BOE TECHNOLOGY GROUP CO., LTD — Audit Report / Information 2006

Apr 27, 2007

BOE Technology Group Company Limited

31 December 2006

Report of the auditors

To the shareholders of

BOE Technology Group Company Limited

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

Report on the consolidated financial statements

We have audited the accompanying consolidated financial statements of BOE Technology Group Company Limited (the “Company”) and its subsidiaries (the “Group”) set out on pages 3 to 62, which comprise the consolidated balance sheet as at 31 December 2006, and the consolidated income statement, the consolidated statement of changes in equity and the consolidated cash flow statement for the year then ended, and a summary of significant accounting policies and other explanatory notes.

Management’s responsibility for the financial statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatements, whether due to fraud error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.

Auditors’ responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with relevant ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free of material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting principles used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

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Opinion

In our opinion, the consolidated financial statements give a true and fair view of the consolidated financial position of the Group as of 31 December 2006, and of its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards.

Certified Public Accountants 8[th] Floor, Prince’s Building 10 Chater Road Central, Hong Kong

25 April 2007

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Consolidated income statement For the year ended 31 December 2006

(in thousand of Renminbi)

Note Continuing operations Turnover 3 Cost of sales Gross (loss) / profit Other operating income, net 6 Distribution expenses Administrative expenses Research and development expenses Loss from operating activities Finance income Finance expenses Net financing costs 7(a) Share of profits from associates and a jointly controlled entity 16 Loss before income tax Income tax expense 8(a) Loss from continuing operations Discontinued operations Loss from discontinued operation, net of income tax 5 Loss for the year 7 Attributable to: Equity shareholders of the Company Minority interest Loss for the year Basic and diluted loss per share (Renminbi) 9 Continuing operations Basic and diluted loss per share (Renminbi) 9	2006 6,118,316 (6,819,052) (700,736) 138,945 (154,772) (334,225) (135,892) (1,186,680) 133,558 (654,924) (521,366) 391,298 (1,316,748) (13,605) (1,330,353) (456,595) (1,786,948) (1,770,800) (16,148) (1,786,948) (0.73) (0.54)	2005 (Restated) 2,510,119 (2,204,143) 305,976 98,898 (110,800) (523,940) (76,389) (306,255) 140,793 (489,258) (348,465) 296,469 (358,251) (29,075) (387,326) (767,260) (1,154,586) (1,245,993) 91,407 (1,154,586) (0.57) (0.22)

The notes on pages 10 to 62 are an integral part of these consolidated financial statements.

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Consolidated balance sheet At 31 December 2006

(in thousands of Renminbi)

Note Assets Property, plant and equipment 11 Construction in progress 12 Intangible assets 13 Lease prepayments 14 Investment properties 15 Investments in associates and a jointly controlled entity 16 Other investments 17 Deferred tax assets 18 Long term deposits Other assets Total non-current assets Inventories 19 Trade receivables 20 Prepayments, deposits and other receivables Deposits with banks 21 Cash and cash equivalents 21 Total current assets Total assets Liabilities Trade payables 22 Other payables Current taxation 8(b) Provisions 23 Loans and borrowings 24 Total current liabilities	2006 7,897,569 64,482 740,405 102,629 176,085 3,075,083 17,368 1,832 - 2,089 12,077,542 1,266,044 1,174,942 365,474 351,110 1,458,107 4,615,677 16,693,219 1,748,424 535,712 21,767 29,603 4,557,204 6,892,710	2005 11,330,272 285,244 449,850 103,332 113,121 2,820,463 10,661 1,940 23,856 46,651 15,185,390 1,919,901 1,876,294 462,501 916,628 1,164,052 6,339,376 21,524,766 1,769,720 972,555 23,211 50,771 3,762,956 6,579,213

The notes on pages 10 to 62 are an integral part of these consolidated financial statements.

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Consolidated balance sheet (continued) At 31 December 2006 (in thousands of Renminbi)

Note Non-current liabilities Loans and borrowings 24 Long-term notes payable 25 Employee benefits Deferred tax liabilities 18 Other liabilities 26 Total non-current liabilities Total liabilities Equity Share capital 27 Share premium Reserves 28 Accumulated losses Total equity attributable to equity shareholders of the Company Minority interest Total equity Total equity and liabilities	2006 5,088,771 - - 28 65,485 5,154,284 12,046,994 2,871,568 2,746,176 502,683 (2,231,983) 3,888,444 757,781 4,646,225 16,693,219	2005 9,569,710 299,939 17,280 588 856,539 10,744,056 17,323,269 2,195,696 1,552,913 680,190 (461,183) 3,967,616 233,881 4,201,497 21,524,766

Approved and authorised for issue by the board of directors on 25 April 2007.

) ) ) Directors ) )

The notes on pages 10 to 62 are an integral part of these consolidated financial statements.

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Consolidated statement of changes in equity For the year ended 31 December 2006

(in thousands of Renminbi)

Note At 1 January 2005 Foreign currency translation differences 28 Income and expense recognized in equity Loss for the year Total recognized income and expense for the year Capitalisation of share premium 27 (b) Dividend approved during the year 10 Capital contributions from minority interests Distributions to minority interests Disposal of a subsidiary At 31 December 2005	Attributable to equity shareholders of the company (Accumulated Share Share losses) / capital premium Reserves retained profits 1,463,797 2,284,812 708,167 814,086 -------------- -------------- -------------- -------------- - - (27,977) - - - (27,977) - -------------- --------------- --------------- --------------- - - - (1,245,993) - - (27,977) (1,245,993) -------------- -------------- -------------- -------------- 731,899 (731,899) - - - - - (29,276) - - - - - - - - - - - - 2,195,696 1,552,913 680,190 (461,183)	Minority interests 524,973 -------------- - - --------------- 91,407 91,407 -------------- - - 18,529 (5,550) (395,478) 233,881	Total equity 5,795,835 -------------- (27,977) (27,977) -------------- (1,154,586) (1,182,563) -------------- - (29,276) 18,529 (5,550) (395,478) 4,201,497

The notes on pages 10 to 62 are an integral part of these consolidated financial statements.

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Consolidated statement of changes in equity (continued) For the year ended 31 December 2006

(in thousands of Renminbi)

Note At 1 January 2006 Foreign currency translation differences 28 Income and expense recognized in equity Loss for the year Total recognized income and expense for the year Issue of new shares 27(a) Changes in minority interest due to discontinued operation of BOE-Hydis (note 5) Capital contributions from minority interests Distributions to minority interests Disposal of a subsidiary At 31 December 2006	Attributable to equity shareholders of the company Share Share Accumulated capital premium Reserves losses 2,195,696 1,552,913 680,190 (461,183) -------------- -------------- -------------- -------------- - - (177,507) - - - (177,507) - -------------- -------------- -------------- -------------- - - - (1,770,800) - - (177,507) (1,770,800) -------------- -------------- -------------- -------------- 675,872 1,193,263 - - - - - - - - - - - - - - - - - - 2,871,568 2,746,176 502,683 (2,231,983)	Minority interests 233,881 -------------- - - -------------- (16,148) (16,148) -------------- - 509,070 40,020 (3,330) (5,712) 757,781	Total equity 4,201,497 -------------- (177,507) (177,507) -------------- (1,786,948) (1,964,455) -------------- 1,869,135 509,070 40,020 (3,330) (5,712) 4,646,225

The notes on pages 10 to 62 are an integral part of these consolidated financial statements.

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Consolidated cash flow statement For the year ended 31 December 2006

(in thousands of Renminbi)

Note Cash flows from operating activities Loss for the year Adjustments for: Depreciation Amortisation of intangible assets Amortisation of lease prepayments Recognition / (Reversal) impairment loss on property, plant and equipment Impairment loss on construction in progress Impairment loss on intangible assets Impairment loss on held-to-maturity securities Impairment loss on investments in associates and a jointly controlled entity Impairment loss on bad and doubtful debt Provision for inventories Share of profit from associates and a jointly controlled entity Interest income Other finance costs Gain on sale of property, plant and equipment Gain on sale of unquoted securities Amortisation of government grant Loss on sale of discontinued operation, net of income tax Income tax expense Increase in inventories Decrease / (increase) in trade and other receivables Decrease in employee benefit obligations Increase in trade and other payables Cash generated from the operating activities Income taxes paid Net cash from operating activities Cash flows from investing activities Proceeds from sale of property, plant and equipment Proceeds from sales of intangible assets Proceeds from sales of investments Proceeds from sales of subsidiaries Interest income received Acquisitions of property, plant and equipment Acquisitions of intangible assets Acquisitions of available-for-sale investments (Acquisitions) / refund of investment costs Disposal of discontinued operation, net of cash disposed 5 Disposal of subsidiaries, net of cash disposed Placement of pledged deposits Placement of long-term fixed deposits Dividend received Net cash used in investing activities	2006 (1,786,948) 1,570,252 60,974 2,124 180,050 1,699 - - 26,858 30,085 360,054 (391,298) (30,151) 678,276 (22,499) - (43,401) (964,176) 13,334 (314,767) (64,103) 635,088 - 601,672 857,890 (14,778) 843,112 ------------------ 77,612 - 2,787 33,736 29,720 (747,520) (33,722) - (8,000) (240,533) (44,380) 565,518 23,856 144,040 (196,886) ------------------	2005 (Restated) (1,154,586) 1,229,595 32,660 2,934 (60) 19,932 407 17,961 - 5,623 85,411 (296,469) (51,691) 519,039 (5,697) (3,520) (37,583) (133,754) 41,729 271,931 (1,037,363) (1,181,452) 2,405 982,482 (961,997) (21,562) (983,559) ------------------ 36,112 1,378 5,520 - 51,691 (3,944,308) (32,082) (8,576) 26,070 (53,609) - (618,310) - 115,285 (4,420,829) ------------------

The notes on pages 10 to 62 are an integral part of these consolidated financial statements.

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Consolidated cash flow statement (continued) For the year ended 31 December 2006

(in thousands of Renminbi)

Note Cash flows from financing activities Proceeds from loans and borrowings Proceeds from issue of corporate debentures Proceeds from capital contribution Repayments of loans and borrowings Dividend paid Interest paid Payment for other financing activities Net cash from financing activities Effect of exchange rate changes Net increase / (decrease) in cash and cash equivalents Cash and cash equivalents at 1 January Cash and cash equivalents at 31 December	2006 4,367,239 - 1,200,000 (5,095,272) (3,373) (790,645) (12,543) (334,594) (17,577) 294,055 1,164,052 1,458,107	2005 12,421,541 1,583,475 18,529 (8,288,467) (35,675) (552,157) (59,474) 5,087,772 (55,302) (371,918) 1,535,970 1,164,052

The notes on pages 10 to 62 are an integral part of these consolidated financial statements.

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Notes to the financial statements For the year ended 31 December 2006

(Expressed in Renminbi)

1 Background of the Company

BOE Technology Group Company Limited (the “Company”) was founded on 9 April 1993 in the People’s Republic of China (the “PRC”) as a joint stock limited company as part of the restructuring of Beijing Electronic Tube Factory (“BETF”). On the same date, the relevant business undertakings of BETF together with the related assets and liabilities were taken over by the Company.

The parent company of the Group is Beijing Orient Investment and Development Company Limited (“BOID”), which is a state-owned enterprise registered in Beijing, the PRC.

The Company and its subsidiaries (the “Group”) manufacture and sell electronic products, invest in enterprises engaged in the manufacture of electronic products and provide property management services to properties it owns.

The Company has its primary listing on the Shenzhen Stock Exchange issuing its first B shares on 10 June 1997, with further offerings of A shares on the Shenzhen Stock Exchange in 12 January 2001 and 28 September 2006, and additional B shares on 16 January 2004.

2 Summary of significant accounting policies

(a) Statement of compliance

The consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards (“IFRSs”) promulgated by the International Accounting Standards Board (“IASB”). IFRSs include all applicable individual IFRS, International Accounting Standards (“IAS”) and related interpretations.

A summary of the significant accounting policies adopted in the preparations of the financial statements is set out below.

The Company also prepares a set of financial statements which complies with the PRC Accounting Rules and Regulations (“PRC GAAP”). A reconciliation of the Group’s operating results for the year and the equity attributable to equity shareholders of the Company under IFRSs and the PRC GAAP is presented as unaudited supplementary financial information on pages 63 to 65.

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2 Summary of significant accounting policies (continued)

(b) Basis of preparation

The consolidated financial statements are presented in Renminbi (“RMB”), which is the Company’s functional and presentation currency, rounded to the nearest thousand. The consolidated financial statements have been prepared on the historical cost basis, except for the measurement at fair value of financial instruments in accordance with IAS 39, Financial Instruments: Recognition and Measurement .

The preparation of consolidated financial statements in conformity with IFRSs requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factor that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and any future periods if the revision affects both current and future periods.

Judgments made by management in the application of IFRSs that have significant effect on the consolidated financial statements and estimates with a significant risk of material adjustment in the next year are discussed in note 32.

The accounting policies set out below have been applied consistently to all periods presented in these financial statements, and have been applied consistently by Group entities.

The comparative income statement has been re-presented as if the operation discontinued during the current period had been discontinued from the start of the comparative period (see note 5).

Notwithstanding that the Group had accumulated losses and net current liabilities as at 31 December 2006 of RMB2,231,983,000 (2005: RMB461,183,000) and RMB2,277,033,000 (2005: RMB239,837,000) respectively, management is of the opinion that the Group has the ability to continue as a going concern, as the Group has performed the following measures:

• On 18 January 2007, the Company has disposed of part of the shareholdings in TPV Technology Limited (“TPV”), an associate of the Company and received RMB1,036,679,000.

• On 9 April 2007, Beijing BOE Optoelectronics Technology Co., Ltd. (“BOEOT”), a subsidiary of the Company, has signed an agreement with the banks to extend the repayment schedule for the loans matured in 2007, amounting to RMB1,278,797,000, to the following year.

The Company’s ultimate holding company guaranteed to provide continuous financial support to the Company for the next 12 months to 31 December 2007. Accordingly, management consider it is appropriate that the consolidated financial statements of the Group are prepared on a going concern basis and do not include any adjustments that would be required should the Group fails to continue as a going concern.

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2 Summary of significant accounting policies (continued)

(c) Basis of consolidation

(i) Subsidiaries

Subsidiaries are entities controlled by the Group. Control exists when the Group has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that presently are exercisable are taken into account. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date of that control ceases.

Minority interests at the balance sheet date, being the portion of the net assets of subsidiaries attributable to equity interests that are not owned by the Company, whether directly or indirectly, are presented in the consolidated balance sheet and statement of changes in equity within equity, separately from equity attributable to the equity shareholders of the Company.

Minority interests in the results of the Group are presented on the face of the consolidated income statement as an allocation of the total profit or loss for the year between minority interests and the equity shareholders of the Company.

Where losses applicable to the minority exceed the minority’s interest in the equity of a subsidiary, the excess, and any further losses applicable to the minority, are charged against the Group’s interest except to the extent that the minority has a binding obligation to, and is able to, make additional investment to cover the losses. If the subsidiary subsequently reports profits, the Group’s interest is allocated all such profits until the minority’s share of losses previously absorbed by the Group has been recovered.

(ii) Associates and jointly controlled entities

Associates are those entities in which the Group has significant influence, but not control, over the financial and operating policies. Jointly controlled entities are those entities over whose activities the Group has joint control, established by contractual agreement and requiring unanimous consent for strategic financial and operating decisions. Associates and jointly controlled entities are accounted for using the equity method. The consolidated financial statements include the Group’s share of the income and expenses of associates and jointly controlled entities, after adjustments to align the accounting policies with those of the Group, from the date that significant influence or joint control commences until the date that significant influence or joint control ceases. When the Group’s share of losses exceeds its interest in associates and jointly controlled entities, the Group’s carrying amount is reduced to nil and recognition of further losses is discontinued except to the extent that the Group has obligation or has made payments on behalf of the associates or jointly controlled entity.

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2 Summary of significant accounting policies (continued)

(c) Basis of consolidation (continued)

(iii) Transactions eliminated on consolidation

Intra-group balances and any unrealised income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. Unrealised gains arising from transactions with associates or jointly controlled entities are eliminated against the investment to the extent of the Group’s interest in the associates or jointly controlled entities. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment.

(d) Foreign currency

(i) Foreign currency transactions

Transactions in foreign currencies are translated to the respective functional currencies of the Group entities at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency at the exchange rate at that date. The foreign currency gain or loss on monetary items is the difference between amortised cost in the functional currency at the beginning of the period, adjusted for effective interest and payments during the period, and the amortised cost in foreign currency translated at the exchange rate at the end of the period. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate at the date that fair value was determined. Foreign exchange differences arising on retranslation are recognised in profit or loss, except for those eligible for capitalisation as construction in progress (see note 2 (i) ).

(ii) Foreign operations

The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition, are translated to RMB at exchange rates at the reporting date. The income and expenses of foreign operations are translated to RMB at exchange rates at the dates of the transactions.

Foreign currency differences are recognised directly in equity. When a foreign operation is disposed of, in part or in full, the relevant amount recognised in equity is transferred to profit or loss.

(e) Property, plant and equipment

(i) Recognition and measurement

Items of property, plant and equipment are measured at cost less accumulated depreciation and impairment loss (see note 2 (n) ). Cost includes expenditure that are directly attributable to the acquisition of the assets. The cost of self-constructed assets includes the cost of materials and direct labour, any other costs directly attributable to bringing the asset to a working condition and location for its intended use, and the costs of dismantling and removing the items and restoring the site on which they are located.

When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment.

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2 Summary of significant accounting policies (continued)

(e) Property, plant and equipment (continued)

(ii) Subsequent costs

The cost of replacing part of an item of property, plant and equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Group and its cost can be measured reliably. The costs of the day-to-day servicing of property, plant and equipment are recognised in profit or loss as incurred.

• (iii) Disposal

Gains or losses arising from the retirement or disposal of property, plant and equipment are determined as the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in the profit or loss on the date of retirement or disposal.

(iv) Depreciation

Depreciation is charged to profit or loss on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment, after taking into account its estimated residual value. The estimated useful lives for the current and comparative periods are as follows:

	Years	Estimated residual value
		as a percentage of costs
Buildings	20 to 40 years	3%-10%
Plant and equipment	2 to 15 years	0%-10%
Motor vehicles	2 to 10 years	0%-10%

Depreciation methods, useful lives and residual value are reassessed at the reporting date.

(f) Financial instruments

(i) Non-derivative financial instruments

The Group classifies its financial instruments into different categories at inception, depending on the purpose for which the assets were acquired or the liabilities were incurred. The categories are: fair value through profit or loss, loans and receivables, held-to-maturity investments, available-for-sale financial assets and other financial liabilities.

Non-derivative financial instruments are recognised initially at fair value plus, for instruments not at fair value through profit or loss, any directly attributable transaction costs.

A financial instrument is recognised if the Group becomes a party to the contractual provisions of the instrument. Financial assets are derecognised if the Group’s contractual rights to the cash flows from the financial assets expire or if the Group transfers the financial assets to another party without retaining control or substantially all risks and rewards of the assets. Regular way purchases and sales of financial assets are accounted for at trade date, i.e. the date that the Group commits itself to purchase or sell the asset. Financial liabilities are derecognised if the Group’s obligation specified in the contract expire or are discharged or cancelled.

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2 Summary of significant accounting policies (continued)

(f) Financial instruments (continued)

(i) Non-derivative financial instruments (continued)

Fair value through profit or loss

An instrument is classified as at fair value through profit or loss if it is held for trading or is designated as such upon initial recognition. Financial instruments are designated at fair value through profit or loss if the Group manages such investments and makes purchase and sale decisions based on fair value. Upon initial recognition, attributable transaction costs are recognised in profit or loss when incurred. Financial instruments at fair value through profit or loss are re-measured at fair value at the balance sheet date, and changes therein are recognised in profit or loss.

Held-to-maturity investments

Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturity that the Group has the positive intention and ability to hold to maturity. Held to maturity investments are initially recognised in the balance sheet at fair value plus transaction costs. Subsequently, they are measured at amortised cost using the effective interest method, less any impairment loss.

Available-for-sale financial assets

The Group’s investment in equity securities and certain debt securities are classified as available-for-sale financial assets. Subsequent to initial recognition, they are measured at fair value and changes therein, other than impairment loss, and foreign exchange gains and losses on available-for-sale monetary items, are recognised directly in equity. When an investment is derecognised, the cumulative gain or loss in equity is transferred to profit or loss.

Other

Other non-derivative financial instruments are measured at amortised cost using the effective interest method, less any impairment loss.

(ii) Derivative financial instruments

Derivative financial instruments are recognised initially at fair value; attributable transaction costs are recognised in profit or loss when incurred. Subsequent to initial recognition, derivatives are measured at fair value, and gain or loss on re-measurements to fair value is charged immediately to the profit or loss.

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2 Summary of significant accounting policies (continued)

(f) Financial instruments (continued)

(iii) Compound financial instruments

Compound financial instruments issued by the Group comprise convertible debentures that can be converted to share capital at the option of the holder, and the number of shares to be issued does not vary with changes in their fair value.

The liability component of a compound financial instrument is recognized initially at the fair value of a similar liability that does not have an equity conversion option. The equity component is recognised initially at the difference between the fair value of the compound financial instrument as a whole and the fair value of the liability component. Any directly attributable transaction costs are allocated to the liability and equity components in proportion to their initial carrying amounts.

Subsequent to initial recognition, the liability component of a compound financial instrument is measured at amortised cost using the effective interest method, unless it is designated at fair value through profit or loss. The equity component of a compound financial instrument is not re-measured subsequent to initial recognition.

(iv) Share capital

Ordinary shares

Incremental costs directly attributable to issue of ordinary shares and share option are recognised as a deduction from equity.

Repurchase of share capital

When share capital recognised as equity is repurchased, the amount of the consideration paid, including directly attributable costs, is recognised as deduction from equity. Repurchased shares are classified as treasury shares and are presented s deduction from the total equity.

(g) Intangible assets

(i) Goodwill

All business combinations are accounted for by applying the purchase method. Goodwill (negative goodwill) arises on acquisition of subsidiaries, associates and jointly controlled entities. Goodwill represents the excess of the cost of the acquisition over the Group’s interest in the net fair value of the net identifiable assets, liabilities and contingent liabilities of the acquiree. When the excess is negative (negative goodwill), it is recognised immediately in profit or loss.

Goodwill arising on the acquisition of a minority interest in a subsidiary represents the excess of the cost of the additional investment over the carrying amount of the net assets acquired at the date of exchange.

Goodwill is measured at cost less any accumulated impairment loss. Goodwill is allocated to cash-generating units and is tested annually for impairment (see note 2 (n) ). In respect of associates, the carrying amount of goodwill is included in the carrying amount of the investment in the associate.

On disposal of a cash generating unit, an associate or a jointly controlled entity during the year, any attributable amount of purchased goodwill is included in the calculation of the profit or loss on disposal.

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2 Summary of significant accounting policies (continued)

• (g) Intangible assets (continued)

• (ii) Research and development

Expenditure on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and understanding, is recognised in profit or loss when incurred.

Development activities involved a plan or design for the production of new or substantially improved products and processes. Development expenditure are expensed as incurred as the related economic benefits generated from these developments have very limited useful lives.

• (iii) Other intangible assets

Other intangible assets that are acquired by the Group, which have finite useful lives, are measured at cost less accumulated amortisation (see below) and accumulated impairment loss (see note 2 (n) ).

(iv) Subsequent expenditure

Subsequent expenditure on capitalised intangible assets is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure, including expenditure on internally generated goodwill and brands, is recognised in profit or loss when incurred.

(v) Amortisation

Amortisation is recognised in profit or loss on a straight-line basis over the estimated useful lives of intangible assets, other than goodwill, from the date that they are available for use. Goodwill is systematically tested for impairment at each balance sheet date. The estimated useful lives for current and comparative periods are as follows:

Technology rights 8-20 years Patent 5-10 years Computer software 3-10 years

(h) Investments

• (i) Investment properties

Investment properties are properties held either to earn rental income or for capital appreciation or for both. Investment properties are measured at cost less accumulated depreciation and accumulated impairment loss (see note 2 (n) ).

Depreciation is provided to write off the cost, where appropriate, of each asset over its estimated useful life ranging from 20 to 40 years on a straight-line basis, after taking into account its estimated residual value. The useful lives and residual values are reassessed annually.

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2 Summary of significant accounting policies (continued)

(h) Investments (continued)

(i) Investment properties (continued)

A property interest under an operating lease is classified and accounted for as an investment property on a property-by-property basis when the Group holds it to earn rentals or for capital appreciation or both. Any such property interest under an operating lease classified as an investment property is carried at cost less accumulated depreciation and impairment loss (see note 2 (n) ). Lease payments are accounted for as described in accounting policy (u) .

(ii) Other investments in debt and equity securities

Investments in equity securities that do not have quoted market price in an active market and whose fair value could not be measured reliably are recognised in the balance sheet at cost less impairment loss (see note 2( n )).

(i) Construction in progress

Construction in progress represents buildings, various plant and equipment under construction and pending installation, and is stated at cost less impairment loss (see note 2 (n) ). Cost comprises direct costs of construction, borrowing costs and foreign exchange differences on related borrowed funds to the extent that they are regarded as an adjustment to interest charges and exchange differences on the designated financial instruments (see notes 2 (d) and (w) ) during the period of construction.

Capitalisation of these costs ceases and the construction in progress is transferred to property, plant and equipment when the asset is substantially ready for its intended use.

No depreciation is provided in respect of construction in progress until it is completed and ready for its intended use.

(j) Trade and other receivables

Trade and other receivables are initially recognised at fair value and thereafter measured at amortised cost less impairment loss for bad and doubtful debts (see note 2 (n) ), except where the effect of discounting would be immaterial. In such cases, the receivables are measured at cost less impairment loss for bad and doubtful debts (see note 2 (n) ).

(k) Lease prepayments

Lease prepayments represent land use rights paid to the PRC’s governmental authorities. Land use rights are carried at cost less impairment loss (see note 2 (n) ) and are amortised on a straight-line basis over the respective periods of the rights.

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2 Summary of significant accounting policies (continued)

(l) Inventories

Inventories, other than spare parts, tools and ancillary materials, are measured at the lower of cost and net realisable value. The cost of inventories is calculated using the weighted average cost formula, and includes expenditure incurred in acquiring the inventories and bringing them to their existing location and condition. In the case of manufactured inventories and work in progress, cost includes an appropriate share of production overheads based on normal operating capacity. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses.

When inventories are sold, the carrying amount of those inventories is recognised as an expense in the period in which the related revenue is recognised. The amount of any write-down of inventories to net realisable value and all losses of inventories are recognised as an expense in the period the write-down or loss occurs. The amount of any reversal of any write-down of inventories, arising from an increase in net realisable value, is recognised as a reduction in the amount of inventories recognised as an expense in the period in which the reversal occurs.

Spare parts, tools and ancillary materials are stated at cost less provision for obsolescence.

(m) Cash and cash equivalents

Cash and cash equivalents comprise cash at bank and on hand, demand deposits with banks and other financial institutions, and short-term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value, having been within three months of maturity at acquisition. Bank overdrafts that are repayable on demand and form an integral part of the Group’s cash management are also included as a component of cash and cash equivalents for the purpose of the consolidated cash flow statement.

(n) Impairment

(i) Financial assets

A financial asset is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of the asset. If any such evidence exists, any impairment loss is determined and recognised as follows:

• For unquoted equity securities and current receivables that are measured at cost, the impairment loss is calculated as the difference between the carrying amount of the financial asset and the estimated future cash flows, discounted at the current market rate of return for a similar financial asset where the effect of discounting is material. Impairment loss for current receivables are reversed if in a subsequent period the amount of the impairment loss decreases. Impairment loss for equity securities are not reversed.

• For financial assets measured at amortised cost, the impairment loss is calculated as the difference between the asset’s carrying amount and the present value of the estimated future cash flows, discounted at the financial asset’s original effective interest rate (i.e. the effective interest rate computed at initial recognition of these assets). An impairment loss in respect of an available-for-sale financial asset is calculated by reference to its current fair value.

Individually significant financial assets are tested for impairment on individual basis. The remaining financial assets are assessed collectively in groups that share similar credit risk characteristics.

19

2 Summary of significant accounting policies (continued)

(n) Impairment (continued)

(i) Financial assets (continued)

All impairment loss are recognised in profit or loss. Any cumulative loss in respect of an available-for-sale financial asset recognised previously in equity is transferred into profit or loss.

An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment loss was recognised. For financial assets measured at amortised cost and available-for-sale financial assets that are debt securities, the reversal is recognised in profit or loss. For available-for-sale financial assets that are equity securities, the reversal is recognised directly in equity. A reversal of an impairment loss shall not result in the asset’s carrying amount exceeding that which would have been determined had no impairment loss been recognised in prior years.

(ii) Non financial assets

Internal and external sources of information are reviewed at each reporting date to determine whether there is any indicator of impairment for the following assets or, an impairment loss previously recognised no longer exists or may have decreased:

• property, plant and equipment;

• construction in progress;

• intangible assets;

• lease prepayments;

• investment properties;

• other investments; and

• goodwill.

If any such indication exists then the asset’s recoverable amount is estimated.

An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. A cash-generating unit is the smallest identifiable asset group that generates cash flows that largely are independent from other assets and groups.

Impairment loss are recognised in profit or loss. Impairment loss recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the cash-generating unit (or group of units) and then, to reduce the carrying amount of other assets in the unit (or group of units) on a pro rata basis, except that the carrying value of an asset will not be reduced below its individual fair value less costs to sell, or value in use, if determinable.

The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. 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.

20

2 Summary of significant accounting policies (continued)

(n) Impairment (continued)

(ii) Non financial assets (continued)

An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment loss recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss has been recognised. Reversals of impairment loss are credited to the profit or loss in the year in which the reversals are recognised.

(o) Dividends

Dividends are recognised as a liability in the period which they are declared.

(p) Interest-bearing borrowings

Interest-bearing borrowings are recognised initially at fair value less attributable transaction costs. Subsequent to initial recognition, interest-bearing borrowings are stated at amortised cost with any difference between cost and redemption value being recognised in profit or loss over the period of the borrowings on an effective interest basis.

(q) Employees benefits

Obligations for contributions to defined contribution retirement schemes are recognised as an expense in profit or loss as incurred.

The Group’s net obligation in respect of lump sum long service amounts payable on cessation of employment in certain circumstances under the relevant statutory requirement is the amount of future benefit that employees have earned in return for their service in the current and prior periods. The obligation is calculated using the projected unit credit method, discounted to its present value and reduced by the fair value of any related assets. The discount rate is the yield at the reporting date on high quality fixed interest corporate bonds or government bonds that have maturity dates approximating the terms of the Group’s obligations.

(r) Provisions and contingent liabilities

A provision is recognised if, as a result of a past event, the Group has a present legal or constructive obligation that can be estimated reliably, and, it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and risks specific to the liability.

Where it is not probable that an outflow of economic benefits will be required, or the amount cannot be estimated reliably, the obligation is disclosed as a contingent liability, unless the probability of outflow of economic benefits is remote. Possible obligations, whose existence will only be confirmed by the occurrence or non-occurrence of one or more future events are also disclosed as contingent liabilities unless the probability of outflow of economic benefits is remote.

21

2 Summary of significant accounting policies (continued)

(s) Trade and other payables

Trade and other payables are initially recognised at fair value and thereafter stated at amortised cost unless the effect of discounting would be immaterial, in which case they are stated at cost.

(t) Revenue recognition

(i)

• Goods sold and services rendered

Revenue from the sale of goods is measured at the fair value of the consideration received or receivable, net of returns and allowances, trade discounts and volume rebates. Revenue is recognised when the significant risks and rewards of ownership have been transferred to the buyer, recovery of the consideration is probable, the associated costs and possible return of goods can be estimated reliably, and there is no continuing management involvement with the goods.

(ii) Rental income

Rental income from investment properties is recognised in profit or loss on a straight-line basis over the term of the lease. Lease incentives granted are recognised as an integral part of the total rental income, over the term of the lease.

• (iii) Government grant

An unconditional government grant is recognised in profit or loss when the grant becomes receivable.

Other government grants are recognised initially as deferred income when there is reasonable assurance that they will be received and that the Group will comply with the conditions associated with the grant. Grants that compensate the Group for expenses incurred are recognised in profit or loss on a systematic basis in the same periods in which the expenses are incurred. Grants that compensate the Group for the cost of an asset are recognised in profit or loss on a systematic basis over the useful life of the asset.

(iv) Dividend income

Dividend income from other investments is recognised on the date that the Group’s right to receive the payment is established.

(v) Interest income

Interest income is recognised as it accrues using the effective interest method.

(u) Expenses

(i) Operating lease payments

Payments made under operating leases are recognised in profit or loss on a straight-line basis over the term of the lease. Lease incentives received are recognised in profit or loss as an integral part of the total lease expense.

22

2 Summary of significant accounting policies (continued)

(u) Expenses (continued)

(ii) Net financing costs

Net financing costs comprise interest expenses on borrowings, interest receivable on bank deposits, dividend income, foreign currency gains and losses, and gains and losses on derivative financial instruments that are recognised in profit or loss. All borrowing costs are recognised in profit or loss using the effective interest rate method.

Interest income is recognised as it accrues, using the effective interest method. Dividend income is recognised on the date the Group’s right to receive payments is established, which in the case of quoted securities is usually the ex-dividend date.

(v) Income tax expense

Income tax expense comprises current and deferred tax. Income tax expense is recognised in profit or loss except to the extent that it relates to items recognised directly to equity, in which case it is recognised in equity.

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

Deferred tax is recognised using the balance sheet method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for the following temporary differences: the initial recognition of goodwill, the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit, and differences relating to investments in subsidiaries and jointly controlled entities to the extent that they probably will not reverse in the foreseeable future. Deferred tax is measured at the tax rate that is expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantially enacted by the reporting date.

A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the temporary difference can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised.

(w) Borrowing costs

Borrowing costs are expensed in profit or loss in the period in which they are incurred, except to the extent that they are capitalised as being directly attributable to the acquisition, construction or production of an asset which necessarily takes a substantial period of time to get ready for its intended use.

The capitalisation of borrowing costs as part of the cost of a qualifying asset commences when expenditure for the asset is being incurred, borrowing costs are being incurred and activities that are necessary to prepare the asset for its intended use or sale are in progress. Capitalisation of borrowing costs is suspended or ceases when substantially all the activities necessary to prepare the qualifying asset for its intended use or sale are interrupted or complete.

23

2 Summary of significant accounting policies (continued)

(x) Segment reporting

A segment is a distinguishable component of the Group that is engaged either in providing products or services (business segment), or in providing products or services within a particular economic environment (geographical segment), which is subject to risks and rewards that are different from those of other segments.

In accordance with the Group’s internal financial reporting system, the Group has chosen business segment information as the primary reporting format and geographical segment information as the secondary reporting format for the purposes of these financial statements.

Segment revenue, expenses, results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis to that segment. For example, segment assets may include inventories, trade receivables and property, plant and equipment. Segment revenue, expenses, assets and liabilities are determined before intra-group balances and intra-group transactions are eliminated as part of the consolidation process, except to the extent that such intra-group balances and transactions are between group entities within a single segment. Inter-segment pricing is based on similar terms as those available to other external parties.

Segment capital expenditure is the total cost incurred during the period to acquire segment assets (both tangible and intangible) that are expected to be used for more than one period.

Unallocated items mainly comprise financial and corporate assets, interest-bearing loans, borrowings, tax balances, corporate and financing expenses.

(y) Related parties

For the purposes of these financial statements, parties are considered to be related to the Group if the Group has the ability, directly or indirectly, to control the party or exercise significant influence over the party in making financial and operating decisions, or vice versa, or where the Group and the party are subject to common control or common significant influence. Related parties may be individuals (being members of key management personnel, significant shareholders and/ or their close family members) or other entities and include entities which are under the significant influence of related parties of the Group where those parties are individuals, and post-employment benefit plans which are for the benefit of employees of the Group or of any entity that is a related party of the Group.

(z) Non-current assets held for sale and discontinued operations

Non-current assets (or disposal groups comprising assets and liabilities) that are expected to be recovered primarily through sale rather than through continuing use are classified as held for sale. Immediately before classification as held for sale, the assets (or components of a disposal group) are re-measured in accordance with the Group’s accounting policies. Thereafter generally the assets (or disposal group) are measured at the lower of their carrying amount and fair value less costs to sell. Any impairment loss on a disposal group first is allocated to goodwill, and then to remaining assets and liabilities on pro-rata basis, except that no loss is allocated to inventories, financial assets, deferred tax assets, employee benefit assets and investment properties, which continue to be measured in accordance with the Group’s accounting policies. Impairment loss on initial classification as held for sale and subsequent gains or losses on re-measurement are recognised in profit or loss. Gains are not recognised in excess of any cumulative impairment loss.

24

2 Summary of significant accounting policies (continued)

• (z) Non-current assets held for sale and discontinued operations (continued)

A discontinued operation is a component of the Group’s business that represents a separate major line of business or geographical area of operations that has been disposed of or is held for sale, or is a subsidiary acquired exclusively with a view to resale. Classification as a discontinued operation occurs upon disposal or when the operation meets the criteria to be classified as held for sale, if earlier. When an operation is classified as discontinued operation, the comparative income statement is restated as if the operation had been discontinued from the start of the comparative period.

3 Turnover

Turnover represents the aggregate of the invoiced value of goods sold and services rendered, after allowances for goods returned and deduction of any trade discounts, and excludes value added tax or other sales taxes.

4 Segment reporting

Segment information is presented in respect of the Group’s business and geographical segments. The primary format, business segments, is based on the Group’s management and internal reporting structure.

Inter-segment pricing is determined on an arm’s length basis.

Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items comprise mainly income-earning assets and revenue, interest-bearing loans, borrowings and related expenses, and corporate assets, expenses, income tax assets and liabilities.

Segment capital expenditure is the total cost incurred during the period to acquire property, plant and equipment, and intangible assets other than goodwill.

(a) Business segments

The Group comprises the following main business segments:

• Thin Film Transistor-Liquid Crystal Display (“TFT-LCD”) business;

• Application Special Device (“ASD”) business, which include Super Twisted Nematic-Liquid Crystal Display (“STN-CTSN”) business and non STN-CTSN business;

• Cathode Radial Tube-Liquid Crystal Display (“CRT-LCD”) business; and

• Others include Precision Electronic Components and materials and other business lines.

25

4 Segment reporting (continued)

• (b) Geographical segments

The Group’s two major business segments are managed on a worldwide basis, but operate in four principal geographical areas.

PRC is the home country of the Group which is also the main operating country. The areas of operation cover all the two activities.

Other Asia region mainly covers the production and sales activity of TFT-LCD and STN-CTSN.

European region mainly covers the sales activity of STN-CTSN while American region mainly covers the sales activity of TFT-LCD and STN-CTSN.

In presenting information on the basis of geographical segments, segment revenue is based on the geographical location of customers. Segment assets are based on the geographical location of the assets.

26

4. Segment reporting (continued)

Business segments

TFT-LCD Years ended 31 December In thousands of Renminbi 2006 2005 Sales to external customers 7,386,682 7,364,962 Inter-segment sales 914,014 585,390 Total 8,300,696 7,950,352 (Loss) / profit from operations (2,445,664) (1,687,673) Net finance costs Share of profits from associates and a jointly controlled entity Income tax expenses Loss from discontinued operation, net of income tax (Loss) / profit for the year		ASD Years ended 31 December 2006 2005 651,118 682,158 6,622 - 657,740 682,158 22,665 47,717		CRT-LCD Years ended 31 December 2006 2005 - 4,612,913 - - - 4,612,913 - 133,101	Less Others Years ended 31 December 2006 2005 732,166 789,680 536,618 293,566 1,268,784 1,083,246 14,828 461,399	Less Elimination Years ended 31 December 2006 2005 - - (1,457,254) (878,956) (1,457,254) (878,956) (72,793) (30,276)		Consolidated Years ended 31 December 2006 2005 8,769,966 13,449,713 - - 8,769,966 13,449,713 (2,480,964) (1,075,732) (648,125) (467,348) 391,298 296,469 (13,334) (41,729) (456,595) (767,260) (3,207,720) (2,055,600)	TFT-LCD (Discontinued) (note 5) Years ended 31 December 2006 2005 2,651,650 6,326,681 - - 2,651,650 6,326,681 (1,294,284) (902,578) (126,759) (114,892) - - 271 (689) - - (1,420,772) (1,018,159)		CRT-LCD (Discontinued) (note 5) Years ended 31 December 2006 2005 - 4,612,913 - - - 4,612,913 - 133,101 - (3,991) - - - (11,965) - - - 117,145	Total Years ended 31 December 2006 2005 (Restated) 6,118,316 2,510,119 - - 6,118,316 2,510,119 (1,186,680) (306,255) (521,366) (348,465) 391,298 296,469 (13,605) (29,075) (456,595) (767,260) (1,786,948) (1,154,586)
				-							-
				-							- - - - -
											-

27

4 Segment reporting (continued)

Business segments

In thousands of Renminbi Segment assets Investment in associates Segment liabilities Total liabilities Capital expenditures Impairment loss / (reversal) Depreciation Amortisation	TFT	-LCD rs ended December 2005 17,567,757 - 17,567,757 12,929,272 12,929,272 3,033,118 407 1,074,989 22,719		A	SD rs ended December 2005 1,008,218 - 1,008,218 737,636 737,636 47,677 (60) 52,342 2,150	CRT-	LCD ended cember 2005 - - - - - 56,206 - 36,622 2,636	Ot	hers rs ended December 2005 5,635,730 2,820,463 8,456,193 4,701,676 4,701,676 165,740 37,893 65,642 8,089	Elimin	ation rs ended December 2005 (5,507,402) - (5,507,402) (1,045,315) (1,045,315) - - - -	Consolidated Years ended 31 December 2006 2005 13,618,136 18,704,303 3,075,083 2,820,463 16,693,219 21,524,766 12,046,994 17,323,269 12,046,994 17,323,269 470,170 3,302,741 208,607 38,240 1,570,252 1,229,595 63,098 35,594	L TFT	ess -LCD rs ended December 2005 - - - - - 3,033,118 407 1,074,989 22,719		L CRT	ess -LCD rs ended December 2005 - - - - - 56,206 - 36,622 2,636	T	otal
	Yea 31 2006 10,305,809 - 10,305,809 7,676,237 7,676,237 301,140 179,462 1,466,686 49,963			Yea 31 2006 843,388 - 843,388 535,815 535,815 21,749 588 54,818 2,308		Years 31 De 2006 - - - - - - - - -		Yea 31 2006 5,637,153 3,075,083 8,712,236 4,306,483 4,306,483 147,281 28,557 48,748 10,827		Yea 31 2006 (3,168,214) - (3,168,214) (471,541) (471,541) - - - -			Yea 31 2006 - - - - - 72,945 179,462 502,910 29,034			Yea 31 2006 - - - - - - - - -		Y 31 2006 13,618,136 3,075,083 16,693,219 12,046,994 12,046,994 397,225 29,145 1,067,342 34,064	ears ended December 2005 18,704,303 2,820,463
																			21,524,766
																			17,323,269
																			17,323,269
																			213,417 37,833 117,984 10,239

28

4 Segment reporting (continued)

Geographical segments

In thousands of Renminbi PRC Other Asian region European region American region Other countries	Sales to external customers Years ended 31 December 2006 2005 (Restated) 3,567,312 6,514,081 4,439,485 5,045,182 470,232 414,566 224,345 1,309,074 68,592 166,810 8,769,966 13,449,713	Segment assets At 31 December 2006 2005 16,690,299 15,157,714 2,852 6,275,669 68 - - 91,383 - - 16,693,219 21,524,766	Capital expenditures Years ended 31 December 2006 2005 (Restated) 396,985 3,078,034 73,185 224,683 - - - 24 - - 470,170 3,302,741

5 Discontinued operations

BOE-Hydis Technology Co., Ltd. (“BOE-Hydis”), a wholly owned subsidiary of the Company with production in Korea, has commenced the corporate rehabilitation procedure under the order by the Seoul Central District Court on 29 September 2006 as this subsidiary has been experiencing severe losses due to intense competition in the market, and the Group ceased the control on BOE-Hydis on the same date. As at 31 December 2006, BOE-Hydis held certain shareholdings in two of the subsidiaries of the Company and the corresponding amount of the equity attributable to these shareholdings were treated as minority interest. BOE-Hydis mainly engages in TFT-LCD business of the Group. As at 31 December 2006, the Group had no production plant in Korea.

On 30 November 2005, the Company sold all its equity interest in Beijing Orient Top Victory Electronics Co., Ltd. (“OTPV”) to TPV Technology Limited (“TPV”), an associate of the Group. In connection with this transaction, TPV issued 68,326,000 new shares to acquire the Group’s entire interest in OTPV, formerly a 45.21% owned consolidated subsidiary of the Company. The total consideration received, which was based on the market value of the shares received on completion date at HK$6.55 per share, amounted to approximately HK$447,538,000 (equivalent to RMB466,440,000) and the Company recognised a gain of approximately RMB133,753,000, after netting of related expenses, on disposal of OTPV in 2005. Accordingly, the acquisition of the additional equity interest in TPV does not have any cash flow impact, apart from the net cash disposed of as disclosed below. OTPV mainly covers the CRT-LCD business of the Group.

Profits attributable to the discontinued operation were as follows:

In thousands of Renminbi

Results of discontinued operation – BOE-Hydis

Revenue Expenses Loss from operating activities Income tax expense Loss from operating activities, net of income tax Gain on sale of discontinued operation, net of income tax Loss for the year	2006 2,651,650 (4,072,692) (1,421,042) 271 (1,420,771) 964,176 (456,595)	2005 6,326,681 (7,344,151) (1,017,470) (689) (1,018,159) - (1,018,159)

29

30

5 Discontinued operations (continued)

Results of discontinued operation - OTPV

Revenue Expenses Profit from operating activities Income tax expense Profit from operating activities, net of income tax Gain on sale of discontinued operation, net of income tax Profit for the year Cash flow from discontinued operation – BOE-Hydis 2006 Net cash inflow / (outflow) from operating activities 28,562 Net cash inflow / (outflow) from investing activities 437,619 Net cash (outflow) / inflow from financing activities (405,644) Net cash used in discontinued operation 60,537 Cash flow from discontinued operation – OTPV Net cash outflow from operating activities Net cash outflow from investing activities Net cash inflow from financing activities Net cash used in discontinued operation Effect of the disposal on the financial position of the Group: 2006 (BOE-Hydis) Property, plant and equipment 2,382,343 Intangible assets 256,602 Construction in progress 25,244 Deferred tax assets 1,940 Inventories 348,066 Trade and other receivables 310,230 Other non-current assets 662,164 Cash and cash equivalents 240,533 Loans and borrowings (3,618,708) Provision (14,292) Trade and other payables (681,654) Deferred tax liabilities (588) Net identified assets and liabilities (88,120) Consideration received, satisfied in cash - Cash disposed of (240,533) Net cash outflow (240,533)

2005 4,612,913 (4,483,803) 129,110 (11,965) 117,145 133,754 250,899 2005 (1,061,778) (392,490) 1,276,211 (178,057) 2005 (190,614) (13,309) 57,250 (146,673) 2005 (OTPV) 243,779 219 10,981 11,432 452,214 1,726,068 24,586 53,609 (327,125) - (1,477,318) - 718,445 - (53,609) (53,609)

31

6 Other operating income, net

In thousands of Renminbi (Loss) / gain on disposals of property, plant and equipment Gain on disposals of unquoted equity securities Government grants income Penalty and compensation income Profits from sales of raw materials Rental income (Recognition) / reversal on impairment loss on property, plant and equipment Impairment loss on construction in progress (note 12) Impairment loss on held-to-maturity securities Others	2006 (1,374) - 147,782 1,127 10,667 1,009 (588) (1,699) - (17,979) 138,945	2005 (Restated) 5,943 3,520 92,043 3,075 143 2,771 452 (19,932) (17,961) 28,844 98,898

7 Loss for the year

Loss for the year is arrived at after charging / (crediting) In thousands of Renminbi (a) Net financing costs: Interest and other borrowing costs Less: amount capitalised as construction in progress Other net financial expenses Finance expense Interest income Net foreign exchange gain Finance income Net finance expense Average rate of capitalisation of borrowing costs (% per annum)	2006 (647,351) 1,078 (8,651) (654,924) ------------------ 20,421 113,137 133,558 ------------------ (521,366) 5%	2005 (Restated) (606,068) 132,844 (16,034) (489,258) ------------------ 49,960 90,833 140,793 ------------------ (348,465) 5%

32

7 Loss for the year (continued)

In thousands of Renminbi (b) Other items, including discontinued operation: Personnel expenses - Salaries and wages - Staff welfare and other costs - Contributions to retirement benefit schemes Total personnel costs Depreciation and amortisation Operating lease Impairment loss on bad and doubtful debt Provision for inventories Cost of inventories	2006 361,924 61,231 24,735 447,890 ------------------ 1,633,350 8,036 30,085 360,054 10,089,710	2005 705,876 121,744 64,968 892,588 ------------------ 1,265,189 15,884 5,623 85,411 9,000,718

8 Income tax expense

(a) Income tax expense in the income statement comprises:

In thousands of Renminbi Current tax expense PRC tax Overseas tax Deferred tax expense Originating and reversal of temporary differences (note 18) Income tax expense excluding tax on sale of discontinued operation and share of income tax of associates Income tax expense from continuing operations Income tax expense from discontinued operation (excluding gain on sale)	2006 15,395 (257) 15,138 (1,804) 13,334 13,605 (271) 13,334	2005 (Restated) 41,040 186 41,226 503 41,729 29,075 12,654 41,729

The Company is subject to a preferential income tax rate of 15% as an enterprise with new technology in Beijing New Technology Development Zone. As approved by the tax bureau, certain subsidiaries of the Group located in the PRC are also subject to the preferential income tax rates ranging from 0% to 15%. Other subsidiaries of the Group located in the PRC are subject to an income tax rate of 33%.

BOE-Hydis entitled the full exemption of income tax from 2003 to 2009, followed by a 50 per cent reduction of enterprise income tax for the next 3 years.

33

8 Income tax expenses (continued)

(a) Income tax expense in the income statement comprises: (continued)

The reconciliation of income tax calculated at the applicable tax rate with actual expense for the year is as follows:

In thousands of Renminbi Loss for continued operation before tax Loss for discontinued operation before tax Loss before tax Expected PRC income tax benefit expense at 15% Effect on different tax rate available to different subsidiaries Non-deductible expenses Tax exempt income Income tax effect of tax exemption Tax effect of unused tax losses not recognised Tax effect of unrecognised prior year tax losses utilised (b) Current taxation in the balance sheet represents: In thousands of Renminbi Brought forward balance Provision for the year Disposal of a subsidiary Provisional profits tax paid	2006 1,316,748 1,421,042 2,737,790 (410,668) 8,693 55,159 (123,987) (82) 484,219 - 13,334 2006 23,211 13,334 - (14,778) 21,767	2005 (Restated) 358,251 888,360 1,246,611 (186,992) (84,695) 23,660 (17,376) (15,422) 323,253 (699) 41,729 2005 7,172 41,729 (4,128) (21,562) 23,211

34

9 Basic and diluted loss per share

The calculations of basic and diluted loss per share for the year were based on the loss attributable to equity shareholders of the Company of RMB1,770,800,000 (2005: RMB1,245,993,000) and the weighted average number of shares during the year 2,420,987,000 shares (2005: 2,195,696,000 shares):

• (a) Loss attributable to equity shareholders of the Company

2006 Continuing Discontinued In thousands of Renminbi operations operation Total (Restated) Loss attributable to equity shareholders of the Company (1,314,205) (456,595) (1,770,800) Weighted average number of ordinary shares In thousands Issued ordinary shares at 1 January Effects of shares issued in 2006 Effects of capitalisation of share premium in 2005 Weighted average number of ordinary shares at 31 December		2005 Continuing Discontinued operations operation (Restated) (478,733) (767,260) 2006 2,195,696 225,291 - 2,420,987	2005 Continuing Discontinued operations operation (Restated) (478,733) (767,260) 2006 2,195,696 225,291 - 2,420,987	Total (1,245,993)
				2005 1,463,797 - 731,899
				2,195,696

• (b) Weighted average number of ordinary shares

• (c) Basic loss per share for continuing and discontinued operations

For the year ended 31 December 2006, loss per share for continuing operations had been calculated by using the loss relating to continuing operations attributable to equity shareholders of RMB1,314,205,000 (2005:RMB478,733,000).

10 Dividends

• (a) Dividends payable to equity shareholders of the Company attributable to the year

In thousands of Renminbi	2006	2005
Final dividend proposed after the balance sheet date of
RMB Nil cents per every 10 shares
(2005: RMB Nil per every 10 shares)	-	-

The Company did not declare any dividend for year ended 31 December 2006 and 2005.

• (b) Dividends payable to equity shareholders of the Company attributable to the previous financial year, approved and paid during the year

In thousands of Renminbi	2006	2005
Final dividends in respect of the previous financial year,
approved and paid during the year, of RMB Nil per
every 10 shares (2005: RMB0.2 per every 10 shares)	-	29,276

35

11 Property, plant and equipment

In thousands of Renminbi Cost: Balance at 1 January 2005 Effect of movements in exchange rates Additions Transfer from construction in progress (note 12) Disposal of a subsidiary (note 5) Disposals Balance at 31 December 2005 Balance at 1 January 2006 Effect of movements in exchange rates Additions Transfer from construction in progress (note 12) Disposal of a subsidiary Disposals Transfer to investment properties Disposal of BOE-Hydis (note 5) Balance at 31 December 2006 Depreciation and impairment loss: Balance at 1 January 2005 Effect of movements in exchange rates Depreciation for the year (Reversal) / recognition of impairment loss Disposal of a subsidiary (note 5) Written back on disposal Balance at 31 December 2005 Balance at 1 January 2006 Effect of movements in exchange rates Depreciation for the year Recognition of impairment loss Disposal of a subsidiary Written back on disposal Transfer to investment properties Disposal of BOE-Hydis (note 5) Balance at 31 December 2006 Carrying amounts: At 1 January 2005 At 31 December 2005 At 1 January 2006 At 31 December 2006	Buildings 2,386,145 (4,925) 82,990 313,477 (169,427) (21,934) 2,586,326 ------------- 2,586,326 64,574 3,618 98,230 (693) (19,181) (98,620) (1,294,453) 1,339,801 ------------- 215,311 (927) 136,874 (139) (26,327) (2,350) 322,442 ------------- 322,442 12,285 103,920 75,429 (120) (17,457) (20,272) (306,314) 169,913 ------------- 2,170,834 2,263,884 2,263,884 1,169,888	Plant and equipment 4,128,499 (12,402) 100,900 7,369,063 (228,052) (24,926) 11,333,082 ---------------- 11,333,082 173,937 69,635 456,870 (2,532) (15,466) - (3,473,102) 8,542,424 ---------------- 1,345,981 (4,546) 1,083,744 79 (128,339) (14,681) 2,282,238 ---------------- 2,282,238 83,614 1,447,526 104,588 (1,064) (9,457) - (2,079,511) 1,827,934 ---------------- 2,782,518 9,050,844 9,050,844 6,714,490	Motor vehicles 29,643 - 3,496 - (4,127) (1,225) 27,787 ------------- 27,787 - 2,609 - (574) (1,274) - (1,844) 26,704 ------------- 12,495 - 3,551 - (3,161) (642) 12,243 ------------- 12,243 - 3,422 33 (285) (669) - (1,231) 13,513 ------------- 17,148 15,544 15,544 13,191	Total 6,544,287 (17,327) 187,386 7,682,540 (401,606) (48,085) 13,947,195 ------------- 13,947,195 238,511 75,862 555,100 (3,799) (35,921) (98,620) (4,769,399) 9,908,929 ------------- 1,573,787 (5,473) 1,224,169 (60) (157,827) (17,673) 2,616,923 ------------- 2,616,923 95,899 1,554,868 180,050 (1,469) (27,583) (20,272) (2,387,056) 2,011,360 ------------- 4,970,500 11,330,272 11,330,272 7,897,569

36

11 Property, plant and equipment (continued)

• (a) At 31 December 2006, the Group pledged certain property, plant and equipment with a carrying amount of approximately RMB7,229,308,000 (2005: RMB9,933,625,000) (note 24(a)).

• (b) At 31 December 2006, the Group was in the process of applying the title certificates of certain of its buildings and land use rights with an aggregate carrying value of approximately RMB34,283,000 (2005: RMB38,582,000).

• (c) The Group assessed the recoverable amount of a number of specialised assets during the year. Based on the assessments, the Group has recognized impairment loss of approximately RMB180,050,000 for property, plant and equipment that were idle over a long period of time, partly damaged and obsolete due to technology advancement.

• (d) At 31 December 2006, the Group leased property, plant and equipment with net carrying amount of RMB10,059,000 (2005: RMB10,333,000) under finance lease agreements.

12 Construction in progress

In thousands of Renminbi Balance at 1 January Additions Transfer to property, plant and equipment (note 11) Transfer to intangible assets (note 13) Impairment loss Disposal of a subsidiary (note 5) Disposal of BOE-Hydis (note 5) Effect of movements in exchange rates Balance at 31 December	2006 285,244 365,165 650,409 (555,100) (4,730) (1,699) - (25,244) 846 64,482	2005 5,065,349 3,052,018 8,117,367 (7,682,540) (118,787) (19,932) (10,981) - 117 285,244

37

13 Intangible assets

In thousands of Renminbi Cost: Balance at 1 January 2005 Effect of movements in exchange rates Additions Transfer from construction in progress (note 12) Disposal of a subsidiary (note 5) Disposals Balance at 31 December 2005 At 1 January 2006 Effect of movements in exchange rates Additions Transfer from construction in progress (note 12) Purchase from BOE-Hydis in previous year Disposal of BOE-Hydis (note 5) Balance at 31 December 2006 Amortisation and impairment loss: Balance at 1 January 2005 Effect of movements in exchange rates Amortisation for the year Impairment loss Disposal of a subsidiary (note 5) Written back on disposal Balance at 31 December 2005 Balance at 1 January 2006 Effect of movements in exchange rate Amortisation for the year Purchase from BOE-Hydis in Previous year Disposal of BOE-Hydis (note 5) Balance at 31 December 2006 Carrying amounts: At 1 January 2005 At 31 December 2005 At 1 January 2006 At 31 December 2006	Goodwill 43,394 - - - - - 43,394 43,394 - 4,579 - - (608) 47,365 - - - - - - - - - - - - - 43,394 43,394 43,394 47,365	Computer software 28,937 (16) 15,173 118,787 - - 162,881 162,881 2,056 2,553 4,730 - (42,791) 129,429 6,806 (80) 13,239 - - - 19,965 19,965 606 17,916 - (17,359) 21,128 22,131 142,916 142,916 108,301	Technology rights 270,601 (331) 48,164 - (29,150) - 289,284 289,284 3,397 26,530 - 608,666 (272,748) 655,129 54,478 (561) 13,619 - (28,931) - 38,605 38,605 734 38,866 43,340 (50,645) 70,900 216,123 250,679 250,679 584,229	Patent 26,541 (59) - - - (50) 26,432 26,432 836 60 - - (25,578) 1,750 7,400 (22) 5,802 407 - (16) 13,571 13,571 596 4,192 - (17,119) 1,240 19,141 12,861 12,861 510	Total 369,473 (406) 63,337 118,787 (29,150) (50) 521,991 521,991 6,289 33,722 4,730 608,666 (341,725) 833,673 68,684 (663) 32,660 407 (28,931) (16) 72,141 72,141 1,936 60,974 43,340 (85,123) 93,268 300,789 449,850 449,850 740,405

38

13 Intangible assets (continued)

• (a) Adoption of IFRS 3 “Business Combinations”

With effect from 1 January 2005 the Group no longer amortises goodwill. In accordance with the transitional provisions set out in IFRS 3, the accumulated amortisation of goodwill as at 1 January 2005 has been eliminated against the cost of goodwill as at that date.

• (b) Impairment tests for cash-generating units (“CGUs”) containing goodwill

For the purpose of impairment testing, goodwill is allocated to the Group’s operating divisions which represent the lowest level within the Group at which the goodwill is monitored for internal management purposes.

Goodwill is allocated to the Group’s CGU identified according to country of operation and business segment as follows:

In thousands of Renminbi Property management activities based in Beijing (Beijing Orient Heng Tong Property Centre) Others	2006 42,632 4,733 47,365	2005 42,632 762 43,394

The recoverable amounts of CGUs were estimated based on value-in-use calculations as derived from financial budgets approved by management covering a five-year period. Cash flows beyond the five-year period were extrapolated using the estimate rates stated below. The growth rate does not exceed the long-term average growth rate for the business in which the CGUs operates.

Value-in-use was determined by discounting the future cash flows generated from the continuing use of the unit and was based on the following key assumptions:

	2006	2005
	%	%
Gross margin	13.7	13.7
Growth rate	10	10
Discount rate	8.2	8.2

Management determined the budgeted gross margin based on past performance and its expectation for market development. The weighted average growth rates used are consistent with the forecasts included in industry reports. The discount rates used are pre-tax and reflect specific risks relating to the property management industry, in which Beijing Orient Heng Tong Property Centre, a subsidiary of the Group, is mainly engaging.

Based on the assessment, the carrying amount of the unit was approximately equal to its recoverable amount. Any adverse change in the assumptions used in the calculation of recoverable amount would cause the carrying value to be less than the recoverable amount (see note 36). For details on Beijing Orient Heng Tong Property Centre, please see note 33.

• (c) At 31 December 2006, the Group pledged intangible assets with a carrying amount of RMB Nil (2005: RMB734,000) as collateral for the Group’s bank loans (note 24(a)).

39

13 Intangible assets (continued)

• (d) In previous year, the Group purchased certain technology rights from BOE-Hydis and these technology rights were eliminated with the gain recorded in the financial statements of BOE-Hydis during the consolidation. At 31 December 2006, the Group ceased the control in BOE-Hydis and the financial statements of BOE-Hydis have not been included in the Group’s consolidated financial statements. The purchase of these technology rights from BOE-Hydis was treated as a transaction with third party, no elimination was made.

14 Lease prepayments

Lease prepayments represent the land use rights on land located in the PRC. The remaining periods of the land use rights of the Group range from 31 to 42 years.

At 31 December 2006, the Group did not pledge its land use rights as collateral for the Group’s bank loans.

15 Investment properties

In thousands of Renminbi Cost: Balance at 1 January Transfer from property, plant and equipment Balance as at 31 December Accumulated depreciation: Balance at 1 January Transfer from property, plant and equipment Charge for the year Balance as at 31 December Carrying amount: At 1 January At 31 December	2006 132,098 98,620 230,718 ------------------ 18,977 20,272 15,384 54,633 ------------------ 113,121 176,085	2005 132,098 - 132,098 ------------------ 13,551 - 5,426 18,977 ------------------ 118,547 113,121

Investment properties are not measured at fair value as the determination of its fair value cannot be made with sufficient reliability on a continuing basis as comparable market transactions are infrequent and alternative reliable estimates of fair value are not available.

Investment properties comprise of a number of commercial properties that are leased to external parties. The leases typically run for an initial period from one year to ten years. Subsequent renewals are negotiated with the leasee. Property interests held under operating leases are classified as investment properties. No contingent rents are charged.

At 31 December 2006, the Group pledged investment properties with a carrying amount of RMB Nil (2005: RMB129,028,000) (note 24(a)).

Please see note 30(b) for details on investment properties leased out under operating leases.

40

16 Investments in associates and a jointly controlled entity

The Group’s share of profits from associates and a jointly controlled entity for the year was RMB391,298,000 (2005: RMB296,469,000). The share of associates’ and a jointly controlled entity’s taxation for the year was RMB40,398,000 (2005: RMB9,506,000). Except for the Group’s interest in TPV, a listed company in Hong Kong, and Beijing Matsushita Color CRT Company Limited (“BMCC”), the Group’s interest in other associates are individually and in aggregate not material to the Group’s financial conditions or results of operations for the year.

Summary of financial information for TPV and BMCC, not adjusted for the percentage ownership held by the Group are set out as below:

In thousands of Renminbi

Ownership Assets 2006 TPV 22% 23,901,306 BMCC 30% 3,342,909 27,244,215 2005 TPV 24% 24,648,198 BMCC 30% 3,636,598 28,284,796 In thousands of Renminbi Fair values of investments in TPV	Liabilities 15,222,928 961,587 16,184,515 17,662,916 1,187,967 18,850,883	Equity Revenue Profit 8,678,378 56,037,527 1,205,343 2,381,322 3,203,580 95,636 11,059,700 59,241,107 1,300,979 6,985,282 41,406,910 1,225,519 2,448,631 3,444,357 113,397 9,433,913 44,851,267 1,338,916 At 31 December 2006 2005 2,091,259 3,203,919

Details of the Group’s principal associates and jointly controlled entity are set out in note 33.

17 Other investment

In thousands of Renminbi Non-current investments Held-to-maturity debt securities Unquoted equity securities	2006 - 17,368 17,368	2005 170 10,491 10,661

Unquoted equity securities comprise primarily investments in unconsolidated subsidiaries and other unquoted equity investments. Particulars of unconsolidated subsidiaries are set out in note 33.

41

18 Deferred tax assets and liabilities

(a) Deferred tax assets and liabilities are attributable to the following:

In thousands of Renminbi Depreciation of property, plant and equipment Unrealised foreign exchange gain Impairment loss on assets Others Total assets / (liabilities)	Assets 2006 2005 846 - - - 980 1,629 6 311 1,832 1,940	Liabilities 2006 2005 - - - (588) - - (28) - (28) (588)	Net 2006 2005 846 - - (588) 980 1,629 (22) 311 1,804 1,352

42

18 Deferred tax assets and liabilities (continued)

(b) Movements in temporary differences during the year

Depreciation of property, plant and In thousands of Renminbi equipment Balance 1 January 2005 - Exchange differences - Disposal of a subsidiary - Recognised in income statement - Balance at 31 December 2005 and 1 January 2006 - Disposal of a BOE-Hydis - Recognized in income statement 846 Balance at 31 December 2006 846	Impairment loss on assets 3,245 3 (1,619) - 1,629 (1,629) 980 980	Amortisation Royalty of intangible fee accrued assets 4,042 5,771 - - (4,042) (5,771) - - - - - - - - - -	Unrealised foreign exchange gain (213) 28 - (403) (588) 588 - -	Others 360 51 - (100) 311 (311) (22) (22)	Total 13,205 82 (11,432) (503) 1,352 (1,352) 1,804 1,804

43

19 Inventories

In thousands of Renminbi Raw materials Work in progress Finished goods Low-valued consumables and packing materials	2006 485,536 154,405 599,549 26,554 1,266,044	2005 673,543 281,143 940,658 24,557 1,919,901

At 31 December 2006, approximately RMB149,341,000 (2005: RMB213,408,000) of stock provision were made in the consolidated financial statements to state the inventories at the lower of cost and net realisable value.

At 31 December 2006, the Group pledged inventories with a carrying amount of RMB Nil (2005: RMB594,041,000) as collateral for the syndicated loan (note 24(a)).

20 Trade receivables

In thousands of Renminbi Accounts receivable Bills receivable	2006 1,160,874 14,068 1,174,942	2005 1,775,056 101,238 1,876,294

Credit of up to 90 days is granted to customers with established trading history, otherwise sales on cash terms are required.

At 31 December 2006, the Group pledged trade receivables with a carrying amount of approximately RMB102,412,000 (2005: RMB1,149,045,000) as collateral for the Group’s bank loans (note 24(a)).

Included in trade receivables and bills receivables are the following amount denominated in a currency other than the functional currency of the entity to which they relate:

In thousands	2006	2005
United States dollars	USD 94,181	USD 55,558
Korean Won	KRW 97,450	-
Singapore Dollars	SGD 10	-

44

21 Deposits with banks and cash and cash equivalents

Included in deposit with banks and cash and cash equivalents are the following amounts denominated in currencies other than the functional currency of the entity to which they relate:

In thousands	2006	2005
United States Dollars	USD 43,712	USD 54,102
Hong Kong Dollars	HKD 1,609	HKD 13,720
Korean Won	KRW 3,607	KRW 63,992,986
Japanese Yen	Yen 134,649	Yen 3,380,464
Great Britain Pound	GBP 1	-
Singapore Dollars	SGD 99	-
Schweizer Franken	CHF 1	-
Euro	EUR 3	-
Taiwan Dollars	TWD 3,229	-

At 31 December 2006, the Group’s deposits with banks with maturity date over 3 months amounted to RMB43,320,000 (2005: RMB299,178,000).

At 31 December 2006, the Group pledged deposits with banks amounting to RMB Nil (2005: RMB75,300,000) as security for loans and borrowings (note 24(a)).

22 Trade payables In thousands of Renminbi Accounts payable Bills payable	2006 1,673,552 74,872 1,748,424	2005 1,679,396 90,324
		1,769,720

Included in trade payables and bills payable are the following amounts denominated in a currency other than the functional currency of the entity to which they relate:

In thousands	2006	2005
United States Dollars	USD 93,670	USD 78,145
Korean Won	KRW 52,384	-
Singapore Dollars	SGD 4	-
Japanese Yen	Yen 5,172,009	-

45

23 Provisions

In thousands of Renminbi Balance at 1 January 2005 Effect of movements in exchange rates Provisions made during the period Disposal of a subsidiary (note 5) Provisions used during the period Balance at 31 December 2005 and 1 January 2006 Effect of movements in exchange rates Provisions made during the period Disposal of BOE-Hydis (note 5) Provisions used during the period Balance at 31 December 2006	Warranties (note a) 39,693 (95) 152,835 (29,426) (118,503) 44,504 1,216 42,654 (12,367) (46,404) 29,603	Compensated absences (note b) 4,301 50 6,296 - (4,380) 6,267 299 1,907 (1,925) (6,548) -	Total 43,994 (45) 159,131 (29,426) (122,883) 50,771 1,515 44,561 (14,292) (52,952) 29,603

(a) Warranties

The provision mainly relates to the warranty on certain products and undertakes to repair or replace items that fail to perform satisfactorily. The provision is based on estimates made from historical warranty data associated with similar products and services.

A provision for warranties is recognised when the underlying products or services are sold. The provision is based on historical warranty data and a weighting of all possible outcomes against their associated probabilities.

(b) Compensated absences

The Group provides for the expected cost of compensated absences based on the expected amount to pay as a result of the unused entitlement that has accumulated at the balance sheet dates.

24 Loans and borrowings

This note provides information about the contractual terms of the Group’s loans and borrowings. For more information about the Group’s exposure to interest rate and foreign currency risk, see note 32.

46

24 Loans and borrowings (continued)

At 31 December 2006, loans and borrowings were repayable In thousands of Renminbi Within 1 year or on demand After one year but within 2 years After 2 years but within 5 years More than 5 years Representing: In thousands of Renminbi Current portion of loans and borrowings - denominated in RMB Fixed interest rate ranging from 4.05% to 7.97% per annum as at 31 December 2006 - denominated in RMB Interest free loan with maturity in 2007 - denominated in USD Fixed interest rate ranging from 5.39% to 6.46% per annum as at 31 December 2006 - denominated in Yen Fixed interest rate ranging from 1.61% to 1.70% per annum as at 31 December 2006 - denominated in KRW Fixed interest rate ranging from 5.05% to 8.09% per annum as at 31 December 2006 - discounted commercial notes Sub-total (current portion) Non-current portion of loans and borrowings - denominated in RMB Fixed interest rate ranging from 2.55% to 6.48% per annum as at 31 December 2006 with maturities through 2013 - denominated in RMB Interest free entrusted loan with maturity in 2009 - denominated in USD Fixed interest rate ranging from 5.85% to 6.48% per annum as at 31 December 2006 with maturities through 2008 - denominated in KRW Fixed interest rate ranging from 5.05% to 8.09% per annum as at 31 December 2006 with maturities through 2008 Corporate Debenture - denominated in KRW Fixed interest rates at 6.5%, 6.7% and 7.39% per annum for the corporate debenture with maturities in 2007, 2008 and 2010 respectively Sub-total (non-current portion)	as follows: 2006 4,557,204 ------------------ 2,886,143 2,200,828 1,800 5,088,771 ------------------ 9,645,975 2006 3,152,585 450,000 903,008 8,611 - 43,000 4,557,204 ------------------ 2,367,676 200,000 2,521,095 - - 5,088,771 ------------------ 9,645,975	2005 (Restated) 3,762,956 ------------------ 1,979,254 7,588,656 1,800 9,569,710 ------------------ 13,332,666 2005 2,704,704 - 483,424 363,299 168,529 43,000 3,762,956 ------------------ 3,800,636 - 3,732,448 453,151 1,583,475 9,569,710 ------------------ 13,332,666

47

24 Loans and borrowings (continued)

At 31 December 2006, loans and borrowings were secured as follows:

In thousands of Renminbi Non-current liabilities Secured bank loans Secured syndicated loans Unsecured bank loans Corporate debenture Other borrowings In thousands of Renminbi Current liabilities Secured bank loans Secured syndicated loans Unsecured loans and borrowings	2006 237,634 4,649,337 4,886,971 - - 201,800 5,088,771 2006 1,096,490 1,291,175 2,387,665 2,169,539 4,557,204	2005 964,670 6,819,413 7,784,083 200,352 1,583,475 1,800 9,569,710 2005 473,114 308,060 781,174 2,981,782 3,762,956

• (a) As at 31 December 2006, loans and borrowings of the Group totaling RMB7,274,636,000 (2005: RMB8,565,257,000) were pledged by certain assets as set out below:

In thousands of Renminbi Property, plant and equipment (note 11(a)) Investment properties (note 15) Intangible assets (note 13) Long term deposits Inventories (note 19) Deposit with banks (note 21) Trade receivables (note 20) Total	2006 7,229,308 - - - - - 102,412 7,331,720	2005 9,933,625 129,028 734 14,758 594,041 75,300 1,149,045 11,896,531

As at 31 December 2006, the Company has pledged its 15% equity interest in BOEOT to secure the bank loans.

• (b) As of 31 December 2006, RMB34,977,000 (2005: RMB38,000,000) bank loans was guaranteed by Zhejiang Huanyu Construction Company Limited .

• (c) As of 31 December 2006, RMB5,940,513,000 (2005: RMB6,037,964,000) bank loans of a subsidiary was jointly guaranteed by the Company and Beijing Electronics Holding Co., Ltd. (“BEH”), the Company’s ultimate holding company. A guarantee fee of RMB5,972,000 (2005: RMB6,125,000) was paid to BEH during the year.

48

25 Long-term notes payable

As at 31 December 2005, long-term notes payable mainly included Long-term Promissory notes issued by BOE-Hydis on 23 January 2003 when acquiring the TFT-LCD business from Hyundai Display Technology Inc. The notes were partially secured by certain property, plant and equipments of BOE-Hydis and were due on 22 January 2008.

26 Other liabilities

In thousands of Renminbi Long-term construction loan (note a) Trust capital loan (note b) Deferred income (note c) Deferred research projects income	2006 - - - 65,485 65,485	2005 300,456 410,657 88,887 56,539 856,539

(a) Long-term construction loan

In 2003, according to the Workshop Construction Consignment Agreement (the “Agreement”) and other agreements signed among the Company, BOEOT and Beijing Economic-Technological Investment & Development Corporation (“BETIDC”), BETIDC agreed to invest a total of RMB350,000,000 for the construction of the 5th Generation TFT-LCD special workshop (“5th Generation workshop”). According to the Agreement, BETIDC has the ownership of the 5th Generation workshop, BOEOT is required to acquire from BETIDC the 5th Generation workshop within five years from the date of the Agreement. In July 2004, the Company, BOEOT and BETIDC mutually agreed to cancel the Agreement. The Company has undertaken to repay the RMB350,000,000 to BETIDC before 22 October 2008 with a corporate guarantee issued by BEH. On 19 May 2006, BOID will repay this liability on behalf of the Company. In September 2006, the Company issued share capital to BOID for the settlement of this liability.

(b) Trust capital loan

According to the agreement signed between the Company and Beijing Technology Economic Development Zone Management Committee (“Beijing Technology Zone Committee”) in 2004, Beijing Technology Zone Committee provided capital of RMB450,000,000 to the Company, representing an equity interest of 10.8%, as its investment in BOEOT to encourage the establishment of the production facilities of the 5th Generation TFT-LCD products in the zone. The Company would hold interest in BOEOT on trust for Beijing Technology Zone Committee while the related benefits derived from the equity interests in BOEOT (including but not limited to the entitlement to dividends, the right to share the results of BOEOT and right to exercise the voting right) still belongs to the Company. The Company is required to purchase from Beijing Technology Zone Committee its interest in BOEOT for RMB450,000,000 within three years from the receipt of the above capital sum. If the Company fails to make such purchase within the specified period, Beijing Technology Zone Committee has the right to dispose its interest in BOEOT in the market. The trust capital loan will be matured in 2007, and it has been reclassified to current portion of loans and borrowings as at 31 December 2006.

(c) Deferred income

Deferred income represents the difference between the amount of trust capital loan and long-term construction loans and the fair values of these loans. The deferred income will be amortised and is recognised as interest income over the respective loan period.

49

27 Share capital

Issued and fully paid: State-owned legal person shares of RMB1 each At 1 January Issue of new shares (note a) Capitalisation of share premium (note b) Decrease as a result of State-owned share Reform Plan (note c) At 31 December A shares of RMB1 each At 1 January Capitalisation of share premium (note b) Increase as a result of State-owned share Reform Plan (note c) At 31 December B shares of RMB1 each At 1 January Capitalisation of share premium (note b) At 31 December	2006 Number of Share In thousands Thousands of Renminbi 817,709 817,709 675,872 675,872 - - (133,521) (133,521) 1,360,060 1,360,060 ------------- ------------- 262,437 262,437 - - 133,521 133,521 395,958 395,958 ------------- ------------- 1,115,550 1,115,550 - - 1,115,550 1,115,550 ------------- ------------- 2,871,568 2,871,568	2005 Number of Share In thousands Thousands of Renminbi 596,887 596,887 - - 298,444 298,444 (77,622) (77,622) 817,709 817,709 ------------- ------------- 123,210 123,210 61,605 61,605 77,622 77,622 262,437 262,437 ------------- ------------- 743,700 743,700 371,850 371,850 1,115,550 1,115,550 ------------- ------------- 2,195,696 2,195,696

50

27 Share capital (continued)

• (a) Pursuant to the director’s meeting and shareholders’ meeting held on 18 April 2006 and 19 May 2006 respectively, the Company issued 675,872,000 new state-owned legal person shares of RMB1 each through private placement to certain specified persons. Upon the completion of the issuance, the percentage of legal person shares out of the total issued shares increased from 37.24% to 52.01%.

• (b) Pursuant to the shareholders’ meeting held on 5 July 2005, the Company issued additional shares out of the share premium in the ratio 10:5 to all its shareholders.

• (c) In accordance with the “Approval notice related to State-owned Share Reform Plan of BOE Technology Group Company Limited” issued by Stated-owned Assets Supervision and Administration Commission of the State Council in the PRC, the Company implemented its State-owned Share Reform Plan (“Reform Plan”) on 29 November 2005. According to the Reform Plan, the four state-owned legal persons agreed to compensate the existing holders of listed BOE shares by 4.2 shares for every 10 listed shares. Holders of state-owned legal person shares transferred a total of 77,622,000 shares of the Company to those registered A Share shareholders on 29 November 2005.

All these holders of state-owned legal person shares are not permitted to sell the A shares on the public market or transfer to other entities on or before 29 November 2006 (the “Period”). Further to this limitation, BOID, the major shareholder of the Company, is permitted to sell not more than 5% of its total holdings of A shares within 12 months after the expiry of the Period and not more than 10% of its total holdings of A shares within 24 months after the expiry of the Period. In 2006, in connection with the Reform Plan, 133,521,000 shares were transferred from state-owned legal person shares to A shares.

• (d) All shares rank pari passu in all material aspects.

28 Reserves

In thousands of Renminbi Balance at January 2005 Currency translation differences – amount arising in the year Balance at 31 December 2005 and 1 January 2006 Currency translation differences – amount arising in the year Transfer for the year Balance at 31 December 2006	Capital reserve 4,970 - 4,970 - - 4,970	Statutory surplus reserve (note a) 140,088 - 140,088 - 69,334 209,422	Statutory public Discretionary Translation welfare fund surplus reserve reserve (note a) (note a) (note b) 69,334 284,701 209,074 - - (27,977) 69,334 284,701 181,097 - - (177,507) (69,334) - - - 284,701 3,590	Total 708,167 (27,977) 680,190 (177,507) - 502,683

51

28 Reserves (continued)

(a) Statutory surplus reserve

According to the Articles of Association of the Company and certain of its subsidiaries, the Company and the relevant subsidiaries are required to transfer 10% of their annual net profits after taxation, as determined in accordance with the PRC GAAP, to a statutory surplus reserve until the reserve balance reaches 50% of the registered capital. The transfer to this reserve must be made before distribution of a dividend to shareholders. Statutory surplus reserve can be used to offset prior years’ losses, if any, and may be converted into share capital by the issue of new shares to shareholders in proportion to their existing shareholding or by increasing the par value of the shares currently held by them, provided that the balance after such issue is not less than 25% of the registered capital.

In 2006, the Company and the relevant subsidiaries have transferred the statutory public welfare fund balance as at 31 December 2005 to statutory surplus reserve in accordance to the amendment of Company Law.

Statutory public welfare fund

According to the Articles and Association of the Company and certain of its subsidiaries, the Company and the relevant subsidiaries are required to transfer 5% to 10% of their annual net profits after taxation, as determined under PRC GAAP, to the statutory public welfare fund. This fund can only be utilised on capital items for the collective benefits of the Company’s and the relevant subsidiaries’ employees such as the construction of dormitories, canteen and other staff welfare facilities. This fund is non-distributable other than in liquidation. The transfer to this fund must be made before distribution of a dividend to shareholders.

In accordance to the amendment of Company Law, the Company and the relevant subsidiaries are not required to transfer their annual net profits after taxation, as determined under PRC GAAP, to the statutory public welfare fund with effective from 1 January 2006.

Discretionary surplus reserve

The appropriation to the discretionary surplus reserve is subject to the shareholders’ approval. The utilisation of the reserve is similar to that of the statutory surplus reserve.

Under the Company’s Articles of Association, the net profit after taxation as reported in the financial statements prepared in accordance with PRC GAAP can only be distributed as dividends after allowance has been made for:

• (i) making up cumulative prior years’ losses, if any;

• (ii) allocations to the statutory surplus reserve of at least 10% of after-tax profit, until the fund aggregates to 50% of the Company’s registered capital;

• (iii) allocations of 5% to 10% of after-tax profit to the Company’s statutory public welfare fund; and

• (iv) allocations to the discretionary surplus reserve, if approved by the shareholders.

• (b) The translation reserve comprises all foreign exchange differences arising from the translation of the financial statements of foreign operations.

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29 Related party transactions

The following is a summary of significant transactions carried out between the Group, its holding company, its associates and other related parties during the year.

(a) Significant transactions with related parties

Particulars of significant transactions which the Group conducted with related parties are as follows:

In thousands of Renminbi	2006	2005
Purchase of goods	1,065,452	1,836,793
Sales of goods	863,470	2,665,647
Service income	12,501	17,907
Purchase of property, plant and equipment	-	13,437
Rental income	4,441	2,576
Technology usage expenses	-	25,170
After sales service expenses	-	26,722
Management bonus (income) expense	-	(4,669)
Service fee expenses	1,040	1,638
Rental expenses	1,260	8,774
Guarantee fee paid	5,972	18,513

(b) Significant balances with related parties

Particulars of amount due from related parties are as follows:

In thousands of Renminbi	2006	2005
Accounts receivables	368,796	336,145
Bills receivables	-	43,000
Other receivables	32,259	36,141

Amounts due from these related parties are unsecured, interest free, have no fixed terms of repayment and are priced on an arm’s length basis. There was no provision made against these amounts at 31 December 2006.

Particulars of amount due to related parties are as follows:

In thousands of Renminbi	2006	2005
Trade payables	226,557	102,621
Other payables	6,526	2,668
Other non-current liabilities	464	-

Amounts due to these related parties are unsecured, interest free, have no fixed terms of repayment and are priced on an arm’s length basis.

53

29 Related party transactions (continued)

• (c) Key management personnel compensation

Key management personnel receive compensations in the form of fees, salaries, housing and other allowances, benefits in kind, discretionary bonuses and retirement scheme contribution.

Key management personnel compensation comprised:

In thousands of Renminbi	2006	2005
Short-term employee benefits	9,817	8,027

• (d) Transactions with other state-controlled entities in the PRC

The Group is a state-controlled entity and operates in an economic regime currently dominated by entities directly or indirectly controlled by PRC government through its government authorities, agencies, affiliations and other organizations (collectively referred as “state-controlled entities”). The Group conducts a majority of its business activities with state-controlled entities in the ordinary course of business. These transactions are carried out at terms similar to those that would be entered into with non-state-owned entities and have been reflected in the consolidated financial statements. The Group believes that it has provided meaningful disclosure of related party transactions as summarised above.

• (e) In the opinion of the directors, the terms of the transactions with related parties follow commercial terms in the ordinary course of business of the Group.

54

30 Commitments

• (a) Capital commitments

As at 31 December 2006, the Group had capital commitments outstanding as follows:

In thousands of Renminbi Authorised and contracted for - Property, plant and equipment In thousands of Renminbi Authorised but not contracted for - Property, plant and equipment	2006 31,523 2006 -	2005 186,035 2005 92,775

(b) Operating lease commitments

Leases as lessee

The Group has entered into a lease agreement in respect of a few pieces of land. Non-cancellable operating lease rentals are payable as follows:

In thousands of Renminbi Less than one year Between one and five years More than five years	2006 13,479 1,277 - 14,756	2005 28,403 61,442 334,851 424,696

In 2005, BOE-Hydis has entered into a lease agreement in respect of a piece of land for a period of 30 years. Non-cancellable operating lease rentals payable as at 31 December 2005 is RMB407,733,000.

Leases as lessor

The Group leases out its investment properties held under operating leases (note 15). The future minimum lease payments under non-cancellable leases are as follows:

In thousands of Renminbi Less than one year Between one and five years More than 5 years	2006 65,031 101,170 - 166,201	2005 58,739 140,682 6,709 206,130

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31 Contingent liabilities

(a) Guarantee

The Group provides guarantees in respect of bank credit facilities granted by banks to certain third parties and an investee company as follows:

In thousands of Renminbi To third parties To an investee company	2006 32,207 - 32,207	2005 42,100 4,500 46,600

(b) Legal contingencies

The Group is a defendant in certain lawsuits as well as the named party in other proceedings arising in the ordinary course of business. While the outcomes of such contingencies, lawsuits or other proceedings cannot be determined at present, management believes that any resulting liabilities will not have a material adverse effect on the financial position or opening results of the Group.

32 Financial instruments

Exposure to credit, interest rate, currency and liquidity risk arises in the normal course of the Group’s business. The risks are limited by the Group’s financial management policies and practices described below.

Credit risk

Substantially all of the Group’s cash and cash equivalents are held in major financial institutions located in the PRC. The Group’s major customers are the manufacturers of computer monitors and various electronics products, which accounted for significant amounts of the Group’s total operating revenues during the year. The Group has no significant credit risk with any of these customers since the Group maintains long-term and stable business relationships with these large customers in the industry. The Group performs ongoing credit evaluations of its customers’ financial condition and generally does not require collateral on trade receivables.

At the reporting date there were no significant concentrations of credit risk. The maximum exposure to credit risk is represented by the carrying amount of each financial asset.

Interest rate risk

The Group’s investments in fixed-rate debt securities and its fixed-rate borrowings are exposed to a risk of change in their fair value due to changes in interest rates. Investments in equity securities and short-term receivables and payables are not exposed to interest rate risk.

The interest rates of loans and borrowings of the Group are disclosed in note 24.

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32 Financial instruments (continued)

Foreign currency risk

The Group operates globally and is exposed to foreign currency risk on sales, purchases and borrowings that are denominated in a currency other than the respective functional currencies of Group entities. The currencies giving rise to this risk are primarily Korean Won and United States Dollars.

The Group uses forward exchange contracts to hedge its foreign currency risk.

Substantially all the Group’s cash flows are denominated in Renminbi. Apart from Korean Won and United States Dollars denominated trade and other receivables, cash and cash equivalents, trade and other payables and loans and borrowings as disclosed in notes 20, 21, 22 and 24 to the consolidated financial statements respectively.

In respect of other monetary assets and liabilities held in currencies other than the Renminbi, the Group ensures that the net exposure is kept to an acceptable level, by buying or selling foreign currencies at spot rates where necessary to address short-term imbalances.

Liquidity risk

Individual operating entities within the group are responsible for their own cash management, including the short term investment of cash surpluses and the raising of loans to cover expected cash demands, subject to approval by the Company’s board when the borrowings exceed certain predetermined levels of authority. The Group’s policy is to regularly monitor current and expected liquidity requirements and its compliance with loan covenants to ensure that it maintains sufficient reserves of cash, adequate lines of funding from major financial institutions and access to the capital markets to meet its liquidity requirements in the short and longer terms.

Fair value

The fair values of cash and cash equivalents, trade and other receivables, trade and other payables are not materially different from their carrying amounts.

The fair values of the Group’s bank loans and other borrowings are estimated by applying a discounted cash flow using current market interest rates for similar financial instruments approximate to their carrying values.

Fair value estimates are made at a specific point in time and based on relevant market information and information about financial instruments. These estimates are subjective in nature and involve uncertainties and matters of significant judgement and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

57

33 Principal subsidiaries, associates and jointly controlled entities

The particulars of the Group’s principal subsidiaries at 31 December 2006 are as follows:

	Place and date of		Attributable	Attributable
	Incorporation/	Registered/	equity	interest
Name of company	establishment	issued capital	Direct	Indirect	Principal activities
Consolidated
subsidiaries
Zhejiang BOE Display	PRC	RMB129,194,000	69.29%	-	Research, development,
Technology Co., Ltd.	8 July 1993				manufacture and sale of
					monitors and related parts
Beijing BOE Vacuum	PRC	RMB35,000,000	55%	-	Manufacture and sale of
Electronics Co., Ltd.	14 September 1998				vacuum electronic products
BOE Semi-conductor	PRC	RMB15,000,000	63%	-	Manufacture and sale of
Co., Ltd.	29 May 1992				semi-conductor products
Beijing BOE Special	PRC	RMB20,000,000	100%	-	Research and development
Display Technology	6 May 1999				of network and
Co., Ltd.					telecommunications
Beijing Orient Heng	PRC	RMB9,931,560	100%	-	Leasing of commercial
Tong Property Centre	22 August 1997				facilities
Suzhou BOE Chatani	PRC	USD8,552,000	75%	-	Development, manufacture
Electronics Co., Ltd.	26 March 2002				and sale of back-light
					products and related services
BOE Hyundai LCD	PRC	USD5,000,000	75%	-	Development, manufacture
(Beijing) Display	20 May 2002				and sale of related parts
Technology Co., Ltd.					of LCD products
Beijing BOE	PRC	USD550,000,000	78.54%	-	Development, manufacture
Optoelectronics	9 June 2003				and sale of TFT-LCD
Technology Co., Ltd.					products and related services
BOE Land Co., Ltd.	PRC	RMB55,420,000	70%	-	Leasing of commercial
	28 April 1994				facilities
Beijing BOE Chatani	PRC	RMB37,244,000	1%	74.25%	Development, manufacture
Electronics Co., Ltd.	22 March 2005				and sale of flat screen
					display products
					and related parts

58

33 Principal subsidiaries, associates and jointly controlled entities (continued)

	Place and date of		Attributable	Attributable
	Incorporation/	Registered/	equity	interest
Name of company	establishment	issued capital	Direct	Indirect	Principal activities
Consolidated
Subsidiaries
(continued)
BOE (Hebei) Mobile	PRC	USD20,000,000	75%	-	Manufacture and sale of
Technology Co., Ltd.	7 April 2006				flat screen display
					technical products and
					related services
Beijing BOE Sales	PRC	RMB500,000	100%	-	Sale of electronic products,
and Marketing	24 August 2006				telecommunication
Co., Ltd.					equipments and related
					services
BOE (Korea) Co., Ltd.	Korea	USD100,000	100%	-	Sale of TFT-LCD products
	13 September 2006				and related services
BOE Optoelectronics	British Virgin Island	USD600,000	100%	-	Design, manufacture and
Holding Company	7 January 2003				trading of electronics
Ltd					information technology
					products and investing
					activities
Shaoxing BOE Ueno	PRC	RMB27,000,000	-	41.57%	Manufacture and sale of
Electronics Apparatus	19 November 1999				electronics products
Co., Ltd.
BOE Optoelectronics	Bermuda	USD600,000	-	100%	Investment holding
Technology Co., Ltd	15 March 2004
Unconsolidated
subsidiaries
BOE Technology	USA	USD200,000	100%	-	Research, development,
Incorporation	31 October 2000				manufacture and sale of
(Note a)					high technology electronic
					infrastructure products
Beijing BOE Digital	PRC	USD10,000,000	75%	-	Research, development,
Technology Co., Ltd.	5 March 2001				manufacture and sale of
(Note a)					digital cameras and other
					digital visual wireless
					transfer platform

59

33 Principal subsidiaries, associates and jointly controlled entities (continued)

	Place and date of		Attributable	Attributable
	Incorporation/	Registered/	equity	interest
Name of company	establishment	issued capital	Direct	Indirect	Principal activities
Associates
Beijing Star City Real	PRC	RMB66,400,000	40%	-	Properties development
Estate Development	11 October
Co., Ltd.	1995
Beijing Nissin	PRC	USD7,100,000	40%	-	Manufacture and sales of
Electronics Precision	1 April 1996				electronics tubes and
Component Co., Ltd					related spare parts
Beijing Nittan	PRC	USD2,000,000	40%	-	Manufacture and sales of
Electronic Co., Ltd	24 June 1996				terminals, connectors and
					stampers
Beijing Orient Mosler	PRC	USD1,300,000	35%	-	Manufacture and sales of
Security Technology	7 September 1998				security and protection
System Co., Ltd.					system and products
Beijing Matsushita	PRC	RMB1,240,754,049	30%	-	Manufacture and sales of
Color CRT Co., Ltd.	8 September 1987				color picture tubes and
					color display tubes
TPV Technology	Bermuda	USD19,422,000	21.85%	-	Manufacture and sale of
Limited (Note b)	12 January				color computer monitors
	1998				and LCD products
Julong Electronics Co., Ltd.	PRC	RMB20,000,000	40%	-	Research, development,
	20 January 2006				manufacture and sale of
					TFT-LCD products and
					related services
Jointly controlled
entity
Beijing Asahi Glass	PRC	USD8,626,000	50%	-	Manufacture and sales of
Electronics Co., Ltd.	16 November 1993				electronic products

• (a) The results of these subsidiaries were not consolidated in the Group’s results in 2006 owing to the fact that these subsidiaries are either remained dormant or at their initial stage of operations during the year.

• (b) On 8 March 2006, TPV placed 106,500,000 shares of US$0.01 each to Bonstar International Limited and Brilliant Way Investment Ltd. Upon the completion of the transaction, the Group’s equity interest in TPV decreased from 23.68% to 22.26%. Subsequently, certain employees of TPV have performed the employer stock options granted and as the results, the Group’s equity interest in TPV decreased from 22.26% to 21.85%.

34 Ultimate holding company

The directors of the Company consider the ultimate holding company to be BEH, a state-owned enterprise incorporated in the PRC as at 31 December 2006.

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35 Subsequent events

• (a) On 16 March 2007, the Fifth Plenary Session of the Tenth National People’s Congress passed the Corporate Income Tax Law of the People’s Republic of China (“new tax law”) which will take effect on 1 January 2008. The Group has been granted the status of a high-tech enterprise and currently its applicable income tax rate is 15%. According to the new tax law, certain high-tech enterprise will continue to be entitled to a reduced tax rate of 15%. However, the detailed implementation rules regarding the preferential tax policies have yet to be made public. Consequently, the Group is not able to assess whether it will qualify as a high-tech enterprise under the new tax law and therefore is not able to make estimate of the expected financial effect of the new tax law on its deferred tax assets and liabilities. The expected financial effect of the new tax laws, if any, will be reflected in the Group’s 2007 financial statements. The enactment of the new tax law is not expected to have any financial effect on the amounts accrued in the consolidated balance sheet in respect of current tax payable.

• (b) On 14 January 2004, BOE Land Co., Ltd. (“BOE Land”) signed the “Frame Agreement” regarding the restructuring of Beijing Zhongjin Shun Da Land Corporation Ltd (“BZSD”) with Beijing Zhong Ye An Shun Da Metallurgy Corporation (“Beijing An Shun Da”). Pursuant to the agreement, after the restructuring, BOE Land and Beijing An Shun Da owned 60% and 40% equity interests of Zhongjin Land, respectively. BOE Land had performed the required restructuring procedures according to the agreement such as injecting the capital by RMB54,303,000; while Beijing An Shun Da failed to inject the agreed amount, the land use right and the ownership of respective properties were under pledged. Accordingly, the Group has applied to the court which concluded that the share transfer agreement of BZSD was ineffective due to the failure of Beijing An Shun Da to perform the responsibility as stated in the agreement, and appealed for the conservation of the invested capitals.

On 18 January 2007, the land use rights owned by Beijing An Shun Da were sealed up through the litigation of property conservation by BOE Land. The executive board of the People’s Court has performed the evaluation of the land use rights and received RMB121,000,000 through the auction. On 19 January 2007, BOE Land received the execution fund of approximately RMB54,303,000.

• (c) Pursuant to the resolution passed at the Board of Directors meeting held on 27 December 2006, the Company was authorized to dispose all the shareholdings in TPV (424,360,000 shares). On 18 January 2007, the Company entered into an agreement with UBS AG pursuant to which UBS AG has acquired from the Company 200,000,000 shares, representing approximately 10.29%, of the existing issued share capital of TPV, at the price of HK$5.3 per share. Upon completion of this transaction, the percentage shareholding by the Company in TPV will be reduced from 21.85% to 11.55% and the remaining shareholding in TPV held by the Company will be 224,360,000 shares.

• (d) As approved by the Ministry of Finance and Ministry of Commerce, the Company entitled to the special loans with total amount of RMB53,270,000 from the government relating to the notice for the foreign economic cooperation projects from year 2003 and 2005. The Company has received the amount on 16 February 2007.

• (e) On 12 March 2007, the Board of Directors has passed a resolution on . The Company will dispose of its 11.92% equity interest in BOEOT, which is formerly a 78.54% subsidiary, to Beijing Industries Development and Investment Company Limited, and 61.62% equity interest to BOID, subject to the approvals from relevant regulatory organisations and shareholders, and BOID will settle by cancelling 455,186,000 A shares in the Company held by BOID. Upon the completion of the transaction, the Company’s equity interest in BOEOT will decrease to 5%.

61

35 Subsequent events (continued)

• (f) According to the approval from the Beijing Municipal Government relating to the support of Beijing TFT-LCD 5th generation production line, BOEOT, a subsidiary of the Company, was entitled to the subsidies on interest payment for the bank loans in relation to the investment on Beijing TFT-LCD 5th generation production line. On 28 March 2007, the Company received RMB90,140,000 for the subsidies on interest payment, covering the expansion period from April 2007 to March 2008.

36 Accounting estimates and judgments

Key sources of estimation uncertainty

Notes 32 contain information about the assumptions and their risk factors relating to financial instruments. Other key sources of estimating uncertainty are as follows:

• (a) Impairment of assets

The Group determines the impairment of assets taking into account the Group’s estimate of the selling prices, for manufacturing costs and the costs to be incurred in selling certain products. Management reviews the impairment of assets at the balance sheet date.

(b) Provision for inventories

As explained in the note 2 (l) , the Group’s inventories are stated at the lower of cost and net realisable value. Based on the Group’s recent experience and the nature of the inventories, the Group makes estimates of the selling prices, the costs of completion in case for work in progress, and the costs to be incurred in selling the inventories. Uncertainty exists in these estimations.

(c) Warranty provisions

The Group makes provisions under the warranties it gives on sale of its products taking into account the Group’s recent claim experience. Based on the Group’s estimates and the nature of the products developed by the Group, the Group makes estimates and assumptions concerning the future events that are believed to be reasonable under the circumstances.

(d) Impairment loss on bad and doubtful debt

The Group’s management determines the impairment loss on bad and doubtful debt on a regular basis. This estimate is based on the credit history of its customers and current market conditions. Management reviews the impairment loss on bad and doubtful debt at the balance sheet date.

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36 Accounting estimates and judgments (continued)

(e) Depreciation

Property, plant and equipment are depreciated on a straight-line basis over the estimated useful lives, after taking into account the estimated residual value. The Group reviews the estimated useful lives of the assets regularly in order to determine the amount of depreciation expense to be recorded during any reporting period. The useful lives are based on the Group’s historical experience with similar assets and taking into account anticipated technological changes. The depreciation expense for future periods is adjusted if there are significant changes from previous estimates.

37 Possible impact of amendments, new standards and interpretations issued but not yet effective for the annual accounting period ended 31 December 2006

Up to the date of issue of these financial statements, the IASB has issued the following amendments, new standards and interpretations which are not yet effective for the accounting year ended 31 December 2006 and which have not been adopted in these financial statements:

Of these developments, the following relate to matters that may be relevant to the Group’s operations and financial statements:

		Effective for
		accounting
		periods beginning
		on or after
IFRS 7	Financial instruments: disclosures	1 January 2007
IFRS 8	Operating Segments	1 January 2009
Amendment to IAS 1	Presentation of financial statements:	1 January 2007
	capital disclosures
IFRIC 7	Applying the restatement approach:	1 March 2006
	under IAS 29 financial reporting
	in hyperinflationary economies
IFRIC 8	Scope of IFRS 2	1 May 2006
IFRIC 9	Reassessment of embedded derivatives	1 June 2006
IFRIC 10	Interim financial reporting and	1 November 2006
	Impairment
IFRIC 11	IFRS 2 – Group and treasury share transaction	1 March 2007
IFRIC 12	Service concession arrangements	1 January 2008

The Group is in the process of making an assessment of what the impact of these amendments, new standards and new interpretations is expected to be in the period of initial application. Up to the date of issuance of these financial statements, the Group believes that the IFRIC 7, IFRIC 8, IFRIC 9, IFRIC 10, IFRIC 11, IFRIC 12 and the amendments to IAS 1 are not applicable to any of the Group’s operations and that the adoption of the remainder of the above new standards and new interpretations is unlikely to have a significant impact on the Group’s results of operations and financial position.

63

Differences between financial statements prepared in accordance with International Financial Reporting Standards (“IFRSs”) and PRC Accounting Rules and Regulations (“PRC GAAP”)

Other than the differences in the classifications of certain financial statements captions and the accounting for the items described below, there are no material differences between the Group’s financial statements prepared under the PRC GAAP and IFRS. The reconciliation presented below is included as supplemental information, is not required as part of the basic financial statements and does not include differences related to classification, display or disclosures. Such information has not been subject to independent audit or review.

In thousands of Renminbi Note Net loss under PRC GAAP Adjustments: Recognition and amortisation of positive goodwill (i) Recognition and amortisation of negative goodwill (i) Government grant (ii) Capitalised general borrowing costs, net of related depreciation (iii) Capitalised development costs, net of related depreciation (iv) Gain on disposal of a subsidiary (v) Appropriation of staff bonus and welfare fee (vi) Amortisation of loans arrangement fee (vii) Dilution on interest in an associate (viii) Others Loss attributable to equity shareholders of the Company under IFRSs*

For the years ended 31 December 2006 2005 (1,721,945) (1,587,087) 105,108 68,412 (79,278) (14,485) 7,642 4,105 (3,435) 33,185 (200,450) 27,977 - 141,631 (3,617) (916) (15,364) (3,085) 142,594 80,397 (2,055) 3,873 (1,770,800) (1,245,993)

64

Differences between financial statements

prepared in accordance with International Financial Reporting Standards (“IFRSs”) and PRC Accounting Rules and Regulations (“PRC GAAP”) (continued)

In thousands of Renminbi Note Shareholders’ fund under PRC GAAP Adjustments: Recognition and amortisation of positive goodwill (i) Recognition and amortisation of negative goodwill (i) Capitalised general borrowing costs, net of related depreciation (iii) Capitalised development costs, net of related depreciation (iv) Gain on disposal of a subsidiary (v) Amortisation of loans arrangement fee (vii) Dilution on interest in an associate (viii) Equity accounting for interest in associates with issuance of convertible debentures (ix) Others Total equity attributable to equity shareholders of the Company under IFRSs*

At 31 December 2006 2005 3,540,703 3,377,859 168,186 63,078 22,437 101,715 29,750 33,185 - 200,450 141,631 141,631 - 15,364 (109,628) (73,750) 99,422 111,357 (4,057) (3,273) 3,888,444 3,967,616

• The above figure is extracted from the financial statements prepared in accordance with IFRS which have been audited by KPMG.

65

Notes to the Financial Statements

(Expressed in Renminbi)

• (i) In prior years, positive and negative goodwill were amortised on a straight line basis over its useful life not exceeding 20 years under IFRS. With effect from 1 January 2005, following the adoption of IFRS 3, the Group no longer amortises the positive goodwill but tests it at least annually for impairment under IFRS. For negative goodwill, the carrying amounts of previously recognised negative goodwill at the beginning of the year were derecognised with a corresponding adjustment to opening balance of retained earnings. Under PRC GAAP, positive and negative goodwill were amortised over its useful life not exceeding 40 years.

• (ii) Under IFRSs, the receipt of government grant is recognised in the income statement. Under the PRC GAAP, receipt of certain government grant is required to credit to capital reserve.

• (iii) Under IFRSs, general borrowing costs are capitalised by applying a capitalisation rate to the expenditures on the qualifying assets. Under the PRC GAAP, general borrowing costs are charged to the income statement when incurred.

• (iv) Under IFRSs, development costs are capitalised in intangible assets. Under PRC GAAP, development costs are charged to the income statement when incurred. The development costs were disposed during the year ended 31 December 2006.

• (v) On 30 November 2005, the Group disposed all its equity interest in Beijing Orient Top Victory Electronics Co., Ltd (“OTPV”), which was previously a 45.21% owned consolidated subsidiary of the Group, to TPV Technology Limited (“TPV”) which issued certain new shares to the Group as consideration. Under IFRSs, gain on disposal of OTPV was calculated by comparing the share of net assets in OTPV by the Group and the fair value of newly issued shares by TPV on the transaction date. Under PRC GAAP, no gain on disposal of OTPV was recognised on the transaction as the carrying amount of the equity interest in OTPV being disposed of by the Group was deemed to be the cost of the newly acquired equity interest in TPV.

• (vi) The amount represents the different treatment on appropriation of staff bonus and welfare fund under IFRSs and PRC GAAP.

• (vii) Under IFRSs, the loans arrangement fee is amortised over the loan period. Under PRC GAAP, the loans arrangement fee was charged to the income statement when incurred. During the year ended 31 December 2006, the balance of loans arrangement fee was written off in income statement prepared under IFRS upon the deemed disposal of corresponding subsidiary.

• (viii) Under the PRC GAAP, the increase in the Company’s share of net assets of an associate after the sale of additional shares by the associate is credited to capital reserve. Under IFRS, such increase is recognized as income, after netting off the corresponding amount of goodwill being disposed.

• (ix) The amount represents the GAAP differences on the equity accounting of TPV which has issued convertible debentures in 2005. Under IFRS, the equity portion of the convertible debentures is recognised in shareholders’ equity. Under PRC GAAP, the equity portion is recognised in liability.

66