Beijing Enterprises Holdings Limited — Proxy Solicitation & Information Statement 2004

Jul 12, 2004

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

If you have sold or transferred all your shares in China Chengtong Development Group Limited, you should at once hand this circular to the purchaser or transferee or to the bank, stockbroker or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee.

The Stock Exchange of Hong Kong Limited takes no responsibility for the contents of this circular, makes 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.

(Incorporated in Hong Kong with limited liability)

(Stock code: 217)

MAJOR AND CONNECTED TRANSACTIONS

Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders

==> picture [32 x 32] intentionally omitted <==

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

A letter from the Board is set out on pages 1 to 11 of this circular. A letter from the Independent Board Committee containing its advice to the Independent Shareholders in connection with the Share Sale Agreement is set out on page 12 of this circular. A letter from the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders containing its advice to the Independent Board Committee and the Independent Shareholders in connection with the Share Sale Agreement is set out on pages 13 to 18 of this circular.

A notice convening an extraordinary general meeting of the Company to be held at 10:30 a.m. on Monday, 26 July 2004 at Suites 2904-2907, 29th Floor, One International Finance Centre, 1 Harbour View Street, Central, Hong Kong is set out on pages 114 to 116 of this circular. Whether or not you are able to attend the meeting in person, you are requested to complete and return the accompanying form of proxy in accordance with the instructions printed thereon as soon as possible and, in any event not later than 48 hours before the time for the meeting or any adjournment thereof to the Company’s share registrar, Computershare Hong Kong Investor Services Limited at Shops 1901-1905, 19th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong. Completion and return of the form of proxy will not preclude you from attending and voting at the meeting or any adjournment thereof should you so wish.

9 July 2004

CONTENTS

	Page
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	iii
LETTER FROM THE BOARD
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
The Share Sale Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	2
Subject-matter of the Disposal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	2
Financial information on the Disposal Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4
Possible acquisition of assets: Beijing Holdco . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
Financial information on Beijing Holdco and Beijing JV . . . . . . . . . . . . . . . . . . . . . . .	6
The Disposal consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	7
Basis of determination of the Disposal consideration . . . . . . . . . . . . . . . . . . . . . . . . . . .	7
Basis of determination of the value attributed to Beijing Holdco . . . . . . . . . . . . . . . . .	8
Principal conditions of the Share Sale Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	8
Completion of the Share Sale Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	9
Financial effect of the Disposal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	10
Reasons for the transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	10
EGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	10
Recommendation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	11
Further information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	11

• i -

CONTENTS

	Page
LETTER FROM THE INDEPENDENT BOARD COMMITTEE . . . . . . . . . . . . . . . . . . . . . . . . .	12
LETTER FROM THE INDEPENDENT FINANCIAL ADVISER . . . . . . . . . . . . . . . . . . . . . . . . .	13
APPENDIX I – FINANCIAL INFORMATION OF THE GROUP . . . . . . . . . . . . . . . . . . . . . . . .	19
APPENDIX II – FINANCIAL INFORMATION OF THE ENLARGED GROUP . . . . . . . . . . .	73
APPENDIX III – ACCOUNTANTS’ REPORT ON BEIJING JV . . . . . . . . . . . . . . . . . . . . . . . . .	75
APPENDIX IV – PROPERTY VALUATION OF PANYU PROJECT . . . . . . . . . . . . . . . . . . . . .	92
APPENDIX V – PROPERTY VALUATION OF BEIJING PROJECT. . . . . . . . . . . . . . . . . . . . .	99
APPENDIX VI – GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	106
NOTICE OF EXTRAORDINARY GENERAL MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	114

• ii -

DEFINITIONS

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

“associates”	has the meaning ascribed to it under the Listing Rules
“Beijing Holdco”	Talent Dragon Limited, a wholly-owned subsidiary of CCHK
	incorporated in the British Virgin Islands
“Beijing JV”	中實投資有限責任公司(translated as Zhongshi Investment
	Company Limited), a limited liability company established under
	the laws of the PRC with a registered capital of RMB80 million,
	RMB56 million of which, or 70% thereof, is beneficially owned
	by嘉成企業發展有限公司(translated as Jiacheng Enterprise
	Development Company Limited) and the remaining 30% thereof
	is owned by Independent party
“Beijing Project”	a site for development comprising villas nos. 9 and 11 at
	Baiwanzhuang Dajie, Xicheng District, Beijing, the PRC (北京西
	城區百萬莊大街9 #、11 #院) with a site area of about 7,200
	sq.m.
“Board”	the board of Directors
“CCHK”	China Chengtong Hong Kong Company Limited, the substantial
	shareholder (as defined under the Listing Rules) of the Company
	holding about 36% of the issued Shares as at the Latest Practicable
	Date
“Company”	China Chengtong Development Group Limited (中國誠通發展
	集團有限公司), a company incorporated in Hong Kong with
	limited liability, the shares of which are listed on the main board
	of the Stock Exchange
“Companies Ordinance”	Companies Ordinance (Chapter 32 of the Laws of Hong Kong)
“Completion”	completion of the Share Sale Agreement
“Director(s)”	the director(s) of the Company
“Disposal”	the sale of the Company’s entire equity interests in the Disposal
	Companies, comprising the assets described in the sub-paragraph
	headed “Subject-matter of the Disposal” in this circular
“Disposal Companies”	Ocean-Land Management Limited and Tat Yeung Investments
	Limited, both are being wholly-owned subsidiaries of the Company
	incorporated under the Companies Ordinance

• iii -

DEFINITIONS

• “Disposal Company-A” Ocean-Land Management Limited, a wholly-owned subsidiary of the Company incorporated under the Companies Ordinance

• “Disposal Company-B”

• Tat Yeung Investments Limited, a wholly-owned subsidiary of the Company incorporated under the Companies Ordinance

• “Disposal Interests” the Company’s entire equity interests in the Disposal Companies, comprising the assets described in the sub-paragraph headed “Subject-matter of the Disposal” in this circular

• “EGM” the extraordinary general meeting of the Company to be convened on Monday 26 July 2004, for the purpose of, among other matters, approving the Share Sale Agreement and the transactions contemplated thereunder

• “Enlarged Group”

• the Group as enlarged following completion of the Disposal and the transfer of the entire equity of Beijing Holdco to the Company in part satisfaction of the Disposal consideration as described in the sub-paragraph headed “the Disposal consideration” in this circular

• “Group”

the Company and its subsidiaries

• “Hong Kong”

• the Hong Kong Special Administrative Region of the People’s Republic of China

• “Hong Kong dollars” or “HK$”

Hong Kong dollars, the lawful currency of Hong Kong

• “Independent Board Committee”

• the independent board committee of the Board comprising Messrs. Tsui Yiu Wa, Alec, Kwong Che Keung, Gordon and Lao Youan all being independent non-executive Directors, to advise the Independent Shareholders in relation to the terms of the Share Sale Agreement

• “Independent Financial Adviser”

• G.K. Goh Securities (H.K.) Limited, a deemed licensed Corporation for types 1 (Dealing in Securities), 4 (Advising on Securities), 6 (Advising on Corporate Finance) and 9 (Asset Management) regulated activities under the SFO and the independent financial adviser to the Independent Board Committee and the Independent Shareholders in relation to the terms of Share Sale Agreement

• iv -

DEFINITIONS

• “Independent party(ies)” independent third party(ies) who is/are independent of and not connected with any of the directors, chief executive, substantial shareholders of the Company or any of its subsidiaries or any of their respective associates and is not a connected person of the Company under the Listing Rules

• “Independent Shareholders” Shareholders other than CCHK, the other shareholders of Panyu JV and the Beijing JV and their respective associates as referred to in the paragraph headed “EGM” in the letter from the Board of this circular

• “Latest Practicable Date” 7 July 2004, being the latest practicable date prior to the printing of this circular for the purpose of ascertaining certain information contained in this circular

• “Listing Rules” the Rules Governing the Listing of Securities on the Stock Exchange which were in force immediately prior to 31 March 2004

• “Longstop Date” 30 September 2004 (or such later day as the parties to the Share Sale Agreement may agree in writing)

• “Panyu Project” a commercial and residential development on the western side of the south bank Shawan Bridge, Dawu Village, Yuwotou Town, Panyu, Guangdong Province, the PRC (番禺市魚窩頭鎮大烏村 沙灣大橋南岸西側) with a gross floor area of about 72,000 sq.m.

• “Panyu JV” 番禺福禺房地產開發有限公司 (Panyu Lucky Rich Real-Estates Development Limited), a sino-foreign co-operative joint venture enterprise established under the laws of the PRC of which Nardu Company Limited and 番禺市魚窩頭房地產開發公司 (translated as Panyu Yuwotou Real Estate Development Company) are the joint venture partners

• “PRC” the People’s Republic of China “RMB” Renminbi, the lawful currency of the PRC “SFO” The Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong)

• “Share(s)” share(s) of HK$0.10 each in the share capital of the Company “Shareholders” shareholders of the Company

• v -

DEFINITIONS

“Share Sale Agreement”	the conditional share sale agreement dated 25 March 2004 entered
	into by the Company and CCHK, details of which are given in
	this circular
“Stock Exchange”	The Stock Exchange of Hong Kong Limited
“US$”	United States dollars, the lawful currency of the United States of
	America
“Valuers”	S.H. Ng & Co., Ltd., an independent firm of professional surveyors
	and valuers
“sq.m.”	square metres
“%”	per cent.

In this circular, an exchange rate of HK$ to RMB1.06 has been adopted for the translation of HK$ and RMB amounts.

• vi -

LETTER FROM THE BOARD

(Incorporated in Hong Kong with limited liability)

Executive Directors: Zhang Guotong (Vice Chairman and Managing Director) Li Tiefeng Wu Chun Wah, Michael

Registered office: Suites 2904-2907 29th Floor One International Finance Centre 1 Harbour View Street Central, Hong Kong

Non-executive Directors:

Ma Zhengwu (Chairman) Hong Shuikun Chen Shengjie Gu Laiyun

Independent non-executive Directors:

Tsui Yiu Wa, Alec Kwong Che Keung, Gordon Lao Youan

9 July 2004

To the Shareholders

Dear Sir or Madam,

MAJOR AND CONNECTED TRANSACTIONS

1. INTRODUCTION

On 1 April 2004, the Company announced that it had entered into the Share Sale Agreement with CCHK pursuant to which the Company agreed to dispose of the Disposal Interests to CCHK for the Disposal consideration of HK$72,836,000.

The amount of the Disposal consideration, HK$72,836,000, is more than 50% of the unaudited net tangible asset value of the Company as at 30 September 2003. The Share Sale Agreement therefore constitutes a major transaction of the Company under the Listing Rules.

The counterparty to the Share Sale Agreement is CCHK, a substantial shareholder (as defined under the Listing Rules) of the Company. The Share Sale Agreement therefore also constitutes a connected transaction of the Company under the Listing Rules and thus, is subject to the approval of the Independent Shareholders at the EGM. CCHK and the other shareholders of Panyu JV and Beijing JV and their

• 1 -

LETTER FROM THE BOARD

respective associates will abstain from voting on the resolution approving the Share Sale Agreement and the transactions contemplated thereunder at the EGM. Any vote of the Independent Shareholders at the EGM shall be taken by poll.

The Independent Board Committee has been established to advise the Independent Shareholders in relation to the terms of the Share Sale Agreement and the transactions contemplated thereunder. The Independent Financial Adviser has been appointed as the independent financial adviser to the Independent Board Committee and the Independent Shareholders to advise the Independent Board Committee and the Independent Shareholders in relation to the terms of the Share Sale Agreement.

The purpose of this circular is to provide you with (a) further information in relation to the Share Sale Agreement; (b) the recommendations of the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders in respect of the terms of the Share Sale Agreement; and (c) the advice of the Independent Board Committee in respect of the terms of the Share Sale Agreement and the transactions contemplated thereunder and to give you notice of the EGM.

2. THE SHARE SALE AGREEMENT

Date : 25 March 2004 Parties : the Company as vendor of the Disposal Interests

CCHK as purchaser of the Disposal Interests

As at the Latest Practicable Date, CCHK through its wholly-owned subsidiary, holds 608,201,500 Shares, representing about 36% of the issued capital of the Company. CCHK is, accordingly, a connected person of the Company and the Disposal is a connected transaction of the Company under the Listing Rules.

Subject-matter of the Disposal

The entire equity interests in the Disposal Companies, comprising:

• (a) all the issued shares of Disposal Company-A;

• (b) shareholder’s loans with a face value of about HK$156 million as at the date of the Share Sale Agreement due from Disposal Company-A to the Company;

• (c) all the ordinary shares of Disposal Company-B;

• (d) shareholder’s loans with a face value of about HK$94 million as at the date of the Share Sale Agreement due from Disposal Company-B to the Company.

Disposal Company-A holds an effective interest of 45% in Panyu JV, a sino foreign cooperative joint venture enterprise established in the PRC and a subsidiary of Disposal Company-A.

• 2 -

LETTER FROM THE BOARD

Panyu JV, in turn, holds the Panyu Project, a commercial and residential development in Panyu, Guangdong Province, the PRC with an aggregate gross floor area of about 72,000 sq.m.. The further development and operation of the Panyu Project is currently suspended as a result of difficulties in obtaining further financing and the possession orders and court orders mentioned in the paragraph headed “Principal condition of the Share Sale Agreement” mentioned below. The Panyu Project was valued at about RMB141,500,000 (equivalent to about HK$133,490,000) as at 30 April 2004 by the Valuers. The text of the letter together with a valuation certificate of the Panyu Project prepared by the Valuers giving its valuation of the Panyu Project as at 30 April 2004 are set out in Appendix IV.

Other than the Panyu Project, Disposal Company-A does not have any major assets. Disposal Company-B does not have any major assets other than loans due from the Panyu JV. Other than the shareholders’ loans due to the Company mentioned in paragraphs (b) and (d) above, the Disposal Companies do not have any major liabilities.

Upon completion of the Share Sale Agreement, the Company will cease to have any interest in Disposal Company-A and Disposal Company-B and both of them will cease to be subsidiaries of the Company.

The Disposal, effectively, is for the sale of the Company’s 45% effective interest in the Panyu JV. The following charts set out the shareholding structure of the Disposal Companies immediately prior to and after the Completion:

Prior to Completion

==> picture [348 x 156] intentionally omitted <==

----- Start of picture text -----

The Company
100% 100%
Disposal Rich Access
Company-A Limited
Note 100%
Disposal
Panyu JV
Company-B
----- End of picture text -----

Note: The 45% effective interest in Panyu JV is held through Nardu Company Limited, which is owned as to 51% by Galawell Development Limited, which is in turn owned as to 88.24% by Disposal Company-A. Nardu Company Limited and Galawell Development Limited are both subsidiaries of the Company.

• 3 -

LETTER FROM THE BOARD

Immediately after Completion

==> picture [348 x 160] intentionally omitted <==

----- Start of picture text -----

CCHK
100% 100%
Disposal Disposal
Company-A Company-B
Note
Panyu JV
----- End of picture text -----

Note: The 45% effective interest in Panyu JV is held through Nardu Company Limited, which is owned as to 51% by Galawell Development Limited, which is in turn owned as to 88.24% by Disposal Company-A

Financial information on the Disposal Companies

The unaudited net loss before and after taxation and extraordinary items of the Disposal Companies for their two most recent financial years ended 31 March 2003 and for the six months ended 30 September 2003 were as follows:

	Six months ended	Six months ended
	30 September			Year	ended 31 March
		2003		2003	2002
		HK$		HK$	HK$
Disposal Company-A		Nil		1,773	2,088
		(before and		(before and	(before and
	after taxation)		after taxation)		after taxation)
Disposal Company-B		7,925		35,450	23,353,956
		(before and		(before and	(before taxation)
	after taxation)		after taxation)		20,353,956
					(after taxation)

• 4 -

LETTER FROM THE BOARD

The unaudited net deficit of the Disposal Companies as at the end of their two most recent financial years ended 31 March 2003 and as at 30 September 2003 were as follows:

	As at	30	September		As at	31	March
			2003	2003			2002
			HK$	HK$			HK$
Disposal Company-A			16,713	16,713			14,940
Disposal Company-B			15,713,675	15,705,750			15,670,210

The unaudited consolidated net liabilities of the Disposal Companies as at 30 September 2003 was about HK$129 million.

Possible acquisition of assets: Beijing Holdco

Subject to the Company being satisfied with its due diligence review of Beijing Holdco, and Beijing Holdco acquiring 70% of the registered capital of the Beijing JV in accordance with the terms of the Share Sale Agreement, part of the consideration for the Disposal, HK$52,830,000, will be satisfied by a transfer of the entire equity of Beijing Holdco to the Company from CCHK. Such equity will consist of the entire issued capital of Beijing Holdco and all shareholder’s loans as shall be due from Beijing Holdco to CCHK at Completion.

It is intended that Beijing Holdco will acquire a 70% equity interest in the Beijing JV at about RMB56,000,000 (equivalent to about HK$52,830,000) to be funded by the internal resources of CCHK. Beijing JV currently holds the Beijing Project, a development site occupying some 7,200 sq.m. at Xicheng District in Beijing. The site is currently under development. The text of the letter together with a valuation certificate of the Beijing Project prepared by the Valuers giving its valuation of the Beijing Project as at 30 April 2004 are set out in Appendix V.

The 70% equity interest in the Beijing JV is currently held by 嘉成企業發展有限公司 (translated as Jiacheng Enterprise Development Company Limited) which is beneficially and whollyowned by China Chengtong Holdings Company, the substantial shareholder of both the Company and CCHK. The remaining 30% equity interest in the Beijing JV is currently held by 北京興合動 力投資管理有限公司 (translated as Beijing Xinghe Dongli Investment Management Co., Ltd.), an Independent party. CCHK has entered into a memorandum of understanding with 嘉成企業發展 有限公司 (translated as Jiacheng Enterprise Development Company Limited) on 2 March 2004 for the acquisition of a 70% interest in the Beijing JV. The other principal terms of the memorandum of understanding, as far as the Directors are aware, relate to approvals and consents and due diligence review of the Beijing JV. It is intended that CCHK is to acquire such 70% interest in the Beijing JV through Beijing Holdco.

• 5 -

LETTER FROM THE BOARD

The following chart set out the corporate structure of the Beijing Holdco and the Beijing JV immediately after completion of the acquisition of Beijing Holdco by the Company (assuming Beijing Holdco has acquired a 70% interest in Beijing JV):

==> picture [256 x 211] intentionally omitted <==

----- Start of picture text -----

The Company
100%
Beijing Holdco
70%
北京興合動力投資管理有限公司
(translated as Beijing Xinghe Dongli
Investment Management Co., Ltd.)
30%
Beijing JV
----- End of picture text -----

Beijing JV will become a subsidiary of the Company upon Beijing Holdco is accepted as part consideration for the Disposal (assuming Beijing Holdco acquiring 70% of the registered capital of the Beijing JV).

Financial information on Beijing Holdco and Beijing JV

Beijing Holdco was incorporated in 2002. It has not carried on any business since the date of its incorporation. The current book value of Beijing Holdco is in an amount of US$1, representing its paid up capital.

The audited net assets value of the Beijing JV as at 31 December 2003 was about HK$75.5 million. The principal activities of the Beijing JV are property development and investment management.

The audited net profit/(loss) before and after taxation and extraordinary items of the Beijing JV for their two most recent financial years ended 31 December 2003 were as follows:

year ended 31 December 2003

RMB(810,871) (equivalent to about HK$764,973) (before taxation); RMB(810,871) (equivalent to about HK$764,973) (after taxation)

year ended 31 December 2002

RMB456,987 (equivalent to about HK$431,120) (before taxation); RMB151,571 (equivalent to about HK$142,991) (after taxation)

• 6 -

LETTER FROM THE BOARD

There was no extraordinary item of the Beijing JV for its two most recent financial years ended 31 December 2003. As noted in note 8 to the accountants’ report of Beijing JV in Appendix III to this circular, Beijing JV has potential PRC tax liabilities at the balance sheet dates. 嘉成企 業發展有限公司 (translated as Jiancheng Enterprise Development Company Limited), being the holder of 70% equity interest in Beijing JV, has given an indemnity to the Beijing JV against any such potential PRC tax and other liabilities. In the event that the Company shall proceed to accept the transfer of the entire equity of Beijing Holdco (assuming Beijing Holdco holding 70% of the registered capital of Beijing JV) as part consideration of the Disposal, the Company will not be liable for any such potential PRC tax liabilities.

The Disposal consideration

The total consideration for the purchase of the equity interests in the Disposal Companies is HK$72,836,000.

Subject to:

• (1) the Company being satisfied with its due diligence review of Beijing Holdco, including its interests in the Beijing JV and Beijing JV’s interest in the Beijing Project; and

• (2) Beijing Holdco acquiring a 70% interest in the Beijing JV, the issue of a valuation report by an independent valuer confirming that the open market value of the Beijing Project is not less than RMB100 million (equivalent to about HK$94.34 million), the net tangible asset value of the Beijing JV not being less than RMB80 million (equivalent to about HK$75.47 million), and loan financing of not less than RMB131.4 million (equivalent to about HK$123.96 million) being made available to the Beijing JV for the development of the Beijing Project,

part of the consideration for the Disposal, HK$52,830,000, will be satisfied by a transfer of the entire equity of Beijing Holdco to the Company, and the balance of the consideration, HK$20,006,000, will be paid in cash.

If the Company is not satisfied with its due diligence review of the Beijing Holdco, or if Beijing Holdco fails to acquire a 70% interest in the Beijing JV as mentioned above, or if Beijing JV fails to secure loan financing of RMB131.4 million (equivalent to about HK$123.96 million) for the development of the Beijing Project as mentioned above, the full amount of the Disposal consideration will be paid in cash to the Company on Completion.

Basis of determination of the Disposal consideration

The assets of the Disposal Companies comprise their holding of a 45% effective interest in the registered capital of Panyu JV, and loans to the Panyu JV with a total face value of about HK$250 million as at the date of the Share Sale Agreement.

Based on the PRC audited balance sheet, the Panyu JV had net liabilities of about RMB73 million (equivalent to about HK$68.87 million) as at 31 December 2002. The unaudited balance sheet of the Panyu JV as at 31 December 2003 indicates that it had net liabilities of about RMB80 million (equivalent to about HK$75.47 million) as at that date.

• 7 -

LETTER FROM THE BOARD

As mentioned in the sub-paragraph headed “Financial information on the Disposal Companies”, as at 31 March 2003, the Disposal Company-A and Disposal Company-B, recorded an unaudited net deficit of about HK$16,713 and HK$15,705,750 respectively. The amount of the consideration for the Disposal receivable by the Company was negotiated with CCHK on an arm’s length basis after taking into account, among other things, the unaudited consolidated net liabilities of the Disposal Companies as at 30 September 2003 of about HK$129 million, the suspension of the further development in the Panyu Project as mentioned above and the fact that the Panyu Project is not expected to generate any positive cashflow to the Group in the near future.

Basis of determination of the value attributed to Beijing Holdco

Subject to Beijing Holdco acquiring a 70% interest in the Beijing JV, the sole asset of Beijing Holdco will be a 70% interest in the Beijing JV. Other than disclosed in the sub-paragraph “Principal conditions of the Share Sale Agreement” below, the Beijing JV does not have any material liabilities, and its only major asset is the Beijing Project, a site for development at Xicheng District of Beijing with a site area of about 7,200 sq.m.. The registered and paid up capital of the Beijing JV is RMB80 million (equivalent to about HK$75.47 million). The intended date of completion of the development of the Beijing Project is scheduled for about the end of 2005.

It is a condition to the entire equity of Beijing Holdco being accepted as part consideration for the Disposal that the Beijing JV has a net tangible asset value as at Completion of not less than RMB80 million (equivalent to about HK$75.47 million). A 70% interest in the Beijing JV thus has an attributable value of RMB56 million (equivalent to about HK$52,830,000). The amount of the Disposal consideration for which the entire equity of Beijing Holdco may be accepted as partial settlement was determined based on this calculation.

Principal conditions of the Share Sale Agreement

Completion of the Share Sale Agreement is conditional upon, among other things:

• (1) the Independent Shareholders approving the Share Sale Agreement and related transactions;

• (2) the Company being satisfied with its due diligence review of Beijing Holdco, including the Beijing JV and the Beijing Project;

• (3) CCHK being satisfied with its due diligence review of the Disposal Companies, including the Panyu JV and the Panyu Project;

• (4) (if the entire equity of Beijing Holdco are to be accepted in settlement of part of the Disposal consideration) Beijing Holdco acquiring the 70% of the registered capital of the Beijing JV, the issue of a valuation report by an independent valuer confirming that the open market value of the Beijing Project is not less than RMB100 million (equivalent to about HK$94.34 million), the net tangible asset value of the Beijing JV not being less than RMB80 million (equivalent to about HK$75.47 million) as at Completion, and loan financing of not less than RMB131.4 million (equivalent to about HK$123.96 million) being made available to the Beijing JV for the development of the Beijing Project;

• 8 -

LETTER FROM THE BOARD

• (5) the Company obtaining all necessary consents required under the Listing Rules, the Stock Exchange or any regulatory authority.

The Company may waive condition (2) or (4) and CCHK may waive condition (3). If condition (4) is not fulfilled, CCHK must pay the entirety of the Disposal consideration in cash.

If any of the conditions to Completion, including those summarised above, are not fulfilled or, as the case may be, waived by the party entitled to such waiver, on or before 5:00 pm on the Longstop Date (or such later date as the parties to the Share Sale Agreement may agree in writing), the Share Sale Agreement shall lapse and be of no further effect, and no party thereof shall have any claim against or liability to the other parties, save in respect of any antecedent breaches.

Pursuant to the Share Sale Agreement, the acquisition of the Beijing Holdco is subject to satisfactory to the due diligence review to be conducted by the Company. Major scopes of the due diligence review include the legality of development of the Beijing Project and the ownership of the Beijing JV, financial review, property valuation, site inspection and obtaining of all necessary documents. The due diligence review of Beijing Holdco, Beijing JV and Beijing Project are in the course of being conducted by the Company and its professional advisers. As at the date of this circular, accountants’ report on the Beijing JV for the three years ended 31 December 2003 (appendix III to this circular), property valuation on the Beijing Project (appendix V to this circular) confirming that the open market value of the Beijing Project is not less than RMB100 million (equivalent to about HK$94.34 million) and PRC legal opinion on the Beijing Project have been obtained. The Company will ensure that the due diligence review will be concluded prior to the Completion.

Despite the due diligence review to be conducted by CCHK as mentioned in condition (3) above, CCHK has in the Share Sale Agreement acknowledged the existence that circumstances may arise that may affect the Disposal Company-A’s interest in the Panyu JV, the Panyu JV’s interest in the Panyu Project or its value, including but not limited to enforcement actions that may be taken against Panyu JV in respect of agreements to which it is a party or obligations to which it is subject to or in respect of the Panyu Project. CCHK has been informed and is aware of the circumstances that the land use rights of the Panyu Project are currently subject to certain possession orders issued by the People’s Court of the Panyu District of Guangzhou City in October 2001 and July 2002 and court orders obtained by creditors against Panyu JV for repayment of an aggregate principal of approximately RMB7.6 million together with interests and related court fees as referred to in note 11 to Appendix IV of the property valuation of Panyu Project to this circular. CCHK has confirmed that its purchase of the Disposal Interests are to be subject to these possession orders and court orders and will not rely upon them as grounds for not proceeding with Completion.

The Company will consider every possibility to enhance its Shareholders’ value. The Company will consider the possibility of acquiring Beijing Holdco as a separate transaction if beneficial to the Company and its Shareholders as a whole, in the event the Share Sale Agreement shall lapse. The Company will comply with the relevant requirements of the Listing Rules in the event of such acquisition.

Completion of the Share Sale Agreement

Completion of the Share Sale Agreement will take place on the fifth business day after the fulfilment (or waiver) of the conditions precedent specified therein, the more major of which are summarised in the sub-paragraph “Principal conditions of the Share Sale Agreement” above.

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LETTER FROM THE BOARD

3. FINANCIAL EFFECT OF THE DISPOSAL

It is estimated that the Disposal will result in a gain to the Company of about HK$202,000,000, which is equivalent to the Disposal consideration of HK$72,836,000 netting off the unaudited consolidated net liabilities of Disposal Company-A and Disposal Company-B as at 30 September 2003 in an amount of about HK$129 million. If part of the Disposal consideration is settled through a transfer of the equity interests of Beijing Holdco, the gross amount of cash consideration receivable by the Company will be HK$20,006,000. If the entire amount of the Disposal consideration is paid in cash, the Company will receive a gross proceed of HK$72,836,000. It is intended that these proceeds will be applied as working capital of the Group. These proceeds will significantly increase the cash resources of the Company. It is a condition to the Beijing Holdco entire equity being accepted as payment of part of the Disposal consideration that the Beijing JV secures loan financing for not less than RMB131.4 million (equivalent to about HK$123.96 million). The Company considers that this amount is sufficient for completion of the development of the Beijing Project which is currently scheduled for about the end of 2005.

4. REASONS FOR THE TRANSACTIONS

The Group is principally engaged in the business of, among others, logistics and trading business, property investment and development, and strategic investment in Hong Kong and the PRC.

CCHK is an investment holding company incorporated in Hong Kong.

The Company considers that the Panyu Project offers relatively limited potential because of the suspension of the further development and operation of this project as a result of difficulties in obtaining further financing and the possession orders and court orders mentioned in the paragraph headed “Principal condition of the Share Sale Agreement” mentioned above. The Share Sale Agreement allows the Company to realise this investment.

In addition, the Share Sale Agreement provides an opportunity for the Company to effectively exchange its minority interest in the Panyu Project for a controlling interest in the Beijing Project, and cash for the development of the Company’s business. The Company considers the Beijing Project to have better potential given its location in the capital city of the PRC and that the Company will potentially be acquiring a controlling interest in the project. The Company currently intends that the Beijing Project will be further developed for sale. The Directors consider that the terms of the Share Sale Agreement are fair and reasonable and in the interests of the Shareholders as a whole.

5. EGM

Set out on pages 114 to 116 of this circular is a notice convening the EGM to be held at 10:30 a.m. on Monday, 26 July 2004 at Suites 2904-2907, 29th Floor, One International Finance Centre, 1 Harbour View Street, Central, Hong Kong at which ordinary resolution will be proposed to approve the Share Sale Agreement and transactions contemplated thereunder. CCHK, through its wholly-owned subsidiary, holds 608,201,500 Shares, representing about 36% of the issued capital of the Company. CCHK is, accordingly, a connected person of the Company. CCHK and its associates are required to abstain from voting at the EGM. The other shareholders of Panyu JV and Beijing JV and their respective associates will abstain from voting at the EGM. Panyu JV has two co-operative joint venture partners, namely Nardu Company Limited, a non-wholly owned subsidiary of the Company, and 番禺市魚窩頭房地產開發公司 (translated as Panyu Yuwotou Real Estate Development Company). The other shareholders of Panyu JV comprise (a) 番禺市魚窩頭房地產開發公司 (translated as Panyu Yuwotou Real Estate Development Company) and (b) the other shareholders of Nardu Company Limited, namely Kwan Sin Ming, K. Laran Limited,

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LETTER FROM THE BOARD

Dhandia Limited, Kingdom Land Investment and Development Company Limited, Excellence Star Limited and Filey Investment Corporation (being shareholders having their interests in Panyu JV held through Nardu Company Limited holding 3%, 8%, 5%, 3% 18% and 12% interests respectively in Nardu Company Limited). All of them and their respective associates will abstain from voting at the EGM. The other shareholders of Beijing JV comprise嘉成企業發展有限公司 (translated as Jiacheng Enterprise Development Company Limited) holding a 70% interest in the Beijing JV and 北京興合動力投資管理 有限公司 (translated as Beijing Xinghe Dongli Investment Management Co., Ltd.) holding the remaining 30% interest in the Beijing JV. Both of them and their respective associates will abstain from voting at the EGM. To the knowledge of the Directors, none of these named persons has any interest in the Company. The Company will ascertain whether any of these named persons have any interest in the Company before the EGM and will ensure that if any of them have any interest in the Company, they and their respective associates will abstain from voting at the EGM. Any vote of the Independent Shareholders at the EGM shall be taken by poll.

A form of proxy for use at the EGM is enclosed with this circular. Whether or not you are able to attend the EGM in person, you are requested to complete and return the accompanying form of proxy in accordance with the instructions printed thereon as soon as possible and, in any event not later than 48 hours before the time for the EGM or any adjournment thereof to the Company’s share registrar, Computershare Hong Kong Investor Services Limited at Shops 1901-1905, 19th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong. Completion and return of the form of proxy will not preclude you from attending and voting at the EGM or any adjournment thereof should you so wish.

6. RECOMMENDATION

Your attention is drawn to the letter from the Independent Board Committee set out on page 12 of this circular which contains its advice to the Independent Shareholders as to voting at the EGM regarding the Share Sale Agreement. Your attention is also drawn to the letter of advice received from the Independent Financial Adviser which contains, among other matters, its recommendations to the Independent Board Committee and the Independent Shareholders in relation to the Share Sale Agreement and the principal factors and reasons considered by it in concluding its advice. The letter from the Independent Financial Adviser is set out on pages 13 to 18 of this circular.

The Independent Board Committee, having taking into account the advice from the Independent Financial Adviser, considers that the terms of the Share Sale Agreement and the transactions contemplated thereunder are in the interests of the Company and the Shareholders as a whole and 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 EGM to approve the Share Sale Agreement and the transactions contemplated thereunder.

7. FURTHER INFORMATION

Your attention is drawn to the additional information set out in the appendices to this circular.

Yours faithfully For and on behalf of China Chengtong Development Group Limited Wu Chun Wah, Michael Executive Director

• 11 -

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

(Incorporated in Hong Kong with limited liability)

9 July 2004

To the Independent Shareholders

Dear Sir or Madam,

MAJOR AND CONNECTED TRANSACTIONS

We refer to the circular issued by China Chengtong Development Group Limited to its shareholders dated 9 July 2004 (the “Circular”) of which this letter forms part. Unless the context requires otherwise, terms defined in the Circular shall have the same meanings when used in this letter.

We have been appointed by the Board to consider the terms of the Share Sale Agreement and to advise the Independent Shareholders as to whether the terms of the Share Sale Agreement are fair and reasonable so far as the Independent Shareholders are concerned.

We wish to draw your attention to the letter from the Board as set out on pages 1 to 11 of the Circular, the letter of advice from the Independent Financial Adviser as set out on pages 13 to 18 of the Circular and the additional information set out in the appendices to the Circular.

Having taking into account of the principal factors and reasons considered by, and the opinion of the Independent Financial Adviser as set out on pages 13 to 18 of the Circular, we consider that the terms of the Share Sale Agreement and the transactions contemplated thereunder are in the interests of the Company and the Shareholders as a whole and are fair and reasonable so far as the Independent Shareholders are concerned. Accordingly, we recommend the Independent Shareholders to vote in favour of the ordinary resolution to approve the Share Sale Agreement and the transactions contemplated thereunder set out in the notice of the EGM at the end of the Circular.

Yours faithfully

The Independent Board Committee

China Chengtong Development Group Limited

Tsui Yiu Wa, Alec Kwong Che Keung, Gordon

Lao Youan

Independent non-executive Directors

• 12 -

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The following is the text of the letter of advice from G.K. Goh Securities (H.K.) Limited, the Independent Financial Adviser, to the Independent Board Committee and the Independent Shareholders in relation to the Share Sale Agreement for the purpose of inclusion in this circular:

==> picture [32 x 33] intentionally omitted <==

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

Alexandra House 16-20 Chater Road Central Hong Kong

9 July 2004

The Independent Board Committee and the Independent Shareholders of China Chengtong Development Group Limited

Dear Sirs

MAJOR AND CONNECTED TRANSACTIONS

We refer to our appointment as the independent financial adviser to the Independent Board Committee and the Independent Shareholders in respect of the fairness and reasonableness of the terms of the Share Sale Agreement, details of which are set out in the Letter from the Board (the “Board’s Letter”) contained in the circular issued by the Company to the Shareholders dated 9 July 2004 (the “Circular”), of which this letter forms part. Terms used in this letter shall have the same meanings as defined in the Circular unless the context otherwise requires.

The counterparty to the Share Sale Agreement is CCHK, a substantial shareholder (as defined under the Listing Rules) of the Company. Under the Listing Rules, the transactions contemplated under the Share Sale Agreement constitute major and connected transactions of the Company and therefore is subject to the approval of Independent Shareholders at the EGM. An independent board committee, the composition of which is set out in the Letter from the Board contained in the Circular, have been established to advise the Independent Shareholders in respect of the terms of the Share Sale Agreement and the transactions contemplated thereunder. CCHK and the other shareholders of Panyu JV and Beijing JV and their respective associates will abstain from voting on the resolution approving the Share Sale Agreement and the transactions contemplated thereunder at the EGM. Any vote of the Independent Shareholders at the EGM shall be taken by poll.

BASIS OF OUR OPINION

In formulating our advice, we have relied on the statements, information, opinions and representations contained in the Circular and the information and representations provided to us by the Company and/or its senior management staff and/or the Directors. We have assumed that all such

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

statements, information, opinions and representations contained or referred to in the Circular or otherwise provided or made or given by the Company and/or its senior management staff and/or the Directors and for which they are solely responsible were true and accurate and valid at the time they were made and continue to be true and valid as at the date of the Circular. We have assumed that all the opinions and representations made or provided by the Directors and/or the senior management staff of the Company contained in the Circular have been reasonably made after due and careful enquiry. We have also sought and obtained confirmation from the Company and/or its senior management staff and/or the Directors that no material facts have been omitted from the information provided and referred to in the Circular. We have also discussed with the Valuers on the valuation methodology adopted in arriving at the valuations of the Panyu Project and the Beijing Project. We consider that the open market valuation methodology adopted by the Valuers is in line with the relevant industry practice. Therefore, we consider it is reasonable to take the view that the valuations prepared by the Valuers are fair and reasonable.

We consider that we have reviewed all available information and documents which enable us to reach an informed view and to justify our reliance on the information provided so as to provide a reasonable basis for our opinions. We have no reason to doubt the truth, accuracy and completeness of the statements, information, opinions and representations provided to us by the Company and/or its senior management staff and/or the Directors and their respective advisers or to believe that material information has been withheld or omitted from the information provided to us or referred to in the aforesaid documents. We have not, however, carried out an independent verification of the information provided, nor have we conducted an independent investigation into the business and affairs of any of the Disposal Companies, the Beijing Holdco or any of their respective subsidiaries or associates.

PRINCIPAL FACTORS AND REASONS CONSIDERED

In arriving at our recommendation, we have taken into consideration the following principal factors and reasons:

Background to and reasons for the Disposal

The Group is principally engaged in logistics and trading business, property investment and development, and strategic investment in Hong Kong and the PRC.

The major assets of the Disposal Companies are its 45% effective interests in the Panyu JV and the loans to the Panyu Project with a total face value of approximately HK$250 million as at the date of the Share Sale Agreement. We have been advised by the Directors that the Panyu Project have been suspended since late 2000. The Directors further advised that the Panyu Project would have limited prospects due to the difficulties in obtaining further financing and the possession orders charged against the underlying land use rights of the Panyu Project. It is unlikely that the Panyu Project will be re-activated and have positive contributions to the Group in the near future. Despite the due diligence review to be conducted by CCHK as mentioned in condition (3) of the Share Sale Agreement as stated on page 8 of the Circular, CCHK has in the Share Sale Agreement acknowledged the existence that circumstances may arise that may affect the Disposal CompanyA’s interest in the Panyu JV, the Panyu JV’s interest in the Panyu Project or its value, including but not limited to enforcement actions that may be taken against Panyu JV in respect of agreements to which it is a party or obligations to which it is subject or in respect of the Panyu Project.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

We note from the Letter from the Board that CCHK has been informed and is aware of the circumstances that the land use rights of the Panyu Project are currently subject to certain possession orders issued by the People’s Court of the Panyu District of the Guangzhou City in October 2001 and July 2002 and court orders obtained by creditors against Panyu JV for repayment of an aggregate principal of approximately RMB7.6 million together with interests and related court fees. Details of these possession orders and court orders are disclosed under note 11 to the property valuation of Panyu Project as set out in Appendix IV to the Circular. CCHK has confirmed that its purchase of the Disposal Interests are to be subject to these possession orders and court orders and will not rely upon them as grounds for not proceeding with Completion. We note that if any of the conditions to Completion are not fulfilled on or before the Longstop Date, the Share Sale Agreement shall lapse and be of no further effect, and no party thereof shall have any claim against or liability to the other parties, save in respect of any antecedent breaches.

In view of the above, we concur with the views of the Directors and consider that the Share Sale Agreement represents a good opportunity for the Company to realize its interest in the Disposal Companies, which are not income generating. Further, we note that upon Completion, the Company will be able to record an estimated gain on the Disposal of approximately HK$202 million. Having taken into account the above, we consider that the entering into of the Share Sale Agreement is fair and reasonable and is in the interests of the Company and the Shareholders as a whole.

Basis of consideration

The consideration for the Disposal of HK$72,836,000 (the “Panyu Consideration”) has been determined based on an arm’s length basis with regard to the financial conditions of the Disposal Companies and the independent valuation (the “Panyu Valuation”) of the Panyu Project of approximately RMB141.5 million as at 30 April 2004. We note that the Panyu Project is the major asset of the Panyu JV, which, in turn, is the major asset of the Disposal Companies. Based on the summation of the net liabilities of Disposal Company-A and Disposal Company-B as set out in Appendix II to the Circular, the Disposal Companies had an unaudited net liabilities of approximately HK$395.5 million as at 30 September 2003. Such unaudited net liabilities of the Disposal Companies included loans of approximately HK$250 million due to the Group and loans of approximately HK$160 million due to other shareholders of the Panyu JV (together the “Shareholders Loans”). We consider that the Shareholders Loans represent total investment cost in the Panyu JV by the Group and the other shareholders of the Panyu JV. The actual amount of the Shareholders Loans that could be repaid will mainly depend on the realization value of the net assets of the Panyu JV, which comprise mainly the Panyu Project. On the basis that the Panyu Project could be realised at the Panyu Valuation, the pro-forma unaudited net assets of the Disposal Companies before deducting the Shareholders Loans would amount to approximately HK$83.4 million. This represents approximately 20.3% payout (the “Proforma Payout Ratio”) to the Shareholders Loans.

The Panyu Consideration represents approximately 29.1% payout to the loans of approximately HK$250 million due to the Group, which is higher than the Pro-forma Payout Ratio. Therefore, we consider the Panyu Consideration to be fair and reasonable so far as the Company and the Independent Shareholders are concerned.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Payment terms

Upon the Share Sale Agreement becoming unconditional, on the basis that the Company is satisfied with its due diligence review of the Beijing Holdco, and Beijing Holdco has acquired a 70% interest in the Beijing JV, the Consideration will be satisfied as to:

• (1) HK$52,830,000 (the “Beijing Consideration”) by a transfer of the entire equity interest of Beijing Holdco; and

• (2) HK$20,006,000 payable in cash.

Otherwise, the Panyu Consideration will be satisfied in full by cash upon Completion. As advised by the Directors, they intend to use the proceeds from the Disposal for general working capital purpose.

Possible acquisition of Beijing Holdco

Beijing Holdco was incorporated in 2002 and has not carried on any business since the date of its incorporation. It is intended that Beijing Holdco would acquire a 70% equity interest in the Beijing JV, the major asset of which is the Beijing Project. Beijing Project is currently a site under development. We have been advised by the Directors that the Beijing Project is planned to be a residential and commercial complex expected to be completed by the end of 2005. The audited pro-forma consolidated net assets of Beijing JV after incorporating the Beijing Project would amount to approximately RMB78.7 million (equivalent to approximately HK$74.3 million) as at 31 December 2003 according to the Accountants Report of Beijing JV as set out in Appendix III to the Circular. Such pro-forma consolidated net assets of Beijing JV would be increased to approximately RMB163.2 million (equivalent to approximately HK$154.0 million) after adjusted for the independent valuation (the “Beijing Valuation”) of the Beijing Project of approximately RMB193 million (equivalent to approximately HK$182 million) as at 30 April 2004.

The Beijing Consideration is equivalent to approximately 70% attributable interest in the audited pro-forma consolidated net assets of Beijing JV or represents a discount of approximately 51% to the 70% attributable interest in the pro-forma consolidated net assets of Beijing JV as adjusted by the Beijing Valuation.

Based on the above, we consider that the payment terms of the Disposal including the satisfaction of the Panyu Consideration in part by way of the Beijing Consideration to be fair and reasonable so far as the Company and the Independent Shareholders are concerned.

Possible financial effects on the Group

Earnings

As the development of the Panyu Project has been suspended since late 2000, no earnings were generated from the Panyu JV. Upon Completion, the Company would record a “one-off” gain on the Disposal of approximately HK$202 million. Therefore, we consider that the Disposal will not have an adverse impact on the recurring earnings base of the Group.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Net tangible asset

The Group had an unaudited consolidated net tangible assets of approximately HK$122.1 million as at 30 September 2003. Assuming Completion would take place on 30 September 2003, the Group’s unaudited consolidated net tangible assets as at 30 September 2003 would be increased to approximately HK$324 million. Therefore, we consider that the Disposal would have a positive impact on the net tangible asset value of the Group.

Working capital

As at 30 September 2003, the Group had bank and cash balances of approximately HK$9.6 million. If the Panyu Consideration is fully satisfied in cash, the cash position of the Group would increase to approximately HK$82.4 million. If part of the Panyu Consideration in the amount of HK$52.8 million is to be satisfied by a transfer of the entire equity interest of Beijing Holdco to the Company with the balance of the Panyu Consideration of approximately HK$20 million payable in cash, the Group’s cash position would increase to approximately HK$29.6 million.

The Directors consider that having taken into account the proceeds received from the Disposal (whether wholly or partly in cash), the fund generated by the Group and the provision of financial support from China Chengtong Holdings Company (the controlling shareholder of the Company) to the Company, the Directors have confirmed that the Group has sufficient working capital for its present operations following Completion as described in the statement in the paragraph headed “Working Capital” in Appendix I to the Circular..

Taking into account of the above, we concur with the opinion of the Directors and consider that the Disposal including the possible acquisition of Beijing Holdco will increase the net cash position of the Group and will have a positive impact on the working capital of the Group immediately upon Completion.

Gearing

As at 30 September 2003, the gearing ratio of the Group was approximately 2.2 times (calculated based on total borrowings over shareholders’ funds). Upon Completion, the gearing ratio would be improved to approximately 0.42 times as set out in the “Proforma financial information of the Enlarged Group” in Appendix II to the Circular.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

RECOMMENDATION

Having taken into account the above, we are of the opinion that the terms and conditions of the Disposal including the possible acquisition of Beijing Holdco are fair and reasonable so far as the Company and the Independent Shareholders are concerned and are in the interests of the Company and the Shareholders as a whole. Accordingly, we advise the Independent Board Committee to recommend the Independent Shareholders to vote in favour of the resolution to be proposed at the EGM to approve the Share Sale 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

• 18 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

1. SUMMARY OF AUDITED FINANCIAL STATEMENTS

The following is a summary of the audited consolidated profit and loss account and condensed consolidated balance sheet of the Group extract from the relevant annual report of the Company.

Results Turnover Profit/(loss) before taxation Taxation Profit/(loss) before minority interests Minority interests Net profit/(loss) attributable to Shareholders Assets and Liabilities Total assets Total liabilities Minority interests Balance of shareholders’ funds	For the year ended 31 March 2003 2002 2001 HK$’000 HK$’000 HK$’000 108,382 207,322 258,497 85,345 (1,389,636) (12,924) 64 (527) 277 85,409 (1,390,163) (12,647) 7,670 (4,875) (2,127) 93,079 (1,395,038) (14,774) As at 31 March 2003 2002 2001 HK$’000 HK$’000 HK$’000 548,111 555,663 1,921,633 (369,646) (439,843) (447,679) (34,040) (64,571) (25,420) 144,425 51,249 1,448,534

2. INDEBTEDNESS

As at 30 April 2004, being the latest practicable date for the purpose of ascertaining information contained in this indebtedness statement prior to the printing of this circular, the Group had total loans of approximately HK$207.5 million comprising of long-term unsecured loans of approximately HK$164.1 million, short-term secured borrowings of approximately HK$20.6 million and other short-term unsecured loans of approximately HK$22.8 million.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The short-term secured bank borrowings are secured by the followings:

• (a) The Group’s plant and machinery with an aggregate net book value of approximately HK$18,756,000.

• (b) A leasehold land of the Group situated in the PRC at a cost of HK$10,614,000.

Save as disclosed above and apart from intra-group liabilities, the Group did not at the close of 30 April 2004, have any material outstanding mortgage, charges, debentures, bank overdraft, liabilities under acceptances, acceptance credits loans, borrowing, or other similar indebtedness, or any hire purchase or finance lease commitments or any guarantee or other material contingent liabilities.

3. FINANCIAL AND TRADING PROSPECTS OF THE GROUP

As mentioned in the interim results of the Company for the 6 months ended 30 September 2003, the Group will continue to focus on its core business and dispose of non-core investments and properties to further improve its financial strength. Strict financial and cost control will continue to be imposed on all business units of the Group.

The Group will remain flexible and responsive to varying market conditions and will continue to strive to enhance the return on the Group’s various business units. The Group is also leveraging the extension network and business connections of its ultimate controlling shareholder, China Chengtong Holdings Company, to identify potential business projects and strategic investment opportunities that can expand and deliver synergy to its commodity trading, logistics and cement manufacturing business.

4. WORKING CAPITAL

The Directors are of the opinion that after taking into account the proceeds received from the Disposal (whether wholly or partly in cash), the funds generated by the Group and the provision of financial support from China Chengtong Holdings Company (“CCHC”), the substantial shareholder of the Company (as defined in the Listing Rules), the Group has sufficient working capital for its present requirements. To substantiate its financial support to the Group, China Chengtong Hong Kong Company Limited, being a subsidiary of CCHC, has advanced an interest-free and unsecured loan of HK$15 million to the Group and CCHC is committed to provide further financing to the Group in case of need.

5. EXTRACT OF AUDITED CONSOLIDATED FINANCIAL STATEMENTS

Set out below is the audited consolidated financial statements of the Group for the year ended 31 March 2003 and the related auditors’ report dated 22 July 2003 as extracted from the Company’s 2003 annual report.

• 20 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

AUDITORS’ REPORT

To the members of

China Chengtong Development Group Limited

(Formerly, China Logistics Group Limited)

(Incorporated in Hong Kong with limited liability)

We have audited the financial statements on pages 30 to 71 which have been prepared in accordance with accounting principles generally accepted in Hong Kong.

RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS

The Companies Ordinance requires the directors to prepare 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 statements and to report our opinion to you.

BASIS OF OPINION

We conducted our audit in accordance with Statements of Auditing Standards issued by the Hong Kong Society of Accountants (“HKSA”), except that the scope of our work was limited as explained below.

An audit includes 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 judgments 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 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 available to us was limited because of the following matters:

1. We have not been able to verify the Group’s title to certain land in Suzhou, PRC, held through a 71% subsidiary (with the remaining 29% held by a Chinese party), on which buildings with net book value of HK$48,088,000 (cost of HK$70,184,000, less accumulated depreciation of HK$22,096,000) have been erected, because the relevant PRC authority has yet to give its formal approval. It is the responsibility of the Chinese party to ensure that the appropriate land use rights certificate is granted. However, to date this formality has not been completed. As a consequence, we were unable to determine if the net book value of the buildings should be written down and whether or not liabilities would have to be accrued in the financial statements for restoration costs that would be incurred in returning the land to the PRC government.

2. 21 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

1. The share of net assets of an associate, Goodwill (Overseas) Limited, of HK$193,488,000 included in the consolidated balance sheet as at 31 March 2003 has been included in the financial statements based on unaudited management accounts.

We were unable to obtain sufficient information and explanations to satisfy ourselves that such amount was fairly stated in the financial statements.

As more fully explained in the Note 18 to the financial statements, the interest in associate relates to a 32% interest held by a subsidiary in Goodwill (Overseas) Limited. The company’s only activity apparently is the holding of a 95% interest in a Shanghai property development via a Macau incorporated company; however its financial statements have not been audited. Financial statements in respect of the Shanghai property development have been audited by PRC auditors, whose report was unqualified.

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.

FUNDAMENTAL UNCERTAINTY RELATING TO THE GOING CONCERN BASIS

In forming our opinion, we have considered the adequacy of the disclosures made in the financial statements concerning the Group’s deficiency of net current assets amounting to HK$153,421,000 and the Group’s ability to continue as a going concern, the validity of which assumption for the preparation of the financial statements depends inter alia on the Group obtaining continuing financial support from its ultimate controlling shareholder or significantly reducing the Group’s level of operating costs.

We consider that the fundamental uncertainty has been adequately accounted for and that sufficient disclosures of the details of the circumstances relating to this fundamental uncertainty have been made in the Note 3 to the financial statements. Our opinion is not qualified in this respect.

QUALIFIED OPINION ARISING FROM LIMITATION OF AUDIT SCOPE

Except for any adjustments that might have been found necessary had we been able to obtain sufficient evidence concerning the limitations as set out in the basis of opinion section of our audit report above, in our opinion the financial statements give a true and fair view of the state of the affairs of the Company and the Group as at 31 March 2003 and of the profit and cash flows of the Group for the year then ended and have been properly prepared in accordance with the Companies Ordinance.

In respect alone of the limitations on our work as set out in the basis of opinion section of this report, we have not obtained all the information and explanations that we considered necessary for the purpose of our audit.

Moore Stephens

Certified Public Accountants

Hong Kong, 22 July 2003

• 22 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

CONSOLIDATED PROFIT AND LOSS ACCOUNT

For the year ended 31 March 2003

Notes Turnover 4 Cost of sales Gross profit Other revenue 4 Distribution costs Administrative expenses Other operating expenses, net Revaluation surplus/(deficit) and impairment loss of tangible assets Written back/(provision for) impairment of intangible assets 13 Provision for CNCC Acquisition 21(b) Written back/(provision for) doubtful receivables, net 21(c) Written back/(provision for) inventories Profit/(loss) from operating activities 6 Finance costs 7 Share of losses of associates Profit/(loss) before taxation Taxation 8 Profit/(loss) before minority interests Minority interests Net profit/(loss) attributable to shareholders 9 Earnings/(loss) per share Basic 10 Diluted 10	2003 HK$’000 108,382 (102,952) 5,430 31,234 (1,298) (37,891) (4,722) 6,509 79,460 – 2,583 10,918 92,223 (6,878) – 85,345 64 85,409 7,670 93,079 Cents 6.20 6.20	2002 HK$’000 207,322 (173,503) 33,819 872 (5,405) (57,140) (43,304) (233,193) (428,999) (232,657) (391,248) (11,329) (1,368,584) (14,072) (6,980) (1,389,636) (527) (1,390,163) (4,875) (1,395,038) Cents (95.47) N/A

• 23 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the year ended 31 March 2003

31 March 2001 Loss attributable to shareholders Issue of new shares upon exercise of options Share issue expenses Disposal of associates Transfer Deficit on revaluation 31 March 2002 Profit attributable to shareholders Issue of new shares upon exercise of options Share issue expenses Issue of conversion shares Exchange differences 31 March 2003	Share Capital HK$’000 145,685 – 685 – – – – 146,370 – 170 – 21,900 – 168,440	Investment Properties revaluation reserve HK$’000 2,934 – – – – – (2,934) – – – – – – –	Exchange reserve HK$’000 743 – – – (333) – – 410 – – – – (126) 284	General reserve HK$’000 44,942 – – – – (44,942) – – – – – – – –	Capital redemption reserve HK$’000 402 – – – – – – 402 – – – – – 402	Retained profits/ (accu- mulated losses) HK$’000 293,176 (1,395,038) – – – 44,942 – (1,056,920) 93,079 – – – – (963,841)	Share premium HK$’000 654,052 – 336 (1) – – – 654,387 – 83 (30) 284,700 – 939,140	Total HK$’000 1,141,934 (1,395,038) 1,021 (1) (333) – (2,934) (255,351) 93,079 253 (30) 306,600 (126) 144,425

• 24 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

CONSOLIDATED BALANCE SHEET

31 March 2003

2003 Notes HK$’000 Non-current assets Intangible assets 13 79,460 Investment properties 14 146,568 Property under development 15 – Properties, plant and equipment 16 76,413 Interest in an associate 18 193,488 495,929 Current assets Inventories 19 7,560 Due from a minority shareholder of a subsidiary 20 943 Trade and other receivables 21 13,733 Cash and bank balances 22 29,946 52,182 Current liabilities Loan from intermediate controlling shareholder 23 15,000 Trade and other payables 24 95,605 Trust receipt loans, secured 568 Tax payable 4,334 Other loans – current portion 25 26,327 Bank loans, secured 26 63,769 205,603 Net current liabilities (153,421) Total assets less current liabilities 342,508 Non-current liabilities Other loans – net of current portion 25 (63,236) Loans from minority shareholders of subsidiaries 28 (100,807) (164,043) Minority interests (34,040) (198,083) 144,425 Capital and reserves Share capital 29 168,440 Reserves 30 (24,015) 144,425 Mandatory convertible note 31 – 144,425 Li Tiefeng Wu Chun Wah, Michael Director Director

2002 HK$’000 – 230,521 – 80,627 197,967 509,115 3,000 – 40,923 2,625 46,548 – 113,228 3,192 4,161 18,896 136,323 275,800 (229,252) 279,863 (51,111) (112,932) (164,043) (64,571) (228,614) 51,249 146,370 (401,721) (255,351) 306,600 51,249

• 25 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

CONSOLIDATED CASH FLOW STATEMENT

For the year ended 31 March 2003

Cash flows from operating activities Profit/(loss) before taxation Adjustment for: Share of losses of associates Amortisation of intangible assets (Written back)/provision for impairment of intangible assets Depreciation Revaluation (surplus)/deficit and impairment loss of tangible assets (Gain)/loss on disposal of properties, plant and equipment Loss on disposal of investment properties Gain on disposal of other investments Provision for CNCC Acquisition (Written back)/provision for doubtful receivables (Written back)/provision for inventories Provision for loan to an associate Provision for other investments in securities Gain from settlement in respect of Heat Supply Project Interest income Interest expense Operating loss before working capital changes Decrease in inventories Increase in amount due from a minority shareholder of a subsidiary Decrease in trade and other receivables Decrease in amount due from an associate Decrease in amount due from a related company Decrease in trade and other payables Cash used in operations Interest paid Hong Kong profits tax paid Hong Kong profits tax refunded Overseas tax refunded Net cash used in operating activities	2003 HK$’000 85,345 – – (79,460) 7,664 (6,509) (289) 1,698 – – (2,583) (10,918) 256 – (22,861) (5) 6,878 (20,784) 6,358 (943) 29,773 4,223 – (22,279) (3,652) (2,222) (1) 194 44 (5,637)	2002 HK$’000 (1,389,636) 6,980 13,000 428,999 5,888 233,193 947 – (59) 232,657 391,248 11,329 148 283 – (154) 14,072 (51,105) 11,747 – 21,528 – 35,000 (28,795) (11,625) (14,111) (155) 288 – (25,603)

• 26 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Cash flows from investing activities Proceeds from disposals of investment properties Investment in property under development Proceeds from disposals of properties, plant and equipment Purchases of properties, plant and equipment Acquisition of subsidiaries, net Proceeds from disposals of other investments in securities Interest received Net cash generated from investing activities Cash flows from financing activities Pledged bank deposits Loan from intermediate controlling shareholder Other loans Repayment of other loans Repayment of bank loans Loans from minority shareholders of subsidiaries Proceeds from issue of share capital Net cash (used in)/generated from financing activities Increase in cash and cash equivalents Cash and cash equivalents at beginning of year Effect of foreign exchange rate changes, net Cash and cash equivalents at end of year Analysis of balances of cash and cash equivalents Cash and cash equivalents Trust receipt loans with maturity within three months from the date of advance	2003 HK$’000 87,902 – 579 (3,346) – – 5 85,140 – 15,000 6,950 (1,405) (70,668) – 223 (49,900) 29,603 (567) 342 29,378 29,946 (568) 29,378	2002 HK$’000 – (667) 10 (566) 7,646 389 27,647 34,459 4,000 – 18,896 – (12,738) 542 1,020 11,720 20,576 (20,337) (806) (567) 2,625 (3,192) (567)

• 27 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

BALANCE SHEET

31 March 2003

2003 Notes HK$’000 Non-current assets Properties, plant and equipment 16 132 Interests in subsidiaries 17 88,572 Loan to an associate 18 332 89,036 Current assets Prepayments and other receivables 412 Cash and bank balances 14,788 15,200 Current liabilities Other payables 9,766 Tax payable – 9,766 Net current assets/(liabilities) 5,434 94,470 Capital and reserves Share capital 29 168,440 Reserves 30 (73,970) 94,470 Mandatory convertible note 31 – 94,470 Li Tiefeng Wu Chun Wah, Michael Director Director

2002 HK$’000 161 118,741 530 119,432 237 245 482 10,984 64 11,048 (10,566) 108,866 146,370 (344,104) (197,734) 306,600 108,866

• 28 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

NOTES TO THE FINANCIAL STATEMENTS

31 March 2003

1. GENERAL

Business activities

During the year, the Group was engaged in the following activities:

• Trading

• Property investment

• Investment holding

• Cement manufacturing

2. SUMMARY OF PRINCIPAL ACCOUNTING POLICIES

(a) Basis of preparation

These financial statements have been prepared in accordance with Hong Kong Statements of Standard Accounting Practice (“SSAPs”), 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, modified with respect to the measurement of investment properties, and other investments, as explained in the respective accounting policies below.

(b) Adoption of Statements of Standard Accounting Practice

During the current year, the Group has adopted the following SSAPs issued by the Hong Kong Society of Accountants (“HKSA”) which are effective for accounting periods commencing on or after 1 January 2002:

SSAP 1 (revised) Presentation of financial statements SSAP 11 (revised) Foreign currency translation SSAP 15 (revised) Cash flow statements SSAP 34 Employee benefits

The significant changes in the Group’s accounting policies resulting from the adoption of the new SSAPs are set out below.

• i) SSAP 1 (revised) “Presentation of financial statements”

The main revision to SSAP 1 is to change the requirements from presenting a statement of recognised gains and losses to a statement of changes in equity. The consolidated statement of changes in equity for the current year and the comparative balances have been presented in accordance with this revised SSAP.

• 29 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

2. SUMMARY OF PRINCIPAL ACCOUNTING POLICIES ( continued)

• (b) Adoption of Statements of Standard Accounting Practice (continued)

• ii) SSAP 11 (revised) “Foreign currency translation”

SSAP 11 (revised) prescribes the basis for the translation of foreign currency transactions and financial statements. This revised SSAP has had no major impact on these financial statements.

• iii) SSAP 15 (revised) “Cash flow statements”

The main revision to SSAP 15 is to classify cash flows during the period into operating, investing and financing activities. The consolidated cash flow statement for the current year and the comparative balances have been presented in accordance with the revised SSAP.

• iv) SSAP 34 “Employee benefits”

SSAP 34 prescribes the accounting treatment and disclosure requirements for employee benefits. This SSAP has had no major impact on these financial statements.

(c) Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and its subsidiaries made up to 31 March. The results of subsidiaries acquired or disposed of during the year are consolidated from their effective dates of acquisition to 31 March, or up to the effective date of disposal, as appropriate. All significant intercompany transactions and balances within the Group are eliminated on consolidation.

The gain or loss on the disposal of a subsidiary represents the difference between the proceeds of the sale and the Group’s share of its net assets together with any goodwill or capital reserve which was not previously charged or recognised in the consolidated profit and loss account.

Minority interests represent the interests of outside shareholders in the operating results and net assets of subsidiaries.

(d) Subsidiaries

A subsidiary is a company in which the Company, directly or indirectly, controls more than half of its voting power or issued share capital or controls the composition of its board of directors.

Investments in subsidiaries are stated in the Company’s balance sheet at cost less provision for impairment loss, if any, as determined by the directors. The results of subsidiaries are accounted for by the Company on the basis of dividends received and receivable.

(e) Associates

An associate is a company, not being a subsidiary, in which the Group holds a substantial long-term interest in the equity share capital and over which the Group is in a position to exercise significant management influence.

The consolidated profit and loss account includes the Group’s share of results of associates for the year, and the consolidated balance sheet includes the Group’s share of net assets of associates.

The results of associates are included in the Company’s profit and loss account to the extent of dividends received and receivable. The Company’s interests in associates are stated at cost less any provisions for impairment loss, if any, as determined by the directors.

• 30 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

2. SUMMARY OF PRINCIPAL ACCOUNTING POLICIES ( continued)

(f) Goodwill

Positive goodwill arising on consolidation represents the excess of the cost of the acquisition over the Group’s share of the fair value of the identifiable assets and liabilities acquired.

In respect of acquisitions of subsidiaries:

• (i) before 1 April 2001, positive goodwill is eliminated against reserves; and

• (ii) since 1 April 2001, positive goodwill is amortised to the consolidated profit and loss account on a straight-line basis over its estimated useful life. Positive goodwill is stated in consolidated balance sheet at cost less accumulated amortisation and impairment loss, if any.

On disposal of a subsidiary, any attributable amount of purchased goodwill not previously amortised through the consolidated profit and loss account or which has previously been dealt with as a movement on the group reserves is included in the calculation of the profit or loss on disposal.

(g) Intangible assets

Intangible assets are capitalised and amortised over the minimum estimated useful life of the assets. Provision is made to the extent that the directors considered an impairment loss has taken place.

(h) Investment properties

Investment properties are those properties which are held for their investment potential, are income producing and are intended to be held on a long term basis. They are stated at their open market values on the basis of annual valuations. Any surplus or deficit on revaluation is taken to the investment properties revaluation reserve unless the total of this reserve is insufficient to cover a deficit, in which case the amount by which the deficit exceeds the amount in the reserve is charged to the profit and loss account. Where a deficit has previously been charged to the profit and loss account and a revaluation surplus subsequently arises, the surplus is credited to the profit and loss account to the extent of the deficit previously charged.

The gain or loss on disposal of an investment property, representing the difference between the net sales proceeds and the carrying amount of the relevant asset, is recognised in the profit and loss account. Any revaluation reserve balance attributable to the relevant asset being sold is transferred to retained profits upon disposal of the asset.

No depreciation is provided in respect of investment properties with an unexpired lease term of more than 20 years since the valuations take into account the state of the buildings.

(i) Properties under development

Properties under development are investments in land and buildings under construction. The investments are stated at cost which includes development and construction expenditure incurred and interest and other direct costs attributable to the development, less any impairment loss deemed necessary by the directors.

• 31 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

2. SUMMARY OF PRINCIPAL ACCOUNTING POLICIES ( continued)

(j) Properties, plant and equipment

Properties, plant and equipment are stated at cost less accumulated depreciation. Leasehold land and buildings is depreciated over the period of the lease while other properties, plant and equipment are depreciated at rates sufficient to write off their cost over their estimated useful lives on a straight-line basis. The principal annual rates are as follows:

Land use right 2.86% Leasehold land and buildings 1.67% to 3.60% Plant and machinery 5% to 20% Furniture, fixtures and computer equipment 10% to 20% Motor vehicles 20%

Major costs incurred in restoring properties, plant and equipment to their normal working condition are charged to the profit and loss account. Improvements are capitalised and depreciated over their expected useful lives to the Group.

The carrying amounts of properties, plant and equipment are reviewed regularly to assess whether their recoverable amounts have declined below their carrying amounts. Expected future cash flows have been discounted in determining the recoverable amount.

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

(k) Impairment of assets

Internal and external sources of information are reviewed at each balance sheet date to identify indications that the following assets may be impaired or an impairment loss previously recognised no longer exists or may have decreased:

• intangible assets

• properties, plant and equipment (other than properties carried at revalued amounts)

• investments in subsidiaries and associates

If any such indication exists, the asset’s recoverable amount is estimated. An impairment loss is recognized whenever the carrying amount of an asset exceeds its 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 time value of money and the risks specific to the asset. Where an asset does not generate cash inflows largely independent of those from other assets, the recoverable amount is determined for the smallest group of assets that generates cash inflows independently (i.e. a cash-generating unit).

In respect of assets other than goodwill, an impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss in respect of goodwill is reversed only if the loss was caused by a specific external event of an exceptional nature that is not expected to recur, and the increase in recoverable amount relates clearly to the reversal of the effect of that specific event.

• 32 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

2. SUMMARY OF PRINCIPAL ACCOUNTING POLICIES ( continued)

(k) Impairment of assets (continued)

A reversal of impairment losses is limited to the asset’s carrying amount that would have been determined had no impairment loss been recognised in prior years. Reversals of impairment losses are credited to the profit and loss account in the year in which the reversals are recognised.

(l) Inventories

Inventories are valued at the lower of cost, on the first-in, first-out basis, and net realisable value after making due allowance for any obsolete or slow moving items. In the case of finished goods and work in progress, cost includes direct materials, direct labour, sub-contracting charges and, where applicable, production overheads. Net realisable value is determined by reference to estimated selling prices less all further costs to be incurred in selling and distribution.

(m) Accounts receivable

Provision is made against accounts receivable to the extent they are considered to be doubtful. Accounts receivable in the balance sheet are stated net of such provision.

(n) Cash equivalents

For the purpose of the consolidated cash flow statement, cash equivalents represent short term highly liquid investments which are readily convertible into known amounts of cash and which were within three months of maturity when acquired, less advances from banks repayable within three months from the date of the advance.

(o) Deferred taxation

Deferred taxation is accounted for at the current taxation rate in respect of timing differences between profit as computed for taxation purposes and profit as stated in the financial statements to the extent that a liability or an asset is expected to be payable or recoverable in the foreseeable future.

(p) Provisions and contingent liabilities

Provisions are recognised for liabilities of uncertain timing or amount when the Company or the Group has a legal or constructive obligation arising as a result of a past event: it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate can be made. Where the time value of money is material, provisions are stated at the present value of the expenditures expected to settle the obligation.

(q) Revenue recognition

Revenue from the sale of goods is recognised on the transfer of risks and rewards of ownership, which generally coincides with the time when goods are delivered to customers and title has passed.

Operating leases rental income is recognised on a straight-line basis over the lease term.

Interest income is recognised on a time proportion basis, taking into account the principal amounts outstanding and the interest rates applicable.

Revenue from provision of services is recognised when the services are rendered.

• 33 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

2. SUMMARY OF PRINCIPAL ACCOUNTING POLICIES ( continued)

(r) Borrowing costs

Borrowing costs that are directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalised as part of the cost of that asset.

All other borrowing costs are charged to the profit and loss account in the year in which they are incurred.

(s) Operating leases

Leases where substantially all the risks and rewards of ownership of assets remain with the leasing company are accounted for as operating leases. Payments made under operating leases are charged to the profit and loss account on a straight-line basis over the lease periods.

(t) Retirement benefit costs

The Group’s contributions for employees’ retirement benefits are charged to the profit and loss account in the year in which such costs are incurred.

(u) Translation of foreign currencies

Transactions in foreign currencies are translated at exchange rates ruling at the transaction dates. Monetary assets and liabilities expressed in foreign currencies at the balance sheet date are translated at the rate of exchange ruling at the balance sheet date. Exchange differences arising in these cases are dealt with in the profit and loss account.

The financial statements of subsidiaries and associates expressed in foreign currencies are translated at the rates of exchange ruling at the balance sheet date. Exchange differences arising are dealt with as a movement in reserves.

(v) 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.

3. GOING CONCERN BASIS OF PREPARATION

The financial statements have been prepared on a going concern basis which contemplates the realisation of assets and settlement of liabilities in the ordinary course of business. The Group’s deficiency of net current assets amounting to HK$153,421,000 as at 31 March 2003. The Group’s continuance in business as a going concern is dependent upon maintaining the necessary continuing financial support from the ultimate controlling shareholder and/or achieving future profitable operations in order to generate sufficient cash flow to meet its liabilities as they fall due. The ultimate controlling shareholder has agreed to provide continuing financial support to the Company to enable it to meet its liabilities as and when they fall due for at least one year from the date of these financial statements.

• 34 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

4. REVENUE AND TURNOVER AND SEGMENT INFORMATION

(a) Revenue and turnover

Turnover represents the aggregate of the net invoiced value of goods sold, rental income, interest income and estate management income but excludes intra-group transactions. Turnover is reconciled to total revenues as follows:

Turnover Sale of goods Gross rental income from investment properties Estate management income Interest income Other revenues Dividends Sales commission income Gain from settlement in respect of Heat Supply Project_(Note 13(c))_ Gain from forfeiture of payables Total revenues	Group 2003 2002 HK$’000 HK$’000 103,301 191,859 4,432 14,525 644 784 5 154 108,382 207,322 – 24 286 848 22,861 – 8,087 – 31,234 872 139,616 208,194	Group 2003 2002 HK$’000 HK$’000 103,301 191,859 4,432 14,525 644 784 5 154 108,382 207,322 – 24 286 848 22,861 – 8,087 – 31,234 872 139,616 208,194
		207,322
		24 848 – –
		872
		208,194

• 35 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

4. REVENUE AND TURNOVER AND SEGMENT INFORMATION ( continued)

(b) Segment Information

By principal activities:

	Sale	of	Property	Property	Heating	supply		Investment	Investment	Investment
	goods		investment		technical	service		holding			E-commerce		Consolidated
	2003	2002	2003	2002	2003	2002		2003		2002	2003	2002	2003		2002
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000		HK$’000	HK$’000		HK$’000	HK$’000	HK$’000		HK$’000
Revenue
Total Revenue	103,301	191,859	5,076	15,309	–		–	5		154	–	–	108,382		207,322
Result
Segment result	8,107	(49,313 )	4,028	(154,027 )	–	(70 )		(1,186 )	(56,988 )		–	(8,195 )	10,949		(268,593 )
Unallocated corporate
expenses													(23,630 ) (34,087 )
Gain from settlement in
respect of Heat Supply
Project													22,861		–
Amortisation of
intangible assets													–		(13,000 )
Written back/(provision
for) impairment of
intangible assets													79,460		(428,999 )
Provision for
CNCC Acquisition													–		(232,657 )
Written back/(provision
for) doubtful receivables													2,583		(391,248 )
Share of results of associates													–		(6,980 )
Finance costs													(6,878 ) (14,072 )
Loss before taxation													85,345		(1,389,636)
Taxation													64		(527 )
Loss before minority interests													85,409		(1,390,163)
Assets
Segment assets	79,576	34,869	152,894	296,588	79,460		–	236,181	224,206		–	–	548,111		555,663
Liabilities
Segment liabilities	(37,365 )	(58,133 )	(31,225 )	(30,874 )	–	(84 )		(9,235 )	(2,100 )		(979 )	(979 )	(78,804 ) (92,170 )
Unallocated liabilities													(290,842 ) (347,673 )
													(369,646 ) (439,843 )
Other information
Capital expenditure	3,234	84	53	8	–		–	59		213	–	17	3,346		322
Depreciation	7,150	4,739	151	298	–		–	363		443	–	408	7,664		5,888
Non-cash expenses
other than
depreciation	–	61,005	–	164,271	–	428,999		–	602,780		–	344	–		1,257,399

• 36 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

4. REVENUE AND TURNOVER AND SEGMENT INFORMATION (continued)

(b) Segment Information (continued)

By geographical location:

Hong Kong Mainland China Taiwan 2003 2002 2003 2002 2003 2002 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 Revenue Total revenue 12,373 46,552 81,713 120,089 14,296 40,681 Result Segment result 1,751 1,995 12,169 (272,896) (2,971) 2,308 Unallocated corporate expenses Gain from settlement in respect of Heat Supply Project Amortisation of intangible assets Written back/(provision for) impairment of intangible assets Provision for CNCC Acquisition Written back/(provision for) doubtful receivables Share of results of associates Finance costs Profit/(loss) before taxation Taxation Profit/(loss) before minority interests Assets Segment assets 85,591 359,041 462,520 192,097 – 4,525 Other information Bank overdrafts – (1,108) – (102) – –

Consolidated 2003 2002 HK$’000 HK$’000 108,382 207,322 10,949 (268,593) (23,630) (34,087) 22,861 – – (13,000) 79,460 (428,999) – (232,657) 2,583 (391,248) – (6,980) (6,878) (14,072) 85,345 (1,389,636) 64 (527) 85,409 (1,390,163) 548,111 555,663 – (1,210)

• 37 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

5. DIVIDEND

No interim dividend was paid during the year (2002: nil) and the directors do not recommend the payment of a final dividend in respect of the year (2002: nil).

6. PROFIT/(LOSS) FROM OPERATING ACTIVITIES

The profit/(loss) from operating activities is arrived at:

After charging: Amortisation of intangible assets Auditors’ remuneration: Current year provision Prior year underprovision Cost of inventories sold Depreciation: Owned properties, plant and equipment Leased properties, plant and equipment Loss on disposal of investment properties Loss on disposal of properties, plant and equipment Operating lease rentals for land and buildings Outgoings in respect of investment properties Provision for doubtful receivables Provision for inventories Provision for loan to an associate Provision for other investments in securities Retirement benefit costs Provision for unused annual leave (included in staff costs below) Staff costs (including directors’ emoluments) After crediting: Exchange gains, net Gain on disposal of other investments Gain on disposal of properties, plant and equipment Provision for doubtful receivables written back Provision for inventories written back

Group 2003 2002 HK$’000 HK$’000 – 13,000 976 1,798 64 392 99,406 165,182 5,072 4,767 2,592 1,121 1,698 – – 947 2,625 3,884 2,816 5,654 – 391,248 – 11,329 256 148 – 283 1,753 2,276 217 – 24,352 25,448 72 943 – 59 289 – 2,583 – 10,918 –

• 38 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

7. FINANCE COSTS

Interest and similar charges on: Bank loans and overdrafts wholly repayable within five years Other loans Less: amount capitalised_(note 15)_	Group 2003 2002 HK$’000 HK$’000 2,691 7,392 4,187 6,719 6,878 14,111 – (39 6,878 14,072	Group 2003 2002 HK$’000 HK$’000 2,691 7,392 4,187 6,719 6,878 14,111 – (39 6,878 14,072
		14,111 (39
		14,072

8. TAXATION

Hong Kong profits tax is provided at 16% on the estimated assessable profits for the year. Taxes on profits assessable outside Hong Kong have been calculated at the rates of taxation prevailing in the countries in which the Group operates, based on existing law, practice and interpretation thereof.

Current year provision: Hong Kong Outside Hong Kong Prior year over-provision: Hong Kong Outside Hong Kong Share of tax of associates Tax (credit)/charge for the year	Group 2003 2002 HK$’000 HK$’000 – 525 – – – 525 (64) – – – (64) – (64) 525 – 2 (64) 527	Group 2003 2002 HK$’000 HK$’000 – 525 – – – 525 (64) – – – (64) – (64) 525 – 2 (64) 527
		525
		– –
		–
		525 2
		527

9. NET PROFIT/(LOSS) ATTRIBUTABLE TO SHAREHOLDERS

The net loss attributable to shareholders dealt with in the financial statements of the Company is HK$14,619,000 (2002: HK$1,453,686,000).

• 39 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

10. EARNINGS/(LOSS) PER SHARE

The calculation of basic earnings/(loss) per share is based on the net profit attributable to shareholders of HK$93,079,000 (2002: loss of HK$1,395,038,000) and the weighted average of 1,501,669,626 (2002: 1,461,205,379 shares) in issue during the year.

The calculation of diluted earnings per share is based on the net profit attributable to shareholders of HK$93,079,000 and on 1,501,669,626 shares which is the weighted average number of shares in issue during the year plus the weighted average of 303,811 shares deemed to be issued at no consideration if all outstanding options had been exercised.

The diluted loss per share for the year ended 2002 has not been shown as the exercise of options would have no dilutive effect on the basic loss per share.

11. DIRECTORS’ AND SENIOR MANAGEMENT’S EMOLUMENTS

(a) Directors’ emoluments

Directors’ remuneration disclosed pursuant to the Listing Rules and Section 161 of the Companies Ordinance is as follows:

Fees Other emoluments Contributions to retirement schemes	Group 2003 2002 HK$’000 HK$’000 1,124 1,042 4,140 4,505 23 112 5,287 5,659	Group 2003 2002 HK$’000 HK$’000 1,124 1,042 4,140 4,505 23 112 5,287 5,659
		5,659

Directors’ fees include HK$228,000 (2002: HK$453,000) payable to independent non-executive directors during the year. No other emoluments (2002: HK$Nil) are payable to independent nonexecutive directors.

During the year, no share options were granted to directors under the Company’s Share Option Scheme (2002: Nil). During the year, no share options had been exercised by the directors (2002: 6,500,000).

There were no arrangements under which a director waived or agreed to waive any emolument in respect of the years ended 31 March 2003 and 2002.

Emoluments of the directors fell within the following bands:

HK$Nil to HK$1,000,000 HK$1,000,001 to HK$1,500,000 HK$1,500,001 to HK$2,000,000	Group 2003 2002 Number of Number of Directors directors 15 14 1 – 1 1 17 15	Group 2003 2002 Number of Number of Directors directors 15 14 1 – 1 1 17 15
		15

• 40 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

11. DIRECTORS’ AND SENIOR MANAGEMENT’S EMOLUMENTS ( continued)

(b) Five highest paid individuals

Of the five individuals with the highest emoluments in the Group, three directors (2002: two) of the Company whose emoluments have been included in note 11(a) above. The emoluments of the remaining two (2002: three) individuals are as follows:

Salaries and other benefits Contributions to retirement schemes	Group 2003 2002 HK$’000 HK$’000 1,609 3,476 81 174 1,690 3,650	Group 2003 2002 HK$’000 HK$’000 1,609 3,476 81 174 1,690 3,650
		3,650

Emoluments of the highest paid individuals fell within the following bands:

HK$Nil to HK$1,000,000 HK$1,000,001 to HK$1,500,000 HK$1,500,001 to HK$2,000,000	Group 2003 2002 Number of Number of Individuals individuals 2 2 – – – 1 2 3	Group 2003 2002 Number of Number of Individuals individuals 2 2 – – – 1 2 3
		3

12. RETIREMENT BENEFIT COSTS

Before 1 December 2000, the Group contributed to a defined contribution retirement scheme in Hong Kong. The scheme was converted to a Mandatory Provident Fund scheme (“MPF scheme”) on 1 December 2000. Contributions by the Group to both the previous retirement scheme and the MPF scheme are calculated at 5% of employees’ basic salaries. The assets of the two schemes were held separately from those of the Group in an independently administered fund.

The Group’s subsidiaries in the PRC participate in defined contribution schemes managed by the PRC local governments. Contributions are made at 22% of the employees’ basic salaries.

For the year ended 31 March 2003, contributions totalling HK$1,760,000 (2002: HK$2,276,000) were paid by the Group.

• 41 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

13. INTANGIBLE ASSETS

Cost 1 April 2002 and 31 March 2003 Accumulated amortisation 1 April 2002 Impairment loss written back 31 March 2003 Net book value 31 March 2003 31 March 2002	Group 2003 HK$’000 519,999 519,999 (79,460) 440,539 79,460 –

• (a) In 1998, the Group entered into an agreement with Trade Sense International Limited, a company incorporated in the British Virgin Islands with limited liability, a wholly-owned subsidiary of China Huatong Distribution &Industry Development Corp. (“China Huatong”), a state-owned enterprise incorporated in Beijing, the PRC under which the Group acquired a 75% interest in the issued share capital of Galaxy Gain Limited (“Galaxy”). Galaxy’s wholly-owned subsidiary, Ocean-Land Heat Supply Limited (“Ocean-Land Heat”), was appointed under an agreement for the provision of technical services relating to the supply, installation and management of heating systems to Huatong Heat Energy Technique Company Limited (“Huatong Heat”) in the Mainland China on an exclusive basis (“Heat Supply Project”). Huatong Heat was to pay Ocean-Land Heat an annual fee, calculated in accordance with the total areas of heating systems to be installed by Huatong Heat plus a 55% share of its net profit after tax, for a minimum period of 20 years. The principal asset acquired by the Group was effectively an intangible asset which represents the fair value of future distributions. The consideration for the acquisition was capitalised and amortised over the minimum useful life of the asset of 20 years.

Pursuant to guarantee letters provided by China Huatong, the holding company of Huatong Heat, the Group is entitled to receive minimum income of HK$25,000,000, HK$58,000,000, HK$35,000,000 and HK$40,000,000 for the first four years of the Heat Supply Project respectively, commencing from the year ended 31 March 1999. The Company received HK$118,000,000 from Huatong Group Holdings Limited and Proficient Company Limited for the three years ended 31 March 2002. It appears, however, that HK$114,000,000 relating thereto was paid out of the Group shortly after receipt.

• 42 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

13. INTANGIBLE ASSETS ( continued)

• (b) The guaranteed minimum income of HK$40,000,000 for the year ended 31 March 2002 in respect of the Heat Supply Project has not been received by the Group and the Board has decided not to recognise the guaranteed minimum income of HK$40,000,000 relating to the year ended 31 March 2002 for the sake of prudence. The Company received a letter dated 6 August 2002 from China Huatong which stated that it has not paid any “guaranteed income” to the Group and it was not capable to honour its commitment. Huatong Heat also alleged that Ocean-Land Heat had not honoured its obligations to provide technical services etc. under the agreement referred to in (a) above and hence, was not entitled to payment or share of profit under that agreement. On the basis of the available information, the Group decided to make a full provision in respect of the intangible asset to reduce its carrying value to zero for the year ended 31 March 2002.

• (c) The Group commenced legal action in Beijing, China in November 2002 against Huatong Heat and China Huatong to recover the guaranteed minimum income of HK$40,000,000 for the year ended 31 March 2002 together with interest of HK$1,020,000.

Pursuant to a Set-off Agreement entered by the Group and China Huatong dated 31 March 2003, the Group agreed to set-off its claim for the outstanding guaranteed income from Heat Supply Project against the minority claims of China Huatong. A gain of HK$22,861,000 was recoginsed as a result of settlement of the minority claims.

• (d) There is evidence that leads to suggest that the acquisition of interest in Galaxy was not in the best interest of the Group. The Group is seeking legal advice on the claims for the damages which the Group has incurred or may incur as a result of or in connection with the acquisition of Galaxy (“Disputed Claims”) and will take appropriate action to recover losses by way of legal proceedings or otherwise.

• (e) On 8 April 2003,the Company announced that it had entered into the Settlement Agreement with, among other parties, Huatong Group pursuant to which, among other matters, the Company agreed, subject to the satisfaction of certain conditions, to reduce the amount claimed against the Huatong Group by HK$105,000,000 under the Disputed Claims, in consideration of China Huatong agreeing to (i) release and procure Huatong Heat to release Ocean-Land Heat from any claims which they may have under the Heat Supply Project; and (ii) procure Huatong Group Holdings Limited (“Hong Kong Huatong”) to transfer its interest in Merry World Associates Limited (“Merry World”) and assign the shareholder’s loan due from Merry World to the Company at a consideration which was determined after arm’s length negotiation, free from all encumbrances. The Settlement Agreement was approved by an ordinary resolution passed in an Extraordinary General Meeting held on 24 June 2003 (“EGM”).

Hong Kong Huatong is the sole beneficial shareholder of Merry World and the sole beneficial owner of the entire unsecured and interest-free shareholder’s loan due from Merry World which amounted to HK$93,623,000 as at 28 February 2003.The only asset of Merry World is a property in Guangzhou which has a book value of HK$105,000,000 as at 28 February 2003.

The net effect of the acquisition of Merry World amounted to a gain of HK$79,460,000 which is the aggregate of the net liabilities of Merry World as at 28 February 2003 in amount of HK$14,163,000 and the gain in net tangible assets due to assignment of the Merry World Debt as at 28 February 2003 in amount of HK$93,623,000 to the Group. On 24 June 2003, the Group treated the net book value of intangible assets being used to exchange for the net tangible assets (less the liabilities) from Merry World.

• 43 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

14. INVESTMENT PROPERTIES

1 April 2002/2001 Disposals Revaluation surplus/(deficit/impairment loss) Exchange adjustments 31 March 2003/2002 Analysed by lease term and geographical location: Medium term leasehold properties situated in Hong Kong Long term leasehold properties situated in Hong Kong Long term leasehold properties situated outside Hong Kong	Group 2003 2002 HK$’000 HK$’000 230,521 410,364 (89,600) – 5,894 (180,559) (247) 716 146,568 230,521 82,000 150,500 – 19,100 64,568 60,921 146,568 230,521

The investment properties were revalued on the basis of their open market value at 31 March 2003 by S.H. Ng & Co., Ltd., an independent property valuer. Investment properties in Hong Kong and overseas with an aggregate carrying value of HK$82,000,000 and HK$3,928,000, respectively (2002: HK$169,600,000 and HK$3,929,000, respectively) have been pledged as securities for the Group’s bank loans and facilities.

15. PROPERTY UNDER DEVELOPMENT

1 April 2002/2001 Exchange adjustments Interest capitalised_(note 7)_ Development costs incurred 31 March 2003/2002 Less: Provision for impairment loss	Group 2003 2002 HK$’000 HK$’000 41,469 40,683 – 80 – 39 – 667 41,469 41,469 (41,469) (41,469) – –

Property under development related to the Waterfront Project in Panyu, PRC. Due to the severe problems experienced by the Group, the directors decided to suspend the development of the project and to make full provision against all costs incurred up to 31 March 2002. There is no progress with respect to the property under development for the year ended 31 March 2003.

The property under development is held under a lease of over 50 years in the PRC. The land at a cost of HK$10,614,000 (2002: HK$10,614,000) has been pledged as security for the Group’s bank loans and facilities.

• 44 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

16. PROPERTIES, PLANT AND EQUIPMENT

Group

Cost 1 April 2002 Exchange adjustments Additions Disposals 31 March 2003 Accumulated depreciation 1 April 2002 Exchange adjustments Charge for the year Impairment loss On disposals 31 March 2003 Net book value 31 March 2003 31 March 2002	Land Leasehold Furniture Use land and Plant and and Rights buildings machinery equipment HK$’000 HK$’000 HK$’000 HK$’000 2,058 80,181 78,126 16,680 – (157) (165) (6) – – 2,886 155 – – – (651) 2,058 80,024 80,847 16,178 2,058 25,901 54,186 14,372 – (41) (65) (5) – 2,592 3,925 565 – – – (196) – – – (598) 2,058 28,452 58,046 14,138 – 51,572 22,801 2,040 – 54,280 23,940 2,308	Motor vehicles HK$’000 10,336 (15) 305 (1,806) 8,820 10,237 (11) 582 (419) (1,569) 8,820 – 99	Total HK$’000 187,381 (343) 3,346 (2,457) 187,927 106,754 (122) 7,664 (615) (2,167) 111,514 76,413 80,627

The leasehold land and buildings are situated outside Hong Kong and are held under long leases. Certain leasehold land and buildings and plant and machinery with an aggregate net book value of HK$nil and HK$19,915,000, respectively (2002: HK$50,722,000 and HK$23,940,000, respectively) have been pledged as security for the Group’s bank loans.

• 45 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

16. PROPERTIES, PLANT AND EQUIPMENT(continued) Company Cost 1 April 2002 and 31 March 2003 Accumulated depreciation 1 April 2002 Charge for the year 31 March 2003 Net book value 31 March 2003 31 March 2002	Furniture and equipment HK$’000 353 192 29
	221
	132
	161

17. INTERESTS IN SUBSIDIARIES

Unlisted shares, at cost Less: Provision for impairment loss Due from subsidiaries Less: Provision for doubtful receivables Due to subsidiaries	Company 2003 2002 HK$’000 HK$’000 1,001 1,001 (1,000) (1,000) 1 1 1,786,612 1,853,808 (1,615,519) (1,615,519) 171,093 238,289 (82,522) (119,549) 88,572 118,741	Company 2003 2002 HK$’000 HK$’000 1,001 1,001 (1,000) (1,000) 1 1 1,786,612 1,853,808 (1,615,519) (1,615,519) 171,093 238,289 (82,522) (119,549) 88,572 118,741
		1 1,853,808 (1,615,519)
		238,289 (119,549)
		118,741

Balances with subsidiaries are unsecured, interest-free and have no fixed terms for repayment.

• 46 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

17. INTERESTS IN SUBSIDIARIES ( continued)

Particulars of the principal subsidiaries are as follows:

		Total paid-up
	Place of	and issued	Equity
	incorporation/	ordinary share/	interest	owned	Principal
Company	registration	registered capital	by the Group		activities
			2003	2002
			%	%
Directly held:
Asset Operation and	British Virgin	1 ordinary share	100	100	Investment
Management Limited*	Islands	of US$1 each			holding
Fenugreek International	British Virgin	1 ordinary share	100	100	Investment
Limited*	Islands	of US$1 each			holding
Galactic Investment	Hong Kong	2 ordinary shares	100	100	Investment
Limited		of HK$1 each			holding
Ocean-Land	Hong Kong	1,000,000 ordinary	100	100	Investment
(China Investments)		shares of			holding
Limited		HK$1 each
Ocean-Land Sports	British Virgin	100 ordinary shares	100	100	Investment
Holding Limited	Islands	of US$1 each			holding
Rich Access Limited*	British Virgin	1 ordinary share	100	100	Investment
	Islands	of US$1 each			holding
Indirectly held:
Boxhill Limited*	British Virgin	1 ordinary share	100	100	Investment
	Islands	of US$1 each			holding
China-eDN.com	Hong Kong	10,000,000 ordinary	70	70	Trading
holding Limited		shares of
		HK$1 each
Evolve Limited	Hong Kong	500 ordinary shares	100	100	Property
		of HK$10 each			investment
Galawell Development	Hong Kong	20,000 ordinary	88.24	88.24	Investment
Limited		shares of			holding
		HK$1 each

• 47 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

17. INTERESTS IN SUBSIDIARIES ( continued)

		Total paid-up
	Place of	and issued	Equity
	incorporation/	ordinary share/	interest	owned	Principal
Company	registration	registered capital	by the Group		activities
			2003	2002
			%	%
Indirectly held: (continued)
Galaxy Gain Limited*	British Virgin	100 ordinary shares	75	75	Investment
	Islands	of US$1 each			holding
Chengtong Trading	Hong Kong	500,000 ordinary	100	100	Property
(International) Limited		shares of			investment
(formerly, Hong Kong		HK$10 each
Car Park Limited)
Nardu Company Limited	Hong Kong	1,000,000 ordinary	45	45	Investment
		shares of			holding
		HK$10 each
Ocean-Land Heat	Hong Kong	100 ordinary shares	75	75	Provision
Supply Limited		of HK$100 each			of heat
					supply
					technical
					services
					in PRC
Ocean-Land Sports	Hong Kong	2 ordinary shares	100	100	Trading
(H.K.) Limited		of HK$1 each
Panyu Lucky Rich	People’s	RMB30,000,000	45	45	Property
Real-Estates	Republic of				development
Development Limited*	China
Price Sales Limited	Hong Kong	10,000 ordinary	100	100	Investment
		shares of			holding
		HK$1 each
Sea-Land Mining	Hong Kong	1,000,000 ordinary	100	100	Investment
Limited		shares of			holding
		HK$10 each
Shine Ocean Limited	Hong Kong	2 ordinary shares of	100	100	Investment
		HK$1 each			holding
Suzhou Nanda Cement	People’s	RMB101,262,000	71.03	71.03	Manufacture
Company Limited	Republic				of cement
	of China

• 48 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

17. INTERESTS IN SUBSIDIARIES ( continued)

		Total paid-up
	Place of	and issued	Equity
	incorporation/	ordinary share/	interest	owned	Principal
Company	registration	registered capital	by the Group		activities
			2003	2002
			%	%
Indirectly held: (continued)
Tat Yeung Investments	Hong Kong	10,100 ordinary	100	100	Investment
Limited		shares of HK$100			holding
		each and 10,100
		non-voting
		deferred shares of
		HK$100 each
Winner Artificial	Hong Kong	4,000 ordinary shares	100	100	Property
Flowers Limited		of HK$100 each			investment
World Asia Properties	Hong Kong	2 ordinary shares	100	100	Property
Limited		of HK$1 each			investment

• Subsidiaries not audited by Moore Stephens

The above table lists the subsidiaries of the Company which, in the opinion of the directors, principally affected the results of the year or formed a substantial portion of the net assets of the Group. To give details of other subsidiaries would, in the opinion of the directors, result in particulars of excessive length.

All principal subsidiaries operate in their respective places of incorporation/registration, except for those subsidiaries incorporated in the British Virgin Islands, the operation of which is in Hong Kong.

18. INTEREST IN AN ASSOCIATE

Share of net assets, including goodwill Loan to and amount due from an associate Less: Provision for doubtful receivable	Group 2003 2002 HK$’000 HK$’000 – – 194,408 198,631 (920) (664) 193,488 197,967

The loan to and amount due from an associate are unsecured, interest-free and have no fixed terms for repayment.

• 49 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

18. INTEREST IN AN ASSOCIATE ( continued)

Particulars of the Group’s associate at the balance sheet date are as follows:

		Place of	Equity
	Class of	incorporation/	interest owned		Principal
Company	shares held	operation	by the Group		activities
			2003	2002
Goodwill (Overseas)	Ordinary	British Virgin Islands	32%	32%	Investment
Limited					holding

Goodwill (Overseas) Limited has lent HK$593,000,000 to a company called Kingdom Land Investment & Development Co. Limited (“Kingdom Land”), which is incorporated in the Macau Special Administrative Region. Kingdom Land has a 95% interest in Shanghai Xing Tai Real Estate Development Incorporation Limited (“Xing Tai”), which is incorporated in the PRC. Xing Tai holds a 100% interest in Shanghai East Ocean Centre Phase II. The financial statements of Xing Tai have been audited by PRC auditors, whose report was unqualified. At 31 October 2002, the property was valued at US$92,800,000 (approximately HK$723,840,000) by American Appraisal Hongkong Limited.

The Group’s investment in associate has been pledged to secure other loans of HK$15,000,000 (see also note 25).

On 28 January 2002, the Group disposed of its 35% interest in Success Project Investments Ltd., which holds a 52% interest in an investment company that owns Shilu International Shopping Centre in Suzhou, PRC, for HK$15,000,000. The Group had an option to repurchase the investment before the end of 2002 (subsequently extended to 17 April 2003) at HK$15,000,000, plus interest at 10% per annum thereon. On 17 April 2003,the Group exercised the option to repurchase the investment at a consideration of HK$16,866,000.

Supplementary financial information relating to the Group’s associate as required under SSAP 10 “Accounting for investments in associates” is as follows:

Long term investments Current assets Other current assets Current liabilities Other accounts payable Net current (liabilities)/assets Non-current liabilities Shareholders’ loans Net liabilities Group’s share of net liabilities	2003 HK$’000 592,741 356 372 (16) 595,601 (2,876) (920)	2002 HK$’000 614,265 726
		561
		165 616,505
		(2,075
		(664

In the Company’s balance sheet, the loan to an associate of HK$332,000 (2002: HK$530,000) is interestfree and carries no fixed terms for repayment.

• 50 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

19. INVENTORIES

Raw materials Work in progress Finished goods Less: Provision	Group 2003 2002 HK$’000 HK$’000 6,655 4,513 1,409 – 3,777 13,686 11,841 18,199 (4,281) (15,199 7,560 3,000	Group 2003 2002 HK$’000 HK$’000 6,655 4,513 1,409 – 3,777 13,686 11,841 18,199 (4,281) (15,199 7,560 3,000
		18,199 (15,199
		3,000

At 31 March 2003,the amount of inventories carried at net realisable value amounted to HK$4,040,000 (2002: HK$3,000,000).

20. DUE FROM A MINORITY SHAREHOLDER OF A SUBSIDIARY

The amount due from a minority shareholder of a subsidiary is unsecured, interest-free and there are no fixed terms for repayment.

21. TRADE AND OTHER RECEIVABLES

Notes Trade receivables (a) Prepayments and deposits (b) Other receivables (c)	Group 2003 2002 HK$’000 HK$’000 10,673 18,123 1,966 6,343 1,094 16,457 13,733 40,923	Group 2003 2002 HK$’000 HK$’000 10,673 18,123 1,966 6,343 1,094 16,457 13,733 40,923
		40,923

(a) Trade receivables

The Group allows an average credit period of 30 days to its trade customers on open account credit terms. The ageing analysis of the trade receivables at 31 March 2003 is as follows:

Current One to three months Over three months	Group 2003 2002 HK$’000 HK$’000 6,667 15,651 956 1,696 3,050 776 10,673 18,123	Group 2003 2002 HK$’000 HK$’000 6,667 15,651 956 1,696 3,050 776 10,673 18,123
		18,123

• 51 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

21. TRADE AND OTHER RECEIVABLES ( continued)

(b) Prepayments and deposits

Prepayments and deposits Less: Provision	Group 2003 2002 HK$’000 HK$’000 246,114 239,000 (244,148) (232,657) 1,966 6,343

Included in prepayments and deposits is a deposit of HK$200,000,000 (2002: HK$200,000,000) paid by the Company to Sharp Class International Limited (“Sharp Class”), a company incorporated in the British Virgin Islands, as collection agent, pursuant to the terms of a memorandum of understanding dated 28 February 2000 (the “MOU”) made between the Company and China National Container Corporation (“CNCC”), an independent third party, incorporated in the PRC. As a result of the payment of this amount (“the earnest money”), the Company had the exclusive right to enter into negotiation with CNCC for the acquisition of a substantial stake in a logistics and distribution network joint venture in the PRC (the “CNCC Acquisition”).

The completion of the CNCC Acquisition pursuant to the terms of an agreement dated 19 February 2001 was conditional upon fulfilment of certain conditions which include obtaining the approval from the relevant authorities and finalising of certain legal procedures in the PRC. The completion date of the acquisition was originally scheduled to take place on 2 May 2001 and it was extended six times until 31 March 2002. Since the conditions were not fulfilled by CNCC by 31 March 2002, the directors terminated the transaction on 2 April 2002 and demanded refund of the earnest money and the related interest at 7% per annum.

Also included in prepayments and deposits are interest receivable on the earnest money of HK$14,000,000 (2002: HK$14,000,000), a temporary advance of HK$13,000,000 (2002: HK$13,000,000) made to Epoch Development Holdings Limited (a related company of CNCC) and deferred expenses of HK$5,657,000 (2002: HK$5,657,000).

The Company has on 1 August 2002 received a letter from CNCC stating that it has not received the earnest money of HK$200,000,000 paid by the Group in March 2000 nor has CNCC authorised any person to receive such sum from the Group. After careful consideration, the directors decided to make a full provision of HK$232,657,000, including the earnest money of HK$200,000,000 paid to Sharp Class pursuant to the MOU, an advance of HK$13,000,000 to Epoch Development Holdings Limited, interest income accrued on the earnest money of HK$14,000,000 for the year ended 31 March 2001 and deferred expenses of HK$5,657,000.

Deloitte & Touche Corporate Finance Limited (“DTCF”) submitted its limited review report dated 5 August 2002 on the CNCC Acquisition to the directors for review. The directors have instructed the legal advisers to the Group to take legal actions to recover the earnest money of HK$200,000,000 together with the interest accrued thereon and the advance of HK$13,000,000 to Epoch Development Holdings Limited.

• 52 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

21. TRADE AND OTHER RECEIVABLES ( continued)

(c) Other receivables

Other receivables Less: Provision	Group 2003 2002 HK$’000 HK$’000 414,066 407,705 (412,972) (391,248) 1,094 16,457

Included in other receivables is a total sum of HK$358,445,000 (2002: HK$358,445,000) paid to Sharp Class (the “Receivable”) out of the settlement in July 2001 of other receivables carried forward from 31 March 2001. In view of the lack of satisfactory documentation and adequate evidence to substantiate the nature, existence, substance and recoverability of the Receivable, the directors decided to make a full provision in respect of the Receivable in the financial statements in the year ended 31 March 2002. DTCF submitted its limited review report dated 5 August 2002 on the Receivable to the Company for review. On 7 September 2002, the Group commenced legal actions against Sharp Class and Mr. Lo Chu Kong, the former chief executive officer and one of the authorised bank signatories of China-eDN.com Limited, a 70% subsidiary of the Company, which made the payments totaling HK$308,445,000 to Sharp Class. On 4 November 2002, the Group also commenced legal actions against Sharp Class, Mr. Yuen Wai (the former Chairman of the Company) and Mr. Chung Ho (formerly an executive director of the Company) for the recovery of HK$50,000,000 advanced to Sharp Class.

22. CASH AND BANK BALANCES

Included in cash and bank balances is an equivalent amount of HK$10,799,000 (2002: HK$2,339,000) which represents cash and bank balances denominated in Reminbi. Reminbi is not a freely convertible currency.

23. LOAN FROM INTERMEDIATE CONTROLLING SHAREHOLDER

The loan from intermediate controlling shareholder is unsecured, interest-free and there are no fixed terms for repayment.

• 53 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

24. TRADE AND OTHER PAYABLES

Trade payables Deposits received, other payables and accruals	Group 2003 2002 HK$’000 HK$’000 26,334 26,557 69,271 86,671 95,605 113,228	Group 2003 2002 HK$’000 HK$’000 26,334 26,557 69,271 86,671 95,605 113,228
		113,228

The ageing analysis of the trade payables at 31 March 2003 is as follows:

Current One to three months Over three months OTHER LOANS Other loans are repayable as follows: Within one year In the second to fifth years Current portion of other loans	Group 2003 2002 HK$’000 HK$’000 4,709 6,114 2,394 517 19,231 19,926 26,334 26,557 Group 2003 2002 HK$’000 HK$’000 26,327 18,896 63,236 51,111 89,563 70,007 (26,327) (18,896 63,236 51,111	Group 2003 2002 HK$’000 HK$’000 4,709 6,114 2,394 517 19,231 19,926 26,334 26,557 Group 2003 2002 HK$’000 HK$’000 26,327 18,896 63,236 51,111 89,563 70,007 (26,327) (18,896 63,236 51,111
		70,007 (18,896
		51,111

25. OTHER LOANS

A loan of HK$15,000,000 is secured against the Group’s investment in an associate and it carries interest at 10% per annum.

The remaining other loans are unsecured and interest-free, except for a loan of HK$3,600,000 which carries interest at 0.05% per day on a compound basis.

Included in other loans is an amount of HK$3,500,000 advanced from a related company, which is unsecured, interest-free and there are no fixed terms for repayment.

• 54 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

26. BANK LOANS, SECURED

Bank loans are repayable as follows: Within one year Current portion of bank loans	Group 2003 2002 HK$’000 HK$’000 63,769 136,323 (63,769) (136,323) – –

For details of securities, please refer to notes 14, 15 and 16 to the financial statements.

27. DEFERRED TAX

The Group’s net deferred tax liability/(asset) not recognised in the financial statements is as follows:

Accelerated capital allowances Tax losses	Group 2003 2002 HK$’000 HK$’000 87 360 (24,748) (15,238) (24,661) (14,878)

The revaluation of the Group’s investment properties and land and buildings does not constitute a timing difference and, consequently, the amount of potential deferred tax thereon has not been quantified.

28. LOANS FROM MINORITY SHAREHOLDERS OF SUBSIDIARIES

Loans from minority shareholders of subsidiaries are unsecured, interest-free and they are not repayable in the next twelve months.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

29. SHARE CAPITAL

	Ordinary shares of	Ordinary shares of
	HK$0.1 each
	Number of shares	Amount
	’000	HK$’000
Authorised
31 March 2003 and 31 March 2002	5,000,000	500,000
Issued and fully paid
1 April 2002	1,463,705	146,370
Exercise of options	1,700	170
Issue of conversion shares	219,000	21,900
31 March 2003	1,684,405	168,440

• (a) Increase in issued and paid-up capital

During the year, the following changes in the Company’s share capital took place:

• (i) On 12 June 2002, the subscription rights attaching to 1,700,000 share options were exercised at the subscription price of HK$0.1491 per share, resulting in the issue of 1,700,000 shares of HK$0.1 each for a total cash consideration, before expenses, of approximately HK$253,000.

• (ii) On 30 January 2003, the holder of mandatory convertible note converted its note into 219,000,000 shares in the Company.

All the shares issued by the Company during the year rank pari passu with the then existing shares in issue in all respects.

(b) Share options

The Company adopted a share option scheme (the “Scheme”) at the Annual General Meeting held on 22 September 1998 under which the directors may, at their discretion, grant options to directors and employees of the Company and its subsidiaries to subscribe for shares in the Company. The maximum number of shares issued upon exercise of options granted under the Scheme is not to exceed 10% of the share capital of the Company in issue from time to time (excluding the shares issued upon exercise of options granted pursuant to the Scheme). The Scheme remains in force for a period of ten years from 22 September 1998 to 21 September 2008 unless terminated earlier.

Pursuant to a resolution of the directors passed on 30 March 2001, share options entitling the holders to subscribe at the price of HK$0.1491 per share for 21,225,000 shares, 32,325,000 shares and 11,100,000 shares within the three years commencing from 1 July 2001,1 October 2001 and 31 March 2002, respectively were granted under the Scheme. A total of 1,700,000 share options were exercised and 36,300,000 share options lapsed during the year. At 31 March 2003, a total of 3,100,000 share options were outstanding.

In accordance with the provisions of the Scheme, share options will lapse upon the grantee ceasing to be an employee (including a director) of the Company after one month following the date of such cessation.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

29. SHARE CAPITAL ( continued)

(b) Share options (continued)

The Company adopted a new share option scheme (the “New Scheme”) at an Extraordinary General Meeting held on 24 June 2003 under which the directors may, at their discretion, grant options to eligible participants including any employee, executive or non-executive directors of the Group, any executives and employees of consultants, professional and other advisors to the Group, chief executive, substantial shareholder of the Company, associated companies of the Group, associates of director, chief executive and substantial shareholder of the Company, and employees of substantial shareholder. Subject to the requirements of the prevailing Listing Rules, the exercise price shall be such price determined by the board of directors at its discretion but subject to the requirements under the Listing Rules. The maximum entitlement of each participant under the scheme (including options to be granted to the directors, chief executive or substantial shareholder of the Company, or any of their respective associates) is equivalent to the maximum limit permitted under the prevailing Listing Rules. The New Scheme will remain in force for a period of 10 years from 24 June 2003 to 23 June 2013.

30. RESERVES

Group

Investment Properties Revaluation Reserve HK$’000 31 March 2001 2,934 Loss attributable to shareholders – Issue of new shares upon exercise of Options – Share issue expenses – Disposal of associates – Transfer – Deficit on revaluation (2,934) 31 March 2002 – Profit attributable to shareholders – Issue of new shares upon exercise of Options – Share issue expenses – Issue of conversion shares – Exchange differences – 31 March 2003 –	Exchange reserve HK$’000 743 – – – (333) – – 410 – – – – (126) 284	Retained Capital profits/ General redemption (accumulated reserve reserve losses) HK$’000 HK$’000 HK$’000 44,942 402 293,176 – – (1,395,038) – – – – – – – – – (44,942) – 44,942 – – – – 402 (1,056,920) – – 93,079 – – – – – – – – – – – – – 402 (963,841)	Share premium HK$’000 654,052 – 336 (1) – – – 654,387 – 83 (30) 284,700 – 939,140	Total HK$’000 996,249 (1,395,038) 336 (1) (333) – (2,934) (401,721) 93,079 83 (30) 284,700 (126) (24,015)

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

30. RESERVES ( continued)

Company

31 March 2001 Loss for the year Issue of new shares upon exercise of options Share issue expenses Transfer 31 March 2002 Loss for the year Issue of new shares upon exercise of options Share issue expenses Issue of conversion shares 31 March 2003	Retained Capital profits/ General redemption (accumulated Reserve reserve losses) HK$’000 HK$’000 HK$’000 44,942 402 409,851 – – (1,453,686) – – – – – – (44,942) – 44,942 – 402 (998,893) – – (14,619) – – – – – – – – – – 402 (1,013,512)	Share premium account HK$’000 654,052 – 336 (1) – 654,387 – 83 (30) 284,700 939,140	Total HK$’000 1,109,247 (1,453,686) 336 (1) – (344,104) (14,619) 83 (30) 284,700 (73,970)

31. MANDATORY CONVERTIBLE NOTE

The mandatory convertible note (“Note”) was redeemable at the Company’s option at par value before its maturity. Any principal amount of the Note outstanding on maturity would be mandatorily converted into shares of the Company at a conversion rate of HK$1.40 per share. The Note dated 27 April 2001 was issued to United City Trading Limited (“Noteholder”). The maturity date of the Note was extended from 27 April 2001 to 27 April 2002 by an ordinary resolution passed at the Extraordinary General Meeting of the Company held on 5 June 2001. At the time of the extension of the maturity date, the Company was advised that the Noteholder was wholly owned by Huatong Group Holdings Limited (“Hong Kong Huatong”). On 23 April 2002, Hong Kong Huatong brought to the notice of the Company that the ownership of the Noteholder was subject to dispute and demanded in writing on 26 April 2002 that the Company withheld allotting and issuing the conversion shares to the Noteholder, failing which the Company would be held responsible for Hong Kong Huatong’s loss and damage. On 29 April 2002, however, the Noteholder instructed the Company to allot and issue the conversion shares to a third party. The Company withheld the allotment and issuance of the conversion shares pending resolution of such dispute. On 18 December 2000, the Company was informed that the dispute has been settled and Hong Kong Huatong now holds the 100% of the beneficial ownership of the Noteholder. The Company allotted and issued the Conversion Shares to the Noteholder on 30 January 2003.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

32. CONTINGENT LIABILITIES

		Group
	2003	2002
	HK$’000	HK$’000
Litigation	4,844	4,844

The litigation represents the maximum contingent liability of the Group estimated by the directors in respect of a claim lodged against a subsidiary of the Company. The directors, based on the advice of the Group’s legal advisors, considered that the Group has a good defence against the alleged claim and accordingly did not make any provision for liabilities in respect of the claim for the year.

Guarantees for bank facilities granted to: – subsidiaries – an investee company	Company 2003 2002 HK$’000 HK$’000 141,750 254,850 24,960 24,960 166,710 279,810	Company 2003 2002 HK$’000 HK$’000 141,750 254,850 24,960 24,960 166,710 279,810
		279,810

At 31 March 2003, HK$41,658,000 (2002: HK$114,807,000) of the banking facilities were utilised by subsidiaries that were guaranteed by the Company.

33. COMMITMENTS

(a) Capital commitments

Contracted but not provided for (b) Operating lease commitments	Group 2003 2002 HK$’000 HK$’000 – –	Group 2003 2002 HK$’000 HK$’000 – –

At 31 March 2003,the Group had future minimum lease payments payable under non-cancellable operating leases in respect of land and buildings as follows:

Operating leases which fall due: Within one year In the second to fifth years inclusive	Group 2003 2002 HK$’000 HK$’000 1,512 3,886 – 1,768 1,512 5,654	Group 2003 2002 HK$’000 HK$’000 1,512 3,886 – 1,768 1,512 5,654
		5,654

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

33. COMMITMENTS ( continued)

(c) Operating leases arrangements

At 31 March 2003,the Group had contracted with tenants for future minimum lease payments under non-cancellable operating leases in respect of land and buildings owned by the Group as lessor as follows:

Operating leases which fall due: Within one year In the second to fifth years inclusive	Group 2003 2002 HK$’000 HK$’000 2,900 4,255 1,489 6,012 4,389 10,267	Group 2003 2002 HK$’000 HK$’000 2,900 4,255 1,489 6,012 4,389 10,267
		10,267

34. SIGNIFICANT POST BALANCE SHEET EVENTS

• (a) At an Extraordinary General Meeting held on 24 June 2003 (“EGM”), the name of the Company was changed from “China Logistics Group Limited” to “China Chengtong Development Group Limited” and approval from the Registrar of Companies of Hong Kong was formally given on 9 July 2003.

• (b) At the EGM as mentioned in (a)above, the Settlement Agreement entered into by among other parties, the Company and China Huatong Distribution and Industry Development Corporation in respect of the claims arising from the acquisition of Galaxy Gain Limited by the Group and the Heat Supply Project was approved. For details of the Settlement Agreement, please refer to note 13 to the financial statements.

• (c) On 17 April 2003,the Group exercised the repurchase option regarding its interest in Success Project Investments Ltd., which was disposed of on 28 January 2002, at a consideration of HK$16,866,000. For details of the repurchase, please refer to note 18 to the financial statements.

35. APPROVAL OF THE FINANCIAL STATEMENTS

The financial statements were approved and authorised for issue by the board of directors on 22 July 2003.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

6. EXTRACT OF INTERIM REPORT FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2003

Set out below is the unaudited consolidated financial statements of the Group for the six months ended 30 September 2003 together with the comparative figures for the corresponding period in the last financial year extracted from the interim report of the Group for the six months ended 30 September 2003.

CONDENSED CONSOLIDATED INCOME STATEMENT

For the six months ended 30 September 2003

Note Turnover 3 Cost of sales Gross profit Other income Distribution costs Administrative expenses Other operating expenses, net Revaluation deficit recognised in respect of an investment property 8 Loss from operations 4 Share of results of associates Finance costs 5 Loss before taxation Taxation 6 Loss before minority interests Minority interests Net loss for the period Loss per share 7	Six months ended 30 September 2003 2002 (Unaudited) (Unaudited) HK$’000 HK$’000 58,238 66,287 (47,291) (54,925) 10,947 11,362 1,717 286 (1,143) (1,163) (9,975) (18,336) (1,008) (6,538) (19,000) – (18,462) (14,389) 1,164 – (2,349) (2,251) (19,647) (16,640) (899) (40) (20,546) (16,680) (1,922) (387) (22,468) (17,067) HK(1.33) cents HK(1.17) cents

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

CONDENSED CONSOLIDATED BALANCE SHEET

At 30 September 2003

Note Non-current assets Intangible assets Investment properties 8 Property under development Property, plant and equipment 9 Interests in associates Current assets Inventories Trade and other receivables 10 Amounts due from a minority shareholder of a subsidiary Bank balances and cash Current liabilities Trade and other payables 11 Loan from intermediate controlling shareholder Trust receipt loans, secured Taxation payable Other loans – amount due within one year Bank loans, secured Net current liabilities Total assets less current liabilities Non-current liability Other loans – amount due after one year Loans from minority shareholders of subsidiaries Deferred tax liabilities Minority interests Net assets Capital and reserves Share capital 12 Reserves Shareholders’ funds	30 September 2003 (Unaudited) HK$’000 – 232,568 – 78,229 204,658 515,455 8,447 23,293 1,558 9,576 42,874 113,049 15,000 – 4,855 25,827 63,769 222,500 (179,626) 335,829 63,236 100,807 13,680 177,723 35,962 122,144 168,565 (46,421) 122,144	31 March 2003 (Audited) HK$’000 79,460 146,568 – 76,413 193,488 495,929 7,560 13,733 943 29,946 52,182 95,605 15,000 568 4,334 26,327 63,769 205,603 (153,421) 342,508 63,236 100,807 – 164,043 34,040 144,425 168,440 (24,015) 144,425

• 62 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the six months ended 30 September 2003

At 1 April 2002 Issue of new shares upon exercise of share options Net loss for the period At 30 September 2002 At 1 April 2003 Issue of new shares upon exercise of share options Net loss for the period At 30 September 2003	Share capital HK$’000 146,370 170 – 146,540 168,440 125 – 168,565	Share premium HK$’000 654,387 83 – 654,470 939,140 62 – 939,202	Exchange reserve HK$’000 410 – – 410 284 – – 284	Capital redemption Accumulated reserve losses HK$’000 HK$’000 402 (1,056,920) – – – (17,067) 402 (1,073,987) 402 (963,841) – – – (22,468) 402 (986,309)	Total HK$’000 (255,351) 253 (17,067) (272,165) 144,425 187 (22,468) 122,144

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

CONDENSED CONSOLIDATED CASH FLOW STATEMENT

For the six months ended 30 September 2003

Net cash generated from (used in) operating activities Net cash (used in) generated from investing activities Net cash used in financing activities Net (decrease) increase in cash and cash equivalents Cash and cash equivalents at beginning of the period Cash and cash equivalents at end of the period Analysis of the balance of cash and cash equivalents Cash and cash equivalents as previously reported Effect of reclassification of trust receipt loans

Six months ended 30 September 2003 2002 (Unaudited) (Unaudited) HK$’000 HK$’000 1,480 (15,049) (20,969) 90,032 (881) (73,204) (20,370) 1,779 29,946 2,625 9,576 4,404 – 2,740 – 1,664 – 4,404

• 64 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

NOTES TO THE CONDENSED FINANCIAL STATEMENTS

For the six months ended 30 September 2003

1. BASIS OF PREPARATION

The condensed financial statements have been prepared under the historical cost convention as modified for the revaluation of investment properties. The condensed financial statements have been prepared in accordance with the applicable disclosure requirements of Appendix 16 to the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (“Listing Rules”) and the Statement of Standard Accounting Practice (“SSAP”) No. 25 “Interim financial reporting” issued by the Hong Kong Society of Accountants (“HKSA”).

In preparing the condensed financial statements, the directors have given careful consideration to the future liquidity of the Group in the light of its net current liabilities of HK$179,626,000 as at 30 September 2003. The Group is currently dependent upon the financial support from its ultimate controlling shareholder. The ultimate controlling shareholder has agreed to provide continuing financial support to the Company to enable the Group to meet in full its financial obligations as they fall due. Accordingly, the interim financial report has been prepared on a going concern basis.

2.

PRINCIPAL ACCOUNTING POLICIES

The accounting policies adopted are consistent with those followed in the preparation of the audited financial statements of the Group for the year ended 31 March 2003, except that the Company has adopted, for the first time in the current period, SSAP No. 12 (Revised) “Income taxes” (“SSAP 12 (Revised)”) issued by the HKSA.

SSAP 12 (Revised) has introduced a new basis of accounting for income taxes (including both current tax and deferred tax) and additional disclosure requirements which have been adopted in the condensed financial statements. The principal effect of the implementation of SSAP 12 (Revised) is in relation to deferred tax. In the previous years, partial provision was made for deferred tax using the income statement liability method, i.e. a liability was recognised in respect of timing differences arising, except where those timing differences were not expected to reverse in the foreseeable future. SSAP 12 (Revised) requires the adoption of a balance sheet liability method, whereby deferred tax is recognised in respect of all temporary differences between carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, with limited exceptions. The adoption of this standard has had no significant effect on the results for the current or prior accounting periods. Accordingly, no prior period adjustment is required.

Other than as described above, the accounting policies adopted in the preparation of the condensed financial statements are consistent with those followed in the preparation of the Group’s audited financial statements for the year ended 31 March 2003.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

3. TURNOVER AND SEGMENT INFORMATION

An analysis of the Group’s turnover and loss before taxation for the period by principal activity is as follows:

Principal activity Sales of goods Property investment Others Unallocated corporate expenses Revaluation deficit recognised in respect of an investment property Share of results of associates Finance costs Loss before taxation	Turnover Six months ended 30 September 2003 2002 HK$’000 HK$’000 56,266 62,821 1,972 3,463 – 3 58,238 66,287	Segment results Six months ended 30 September 2003 2002 HK$’000 HK$’000 8,029 (1,455) 829 (392) 68 (255) 8,926 (2,102) (8,388) (12,287) (19,000) – 1,164 – (2,349) (2,251) (19,647) (16,640)

An analysis of the Group’s turnover and loss before taxation for the period by geographical segments is as follows:

Geographical segment People’s Republic of China (“Mainland China”) Hong Kong Taiwan Unallocated corporate expenses Revaluation deficit recognised in respect of an investment property Share of results of associates Finance costs Loss before taxation	Turnover Six months ended 30 September 2003 2002 HK$’000 HK$’000 50,720 41,227 7,518 10,763 – 14,297 58,238 66,287	Segment results Six months ended 30 September 2003 2002 HK$’000 HK$’000 7,308 (2,718) 1,618 5,253 – (4,637) 8,926 (2,102) (8,388) (12,287) (19,000) – 1,164 – (2,349) (2,251) (19,647) (16,640)

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

4. LOSS FROM OPERATIONS

Loss from operations has been arrived at after charging: Depreciation of property, plant and equipment Loss on disposal of properties, plant and equipment and after crediting: Gain on disposal of property, plant and equipment Interest income Release of negative goodwill arising on purchase of an associate 5. FINANCE COSTS Interest on Bank borrowings wholly repayable within five years Other loans wholly repayable within five years 6. TAXATION The charge comprises: The Company and subsidiaries: Hong Kong Profits Tax Mainland China Enterprise Income Tax

Six months ended 30 September 2003 2002 HK$’000 HK$’000 2,777 4,110 – 2,021 510 – – 3 337 – Six months ended 30 September 2003 2002 HK$’000 HK$’000 (1,584) (1,222) (765) (1,029) (2,349) (2,251) Six months ended 30 September 2003 2002 HK$’000 HK$’000 (387) (40) (512) – (899) (40)

• 67 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

6. TAXATION ( continued)

No provision for Hong Kong Profits Tax has been made in the current period as the Group’s estimated assessable profit for the period was wholly absorbed by the taxation losses brought forward. The change for the current period represents the underprovision of Hong Kong Profits Tax in the prior periods.

Hong Kong Profits Tax was calculated at 16% of the Group’s estimated assessable profit for the prior period.

The subsidiaries and associates established in the Mainland China are exempted from paying Mainland China Enterprise Income Tax for the first two profit-making years followed by a 50% reduction in the enterprise income tax rates in the following three years. Mainland China Enterprise Income Tax is provided for with reference to the applicable tax rates prevailing in the respective regions of the Mainland China on the estimated assessable profits of those subsidiaries and associates.

The Group does not incur any significant tax liabilities in any other jurisdiction.

7. LOSS PER SHARE

The calculation of the basic loss per share is based on the net loss for the period of HK$22,468,000 (six months ended 30 September 2002: HK$17,067,000) and on the weighted average number of 1,684,995,132 ordinary shares (six months ended 30 September 2002: 1,464,736,116 ordinary shares) in issue during the period.

No diluted loss per share has been presented for both periods as the exercise of the Company’s outstanding share options and the conversion of the mandatory convertible note was anti-dilutive.

8. INVESTMENT PROPERTIES

The investment properties were revalued on the basis of their open market values as at 31 March 2003 by S.H. Ng & Co., Ltd., an independent property valuer. As at 30 September 2003, investment properties in Hong Kong and overseas with an aggregate carrying value of HK$63,000,000 (as at 31 March 2003: HK$82,000,000) and HK$3,928,000 (as at 31 March 2003: HK$3,928,000) respectively were pledged as securities for the Group’s bank borrowing facilities.

During the period, the Group purchased a subsidiary, Merry World Associates Limited (“Merry World”), which owned an investment property in Guangzhou, Mainland China (see note 13). This investment property was revalued on the basis of its open market value as at 30 May 2003 amounted to HK$105,000,000 by S.H. Ng & Co., Ltd.

On 29 November 2003, the Group entered into an agreement with an independent third party (the “Disposal Agreement”) to dispose of an investment property in Hong Kong with a valuation of HK$82,000,000 as at 31 March 2003 for a consideration of HK$63,000,000. As a result of directors’ assessment of the open market value of this investment property, deficit on revaluation of HK$19,000,000 was recognised in the income statement for the six months ended 30 September 2003.

9. PROPERTY, PLANT AND EQUIPMENT

During the period, the Group spent HK$4,593,000 (six months ended 30 September 2002: HK$134,000) on acquisitions of property, plant and equipment.

• 68 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

10. TRADE AND OTHER RECEIVABLES

30 September 2003 HK$’000 Trade receivables 14,392 Prepayments and deposits – net 2,566 Other receivables – net 6,335 23,293	31 March 2003 HK$’000 10,673 1,966 1,094
	13,733

The Group allows an average credit period of 30 days (31 March 2003: 30 days) to its trade customers on open account credit terms. The aged analysis of the trade receivables at 30 September 2003 is as follows:

30 September 2003 HK$’000 Current 8,526 One to three months 271 Over three months 5,595 14,392	31 March 2003 HK$’000 6,667 956 3,050
	10,673

11. TRADE AND OTHER PAYABLES

30 September 2003 HK$’000 Trade payables 27,447 Deposits received, other payables and accruals 85,602 113,049	31 March 2003 HK$’000 26,334 69,271
	95,605

The aged analysis of the trade payables at 30 September 2003 is as follows:

30 September 2003 HK$’000 Current 7,313 One to three months 70 Over three months 20,064 27,447	31 March 2003 HK$’000 4,709 2,394 19,231
	26,334

• 69 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

12. SHARE CAPITAL

Ordinary shares of HK$0.10 each Authorised: At 31 March 2003 and 30 September 2003 Issued and fully paid: At 1 April 2003 Issue of new shares upon exercise of share options At 30 September 2003	Number of shares ’000 5,000,000 1,684,405 1,250 1,685,655	Amount HK$’000 500,000
		168,440 125
		168,565

13. PURCHASE OF A SUBSIDIARY

On 8 April 2003, the Company announced that it had entered into a settlement agreement (the “Settlement Agreement”) with China Huatong Distribution and Industry Development Corporation (“China Huatong”) and its subsidiaries (collectively referred to as the “Huatong Group”) pursuant to which, among other matters, the Company agreed, subject to the satisfaction of certain conditions, to reduce the amount claimed against Huatong Group by HK$105,000,000 under disputed claims, in consideration of China Huatong agreeing to (i) release and procure Huatong Heat Technique Company Limited, a wholly-owned subsidiary of China Huatong to release Ocean-Land Heat Supply Limited, a 75% subsidiary of the Company, from any claims which they may have under a heat supply project; and (ii) procure Huatong Group Holdings Limited (“Hong Kong Huatong”), a wholly owned subsidiary of China Huatong, to transfer its interest in Merry World, a wholly owned subsidiary of Hong Kong Huatong, and assign the shareholder’s loan due from Merry World to the Company at a consideration which was determined after arm’s length negotiation, free from all encumbrances. The Settlement Agreement was approved by the shareholders of the Company in an Extraordinary General Meeting held on 24 June 2003.

Hong Kong Huatong was the sole beneficial shareholder of Merry World and the sole beneficial owner of the entire unsecured and interest-free shareholder’s loan due from Merry World (the “Merry World Debt”) which amounted to HK$93,623,000 as at 28 February 2003. The only asset of Merry World is a property in Guangzhou which was revalued on the basis of its open market value at 30 May 2003 amounted to HK$105,000,000 by S.H. Ng & Co., Ltd., an independent property valuer.

The net effect of the acquisition of Merry World amounted to a written back impairment of intangible assets of HK$79,460,000 for the year ended 31 March 2003 which is the aggregate of the net liabilities of Merry World as at 28 February 2003 in amount of HK$14,163,000 and the gain in net tangible assets due to assignment of the Merry World Debt as at 28 February 2003 in amount of HK$93,623,000 to the Group. As at 31 March 2003, the Group treated the net book value of intangible assets being used to exchange for the net tangible assets (less the liabilities) from Merry World.

14. PURCHASE OF AN ASSOCIATE

On 28 January 2002, the Group disposed of its 35% interest in Success Project Investments Ltd., which holds a 52% interest in an investment company that owns Shilu International Shopping Centre in Suzhou, Mainland China, for HK$15,000,000. The Group had an option to repurchase the investment before the end of 2002 (subsequently extended to 17 April 2003) at HK$15,000,000, plus interest at 10% per annum thereon. On 17 April 2003, the Group exercised the option to repurchase the investment at a consideration of HK$16,866,000 and generated a negative goodwill of HK$13,488,000.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

15. CONTINGENT LIABILITIES

	30	September	31 March
		2003	2003
		HK$’000	HK$’000
Litigation		4,844	4,844

The litigation represents the maximum contingent liability of the Group estimated by the directors in respect of a claim lodged against a subsidiary of the Company. The directors, based on the advice of the Group’s legal advisors, considered that the Group has a good defence against the alleged claim and accordingly did not make any provision for liabilities in respect of the claim for the period.

16. OPERATING LEASE COMMITMENTS

At lessee

The Group had commitments for future minimum lease payments in respect of land and buildings under non-cancellable operating leases which fall due as follows:

30 September 2003 HK$’000 Within one year 1,579 In the second to fifth year inclusive 4,615 6,194	31 March 2003 HK$’000 1,512 –
	1,512

As lessor

The Group had contracted with tenants for the following future minimum lease payments in respect of the investment properties:

30 September 2003 HK$’000 Within one year 2,615 In the second to fifth year inclusive 400 3,015	31 March 2003 HK$’000 2,900 1,489
	4,389

17. CAPITAL COMMITMENTS

As at 30 September 2003, the Group did not have any outstanding capital commitments.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

18. POST BALANCE SHEET EVENT

On 29 November 2003, the Group entered into an agreement with an independent third party to dispose of an investment property in Hong Kong with a valuation of HK$82,000,000 as at 31 March 2003 for a consideration of HK$63,000,000. The disposal constitutes a major transaction of the Company under the Listing Rules and is conditional on approval by the shareholders of the Company at extraordinary general meeting of the Company to be convened for the purpose of, among other matters, approving the Disposal Agreement.

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FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX II

PRO FORMA STATEMENT OF UNAUDITED ADJUSTED ASSETS AND LIABILITIES OF THE ENLARGED GROUP

The following is a summary of the pro forma statement of the unaudited adjusted assets and liabilities of the Enlarged Group immediately following completion of the Disposal and the transfer of the entire equity of Beijing Holdco to the Company in part satisfaction of the Disposal consideration as described in the sub-paragraph headed “the Disposal consideration” in this circular, based on the unaudited consolidated balance sheet of the Group as at 30 September, 2003 as extracted from its interim report for the six months ended 30 September, 2003, the audited balance sheet of Beijing JV as at 31 December 2003 set out in Appendix III of this circular, adjusted to reflect, among other things, the effect of the completion of the Disposal and the transfer of the entire equity of Beijing Holdco to the Company in part satisfaction of the Disposal consideration as described in the sub-paragraph headed “the Disposal consideration” in this circular.

Non–Current assets Intangible assets Investment properties Property under development Property, plant and equipment Interest in associates Interest in subsidiary Current assets Inventories Investment in subsidiaries not consolidated Trade and other receivables Amounts due from related parties Amounts due from a minority shareholder of a subsidiary Amounts due from fellow subsidiaries Bank balances and cash	Consolidated Financial Information Disposal of Disposal Company-B Company-A 30 September 30 September The Group 2003 2003 HK$’000 HK$’000 HK$’000 – – 232,568 (64,568) – 78,229 (3,690) 204,658 (50) 515,455 – (68,308) 8,447 23,293 (3) 1,558 (38,560) (8) 9,576 (54) 42,874 (38,563) (62)	Pro forma combination adjustments Notes HK$’000 50 4 50 38,568 1 38,568	The Remaining Group HK$’000 – 168,000 – 74,539 204,658 – 447,197 8,447 23,290 – 1,558 – 9,522 42,817	Combined acquiring companies HK$’000 92,059 392 92,451 7,167 1,402 4,641 1,822 15,032	Cash consideration HK$’000 – 20,006 20,006	Pro forma combination adjustments Note HK$’000 1,248 5 1,248 –	The Enlarged Group HK$’000 168,000 93,307 74,931 204,658
							540,896
							8,447 7,167 24,692 4,641 – 1,558 – 31,350
							77,855

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FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX II

Current liabilities Trade and other payables Loan from intermediate controlling shareholder Trust receipt loans, secured Taxation payable Other loans – amount due within one year Amounts due to related parties Amounts due to fellow subsidiaries Bank loans, secured Net current liabilities Total assets less current liabilities Non-current current liabilities Other loans – amount due after one year Loans from minority shareholders of subsidiaries Loan from fellow subsidiaries Deferred tax liabilities Minority interests Net assets	The Group HK$’000 113,049 15,000 4,855 25,827 63,769 222,500 (179,626) 335,829 63,236 100,807 13,680 177,723 35,962 122,144	Disposal Company-B 30 September 2003 HK$’000 (14) (54,262) (54,276) 15,713 15,713 – – 15,713	Consolidated Financial Information of Disposal Company-A 30 September 2003 HK$’000 (30,348) (4,343) (391) (6,675) (2,829) (44,586) 44,524 (23,784) (63,236) (96,829) (243,535) (403,600) – 379,816	Pro forma combination adjustments Notes HK$’000 60,937 2 60,937 (22,369) (22,319) 243,535 1 & 3 243,535 – (265,854)	The Remaining Group HK$’000 82,687 15,000 512 25,436 – 60,940 184,575 (141,758) 305,439 – – 3,978 – 13,680 17,658 35,962 251,819	Combined acquiring companies HK$’000 456 3,193 3,649 11,383 103,834 29,611 29,611 – 74,223	Cash consideration HK$’000 – 20,006 20,006 – – 20,006	Pro forma combination adjustments Note HK$’000 – – 1,248 – 22,641 5 (21,393)	The Enlarged Group HK$’000 83,143 15,000 512 25,436 3,193 – 60,940
									188,224
									(110,369)
									430,527
									– – 33,589 – 13,680
									47,269
									58,603
									324,655

Notes:

• (1) This represents the elimination of inter-companies current accounts between Disposal Company-A and Disposal Company-B.

• (2) This represents the waiver of current accounts between the subsidiaries of the Company and Disposal Company-A and Disposal Company-B which are not related to the Panyu Project.

• (3) This represents the assignment of the Sale Loans from the Company to CCHK.

• (4) This represents the disposal of a subsidiary of Disposal Company-A not related to the Panyu Project

• (5) This adjustment represents 70% equity interest in the net assets of Beijing JV as at 31 December 2003 attributable to the Enlarged Group when part of the Disposal consideration is to be satisfied by the transfer of the entire equity of Beijing Holdco (assuming that it holds a 70% equity interest in Beijing JV) upon Completion.

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ACCOUNTANTS’ REPORT OF BEIJING JV

APPENDIX III

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9 July 2004

The Board of Directors

China Chengtong Development Group Limited G.K. Goh Securities (H.K.) Limited

Dear Sirs,

We set out below our report on the financial information (the “Financial Information”) relating to 中實投資有限責任公司 (translated as Zhongshi Investment Company Limited) (“Zhongshi”) for each of the three years ended 31 December 2003 (the “Relevant Periods”), for inclusion in the circular of China Chengtong Development Group Limited (the “Company”) dated 9 July 2004 in connection with the proposed disposal of the Company’s entire equity interests in Ocean-Land Management Limited and Tat Yeung Investments Limited, both are wholly-owned subsidiaries of the Company, and proposed acquisition of the equity interests of Zhongshi (the “Circular”).

Zhongshi is a property development company and was established in the People’s Republic of China (the “PRC”) on 11 April 1997.

The statutory financial statements of Zhongshi for each of the three years ended 31 December, 2003 were prepared in accordance with the applicable accounting principles and financial regulations in the PRC. The statutory financial statements of Zhongshi for each of the two years ended 31 December, 2002 and the year ended 31 December 2003 were audited by 北京中天華正會計師事務所有限公司 (translated as Beijing Zhong Tian Hua Zheng Accountancy Firm Company Limited) and 中藍特會計師 事務所有限責任公司 (Zhong Nan Te Accountancy Firm Company Limited), respectively. Both of the auditors are certified public accountants registered in the PRC.

For the purpose of this report, we have carried out independent audit procedures in respect of the management accounts of Zhongshi for the Relevant Periods prepared in accordance with accounting principles generally accepted in Hong Kong (the “HKFRS Financial Statements of Zhongshi”) by the management of Zhongshi.

The Financial Information of Zhongshi for the Relevant Periods set out in this report has been prepared based on the HKFRS Financial Statements of Zhongshi for the Relevant Periods.

We have examined the HKFRS Financial Statements of Zhongshi for the Relevant Periods in accordance with the Auditing Guideline “Prospectuses and the Reporting Accountant” as recommended by the Hong Kong Society of Accountants.

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APPENDIX III

The preparation of the HKFRS Financial Statements of Zhongshi is the responsibility of the directors of Zhongshi. The Directors of the Company are responsible for the contents of the Circular in which this report is included. It is our responsibility to compile the Financial Information set out in this report from the HKFRS Financial Statements of Zhongshi, to form an independent opinion on the Financial Information and to report our opinion to you.

In our opinion, the Financial Information gives, for the purpose of this report, a true and fair view of the state of affairs of Zhongshi as at 31 December 2001, 31 December 2002 and 31 December 2003, and the results and cash flows of Zhongshi for each of the three years ended 31 December 2003.

I. FINANCIAL INFORMATION

Income statements

NOTES Turnover Other operating income 4 Distribution costs Administrative expenses (Loss) profit from operations 5 Finance costs 7 (Loss) profit before taxation Taxation 8 Net (loss) profit for the year Dividend 9 (Loss) earnings per share 10	Year ended 31 December 2003 2002 2001 RMB RMB RMB – – – 974,625 22,095 2,150,275 (278,500) – – (1,086,713) (727,450) (879,796) (390,588) (705,355) 1,270,479 – – – (390,588) (705,355) 1,270,479 – – (604,079) (390,588) (705,355) 666,400 – (62,144) – N/A N/A N/A

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APPENDIX III

Balance sheets

NOTES Non-current assets Property, plant and equipment 11 Properties under development 12 Current assets Investments in subsidiaries not consolidated 13 Properties sale receivables 14 Other receivables Amounts due from related parties 15 Bank balances and cash Current liabilities Trade and other payables 16 Amounts due to related parties 17 Dividend payable Taxation payable Net current assets Total assets less current liabilities Non-current liability Loan from an equity owner 18 Capital and reserves Registered capital 19 Reserves

As at 31 December 2003 2002 2001 RMB RMB RMB 415,072 462,557 72,280 97,623,053 2,842,583 – 98,038,125 3,305,140 72,280 7,600,000 – – – – 3,614,596 1,486,104 136,889 39,388 4,921,280 7,073,420 9,938,697 1,931,630 1,850,506 3,207,425 15,939,014 9,060,815 16,800,106 181,105 176,322 3,243,495 3,385,117 2,499,368 2,825,604 302,191 240,047 240,047 – 288,760 696,427 3,868,413 3,204,497 7,005,573 12,070,601 5,856,318 9,794,533 110,108,726 9,161,458 9,866,813 31,400,000 – – 78,708,726 9,161,458 9,866,813 80,000,000 10,000,000 10,000,000 (1,291,274) (838,542) (133,187) 78,708,726 9,161,458 9,866,813

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APPENDIX III

Statements of changes in equity

At 1 January 2001 2000 Final dividend paid Transfer to statutory welfare funds Net profit for the year At 31 December 2001 and 1 January 2002 Transfer to statutory welfare funds Net loss for the year At 31 December 2002 and 1 January 2003 2002 Final dividend Additional registered capital contributed by owners on 10 December 2003 Net loss for the year At 31 December 2003	Registered capital RMB 10,000,000 – – – 10,000,000 – – 10,000,000 – 70,000,000 – 80,000,000	Statutory welfare Accumulated funds losses RMB RMB 289,029 (848,569) – (240,047) 29,182 (29,182) – 666,400 318,211 (451,398) 27,283 (27,283) – (705,355) 345,494 (1,184,036) – (62,144) – – – (390,588) 345,494 (1,636,768)	Total RMB 9,440,460 (240,047) – 666,400 9,866,813 – (705,355) 9,161,458 (62,144) 70,000,000 (390,588) 78,708,726

According to the PRC law and regulation, Zhongshi is required to appropriate certain percentage of its net profits as reported in the statutory financial statements to the statutory welfare funds, which can only be used on capital expenditure for the collective welfare of the employees.

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APPENDIX III

Cash flow statements

Cash flows from operating activities (Loss) profit before taxation Adjustments for: Interest income Depreciation Allowance for doubtful debts Operating (loss) profit before movement in working capital Decrease in properties sale receivables (Increase) decrease in other receivables Increase (decrease) in trade and other payables Cash used in operations Taxation paid Net cash used in operating activities Cash flows from investing activities Interest received Decrease (increase) in amounts due from related parties Investments in subsidiaries not consolidated Purchase of property, plant and equipment Cost of properties under development incurred Net cash used in investing activities Cash flows from financing activities (Decrease) increase in amounts due to related parties Additional registered capital contributed by equity owners Loan from an equity owner Repayment of other long term loan Net cash from (used in) financing activities Net Increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of the year Cash and cash equivalents at end of the year, represented by bank balances and cash

Year ended 31 December 2003 2002 2001 RMB RMB RMB (390,588) (705,355) 1,270,479 (101,425) (22,095) (50,275) 29,616 30,921 25,123 234,680 177,340 – (227,717) (519,189) 1,245,327 – 3,614,596 3,857,900 (1,583,895) (274,841) 84,748 4,783 (3,067,173) (8,463,072) (1,806,829) (246,607) (3,275,097) (288,760) (407,667) (498,689) (2,095,589) (654,274) (3,773,786) 101,425 22,095 50,275 2,152,140 2,865,277 (28,697) (7,600,000) – – (31,710) (425,330) (24,162) (91,856,447) (2,838,451) – (97,234,592) (376,409) (2,584) (1,988,695) (326,236) 2,565,352 70,000,000 – – 31,400,000 – – – – (390,000) 99,411,305 (326,236) 2,175,352 81,124 (1,356,919) (1,601,018) 1,850,506 3,207,425 4,808,443 1,931,630 1,850,506 3,207,425

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APPENDIX III

II. NOTES TO THE FINANCIAL INFORMATION

1. GENERAL

Zhongshi is a limited liability company established under the law of the PRC. The directors regard the ultimate holding company as at 31 December 2003 to be China Chengtong Holdings Company, a company established in the PRC.

Zhongshi is engaged in property development.

2. SIGNIFICANT ACCOUNTING POLICIES

The Financial Information has been prepared under the historical cost convention and has been prepared in accordance with accounting principles generally accepted in Hong Kong. The principal accounting policies adopted are set out below.

Investments in subsidiaries

A subsidiary is an enterprise in which Zhongshi has control either directly or indirectly. Control is the power to govern the financial and operating policies of an enterprise so as to obtain benefits from its activities.

Investment in subsidiary is included in Zhongshi’s balance sheet at cost less any identified impairment loss, unless it is acquired and held exclusively with a view to subsequent disposal in the near future or operates under severe long-term restrictions which significantly impair its ability to transfer funds to Zhongshi, in which case, it is stated at fair value with changes in fair value recognised in the income statement as they arise.

Revenue recognition

Income from properties developed for sale is recognised on the execution of legally binding, unconditional and irrecoverable sales contracts.

Interest income is accrued on a time basis by reference to the principal outstanding and at the interest rate applicable.

Impairment

At each balance sheet date, Zhongshi reviews the carrying amounts of its assets to determine whether there is any indication that those assets have suffered an impairment loss. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately.

Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, but only to the extent that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior years. A reversal of an impairment loss is recognised as income immediately.

Property, plant and equipment

Property, plant and equipment are stated at cost less depreciation and any accumulated impairment losses.

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APPENDIX III

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

Furniture, fixtures and equipment 10% to 20% Motor vehicle 20%

The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sale proceeds and the carrying amount of the asset and is recognised in the income statement.

Properties under development

Properties under development are stated at cost. Cost comprises the cost of the land together with direct costs attributable to the development of the properties and borrowing costs capitalised during the period of development. Properties under development which are due for completion more than one year from the balance sheet date are shown as non-current assets while properties under development which are due for completion within one year from the balance sheet date are shown as current assets.

Taxation

Income tax expense represents the sum of the tax currently payable and deferred tax.

The tax currently payable is based on taxable profit for the period. Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other periods and it further excludes items that are never taxable or deductible. Zhongshi’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amount of assets and liabilities in the financial information 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 taxable profit nor the accounting profit.

Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries, except where Zhongshi is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.

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 asset to be recovered.

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is 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.

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APPENDIX III

Retirement benefits costs

The amount of the Zhongshi’s contributions payable under Zhongshi’s retirement benefits schemes is charged to the income statement as and when incurred.

Operating leases

Rentals payable are charged to the income statement on a straight line basis over the relevant lease term.

Borrowing costs

Borrowing costs directly attribute to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are capitalised as part of cost of those assets. 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 borrowing costs capitalised.

3. BUSINESS AND GEOGRAPHICAL SEGMENT

Zhongshi was solely engaged in the business of property development. Analysis of Zhongshi’s turnover and results as well as analysis of carrying amount of segment assets and additions to property, plant and equipment by geographical market has not been presented as they are substantially generated from and situated in the PRC.

4. OTHER OPERATING INCOME

Gain on disposal of ancillary properties Interest income	2003 RMB 873,200 101,425 974,625	2002 RMB – 22,095 22,095	2001 RMB 2,100,000 50,275
			2,150,275

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APPENDIX III

5. (LOSS) PROFIT FROM OPERATIONS

2003 2002 RMB RMB (Loss) profit from operations has been arrived at after charging: Staff costs including directors’ remuneration: – salaries and other allowances 855,416 469,166 – retirement benefit costs 186,074 116,204 Total staff costs 1,041,490 585,370 Allowance for doubtful debts 234,680 177,340 Auditors’ remuneration 5,000 8,000 Depreciation 29,616 30,921 Minimum lease payments in respect of premises under operating leases 13,110 100,000 The above amounts are shown net of expenses capitalised in cost of properties under development as follows: Salaries and other allowances 689,676 385,006 Depreciation 49,579 4,132 Minimum lease payment in respect of premises under operating leases 209,760 76,580 6. DIRECTORS’ REMUNERATION AND FIVE HIGHEST PAID EMPLOYEES (i) Directors’ remuneration 2003 2002 RMB RMB Fees – – Other emoluments 184,536 75,420 Retirement benefit costs 17,412 17,412 201,948 92,832	2001 RMB 433,305 74,549
	507,854
	– 5,000 25,123 10,000
	– – –
	2001 RMB – 75,420 9,812
	85,232

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APPENDIX III

(ii) Employees’ remuneration

For the Relevant Periods, the five highest paid individuals included one director of Zhongshi and the details of whose emoluments are included above. The details of the emoluments of the remaining four individuals for the Relevant periods are as follows:

Salaries and other allowances Retirement benefit costs	2003 RMB 270,960 65,458 336,418	2002 RMB 164,520 46,066 210,586	2001 RMB 155,760 25,272
			181,032

During the Relevant Periods, no remuneration was paid by Zhongshi to the directors or the five highest paid employees as an inducement to join or upon joining the Zhongshi or as compensation for loss of office. No directors have waived any remuneration during the Relevant Periods.

7. FINANCE COSTS

Interest on loan from an equity owner Less: Amounts capitalised in the cost of properties under development	2003 RMB 2,874,444 (2,874,444) –	2002 RMB – – –	2001 RMB – –
			–

8. TAXATION

The taxation charge represent the PRC enterprise income tax calculated at 33% of the estimated assessable profit for the Relevant Periods.

The taxation charge for the year can be reconciled to the (loss) profit before taxation per the income statement as follows:

(Loss) profit before taxation Tax rate of 33% applicable to Zhongshi in the PRC Tax effect of expenses that are not deductible for tax purpose Tax effect of unrecognised tax losses Taxation charge for the year	2003 RMB (390,588) (128,894) 128,894 – –	2002 RMB (705,355) (232,767) 205,575 27,192 –	2001 RMB 1,270,479
			419,258 184,821 –
			604,079

No provision for deferred taxation has been made in the financial statements as there were no significant temporary differences arising during the Relevant Periods or at the balance sheet dates.

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APPENDIX III

At the balance sheet dates, Zhongshi has potential PRC tax liabilities arising from its previous activities. The directors of Zhongshi represent to us that according to their best estimate, no provision in respect of the potential PRC tax liabilities should be made in the financial statements. Further, 嘉成企業發展有限公 司 (translated as Jiacheng Enterprise Development Company Limited) (“嘉成企業”), a 60% equity owner of Zhongshi as at 31 December 2003, has given an indemnity to the Company against any potential PRC tax and other liabilities in relation to those previous activities conducted by Zhongshi.

9. DIVIDEND

	2003	2002	2001
	RMB	RMB	RMB
Final dividend declared	–	(62,144)	–

The rate of dividend per share and the number of shares ranking for dividend are not presented as Zhongshi did not have any issued share capital and such information is not meaningful regarding to the purpose of this report.

10. (LOSS) EARNINGS PER SHARE

(Loss) earnings per share is not presented as Zhongshi did not have any issued share capital during the Relevant Periods.

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APPENDIX III

11. PROPERTY, PLANT AND EQUIPMENT

COST At 1 January 2001 Additions At 31 December 2001 and 1 January 2002 Additions At 31 December 2002 and 1 January 2003 Additions At 31 December 2003 DEPRECIATION At 1 January 2001 Provided for the year At 31 December 2001 and 1 January 2002 Provided for the year At 31 December 2002 and 1 January 2003 Provided for the year At 31 December 2003 NET BOOK VALUES At 31 December 2001 At 31 December 2002 At 31 December 2003 12. PROPERTIES UNDER DEVELOPMENT COST At 1 January 2001 and 1 January 2002 Additions At 31 December 2002 and 1 January 2003 Additions At 31 December 2003	Furniture, fixtures and equipment RMB 126,677 24,162 150,839 16,430 167,269 31,710 198,979 53,436 25,123 78,559 30,921 109,480 29,616 139,096 72,280 57,789 59,883	Motor vehicle RMB – – – 408,900 408,900 – 408,900 – – – 4,132 4,132 49,579 53,711 – 404,768 355,189	Total RMB 126,677 24,162
			150,839 425,330
			576,169 31,710
			607,879
			53,436 25,123
			78,559 35,053
			113,612 79,195
			192,807
			72,280
			462,557
			415,072
			RMB – 2,842,583
			2,842,583 94,780,470
			97,623,053

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ACCOUNTANTS’ REPORT OF BEIJING JV

APPENDIX III

The properties under development are due for completion more than one year. The properties are situated in the PRC and are held under long leases.

As at the balance sheet date, Zhongshi has capitalised the following items to the properties under development.

2003 RMB Depreciation 53,711 Salaries and other allowances 1,074,682 Interest on loan from an equity owner 2,874,444 Minimum lease payment in respect of premises under operating leases 286,340 13. INVESTMENTS IN SUBSIDIARIES NOT CONSOLIDATED 2003 RMB Investment cost 7,600,000	2002 RMB 4,132 385,006 – 76,580 2002 RMB –	2001 RMB – – – –
		2001 RMB –

Particulars of the Company’s non-consolidated subsidiaries at 31 December 2003 are as follows:

			Proportion of
	Place of	Issued and	registered
	establishment/	fully paid	capital held	Principal
Name of subsidiary	operation	registered capital	by Zhongshi	activity
北京京華都房地產開發	PRC	RMB10,000,000	70%	Property
有限公司(“北京京華都”)				development
北京蓬勃興業工程監理	PRC	RMB1,000,000	60%	Construction
有限公司(“北京蓬勃”)				inspection

北京京華都 and 北京蓬勃 is established in the PRC as a limited company.

In the opinion of the directors of Zhongshi, the control over the two subsidiaries are intended to be temporary and 北京京華都 and 北京蓬勃 were disposed of on 20 March, 2004 and 29 March 2004, respectively. Accordingly, no consolidated financial statements have been prepared.

None of the subsidiaries had issued any debt securities at 31 December 2003.

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APPENDIX III

14. PROPERTIES SALE RECEIVABLES

An aged analysis of properties sale receivables is as follows:

Within 90 days Between 91 to 180 days Between 181 to 270 days Over 270 days	2003 RMB – – – – –	2002 RMB – – – – –	2001 RMB – – – 3,614,596
			3,614,596

Under Zhongshi’s credit policy on sales of properties, customer has to fully settle the purchase consideration before Zhongshi transfers the title of the properties to the customers.

15. AMOUNTS DUE FROM RELATED PARTIES

Name of related parties Notes 中國物資開發投資總公司 (“中國物資”) (i) 北京蓬勃 (ii) 李平山 (iii)	2003 RMB 4,900,000 – 21,280 4,921,280	2002 RMB 6,900,000 64,610 108,810 7,073,420	2001 RMB 9,900,000 20,697 18,000
			9,938,697

Notes:

• (i) 中國物資 held 80%, 80% and 20% registered capital of Zhongshi as at 31 December 2001, 31 December 2002 and 31 December 2003, respectively.

• (ii) On 23 October 2003, Zhongshi acquired 60% registered capital of 北京蓬勃 . In the opinion of the directors of Zhongshi, the control over 北京蓬勃 was intended to be temporary and 北京蓬勃 was disposed of on 29 March 2004.

• (iii) 李平山 is a director of Zhongshi during the Relevant Periods. On 2 December 2003, 李平山 acquired 10% registered capital of Zhongshi and on 22 March 2004, 李平山 disposed of the 10% registered capital of Zhongshi to another equity owner of Zhongshi.

Details of the amount due from a director disclosured pursuant to Section 161B of Hong Kong Companies Ordinance are as follows:

Maximum amount outstanding during the year	2003 RMB 108,810	2002 RMB 123,810	2001 RMB 23,000

The amounts due from related parties are unsecured, interest free and repayable on demand.

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APPENDIX III

16. TRADE AND OTHER PAYABLES

Trade payables Other payables An aged analysis of trade payables is as follows: Over 90 days 17. AMOUNTS DUE TO RELATED PARTIES Name of related parties Notes 北京文龍經貿發展公司(“北京文龍”) (i) 北京蓬勃 (ii) 中國物資 (iii)	2003 RMB – 181,105 181,105 2003 RMB – 2003 RMB 100,000 410,673 2,874,444 3,385,117	2002 RMB 156,327 19,995 176,322 2002 RMB 156,327 2002 RMB 2,499,368 – – 2,499,368	2001 RMB 1,216,206 2,027,289
			3,243,495
			2001 RMB 1,216,206
			2001 RMB 2,825,604 – –
			2,825,604

Notes:

• (i) 北京文龍 is a wholly owned subsidiary of 中國物資 .

• (ii) On 23 October 2003, Zhongshi acquired 60% registered capital of 北京蓬勃 . In the opinion of the directors of Zhongshi, the control over 北京蓬勃 was intended to be temporary and 北京蓬勃 was disposed of on 29 March 2004.

• (iii) 中國物資 held 80%, 80% and 20% registered capital of Zhongshi as at 31 December 2001, 31 December 2002 and 31 December 2003 respectively.

The amounts due to related parties are unsecured, interest free and repayable on demand.

18. LOAN FROM AN EQUITY OWNER

The loan from an equity owner is unsecured and has no fixed terms of repayment. Interest is charged on the loan amounting to RMB24,400,000 at an interest rate of 8% per annum and the remaining portion of the loan is interest free.

In the opinion of the directors of Zhongshi, the loan is unlikely to be repaid within the next twelve months from 31 December 2003 and therefore shown in the balance sheet as non-current.

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APPENDIX III

19. REGISTERED CAPITAL

Paid-in registered capital At 1 January 2001, 31 December 2001 and 31 December 2002 Additional registered capital contributed by equity owners on 10 December 2003 At 31 December 2003	RMB 10,000,000 70,000,000
	80,000,000

20. OPERATING LEASE COMMITMENTS

At the balance sheet date, Zhongshi had commitments for future minimum lease payments under a noncancellable operating lease which fall due as follows:

Within one year In the second to fifth year inclusive	2003 RMB – – –	2002 RMB 235,980 – 235,980	2001 RMB 100,000 75,000
			175,000

Operating lease payments represent rentals payable by the Zhongshi for its office premises. The lease is negotiated for a term of approximately two years.

The lease payments are fixed and no arrangements have been entered into for contingent rental payments.

21. CAPITAL COMMITMENTS

Capital commitments in respect of project development costs: Contracted for but not provided Authorised but not contracted for	2003 RMB 2,279,000 256,948,000 259,227,000	2002 RMB – – –	2001 RMB – –
			–

22. RELATED PARTY TRANSACTIONS

During the Relevant Periods, Zhongshi had the following transactions with related parties:

Interest paid to an equity owner –中國物資	2003 RMB 2,874,444	2002 RMB –	2001 RMB –

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APPENDIX III

Interest is determined with reference to the principal outstanding and at the interest rate of 8% per annum.

On 23 October 2003, Zhongshi acquired from 北京文龍 30% interest in the registered capital of 北京蓬勃 at a consideration of RMB300,000.

Details of the amounts due from/to related parties and loan from an equity owner are disclosed in notes 15, 17 and 18, respectively.

23. RETIREMENT BENEFITS SCHEMES

Zhongshi has established retirement benefits scheme for its full-time employees according to the relevant PRC regulations and rules. Zhongshi is required to contribute certain percentage of its payroll cost to the retirement benefits scheme to fund the benefits. The only obligation of Zhongshi with respect to the retirement benefits scheme is to make the specific contributions.

III. SUBSEQUENT EVENT

Subsequent to 31 December 2003, two equity owners of Zhongshi, 嘉成企業 and 北京興合動力 投資管理有限公司 (translated as Beijing Xinghe Dongli Investment Management Co., Ltd.) acquired the equity interests of Zhongshi from the other two equity owners of Zhongshi and became the 70% and 30% equity owner of Zhongshi thereafter.

On 20 March 2004 and 29 March 2004, Zhongshi disposed of 70% and 60% interest in the registered capital of 北京京華都 and 北京蓬勃 at cost for the consideration of RMB7,000,000 and RMB600,000, respectively. Accordingly, no gain or loss was arised from these disposals. The 70% registered capital of 北京京華都 was disposed of to 嘉成企業 , an equity owner of Zhongshi.

IV. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements of Zhongshi have been prepared in respect of any period subsequent to 31 December 2003.

Yours faithfully,

Deloitte Touche Tohmatsu

Certified Public Accountants Hong Kong

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PROPERTY VALUATION OF PANYU PROJECT

APPENDIX IV

Set out below are the text of the letter and valuation certificate received by the Company from the Valuers, an independent firm of professional property surveyors and valuers, prepared for the purpose of incorporation into this circular, of their valuation of the Panyu Project as at 30 April 2004.

S.H. NG & CO., LTD.

Real Estate Consultant Rms. 904-5 Capitol Centre 5-19 Jardine’s Bazaar Causeway Bay, Hong Kong

Tel: 2882 7291 Fax: 2881 5905

9 July 2004

The Directors China Chengtong Development Group Limited Suite 2904-2907, 29/F., One International Finance Centre, 1 Harbour View Street, Central, Hong Kong

Dear Sir or Madam:

We refer to your instructions for us to value the property and property interests owned by Panyu Lucky Rich Real-Estates Development Limited (hereinafter the “Company”) in Panyu. We have accordingly carried out inspection, made relevant enquiries and obtained such other further information as we consider necessary for the purpose of providing you with our opinion of the open market value of the property and property interests as at 30 April 2004 (‘date of valuation’).

Our valuation is our opinion of the open market value which we would define as intended to mean “the best price at which the sale of an interest in a property might reasonably be expected to have been completed unconditionally for cash consideration on the date of valuation, assuming:–

1. a willing seller;

2. that, prior to the date of valuation, there had been a reasonable period, having regard to the nature of the property and the state of the market, for the proper marketing of the interest, for the arrangement of price and terms and for the completion of sale;

3. that the state of the market, level of values and other circumstances were, on any earlier assumed date of exchange of contracts, the same as on the date of valuation;

4. that no account is taken of any additional bid by a prospective purchaser with a special interest and

5. that both parties to the transaction had acted knowledgeably, prudently and without compulsion.”

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APPENDIX IV

Our valuation has been made on the assumption that the owner sells the property interests on the open market in its existing state without the benefit of a deferred terms contract, leaseback, joint venture, management agreement or any similar arrangement which would serve to increase the value of the property interests.

In valuing the property interests, we have assumed that the grantee or the user of the property has free and uninterrupted rights to use or to assign the property interests for the whole of the unexpired term granted.

According to the information provided by your Company, the status of title, the grant of major approvals and licenses available are as follows:–

1. Business License

2. Co-operative Joint Venture Contract

3. Red – line Drawing

4. Development Agreement

5. State-owned Land Use Right Sale Contract

6. State-owned Land Use Certificate to:

7. 6.1) 53,334 sq.m.

8. 6.2) 37,980 sq.m.

9. Building and Land Use Certificate to:

10. 7.1) International Fashion City

11. 7.2) International Electrical Mart

12. 7.3) Times Garden No. 1 Block

13. Grant Contract of Land Use Right to 200 mou (133,200 sq.m.) land.

14. Planning Permit to 108,259 sq.m. of town houses.

The various components of the property have been valued as follows:–

1. For the two completed commercial buildings held for long term investment that is the “International Fashion City” and the “International Electrical Mart” – on the basis of capitalisation of the estimated net incomes achievable by reference to the open market rent and the sale prices of similar type of properties in the area.

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1. For the 49 remaining units and 14 car parking spaces in the completed residential building, which are held for sale that is in “Times Garden No. 1 Block” – on the basis assuming sale with the benefit of vacant possession and by reference to the sale comparable available on the open market.

2. For the remaining land with development potential, that is the “Waterfront” town house development – on the basis of sale in its existing state as vacant site capable of development with the benefit of vacant possession and by reference to land sales for land of similar nature and location. We have assumed that the remaining development potential of the site can be developed in accordance with the proposal as stated in the feasibility study supplied to us. According to the information available to us, we can confirm that the proposal is in compliance with the requirements of the planning and design guidelines issued by the Guangzhou Town Planning Bureau Panyu Branch.

For the purpose of our valuation, we have assumed that all consents, approvals and licenses from the relevant Government authorities for the proposed development will be granted without any onerous conditions or undue delay which may affect our opinion of value. According to our standard practice, no account has been taken into of any tax liabilities, which might affect the profit of the development.

We have relied to a very considerable extent on the information given by you and have accepted advice given to us on such matters as statutory notices, easements, tenure, lettings, site and floor areas and all other relevant matters.

We have been provided with the available title documents relating to the property. However, we have not searched the original documents to verify ownership or to verify any lease amendments, which may not appear on the copies handed to us. All documents and leases have been used for reference only and all dimensions measurements and areas are approximate. No on site measurements have been taken.

We have inspected the exterior and where possible the interior of the buildings. However, no structural survey or tests on any of the services have been made. In the course of our inspection, we noted that make good to the existing decorative works and minor repairs to floor and walls in some parts of the buildings are required before the buildings can be occupied.

No allowance has been made in our report for any charges, mortgages or amount owing on the property nor for any expenses or taxation, which may be incurred in effecting a sale. Unless otherwise stated, it is assumed that the property is free from encumbrances, restrictions and out-goings of an onerous nature which could affect value.

We have no reason to doubt the truth and accuracy of the information provided to us by the Company. We have also read the legal opinion regarding the ownership and related documents of the property interests. The legal opinion was formed by Shanghai AllBright Law Offices, legal advisers of the Company, dated 29 June 2004. We consider that we have been provided with sufficient information to reach an informed view, and have no reason to suspect that any material information has been withheld.

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APPENDIX IV

PROPERTY VALUATION OF PANYU PROJECT

Unless otherwise stated, all monetary amounts stated in this valuation certificate is in Reminbi. The exchange rate used in converting the value in Reminbi to Hong Kong Dollars is HK$1 = RMB1.06 and no significant fluctuation in the exchange rate has been noted between the date of valuation and the date of this letter.

Our valuation is summarised below and the valuation certificate is attached.

Yours faithfully;

For and on behalf of

S.H. NG & CO., LTD.

NG SAI HEE

FHKIS, FRICS, RPS(GP)

• Note: Ng Sai Hee FHKIS, FRICS, RPS(GP) is a director of S.H. Ng & Co., Ltd., who has over 20 years property valuation experience in The People’s Republic of China, Hong Kong and South East Asia.

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APPENDIX IV

Property

The International Fashion City, The International Electrical Mart, 49 units and 14 car parking spaces in Times Garden No. 1 Block and 118 house lots in Waterfront, Times Place, Shinan Road, Dawu Village, Yuwotou Town, Panyu, Guangdong, The People’s Republic of China

Description

Times Place is a large-scale commercial/residential development, which occupies a site with an area of 145,315 sq.m. There are 3 existing developments built on site and a piece of land ready for development into town houses.

The International Fashion City – is a 6-storey commercial complex built in 1996. It has a building area of 35,705.86 sq.m. together with a large open car parking ground in front of the development.

The International Electrical Mart – is a 3-storey commercial complex built in 1996. It has a building area of 25,188.40 sq.m. and with 370 open car-parking spaces provided within the development.

Particulars of Occupancy

The 2 commercial buildings together with the residential building were vacant at the date of our inspection made on 10 May 2004. The

buildings on the whole appear to be in reasonable state of repair externally.

The remaining piece of land capable of development is vacant. It is understood that some basic infrastructure works had been done on site.

Open Market Value in Existing State as at 30 April 2004

RMB141,500,000 (Reminbi One Hundred and Forty One Million and Five Hundred Thousand Only)

HK$133,490,000 (Hong Kong Dollars One Hundred and Thirty Three Million and Four Hundred and Ninety Thousand Only)

Times Garden No.1 Block – is a 13-storey residential building built in 1996. We are instructed to value the remaining 49 unsold domestic units with a total gross floor area of 4,186.50 sq.m. together with 14 car parking spaces.

The Waterfront is a large piece of land with an area of 12,434.53sq.m capable of development into 123 numbers of houses. We are instructed to value 118 pieces of house lots with a total gross floor area of 33,623.48 sq.m.

The term of lease for the two commercial developments is 40 years and for the residential development is 70 years from 21 October 1993.

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APPENDIX IV

Notes:

1. Development Contract – dated 8th March 1993 made between Panyu Yuwotou Real Estate Development Company (party A) and Nardu Company Ltd. (party B) to form a JV company known as Panyu Lucky Rich Real-Estates Development Ltd. to develop 200 mou (133,200 sq.m.) of land for commercial/residential use in 2 phases in Yuwotou Town. The term of lease for commercial is for 40 years and for residential use is for 70 years.

2. Joint co-operative venture Contract – dated 10th March 1993 made between Panyu Yuwotou Real Estate Development Company (party A) and Nardu Company Limited (party B) to form a JV company known as Panyu Lucky Rich Real-Estates Development Ltd. for a period of 70 years. The business of the Company is to develop, construct, sell, lease and manage the commercial/residential property and its facilities on 200 mou of land in 2 phases. The share of profit is on a 20-80 basis between party A and party B.

3. There are 2 supplemental agreements dated 18th December 1995 and 19th December 1995 made between party A and party B, which refer respectively to the increase of registered capital from RMB25,000,000 to RMB30,000,000 and the total investment amount from RMB50,000,000 to RMB55,000,000.

4. Pursuant to the State-owned Land Use Right Sale Contract No. 525 dated 7th August 1993 made between the Panyu Municipal Land Administration Bureau (the Grantor) and Panyu Lucky Rich Real-Estates Development Ltd. (the Grantee), some of the terms and conditions stipulated therein are as follows:

Location : Dawu Village, Yuwotou Town, Shinan Road Site Area : 145,315 sq.m. Land Use Period : 70 years from issuance of Construction Land Use Permit Land Premium : RMB1,453,150

1. Pursuant to Land Use Right Certificates Nos.18-0000486, 18-0000487 dated 25th February 2000 and 18-0000488 dated 8th March 2000, the three pieces of land located in the west side of the south of Shawan Bridge, Dawu Village, Yuwotou Town, with site area of 52,123 sq.m., 49,578 sq.m. and 37,993 sq.m. (total of 139,694 sq.m.) are held by Panyu Lucky Rich Real-Estates Development Ltd. for terms commencing respectively from 21st October 1993 to 21st October 2063, 31st December 1993 to 31st December 2063 and 9th March 1994 to 9th March 2064. The 3 pieces of land are all granted for commercial and residential use.

2. The Realty Title Certificate No. 619170 dated 9th July 1996 issued by the People’s Government of Panyu City refers to the completion (in 1996) of a 6-storey building known as International Fashion City. The construction site area is 6,394.82 sq.m. and the building area is 35,705.86 sq.m.

3. The Realty Title Certificate No. 0619933 dated 15th July 1996 issued by the People’s Government of Panyu City refers to the new completion (in 1996) of a 3-storey building known as International Electrical Mart. The construction site area is 9,038.97 sq.m. and the building area is 25,188.43 sq.m.

4. The Building Use Right (as commercial commodity) Certificate No. 0002065 dated 16th July 1996 issued by the People’s Government of Panyu City refers to the completion of a 13-storey residential building for commercial/ residential use. The term of use is from 21st October 1993 to 21st October 2063. The construction site area is 838.33 sq.m. and the building area is 11,311.79 sq.m. Domestic area for sale is 10,692.49 sq.m. and the non domestic area for owner occupation is 619.30 sq.m.

5. Pursuant to the approval letter Hui Gui Pan Gui Shen Zi (2001) No. 272 together with the attachment dated 28th June 2001, the original approved development under Hui Gui Pan Shen Zi (2000) No. 298 is amended to comprise building land 20,169 sq.m., total building area 108,239 sq.m., green area 53,204 sq.m. and 705 car parking spaces.

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PROPERTY VALUATION OF PANYU PROJECT

APPENDIX IV

1. The 49 domestic units to be valued are Units A, B, C, D, G, H, J & K on 2/F., Units A, B, C, D, E, F, G, & H on 3/ F., Units A, B, C & D on 4/F., Units A, B, C & K on 5/F., Units A, B, C, F, G & K on 6/F., Units A, B, C, D, F, G, H, J & K, on 7/F., Units J & K on 11/F., Unit F on 12/F., Units B, C, E, G, H, J & K on 13/F. All units are finished with standard internal fittings and finishing.

2. The legal opinions from the Group’s PRC Legal Advisers (Shanghai AllBright Law Offices) dated 29 June 2004 confirmed their opinion regarding the legality and ownership of the properties and property interests as follows:–

3. 11.1 Panyu Lucky Rich Real-Estates Development Ltd. (the ‘Company’) is the legal owner of the property and property interests.

4. 11.2 The property and property interests refer to the Land Use Right Certificates Nos. 18-0000486, 18-0000487 and 18-0000488. These three pieces of land are located on the western side of the south of the Shawan Bridge, Dawu Village, Yuwotou Town, with site areas of 52,123 sq.m., 49,578 sq.m. and 37,993 sq.m. respectively.

5. 11.3 The Building Use Right (as commercial commodity) Certificate No. 0002065 refers to the 13-storey development known as Times Garden Block 1 built on that piece of land registered as No. 18-0000486 with a building land area of 1,366 sq.m. However, only 49 units remaining are still registered under Panyu Lucky Rich Real-Estates Development Ltd.

6. 11.4 Realty Title Certificate No. 619170 refers to the 6-storey development known as the International Fashion City built on that piece of land registered as No. 18-0000487, with a building land area of 6,394.82 sq.m.

7. 11.5 Realty Title Certificate No. 0619933 refers to the 3-storey development known as International Electrical Mart built on that piece of land registered as No. 18-0000487, with a building land area of 9,038.97 sq.m.

8. 11.6 Court orders were issued on the above three properties and property interests. No. 18-0000486 refers to as (2001) – No. 710 on 5 July 2002, No. 18-0000487 and No. 18-0000488 refer to as (2001) – No. 3723 on 12 October 2001.

9. 11.7 Court order (2001) – No. 710 refers to repayment to Bank of China Panyu Branch the sum of RMB3,000,000, plus interest and legal fees of RMB26,403.00.

10. 11.8 Court order (2001) – No. 279 refers to the payment to Guangzhou Panyu No. 2 Construction Company the sum of RMB4,563,667.35, plus interests of RMB1,595,805.94 and legal fees of RMB50,817.00.

11. 11.9 According to Chinese law, Panyu Lucky Rich Real-Estates Development Ltd. can not transfer, sell, give away and exchange etc. on the property or property interests under the above mentioned Court orders. However, upon settlement by payment of the sums of money or otherwise as described in the above Court orders and cancellation of the orders, the Company will be able to deal freely with the Land Use Rights and Buildings.

12. 11.10 Reply letter from Guangzhou Town Planning Bureau Panyu Branch, Hui Gui Pan Gui Shen Zi (2004) No. 0075 (attachment 16) refers to the alterations and extension for Phase I of the Waterfront developable land. The said Bureau has agreed to extend the approved plan of the development up to 13 February 2005.

Lucky Rich Real-Estates Development Limited should send the development proposal to the Guangzhou Town Planning Bureau Panyu Branch Construction Management and inform them that before the reply letter was received, both the Planning Permit and Construction Permit were in the process of submission and had not been approved.

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PROPERTY VALUATION OF BEIJING PROJECT

APPENDIX V

Set out below are the text of the letter and valuation certificate received by the Company from the Valuers, an independent firm of professional property surveyors and valuers, prepared for the purpose of incorporation into this circular, of their valuation of the Beijing Project as at 30 April 2004.

S.H. NG & CO., LTD.

Real Estate Consultant Rms. 904-5 Capitol Centre 5-19 Jardine’s Bazaar Causeway Bay, Hong Kong

Tel: 2882 7291 Fax: 2881 5905

9 July 2004

The Directors China Chengtong Development Group Limited Suites 2904-2907, 29/F., One International Finance Centre, 1 Harbour View Street, Central, Hong Kong

Dear Sir or Madam:

We refer to your instructions for us to value the property and property interests owned by Zhongshi Investment Co., Ltd., (refer to as the “Beijing JV”) in The Peoples Republic of China (“PRC”). We have accordingly carried out inspections, made relevant enquiries and obtained such further information as we consider necessary for the purpose of providing you with our opinion of the value of the property and property interests as at 30 April 2004 (‘Date of Valuation’).

Our valuation is our opinion of the open market value which we would define as intended to mean “the best price at which the sale of an interest in a property might reasonably be expected to have been completed unconditionally for cash consideration on the date of valuation, assuming:–

• a) a willing seller,

• b) that, prior to the date of valuation, there had been a reasonable period, having regard to the nature of the property and the state of the market for the proper marketing of the interest, for the agreement of price and terms and for the completion of the sale;

• c) that the state of the market, level of values and other circumstances were, on any earlier assumed date of exchange of contracts, the same as on the date of valuation;

• d) that no account is taken of any additional bid by a prospective purchaser with a special interest; and

• e) that both parties to the transaction had acted knowledgeably, prudently and without compulsion.”

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APPENDIX V

Our valuation has been made on the assumption that the owner sells the property interests on the open market without the benefit of a deferred terms contract, leaseback, joint venture, management agreement or any similar arrangement which could serve to increase the value of the property interests.

In valuing the property interests, we have assumed that the grantee or the user of the property has free and interrupted rights to assign the property interests for the whole of the unexpired term granted.

According to the information provided by your company, the status of title, the grant of major approvals and licenses available are as follows:–

• 1 Land Use Right Certificate

• 2 Red-line Drawing

• 3 Feasibility Study

• 4 Approved Building Plans

• 5 Building and Construction Land Use Planning Permit

• 6 Building and Construction Planning Permit

• 7 Building and Construction Works Permit

• 8 Business License

• 9 Beijing City State-owned Land Use Rights Transfer Contract

• 10 Joint Venture Agreement

The property is a site ready for development. At the time of our inspection on 6 April 2004, construction works were at the basement levels and basement tanking appeared to be near to completion. We have valued the property as a site capable of development by reference to the land sales comparable available on the open market plus actual construction costs expanded on site as at 30 April 2004.

We have relied to a considerable extent on the information provided by the Beijing JV and your company and the legal opinion of the Group’s legal advisors, Beijing Liwen Solicitor Firm and have accepted advice given to us on such matters as planning approvals or statutory notices, easements, tenure, occupation, lettings, rentals, site and floor areas and all other relevant matters.

We have been supplied with copies of various title documents and plans relating to the property owned by the Beijing JV. However, we have not searched the original documents to verify ownership or to verify any lease amendments, which may not appear on the copies, handed to us. Due to the nature of the land registration in the PRC, we are unable to search the original documents to verify the existing title of the property or any material encumbrances that might be attached to the property.

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APPENDIX V

We have inspected the site, but we have not carried out soil test or any tests to verify the suitability of the site for construction purpose. No tests were carried out to any of the services.

No allowance has been made in our valuation for any charges, mortgages or amounts owing on the property nor for any expenses or taxation which may be incurred in effecting a sale. Unless otherwise stated, it is assumed that the property is free from encumbrances, restrictions and outgoings of an onerous nature which could affect its value.

We have no reason to doubt the truth and accuracy of the information provided to us by the Company. We have also read the legal opinion regarding the ownership and related documents of the property interests. The legal opinion was formed by Beijing Liwen Solicitor Firm, legal adviser of the Company, dated 21 June 2004 We consider that we have been provided with sufficient information to reach an informed opinion and have no reason to suspect that any material information has been withheld.

Unless otherwise stated, all monetary amounts stated in this valuation certificate are in Reminbi. The exchange rate used in converting the value in Reminbi to Hong Kong Dollars is HK$1 = RMB1.06 and no significant fluctuation in the exchange rate has been noted between the date of valuation and the date of this letter.

Our valuation is summarized below and the valuation certificate is attached.

Yours faithfully

For and on behalf of,

S.H. NG & Co., Ltd.

NG SAI HEE

FHKIS, FRICS, RPS(GP)

Note: Ng Sai Hee FHKIS, FRICS, RPS(GP) is the director of S.H. Ng & Co., Ltd., who has over 20 years property valuation experience in The Peoples’ Republic of China, Hong Kong and South East Asia.

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PROPERTY VALUATION OF BEIJING PROJECT

APPENDIX V

Property

Description

Particulars of Occupancy

Open Market Value in Existing State as at 30 April 2004

City Garden (now known as Rongcheng) Nos. 9 & 11, Baiwanzhuang Dajie, Xicheng District, Beijing, The People’s Republic of China

The property comprises a parcel of land with a site area of approximately 7,186 sq.m.

Plans have been approved for the construction of 4-tower blocks, which vary from 8-storey, 14-storey and 21-storey to be built over a 2- storey commercial podium and basement carports. The total number of domestic units to be provided is 300. The total gross area provided is (in accordance with the Building and Construction Planning Permit):

Domestic – 33,556 sq.m. Commercial – 2,975 sq.m. Car Parking – 143

The property is granted with the land use rights for terms to expire on 20 June 2073 for domestic use, 20 June 2053 for car parking use and 20 June 2043 for ancillary facility uses.

The site foundation work was in progress at the time of our inspection made on 6 April 2004.

The development is expected to be completed around the end of August 2005.

The construction costs expanded on site as at 30 April 2004 was RMB1,500,000 which has been included in the open market value.

RMB193,000,000 (Reminbi One Hundred and Ninety Three Million Only)

HK$182,075,500 (Hong Kong Dollars One Hundred and Eighty Two Million and Seventy Five Thousand and Five Hundred Only).

Notes:

1. Beijing JV is a joint venture company established in the PRC to comprise the following shareholders:

Jiacheng Enterprise Development Company Limited 70% Beijing Xinghe Dongli Investment Management Co., Ltd. 30%

1. Pursuant to an Agreement dated 23 June 2000 made between the State Grainary Reserve Bureau Science Research Institute (Party A) and Beijing JV (Party B), some of the basic terms of the Agreement are as follows:–

2. 2.1 Property – to jointly redevelop 9-11 Baiwanzhuang Dajie.

3. 2.2 Contribution – Party A to provide the land and Party B to provide the entire costs of construction (to include costs of demolition and re-housing).

4. 2.3 Property Ownership – after completion of the development, Party A to own the Science Research Office Building (of normal office standard). Party B to own the domestic portion of the development.

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APPENDIX V

1. Pursuant to a Land Use Rights Transfer Contract, undated – Jin Di (HE) Zi Di (565) issued by the Beijing City State Land Resources and Building Management Bureau. Some of the basic terms of the land use right are as follows:

2. 3.1 Transferee – Beijing JV

3. 3.2 Address – 9-11 Baiwanzhuang Dajie, Xicheng District, Beijing

4. 3.3 Land Area – 7,206.33 sq.m.

5. 3.4 Planned Building Area – 47,684 sq.m. Above Ground (Residential-31,698 sq.m., Ancillary-3,392 sq.m.) Below Ground (Carport-3,223 sq.m., Ancillary-1,983 sq.m.)

6. 3.5 Land Premium – RMB31,092,210.

7. 3.6 Building Covenant – to be completed by 31 March 2005, with extension period not exceeding 360 days.

8. Pursuant to a Construction Land Use Planning Permit – No. 2002 Gui Di Zi 0400 issued by the Beijing City Planning Commission on 23 September 2002. The development is to have a land area of 13,489.02 sq.m. and to be known as City Garden and Science Research Building. City Garden is to have a land use area of 7,206.33 sq.m. and the Science Research Building is to have a land use area of 6,282.69 sq.m.

9. Pursuant to a Supplemental Agreement dated 8 June 2003, which refers to the above Agreement made between Party A and Party B, some of the basic supplemental terms are as follows:–

10. 5.1 Name of Development – City Garden (Rongcheng) and Science Research Building.

11. 5.2 Party A – to provide Land Use Certificate for the subject land.

12. 5.3 Party B – to provide Party A with building cost of RMB61,000,000 for the construction of the Science Research Building (Party A shall bear its own additional costs exceeding RMB61,000,000).

13. 5.4 Party A shall have the right to use the building with a gross area of 26,858 sq.m. together with the adjoining land.

14. Pursuant to a Building and Construction Planning Permit – No. 2003 Gui Jian Zi 0868 issued by the Beijing City Planning Commission on 20 June 2003. The development is to have a total building area of 47,924 sq.m. is to be known as City Garden (residential and ancillary facilities). An addendum to Building and Construction Planning Permit – No. 2003 Gui Jian Zi 0868 (No. 412 – 10) issued by the Beijing City Planning Commission dated 20 June 2003. The main changes are – development to have buildings of 8 to 21 storeys, the contract sum at RMB72,789,000 and the cancellation of the Building and Construction Planning Permit No.55 – 924 and 55 – 1264.

15. Pursuant to a Building and Construction Works Permit – No. 00 (Jian) 2003 – 3641 issued by the Beijing City Planning Commission on 26 November 2003. The development has a total building area of 47,924 sq.m. and the contract sum is at RMB83,430,000.

16. Pursuant to a Business License (copy) Registration No. 1100001521976 (4 – 4) issued by the Beijing City State Administration of Industry and Commerce dated 15 December 2003 the company known as Zhongshi Investment Company Limited was formed on 11 April 1997 for a license period up to 10 April 2047. The registered capital is RMB80,000,000 The businesses include investment management, real estate development, real estate consultancy services, property management, new technology development, research, exchange, exhibit, training, building material, mechanical and electronic equipment, textile products, arts and crafts products (excluding metal products), daily goods, and sale of cars (excluding private cars) and car ancillary.

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APPENDIX V

1. Pursuant to an Agreement dated 8 March 2004 made between Party A and Party B, it is agreed that upon completion of the development, both parties will have their own Building and Land Use Certificate and rights to deal with the area assigned to each party.

It is understood that the agreed schedule of payments for the amount of RMB61,000,000 payable by Party B to Party A is as follows:

Stage of Payment	Amount of Payment	Time of Payment	% payment
Foundation	RMB6,100,000	October 2004	10%
1-6 storeys	RMB18,300,000	January 2005	30%
7-13 storeys	RMB18,300,000	March 2005	30%
Decoration	RMB6,100,000	June 2005	10%
Decoration	RMB6,100,000	September 2005	10%
Final Account	RMB6,100,000	November 2005	10%
Total	RMB61,000,000	–	100%

Pursuant to a State-owned Land Use Rights Certificate – Jing Xi Guo Yung (2004) Di No. 20089 issued by the State Land Resource Bureau on 18 March 2004. The permitted land area is 7,206.33 sq.m. The permitted uses of the land are for residential (up to 20 June 2073), ancillary facilities (up to 20 June 2043) and basement car parking (up to 20 June 2053) purposes.

Land Premium Payment Receipts confirming full payments of land premium: –

Jai B121 – 02 – 04 No. 0031417 dated 24 April 2003 refers to payment made for the Beijing City State Land Use Premium charges in the amount of RMB4,113,832.

Jai B121 – 02-04 No. 0058440 dated 17 December 2003 refers to payment made for the Beijing City State Land Use Premium charges in the amount of RMB26,565,804.

(2001) (Jin) Deed Tax Zi 0225376 dated 17 December 2003 refers to payment made for the PRC State Title Deed tax for the amount of RMB932,766.

1. The legal opinion from the Group’s PRC legal advisers Beijing Liwen Solicitor Firm dated 21 June 2004 confirmed their opinion regarding the legality and ownership of the property and property interests as follows: –

2. 12.1 Copy of the Business License No. 1100001521976 (4-4) dated 15 December 2003, Beijing JV’s business include enterprise investment, real estate development and related business. The company has a registered amount of RMB80,000,000.

3. 12.2 According to the terms and conditions of the Beijing JV, the share holders of Beijing JV are Jiacheng Enterprise Development Company Limited (“Jiacheng Company”) and Beijing Xinghe Dongli Investment Management Co., Ltd (“Xinghe Investment Company”). Jiacheng Company contributed RMB56,000,000 and owns 70% of the registered amount, Xinghe Investment Company contributed RMB24,000,000 and owns 30% of the registered amount.

The legal opinion is that, Beijing JV is a properly registered and operated limited company under the Chinese law. The company’s business includes enterprise investment, real estate development and related business. The shareholders are Jiacheng Company and Xinghe Investment Company. Jiacheng Company owns 70% of the total registered amount.

• 12.3 Pursuant to Beijing City Planning Commission (2002) Gui Yi Zi 0221 Intent dated 8 February 2002, the Beijing City Planning Commission permits the Beijing JV to jointly develop that piece of property (Beijing City, Xicheng District, 9 and 11 Baiwanzhuang Dajie) with State GRAINANY Reserve Bureau Science Research Institute.

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PROPERTY VALUATION OF BEIJING PROJECT

APPENDIX V

• 12.4 Pursuant to Jin Ji Tau Ji Zi (2002) 579 dated 1 April 2002, refers to the reply to the joint development City Home project (feasibility study report), being approved by the Beijing City Development Planning Commission and Beijing City Construction Commission for Beijing JV and the State Grainary Reserve Bureau Science Research Institute to jointly develop the project located at Beijing City, Xicheng District, 9 and 11 Baiwanzhuang Dajie).

• 12.5 Pursuant to a Building and Construction Planning Permit – No. 2003 Gui Jian Zi 0868 with supplement issued by the Beijing City Planning Committee on 20 June 2003. Beijing JV is the developer for the City Garden (residential and ancillary facilities) project at Beijing City, Xicheng District, 9 and 11 Baiwanzhuang Dajie, The development provides 47,924 sq.m. with a 21 storey building built over a 3 storey basement.

• 12.6 Pursuant to State Development Improvement Committee Fa Qui Tau Zi (2003) 1021 regarding the reply for the redevelopment of the building of the State Grainary Bureau Science Research Institute dated 23 August 2002, the Commission agreed to the development of the property located at Beijing City, Xicheng District, 9 and 11 Baiwanzhuang Dajie.

• 12.7 Pursuant to a State-owned Land Use Rights Certificate – Jin Xi Guo Yung (2004) Di No. 20089, the property is located at Beijing City, Xicheng District, 9 and 11 Baiwanzhuang Dajie, the land user is Beijing JV and the permitted uses are residential, ancillary facilities and basement parking,. The land area is 7,206.33 sq.m.

• 12.8 Pursuant to a Building and Construction Works Permit – No. (Jian) 2003 – 3641, Beijing JV is the developer of the project located at Beijing City, Xicheng District, 9 and 11 Baiwanzhuang Dajie, with a project size of 47,924 sq.m. The construction commencement date is September 2003 and the completion date is June 2005.

• 12.9 Pursuant to a Beijing City Commercial Unit Pre-sale Permit No. Jian Fong Sou Zi 2004-161 date 27 April 2004, the developer Beijing JV is entitled to pre-sell the development located at Beijing City, Xicheng District, Baiwanzhuang (except B-301, B-302 and B-401)

The legal opinion is that Beijing JV is the legal developer of the property located at Beijing City, Xicheng District, 9 and 11 Baiwanzhuang Dajie with a building area of 40,296 sq.m., and has pre-sale permit of the City Garden project (except B-301, B-302 and B-401).

The legal adviser confirmed that Beijing JV is a properly registered and operated limited company in accordance to the Chinese law. Jiacheng Company and Xinghe Investment Company are the current registered shareholders of Beijing JV, in turn, the development located at Beijing City, Xicheng District, 9 and 11 Baiwanzhuang Dajie and with a building area of 40,296 sq.m. The Beijing JV has proper legal rights to own and develop the City Garden project (now known as Rongcheng).

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GENERAL INFORMATION

APPENDIX VI

1. RESPONSIBILITY STATEMENT

This circular includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Group. The Directors collectively and individually accept full responsibility for the accuracy of the information contained in this circular and confirm, having made all reasonable enquiries, that to the best of their knowledge and belief, there are no other facts the omission of which would make any statement herein misleading.

2. DIRECTORS’ DISCLOSURE OF INTERESTS

(a) Disclosure of interests under the SFO

As at the Latest Practicable Date, none of the Directors has interests or short positions in the shares, underlying shares and debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) which were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which he is taken or deemed to have under such provisions of the SFO), or which were required, pursuant to Section 352 of the SFO, to be entered in the register referred to therein, or which were required, pursuant to the Model Code for Securities Transactions by Directors of Listed Companies to be notified to the Company and the Stock Exchange.

(b) Other interests of the Directors

• (i) None of the Directors have any interest, direct or indirect, in any assets which have been, since 31 March 2003 (being the date to which the latest published audited accounts of the Company were made up), 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.

• (ii) There is no contract or arrangement subsisting at the date of this circular in which any Director is materially interested and which is significant in relation to the business of the Group.

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GENERAL INFORMATION

APPENDIX VI

3. SUBSTANTIAL SHAREHOLDERS’ DISCLOSURE OF INTERESTS

• (a) So far as is known to any Director or chief executive of the Company, as at the Latest Practicable Date, persons (other than a Director or chief executive of the Company) who had an interest or a short position in the shares and underlying shares of the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO:

			Approximate
Name of	Number of	Nature of	percentage
shareholder	Shares	interest	of interest
World Gain Holdings Limited	608,201,500(L)	controlled corporation	36%
China Chengtong Hong Kong	608,201,500(L)	controlled corporation	36%
Company Limited		(Note 2)
China Chengtong Holdings	608,201,500(L)	beneficial owner	36%
Company		(Note 2)

Notes:

1. The letter “L” represents the entity’s interests in the Shares.

2. The entire issued share capital of World Gain Holdings Limited is beneficially owned by China Chengtong Hong Kong Company Limited, the entire issued share capital of which is beneficially owned by China Chengtong Holdings Company.

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GENERAL INFORMATION

APPENDIX VI

• (b) So far as is known to the Directors, the following entities are, directly or indirectly, interested in 10 per cent. or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of the subsidiaries of the Company as at the Latest Practicable Date:

			Approximate
Name of	Name of	Number of	percentage
subsidiary	shareholder	shares	of interest
Caesar Assets Limited	Skywalk Group	30 shares of US$1 each	30%
	Limited
China-eDN.com Limited	Diagonal Trading	2,000,000 shares	20%
	Limited	of HK$1 each
Galawell Development	White Snow	2,352 shares of	11.76%
Limited	Management Ltd.	HK$1 each
Galaxy Gain Limited	Ever Lasting Value	17 shares of US$1 each	17%
	Securities Limited
Nardu Company Limited	Filey Investment	1,200,000 shares	12%
	Corporation	of HK$1 each
Nardu Company Limited	Excellence Star	1,800,000 shares	18%
	Limited	of HK$1 each
Suzhou Nanda Cement	蘇州吳縣望	Registered capital of	28.97%
Co. Ltd.	亭水泥廠	US$5,069,600
	(transliteration
	being Suzhou
	Wu County Wangting
	Cement Plant)

• (c) Save as disclosed, the Directors and chief executive of the Company are not aware of any other person who, as at the Latest Practicable Date, had an interest or short position in the shares and underlying shares of the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO, or who was, directly or indirectly, interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any other member of the Group.

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GENERAL INFORMATION

APPENDIX VI

4. MATERIAL CONTRACTS

Save as disclosed below, no material contracts (not being contracts entered into in the ordinary course of business carried out by the Group) have been entered into by any member of the Group within the two years preceding the date of this circular:

• (a) a settlement agreement dated 18 September 2002 made between (1) PUMA AG Rudolf Dassler Sport; (2) World Cat Ltd.; (3) PUMA Far East Ltd.; (4) Ocean-Land Sports Holding Limited and (5) the Company, pursuant to which, the Group agreed, inter alia, to pay a sum of US$310,000 (equivalent to approximately HK$2,418,000) in full and final settlement of all disputes arising from the licensing agreement and the outstanding royalty payments thereof. Such sum was paid in full by the Group in two equal instalments on 17 September 2002 and 19 November 2002 respectively;

• (b) a settlement agreement (“ Settlement Agreement ”) dated 21 March 2003 as supplemented by a supplemental settlement deed (“ First Supplemental Deed ”, the Settlement Agreement as supplemented by the First Supplemental Deed is referred to as the “ Principal Settlement Agreement ”) dated as of 31 March 2003 both entered into between the Company, Shine Ocean Limited, Ocean-Land Heat Supply Limited, China Huatong Distribution and Industry Development Corporation, Trade Sense International Limited, Hutaong Group Holdings Limited, Everlasting Value Securities Limited and Merry World Associates Limited as disclosed in the announcement of the Company dated 8 April 2003;

• (c) a letter dated 17 April 2003 from Boxhill Limited to, and agreed by Mr. Chow Chung Kai pursuant to which, Boxhill Limited exercised the option to repurchase 1,836 shares of US$1 each in the capital of Success Project Investments Limited and the shareholder’s loan of about US$2,329,300 outstanding and owing by Success Project Investments Limited as at the date thereof at an aggregate consideration of about HK$16,866,000 as disclosed in the announcement of the Company dated 24 April 2003;

• (d) a second supplement deed dated 15 May 2003 to the Principal Settlement Agreement entered into between the Company, Shine Ocean Limited, Ocean-Land Heat Supply Limited, China Huatong Distribution and Industry Development Corporation, Trade Sense International Limited, Hutaong Group Holdings Limited, Everlasting Value Securities Limited and Merry World Associates Limited extending the last date for fulfillment of the conditions of the Principal Agreement;

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GENERAL INFORMATION

APPENDIX VI

• (e) a provisional sale and purchase agreement dated 29 November 2003 made between the Company’s wholly owned subsidiary, Evolve Limited, as vendor and Hanison Eco Services Limited as purchaser for the disposal of the Group’s property interests in Winner Building of Nos. 2-8 Shing Wan Road, Shatin, New Territories, Hong Kong at a consideration of HK$63,000,000;

• (f) a formal agreement dated 24 December 2003 made between the Company’s wholly owned subsidiary, Evolve Limited, as vendor and Hanison Eco Services Limited as purchaser for the disposal of the Group’s property interests in Winner Building of Nos. 2-8 Shing Wan Road, Shatin, New Territories, Hong Kong at a consideration of HK$63,000,000; and

• (g) the Share Sale Agreement.

5. LITIGATION

As at the Latest Practicable Date, save as disclosed below, none of the members of the Group is engaged in any litigation or arbitration or claim of material importance and there is no litigation or arbitration or claim of material importance is known to the Directors to be pending or threatened against the Group:

• (a) The Company commenced legal proceedings on 10 August 2002 against two former nonexecutive Directors, Mr. Chung Ho and Mr. Wu Yuehua and three other directors (“New Directors”), namely Wong Sun Keung, Lai Yau Hong and Ip Wing Chuen, appointed at a purported board meeting held on 4 August 2002 (“Purported Board Meeting”) seeking to, amongst others, invalidate the resolutions in relation to the appointment of the New Directors passed at the Purported Board Meeting. The Group has discontinued the action on the New Directors who tendered their resignations as directors on 13 August 2002.

• (b) The Group commenced a legal action in Hong Kong in September 2002 against (i) Sharp Class International Limited (“Sharp Class”) to recover HK$308 million paid to Sharp Class and (ii) Mr. Lo Chu Kong, a former executive of China-eDN.com Limited, a subsidiary of the Company, who approved the payment of HK$308 million to Sharp Class. The Directors have no knowledge as to the exact purpose and nature of this payment for the lack of satisfactory records and the Company has reported this transaction to relevant government authorities. Default judgment for the amount claimed of approximately HK$308 million plus interest and cost has been entered against Sharp Class on 21 January 2003. The Company is considering taking enforcement proceedings against Sharp Class.

• (c) The Group commenced a legal action in Hong Kong in November 2002 against (i) Sharp Class to recover HK$50 million paid to Sharp Class and (ii) Mr. Yuen Wai (the former chairman) and Mr. Chung Ho (a former non-executive Director) who approved the payment of HK$50 million to Sharp Class. The Directors have no knowledge as to the exact purpose and nature of this payment for the lack of satisfactory records and the Company has reported this transaction to relevant government authorities. Default judgment for the amount claimed of HK$50 million plus interest and cost has been entered against Sharp Class on 6 February 2003. The Company is considering taking enforcement proceedings against Sharp Class.

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GENERAL INFORMATION

APPENDIX VI

6. SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors had any existing or proposed service agreement with any member of the Group which will not expire or is not determinable by the employer within one year without payment of compensation (other than statutory compensation).

7. EXPERT

• (a) The following is the qualification of the experts who have given their opinions and advices which are included in this circular:

Name

Qualification

Deloitte Touche Tohmatsu Certified Public accountants

• G.K. Goh Securities (H.K.) Limited

a deemed licensed Corporation for types 1 (Dealing in Securities), 4 (Advising on Securities), 6 (Advising on Corporate Finance) and 9 (Asset Management) regulated activities under the SFO

S.H. Ng & Co., Ltd. Chartered Surveyors

• (b) Each of Deloitte Touche Tohmatsu, the Valuers and the Independent Financial Advisers does not have any shareholding, directly or indirectly, in any member of the Group or any right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group.

• (c) Each of Deloitte Touche Tohmatsu, the Valuers and the Independent Financial Advisers has not withdrawn its written consent to the issue of this circular, with the inclusion of its letter and valuation certificate and the references to their name in the form and context in which they are included.

• (d) Each of Deloitte Touche Tohmatsu, the Valuers and the Independent Financial Advisers does not have any direct or indirect interest in any assets which have been, since 31 March 2003 (being the date to which the latest published audited financial statements of the Group were made up), acquired or disposed of by or leased to or are proposed to be acquired or disposed of by or leased to any member of the Group;

8. MATERIAL ADVERSE CHANGE

The Directors are not aware of any material adverse change in the financial or trading position of the Group since 31 March 2003, being the date of the latest published audited financial statements of the Group were made up.

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GENERAL INFORMATION

APPENDIX VI

9. MISCELLANEOUS

• (a) The registered office of the Company is at Suites 2904-2907, 29th Floor, One International Finance Centre, 1 Harbour View Street, Central, Hong Kong.

• (b) The secretary of the Company is Lai Ka Fai Albert, who is a solicitor of the High Court of Hong Kong.

• (c) The qualified accountant of the Company is Lee Sing Yeung, Simon, who is an associate member of The Hong Kong Society of Accountants and a fellow member of The Association of Chartered Certified Accountants.

• (d) The Company’s share registrar is Computershare Hong Kong Investor Services Limited at Shops 1901-1905, 19th Floor, Hopewell Centre, 183 Queen’s Road East, Hong Kong.

• (e) This circular has been prepared in both English and Chinese. In the case of any discrepancy, the English text shall prevail over the Chinese text.

10. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection during normal business hours at the office of the Company at Suites 2904-2907, 29th Floor, One International Finance Centre, 1 Harbour View Street, Central, Hong Kong, up to and including 23 July 2004:

• (a) the Share Sale Agreement;

• (b) the letter of advice from the Independent Financial adviser to the Independent Board Committee and the Independent Shareholders, the text of which is set out on pages 13 to 18 of this circular;

• (c) the memorandum and articles of association of the Company;

• (d) the audited consolidated financial statements of the Group for the two years ended 31 March 2003 and the unaudited consolidated financial statements for the period from 1 April 2003 to 30 September 2003;

• (e) the accountants’ report of Beijing JV, the text of which is set out in Appendix III to this circular;

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GENERAL INFORMATION

APPENDIX VI

• (f) the letters and the valuation certificates prepared by the Valuers in relation to the Panyu Project and the Beijing Project which are set out in Appendices IV and V to this circular;

• (g) the written consents of Deloitte Touche Tohmatsu, the Valuers and the Independent Financial Adviser referred to in this Appendix;

• (h) the material contracts referred to in the paragraph headed “Material Contracts” in this Appendix; and

• (i) a copy of each notifiable transaction circular issued pursuant to the requirements set out in Chapter 14 of the Listing Rules which has been issued since 31 March 2003, being the date to which the latest published audited consolidated financial statements of the Group were made up.

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NOTICE OF EXTRAORDINARY GENERAL MEETING

(Incorporated in Hong Kong with limited liability)

(Stock code: 217)

NOTICE IS HEREBY GIVEN that an extraordinary general meeting of China Chengtong Development Group Limited (the “Company”) will be held at 10:30 a.m. on Monday, 26 July 2004 at Suites 2904-2907, 29th Floor, One International Finance Centre, 1 Harbour View Street, Central, Hong Kong to consider and, if thought fit, passing, with or without modifications, the following resolution as an ordinary resolution:

“THAT:

the conditional share sale agreement dated 25 March 2004 (“ Share Sale Agreement ”) entered into by the Company and China Chengtong Hong Kong Company Limited (“ CCHK ”), relating to the Disposal of the Disposal Interests (both as defined in the circular of the Company dated 9 July 2004 (“ Circular ”)) and the transfer of the entire equity of Beijing Holdco (as defined in the Circular) in part satisfaction of the consideration for the Disposal, a copy of which has been produced to this meeting marked “A” and initialled by the chairman of this meeting for the purpose of identification, and all transactions contemplated thereunder as described in the Circular, be and are hereby approved; and the directors of the Company (“ Directors ”) be and they are hereby authorised to do all such acts and things (including, without limitation, signing, execution (under hand or under seal), perfection and delivery of all documents) which are in their opinion necessary, appropriate, desirable or expedient to implement and give effect to the terms of the Share Sale Agreement and all transactions contemplated thereunder and all other matters incidental thereto or in connection therewith and to agree to and make such variation, amendment and waiver of any of the matters relating thereto or in connection therewith that are, in the opinion of the Directors, not material to the terms of the Share Sale Agreement and all transactions contemplated thereunder and are in the interests of the Company.

By order of the Board

China Chengtong Development Group Limited Wu Chun Wah, Michael Executive Director

Hong Kong, 9 July 2004

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NOTICE OF EXTRAORDINARY GENERAL MEETING

Registered office:

Suites 2904-2907 29th Floor

One International Finance Centre

• 1 Harbour View Street

Central, Hong Kong

Notes:

1. A member of the Company entitled to attend and vote at the meeting is entitled to appoint a proxy or proxies to attend and vote in his stead. If more than one proxy is so appointed, the appointment shall specify the number and class of shares in respect of which each such proxy is appointed. A proxy need not be a member of the Company. A form of proxy for use at the meeting is enclosed herewith. In case of a joint holding, the form of proxy may be signed by any joint holder, but if more than one joint holder is present at the meeting, whether in person or by proxy, that one of the joint holders whose name stands first on the register of members in respect of the relevant joint holding shall alone be entitled to vote in respect thereof.

2. To be valid, the form of proxy together with any power of attorney or other authority, if any, under which it is signed or a notarially certified copy of that power of attorney or authority must be deposited with the share registrar of the Company, Computershare Hong Kong Investor Services Limited at Shops 1901-1905, 19th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong not later than 48 hours before the time appointed for holding the meeting or any adjournment thereof.

3. Completion and return of the accompanying form of proxy will not preclude members of the Company from attending and voting in person at the meeting or any adjournment thereof should they so wish.

4. 115 -

NOTICE OF EXTRAORDINARY GENERAL MEETING

1. Right to demand a poll

Pursuant to Article 76 of the articles of association of the Company, a resolution put to the vote of the meeting shall be decided on a show of hands unless a poll is) before or on the declaration of the results of the show of hands or on the withdrawal of any other demand for a poll) demanded:

• (i) by the Chairman of the meeting; or

• (ii) by at least three members present in person (or, in the case of a member being a corporation, by its duly authorized representative) or by proxy for the time being entitled to vote at the meeting; or

• (iii) by any member or members present in person (or, in the case of a member being a corporation, by its duly authorized representative) or by proxy and representing not less than one-tenth of the total voting rights of all the members having the right to vote at the meeting; or

• (iv) by a member or members present in person (or, in the case of a member being a corporation, by its duly authorized representative) or by proxy and holding shares in the Company conferring a right to vote at the meeting being shares on which an aggregate sum has been paid up equal to not less than one-tenth of the total sum paid up on all the shares conferring that right.

Unless a poll be so demanded and not withdrawn, a declaration by the Chairman that a resolution has been on a show of hands been carried or carried unanimously, or by a particular majority, or lost, and an entry to that effect in the book containing the minutes of the proceedings of the Company shall be conclusive evidence of the fact without proof of the number or proportion of the votes recorded in favour or against such resolution.

The Directors of the Company as at the date of this notice are Zhang Guotong (executive director), Li Tiefeng (executive director), Wu Chun Wah, Michael (executive director), Ma Zhengwu (non-executive director), Hong Shuikun (non-executive director), Chen Shengjie (non-executive director), Gu Laiyun (non-executive director), Tsui Yiu Wa, Alec (independent non-executive director), Kwong Che Keung, Gordon (independent non-executive director), and Lao Youan (independent non-executive director).

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