers and various other buildings has not yet commenced. According to the PRC legal opinion, Donghua has obtained all necessary approvals and permits from relevant authorities and submitted the land use right grant application for the Land to Beijing Land and Resources Bureau, as well as possessed the development right to the property in relation to the Land. As at the Latest Practicable Date, Donghua has not obtained stateowned land use right certificate yet. However, the PRC legal advisers of the Company are of the view that there is no legal impediment for Donghua to obtain the land use right certificate. It is expected that the land use right certificate for the Land could be obtained within two to three months after the payment of the relevant premium of the Land.

According to the land premium receipt issued by Beijing Land and Resources Bureau, the land premium of the Land was approximately RMB636.9 million excluding other costs of resettlement and ancillary utilities services of the Land and has been fully settled by Donghua subsequently on 20 June 2005. According to the PRC legal opinion, Donghua is in the process of applying for the land use rights and there should be no legal impediment for Donghua to obtain the land use rights certificate. Pursuant to the PRC legal opinion, the land use rights are for various terms of 40, 50 and 70 years for commercial (hotel and commercial), composite (office and car parking) and residential uses, respectively. Once Donghua has obtained the land use rights certificate, Donghua has the right to assign, lease or mortgage the Land, except for certain parts of the Land to be assigned to 北京市東城區住宅發展中心 (“東城區住宅中心 ”) according to the cooperation agreement detailed in Section X of accountants’ report of Donghua set out in Appendix II. Accordingly, the directors of Donghua consider that Donghua has proper title of the interests in properties under development.

The land premium of the Land was advanced by 北京東華置業有限公司 (“Beijing Donghua Company”), pursuant to a loan agreement which Donghua entered into with Beijing Donghua Company subsequently on 20 June 2005 (the “Loan Agreement”). According to the Loan Agreement, Donghua had obtained an unsecured loan of RMB 850 million from Beijing Donghua Company at the interest rate based on the borrowing rate of the People’s Bank of China for one year term loan and the settlement date will be on 17 June 2006.

Review of past performance

Donghua’s loss for the respective year during the Relevant Periods was resulted from the administrative expenses. As Donghua was in the process of developing the Land and there was no pre-sale of properties, no turnover was recorded during the Relevant Periods. Donghua’s administrative expenses for the years ended 31 December 2002, 2003 and 2004 was RMB4,441,000, RMB19,386,000 and RMB15,022,000, respectively.

2004 compared with 2003

Administrative Expenses and Loss for the year

In 2004, Donghua’s administrative expenses principally included staff costs, rental, travel, entertainment and other expenses.

– 76 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

In 2004, the administrative expenses decreased by RMB4.4 million, or 23%, to RMB15.0 million from RMB19.4 million in 2003. The significant decrease in administrative expenses was mainly due to the absence in 2004 of the 2003 one-off management fee of RMB8,160,000 paid to 北京城建投資發展股份有限公司 (formerly known as 北京城建股份有限公司 and was renamed on 26 April 2001) (“Beijing Cheng Jian”) but offset by the increase in staff costs.

2003 compared with 2002

Administrative Expenses and Loss for the year

In 2003, Donghua’s administrative expenses principally included management fee paid to Beijing Cheng Jian, staff costs, rental, travel entertainment and other expenses.

In 2003, the administrative expenses increased by RMB15.0 million, or 341%, to RMB19.4 million from RMB4.4 million in 2002. The significant increase in administrative expenses in 2003 compared with 2002 was mainly due to the management fee of RMB8,160,000 paid in 2003 to Beijing Cheng Jian for the provision of administrative services and the increase in the staff costs after deducting the amounts capitalized in interests in properties under development.

Contingent Liabilities

Donghua had no contingent liabilities as at Latest Practicable Date except that there is a pending litigation sued by 北京市東城區房屋土地經營管理中心 (“Dongcheng Management Centre”) in respect of the outstanding payment of compensation of approximately RMB7.2 million for demolition of the old buildings on the Land and the corresponding legal cost. However, the compensation of approximately RMB7.2 million was recorded as trade payables as at 31 December 2003 and 2004. As at the Latest Practicable Date, the legal case is still in progress and no further action has been undertaken by Dongcheng Management Centre. The directors of Donghua and the Company consider provision for legal cost is not necessary at this stage as they believe that the legal cost would not be material.

Liquidity, financial resources and capital structure

To date Donghua has funded its development principally from advances from equity holders, former or potential equity holders and bank borrowings.

Donghua’s bank borrowings as at 31 December 2002, 2003 and 2004 were RMB255,000,000, RMB50,000,000 and nil respectively.

Donghua’s bank loans during the Relevant Periods were guaranteed by Beijing Cheng Jian and bore interest at the rates ranging from 5.3% to 6.4% per annum.

The amount due to an equity holder, Beijing Cheng Jian, as at 31 December 2002, 2003 and 2004 were RMB461,454,000, RMB80,417,000 and nil respectively. The bank loans were fully repaid during the year ended 31 December 2004.

Donghua’s gearing ratio were 91.6%, 92.0% and 94.1% as at 31 December 2002, 2003 and 2004, respectively. The gearing ratio is calculated by dividing Donghua’s total borrowings (both from equity holders and banks, as well as the amounts due to Beijing Donghua Company and the amount due to Hua Yuen, respectively, included in “Accrued Liabilities and Other Payables” as at 31 December 2003 and 2004 – see note (f)(i) and note (f)(ii), respectively, of section IV of “Appendix II – Accountants’ report of Donghua”) by its total assets.

Donghua’s capital commitments as at 31 December 2002, 2003 and 2004 were approximately RMB5.3 billion, RMB5.2 billion and RMB5.1 billion, respectively. Donghua is in the process of securing bank loans of not less than RMB2 billion from a PRC Bank to partially finance the Project. The balance of the development cost is expected to be financed by the proceeds from the pre-sale of the properties under development of the Land.

Prospect

According to the current plan, construction of the Project will be completed in 2008. Presale of properties under development of the Land is expected in mid-2006 after the construction work has progressed to a certain stage where all the relevant legal requirements have been met.

– 77 –

ACCOUNTANTS’ REPORT OF DONGHUA

APPENDIX II

The following is the full text of the accountants’ report received from Grant Thornton for the purpose of incorporation in this circular.

30 June 2005

The Directors

Beijing Beida Jade Bird Universal Sci-Tech Company Limited Rooms 1117/1119 Zhongcheng Building Haidan Road Beijing The People’s Republic of China

Dear Sirs,

We set out below our report on the financial information regarding 北京城建東華房地產開發有限責任公司 (“Donghua”) for the years ended 31 December 2002, 2003 and 2004 (the “Relevant Periods”) for inclusion in the circular (the “Circular”) dated 30 June 2005 issued by Beijing Beida Jade Bird Universal Sci-Tech Company Limited (the “Company”) in connection with the proposed acquisition of 44% equity interest in Donghua and 44% of the shareholders’ loan of Donghua (the “Acquisition”) by the Company pursuant to a conditional share transfer agreement dated 24 March 2005 entered into between the Company and Beijing Beida Jade Bird Limited (“Beida JB”), a promoter of the Company.

Donghua is a domestic company established in the People’s Republic of China, excluding Hong Kong (the “PRC”) on 29 March 2000 and engaged in the property development business in the PRC. Donghua has obtained a right to develop a parcel of land (the “Land Interest”), which is located at Dong Zhi Men Wai, Dongcheng District, Beijing (北京市東城區東直門外 ) and has a site area of about 143,000 m[2] (the “Land”). Governmental approvals have been obtained by Donghua for the development of the Land into a transportation terminal and a large-scale commercial and residential complex (the “Project”).

The statutory financial statements of Donghua were prepared in accordance with the relevant accounting principles and financial regulations applicable to companies established in the PRC. The statutory auditors of Donghua for the years ended 31 December 2002 and 2003 were 北京京都會計師事務所有限責任公司 , Certified Public Accountants, the PRC. The statutory auditors of Donghua for the year ended 31 December 2004 were 北京中宣育會計師事務所有限責任公司 , Certified Public Accountants, the PRC.

For the purpose of the Acquisition, the directors of Donghua have prepared the management accounts of Donghua for the Relevant Periods in accordance with accounting principles generally accepted in Hong Kong and in compliance with accounting standards issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”) (the “Accounts”). The directors of Donghua are responsible for preparing the Accounts which give a true and fair view. In preparing the Accounts, it is fundamental that appropriate accounting policies are selected and applied consistently. We have, for the purpose of this report, carried out independent audit procedures on the Accounts in accordance with Statements of Auditing Standards issued by the HKICPA.

– 78 –

ACCOUNTANTS’ REPORT OF DONGHUA

APPENDIX II

The summaries of the income statements, statements of changes in equity and cash flow statements for the Relevant Periods and of the balance sheets of Donghua as at 31 December 2002, 2003 and 2004 (the “Summaries”) set out in this report have been prepared by the directors of the Company based on the Accounts. We have examined the Summaries and carried out such additional procedures as are necessary in accordance with the Auditing Guideline “Prospectuses and the reporting accountant” issued by the HKICPA.

The directors of the Company are responsible for the Summaries. It is our responsibility to form an independent opinion, based on our examination, on the Summaries and to report our opinion to you.

Fundamental uncertainty

In forming our opinion, we have considered the adequacy of the disclosures made in the Summaries concerning the financial position of Donghua. As set out in the balance sheet as at 31 December 2004, the current liabilities of Donghua exceeded its current assets, excluding interests in properties under development of RMB851,773,000, by RMB841,957,000. As explained in section I “Basis of presentation” below, Donghua is currently negotiating with a PRC bank for loans of not less than RMB2 billion to meet its future working capital and financing requirements. The directors of Donghua and the Company are of the opinion that Donghua will be able to secure adequate sources of finance to meet its requirements. The Summaries have been prepared on a going concern basis, the validity of which depends upon future funding being available. The Summaries do not include any adjustments that would result either from a failure to obtain such funding, or from the failure to complete the aforementioned Project by Donghua. Should Donghua be unable to obtain such bank loans and continue as a going concern, adjustments would have to be made to restate the value of all assets of Donghua to their recoverable amounts, to provide for any further liabilities for Donghua which might arise and to reclassify the non-current assets of Donghua as current assets. We consider that the fundamental uncertainty has been properly accounted for and disclosed in the Summaries and our opinion is not qualified in this respect.

Opinion

In our opinion, on the basis set out in section I below, the Summaries set out below together with the notes thereon give, for the purpose of this report, a true and fair view of the results and cash flows of Donghua for the Relevant Periods and of the states of its affairs as at 31 December 2002, 2003 and 2004.

– 79 –

ACCOUNTANTS’ REPORT OF DONGHUA

APPENDIX II

I. BASIS OF PRESENTATION

Donghua is a domestic company established in the PRC on 29 March 2000 and is engaged in the property development business in the PRC. The major asset of Donghua was the Land Interest.

At 31 December 2004, the current liabilities of Donghua exceeded its current assets, excluding interests in properties under development of RMB851,773,000, by RMB841,957,000. Furthermore, as at 31 December 2004, Donghua had outstanding commitments of approximately RMB5.1 billion in respect of the Project, as detailed in note (j) of section IV. The total development costs for the Project, including the premium for the Land, are estimated to be RMB6 billion by the directors of Donghua. Financing measures under consideration for meeting Donghua’s aforementioned net current liabilities, commitments and future working capital requirements include obtaining bank loans and pre-sale of the commercial units. Donghua is currently in the process of securing bank loans of not less than RMB2 billion from a PRC bank to partially finance the Project. The directors of Donghua and the Company are of the view that Donghua will be able to secure adequate sources of finance to continue in business as a going concern and to meet its liabilities and obligations as and when they fall due. Based on the foregoing, the directors of the Company have prepared the Summaries on a going concern basis. Should Donghua be unable to obtain such bank loans and continue as a going concern, adjustments would have to be made to restate the value of all assets of Donghua to their recoverable amounts, to provide for any further liabilities for Donghua which might arise and to reclassify the non-current assets of Donghua as current assets. The effect of these potential adjustments has not been reflected in the Summaries.

II. PRINCIPAL ACCOUNTING POLICIES

(a) Basis of preparation

The Summaries have been prepared under the historical cost convention and in accordance with accounting principles generally accepted in Hong Kong and comply with all applicable Hong Kong Financial Reporting Standards issued by the HKICPA.

The HKICPA has issued a number of new and revised Hong Kong Financial Reporting Standards and Hong Kong Accounting Standards (“new HKFRSs”) which are effective for accounting periods beginning on or after 1 January 2005. Donghua has not early adopted these new HKFRSs in the Accounts. Accordingly, these new HKFRSs have also not been adopted in these Summaries. Donghua has already commenced an assessment of the impact of these new HKFRSs but is not yet in a position to state whether these new HKFRSs would have a significant impact on its results of operations and financial positions.

– 80 –

ACCOUNTANTS’ REPORT OF DONGHUA

APPENDIX II

(b) Property, plant and equipment

(i) Depreciation

Depreciation is provided to write off the cost of property, plant and equipment over their estimated useful lives, using the straight-line method, at the following rates per annum:

Motor vehicles 20%-25% Furniture and equipment 20%-25%

(ii) Measurement bases

Property, plant and equipment are stated at cost less accumulated depreciation and impairment losses. The cost of an asset comprises its purchase price and any directly attributable costs of bringing the asset to the working condition and location for its intended use. Subsequent expenditure relating to the property, plant and equipment is added to the carrying amount of the assets if it can be demonstrated that such expenditure has resulted in an increase in the future economic benefits expected to be obtained from the use of the assets.

When assets are sold or retired, any gain or loss resulting from their disposal, being the difference between the net disposal proceeds and the carrying amount of the assets, is included in the income statement.

(c) Interests in properties under development

Interests in properties under development held for sale are included in current assets at the lower of cost and net realisable value. Net realisable value is calculated as the price ultimately expected to be realised less the anticipated costs to completion. Cost comprises cost for demolition of old buildings, cost for relocation of original residents and tenants, development costs, including capitalised borrowing costs and other direct costs attributable to the interests in properties under development.

(d) Operating leases

Leases where substantially all the risks and rewards of ownership of assets remain with the lessor are accounted for as operating leases. Annual rentals applicable to such operating leases are charged to the income statement on a straight-line basis over the lease terms.

(e) Foreign currencies

Transactions in foreign currencies are translated at the rates of exchange ruling at the dates of transactions. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated at the applicable rates of exchange ruling at that date. Gains and losses arising on exchange are dealt with in the income statement.

– 81 –

ACCOUNTANTS’ REPORT OF DONGHUA

APPENDIX II

(f) Income tax

Income tax comprises current and deferred tax.

Current tax is the expected tax payable on the taxable income for the year using tax rates enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years.

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the Summaries and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences, and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill (or negative goodwill) or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Any such reduction is reversed to the extent that it becomes probable that sufficient taxable profit will be available.

Deferred tax assets and liabilities are not discounted. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset realised. Deferred tax is charged or credited to the income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.

(g) Related parties

(h) Borrowing costs

Costs incurred on borrowings that are directly attributable to the acquisition, construction or production of qualifying assets are capitalised as part of the cost of those assets up to the completion of their construction. Any other borrowing costs are charged to the income statement in the period in which they are incurred.

– 82 –

ACCOUNTANTS’ REPORT OF DONGHUA

APPENDIX II

(i) Cash and cash equivalents

Cash comprises cash on hand and demand deposits repayable on demand with any bank or other financial institution.

Cash equivalents represent short-term, highly liquid investments which are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value.

(j) Impairment

The carrying amounts of Donghua’s assets are reviewed at each balance sheet date to determine whether there is any indication of impairment.

If any such indication exists, the asset’s recoverable amount is estimated. An impairment loss is recognised whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. Impairment losses are recognised in the income statement.

(i) Calculation of recoverable amount

The recoverable amount of an asset is the greater of its net selling price and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs.

(ii) Reversals of impairment

An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

(k) Employee benefits

The employees of Donghua in the PRC are required to participate in a central pension scheme operated by the local municipal government. Donghua is required to contribute certain percentage of its payroll costs to the central pension scheme. The contributions are charged to the income statement as they become payable in accordance with the rules of the central pension scheme.

– 83 –

ACCOUNTANTS’ REPORT OF DONGHUA

APPENDIX II

III. RESULTS

The following is a summary of the income statements of Donghua for the Relevant Periods:

Notes
Turnover
Cost of sales
Gross profit
Administrative expenses
Loss from operating activities
before taxation
(a)
Taxation
(b)
Loss for the year
Notes:
(a)
Loss from operating activities before taxation
Loss from operating activities before taxation is arrived
at after charging/(crediting):
Auditors’ remuneration
Depreciation
Operating lease charges for office premises
Staff costs, including directors’ and supervisors’
emoluments_(note (d))_
(Gain)/Loss on disposal of property, plant and equipment
Finance costs:
Interest expenses on bank loans
Interest expenses on other loans
Bank interest income
Other interest income
Less: Amounts capitalised to interests in properties
under development

Year ended 31 December
2002
2003
2004
RMB’000
RMB’000
RMB’000
–
–
–
–
–
–
–
–
–
(4,441)
(19,386)
(15,022)
(4,441)
(19,386)
(15,022)
–
–
–
(4,441)
(19,386)
(15,022)
Year ended 31 December
2002
2003
2004
RMB’000
RMB’000
RMB’000
–
–
5
184
640
242
781
951
1,036
451
1,643
7,934
–
(17)
2
16,715
6,865
1,445
31,621
30,804
6,432
(231)
(257)
(18)
(934)
(33)
–
47,171
37,379
7,859
(47,171)
(37,379)
(7,859)
–
–
–

– 84 –

ACCOUNTANTS’ REPORT OF DONGHUA

APPENDIX II

(b) Taxation and deferred taxation

Taxes on assessable profits have been calculated at the applicable rates of tax prevailing in the jurisdiction in which Donghua operates, based on existing legislation and interpretations in respect thereof during the Relevant Periods.

Loss before taxation Tax at the applicable tax rate of 33% Tax effect of non-deductible expenses Tax losses not recognised Actual tax expense	Year ended 31 December 2002 2003 2004 RMB’000 RMB’000 RMB’000 (4,441) (19,386) (15,022) (1,466) (6,397) (4,957) 1,111 4,894 1,101 355 1,503 3,856 – – –	Year ended 31 December 2002 2003 2004 RMB’000 RMB’000 RMB’000 (4,441) (19,386) (15,022) (1,466) (6,397) (4,957) 1,111 4,894 1,101 355 1,503 3,856 – – –

		(4,957) 1,101 3,856
		–

Donghua has not recognised deferred tax assets in respect of tax losses carried forward of RMB2,796,000, RMB7,351,000 and RMB19,036,000 as at 31 December 2002, 2003 and 2004 respectively. Recognition of these unrecognised tax losses depends on future taxable profits available and losses agreed with the relevant tax authorities. The tax losses are available for setting off against future taxable profit of Donghua for a period of five years from the year in which the tax losses arise under current tax legislation.

(c) Loss per share

The loss per share information for each of the Relevant Periods has not been presented as the directors of the Company consider that such presentation is not meaningful.

(d) Staff costs

Salaries, allowances and benefits in kind Bonuses Pensions Less: Amounts capitalised to interests in properties under development	Year ended 31 December 2002 2003 2004 RMB’000 RMB’000 RMB’000 676 3,837 4,064 349 1,006 7,403 215 292 284 1,240 5,135 11,751 (789) (3,492) (3,817) 451 1,643 7,934	Year ended 31 December 2002 2003 2004 RMB’000 RMB’000 RMB’000 676 3,837 4,064 349 1,006 7,403 215 292 284 1,240 5,135 11,751 (789) (3,492) (3,817) 451 1,643 7,934
		11,751 (3,817)
		7,934

(e) Directors’ and supervisors’ emoluments

The aggregate amounts of emoluments payable to the directors and supervisors of Donghua during the Relevant Periods are as follows:

Salaries, allowances and benefits in kind Bonuses Retirement scheme contributions	Year ended 31 December 2002 2003 2004 RMB’000 RMB’000 RMB’000 140 124 71 140 367 943 9 12 10 289 503 1,024	Year ended 31 December 2002 2003 2004 RMB’000 RMB’000 RMB’000 140 124 71 140 367 943 9 12 10 289 503 1,024
		1,024

– 85 –

ACCOUNTANTS’ REPORT OF DONGHUA

APPENDIX II

(e) Directors’ and supervisors’ emoluments (Continued)

One of the directors of Donghua received emoluments of approximately RMB202,000, RMB397,000 and RMB860,000 for the year ended 31 December 2002, 2003 and 2004, respectively. The remaining six directors of Donghua received no emolument for the years ended 31 December 2002, 2003 and 2004, respectively.

One of the supervisors of Donghua received emoluments of approximately RMB87,000, RMB106,000 and RMB164,000 for the year ended 31 December 2002, 2003 and 2004 respectively. The remaining two supervisors of Donghua received no emolument for the years ended 31 December 2002, 2003 and 2004.

There was no emolument paid by Donghua to its directors or supervisors as an inducement to join or upon joining Donghua, or as compensation for loss of office during the Relevant Periods.

There was no arrangement under which a director or a supervisor of Donghua waived or agreed to waive any remuneration during the Relevant Periods.

(f) Five highest paid individuals

The five individuals whose emoluments were the highest in Donghua during the Relevant Periods include one director in 2002, 2003 and 2004 respectively whose emoluments are reflected in note (e) above. The emoluments paid to the four remaining highest paid, non-director individuals in 2002, 2003 and 2004 are as follows:

Salaries, allowances and benefits in kind Bonuses Retirement scheme contributions	Year ended 31 December 2002 2003 2004 RMB’000 RMB’000 RMB’000 371 295 195 209 580 1,955 36 46 38 616 921 2,188	Year ended 31 December 2002 2003 2004 RMB’000 RMB’000 RMB’000 371 295 195 209 580 1,955 36 46 38 616 921 2,188
		2,188

The emoluments of these highest paid, non-director individuals fell within the RMBNil – RMB1,000,000 band.

No emoluments were paid by Donghua to any of these five highest paid individuals as an inducement to join or upon joining Donghua, or as compensation for loss of office during the Relevant Periods.

– 86 –

ACCOUNTANTS’ REPORT OF DONGHUA

APPENDIX II

IV. BALANCE SHEETS

The following is a summary of the balance sheets of Donghua as at 31 December 2002, 2003 and 2004:

Notes
ASSETS AND LIABILITIES
Non-current assets
Property, plant and equipment
(a)
Current assets
Interests in properties under development
(b)
Prepayments, deposits and other receivables
Amount due from an equity-holder
(c)
Other taxes recoverable
(d)
Bank and cash balances
Current liabilities
Trade payables
(e)
Accrued liabilities and other payables
(f)
Amount due to an equity-holder
(c)
Bank loans, secured
(g)
Net current assets
Total assets less current liabilities
CAPITAL AND RESERVES
Paid-in capital
(h)
Accumulated losses
Equity-holders’ funds

As at 31 December
2002
2003
2004
RMB’000
RMB’000
RMB’000
550
604
387
716,049
831,486
851,773
22,299
10,794
294
19,824
14,000
–
–
37,400
37,400
23,304
8,741
2,828
781,476
902,421
892,295
15,157
42,998
36,374
5,804
704,385
846,105
461,454
80,417
–
255,000
50,000
–
737,415
877,800
882,479
44,061
24,621
9,816
44,611
25,225
10,203
50,000
50,000
50,000
(5,389)
(24,775)
(39,797)
44,611
25,225
10,203

– 87 –

ACCOUNTANTS’ REPORT OF DONGHUA

APPENDIX II

Notes:

(a) Property, plant and equipment

Cost At 1 January 2002 Additions At 31 December 2002 and 1 January 2003 Additions Disposals At 31 December 2003 and 1 January 2004 Additions Disposals At 31 December 2004 Accumulated depreciation At 1 January 2002 Charge for the year At 31 December 2002 and 1 January 2003 Charge for the year Disposals At 31 December 2003 and 1 January 2004 Charge for the year Disposals At 31 December 2004 Net book value At 31 December 2002 At 31 December 2003 At 31 December 2004 (b) Interests in properties under development Development and incidental costs Interest capitalised	Motor Furniture and vehicles equipment Total RMB’000 RMB’000 RMB’000 743 202 945 – 44 44 743 246 989 593 335 928 (448) (80) (528) 888 501 1,389 – 27 27 – (6) (6) 888 522 1,410 215 40 255 144 40 184 359 80 439 505 135 640 (220) (74) (294) 644 141 785 153 89 242 – (4) (4) 797 226 1,023 384 166 550 244 360 604 91 296 387 As at 31 December 2002 2003 2004 RMB’000 RMB’000 RMB’000 645,480 723,538 735,966 70,569 107,948 115,807 716,049 831,486 851,773	Total RMB’000 945 44
		989 928 (528)
		1,389 27 (6)
		1,410

		255 184
		439 640 (294)
		785 242 (4)
		1,023

		550

		604

		387

		851,773

Donghua has obtained the Land Interest in 2000. Governmental approvals have been obtained by Donghua for the Project which is expected to be completed in 2008.

– 88 –

ACCOUNTANTS’ REPORT OF DONGHUA

APPENDIX II

As at 31 December 2004, demolition of the old buildings on the Land, relocation of the original residents and tenants of the Land, levelling works of the Land have been completed and the foundation and piling works of the transportation terminal have been completed. Construction of the transportation terminal, the hotel, the office towers and the various other buildings has not yet commenced. As confirmed by a legal opinion issued by a lawyer registered in the PRC, dated 30 June 2005 (the “Legal Opinion”), Donghua has obtained the Land Interest and all the approvals as required.

According to the land premium receipt issued by 北京市國土資源局 , the land premium of the Land (the “Land Premium”) was approximately RMB636.9 million excluding other costs of resettlement and ancillary utilities services of the Land and has been fully settled by Donghua subsequently on 20 June 2005. According to the Legal Opinion, Donghua is in the process of applying for the land use rights and there should be no legal impediment for Donghua to obtain the land use rights certificate. Pursuant to the Legal Opinion, the land use rights are for various terms of 40, 50 and 70 years for commercial (hotel and commercial), composite (office and car parking) and residential uses, respectively. Once Donghua has obtained the land use rights certificate, Donghua has the right to assign, lease or mortgage the Land, except for certain parts of the Land to be assigned to 北京市東城區住宅發展中心 (“東城區住宅中心 ”) according to the cooperation agreement detailed in Section X. Accordingly, the directors of Donghua consider that Donghua has proper title of the interests in properties under development.

The Land Premium was advanced by 北京東華廣場置業有限公司 (“東華置業”) (note f(i)), pursuant to a loan agreement (the “Loan Agreement”) which Donghua entered into with 東華置業 subsequently on 20 June 2005. According to the Loan Agreement, Donghua had obtained an unsecured loan of RMB 850 million from 東華置業 at the interest rate based on the borrowing rate of the People’s Bank of China for one year term loan and the settlement date will be on 17 June 2006.

The Land has been valued as at 30 April 2005 by Chesterton Petty Limited, an independent firm of professional valuers registered in Hong Kong, on an open market value basis at RMB3,290 million assuming that other costs of resettlement and ancillary utilities services of the Land have been paid in full. Accordingly, the directors of Donghua are of the opinion that there is no provision to the interests in properties under development as the costs incurred as at 31 December 2004 together with the Land Premium are less than the valuation by Chesterton Petty Limited of RMB3,290 million.

Interest capitalised by Donghua in respect of interests in properties under development was at capitalisation rates ranging from 5.3% to 9.1% per annum during the Relevant Periods.

(c)

Amounts due from/(to) equity-holders

Amount due from an equity holder, 海南京灝實業有限公司 (“海南京灝”) as at 31 December 2002 was unsecured and interest bearing at approximately 6.0% per annum. The amount due as at 31 December 2003 was unsecured, interest free and was fully repaid during the year ended 31 December 2004.

Amount due to an equity holder, 北京城建投資發展股份有限公司 (“北京城建 ”) (formerly known as 北京城建股份有限公司 and was renamed on 26 April 2001), was unsecured, interest bearing at rates ranging from approximately 5.8% to 9.1% per annum and the amount was fully repaid during the year ended 31 December 2004.

(d)

Other taxes recoverable

The amount represents business tax and other taxes recoverable arising from the event set out in note f(i) below. Donghua has submitted an application for refund of tax paid in August 2004. Pursuant to a legal opinion issued by a lawyer registered in the PRC dated 30 June 2005 (the “Second Legal Opinion”), the directors of Donghua consider that the balance is recoverable and there will be no legal impediment for Donghua to obtain the tax refund under the PRC law.

(e) Trade payables

The ageing analysis of Donghua’s trade payables is as follows:

0 to 90 days 91- 180 days 181- 365 days > 365 days	As at 31 December 2002 2003 2004 RMB’000 RMB’000 RMB’000 1,198 2 100 – 32,379 2,182 13,929 2,421 – 30 8,196 34,092 15,157 42,998 36,374	As at 31 December 2002 2003 2004 RMB’000 RMB’000 RMB’000 1,198 2 100 – 32,379 2,182 13,929 2,421 – 30 8,196 34,092 15,157 42,998 36,374
		36,374

– 89 –

ACCOUNTANTS’ REPORT OF DONGHUA

APPENDIX II

(f) Accrued liabilities and other payables

Amount due to北京東華廣場置業有限公司 (i) Amount due to北京市華遠地產股份有限公司 (ii) Others	As at 31 December 2002 2003 2004 RMB’000 RMB’000 RMB’000 5,000 700,000 700,000 – – 140,152 804 4,385 5,953 5,804 704,385 846,105	As at 31 December 2002 2003 2004 RMB’000 RMB’000 RMB’000 5,000 700,000 700,000 – – 140,152 804 4,385 5,953 5,804 704,385 846,105
		846,105

(i) On 19 November 2001, Donghua entered into a co-operation agreement (the “Co-operation Agreement”) with Strong Ground Investment Limited (“Strong Ground”), a company which became a connected person, as defined under the Rules Governing the Listing of Securities on The Growth Enterprise Market of The Stock Exchange of Hong Kong Limited, of the Company since 2004 and is incorporated in the British Virgin Islands, for the joint development of the Project. Pursuant to the Co-operation Agreement, Strong Ground was obliged to pay the preliminary development cost amounting to approximately RMB1.3 billion to Donghua and responsible for the further development cost of the Project while Donghua was obliged to assign the Land Interest to a joint venture company to be set up by both parties upon receiving a deposit of RMB700 million from Strong Ground. In 2002, a joint venture company, 東華置業 was set up for the purpose of the development of the Project. According to the articles of association of 東華置業 , the registered capital of 東華置業 would be solely paid by Strong Ground and Strong Ground had to pay RMB1.3 billion to Donghua as compensation for pre-development cost incurred by Donghua, while Donghua would not be entitled to any profit generated by 東華置業 or any share of net assets of 東華置業 upon liquidation of 東華置業. However, Strong Ground was unable to pay the deposit to Donghua on the date specified in the Co-operation Agreement.

Upon negotiations, a supplementary and amendment agreement (the “Supplementary Agreement”) was further signed between Donghua and Strong Ground on 16 September 2003. In accordance with the Supplementary Agreement, Strong Ground was obliged to pay an aggregate sum of approximately RMB1.3 billion to Donghua by instalments and initial payment of which amounting to RMB700 million had to be paid to Donghua on the same date. This initial payment was made by Strong Ground and at the instruction of Strong Ground, an invoice was issued to 東華置業 . The corresponding business tax and, other tax liabilities amounting to approximately RMB37 million as mentioned in note (d) above were immediately paid by Donghua upon receipt of initial payment during the year ended 31 December 2003.

Subsequently on 12 December 2004, both parties agreed to cancel the aforesaid Co-operation Agreement and Supplementary Agreement and a cancellation agreement (the “Cancellation Agreement”) was entered into between the two parties. Pursuant to the Cancellation Agreement, Donghua has to refund the above-mentioned initial payment of RMB700 million to Strong Ground or 東華置業 and both parties agreed to unequivocally discharge the obligations and liabilities as stipulated in the Co-operation Agreement and Supplementary Agreement. Pursuant to the Second Legal Opinion, the Cancellation Agreement is legally enforceable and the directors of Donghua consider that Donghua has no further obligations, liabilities or commitments under both the Co-operation Agreement and the Supplementary Agreement except for the repayment of RMB700 million (the “Repayment”) to Strong Ground or 東華置業.

Subsequently on 20 May 2005, Donghua entered into a repayment agreement and a supplementary agreement with 東華置業 , pursuant to which both parties agreed that the Repayment would be in the year of 2008. In the opinion of Donghua’s directors, Donghua could generate sufficient fund for the Repayment as the Project is expected to be completed in 2008 and proceeds from the pre-sale of the commercial units are expected to be generated.

(ii) This amount represents a loan advanced from 北京市華遠地產股份有限公司 (“北京華遠 ”) to finance the Project. The balance is unsecured, interest-free and has no fixed terms of repayment.

In 2004, 北京華遠 had acquired 54% of the equity interest in Donghua (the “Acquisition”) from 北京城建 , one of the substantial shareholders of Donghua, and the consideration for the Acquisition has been fully paid by 北京華遠 to 北京城建 . However, this change of ownership has not been registered with the local government and the Acquisition was subsequently cancelled in 2005.

Pursuant to a series of shareholders’ agreements (the “Shareholders’ Agreements”) signed between the shareholders of Donghua subsequent to 31 December 2004, 北京華遠 acquired 4.5% equity interest in Donghua. Such equity interests together with the amount due from Donghua of approximately RMB140 million were then sold to Beijing JB.

– 90 –

ACCOUNTANTS’ REPORT OF DONGHUA

APPENDIX II

(g) Bank loans, secured

The bank loans were guaranteed by 北京城建 and interest bearing at rates ranging from 5.3% to 6.4% per annum. The bank loans were fully repaid during the year ended 31 December 2004.

(h) Paid-in capital

As at 1 January 2002 and 31 December 2002, 2003 and 2004	RMB’000 50,000

The registered capital of Donghua was RMB50,000,000 at the date of establishment which was fully paid up.

(i) Operating lease commitments

As lessee

The total future minimum lease payments under non-cancellable operating leases are payable as follows:

Payable within one year Payable in the second to fifth years, inclusive	As at 31 December 2002 2003 2004 RMB’000 RMB’000 RMB’000 – – 784 – – 562 – – 1,346	As at 31 December 2002 2003 2004 RMB’000 RMB’000 RMB’000 – – 784 – – 562 – – 1,346
		1,346

Donghua leases its office premises under operating lease arrangements for a term of two years.

(j) Capital commitments

Contracted, but not provided for: Construction and development of the Project Authorised, but not contracted for: Construction and development of the Project	As at 31 December 2002 2003 2004 RMB’000 RMB’000 RMB’000 15,797 375 – 5,283,951 5,168,514 5,148,227	As at 31 December 2002 2003 2004 RMB’000 RMB’000 RMB’000 15,797 375 – 5,283,951 5,168,514 5,148,227

		5,148,227

(k) Related party transactions

In addition to the transactions and balances detailed elsewhere in the Summaries, other significant related party transactions were as follows:

Notes Interest income from an equity-holder (i) Interest expense to an equity-holder (ii) Construction cost incurred (iii) Management fee paid (iv)	Years ended 31 December 2002 2003 2004 RMB’000 RMB’000 RMB’000 (934) – – 31,621 30,804 2,550 17,086 5,837 1,502 – 8,160 –

– 91 –

ACCOUNTANTS’ REPORT OF DONGHUA

APPENDIX II

Notes:

(i) Interest income was received from 海南京灝, at the interest rate of approximately 6.0% per annum.
(ii) Interest expense was paid to 北京城建 at interest rates ranging from approximately 5.8% to 9.1% per annum.
(iii) Donghua had sub-contracted part of the designs, foundation and piling works to certain fellow subsidiaries of 北京城建. The sub-contracting fees were charged at terms mutually agreed between Donghua and 北京城建 ’s fellow subsidiaries.
(iv) The balance represented management fee paid by Donghua to 北京城建 for the provision of administrative services. The fee was unilaterally determined by 北京城建.

V. STATEMENTS OF CHANGES IN EQUITY

The statements of changes in equity of Donghua for the Relevant Periods are as follows:

Balance at 1 January 2002 Net loss for the year Balance at 31 December 2002 and 1 January 2003 Net loss for the year Balance at 31 December 2003 and 1 January 2004 Net loss for the year Balance at 31 December 2004	Paid-in Accumulated capital losses RMB’000 RMB’000 50,000 (948) – (4,441) 50,000 (5,389) – (19,386) 50,000 (24,775) – (15,022) 50,000 (39,797)	Total RMB’000 49,052 (4,441) 44,611 (19,386) 25,225 (15,022) 10,203

– 92 –

ACCOUNTANTS’ REPORT OF DONGHUA

APPENDIX II

VI. CASH FLOW STATEMENTS

The cash flow statements of Donghua for the Relevant Periods are as follows:

Loss before taxation
Adjustments for:
Depreciation
(Gain)/Loss on disposal of property,
plant and equipment
Operating loss before working capital changes
Increase in interests in properties under development
Decrease in prepayments, deposits and
other receivables
Decrease/(Increase) in balances with equity-holders
Increase in other taxes recoverable
Increase/(Decrease) in trade payables
(Decrease)/Increase in accrued liabilities and
other payables
Net cash generated from operating activities
Cash flows from investing activities
Purchases of property, plant and equipment
Proceeds from disposal of property, plant and equipment
Interest income received
Net cash generated from/(used in) investing activities
Cash flows from financing activities
New bank loans
Repayment of bank loans
Interest paid
Net cash used in financing activities
Increase/(Decrease) in bank and cash balances
Bank and cash balances at beginning of year
Bank and cash balances at end of year
Analysis of balances of cash and cash equivalents
Bank and cash balances

Year ended 31 December
2002
2003
2004
RMB’000
RMB’000
RMB’000
(4,441)
(19,386)
(15,022)
184
640
242
–
(17)
2
(4,257)
(18,763)
(14,778)
(60,505)
(78,058)
(12,428)
3,054
11,505
10,500
110,838
(375,213)
(66,417)
–
(37,400)
–
13,766
27,841
(6,624)
(91)
698,581
141,720
62,805
228,493
51,973
(44)
(928)
(27)
–
251
–
1,165
290
18
1,121
(387)
(9)
155,000
50,000
–
(150,000)
(255,000)
(50,000)
(48,336)
(37,669)
(7,877)
(43,336)
(242,669)
(57,877)
20,590
(14,563)
(5,913)
2,714
23,304
8,741
23,304
8,741
2,828
23,304
8,741
2,828

– 93 –

ACCOUNTANTS’ REPORT OF DONGHUA

APPENDIX II

VII. SEGMENT INFORMATION

All the assets and liabilities of Donghua are located in the PRC and its operations are considered by the directors to belong to one business segment of property development in the PRC. Consequently, no further analysis of Donghua’s business and geographical segments is disclosed.

VIII. ULTIMATE HOLDING COMPANY

As at 31 December 2004, the directors of Donghua considered that its ultimate holding company was 北京城建集團有限責任公司 (“北京城建集團 ”), a domestic company established in PRC and listed on the Shanghai Stock Exchange and is the holding company of 北京城建 which held 54% equity interest in Donghua. Subsequent to 31 December 2004, pursuant to the Shareholders’ Agreements, 北京城建 has disposed of all of its shareholdings in Donghua to 東城區住宅中心 for a consideration of RMB310 million.

IX. PENDING LITIGATION

Donghua was sued by 北京市東城區房屋土地經營管理中心（“東城區管理中心 ”） in respect of the outstanding payment of compensation of approximately RMB7.2 million for demolition of the old buildings on the Land and the corresponding legal cost. The compensation of approximately RMB7.2 million was recorded as trade payables as at 31 December 2003 and 2004. As at the date of this report, the legal case is still in progress and no further action has been undertaken by 東城區管理中心 . The directors of Donghua and the Company consider that provision of legal cost is not necessary at this stage and that the legal cost would not be material.

X. SIGNIFICANT SUBSEQUENT EVENTS

In addition to the events detailed elsewhere in the Summaries, subsequent to 31 December 2004, on 6 February 2005, a cooperation agreement (the “Agreement”) was signed between Donghua and 東城區住宅中心, as a representative of People’s Government of Dongcheng District, in respect of the development of the Land. Pursuant to the Agreement, 東城區住宅中心 will assist Donghua in obtaining the development right, land use right, demolition of the old buildings on the Land, relocation of the original residents and tenants of the Land, and negotiating with the local government for any issues arising during the construction of the Project, while Donghua would have to assign the legal title and ownership of the properties constructed on certain part of the Land with a floor area of 18,000 m[2] to 東城區住宅中心 . In addition, pursuant to the Agreement, the development right of the transportation terminal would be assigned to 東城區住宅中心 and Donghua has to assign such part of the Land to 東城區住宅中心.

Save as aforesaid, no other significant events took place subsequent to 31 December 2004.

XI. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements have been prepared by Donghua in respect of any period subsequent to 31 December 2004.

Yours faithfully, Grant Thornton

Certified Public Accountants Hong Kong

– 94 –

UNAUDITED PRO FORMA STATEMENT OF ASSETS AND LIABILITIES OF THE GROUP

APPENDIX III

1. UNAUDITED PRO FORMA STATEMENT OF ASSETS AND LIABILITIES OF THE GROUP AS AT 31 DECEMBER 2004

The following is a summary of the unaudited pro forma statement of assets and liabilities of the Group, assuming the Acquisition had been completed as at 31 December 2004 for the purpose of illustrating how the Acquisition might have affected the financial position of the Group. As it is prepared for illustrative purpose only, and because of its nature, it may not purport to represent what the assets and liabilities of the Group are on the completion of the Acquisition.

The unaudited pro forma statement of assets and liabilities of the Group is prepared based on the audited consolidated balance sheet of the Group as at 31 December 2004, extracted from the annual report of the Company for the year ended 31 December 2004 as set out in Appendix I of this circular, the audited balance sheet of Donghua as at 31 December 2004, extracted from the accountants’ report of Donghua as set out in Appendix II of this circular and adjusted to reflect the effect of the proposed Acquisition.

– 95 –

UNAUDITED PRO FORMA STATEMENT OF ASSETS AND LIABILITIES OF THE GROUP

APPENDIX III

Unaudited pro forma statement of assets and liabilities of the Group

	Audited		Pro forma
	balance as at		balance as at
	31 December	Pro forma	31 December
	2004	adjustment	2004
	RMB’000	RMB’000	RMB’000
Non-current assets
Property, plant and equipment	9,656		9,656
Intangible assets	280		280
Goodwill	7,333		7,333
Long term investment	362,581		362,581
Interests in an associate	–	314,190	314,190
	379,850		694,040
Current assets
Inventories	22,813		22,813
Trade receivables	27,578		27,578
Due from shareholders	43,781		43,781
Due from related parties	381,753	(314,190)	67,563
Prepayment, deposits and other receivables	8,641		8,641
Short term investments	2,000		2,000
Cash and cash equivalents	322,066		322,066
	808,632		494,442
Current liabilities
Short term bank loans	310,017		310,017
Trade payables	14,991		14,991
Advances from customers	9,827		9,827
Accrued liabilities and other payables	22,212		22,212
Due to shareholders	1,261		1,261
Due to related parties	1,993		1,993
Tax payable	6,313		6,313
	366,614		366,614
Net current assets	442,018		127,828
Total assets less current liabilities	821,868		821,868
Minority interests	3,470		3,470
Net assets	818,398		818,398

Shareholders’ funds	818,398		818,398

– 96 –

UNAUDITED PRO FORMA STATEMENT OF ASSETS AND LIABILITIES OF THE GROUP

APPENDIX III

Notes:

(a) The investment in Donghua will be recorded as interests in an associate and equity accounted for by the Group upon completion of the Acquisition.
(b) The adjustment reflects the acquisition of 44% equity interest in Donghua and 44% of the shareholders’ loan of Donghua at the consideration of RMB252,590,000 and RMB61,600,000, respectively. The consideration was settled by the Company utilising certain amounts due from related parties as at 31 December 2004 which was detailed in the annual report set out in Appendix I. The goodwill of RMB248,100,000 (subject to adjustment as mentioned in note (c) below), arising on the Acquisition and included in interests in an associate, was determined assuming that the fair value of the Group’s share of the identifiable assets and liabilities acquired is equal to the Group’s share of the net assets value of Donghua based on the audited balance sheet at 31 December 2004, as extracted from the accountants’ report prepared in accordance with generally accepted accounting principles in Hong Kong as set out in Appendix II.
(c) The goodwill to be recognised by the Group in its accounting books and records will have to be assessed in accordance with the Hong Kong Financial Reporting Standards (the “HKFRS”) upon completion of the Acquisition. The goodwill may not be written off in the consolidated income statement of the Group immediately after the Acquisition. Instead, goodwill will be capitalised in interests in an associate and the Group is required to test goodwill for impairment whenever there is an indication of any possible impairment according to the HKFRS. The cost of the Acquisition and the fair value of the Group’s share of the identifiable assets and liabilities acquired may be different from the amounts stated in note (b) above for the purpose of preparation of the unaudited pro forma statement of assets and liabilities.

– 97 –

APPENDIX III UNAUDITED PRO FORMA STATEMENT OF ASSETS AND LIABILITIES OF THE GROUP

2. LETTER ON UNAUDITED PRO FORMA STATEMENT OF ASSETS AND LIABILITIES OF THE GROUP

The following is the full text of a letter received from Grant Thornton for the purpose of incorporation in this circular.

30 June 2005

The Directors

Beijing Beida Jade Bird Universal Sci-Tech Company Limited Rooms 1117/1119 Zhongcheng Building Haidan Road

Beijing The People’s Republic of China

Dear Sirs,

Re: Beijing Beida Jade Bird Universal Sci-Tech Company Limited (the “Company”) and its subsidiaries (collectively referred to as the “Group”)

We report on the unaudited pro forma statement of assets and liabilities of the Group (the “Pro Forma Balance Sheet”) set out on pages 95 to 97 in Appendix III of the circular dated 30 June 2005 (the “Circular”), which has been prepared by the directors of the Company, solely for illustrative purposes only, to provide information about how the proposed acquisition of 44% equity interest in 北京城建東華房地產開發有限責任公司 (“Donghua”) and 44% of the shareholders’ loan of Donghua might have affected the assets and liabilities of the Group as at 31 December 2004. The basis of preparation of the Pro Forma Balance Sheet is set out on page 95 of the Circular.

Responsibilities

It is the responsibility solely of the directors of the Company to prepare the Pro Forma Balance Sheet in accordance with paragraph 7.31 of the Rules Governing the Listing of Securities on the Growth Enterprise Market of The Stock Exchange of Hong Kong Limited (the “GEM Listing Rules”).

It is our responsibility to form an opinion as required by paragraph 7.31 of the GEM Listing Rules on the Pro Forma Balance Sheet and to report our opinion to you. We do not accept any responsibility for any reports previously given by us on any financial information used in the compilation of the Pro Forma Balance Sheet beyond that owed to those to whom those reports were addressed by us at the dates of their issue.

– 98 –

UNAUDITED PRO FORMA STATEMENT OF ASSETS AND LIABILITIES OF THE GROUP

APPENDIX III

Basis of opinion

We conducted our work with reference to the Statements of Investment Circular Reporting Standards and Bulletin 1998/8 “Reporting on pro forma financial information pursuant to the Listing Rules” issued by the Auditing Practices Board in the United Kingdom, where applicable. Our work, which involved no independent examination of any of the underlying information, consisted primarily of comparing the unadjusted financial information with the source documents, considering the evidence supporting the adjustments and discussing the Pro Forma Balance Sheet with the directors of the Company.

Our work did not constitute an audit or review made in accordance with Statements of Auditing Standards issued by the Hong Kong Institute of Certified Public Accountants, and accordingly, we do not express any such audit or review assurance on the Pro Forma Balance Sheet.

The Pro Forma Balance Sheet is for illustrative purposes only, based on the directors’ judgements and assumptions, and because of its nature, it may not give any assurance or indication that any event will take place in the future and may not be indicative of the financial position of the Group had the transaction actually occurred on 31 December 2004 or of the Group at any future date.

Opinion

In our opinion:

a. the Pro Forma Balance Sheet has been properly compiled by the directors of the Company on the basis stated;
b. such basis is consistent with the accounting policies of the Group; and
c. the adjustments are appropriate for the purposes of the Pro Forma Balance Sheet as disclosed pursuant to the paragraph 7.31 of the GEM Listing Rules.

Yours faithfully, Grant Thornton Certified Public Accountants Hong Kong

– 99 –

PROPERTY VALUATION REPORT

APPENDIX IV

The following is the text of the letter and valuation certificate received from Chesterton Petty Ltd, an independent property valuer, prepared for the purpose of incorporation in this Circular, in connection with their valuation of the property interests held and to be acquired by the Group as at 30 April 2005.

==> picture [35 x 34] intentionally omitted <==

==> picture [101 x 60] intentionally omitted <==

International Property Consultants Chesterton Petty Ltd 16/F CITIC Tower 1 Tim Mei Avenue Central Hong Kong Tel: 2840 1177 Fax: 2840 0600

30 June 2005

The Directors Beijing Beida Jade Bird Universal Sci-Tech Company Limited 1117/1119 Zhongcheng Mansion Zhongguancun Street Haidian District Beijing The People’s Republic of China

Dear Sir

In accordance with your instructions for us to value the property interest held by Beijing Chengjian Donghua Real Estate Development Company Limited (hereinafter referred to as the “Donghua”), a currently 58.5% owned subsidiary of Beijing Beida Jade Bird Limited (“Jade Bird Limited”) in the People’s Republic of China (the “PRC”) (upon completion of the Acquisition as set out in this Circular, Jade Bird Limited will transfer 44% share interest of Donghua to Beijing Beida Jade Bird Universal SciTech Company Limited (hereinafter referred to as the “Company”)), we confirm that we have carried out inspection, made relevant enquiry and obtained such further information as we considered necessary for the purpose of providing you with our opinion of the market value of the property as at 30 April 2005 for acquisition purpose.

Our valuation is our opinion of the market value which we would define as intended to mean “ the estimated amount for which a property should exchange on the date of valuation between a willing buyer

– 100 –

PROPERTY VALUATION REPORT

APPENDIX IV

and a willing seller in an arm’s-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion”.

The market value is the best price reasonably obtainable in the market by the seller and the most advantageous price reasonably obtainable in the market by the buyer. This estimate specifically excludes an estimated price inflated or deflated by special terms or circumstances such as atypical financing, sale and leaseback arrangements, special considerations or concessions granted by anyone associated with the sale, or any element of special value. The market value of a property is also estimated without regard to costs of sale and purchase, and without offset for any associated taxes.

We have valued the property on the basis that the property will be developed and completed in accordance with Donghua’s latest development proposal provided to us. We have assumed that approvals for these proposals will be obtained without any onerous condition which would affect the value of the property interest. In arriving at our opinion of value, we have made reference to market comparable transactions in the locality and have also taken into account the construction costs that will be expended to reflect the quality of the completed development.

We have inspected the property, however, we have not carried out any land survey to determine the boundary of the site and the suitability of the ground conditions and the services etc., for future development. We have assumed that these aspects are satisfactory and that no extraordinary expenses or delays will be incurred during construction period for any future development. No tests were carried out on any of the services.

We have been provided with copies of extracts of title documents relating to the property. However, we have not inspected the original documents to verify ownership or to ascertain any amendments that may not appear on the copies handed to us. For the purpose of this valuation, we have assumed that the property has proper legal title and all land premia and acquisition costs have been fully paid and the property, whether as a whole or on a strata-title basis, can be freely transferable/assignable to local or overseas purchasers with its residual land use right term at no extra land premium or other onerous payment payable to the government.

In the course of our valuation, we have relied to a considerable extent on information given by the Company and Donghua’s PRC legal advisers, Kaiwen Law Firm on PRC laws, regarding title to the property. We have accepted advice given to us on such matters as planning approvals or statutory notices, easements, tenure, particulars, identification of the property, occupancy, site areas and all other relevant matters. Dimensions, measurements and areas included in the valuation certificate are based on information contained in the documents provided to us and are therefore only approximations. We have not been able to carry out on-site measurements to verify the site areas of the property and we have assumed that the areas shown on the copies of the documents handed to us are correct. We have no reason to doubt the truth and accuracy of the information provided to us by the Company which is material to the valuation. We have also advised by the Company that no material facts have been omitted from the information supplied.

No allowance has been made in our valuation for any charge, mortgage or amount owing on the property nor for any expense or taxation which may be incurred in effecting a sale. Unless otherwise

– 101 –

PROPERTY VALUATION REPORT

APPENDIX IV

stated, it is assumed that the property is free from encumbrances, restrictions and outgoings of an onerous nature that could affect its value.

In preparing our valuation report, we have had regard to requirements contained within the provisions of Chapter 8 of the Rules Governing the Listing of Securities on the Growth Enterprise Market on the The Stock Exchange of Hong Kong Limited.

Unless otherwise stated, all monetary amounts stated are in Renminbi (RMB).

We enclose herewith our valuation certificate.

Yours faithfully For and on behalf of Chesterton Petty Limited

Charles C K Chan

Chartered Estate Surveyor MSc FRICS FHKIS MCIArb RPS(GP) Executive Director

Note: Charles C K Chan, MSc, FRICS, FHKIS, MCIArb, RPS (GP), has been a qualified valuer with Chesterton Petty Limited since June 1987 and has about 20 years’ experience in the valuation of properties in Hong Kong and extensive experience in the valuation of properties in the People’s Republic of China and the Asia Pacific regions.

– 102 –

PROPERTY VALUATION REPORT

APPENDIX IV

VALUATION CERTIFICATE

Property

A plot of land located at northeastern corner of Dongzhimen Bridge Dongcheng District Beijing The PRC

Description and tenure particulars

The property comprises a plot of regular-shaped level site located at northeastern corner of Dongzhimen Bridge in Dongcheng District of Beijing with a site area of 143,000 sq. m. (1,539,252 sq. ft.).

Particulars of occupancy

The property is a vacant site.

Market value in its existing state as at 30 April 2005

RMB3,290,000,000 (please see note 9)

The property is planned to be developed into a large scale composite development comprising transportation terminal, commercial arcade, hotel, office, residential buildings and basement car park.

Upon completion, the proposed development will provide a total planned gross floor area of approximately 790,800 sq. m. (8,512,172 sq. ft.).

Details of the uses and gross floor areas of the property are listed as follows:

Approximate Use Gross Floor Area sq. m. sq. ft. Transportation teminal 82,000 882,648 Commercial arcade 48,000 516,672 Hotel 73,000 785,772 Office buildings 209,000 2,249,676 Residential buildings 145,000 1,560,780 Ground floor arcade 10,000 107,640 Basement car parks 167,349 1,801,345 Basement air defense 28,200 303,545 Basement ancillary facilities 28,251 304,094 Total: 790,800 8,512,172	Approximate Use Gross Floor Area sq. m. sq. ft. Transportation teminal 82,000 882,648 Commercial arcade 48,000 516,672 Hotel 73,000 785,772 Office buildings 209,000 2,249,676 Residential buildings 145,000 1,560,780 Ground floor arcade 10,000 107,640 Basement car parks 167,349 1,801,345 Basement air defense 28,200 303,545 Basement ancillary facilities 28,251 304,094 Total: 790,800 8,512,172	Approximate Use Gross Floor Area sq. m. sq. ft. Transportation teminal 82,000 882,648 Commercial arcade 48,000 516,672 Hotel 73,000 785,772 Office buildings 209,000 2,249,676 Residential buildings 145,000 1,560,780 Ground floor arcade 10,000 107,640 Basement car parks 167,349 1,801,345 Basement air defense 28,200 303,545 Basement ancillary facilities 28,251 304,094 Total: 790,800 8,512,172
	790,800	8,512,172

As advised by the Company, Donghua is applying for the land use right certificate of the property and according to the legal opinion issued by Donghua’s PRC legal adviser, there is no legal impediment for Donghua to obtain a state-owned land use right certificate.

– 103 –

PROPERTY VALUATION REPORT

APPENDIX IV

Notes:

(1) Beijing Renewal of Dangerous and Old Premises Leadership Group Office reviewed and approved Donghua to undertake the renewal of dangerous premises project of Dong Zhi Men Transportation Terminal on 24 April 2000.
(2) Pursuant to Reply on the Proposal of the Development and Construction of Dong Zhi Men as a Transportation Terminal and District Renewal Project No. Jing Ji Ji (2000) Di 1072 (關於開發建設東直門交通樞紐暨地區改造工程項目建議書的批復京計基 (2000)第1072號 ) (the “Reply”) jointly issued by Beijing Development and Planning Commission and Beijing Construction Commission on 7 July 2000, the People’s Government of Dongcheng District, being the landlord of Dongzhimen transportation terminal, was responsible for investment and construction of the Development. Donghua was approved to undertake the construction of the property.
(3) Pursuant to Reply on the Application of Beijing City Construction Beijing Chengjian Donghua Real Estate Development Company Limited for the Grant of State-owned Land Use Rights on land parcel situated at north side of Dong Zhi Men Wai Da Jie, Dongcheng District No. Jing Zheng Fang Di Zi (2001) 14 (關於對北京城建東華房地產開發有限責任公司申請劃撥東城區東直門外大街北側國有土地使用權的批復京政房地字 (2001)14號) issued by Beijing People’s Government in 2001, Donghua was approved to use a parcel of state-owned land with a site area of 143,000 sq. m. (portion of the land with a site area of 106,000 sq.m. is for construction use and portion of the land with a site area of 37,000 sq.m. is for road use).
(4) Pursuant to the Planning Permit for Construction Land No. 2001 – Gui Di Zi – 0058 issued by Beijing Planning Committee on 16 March 2001, the property with a site area of approximately 106,000 sq.m. was approved to be used by Donghua to develop into a composite transportation terminal.
(5) Pursuant to a certificate of approval for Beijing City and Town Construction Land No. Jing Guo Tu Fang Guan Hua (Pi) Zi (2001) Di 014 (北京市城鎮建設用地批准書京國土房管劃 (批 )字(2001) 第014號) dated 16 April 2001, Donghua has obtained approval for construction on a land with an area of 143,000 sq.m.
(6) Pursuant to the Planning Permit for Construction Project No. 2003 Gui (Dong) Jian Zi 0049 issued by Beijing Planning Commission on 15 December 2003, the construction scale of basement and ground floor of the transportation terminal, comprising a total gross floor area of approximately 145,400 sq.m., was approved.
(7) Pursuant to the Cooperative Agreement in respect of Beijing Dongzhimen Transportation Terminal and Donghua Plaza Commercial Project (the “Development”) entered into between Beijing Dongcheng Residential Center (“Party A”) and Donghua dated 6 February 2005 (the “Cooperative Agreement”), the terms and conditions of the Cooperative Agreement, among other things, are set out as follows:
Cooperating Parties : Beijing Dongcheng Residential Center (“Party A”) (Being the representative of the People’s Government of Dongcheng District, Beijing); Beijing Chengjian Donghua Real Estate Development Company Limited (Donghua);
Cooperating Conditions : Party A to provide the land development right and demolition for the Development; Donghua to undertake all construction cost and fees and complete the Development before Beijing Olympic Game in 2008;
Cooperating Interests : Upon completion of the Development, Donghua shall require to apportion a total gross floor area of 18,000 sq.m. out of the Development to Party A at no consideration; Donghua shall require to pay the land grant fee and shall entitle to own relevant buildings and structures together with relevant land use rights of the Development.
(8) We have been provided with a copy of the legal opinion on the title to the property prepared by Kaiwen Law Firm, the Donghua’s PRC legal adviser, which contains, inter-alia, the following information:
i. Donghua has legally obtained the Planning Permit for Construction Land, a certificate of approval for Beijing City and Town Construction Land and the Planning Permit for Construction Project.
ii. Donghua shall process land use right grant procedures for the property and shall obtain the state-owned land use right certificate.
iii. Donghua has processed the land use right grant application procedures to Beijing Housing, Land and Resources Bureau on 13 August 2004. Beijing Housing, Land and Resources Bureau confirmed the receipt of the application by issuing an acknowledgement receipt/confirmation to Donghua.

– 104 –

PROPERTY VALUATION REPORT

APPENDIX IV

iv. Donghua has settled the land premium of RMB636,906,100 to Beijing Land and Resources Bureau on 20 June 2005. According to relevant rules and regulations of the PRC, there is no outstanding land premium in relation to the land use rights of the Development that should be paid by Donghua except for deed tax and stamp duty as stipulated in the PRC Provisional Regulations on Deed Tax ( 中華人民共和國契稅暫行條例 ) and the PRC Provisional Regulations on Stamp Duty (中華人民共和國印花稅暫行條例 ).
v. As at the issuance date of this legal opinion, Donghua has not obtained any state-owned land use right certificate pertaining to the Development. Notwithstanding this, Donghua has legally obtained all necessary approvals, permits and certificates from relevant authorities as noted in (i) above, on this evidence, Donghua has obtained the development right for the Development.
vi. The development rights pertaining to the Development having been obtained by Donghua encompasses the right to develop the Development, to own (including the rights to occupy, use, receive benefit and to dispose of) the buildings & structures of the Development other than those stipulated in the Cooperative Agreement as mentioned in note (7) and the Reply as stated in note (2). In accordance with the stipulations in the Cooperative Agreement and the Reply, Donghua is required to apportion buildings and structures (including a transportation terminal with a planned gross floor area of approximately 82,000 sq.m. and other buildings with a gross floor area of approximately 18,000 sq.m. upon initial completion of the Development) and together with the relevant portions of land use rights to Beijing Dongcheng Residential Center, the People’s Government of Dongcheng or relevant government authorities (whichever is appropriate) at no consideration.
vii. There is no legal impediment for Donghua to obtain the state-owned land use right certificate. Upon having obtained the state-owned land use right certificate, Donghua would have the rights to transfer, lease or mortgage the land use rights and buildings & structures erected thereon held by Donghua.
(9) As advised by the Company, the land premium of the property was determined at RMB636,906,100 by Beijing Land and Resources Bureau and fully settled by Donghua on 20 June 2005. Donghua is in the process of applying for the stateowned land use right certificate of the property and expects to obtain the land use right certificate within 2 or 3 months. In the course of our valuation, we have taken into account the land premium and have valued the property based on the following assumptions:
i. Donghua has proper legal title to the property and the property can be transferred freely in the market with the residual term of its land use rights at no additional land premium and without any other associated charges payable to the government;
ii. the design and construction of the property are in compliance with the local planning regulations and any prescribed approvals have been obtained from relevant government authorities;
iii. the property may be freely transferable/assignable to local or overseas purchasers; and
iv. the land use rights of the property have been granted for various terms of 40, 50 and 70 years for commercial (hotel and commercial), composite (office and car parking) and residential uses, respectively.

– 105 –

GENERAL INFORMATION

APPENDIX V

1. RESPONSIBILITY STATEMENT

This circular, for which the Directors collectively and individually accept full responsibility, includes particulars given in compliance with the GEM Listing Rules for the purpose of giving information with regard to the Company. The Directors, having made all reasonable enquiries, confirm that, to the best of their knowledge and belief:

(a) the information contained in this circular is accurate and complete in all material respects and not misleading;
(b) there are no other matters the omission of which would make any statement in this circular misleading; and
(c) all opinions expressed in this circular have been arrived at after due and careful consideration and are found on bases and assumptions that are fair and reasonable.

2. DISCLOSURE OF INTERESTS

(a) Interests and short positions of the Directors, chief executive and supervisors of the Company in the total issued Promoter Shares and its associated corporations

As at the Latest Practicable Date, the interests (including interests in shares and short positions) of the Directors, chief executive or supervisors of the Company in the Promoter Shares of the issued share capital of the Company and its associated corporations (within the meaning of Part XV of the Securities and Futures Ordinance (“SFO”)) which will be required to be notified to the Company and the Stock Exchange pursuant to: (a) Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which each of them is taken or deemed to have taken under such provisions of the SFO); or (b) which will be required pursuant to section 352 of the SFO to be entered in the register referred to in that section; or (c) will be required, pursuant to Rules 5.46 to 5.67 of the GEM Listing Rules relating to securities transactions by Directors, to be notified to the Company and the Stock Exchange, will be as follows:

Long positions:

			Approximate % of
			the Company’s	Approximate % of
			total number	the Company’s
		Number of	of issued	total issued
	Note	Shares held	Promoter Shares	share capital
Name of Director
Mr. Xu Zhen Dong	(a)	205,414,000	29.34%	17.34%
Mr. Xu Zhi Xiang	(a)	205,414,000	29.34%	17.34%
Mr. Zhang Wan Zhong	(a)	205,414,000	29.34%	17.34%
Mr. Liu Yong Jin	(a)	205,414,000	29.34%	17.34%

– 106 –

GENERAL INFORMATION

APPENDIX V

Approximate % of the Company’s Approximate % of total number the Company’s Number of of issued total issued Note Shares held Promoter Shares share capital Name of supervisor of the Company Mr. Zhang Yong Li (a) 205,414,000 29.34% 17.34% Ms. Dong Xiao Qing (a) 205,414,000 29.34% 17.34%

Note:

(a) The above Directors and supervisors of the Company are taken to be interested in the issued share capital of the Company through their respective interests as beneficiaries, among other beneficiaries, of Heng Huat Trust. By a declaration of trust (“Heng Huat Trust”) made as a deed on 19 July 2000, Mr. Xu Zhen Dong, Mr. Zhang Wan Zhong and Ms. Liu Yue (who has been replaced by Mr. Xu Zhi Xiang since 9 May 2003 as a trustee) declared that they held the shares of Heng Huat Investments Limited (“Heng Huat”) as trustees for the benefits of 477 employees of Beijing Beida Jade Bird Software System Company, Beijing Beida Jade Bird Limited, Beijing Beida Yu Huan Microelectronics System Engineering Company and Beijing Tianqiao Beida Jade Bird Sci-Tech Company Limited and their respective subsidiaries and associated companies and the Company. Heng Huat is beneficially interested in approximately 93.37% in the issued share capital of Dynamic Win Assets Limited (“Dynamic Win”), and is taken to be interested in 220,000,000 Promoter Shares which Dynamic Win is interested. Mr. Xu Zhen Dong, Mr. Zhang Wan Zhong and Mr. Xu Zhi Xiang (who replaced Ms. Liu Yue as a trustee on 9 May 2003 upon Ms. Liu’s resignation as a trustee on the same date) are trustees holding 60, 20 and 20 shares out of 100 shares in the issued share capital of Heng Huat.

Saved as disclosed above, none of the Directors and supervisors of the Company had registered an interest or short position in the Shares or underlying Shares or any of the Company’s associated corporations that was required to be recorded pursuant to Divisions 7 and 8 of Part XV of the SFO, or pursuant to section 352 of the SFO, or as otherwise notified to the Company and the Stock Exchange pursuant to Rule 5.46 to 5.67 of the GEM Listing Rules.

(b) Interests in share options

As at the Latest Practicable Date, no options have been granted by the Group pursuant to the share option scheme adopted by the Company on 5 July 2000.

3. DIRECTORS’ SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors has any existing or proposed service contracts with any member of the Group, excluding contracts expiring or determinable by the Company or any of its subsidiaries within one year without payment of compensation other than statutory compensation.

– 107 –

GENERAL INFORMATION

APPENDIX V

4. SUBSTANTIAL SHAREHOLDERS

As at the Latest Practicable Date, the following interests of 5% or more of the issued share capital of the Company (except for Asian Technology Investment Company Limited which has only 4.22% of issued share capital of the Company) were recorded in the register of interests required to be kept by the Company pursuant to Section 336 of the SFO:

Long positions:

				Approximate
				% of the	Approximate
		Capacity	Number of	Company’s total	% of the
		and nature	ordinary	number of issued	Company’s issued
Name	Note	of interest	Shares held	Promoter Shares	share capital
Peking University	(a)	Through controlled	310,000,000	44.29%	26.16%
		corporations
Beijing Beida Yu Huan	(a)	Directly beneficially	85,000,000	12.14%	7.17%
Microelectronics System		owned
Engineering Company
Beijing Beida Jade Bird	(a)	Directly beneficially	110,000,000	15.71%	9.28%
Software System Company		owned
Beijing Beida Jade Bird	(a)	Directly beneficially	115,000,000	16.43%	9.71%
Limited		owned
Heng Huat Investments	(b)	Directly beneficially	205,414,000	29.34%	17.34%
Limited		owned
Dynamic Win Assets Limited	(b)	Directly beneficially	205,414,000	29.34%	17.34%
		owned
New World CyberBase Limited	(c)	Through a controlled	84,586,000	12.08%	7.14%
		corporation
New View Venture Limited	(c)	Directly beneficially	84,586,000	12.08%	7.14%
		owned
Asian Technology Investment		Directly beneficially	50,000,000	7.14%	4.22%
Company Limited		owned

– 108 –

GENERAL INFORMATION

APPENDIX V

Notes:

(a) Peking University is taken to be interested in 26.16% of the total issued share capital of the Company through the following companies:
(i) 85,000,000 Promoter Shares (representing approximately 7.17% of the Company’s total share capital) held by Beida Yu Huan, which is beneficially wholly-owned by Peking University;
(ii) 110,000,000 Promoter Shares (representing approximately 9.28% of the Company’s total share capital) held by Beijing Beida Jade Bird Software System Co. ( 北京市北大青鳥軟件系統公司 ), which is beneficially wholly-owned by Peking University;
(iii) 115,000,000 Promoter Shares (representing approximately 9.71% of the Company’s total share capital) held by Beijing Beida Jade Bird Limited ( 北京北大青鳥有限責任公司), which is approximately 46% owned by Peking University; and
(b) The Shares are held by Dynamic Win Assets Limited, which is wholly owned by Heng Huat Investments Limited.
(c) The Shares are held by New View Venture Limited, which is wholly-owned by New World CyberBase Limited.

Save as disclosed above, no person, other than the Directors and supervisors of the Company, whose interests are set out in the previous paragraphs, had registered an interest or short position in the Shares or underlying Shares that was required to be recorded pursuant to section 336 of the SFO.

5. SHARE CAPITAL

As at the Latest Practicable Date, the authorized share capital of the Company was as follows:

Existing Issued Shares: Promoter shares H shares	Number of issued shares ’000 700,000 484,000 1,184,000	Nominal value RMB’000 70,000 48,400 118,400	Paid up capital RMB’000 70,000 48,400
			118,400

Note: Promoter Shares and H Shares are both ordinary shares in the share capital of the Company with nominal value of RMB0.10 each.

6. COMPETING INTERESTS

None of the Directors, the management shareholders and substantial shareholders of the Company or any of their respective associate (as defined in the GEM Listing Rules) had an interest in a business which competes or may compete with the businesses of the Company.

– 109 –

GENERAL INFORMATION

APPENDIX V

7. LITIGATION

As at the Latest Practicable Date, no member of the Group is engaged in any litigation or arbitration of material importance and no litigation or claim of material importance is known to the Directors to be pending or threatened by or against any member of the Group.

8. GENERAL

(a) In the event of any inconsistency, the English language text of this circular shall prevail over the Chinese language text.
(b) The principal place of business of the Company in the PRC is at 3rd Floor, Beida Jade Bird Building, No. 207 Chengfu Road, Haidian District, Beijing 100871, the PRC.
(c) The place of business of the Company in Hong Kong is at Unit 02, 7th Floor, Asia Pacific Centre, 8 Wyndham Street, Central, Hong Kong.
(d) The share register and transfer office of the Company is Hong Kong Registrars Limited at 46th Floor, Hopewell Centre, 183 Queen’s Road East, Hong Kong.
(e) The compliance officer of the Company is Mr. Zhang Wan Zhong (“Mr. Zhang”). Mr. Zhang graduated from Peking University with a master degree in science. Mr. Zhang held various positions in the administrative arm of Peking University.
(f) The qualified accountant and company secretary of the Company is Mr. Wong Tak Chuen, who is a fellow member of each of The Association of Chartered Certified Accountants in the United Kingdom and The Hong Kong Institute of Certified Public Accountants.
(g) Pursuant to the Rule 5.28 of the GEM Listing Rules, the Company has set up an audit committee. In compliance with the Rule 5.29 of the GEM Listing Rules, the authority and responsibility of the audit committee has been properly written out. The primary duties of the audit committee are to review the financial reporting process and internal control system of the Company. The audit committee has three members, namely the three independent non-executive Directors, Mr. Wang Chao Yong (“Mr. Wang”), Professor Chin Man Chung, Ambrose (“Prof. Chin”) and Professor Nan Xiang Hao (“Prof. Nan”). Mr. Wang holds a Master of Business Administration degree from Rutgers University in the United States of America and is currently the founding partner and chief executive officer of China Equity Investment Company in the PRC. Prof. Chin holds a master degree in literature from the

– 110 –

GENERAL INFORMATION

APPENDIX V

Peking University and is currently a professor of the Faculty of History of the Fudan University. Prof. Nan is currently a part-time professor in the graduate school of University of Science & Technology of China. Prof. Nan was awarded various science award such as 國家科技進步二等獎 (the Second Prize of State Technological Achievement).

(h) Save as disclosed in this circular, none of the Directors is, directly or indirectly, interested in any assets which have been acquired or disposed of by or leased to any member of the Group, or are proposed to be acquired or disposed of by or leased to any member of the Group since 31 December 2004, the date to which the latest published audited accounts of the Company were made up.
(i) Save as disclosed in this circular, there is no other contract or arrangement subsisting at the date of this circular in which a Director is materially interested and which is significant in relation to the business of the Group.

10. MATERIAL CONTRACTS

The following contracts (not being contracts in the ordinary course of business of the Company) have been entered into by members of the Group within two years immediately the date of this circular which are or may be material:

Digital Video Recording System Assets Transfer Agreement dated 3 November 2003 between the Company and Shenzhen Beida Jade Bird Technology Limited for the transfer of the digital video recording system assets for RMB3,000,000;
the placing agreement dated 8 June 2004 between the Company and Tai Fook Securities Company Limited in relation to the placing of H Shares;
the agreement dated 29 December 2004 between the Company, Beida Yu Huan Microelectronics System Engineering Company (“Beida Yu Huan”) and Mr. Zhang Tian Yi in relation to the disposal of 20% and 40% of the Company’s equity interest in Beijing Beida Jade Bird Silicon Innovation Company Limited to Beida Yu Huan and Mr. Zhang Tian Yi respectively; and
the Share Transfer Agreement.

11. PROCEDURES TO DEMAND A POLL

Pursuant to Art. 75 of the Articles of Association of the Company, a resolution put to the vote in a general meeting of the Shareholders shall be decided on a show of hands unless (before or on the declaration of the result of the show of hands or on the withdrawal of any other demand for a poll) a poll is demanded by:

(a) the chairman of the meeting; or

– 111 –

GENERAL INFORMATION

APPENDIX V

(b) at least two Shareholders present in person (or in the case of a Shareholder being a corporation by its duly authorised representative) or by proxy for the time being entitled to vote at the meeting; or
(c) a Shareholder or Shareholders present in person (or in the case of a Shareholder being a corporation by its duly authorised representative) or by proxy and representing not less than 10% or more of the total voting rights of all Shareholders having the right to vote at the meeting.

12. QUALIFICATIONS AND CONSENTS OF EXPERTS

The following are the qualification of the experts who have given opinion or advice which is contained in this ciruclar:

Qualification

Name Qualification G.K. Goh a corporation licensed to conduct types 1 (dealing in securities), 4 (advising on securities) and 6 (advising on corporate finance) regulated activities under the SFO (Chapter 571 of the laws of Hong Kong) Chesterton Petty Ltd Chartered Surveyors Grant Thornton Certified Public Accountants

Each of G.K. Goh, Chesterton Petty Ltd and Grant Thornton has given and has not withdrawn its written consent to the issue of this circular with the inclusion of its letter as set out in this circular and references to its name in the form and context in which it appears respectively.

13. MATERIAL ACQUISITION/DISPOSALS OF SUBSIDIARIES AND AFFILIATED COMPANY AND SIGNIFICANT INVESTMENTS

In 2004, the Group disposed of a 60% held subsidiary, Beijing Silicon Innovation Company Limited, for a cash consideration of RMB3,600,000 and at a gain of RMB1,254,000.

Save for the above, the Group had no material acquisitions and disposals of subsidiaries and affiliated company and investment during the year ended 31 December 2004.

– 112 –

GENERAL INFORMATION

APPENDIX V

14. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents (and English translations thereof, if appropriate) will be available for inspection at Unit 02, 7th Floor, Asia Pacific Centre, 8 Wyndham Street, Central, Hong Kong during normal business hours up to and including 15 July 2005:

(a) the Articles of Association of the Company;
(b) the annual report of the Company for the year ended 31 December 2004;
(c) the letter from G.K. Goh to the Independent Board Committee and the Independent Shareholders dated 30 June 2005, the text of which is set out on pages 20 to 25 of this circular;
(d) the letter from the Independent Board Committee to the Independent Shareholders dated 30 June 2005, the text of which is set out on page 19 of this circular;
(e) the accountants’ report of Donghua, the text of which are set out in Appendix II on pages 78 to 94 to this ciruclar;
(f) the letter from Grant Thornton which reported on the unaudited pro forma statement of assets and liabilities of the Group, the text of which is set out in Appedndix III on pages 98 to 99 of this circular;
(g) the property valuation report, the text of which is set out in Appedndix IV on pages 100 to 105 of this circular;
(h) the written consents referred to in paragraph headed “Qualifications and consents of experts” in this appendix;
(i) the material contracts referred to in paragraph 10 of this Appendix;
(j) the Share Transfer Agreement;
(k) the co-operation agreement entered into between Donghua and Strong Ground in relation to the joint development of the Project in November 2001;
(l) the supplemental agreement entered into between Donghua and Strong Ground in relation to the co-operation agreement stated in (k) above;
(m) the cancellation agreement entered into between Donghua and Strong Ground in December 2004 in relation to the co-operation agreement stated in (k) above;
(n) the repayment agreement and the supplemental agreement entered into between Beijing Donghua Company and Donghua in May 2005 in relation to the payment of the RMB700 million debt by Donghua to Beijing Donghua Company;

– 113 –

GENERAL INFORMATION

APPENDIX V

(o) the Cooperative Agreement;
(p) the share transfer agreement dated 6 February 2005 entered into between the Vendor and Hua Yuen in relation to the transfer of 4.5% equity interest in Donghua and the assignment of the Shareholder’s Loan to the Vendor by Hua Yuen;
(q) the share transfer agreement dated 23 March 2005 entered into between the Vendor and Dongcheng Residential Centre in relation to the transfer of 54% equity interest in Donghua to the Vendor by Dongcheng Residential Centre;
(r) the Fund Utilisation Agreement dated 20 June 2005 entered into between Donghua and Beijing Donghua Company;
(s) the circular of the Company dated 20 January 2005 in relation to a discloseable and connected transaction of the Company; and
(t) this circular.

– 114 –

NOTICE OF SPECIAL GENERAL MEETING

==> picture [73 x 42] intentionally omitted <==

北京北大青鳥環宇科技股份有限公司 BEIJING BEIDA JADE BIRD UNIVERSAL SCI-TECH COMPANY LIMITED (a joint stock limited company incorporated in the People’s Republic of China with limited liability)

NOTICE OF SPECIAL GENERAL MEETING

NOTICE IS HEREBY GIVEN that a special general meeting (the “Special General Meeting”) of the holders of Promoter Shares and H Shares of 北京北大青鳥環宇科技股份有限公司(Beijing Beida Jade Bird Universal Sci-Tech Company Limited) (the “Company”) will be held at Room 301, Beida Jade Bird Building, No. 207 Chengfu Road, Haidian District, Beijing, the PRC at 11:00 a.m. on Friday, 19 August 2005 for the purpose of considering and, if thought fit, passing the following as an ordinary resolution:

ORDINARY RESOLUTION

THAT:

(a) the conditional share transfer agreement (the “Share Transfer Agreement”) dated 24 March 2005 and entered into between 北京北大青鳥有限責任公司 (Beijing Beida Jade Bird Limited) (the “Vendor”) and the Company (a copy of which is produced to the meeting marked “A” and signed by the chairman of the meeting for the purposes of identification) in relation to, among other matters, the Acquisition (as defined in the circular (the “Circular”) of the Company to its shareholders dated 30 June 2005 ) (a copy of the Circular is produced to the meeting marked “B” and signed by the chairman of the meeting for the purposes of identification) be and it is hereby approved in all respects and all the transactions contemplated thereby be and they are hereby approved; and
(b) the directors (the “Directors”) of the Company be and they are hereby authorised to take all actions which are in their opinion necessary, appropriate, desirable or expedient for the implementation and completion of the Share Transfer Agreement and the transactions contemplated thereby and all other matters incidental thereto or in connection therewith and to agree to the variation and waiver of any of the matters relating thereto that are, in the opinion of the Directors, not material to transactions contemplated thereby and are in the best interests of the Company.

By order of the board of directors Xu Zhen Dong Chairman

Beijing, the PRC, 30 June 2005

– 115 –

NOTICE OF SPECIAL GENERAL MEETING

Notes:

(A) The H Share register of the Company will be closed from Wednesday, 20 July 2005 to Friday, 19 August 2005 (both days inclusive), during which no transfer of H Shares will be effected. Any holders of H Shares of the Company, whose name appear on the Company’s H Share Register of Members at the close of business on Tuesday, 19 July 2005, are entitled to attend and vote at the Special General Meeting after completing the registration procedures for attending the meeting.

The address of the Company’s H Share registrar in Hong Kong, Hong Kong Registrars Limited, is as follows:

46th Floor, Hopewell Centre 183 Queen’s Road East Hong Kong

(Fax no.: 2865-0990)

(B) Holders of Promoter Shares or H Shares, who intend to attend the Special General Meeting, must complete the reply slips for attending the Special General Meeting and return them to the Company’s H Share registrar in Hong Kong, Hong Kong Registrars Limited, at 46th Floor, Hopewell Centre, 183 Queen’s Road East, Hong Kong (Fax No.(852) 2865-0990) (for holders of H Shares) or to the place of business of the Company in Beijing (for Promoter Shares) not later than 20 days before the date of the Special General Meeting, i.e. no later than Friday, 29 July 2005.

The place of business of the Company in Beijing:

3rd Floor, Beida Jade Bird Building No. 207 Chengfu Road Haidian District Beijing 100871 PRC Fax no: 86-10-62758434

(C) Each holder of H Shares who has the right to attend and vote at the Special General Meeting is entitled to appoint in writing one or more proxies, whether a shareholder or not, to attend and vote on his behalf at the Special General Meeting. A proxy of a shareholder who has appointed more than one proxy may only vote on a poll.
(D) The instrument appointing a proxy must be in writing under the hand of the appointor or his attorney duly authorized in writing. If that instrument is signed by an attorney of the appointor, the power of attorney authorizing that attorney to sign, or other documents of authorization, must be notarially certified.
(E) To be valid, the form of proxy, and if the form of proxy is signed by a person under a power of attorney or other authority on behalf of the appointor, a notarially certified copy of that power of attorney or other authority, must be delivered to the Company’s H Share registrar in Hong Kong, Hong Kong Registrars Limited, the address of which is set out in Note (A) above, not less than 24 hours before the time for holding the Special General Meeting or any adjournment thereof in order for such documents to be valid.
(F) Each holder of Promoter Shares is entitled to appoint in writing one or more proxies, whether a shareholder or not, to attend and vote on its behalf at the Special General Meeting. Notes (C) to (D) also apply to holders of Promoter Shares, except that the proxy form or other documents of authority must be delivered to the place of business of the Company in Beijing, the address of which is set out in Note (B) above, not less than 24 hours before the time for holding the Special General Meeting or any adjournment, thereof in order for such documents to be valid.
(G) If a proxy attends the Special General Meeting on behalf of a shareholder, he should produce his identity card and the instrument signed by the proxy or his legal representative, and specifying the date of its issuance. If a legal person shareholder appoints its corporate representative to attend the Special General Meeting, such representative should produce his/her identity card and the notarised copy of the resolution passed by the Board of Directors or other authorities or other notarised copy of the licence issued by such legal person shareholder.
(H) The Special General Meeting is expected to last for half a day. Shareholders attending the Special General Meeting are responsible for their own transportation and accommodation expenses.
(I) Beijing Beida Jade Bird Limited, together with its associates (as defined in the Rules Governing the Listing of Securities on the Growth Enterprise Market of The Stock Exchange of Hong Kong Limited (the “GEM Listing Rules”)), will abstain from voting in relation to the ordinary resolution as set out in the notice convening the Special General Meeting.
(J) Pursuant to Rule 20.52 of the GEM Listing Rules, the vote of the Independent Shareholders (as defined in the Circular) to be cast at the Special General Meeting in relation to the ordinary resolution as set out in the notice convening the Special General Meeting shall be taken by poll.

– 116 –

AI assistant

Beijing Beida Jade Bird Universal Sci-Tech Company Limited — Proxy Solicitation & Information Statement 2005

51266_rns_2005-06-30_84385015-6d78-48bc-bfcf-0d70462e0712.pdf

北京北大青鳥環宇科技股份有限公司 BEIJING BEIDA JADE BIRD UNIVERSAL SCI-TECH COMPANY LIMITED

MAJOR AND CONNECTED TRANSACTION RELATING TO THE PROPOSED ACQUISITION OF 44% EQUITY INTEREST IN BEIJING CHENGJIAN DONGHUA REAL ESTATE DEVELOPMENT COMPANY LIMITED

G.K. Goh Securities (H.K.) Ltd

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

北京北大青鳥環宇科技股份有限公司 BEIJING BEIDA JADE BIRD UNIVERSAL SCI-TECH COMPANY LIMITED

To: the Independent Shareholders

MAJOR AND CONNECTED TRANSACTION RELATING TO THE PROPOSED ACQUISITION OF 44% EQUITY INTEREST IN BEIJING CHENGJIAN DONGHUA REAL ESTATE DEVELOPMENT COMPANY LIMITED

INTRODUCTION

THE SHARE TRANSFER AGREEMENT

Date

Parties

Assets to be acquired

Consideration

LETTER FROM THE BOARD

LETTER FROM THE BOARD

Conditions

LETTER FROM THE BOARD

INFORMATION OF DONGHUA

LETTER FROM THE BOARD

FINANCIAL EFFECTS OF THE ACQUISITION

SHAREHOLDING STRUCTURE OF DONGHUA

LETTER FROM THE BOARD

LETTER FROM THE BOARD

THE VENDOR’S AND ITS ASSOCIATES’ INTEREST IN THE PROJECT

REASONS FOR AND THE BENEFITS OF THE ACQUISITION

LETTER FROM THE BOARD

GEM LISTING RULES IMPLICATIONS

SGM

LETTER FROM THE BOARD

RECOMMENDATION

ADDITIONAL INFORMATION

北京北大青鳥環宇科技股份有限公司 BEIJING BEIDA JADE BIRD UNIVERSAL SCI-TECH COMPANY LIMITED

Yours faithfully, Independent Board Committee

Mr. Wang Chao Yong

Prof. Nan Xiang Hao

Prof. Chin Man Chung, Ambrose

G.K. Goh Securities (H.K.) Limited

MAJOR AND CONNECTED TRANSACTION RELATING TO THE PROPOSED ACQUISITION OF 44% EQUITY INTEREST IN BEIJING CHENGJIAN DONGHUA REAL ESTATE DEVELOPMENT COMPANY LIMITED

THE ACQUISITION

Reasons

The Consideration

POSSIBLE FINANCIAL EFFECT

Earnings and net asset value

Working capital

RECOMMENDATION

1. FINANCIAL SUMMARY