THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

If you have sold or transferred all your shares in China Timber Resources Group Limited , you should at once hand this circular, together with the enclosed form of proxy, to the purchaser or transferee or to the bank, stockbroker or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee.

This circular is for information purposes only and does not constitute an invitation or offer to acquire, purchase or subscribe for securities of China Timber Resources Group Limited .

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

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CHINA TIMBER RESOURCES GROUP LIMITED （中國木業資源集團有限公司 *）

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 269)

MAJOR TRANSACTION IN RELATION TO THE SECOND CAPITAL INCREASE AGREEMENT AND PROPOSED ISSUE Of 9% COUPON CONvERTIBLE BONDS DUE 2014

financial Adviser to China Timber Resources Group Limited

A letter from the board of directors of China Timber Resources Group Limited is set out on pages 6 to 25 of this circular. A notice convening the extraordinary general meeting of the Company to be held at 11:00 a.m. on Monday, 19 September 2011, at Boardroom 6, Mezzanine Floor, Renaissance Harbour View Hotel, 1 Harbour Road, Wanchai, Hong Kong, is set out on pages 105 to 108 of this circular. Whether or not you intend to attend the extraordinary general meeting, you are requested to complete and return the form of proxy in accordance with the instructions printed thereon as soon as practicable but in any event not less than 48 hours before the time appointed for holding of the extraordinary general meeting or any adjournment thereof (as the case may be). Completion and return of the form of proxy will not preclude you from attending and voting in person at the extraordinary general meeting or any adjourned thereof (as the case may be) should you so wish.

* For identification purpose only

31 August 2011

		Pages
Definitions. .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Letter from the Board. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Appendix I	— financial Information of the Group. . . . . . . . . . . . . . . . . . . . 26
Appendix II	— financial Information of Target Group. . . . . . . . . . . . . . . . . . 29
Appendix III	— Unaudited Pro forma financial Information
of the Enlarged Group. . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Appendix Iv	— Management Discussion and Analysis
the Target Group. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
Appendix v	— Business valuation Report. . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
Appendix vI	— Traffic Report. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
Appendix vII	— General Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
Notice of EGM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		105

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DEfINITIONS

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

“Amended and Restated amended and restated articles of association of the Target Articles of Association” Company entered into between Cheer Luck and other existing equity holders of the Target Company with respect to the Second Equity Subscription
“associate” has the meaning ascribed to it in the Listing Rules “Board” the board of Directors “Bondholders” holders of the Bonds “business day(s)” a day, other than a Saturday, Sunday, public holiday and a day on which a tropical cyclone warning no. 8 or above or a “black rainstorm warning signal” is hoisted in Hong Kong at any time between 9:00 a.m. and 5:00 p.m., on which licensed banks in Hong Kong are open for general banking business throughout their normal business hours
“Cheer Luck” Cheer Luck Technology Limited（展裕科技有限公司）, a company incorporated in Hong Kong with limited liability and a wholly-owned subsidiary of the Company
“Company” China Timber Resources Group Limited（中國木業資源集團有限公司 *）, a company incorporated in the Cayman Islands with limited liability
“Completion” completion of the Second Capital Increase Agreement “Concession Agreement” a concession agreement entered into between the municipal government of Wulanchabu（烏蘭察布市人民政府）with the Target Company on 3 August 2006 which was supplemented in writing between the parties in 2007 and 2010, pursuant to which, the municipal government of Wulanchabu granted the Target Company a 30-year concession right (excluding the construction period) to operate the Expressway

— 1 —

DEfINITIONS

“Conditions Precedent” the conditions precedent to Completion, as set out under the section headed “Conditions Precedent” in this circular
“connected person” has the meaning ascribed to it under the Listing Rules “Consideration” the total consideration of RMB1,818,000,000 for the Second Equity Subscription
“Conversion Shares” new Shares to be issued upon conversion of the Convertible Bonds
“Convertible Bonds” the First Convertible Bonds, the Second Convertible Bonds and the Third Convertible Bonds
“Convertible Bonds the conditions precedent to the Subscription Agreements, Conditions Precedent” as set out under the section headed “Convertible Bonds Conditions Precedent” in this circular
“Director(s)” the director(s) of the Company “EGM” the extraordinary general meeting of the Company to be convened and to consider and, if thought fit, approve, among other things, the Second Capital Increase Agreement, the Subscription Agreements and the Special Mandate
“Enlarged Group” the Company and its subsidiaries upon Completion “Equity Subscription Right” the right granted to the Company to subscribe up to a 66% equity interest in the Target Company on or before 31 December 2011
“Expressway” the first PRC heavy-duty toll expressway designed for coal, transportation in the Inner Mongolia, which the Target Company has the exclusive right to build and operate for 30 years (excluding the construction period) under the Concession Agreement
“First Announcement” the announcement of the Company dated 13 January 2011

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DEfINITIONS

“First Capital Increase	the capital increase agreement dated 21 April 2011 entered
Agreement”	into between Cheer Luck and the Target Company
“First Capital Increase	the announcement of the Company dated 21 April 2011
Announcement”
“First Convertible Bonds”	9% coupon unlisted convertible bonds due 2014 in an
	aggregate principal amount of HK$1,300 million to be
	issued by the Company to the First Subscriber
“First Subscriber”	Li Ka Shing (Canada) Foundation
“First Subscription	the subscription agreement dated 2 August 2011 entered into
Agreement”	between the Company and the First Subscriber
“Group”	the Company and its subsidiaries
“HKFRS”	the Hong Kong Financial Reporting Standard
“HK$”	Hong Kong dollar, the lawful currency of Hong Kong
“Hong Kong”	the Hong Kong Special Administrative Region of the PRC
“Inner Mongolia”	Inner Mongolia Autonomous Region, an autonomous region
	located in the northern area of the PRC
“Last Trading Day”	1 August 2011, being the last full trading day immediately
	before the date of the Subscription Agreements
“Latest Practicable Date”	26 August 2011, being the latest practicable date prior to
	the printing of this circular for the purpose of ascertaining
	certain information contained in this circular
“Listing Rules”	the Rules Governing the Listing of Securities on the Stock
	Exchange

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DEfINITIONS

“PRC” or “China”	the People’s Republic of China excluding, for the purpose
	of this circular, Hong Kong, Macau Special Administrative
	Region and Taiwan
“RMB”	Renminbi, the lawful currency of the PRC
“Second Capital Increase	the capital increase agreement dated 26 May 2011 entered
Agreement”	into between Cheer Luck and the Target Company
“Second Convertible Bonds”	9% coupon unlisted convertible bonds due 2014 in an
	aggregate principal amount of HK$600 million to be issued
	by the Company to the Second Subscriber
“Second Joint Venture	the amended and restated joint venture agreement dated
Agreement”	26 May 2011 entered into between Cheer Luck and other
	existing equity holders of the Target Company with respect
	to the Second Equity Subscription
“Second Equity	the subscription of a 40% equity interest in the Target
Subscription”	Company, pursuant to the Second Capital Increase
	Agreement
“Second Subscriber”	China Life Insurance (Overseas) Company Limited
“Second Subscription	the subscription agreement dated 2 August 2011 entered into
Agreement”	between the Company and the Second Subscriber
“Second Transaction	the Second Capital Increase Agreement, the Second Joint
Documents”	Venture Agreement and the Amended and Restated Articles
	of Association
“Shareholder(s)”	holder(s) of the Shares
“Shares”	ordinary shares of HK$0.01 each in the capital of the
	Company
“Special Mandate”	a mandate to be granted to the Directors by the Shareholders
	at the EGM to allot and issue the Conversion Shares

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DEfINITIONS

“Stock Exchange” The Stock Exchange of Hong Kong Limited “Subscribers” the First Subscriber, the Second Subscriber and the Third Subscriber “Subscription Agreements” the First Subscription Agreement, the Second Subscription Agreement and the Third Subscription Agreement “Target Company” 內蒙古准興重載高速公路有限責任公司 (Inner Mongolia Zhunxing Heavy Haul Expressway Company Limited), a company established under the laws of the PRC with limited liability “Target Group” the Target Company and its subsidiaries “Third Convertible Bonds” 9% coupon unlisted convertible bonds due 2014 in an aggregate principal amount of HK$100 million to be issued by the Company to the Third Subscriber “Third Subscriber” Dr. Lo Ka Shui “Third Subscription the subscription agreement dated 2 August 2011 entered into Agreement” between the Company and the Third Subscriber “Tong He” 北方通和控股有限公司 (Bei Fang Tong He Holdings Limited), a company limited by shares established under the laws of the PRC “trading day” the day on which the Stock Exchange is open for business “km” kilometre “%” per cent.

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LETTER fROM THE BOARD

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CHINA TIMBER RESOURCES GROUP LIMITED （中國木業資源集團有限公司 *）

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 269)

Executive Directors:

Mr. Cao Zhong (Chairman) Mr. Fung Tsun Pong Mr. Tsang Kam Ching, David

Non-executive Director:

Registered office: The Office of Caledonian Trust (Cayman) Limited Caledonian House, 69 Dr. Roy’s Drive, Grand Cayman, KY1-1102 Cayman Islands

Mr. Neil Bush

Independent Non-executive Directors:

Mr. Yip Tak On Mr. Jing Baoli

Mr. Bao Liang Ming

Principal place of business in Hong Kong: Room 1801-07 China Resources Building 26 Harbour Road Wanchai, Hong Kong

31 August 2011

To the Shareholders

Dear Sir or Madam,

MAJOR TRANSACTION IN RELATION TO THE SECOND CAPITAL INCREASE AGREEMENT AND PROPOSED ISSUE Of 9% COUPON CONvERTIBLE BONDS DUE 2014

INTRODUCTION

Reference is made to the announcement dated 26 May 2011 issued by the Company in relation to, among others, the subscription for the registered capital of the Target Company. Reference is also made to the announcement of the Company dated 2 August 2011 in relation to the proposed issue of the 9% coupon convertible bonds due 2014.

* For identification purpose only

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LETTER fROM THE BOARD

The main purpose of this circular is to provide you with, among other things:

(a) details of the Second Equity Subscription;
(b) details of the Subscription Agreements in relation to the proposed issue of the Convertible Bonds;
(c) financial information of the Group;
(d) financial information of the Target Group;
(e) the unaudited pro forma financial information of the Enlarged Group; and
(f) notice of the EGM.

THE SECOND CAPITAL INCREASE AGREEMENT

Date

26 May 2011

Parties

(i) Cheer Luck, a wholly-owned subsidiary of the Company; and
(ii) the Target Company

To the best of the Directors’ knowledge, information and belief and having made all reasonable enquiries, the Target Company and its ultimate beneficial owners (other than Cheer Luck) are third parties independent of the Company and its connected persons.

The Consideration

As at the date of this circular, the Target Company has a total registered capital of RMB449,438,202 which has been fully paid up. Pursuant to the Second Capital Increase Agreement, the total registered capital of the Target Company will be increased from RMB449,438,202 to RMB816,326,530, and Cheer Luck agreed to subscribe for the additional registered capital of RMB366,888,328 at a total cash consideration of RMB1,818,000,000.

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LETTER fROM THE BOARD

Upon Completion, the Company, through Cheer Luck, will indirectly hold a 51% equity interest in the Target Company.

Pursuant to the Second Capital Increase Agreement, the Consideration of RMB1,818,000,000 is payable by Cheer Luck as follows: (i) the first installment of RMB909,000,000 equivalent to 50% of the Consideration is payable by Cheer Luck on the date of Completion; (ii) the second installment of RMB454,500,000 equivalent to 25% of the Consideration is payable by Cheer Luck to the Target Company within 15 business days from the date of issuance of the new business license of the Target Company; and (iii) the third installment of RMB454,500,000 equivalent to the balance of the Consideration is payable by Cheer Luck to the Target Company within 30 business days from the date of issuance of the new business license of the Target Company.

The terms of the Second Capital Increase Agreement including the Consideration were based on normal commercial terms and determined after arm’s length negotiations between the Company and the Target Company with reference to a number of factors, including but not limited to: (i) the consideration of RMB500,000,000 paid by Cheer Luck for the subscription in the Target Company of a 11% equity interest under the First Capital Increase Agreement; (ii) the current status of the construction of the Expressway by the Target Company as described below; (iii) the future growth potential of the Target Company; and (iv) the valuation amount of the Target Company of RMB7,048,143,000 under the valuation report prepared by Jones Lang LaSalle Sallmanns.

The Company entered into the Subscription Agreements with the Subscribers on 2 August 2011 for the issue of the Convertible Bonds in an aggregate principal amount of HK$2 billion (approximately RMB1.66 billion) for settlement of the Consideration, details of which are disclosed hereinafter. The Company intends to raise further funds to match up the shortfall for full settlement of the Consideration by way of equity issue, convertible issue or a combination of both. The Company has not finalised the terms of such further funding nor entered into any binding agreement in this regard. Further announcement will be issued by the Company if and when details of further fund raising are finalised for compliance with the Listing Rules.

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LETTER fROM THE BOARD

Conditions Precedent

The Second Capital Increase Agreement will be completed upon satisfaction of the following conditions:

(i) Cheer Luck having satisfied with the due diligence review on the Target Company, including but not limited to the legal opinion and due diligence report in respect of the contents and form issued by PRC legal advisers acceptable to Cheer Luck and the consolidated financial statements of the Target Company for the last three years (or other agreed period by Cheer Luck) in respect of the contents and form issued by an accountant firm acceptable to Cheer Luck;
(ii) the approval from each of the other existing shareholders of the Target Company, all internal and valid authorisations and approvals from them and Cheer Luck as well as all approvals from the approving authorities and third party (or parties) with interests (e.g. creditors, bank creditors (if applicable), etc.) in relation to the Second Equity Subscription having been obtained, including but not limited to the irrevocable and unconditional approval from the department of commerce for the following matters:
(a) that each of the other existing equity holders of the Target Company and Cheer Luck has performed its internal and valid authorisation and approval procedure in accordance with the applicable laws, including that each of the other existing equity holders of the Target Company has performed its obligation of obtaining approval or completing filing procedure (if applicable) for the change in ownership of the state-owned assets in relation to the Second Equity Subscription as required by laws;
(b) with respect to the Second Equity Subscription and Second Transaction Documents, that the department of commerce has issued the approval for the Second Equity Subscription and the approval certificate for enterprise invested by Taiwan, Hong Kong, Macau and overseas Chinese investors which indicates that Cheer Luck holds a 51% equity interest in the Target Company;
(c) that the Target Company can continue to operate and develop its existing businesses after the Second Equity Subscription;
(d) Cheer Luck having satisfied with the Second Joint Venture Agreement in respect of the contents and form; and
(e) Cheer Luck having satisfied with the Amended and Restated Articles of Association in respect of the contents and form;

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LETTER fROM THE BOARD

(iii) all representations and warranties given by the Target Company pursuant to the Second Capital Increase Agreement, the disclosure list made by the Target Company and any attachment of the Second Capital Increase Agreement are true, accurate, correct, complete and not misleading as at the date of Completion;
(iv) (a) all obligations, agreements and undertakings which shall be performed before the date of Completion pursuant to each of the Second Transaction Documents to which the Target Company is a party having been fulfilled by the Target Company in all material respects without any breach or sustained breach; and (b) each of the Second Transaction Documents having been duly signed and delivered by the Target Company shall constitute a legal, valid and binding obligation and can be enforceable on the Target Company and the original of the signed Second Transaction Documents having been obtained by Cheer Luck;
(v) the Target Company not breaching and the Second Equity Subscription not resulting in any breach in all material respects of:
(a) any provision under any document to which the Target Company is a party or has binding effect on the Target Company (including but not limited to the Second Transaction Documents); or
(b) any law, regulation or rule;
(vi) since 31 December 2010, no material adverse effect on the businesses, assets or operation of the Target Company having been found or known;
(vii) a foreign exchange capital account having been opened by the Target Company with a major commercial bank in the PRC, and notified to Cheer Luck in writing;
(viii) the candidates nominated by Cheer Luck as the directors of the Target Company having been appointed through proper procedure;
(ix) the necessary authorizations and documents for the Second Equity Subscription having been obtained by the Target Company before the date of Completion;
(x) the approval of the Second Capital Increase Agreement by the Shareholders at the general meeting of the Company; and
(xi) the securing of sufficient funding for settlement of the Consideration by Cheer Luck.

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LETTER fROM THE BOARD

Cheer Luck may, in its absolute discretion, waive the Conditions Precedent (i), (iii), (iv), (v), (vi), (viii) and (ix). If any of the Conditions Precedent (save for the Conditions Precedent (iii), (iv)(a), (v) and (vi)) has not been fulfilled by 31 December 2011 or such other date as Cheer Luck may agree or fully or partly waived by Cheer Luck in writing or the Conditions Precedent (iii), (iv)(a), (v) and (vi) have not been fulfilled or waived at the time when any of the other Conditions Precedent has been fulfilled or waived, the Second Capital Increase Agreement can be terminated by Cheer Luck and no party shall have any liability thereunder (without prejudice to the rights of the parties in respect of any antecedent breaches).

As at the Latest Practicable Date, Conditions Precedent (ii)(c) to (e), (v), (vi) and (vii) have been fulfilled.

Completion

Completion will take place on the third business day from the date on which the Conditions Precedent (save for the Conditions Precedent (iii), (iv)(a), (v) and (vi)) have been satisfied or waived by Cheer Luck or such other date set by Cheer Luck.

INfORMATION ON THE TARGET COMPANY

The Target Company is a company incorporated in the PRC with limited liability, and is principally engaged in expressway and auxiliary facility investment, operation, management and maintenance.

Based on the audited accounts of the Target Company prepared in accordance with HKFRS, the turnover of the Target Company for the three years ended 31 December 2008, 2009 and 2010 was nil, net loss for the corresponding period was approximately RMB168 million, RMB253 million and RMB384 million respectively, and as at 31 December 2010, the total assets and net liabilities of the Target Company were approximately RMB1,867 million and RMB625 million respectively.

REASONS fOR AND BENEfITS Of THE SECOND EQUITY SUBSCRIPTION

The Group is principally engaged in forest operation and management, timber logging and trading, sale of timber products, planting of and trading in seedlings, property development and asset management. The management of the Company has been looking for opportunities to broaden revenue base and maintain sustainable growth of the Company. The acquisition of the stake in the Target Company is a key strategic move.

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LETTER fROM THE BOARD

According to the Concession Agreement, the Target Company has the exclusive right to build, and operate for 30 years (excluding construction period), the first PRC heavyduty toll expressway designed for coal transportation in Inner Mongolia which runs from Jungar Banner（准格爾旗）, a major coal production area located south of Hohhot（呼和浩特）in Ordos（鄂爾多斯）, towards northeast for 265 km to Xinghe County（興和縣）, a major logistics hub for coal distribution in northern China and a connection point with Beijing-Tibet Expressway. Coal production in Jungar Banner was 647 million tons in 2009, of which 377 million tons were needed to be transported outside Jungar Banner area. However there was a shortfall of 187 million tons in coal transportation capacity. It is expected that coal production in Jungar Banner in 2012 will rise to 1,000 million tons, of which 600 million tons will need to be transported outside Jungar Banner area. Given the current traffic congestion and the present coal transportation capacity, there would likely be a shortfall of 413 million tons of coal which cannot be delivered outside the coal production areas. Since the Expressway can only resolve 150 million tons out of this shortfall, there still remains a significant market demand for coal transportation.

The Expressway is designed to sustain 100 ton trucks, which will save time and cost for coal producers and distributors as it raises the transportation capacity of coal trucks, whereas most other expressways in the PRC can only allow a maximum of 55 ton trucks. By the Concession Agreement, the proposed toll fee for the Expressway is RMB0.15 per ton per km which is subject to formal approval by the traffic bureau and the development and reform commission of the Inner Mongolia Autonomous Region before the Expressway being opened to traffic. The Expressway is a priority project under the “Eleventh FiveYear Plan” of the PRC, and is of strategic importance for energy logistics in northern China. As such, the Board is of the view that the formal approval will be granted upon compliance with due process.

The Expressway would bring about three key benefits. First, the Expressway’s high weight-bearing capability of handling vehicles up to 100 tons will generate significant profits from higher toll fees collected (around RMB4,000 per trip for each fully-loaded coal truck ie. RMB0.15 x 100 tons x 265 km) as well as greater traffic capacity. Second, the construction of the Expressway in a rural area reduces significant costs from relocating people or demolishing existing roads. The total construction costs, taking into account the low relocation costs, is expected to be lower than the costs for normal roads by 50%. It is also expected that the period for the Company to recover its investment in the Expressway will be significantly shorter, by 50%, than the period for the investment in normal roads, which may take 12 years to 15 years, Third, the Expressway aims at meeting the increasing demand for coal transportation given that Inner Mongolia has now passed Shanxi as China’s largest coal producer.

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LETTER fROM THE BOARD

The Expressway is currently under construction and expected to be opened to traffic in January 2013. Under the Concession Agreement, the Target Company was originally granted 36 months for completion of construction of the Expressway, i.e. ended on 2 August 2009 which was extended to the end of 2012 by a supplemental agreement due to delay in completion caused by suspension of construction works. In view of the construction progress after resumption of construction work in April 2011, the Company expects that construction of the Expressway will be completed according to the amended schedule. As at the Latest Practicable Date, about 30% of the construction has already been completed.

In line with the Company’s business strategy of diversification into a new line of business that has significant growth potential, the Board considers that this investment represents a good opportunity for the Group to participate in a promising infrastructure project in the PRC, which will benefit the Group in the long term. The Board also considers that this project, in comparison with other PRC expressway projects, has higher commercial value and once opened to traffic, it will produce desirable cash flows and revenue, as well as, bring the Company solid and sustainable returns. The Second Equity Subscription represents the second stage of investment in the Target Company pursuant to a partial exercise of the Equity Subscription Right.

Given the investment benefits associated with the Expressway, the Group intends to increase its shareholding in the Target Company from its existing 51% stake to a 66% stake by the end of 2011. Pursuant to the letter of intent entered into between the Company and the Target Company dated 12 January 2011, details of which was disclosed in the First Announcement, the total consideration for the proposed subscription of a 66% equity interest in the Target Company is RMB3,000,000,000 in cash. Accordingly, if the Company fully exercised its subscription rights in relation to the additional 15% equity interest in the Target Company, the consideration payable shall be approximately RMB681.8 million. The Company will comply with the relevant Listing Rules, where applicable, when the Company decides to exercise the Equity Subscription Right.

Having considered the aforesaid factors, the Board believes that the terms of the Second Capital Increase Agreement (including the Consideration) are fair and reasonable and the entering into the Second Capital Increase Agreement is in the interests of the Company and the Shareholders as a whole.

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LETTER fROM THE BOARD

fINANCIAL EffECTS TO THE GROUP ARISING fROM THE SECOND EQUITY SUBSCRIPTION

As at 31 March 2011, the Group recorded an audited net current asset and net asset of approximately HK$1,392 million and HK$2,251 million respectively, and the Group’s total assets and total liabilities were approximately HK$3,107 million and HK$857 million respectively. If Completion were taken place on 31 March 2011, based on the unaudited pro forma financial information of the Enlarged Group as set out in Appendix III to this circular, the unaudited pro forma consolidated total assets of the Enlarged Group would be approximately HK$8,741 million, and total liabilities of approximately HK$3,850 million, resulting to net current liabilities of approximately HK$1,320 million as the Target Group incurred net current liabilities of approximately HK$2,712 million. The unaudited pro forma consolidated net assets of the Enlarged Group is approximately HK$4,891 million which is largely contributed by the adjustment of value of the concession of the Expressway of approximately HK$3,387 million.

Commencing from October 2007, construction of the Expressway was suspended because of shortage of funds, but has been resumed since April 2011. As a result of such suspension, certain claims were made by contractors and suppliers against the Target Company, but as of the date hereof, all court cases relating to such claims have already been finalized or settled by mutual agreement with the relevant claimants. Before 31 December 2008, the Target Company has already made provision for claims of RMB244,326,000. Based on the finalized or agreed settlement amounts, the Target Company has set aside further provisions amounting to RMB94,350,000, RMB229,146,000 and RMB346,399,000 (total: RMB669,895,000) for the years ended 31 December 2008, 2009 and 2010 respectively. As it is now already almost four years after the stoppage in 2007, the Target Company does not expect to receive any further claims in respect of such stoppage.

As the Expressway is still under construction, the Target Group has not been able to contribute any earnings to the Enlarged Group. However, the earning base of the Group will be substantially strengthened after the Expressway commencing to open for traffic in 2013 as the Target Group will become indirectly non-wholly-owned subsidiaries of the Company with financial results being consolidated into those of the Company after Completion.

LISTING RULES IMPLICATIONS

As the ratios set out in the Listing Rules for the Second Equity Subscription exceed 25% but are less than 100%, the Second Equity Subscription constitutes a major transaction of the Company under the Listing Rules and is therefore subject to announcement and Shareholders’ approval requirements under the Listing Rules.

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LETTER fROM THE BOARD

PROPOSED ISSUE Of CONvERTIBLE BONDS

On 2 August 2011, the Company entered into the Subscription Agreements pursuant to which the Company has agreed to issue the First Convertible Bonds, the Second Convertible Bonds and the Third Convertible Bonds to the First Subscriber, the Second Subscriber and the Third Subscriber, respectively.

The first Subscription Agreement

Date:

2 August 2011

Parties:

(1) The Company; and
(2) Li Ka Shing (Canada) Foundation, a company incorporated in Canada and is a private foundation registered with the Minister of National Revenue as a registered charity within the meaning of the Income Tax Act (Canada).

To the best knowledge, information and belief of the Directors after having made all reasonable enquires, the First Subscriber and its ultimate beneficial owners are independent third parties not connected with the Company or any of its connected persons.

Principal terms of the first Convertible Bonds

Principal amount HK$1,300 million

Maturity date The date falling on the third anniversary of its issue date.

Interest The First Convertible Bonds bear interest from the issue date of the First Convertible Bonds at the rate of 9% per annum on the principal amount of the First Convertible Bonds outstanding. The interest will be payable by the Company annually in arrears.

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LETTER fROM THE BOARD

Conversion price HK$0.40 per Conversion Share, subject to adjustment in accordance with the terms of the First Convertible Bonds including, among other things, subdivision or consolidation of Shares, the making of a free distribution of Shares, bonus issue, the declaration of a dividend in Shares, capital distribution, issuance of options, rights or warrants, and other dilutive events such as issue of new Shares. Number of Conversion 3,250,000,000 new Shares will be issued upon full conversion Shares issuable of the First Convertible Bonds based on the initial conversion price of HK$0.40.

The Second Subscription Agreement

Date:

2 August 2011

Parties:

(1) The Company; and
(2) China Life Insurance (Overseas) Company Limited, a wholly-owned subsidiary of China Life Insurance (Group) Company. Its main business covers insurance, investment, and provident fund service in Hong Kong and Macau. With “China Life” branding reputation and strong support of the parent group, China Life Insurance (Overseas) Company Limited has been rapidly growing into a leading local insurance company in Hong Kong and Macau.

To the best knowledge, information and belief of the Directors after having made all reasonable enquires, the Second Subscriber and its ultimate beneficial owners are independent third parties not connected with the Company or any of its connected persons.

Principal terms of the Second Convertible Bonds

Principal amount HK$600 million Maturity date The date falling on the third anniversary of its issue date.

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LETTER fROM THE BOARD

Interest The Second Convertible Bonds bear interest from the issue date of the Second Convertible Bonds at the rate of 9% per annum on the principal amount of the Second Convertible Bonds outstanding. The interest will be payable by the Company annually in arrears.
Conversion price HK$0.40 per Conversion Share, subject to adjustment in accordance with the terms of the Second Convertible Bonds including, among other things, subdivision or consolidation of Shares, the making of a free distribution of Shares, bonus issue, the declaration of a dividend in Shares, capital distribution, issuance of options, rights or warrants, and other dilutive events such as issue of new Shares.
Number of Conversion 1,500,000,000 new Shares will be issued upon full conversion Shares issuable of the Second Convertible Bonds based on the initial conversion price of HK$0.40.

The Third Subscription Agreement

Date:

2 August 2011

Parties:

(1) The Company; and
(2) Dr. Lo Ka Shui, who is the chairman and managing director of Great Eagle Holdings Limited and a non-executive director and the chairman of Eagle Asset Management (CP) Limited (manager of the publicly listed Champion Real Estate Investment Trust).

To the best knowledge, information and belief of the Directors after having made all reasonable enquires, the Third Subscriber is an independent third party not connected with the Company or any of its connected persons.

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LETTER fROM THE BOARD

Principal terms of the Third Convertible Bonds

Principal amount HK$100 million Maturity date The date falling on the third anniversary of its issue date. Interest The Third Convertible Bonds bear interest from the issue date of the Third Convertible Bonds at the rate of 9% per annum on the principal amount of the Third Convertible Bonds outstanding. The interest will be payable by the Company annually in arrears.
Conversion price HK$0.40 per Conversion Share, subject to adjustment in accordance with the terms of the Third Convertible Bonds including, among other things, subdivision or consolidation of Shares, the making of a free distribution of Shares, bonus issue, the declaration of a dividend in Shares, capital distribution, issuance of options, rights or warrants, and other dilutive events such as issue of new Shares.
Number of Conversion 250,000,000 new Shares will be issued upon full conversion Shares issuable of the Third Convertible Bonds based on the initial conversion price of HK$0.40.

Other terms of the Convertible Bonds

Set out below is a summary of the other common principal terms of the Convertible Bonds:

Issue price 100% of the principal amount of the Convertible Bonds, payable in full at completion of the Subscription Agreements.
Conversion period Each Bondholder has the right to convert the Convertible Bonds in whole or in part into Conversion Shares at any time on or after the issue date of the Convertible Bonds up to the maturity date.
Redemption at maturity Each Convertible Bond will be redeemed on maturity at a value equal to the aggregate of: (1) 100% of the outstanding principal amount of the Convertible Bonds; and (2) all outstanding interest accrued thereon.

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LETTER fROM THE BOARD

Mandatory Conversion If, at any time prior to the maturity date, the current market price of the Shares is more than HK$1.00 (such cut-off amount being subject to adjustment in the event of any subdivision or consolidation of the Shares) for 60 consecutive trading days, then the Company may give not less than 7 business days’ notice to the Bondholders to mandatorily convert all or any part of the Convertible Bonds. Redemption at the option The Company may, at any time and from time to time, purchase of the Company the Convertible Bonds at any price in the open market or otherwise in compliance with applicable laws and regulations.

The Company may also, at any time up to (and excluding) the commencement of the seven (7) calendar day period ending on (and including) the maturity date, when the principal amount of the Convertible Bonds outstanding is equal to or less than 10% of the original aggregate principal amount issued by the Company, by written notice to the Bondholders elect to redeem the whole or part of the then outstanding principal amount of the Convertible Bonds at an amount equal to 100% of the principal amount of the Convertible Bonds sought to be redeemed as specified in the redemption notice and all unpaid interest thereon.

Transferability The Convertible Bonds will be transferable. The Convertible Bonds may only be assigned or transferred to a connected person subject to compliance with the conditions, approvals, requirements and any other provisions of or under the Stock Exchange or its rules and regulations.
Status The Convertible Bonds will represent direct, unconditional, unsubordinated and unsecured obligations of the Company and will at all times rank pari passu with all existing and future unsubordinated and unsecured obligations of the Company.
Voting A Bondholder will not be entitled to vote at any general meetings of the Company by reason only of it being a Bondholder.

Listing No application will be made for the listing of the Convertible Bonds on the Stock Exchange or any other exchange.

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LETTER fROM THE BOARD

Comparison of conversion price

The initial conversion price of HK$0.40 per Conversion Share was arrived at after arm’s length negotiation between the Company and the Subscribers and represents:

(i) a premium of approximately 8.1% to the closing price of the Shares of HK$0.37 as quoted on the Stock Exchange on the date of the Subscription Agreements;
(ii) a premium of approximately 8.1% to the closing price of the Shares of HK$0.37 as quoted on the Stock Exchange on the Last Trading Day;
(iii) a premium of 11.1% to the average closing price of HK$0.36 per Share for the last 5 consecutive trading days up to and including the Last Trading Day;
(iv) a premium of 15.0% to the average closing price of HK$0.3478 per Share for the last 30 consecutive trading days up to and including the Last Trading Day; and
(v) a premium of approximately 37.9% to the closing price of the Shares of HK$0.29 as quoted on the Latest Practicable Date.

Conversion Shares

Assuming full conversion of the Convertible Bonds at the conversion price of HK$0.40 per Conversion Share, the Convertible Bonds will be convertible into 5,000,000,000 new Shares, representing approximately 24.76% of the existing issued share capital of the Company and approximately 19.85% of the issued share capital of the Company as enlarged by the issue of the Conversion Shares.

The authorized share capital of the Company is HK$500,000,000. The Conversion Shares have a nominal value of HK$50,000,000 and a market value of approximately HK$1,850 million based on the closing price of the Shares of HK$0.37 on 2 August 2011, the date of the Subscription Agreements. The Conversion Shares will rank pari passu in all respects with the Shares then in issue on the relevant conversion date.

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LETTER fROM THE BOARD

Convertible Bonds Conditions Precedent

The obligations of each of the Subscribers under the relevant Subscription Agreement are conditional upon:

(i) the Shareholders passing a resolution in general meeting to authorise the Directors to allot and issue the Conversion Shares and to issue the relevant Convertible Bonds in connection therewith;
(ii) the Stock Exchange having granted the listing of, and permission to deal in, the Conversion Shares with respect to the Convertible Bonds;
(iii) the representations and warranties of the Company set out in the relevant Subscription Agreement not having been breached and remaining true and accurate in all material respects and not misleading in any material respect as at the closing date;
(iv) there being no event existing or having occurred and no condition being in existence which would (had the relevant Convertible Bonds already been issued) constitute an event of default and no event or act having occurred which would constitute an event of default; and
(v) the Second Capital Increase Agreement becoming unconditional in accordance with the terms thereof.

Completion of each of the Subscription Agreements will take place on the fifth business day following the date upon receipt of a notice from the Company notifying the relevant Subscriber that the Convertible Bonds Conditions Precedent have been fulfilled. If the Convertible Bonds Conditions Precedent cannot be fulfilled by 30 October 2011, the Subscription Agreement shall terminate and cease to be of any effect.

Each of the Subscription Agreements is independent of the other and completion of each of the Subscription Agreements is not inter-conditional on the completion of the other Subscription Agreements.

APPLICATION fOR LISTING

The Company will apply to the Listing Committee of the Stock Exchange for listing of, and permission to deal in, the Conversion Shares which may fall to be issued upon conversion of the Convertible Bonds. No application will be made for the listing of the Convertible Bonds on the Stock Exchange or any other stock exchange.

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LETTER fROM THE BOARD

REASONS fOR THE SUBSCRIPTION AGREEMENTS AND USE Of PROCEEDS

For the year ended 31 March 2011, the Group has started to gradually shift its focus to transportation and expressway operation from forest operation and management, timber logging and trading, timber processing, sale of timber products, plantation and trading of seedlings, property development and asset management.

Commencing from January 2011, the Group embarked on a new business in toll road and expressway operation in Inner Mongolia by investing into the Target Company which has an exclusive right to build and operate the Expressway. The Expressway, currently under construction and scheduled to open for traffic in January 2013, is designed to sustain 100 ton trucks whereas most other expressways in the PRC can only allow a maximum of 55 ton trucks. On 21 April 2011, the Company, through Cheer Luck, entered into the First Capital Increase Agreement with the Target Company for the subscription of its 11% equity interest at the consideration of RMB500 million (approximately HK$602 million). The said subscription was completed on 9 May 2011 and the Target Company has been transformed into a Sino-foreign joint venture.

As aforesaid, Cheer Luck has further entered into the Second Capital Increase Agreement with the Target Company pursuant to which Cheer Luck has agreed to subscribe for an additional registered capital of RMB366,888,328 of the Target Company at a total cash consideration of RMB1,818,000,000. Upon Completion, the Group will be interested in a 51% equity interest in the Target Company.

The estimated net proceeds from the issue of the Convertible Bonds would be approximately HK$1,990 million. The Company intends to apply the net proceeds from the issue of the Convertible Bonds to fund the Group’s capital contribution to the Target Company under the Second Capital Increase Agreement and as general working capital of the Company.

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LETTER fROM THE BOARD

SHAREHOLDING Of THE COMPANY

The table below sets out the Company’s shareholding structure as at the Latest Practicable Date and upon the full conversion of the Convertible Bonds.

China Alliance International Holding Group Limited Mr. Cao Zhong_(Note 2) Mr. Fung Tsun Pong(Note 3) First Subscriber Second Subscriber(Note 4) Third Subscriber Public Shareholders Various Convertible Bond Holders Various Warrant Holders Total _Notes:	Shareholding as at the Latest Practicable Date No. of Shares % 4,272,862,068 21.16 2,034,000,000 10.07 2,126,862,449 10.53 — — 1,000,000,000 4.95 101,800,000 0.50 10,655,259,378 52.79 20,190,783,895 100.0	Shareholding immediately after completion and upon full conversion of the Convertible Bonds(Note 1) No. of Shares % 4,272,862,068 16.96 2,034,000,000 8.07 2,126,862,449 8.44 3,250,000,000 12.90 2,500,000,000 9.92 351,800,000 1.39 10,655,259,378 42.32 25,190,783,895 100.0	Shareholding immediately after full conversion of the outstanding convertible bonds issued on 9 feb 2010 and the Convertible Bonds; and full exercise of the outstanding warrants issued on 8 feb 2010 No. of Shares % 4,272,862,068 13.96 2,034,000,000 6.64 2,126,862,449 6.94 3,250,000,000 10.61 2,500,000,000 8.16 351,800,000 1.14 10,655,259,378 34.86 5,050,000,000 16.50 365,000,000 1.19 30,605,783,895 100.0	Shareholding immediately after full conversion of the outstanding convertible bonds issued on 9 feb 2010 and the Convertible Bonds; and full exercise of the outstanding warrants issued on 8 feb 2010 No. of Shares % 4,272,862,068 13.96 2,034,000,000 6.64 2,126,862,449 6.94 3,250,000,000 10.61 2,500,000,000 8.16 351,800,000 1.14 10,655,259,378 34.86 5,050,000,000 16.50 365,000,000 1.19 30,605,783,895 100.0
				100.0

Assuming no further conversion of the convertible bonds of the Company issued on 9 February 2010 and no further exercise of the warrants of the Company issued on 8 February 2010.
Mr. Cao Zhong, the chairman, the chief executive officer and an executive Director is interested in 34,000,000 Shares personally and 2,000,000,000 Shares through Champion Rise International Limited, a company wholly owned by him.
Mr. Fung Tsun Pong, the vice chairman and an executive Director, holds 1,071,362,449 Shares personally and 1,055,500,000 Shares through Ocean Gain Limited, a company wholly owned by him.
The Second Subscriber was deemed to be interested in 1,000,000,000 Shares being held by China Life Trustees Limited which is its wholly owned subsidiary.

— 23 —

LETTER fROM THE BOARD

fUND RAISING ACTIvITIES Of THE COMPANY IN THE LAST 12 MONTHS

On 21 January 2011, the Company allotted and issued 1,800,000,000 Shares to not less than six placees who are third parties independent from the Company through a placing agent at a placing price of HK$0.30 per Share, raising approximately HK$534 million net proceeds, of which approximately HK$450 million was injected into the Target Company as registered capital. The remaining proceeds of approximately HK$84 million will be used as general working capital for the Company. The placing Shares were allotted and issued pursuant to the general mandate granted to the Directors by a resolution of the Shareholders passed at the annual general meeting held on 30 August 2010.

Save as aforesaid, the Company has not conducted other fund raising activity in the 12 months immediately preceding the date of the Subscription Agreements.

LISTING RULES IMPLICATIONS

The Conversion Shares represent approximately 24.76% of the Company’s existing issued share capital and will be issued under a specific mandate to be sought from the Shareholders.

The Convertible Bonds will be transferable. The Convertible Bonds may only be assigned or transferred to a connected person subject to compliance with the conditions, approvals, requirements and any other provisions of or under the Stock Exchange or its rules and regulations. Upon a proposed transfer of any Convertible Bonds, the Company will require evidence from the holders of the Convertible Bonds to ensure that the Convertible Bonds will not be transferred to its connected persons without fulfilling the preset conditions.

EGM

Set out on pages 105 to 108 in this circular is a notice of the EGM, which will be convened and held at 11:00 a.m. on Monday, 19 September 2011, at Boardroom 6, Mezzanine Floor, Renaissance Harbour View Hotel, 1 Harbour Road, Wanchai, Hong Kong, at which resolutions will be proposed to approve the Second Capital Increase Agreement, the Subscription Agreements and the Special Mandate. Voting at the EGM will be by way of poll in accordance with the Listing Rules. As at the Latest Practicable Date, the Second Subscriber is deemed to be interested in 1,000,000,000 (4.95%) Shares and the Third Subscriber was interested in 101,800,000 (0.50%) Shares. Accordingly, the Second Subscriber, the Third Subscriber and their respective associates will abstain from voting for the resolution proposed at the EGM to approve the Subscription Agreements and Special Mandate. No shareholder is required to abstain from voting on the Second Capital Increase Agreement.

— 24 —

LETTER fROM THE BOARD

The form of proxy for use at the EGM is enclosed with this circular. Whether or not you intend to attend the EGM, you are requested to complete the form of proxy in accordance with the instructions printed thereon and return the same to the Company’s Hong Kong branch share registrar, Tricor Progressive Limited at 26/F Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong as soon as practicable but in any event not less than 48 hours before the time appointed for holding the EGM or any adjournment thereof (as the case may be). Completion and return of the form of proxy will not preclude you from attending and voting in person at the EGM or any adjourned thereof (as the case may be) should you so wish.

Save as disclosed in this section above to the best of the knowledge, information and belief of the Directors who have made all reasonable enquires, no Shareholders shall be required to abstain from voting on the resolutions to be approved at the EGM.

RECOMMENDATION

The Directors consider the terms of the Second Capital Increase Agreement and the Subscription Agreements are fair and reasonable and in the interest of the Company and Shareholders as a whole. Accordingly, the Directors recommend the Shareholders to vote in favour of the resolutions to be proposed at the EGM to approve: (a) the Second Capital Increase Agreement; and (b) the Subscription Agreements and the Special Mandate.

ADDITIONAL INfORMATION

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

Yours faithfully, By Order of the Board China Timber Resources Group Limited Cao Zhong Chairman

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fINANCIAL INfORMATION Of THE GROUP

APPENDIX I

(A) fINANCIAL INfORMATION INCORPORATED BY REfERENCE

The audited consolidated financial statements of the Group for each of the three years ended 31 March 2009, 2010 and 2011 together with the relevant notes to the accounts, which are incorporated by reference in this circular, could be found in the Company’s website in section of “Financial Report” under the section of “Investor Relations”. Please refer to the following link for the respective annual reports: http://www.ctrg.com.hk/en_US/003_001_003.htm.

The audited consolidated financial statements of the Group for the year ended 31 March 2011 are set out from page 27 in the Annual Report 2011 of the Company, which was published on 28 June 2011.

The audited consolidated financial statements of the Group for the year ended 31 March 2010 are set out from page 26 in the Annual Report 2010 of the Company, which was published on 28 July 2010.

The audited consolidated financial statements of the Group for the year ended 31 March 2009 are set out from page 25 in the Annual Report 2009 of the Company, which was published on 16 July 2009.

(B) STATEMENT Of INDEBTEDNESS

As at the close of business on 31 July 2011, being the latest practicable date for the purpose of this indebtedness statement prior to the despatch of the circular of the Company,

(a) Borrowings

As at 31 July 2011, the Enlarged Group had outstanding borrowings of approximately HK$954,956,000. The outstanding borrowings represented unsecured borrowings which included the liability component of convertible bond of approximately HK$263,112,000 with outstanding principal amount of approximately HK$282,800,000, the promissory note of approximately HK$285,000,000, secured and interest-bearing bank borrowing of HK$36,000,000 and other unsecured borrowings of HK$370,845,000 of which approximately HK$304 million is interest bearing.

(b) Securities

As at 31 July 2011, certain properties under development with carrying value of approximately HK$230 million of the Enlarged Group had been pledged to secure the bank borrowing of the Enlarged Group.

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fINANCIAL INfORMATION Of THE GROUP

APPENDIX I

(c) Contingent Liabilities

As at 31 July 2011, the Enlarged Group did not have any contingent liabilities.

(d) Capital Commitment

As at 31 July 2011, the Enlarged Group has the following capital commitments:

i. The Group has capital commitments of HK$3 million for the acquisition of property, plant and equipment and of HK$149 million for the investment on properties under development for sale. The Group has agreed with the respective PRC authorities that the total investment for a project development would be approximately RMB850 million. Up to 31 July 2011, the total investment cost incurred in the property development was HK$375 million.
ii. The Target Group has capital commitment of HK$8,245 million for the construction of the expressway located in Inner Mongolia.

Save as aforesaid, and apart from intra-group liabilities, the Enlarged Group did not have any outstanding mortgages, charges, debentures, loan capital, bank overdrafts, loans debt securities or other similar indebtedness, finance leases or hire purchases commitments, liabilities under acceptance or acceptance credits or any guarantee or other material contingent liabilities outstanding as at 31 July 2011.

For the purpose of this indebtedness statement, foreign currency amounts have been translated into Hong Kong dollars at the approximate rate of exchange prevailing as at 1.20.

The Directors have confirmed that there has been no material change in the indebtedness and contingent liabilities of the Enlarged Group since 31 July 2011 up to the Latest Practicable Date.

(C) WORKING CAPITAL SUffICIENCY

Taking into account the expected completion of the Second Equity Subscription in September 2011 and the financial resources available to the Enlarged Group, including the internally generated funds and the available banking and other facilities and the proceeds from issue of the Convertible Bonds, the Directors are of the opinion that the Enlarged Group has sufficient working capital for its present requirements, that is for at least the next 12 months from the date of this circular.

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fINANCIAL INfORMATION Of THE GROUP

APPENDIX I

(D) MATERIAL CHANGES

The Directors confirm that there has been no material change in the financial or trading position of the Group since 31 March 2011, the date to which the latest published audited annual financial statements of the Group were made up.

As disclosed in the annual report of the Company for the year ended 31 March 2011, the Group’s property development operation in Yichang Xinshougang Property Development Company Limited（宜昌新首鋼房地產開發有限公司）(“Yichang Xinshougang”), in Yichang city of Hubei Province, was in steady progress. Pre-sale of residential properties by Yichang Xinshougang commenced in mid-June 2011 and distributable profit from sales is to be shared by the Group and Dafang Properties Development Co. Ltd, （湖北省大方房地產綜合開發公司）on a 60:40 basis.

With regards to the Group’s forest operation in Guyana of South America and in Guangdong Province of the PRC, the flagship store of the Group trading in the name of 紫御 · 尚品 located in Kingkey Banner Center, Nanshan District of Shenzhen（深圳市南山區京基百納廣場）, the tea-oil processing base in Meizhou, Guangdong and the sapling incubation centre in Da Bu County, Guangdong, the Group does not intend to further invest in these areas, but is continuing their existing operations.

The Company has not entered into, and does not propose to enter into, any agreement, arrangement, understanding or undertaking, whether formal or informal and whether express or implied, has not carried on any negotiation (whether concluded or not), and does not have any intention, to dispose of or downsize its existing businesses. However, as is the case with any prudent business corporation, the Company regularly assesses the return on investment of its various businesses. Where any such businesses performs below the expectations of the Board, such as the loss-making Guyana forestry concessions, it will take countermeasures such as improving the efficacy of the management of the business, restructuring, downsizing or (where it is no longer optimal for the Company to continue operating the business) sale or other methods of disposal.

The Company is also currently exploring different methods to deal with the HK$280,000,000 promissory note issued on 9 February 2010 (the “Promissory Note”), in respect of which the Group is in default with respect to the quarter repayments and accrued interest. As at the Latest Practicable Date, the Group has approximately HK$100 million cash. However, the Company has not repaid the defaulted amount under the Promissory Note as the cash flow is reserved for working capital and the holder of the Promissory Note, China Alliance International Holding Group Limited (“China Alliance”), a substantial shareholder of the Company, has not demanded any repayment from the Company. Instead, the Company and China Alliance have been actively exploring alternative repayment methods but no scheme has been mutually agreed yet.

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fINANCIAL INfORMATION Of TARGET GROUP

APPENDIX II

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31 August 2011

The Directors

China Timber Resources Group Limited

Room 1801-07 China Resources Building 26 Harbour Road Wanchai, Hong Kong

Dear Sirs,

We set out below our report on the financial information (the “Financial Information”) regarding 內蒙古准興重載高速公路有限責任公司 (Inner Mongolia Zhunxing Haul Expressway Company Limited, “Zhunxing”) and its subsidiary (hereafter collectively referred to as the “Zhunxing Group”) for each of the years ended 31 December 2008, 2009 and 2010 and the three months ended 31 March 2011 (“Relevant Periods”) and comparative financial information (the “Comparative Financial Information”) of the Zhunxing Group for the three months ended 31 March 2010 for inclusion in the circular of China Timber Resources Group Limited (the “Company”) dated 31 August 2011 (the “Circular”) issued in connection with the Company’s subscription of the 40% equity interest of Zhunxing (the “Subscription”).

Zhunxing was established in the People’s Republic of China (the “PRC”) with limited liability on 6 June 2006 with a registered capital of RMB100 million. The registered capital was increased by RMB100 million each on 19 December 2006, 12 January 2007 and 23 January 2007 respectively. At 31 December 2010 and March 2011, the registered capital of Zhunxing is RMB400 million. Zhunxing is principally engaged in expressway and auxiliary facility investment, operation, management and maintenance.

As at the date of this report, Zhunxing has a wholly-owned subsidiary, 北京市准興隆博管理咨詢有限責任公司 (Beijing Zhunxing Longbo Management Consulting Company Limited*), which was established in the PRC on 30 January 2011. The subsidiary has registered capital and paid-up capital of RMB2,000,000. It has not commenced business as of the date of this report.

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APPENDIX II fINANCIAL INfORMATION Of TARGET GROUP

Both Zhunxing and its subsidiary have adopted 31 December as their financial year end date. The statutory financial statements of Zhunxing were prepared in accordance with the relevant accounting principles and financial regulations applicable to companies established in the PRC and was audited by 長城會計師事務所有限責任公司 (Great Wall Certified Public Accountants Company Limited) for the year ended 31 December 2008 and 中喜會計師事務所有限責任公司 (Zhongxi Certified Public Accountants Company Limited) for the year ended 31 December 2010. No statutory financial statements were prepared for the year ended 31 December 2009.

For the purpose of this report, the directors of Zhunxing have prepared the consolidated financial statements of the Zhunxing Group for the Relevant Periods in accordance with Hong Kong Financial Reporting Standards (“HKFRSs”) issued by the Hong Kong Institute of Certified Public Accountants (the”HKICPA”) (the “Underlying Financial Statements”), including Hong Kong Accounting Standards (“HKASs”) and Interpretation, the applicable disclosure requirements of the Hong Kong Companies Ordinance and the applicable disclosure provisions of the Rules Governing the Listing of Securities on The Stock Exchange of the Hong Kong Limited (“Listing Rules”).

DIRECTOR’S RESPONSIBILITY

The directors of Zhunxing are responsible for the preparation of the Financial Information that gives a true and fair view in accordance with HKFRSs and the applicable disclosure requirement of the Listing Rules, and the Hong Kong Companies Ordinance, and for such internal control as the directors of Zhunxing determine is necessary to enable the presentation of the Financial Information that is free from material misstatement, whether due to fraud or error.

The Financial Information has been prepared by the directors of Zhunxing based on the Underlying Financial Statements, with no adjustments made thereon and in accordance with the applicable disclosure provisions of the Hong Kong Companies Ordinance and the Listing Rules.

REPORTING ACCOUNTANTS’ RESPONSIBILITY

For the financial information for the years ended 31 December 2008, 2009 and 2010 and the three months ended 31 March 2011, our responsibility is to express an opinion on the financial information based on our examination and to report our opinion to you. We examined the Financial Information and carried out such additional procedures as we considered necessary in accordance with Auditing Guideline 3.340 “Prospectuses and the Reporting Accountant” issued by the HKICPA.

— 30 —

APPENDIX II fINANCIAL INfORMATION Of TARGET GROUP

For the financial information for the three months ended 31 March 2010, it is our responsibility to form an independent conclusion, based on our review, on the financial information and to report our conclusion to you. We conducted our review on the financial information in accordance with Hong Kong Standard on Review Engagements 2400 “Engagements to Review Financial Statements” issued by the HKICPA. Our review consists principally of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other procedures and, based thereon, assessing whether the accounting policies and presentation have been consistently applied unless otherwise disclosed. A review excludes audit procedures such as tests of controls and verification of assets, liabilities and transactions. It is substantially less in scope than an audit and therefore provides a lower level of assurance than an audit. Accordingly we do not express an audit opinion on the financial information for the three months ended 31 March 2010.

OPINION — fINANCIAL INfORMATION

In our opinion, the Financial Information set out below, for the purpose of this report, give a true and fair view of the state of affairs of Zhunxing and of the Zhunxing Group as at 31 December 2008, 2009 and 2010 and 31 March 2011 and of the Zhunxing Group’s results and cash flows for the Relevant Periods.

REvIEW CONCLUSION — COMPARATIvE fINANCIAL INfORMATION

On the basis of our review which does not constitute an audit, for the purpose of this report, nothing has come to our attention that causes us to believe the financial information for the three months ended 31 March 2010 is not prepared, in all material aspects, on the same basis adopted in respect of the financial information.

EMPHASIS Of MATTER

Without qualifying our opinion, we draw attention to Note B(1) to the financial information which indicates that the Zhunxing Group’s current liabilities exceeded its current assets by approximately RMB1,648 million, RMB1,900 million, RMB2,283 million and RMB2,288 million as at 31 December 2008, 2009 and 2010 and 31 March 2011 respectively. These conditions indicate the existence of a material uncertainty which may cast significant doubt about the Zhunxing Group’s ability to continue as a going concern.

— 31 —

APPENDIX II fINANCIAL INfORMATION Of TARGET GROUP

A. fINANCIAL INfORMATION

1. Consolidated Statements of Comprehensive Income

Notes Turnover 5 Administrative expenses Other operating expenses 7 Finance costs 6 Loss before income tax 7 Income tax expense 10 Loss and total comprehensive income for the year/period	for the year ended 31 2008 2009 RMB’000 RMB’000 — — 49,437 24,089 118,909 229,146 — — (168,346) (253,235) — — (168,346) (253,235)	December 2010 RMB’000 — 16,728 366,996 352 (384,076) — (384,076)	for the three months ended 31 March 2010 2011 RMB’000 RMB’000 (unaudited) — — 11,678 2,259 260,510 — — 2,526 (272,188) (4,785) — — (272,188) (4,785)

— 32 —

APPENDIX II fINANCIAL INfORMATION Of TARGET GROUP

2. Consolidated Statements of financial Position

Notes Non-current assets Property, plant and equipment 11 Concession intangible assets 12 Total non-current assets Current assets Other receivables and deposits 14 Prepayments 15 Cash and cash equivalents Total current assets Total assets Current liabilities Other payables and accruals 16 Amount due to former shareholding company 18(c) Amount due to a fellow subsidiary 18(c) Amount due to a related company 18(c) Amount due to holding company 18(d) Total current liabilities Net current liabilities Net assets/(liabilities) Capital and reserves Paid-up capital 17 Accumulated losses Total equity/(deficit)	At 31 December 2008 2009 2010 RMB’000 RMB’000 RMB’000 3,401 1,966 1,096 1,656,521 1,656,521 1,656,521 1,659,922 1,658,487 1,657,617 7,080 2,779 2,920 659,753 154,455 206,890 380 14 1 667,213 157,248 209,811 2,327,135 1,815,735 1,867,428 2,118,660 1,912,261 2,393,503 194,651 140,275 45,528 2,015 2,015 — — 2,610 — — — 53,899 2,315,326 2,057,161 2,492,930 (1,648,113) (1,899,913) (2,283,119) 11,809 (241,426) (625,502) 400,000 400,000 400,000 (388,191) (641,426) (1,025,502) 11,809 (241,426) (625,502)	At 31 March 2011 RMB’000 1,092 1,656,521 1,657,613 5,236 231,586 664 237,486 1,895,099 2,442,626 45,528 — — 37,232 2,525,386 (2,287,900) (630,287) 400,000 (1,030,287) (630,287)

— 33 —

fINANCIAL INfORMATION Of TARGET GROUP

APPENDIX II

3. Statements of financial Position

Notes Non-current assets Property, plant and equipment 11 Concession intangible assets 12 Interest in a subsidiary 13 Total non-current assets Current assets Other receivables and deposits 14 Prepayments 15 Cash and cash equivalents Total current assets Total assets Current liabilities Other payables and accruals 16 Amount due to former shareholding company 18(c) Amount due to a fellow subsidiary 18(c) Amount due to a related company 18(c) Amount due to holding company 18(d) Total current liabilities Net current liabilities Net assets/(liabilities) Capital and reserves Paid-up capital 17 Reserves Total equity/(deficit)	At 31 December 2008 2009 2010 RMB’000 RMB’000 RMB’000 3,401 1,966 1,096 1,656,521 1,656,521 1,656,521 — — — 1,659,922 1,658,487 1,657,617 7,080 2,779 2,920 659,753 154,455 206,890 380 14 1 667,213 157,248 209,811 2,327,135 1,815,735 1,867,428 2,118,660 1,912,261 2,393,503 194,651 140,275 45,528 2,015 2,015 — — 2,610 — — — 53,899 2,315,326 2,057,161 2,492,930 (1,648,113) (1,899,913) (2,283,119) 11,809 (241,426) (625,502) 400,000 400,000 400,000 (388,191) (641,426) (1,025,502) 11,809 (241,426) (625,502)	At 31 March 2011 RMB’000 1,092 1,656,521 2,000 1,659,613 3,236 231,586 664 235,486 1,895,099 2,442,626 45,528 — — 37,232 2,525,386 (2,289,900) (630,287) 400,000 (1,030,287) (630,287)

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fINANCIAL INfORMATION Of TARGET GROUP

APPENDIX II

4. Consolidated Statements of Changes in Equity

At 1 January 2008 Total comprehensive income At 31 December 2008 and 1 January 2009 Total comprehensive income At 31 December 2009 and 1 January 2010 Total comprehensive income At 31 December 2010 Total comprehensive income At 31 March 2011 (Unaudited) At 1 January 2010 Total comprehensive income At 31 March 2010	Paid up capital Accumulated losses (note 17) RMB’000 RMB’000 400,000 (219,845) — (168,346) 400,000 (388,191) — (253,235) 400,000 (641,426) — (384,076) 400,000 (1,025,502) — (4,785) 400,000 (1,030,287) 400,000 (641,426) — (272,188) 400,000 (913,614)	Total RMB’000 180,155 (168,346) 11,809 (253,235) (241,426) (384,076) (625,502) (4,785) (630,287) (241,426) (272,188) (513,614)

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fINANCIAL INfORMATION Of TARGET GROUP

APPENDIX II

5. Consolidated Statements of Cash flows

Operating activities Profit/(loss) before income tax Adjustments for: Interest expenses Depreciation of property, plant and equipment Operating loss before working capital changes Decrease/(increase) in other receivables and prepayments (Decrease)/increase in other payables and accruals Net cash (used in)/generated from operating activities Investing activities Purchase of property, plant and equipment Proceeds from disposal of property, plant and equipment Interest paid Net cash generated from/ (used in) investing activities financing activities Proceeds from borrowings from related parties Repayment of borrowings to related parties Net cash generated from/ (used in) financing activities Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at beginning of year/period Cash and cash equivalents at end of year/period, representing cash and bank balances	for the year ended 31 2008 2009 RMB’000 RMB’000 (168,346) (253,235) — — 1,119 81 (167,227) (253,154) 195,869 509,599 (135,857) (206,398) (107,215) 50,047 — — 4,275 1,354 — — 4,275 1,354 102,816 2,610 — (54,377) 102,816 (51,767) (124) (366) 504 380 380 14	December 2010 RMB’000 (384,076) 352 742 (382,982) (52,576) 475,608 40,050 (5) 134 (352) (223) 54,907 (94,747) (39,840) (13) 14 1	for the three months ended 31 March 2010 2011 RMB’000 RMB’000 (unaudited) (272,188) (4,785) — 2,526 318 77 (271,870) (2,182) 31,396 (27,012) 334,735 51,648 94,261 22,454 — (73) — — — (2,526) — (2,599) 732 78,663 (95,000) (97,855) (94,268) (19,192) (7) 663 14 1 7 664

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APPENDIX II fINANCIAL INfORMATION Of TARGET GROUP

B. NOTES TO THE fINANCIAL INfORMATION

1. GENERAL INfORMATION AND BASIS Of PREPARATION

Zhunxing was established in the PRC on 6 June 2006 with limited liability. Its holding company is 首鋼控股有限責任公司 (Shougang Holding Co., Ltd, “Shougang”). The address of the registered office and principal place of business is 烏蘭察布市集寧區民建路 12 號 (No. 12, Min Jian Road, Jining District, Wulanchabu*). The principal activities of Zhunxing are expressway and auxiliary facility investment, operation, management and maintenance.

In preparing the Financial Information, the directors of Zhunxing have given careful consideration to the future liquidity of the Zhunxing Group in light of the net current liabilities of RMB1,648 million, RMB1,900 million, RMB2,283 million and RMB2,288 million respectively at 31 December 2008, 2009, and 2010 and 31 March 2011. These conditions indicates the existence of a material uncertainty that may cast significant doubt on the Zhunxing Group’s ability to continue as a going concern and therefore, the Zhunxing Group may not be able to realise its assets and discharge its liabilities in the normal course of business. The directors of Zhunxing are of the opinion that taking into account the estimated future funds generated from the operation, the Zhunxing Group has sufficient financial resources to meet its financial obligation as they fall due for the foreseeable future.

In addition, the holding company of Zhunxing, Shougang, has agreed to provide adequate financial support to enable the Zhunxing Group to meet in full its financial obligations until the completion of the Subscription. The Company has also agreed that upon the completion of the Subscription, it will provide financial support to the Zhunxing Group to enable it to meet its financial obligations as they fall due for the foreseeable future. Accordingly the Financial Information have been prepared on a going concern basis.

The Financial Information of the Relevant Periods has been prepared in accordance with the accounting policies detailed in Note 3, which conform with HKFRSs. In addition, the Financial Information includes applicable disclosures required by the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (“Listing Rules”).

2. POTENTIAL IMPACT ARISING ON THE NEW HKfRSS NOT YET EffECTIvE

The Zhunxing Group has not yet applied the following new or revised HKFRSs that have been issued but are not yet effective:

Amendments to HKFRS 7	Disclosure — Transfers of Financial Assets	Disclosure — Transfers of Financial Assets
Amendments to HKAS 12	Deferred Tax — Recovery of Underlying Assets			2
HKAS 19 (2011)	Employee Benefits 3
HKAS 27 (2011)	Separate Financial Statements 3
HKAS 28 (2011)	Investments in Associates and Joint Ventures		3
HKFRS 9	Financial Instruments 3
HKFRS 10	Consolidated Financial Statements 3
HKFRS 11	Joint Arrangements 3
HKFRS 12	Disclosure of Interests in Other Entities	3
HKFRS 13	Fair Value Measurement 3

1 Effective for annual periods beginning on or after 1 July 2011.

2 Effective for annual periods beginning on or after 1 January 2012.

3 Effective for annual periods beginning on or after 1 January 2013.

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fINANCIAL INfORMATION Of TARGET GROUP

APPENDIX II

Under HKFRS 9, financial assets are classified into financial assets measured at fair value or at amortised cost depending on the entity’s business model for managing the financial assets and the contractual cash flow characteristics of the financial assets. Fair value gains or losses will be recognised in profit or loss except for those non-trade equity investments, which the entity will have a choice to recognise the gains and losses in other comprehensive income. HKFRS 9 carries forward the recognition and measurement requirements for financial liabilities from HKAS 39, except for financial liabilities that are designated at fair value through profit or loss, where the amount of change in fair value attributable to change in credit risk of that liability is recognised in other comprehensive income unless that would create or enlarge an accounting mismatch. In addition, HKFRS 9 retains the requirements in HKAS 39 for derecognition of financial assets and financial liabilities.

The amendments to HKFRS 7 improve the derecognition disclosure requirements for transfer transactions of financial assets, allow users of financial statements to better understand the possible effects of any risks that may remain with the entity on transferred assets. The amendments also require additional disclosures if a disproportionate amount of transfer transactions are undertaken around the end of a reporting period.

The directors of Zhunxing anticipate that the application of the new or revised HKFRSs will have no material impact on the results and the financial position of the Zhunxing Group.

3. SIGNIfICANT ACCOUNTING POLICIES

(a) Statement of compliance

The Financial Information set out in this report has been prepared in accordance with Hong Kong Financial Reporting Standards (the “HKFRSs”), which collective terms includes Hong Kong Financial Reporting Standards (“HKFRSs”), Hong Kong Accounting Standards (“HKAS”) and Interpretations (collectively referred to as “HKFRSs”) issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”). The Financial Information also complies with the disclosure requirements of the Hong Kong Companies Ordinance and the applicable disclosure provisions of the Listing Rules.

(b) Basis of measurement

The Financial Information has been prepared on the historical cost basis.

(c) functional and presentation currency

The Financial Information are presented in Renminbi (“RMB”), which is the functional currency of Zhunxing.

(d) Basis of consolidation

The consolidated financial statements comprise the financial statements of Zhunxing and its subsidiary (“the Zhunxing Group”). Inter-company transactions and balances between group companies together with unrealised profits are eliminated in full in preparing the consolidated financial statements. Unrealised losses are also eliminated unless the transaction provides evidence of impairment on the asset transferred, in which case the loss is recognised in profit or loss.

The results of subsidiaries acquired or disposed of during the year are included in the consolidated statement of comprehensive income from the effective dates of acquisition or up to the effective dates of disposal, as appropriate. Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies in line with those used by other members of the Zhunxing Group.

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APPENDIX II fINANCIAL INfORMATION Of TARGET GROUP

(e) Subsidiary

A subsidiary is an entity over which Zhunxing is able to exercise control. Control is achieved where Zhunxing, directly or indirectly, has the power 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 are presently exercisable are taken into account.

In Zhunxing’s statement of financial position, investment in subsidiary is stated at cost less impairment loss, if any. The result of subsidiary is accounted for by Zhunxing on the basis of dividend received and receivable.

(f) Property, plant and equipment

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

The cost of property, plant and equipment includes its purchase price and the costs directly attributable to the acquisition of the items.

Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Zhunxing Group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are recognised as an expense in profit or loss during the period in which they are incurred.

Property, plant and equipment are depreciated so as to write off their cost net of expected residual value over their estimated useful lives on a straight-line basis. The useful lives, residual value and depreciation method are reviewed, and adjusted if appropriate, at the end of each reporting period. The useful lives of property, plant and equipment are as follows:

Motor vehicles 8 years Office equipment 5 years

An asset is written down immediately to its recoverable amount if its carrying amount is higher than the asset’s estimated recoverable amount.

The gain or loss on disposal of an item of property, plant and equipment is the difference between the net sale proceeds and its carrying amount, and is recognised in profit or loss on disposal.

(g) Intangible assets

Service concession arrangement

When the Zhunxing Group has a right to charge for usage of concession toll roads (as a consideration for providing construction service in a service concession arrangement), it recognises an intangible asset at cost, which approximates to fair value of the construction services provided. The toll road operation rights are carried at cost less accumulated amortisation and any accumulated impairment losses. Amortisation commences when the toll road is available for use.

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APPENDIX II fINANCIAL INfORMATION Of TARGET GROUP

(h) Service concession arrangements

A service concession arrangement is an arrangement whereby a government or other public sector body contracts with a private operator to develop (or upgrade), operate and maintain infrastructure assets. The grantor controls or regulates what services the operator must provide using the assets, to whom, and at what price, and also controls significant residual interest in the assets at the end of the term of the arrangement.

The Zhunxing Group recognises and measures revenue for the services in relation to the construction and operation of the infrastructure under a service concession arrangement in accordance with HKAS 11 “Construction Contracts” and HKAS 18 “Revenue” respectively.

(i) Construction contracts

Where the outcome of a construction contract including construction of the infrastructure under a service concession arrangement can be estimated reliably, contract revenue and contract costs are recognised in profit or loss by reference to the stage of completion of the contract activity at the end of the reporting period.

Where the outcome of a construction contract cannot be estimated reliably, contract revenue is recognised to the extent of contract costs incurred that it is probable will be recoverable. Contract costs are recognised as expenses in the period in which they are incurred.

When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognised as an expense immediately.

(j) financial instruments

(i) Financial assets

The Zhunxing Group has one category of financial assets being loans and receivables. These assets are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise principally through the provision of goods and services to customers (trade debtors), and also incorporate other types of contractual monetary asset.

Loans and receivables are initially measured at fair value plus transaction costs that are directly attributable to the acquisition of the financial assets. Subsequent to initial recognition, they are carried at amortised cost using the effective interest method, less any identified impairment losses.

(ii) Impairment loss on financial assets

The Zhunxing Group assesses, at the end of each reporting period, whether there is any objective evidence that financial asset is impaired. Financial asset is impaired if there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset and that event has an impact on the estimated future cash flows of the financial asset that can be reliably estimated. Evidence of impairment may include:

significant financial difficulty of the debtor;
a breach of contract, such as a default or delinquency in interest or principal payments;

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fINANCIAL INfORMATION Of TARGET GROUP

APPENDIX II

granting concession to a debtor because of debtor’s financial difficulty; and
it becoming probable that the debtor will enter bankruptcy or other financial reorganisation.

An impairment loss is recognised in profit or loss and directly reduces the carrying amount of financial assets when there is objective evidence that the asset is impaired, and is measured as the difference between the asset’s carrying amount and the present value of the estimated future cash flows discounted at the original effective interest rate. The carrying amount of financial asset is reduced through the use of an allowance account. When any part of financial asset is determined as uncollectible, it is written off against the allowance account for the relevant financial asset.

Impairment losses are reversed in subsequent periods when an increase in the asset’s recoverable amount can be related objectively to an event occurring after the impairment was recognised, subject to a restriction that the carrying amount of the asset at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised.

(iii)

Financial liabilities

The Zhunxing Group has one category of financial liabilities being financial liabilities at amortised cost. These liabilities, are initially recognised at fair value, net of directly attributable transaction costs incurred and are subsequently measured at amortised cost, using the effective interest method. The related interest expense is recognised in profit or loss.

Gains or losses are recognised in profit or loss when the liabilities are derecognised as well as through the amortisation process.

(iv) Effective interest method

The effective interest method is a method of calculating the amortised cost of a financial asset or financial liability and of allocating interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts or payments through the expected life of the financial asset or liability, or where appropriate, a shorter period.

(v) Equity instruments

Equity instruments issued by the Zhunxing Group are recorded at the proceeds received, net of direct issue costs.

(vi) Derecognition

The Zhunxing Group derecognises a financial asset when the contractual rights to the future cash flows in relation to the financial asset expire or when the financial asset has been transferred and the transfer meets the criteria for derecognition in accordance with HKAS 39.

Financial liabilities are derecognised when the obligation specified in the relevant contract is discharged, cancelled or expires.

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fINANCIAL INfORMATION Of TARGET GROUP

APPENDIX II

(k) Leases

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to lessee. All other leases are classified as operating leases.

The Zhunxing Group as lessee

The total rentals payable under the operating leases are recognised in profit or loss on a straight-line basis over the lease term. Lease incentives received are recognised as an integrated part of the total rental expense, over the term of the lease.

(l) Revenue recognition

Service income, including that from operating services provided under service concession arrangements, is recognised when services are provided.

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

(m) Income taxes

Income taxes comprise current tax and deferred tax.

Current tax is based on the profit or loss from ordinary activities adjusted for items that are non-assessable or disallowable for income tax purposes and is calculated using tax rates that have been enacted or substantively enacted at the end of reporting period.

Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the corresponding amounts used for tax purposes. Except for goodwill and recognised assets and liabilities that affect neither accounting nor taxable profits, deferred tax liabilities are recognised for all temporary differences. Deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Deferred tax is measured at the tax rates expected to apply in the period when the liability is settled or the asset is realised based on tax rates that have been enacted or substantively enacted at the end of reporting period.

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

Income taxes are recognised in profit or loss except when they relate to items recognised in other comprehensive income in which case the taxes are also directly recognised in other comprehensive income.

(n) Employee benefits

The Zhunxing Group makes monthly contribution to a state-sponsored defined contribution scheme for the local staff. The contributions are made at a specific percentage on the standard salary pursuant to laws of the PRC and relevant regulation issued by local social security authorities.

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APPENDIX II fINANCIAL INfORMATION Of TARGET GROUP

(o) Impairment of tangible and intangible assets

At the end of each reporting period, the Zhunxing Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss or an impairment loss previously recognised no longer exists or may have decreased.

If the recoverable amount (i.e. the greater of the fair value less costs to sell and value in use) of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately.

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

(p) Capitalisation of borrowing costs

Borrowing costs attributable directly to the acquisition, construction or production of assets which require a substantial period of time to be ready for their intended use or sale, are capitalised as part of the cost of those assets. Income earned on temporary investments of specific borrowings pending their expenditure on those assets is deducted from borrowing costs capitalised. All other borrowing costs are recognised in profit or loss in the period in which they are incurred.

(q) Provisions and contingent liabilities

Provisions are recognised for liabilities of uncertain timing or amount when the Zhunxing Group has a legal or constructive obligation arising as a result of a past event, which will probably result in an outflow of economic benefits that can be reasonably estimated.

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, the existence of which 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.

4. SIGNIfICANT ACCOUNTING ESTIMATES AND JUDGEMENTS

Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

The selection of critical accounting policies, the judgements and other uncertainties affecting application of those policies and the sensitivity of reported results to changes in conditions and assumptions are factors to be considered when reviewing the Financial Information. The principal accounting policies are set forth in note 3. The Zhunxing Group believes the following critical accounting policies involve the most significant judgements and estimates used in the preparation of the Financial Information.

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APPENDIX II fINANCIAL INfORMATION Of TARGET GROUP

Construction revenue recognition relating to service concession arrangement

In accordance with Hong Kong (IFRIC) Interpretation 12 “Service Concession Arrangements”, income and expenses associated with construction work and project management provided under the concession service arrangement are recognised as per Hong Kong Accounting Standards 11 “Construction Contracts” using the percentage of completion method. Revenue generated by construction services rendered by the Zhunxing Group is measured at the fair value of the consideration received or receivable.

Due to the fact that there was no real cash inflow realised/realisable during the construction phase of the infrastructure assets under the service concession arrangement, in order to determine the construction revenue to be recognised during the Relevant Period, the directors of the Zhunxing Group made estimates of the respective amounts by making reference to the service rendered by other relevant competitors on similar industry for construction of toll road for respective PRC local government without the corresponding grant of the related toll road operating rights and entitlement to future toll revenues. The directors of the Zhunxing Group have drawn an analogy of the construction of toll road under the service concession arrangement as if the Zhunxing Group were providing construction and management services. Accordingly, construction revenue under the respective service concession arrangement is recognised at the total expected construction costs of the toll road plus management fees, computed at an estimated percentage of the costs.

In ascertaining the total construction costs, the directors of Zhunxing made estimates based on information available such as budgeted project costs, actual project costs incurred/settled to date, and relevant independent party evidence such as signed construction contracts and their supplements, the related variation orders placed and the underlying construction and design plans. In ascertaining the amount of management fee, the directors have made reference to the practice for determining management fees for management construction contracts transacted by the Zhunxing Group, whereby the fee is determined as an estimated percentage on the total budgeted costs of the project. Actual outcomes in terms of total cost or revenue may be higher or lower than estimated at the statement of financial position date, which would affect the revenue and profit recognised in future years as an adjustment to the amounts recorded to date.

5. TURNOvER

Turnover represents the revenue from construction under the service concession arrangement. No revenue derived during the Relevant Periods as the construction project had been suspended.

6. fINANCE COSTS

				for the three months	for the three months
	for the year	ended 31	December	ended 31 March
	2008	2009	2010	2010	2011
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
				(unaudited)
Interest expenses charged by
holding company	—	—	352	—	2,526

— 44 —

APPENDIX II fINANCIAL INfORMATION Of TARGET GROUP

7. LOSS BEfORE INCOME TAX

Loss before income tax is arrived at after charging:

				for the three months	for the three months
	for the year	ended 31	December	ended 31 March
	2008	2009	2010	2010	2011
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
				(unaudited)
Auditor’s remuneration	—	60	—	—	260
Depreciation of property, plant
and equipment	2,302	81	741	318	77
Operating lease rentals in
respect of office premises	4,890	4,695	4,465	1,152	1,241
Compensation provision
relating to legal claims by
contractors * (note 16)	94,350	229,146	346,799	260,510	—
Other compensation paid to
suppliers *	24,559	—	20,197	—	—

* The compensation provision and compensation paid were arising from the suspension of construction of the expressway commencing from October 2007.

8. STAff COST

				for the three months	for the three months
	for the year	ended 31	December	ended 31 March
	2008	2009	2010	2010	2011
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
				(unaudited)
Staff costs (including
directors) comprise:
Salaries and bonus	20,149	9,026	8,575	2,246	896
Contributions to
defined contribution
pension plans	—	—	23	—	44

— 45 —

fINANCIAL INfORMATION Of TARGET GROUP

APPENDIX II

9. DIRECTORS’ AND EMPLOYEES’ REMUNERATION

(a) Directors’ remuneration

The aggregate amounts of directors’ remunerations are as follows:

Year ended 31 December 2008 Executive director 姜輝(Jiang Hui) 任曉波(Ren Xiao Bo) 唐春橋(Tang Chun Qiao) 劉峻明(Liu Jun Ming) 李長征(Li Chang Zheng) Independent non-executive directors 姜英(Jiang Ying) Year ended 31 December 2009 Executive director 姜輝(Jiang Hui) 任曉波(Ren Xiao Bo) 唐春橋(Tang Chun Qiao) 劉峻明(Liu Jun Ming) 李長征(Li Chang Zheng) Independent non-executive directors 姜英(Jiang Ying)	Salaries RMB$’000 1,500 1,200 1,200 350 504 600 5,354 2,220 1,200 480 — 504 520 4,924	Other emoluments RMB$’000 — — — — — — — — — — — — — —	Total RMB$’000 1,500 1,200 1,200 350 504 600
			5,354

			2,220 1,200 480 — 504 520
			4,924

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fINANCIAL INfORMATION Of TARGET GROUP

APPENDIX II

Salaries Other emoluments RMB$’000 RMB$’000 Year ended 31 December 2010 Executive director 姜輝(Jiang Hui) 1,250 — 任曉波(Ren Xiao Bo) 1,000 — 唐春橋(Tang Chun Qiao) 1,000 — 劉峻明(Liu Jun Ming) — — 李長征(Li Chang Zheng) 420 — Independent non-executive directors 姜英(Jiang Ying) 500 — 4,170 — Three months period ended 31 March 2010 (unaudited) Executive director 姜輝(Jiang Hui) 375 — 任曉波(Ren Xiao Bo) 300 — 唐春橋(Tang Chun Qiao) 300 — 劉峻明(Liu Jun Ming) — — 李長征(Li Chang Zheng) 126 — Independent non-executive directors 姜英(Jiang Ying) 150 — 1,251 — Three months period ended 31 March 2011 Executive director 姜輝(Jiang Hui) — — 任曉波(Ren Xiao Bo) — — 唐春橋(Tang Chun Qiao) — — 劉峻明(Liu Jun Ming) — — 李長征(Li Chang Zheng) — — 陳立軍(Chen Li Jun) 78 — 高志平(Gao Zhi Ping) 103 — 齊鴻傑(Qi Hong Jie) 15 — 周宇(Zhou Yu) 32 — Independent non-executive directors 姜英(Jiang Ying) — — 228 —	Pension RMB$’000 — — 8 — — — 8 — — — — — — — — — — — — — 5 — — — 5	Total RMB$’000 1,250 1,000 1,008 — 420 500
		4,178

		375 300 300 — 126 150
		1,251

		— — — — — 78 108 15 32 —
		233

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

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APPENDIX II fINANCIAL INfORMATION Of TARGET GROUP

None of the directors received compensation for the loss of office as a director of Zhunxing in connection with the management of the affairs for the Relevant Periods.

(b) five highest paid individuals

The emoluments of the five highest paid individuals were as follows:

Staff costs (including directors) comprise: Salaries and bonus Contributions to defined contribution pension plans	for the year ended 31 December for the three months ended 31 March 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited) 5,004 4,924 4,170 1,251 228 — — 8 — 5 5,004 4,924 4,178 1,251 233	for the year ended 31 December for the three months ended 31 March 2008 2009 2010 2010 2011 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited) 5,004 4,924 4,170 1,251 228 — — 8 — 5 5,004 4,924 4,178 1,251 233
		233

The number of highest paid individuals for the Relevant Periods whose emoluments fall within the band set out below is as follows:

Nil to RMB$1,000,000 RMB$1,000,001 to RMB$2,000,000 RMB$2,000,001 to RMB$3,000,000 RMB$3,000,001 to RMB$4,000,000 RMB$4,000,001 to RMB$5,000,000 Number of directors and supervisors	Number of individuals for the year ended 31 December for the three months ended 31 March 2008 2009 2010 2010 2011 (unaudited) 3 3 4 5 4 2 1 1 — — — 1 — — — — — — — — — — — — — 5 5 5 5 4	Number of individuals for the year ended 31 December for the three months ended 31 March 2008 2009 2010 2010 2011 (unaudited) 3 3 4 5 4 2 1 1 — — — 1 — — — — — — — — — — — — — 5 5 5 5 4
		4

10. INCOME TAX EXPENSE

Zhunxing is entitled to a two-year exemption from corporate income tax followed by a 50% reduction in corporate income tax for subsequent three years. As Zhunxing is still in the preparation stage, the exemption period has not commenced.

— 48 —

APPENDIX II fINANCIAL INfORMATION Of TARGET GROUP

11. PROPERTY, PLANT AND EQUIPMENT

The Zhunxing Group and Zhunxing

Cost At 1 January 2008 Disposals At 31 December 2008 and 1 January 2009 Disposals At 31 December 2009 and 1 January 2010 Additions Disposals At 31 December 2010 Additions At 31 March 2011 Accumulated depreciation At 1 January 2008 Charge for the year Written back on disposal At 31 December 2008 Charge for the year Written back on disposal At 31 December 2009 Charge for the year Written back on disposal At 31 December 2010 Charge for the period At 31 March 2011 Carrying amount At 31 December 2008 At 31 December 2009 At 31 December 2010 At 31 March 2011	Office equipment RMB’000 920 — 920 — 920 5 (591) 334 73 407 167 184 — 351 46 — 397 321 (457) 261 17 278 569 523 73 129	Motor vehicles RMB’000 9,267 (5,464) 3,803 (1,783) 2,020 — — 2,020 — 2,020 43 2,118 (1,190) 971 35 (429) 577 420 — 997 60 1,057 2,832 1,443 1,023 963	Total RMB’000 10,187 (5,464) 4,723 (1,783) 2,940 5 (591) 2,354 73 2,427 210 2,302 (1,190) 1,322 81 (429) 974 741 (457) 1,258 77 1,335 3,401 1,966 1,096 1,092

— 49 —

APPENDIX II fINANCIAL INfORMATION Of TARGET GROUP

12. CONCESSION INTANGIBLE ASSETS

The Zhunxing Group and Zhunxing

RMB’000

Carrying amount

At 1 January 2008, 31 December 2008, 2009 and 2010 and 31 March 2011 1,656,521

Zhunxing entered into a service concession arrangement with the local government whereby Zhunxing is required to build the infrastructure of a heavy duty toll expressway designed for coal transportation in the Inner Mongolia and is granted an exclusive operating rights for collecting tolls from drivers using the expressway for a term of 30 years.

According to the relevant government’s approval documents and the relevant regulations, Zhunxing is responsible for the construction of the toll expressway and the acquisition of the related facilities and equipment and it is also responsible for the operations and management, maintenance and overhaul of the toll expressway during the approved operating period. Zhunxing is entitled to operate the toll expressway upon completion for a specified concession period by charging drivers, which amounts are contingent on the extent that the public uses the expressway. The relevant toll expressway assets are required to be returned to the local government authorities when the operating rights periods expire without any payments to be made to Zhunxing. As such, the arrangement is accounted for as a service concession arrangement and the right to charge the users of the public service is recognised as an intangible asset. Zhunxing estimates the fair value of the intangible asset to be equal to the construction costs plus certain margin by management estimation. Amortisation of the intangible asset will be provided for over the operation period on a straight-line basis when the expressway commences its operation over 30 years.

Zhunxing commenced the construction in 2006 and recognised concession intangible assets of RMB1,656,521,000.

During the Relevant Periods, the Zhunxing Group did not recognise any revenue from construction since the suspension of the construction commenced from October 2007.

The construction has been resumed since April 2011.

13. INTEREST IN A SUBSIDIARY

At 31 December 2008 2009 RMB’000 RMB’000 Unlisted shares, at cost — — Particulars of the subsidiary as at 31 March 2011 are as follows:	2010 RMB’000 —	At 31 March 2011 RMB’000 2,000

			Percentage of
		Principal	equity held by
Name of companies	Place of incorporation	activities	the Company
北京市准興隆博管理咨詢	The People’s Republic of	Inactive	100%
有限責任公司(Beijing	China
Zhunxing Longbo
Management Consulting
Company Limited*)

— 50 —

APPENDIX II fINANCIAL INfORMATION Of TARGET GROUP

14. OTHER RECEIvABLES AND DEPOSITS

The carrying amounts of other receivables and deposits at the end of each reporting date approximate their fair values.

15. PREPAYMENTS

The amounts represented prepayments to non-related contractors. The Zhunxing Group made prepayments to contractors in relation to the construction of the expressway.

The carrying amounts of prepayments at the end of each reporting period approximate their fair values.

16. OTHER PAYABLES AND ACCRUALS

As at 31 March 2011, included in other payables and accruals with the amount of approximately RMB915 million were compensation provisions relating to litigation claims from certain contractors arising from suspension of construction of the expressway during the Relevant Periods. All court cases have been finalised and the compensation will be settled in year ending 31 December 2011.

The carrying amounts of other payables and accruals at the end of each reporting period approximate their fair values.

17. PAID-UP CAPITAL

Registered capital Paid-up capital	At 31 December 2008 2009 RMB’000 RMB’000 400,000 400,000 400,000 400,000	2010 RMB’000 400,000 400,000	At 31 March 2011 RMB’000 400,000

			400,000

— 51 —

APPENDIX II fINANCIAL INfORMATION Of TARGET GROUP

18. RELATED PARTY TRANSACTIONS

(a) Related parties of the Zhunxing Group

During the Relevant Periods, for the purpose of this report, the directors are of the view that the following parties are related parties of the Zhunxing Group:

Name of related parties Relationship

首鋼控股有限責任公司 (Shougang Holding Co., Ltd) Holding company 北方通和控股有限公司 (Bei Fang Tong He Holdings Former holding company Limited) 內蒙古准興重載高速公路有限責任公司 (Inner Mongolia Fellow subsidiary Zhunxing Haul Expressway Company Limited) 北京坤鵬偉業有限公司 (Beijing Kun Peng Weiye Related party Company Limited)

(b) Transactions with related parties

				for the three months	for the three months
	for the year	ended 31	December	ended 31 March
	2008	2009	2010	2010	2011
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
Interest expenses
charged by holding
company	—	—	352	—	2,526

(c) Amounts due to former shareholding company, fellow subsidiary and a related company are unsecured, interest free and have no fixed repayment terms.
(d) Amount due to holding company are unsecured, interest bearing at 10% per annum and are repayable within one year.
(e) Key management personnel of the Zhunxing Group are the directors of Zhunxing whose remuneration is set out in note 9 to the Financial Information.

19. CAPITAL MANAGEMENT POLICY

The Zhunxing Group’s objective of managing capital is to safeguard its ability to continue as a going concern in order to provide returns for shareholders and to maintain an optimal capital structure to reduce cost of capital. The Zhunxing Group’s overall strategy remains unchanged for the Relevant Periods.

The capital structure of the Zhunxing Group consists of equity attributable to shareholders of Zhunxing only, comprising paid-up capital and reserves.

The directors of Zhunxing review the capital structure regularly. The Zhunxing Group considers the cost of capital and the risks associated with each class of capital, and will balance its overall capital structure through the payment of dividends, new share issues as well as raising of new debt or the repayment of existing debt.

— 52 —

APPENDIX II fINANCIAL INfORMATION Of TARGET GROUP

20. fINANCIAL RISK MANAGEMENT

Exposure to credit, liquidity, interest rate and currency risks arises in the normal course of Zhunxing’s business. The main risks arising from Zhunxing’s financial instruments in the normal course of Zhunxing’s business are credit risk, liquidity risk, interest rate risk and currency risk. These risks are limited by Zhunxing’s financial management policies and practices described below. Generally, Zhunxing introduces conservative strategies on its risk management.

(a) Interest rate risk

The Zhunxing Group has an interest-bearing loan from its holding company with a fixed rate of 10% per annum as at 31 December 2008, 2009 and 2010 and 31 March 2011. The interest rate is fixed and the interest expenses will be payable within one year. No exposure of interest rate risk is arisen from these loans. Apart from that, the Zhunxing Group has no significant interest-bearing assets and liabilities, and its operating cash flows are substantially independent of changes in market interest rate.

(b) foreign exchange risk

The Zhunxing Group mainly operates in the PRC with most of the transactions denominated and settled in RMB and did not have significant exposure to risk resulting from changes in the foreign currency exchange rates.

(c) Liquidity risk

The policy of the Zhunxing Group is to regularly monitor current and expected liquidity requirements and its compliance with lending covenants, to ensure that it maintains sufficient reserves of cash and adequate committed lines of funding from major financial institutions to meet its liquidity requirements in the short and longer term.

The contractual maturities of financial liabilities of the Zhunxing Group are within one year or on demand.

(d) Credit risk

The Zhunxing Group’s maximum exposure to credit risk in the event of the counterparties failure to perform their obligations at the end of each reporting period in relation to each class of recognised financial assets is the carrying amount of those assets as stated in the consolidated statements of financial position.

The credit risk on bank deposits is limited because the counterparties are banks with high credit-ratings assigned by state-owned banks in the PRC.

21. COMMITMENTS

Operating lease commitments — lessee

The Zhunxing Group leases certain office premises under operating leases. The duration of lease ranges from one to five years. Lease payments are usually negotiated to reflect market rentals.

— 53 —

APPENDIX II fINANCIAL INfORMATION Of TARGET GROUP

The Zhunxing Group had future aggregate minimum lease payments under non-cancelable operating leases in respect of the premises as follows:

Within one year Within two to five years Capital commitments Contracted for but not provided for	At 31 December 2008 2009 2010 RMB’000 RMB’000 RMB’000 4,660 4,465 1,561 5,990 1,561 — 10,650 6,026 1,561 At 31 December 2008 2009 2010 RMB’000 RMB’000 RMB’000 7,270,857 7,270,857 7,228,684	At 31 March 2011 RMB’000 2,463 2,997
		5,460

		At 31 March 2011 RMB’000 7,228,684

22. SUMMARY Of fINANCIAL ASSETS AND fINANCIAL LIABILITIES BY CATEGORY

The carrying amounts of the Zhunxing Group’s financial assets and financial liabilities as recognised at the end of each reporting period may be categorised as follows:

financial assets Loans and receivables (including bank and cash balances) financial liabilities Financial liabilities measured at amortised cost	At 2008 RMB’000 667,213 2,315,326	31 December 2009 RMB’000 157,248 2,057,161	At 31 March 2010 2011 RMB’000 RMB’000 209,811 237,486 2,492,930 2,525,386	At 31 March 2010 2011 RMB’000 RMB’000 209,811 237,486 2,492,930 2,525,386

				2,525,386

— 54 —

APPENDIX II fINANCIAL INfORMATION Of TARGET GROUP

C. SUBSEQUENT fINANCIAL STATEMENTS

No audited consolidated financial statements have been prepared for the Zhunxing Group in respect of any period subsequent to 31 March 2011.

Yours faithfully

BDO Limited

Certified Public Accountants

Choi Man On

Practising Certificate number P02410

Hong Kong

— 55 —

UNAUDITED PRO fORMA fINANCIAL INfORMATION Of THE ENLARGED GROUP

APPENDIX III

A. UNAUDITED PRO fORMA fINANCIAL INfORMATION Of THE ENLARGED GROUP

1. Introduction to the unaudited pro forma financial information

The accompanying unaudited pro forma financial information of the Enlarged Group, comprising the unaudited pro forma consolidated statement of financial position, consolidated income statement, consolidated statement of comprehensive income and consolidated statement of cash flows, have been prepared on the basis of the notes set out below for the purpose of illustrating the effect of the subscription of the 40% equity interest of the Target Company by the Group (the “Subscription”) as if the Subscription had taken place on (i) 31 March 2011 for the unaudited pro forma consolidated statement of financial position; and (ii) on 1 April 2010 for the unaudited pro forma consolidated income statement, consolidated statement of comprehensive income and consolidated statement of cash flows.

The unaudited pro forma financial information of the Enlarged Group has been prepared in accordance with Rule 4.29(1) and Rule 14.69(4)(a)(ii) of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited. It has been prepared by the Directors of the Company for illustrative purposes only.

The unaudited pro forma financial information of the Enlarged Group is based upon the audited consolidated financial statements of the Group for the year ended 31 March 2011, which has been extracted from the Company’s annual report for the year then ended and the audited financial information of the Target Group as extracted from the accountants’ report thereon set out Appendix II to this circular, after giving effect to the pro forma adjustments described in the accompanying notes. These unaudited pro forma financial information adjustments of the Subscription are (i) directly attributable to the Subscription and not relating to other future events and decision and (ii) factually supportable based on the Second Equity Subscription.

The unaudited pro forma financial information of the Enlarged Group is based on a number of assumptions, estimates and uncertainties and currently available information. As a result of these assumptions, estimates and uncertainties, the accompanying unaudited pro forma financial information of the Enlarged Group does not purport to describe the true picture of the financial position, results of operations and cash flows of the Enlarged Group that would have been attained had the Subscription been completed as at the specified dates. Further, the unaudited pro forma financial information of the Enlarged Group does not purport to predict the future financial position, results of operations or cash flows of the Enlarged Group.

— 56 —

UNAUDITED PRO fORMA fINANCIAL INfORMATION Of THE ENLARGED GROUP

APPENDIX III

The unaudited pro forma financial information of the Enlarged Group should be read in conjunction with the historical financial information of the Group as set out in the annual report of the Company for the year ended 31 March 2011 and other financial information included elsewhere in this circular.

2. Unaudited pro forma consolidated statement of financial position

					Unaudited
		Audited			pro forma
	Audited	consolidated			consolidated
	consolidated	statement			statement
	statement	of financial			of financial
	of financial	position of			position of
	position of	the Target			the Enlarged
	the Group	Group			Group
	as at 31	as at 31			as at 31
	March	March	Pro forma	Pro forma	March
	2011	2011	adjustment	adjustment	2011
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
			Note 2	Note 3
Non-current assets
Investment property	49,800	—			49,800
Property, plant and
equipment	134,260	1,294			135,554
Other properties under
development	194,341	—			194,341
Prepaid lease payments	32,977	—			32,977
Biological assets	95,781	—			95,781
Forest concession rights	521,643	—			521,643
Concession intangible assets	—	1,963,640		3,387,090	5,350,730
Long term prepayments	9,004	—			9,004
Derivative financial
instruments	213,094	—			213,094
Interest in a subsidiary	—	—	2,747,700	(2,747,700)	—
	1,250,900	1,964,934			6,602,924
Current assets
Properties under
development for sale	1,077,653	—			1,077,653
Inventories	135,232	—			135,232
Trade and other receivables	51,908	280,730			332,638
Prepaid lease payments	657	—			657
Cash and bank balances	591,575	787			592,362
	1,857,025	281,517			2,138,542

— 57 —

UNAUDITED PRO fORMA fINANCIAL INfORMATION Of THE ENLARGED GROUP

APPENDIX III

					Unaudited
		Audited			pro forma
	Audited	consolidated			consolidated
	consolidated	statement			statement
	statement	of financial			of financial
	of financial	position of			position of
	position of	the Target			the Enlarged
	the Group	Group			Group
	as at 31	as at 31			as at 31
	March	March	Pro forma	Pro forma	March
	2011	2011	adjustment	adjustment	2011
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
			Note 2	Note 3
Current liabilities
Trade and other payables	92,722	2,895,490			2,988,212
Promissory note	284,797	—			284,797
Deferred government grant	9,277	—			9,277
Amount due to a joint
venture partner	59,270	—			59,270
Amount due to a director	12,446	—			12,446
Amount due to holding
company	—	44,135			44,135
Amount due to former
shareholding company	—	53,969			53,969
Borrowings	6,164	—			6,164
	464,676	2,993,594			3,458,270
Net current assets/
(liabilities)	1,392,349	(2,712,077)			(1,319,728)
Total assets less current
liabilities	2,643,249	(747,143)			5,283,196
Non-current liabilities
Deferred tax liabilities	1,574	—			1,574
Deferred government grants	116,407	—			116,407
Convertible bond	263,112	—			263,112
Acreage fees payable	11,020	—			11,020
	392,113	—			392,113
Net assets/(liabilities)	2,251,136	(747,143)			4,891,083

— 58 —

UNAUDITED PRO fORMA fINANCIAL INfORMATION Of THE ENLARGED GROUP

APPENDIX III

					Unaudited
		Audited			pro forma
	Audited	consolidated			consolidated
	consolidated	statement			statement
	statement	of financial			of financial
	of financial	position of			position of
	position of	the Target			the Enlarged
	the Group	Group			Group
	as at 31	as at 31			as at 31
	March	March	Pro forma	Pro forma	March
	2011	2011	adjustment	adjustment	2011
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
			Note 2	Note 3
Capital and reserves
Share capital	198,429	474,160	493,513	(967,673)	198,429
Reserves	2,037,509	(1,221,303)	2,254,187	(1,032,884)	2,037,509
Equity attributable to equity
holders of the Company	2,235,938	(747,143)			2,235,938
Non-controlling interests	15,198	—		2,639,947	2,655,145
Total equity/(deficit)	2,251,136	(747,143)			4,891,083

— 59 —

UNAUDITED PRO fORMA fINANCIAL INfORMATION Of THE ENLARGED GROUP

APPENDIX III

3. Unaudited pro forma consolidated income statement

Turnover Cost of sales Gross loss Gain on change in fair value of investment property Loss on change in fair value less costs to sell of biological assets Change in fair value of derivative financial instrument Other income and other gains or losses Selling and administrative expenses Finance costs Other operating expenses Loss before taxation Taxation charge Loss for the year Attributable to: Owners of the Company Non-controlling interests Loss for the year	Audited consolidated income statement of the Group for the year ended 31 March 2011 Audited consolidated statement of comprehensive income of the Target Group for the year ended 31 December 2010 Pro forma adjustment HK$’000 HK$’000 HK$’000 Note 4 13,332 — (16,485) — (3,153) — 1,157 — (22,458) — (67,726) 6,054 — (71,208) (19,829) (184) (417) — (435,038) (157,518) (455,284) (12) — (157,530) (455,284) (153,670) (455,284) 223,089 (3,860) — (223,089) (157,530) (455,284)	Unaudited pro forma consolidated income statement of the Enlarged Group for the year ended 31 March 2011 HK$’000 13,332 (16,485) (3,153) 1,157 (22,458) (67,726) 6,054 (91,037) (601) (435,038) (612,802) (12) (612,814) (385,865) (226,949) (612,814)

— 60 —

UNAUDITED PRO fORMA fINANCIAL INfORMATION Of THE ENLARGED GROUP

APPENDIX III

4. Unaudited pro forma consolidated statement of comprehensive income

					Unaudited
			Audited		pro forma
	Audited		consolidated		consolidated
	consolidated		statement of		statement of
	statement of	comprehensive			comprehensive
	comprehensive		income of the		income of the
	income of the	Target Group			Enlarged
	Group for the		for the year		Group for the
	year ended 31		ended 31	Pro forma	year ended 31
	March 2011	December 2010		adjustment	March 2011
	HK$’000		HK$’000	HK$’000	HK$’000
				Note 4
Loss for the year	(157,530)		(455,284)		(612,814)
Other comprehensive income:
Exchange difference on
translation of financial
statements of foreign
operation	49,245		—		49,245
Other comprehensive income
for the year, net of tax	49,245		—		49,245
Total comprehensive income
for the year	(108,285)		(455,284)		(563,569)

Total comprehensive income
attributable to
Owners of the Company	(103,599)		(455,284) 223,089		(335,794)
Non-controlling interests	(4,686)		—	(223,089)	(227,775)
	(108,285)		(455,284)		(563,569)

— 61 —

UNAUDITED PRO fORMA fINANCIAL INfORMATION Of THE ENLARGED GROUP

APPENDIX III

5. Unaudited pro forma consolidated statement of cash flows

		Audited		Unaudited
	Audited	consolidated		pro forma
	consolidated	statement of		consolidated
	statement of	cash flows of		statement of
	cash flows	the Target		cash flows of
	of the Group	Group		the Enlarged
	for the year	for the year		Group
	ended 31	ended 31		for the year
	March	December	Pro forma	ended 31
	2011	2010	adjustment	March 2011
	HK$’000	HK$’000	HK$’000	HK$’000
Cash flow from operating
activities
Loss before income tax	(157,518)	(455,284)		(612,802)
Adjustments for:
Interest income	(161)	—		(161)
Interest expenses	184	417		601
Depreciation of property,
plant and equipment	11,269	880		12,149
Change in fair value of
derivative financial
instrument	67,726	—		67,726
Gain on change in fair
value of investment
property	(1,157)	—		(1,157)
Loss on change in fair
value less costs to sell
of biological assets	22,458	—		22,458
Release of prepaid lease
payment	657	—		657
Amortisation of forest
concession rights	6,896	—		6,896
Loss on deregistration of
a subsidiary	27	—		27
Gain on disposal of
property, plant and
equipment	(163)	—		(163)
Write down of
inventories, net	5,293	—		5,293
Operating loss before
changes in working
capital	(44,489)	(453,987)		(498,476)

— 62 —

UNAUDITED PRO fORMA fINANCIAL INfORMATION Of THE ENLARGED GROUP

APPENDIX III

		Audited		Unaudited
	Audited	consolidated		pro forma
	consolidated	statement of		consolidated
	statement of	cash flows of		statement of
	cash flows	the Target		cash flows of
	of the Group	Group		the Enlarged
	for the year	for the year		Group
	ended 31	ended 31		for the year
	March	December	Pro forma	ended 31
	2011	2010	adjustment	March 2011
	HK$’000	HK$’000	HK$’000	HK$’000
Increase in inventories	(13,055)	—		(13,055)
Increase in trade and other
receivables	(11,666)	(62,324)		(73,990)
Increase in trade and other
payables	42,973	563,785		606,758
Decrease in acreage fees
payable	(63)	—		(63)
Increase of biological
assets due to plantation
expenditure incurred	(11,022)	—		(11,022)
Decrease of biological
assets due to direct sales	1,409	—		1,409
Effect of foreign exchange
difference	(331)	—		(331)
Cash (used in)/generated
from operations	(36,244)	47,474		11,230
Interest received	161	—		161
Interest paid	(4,579)	(417)		(4,996)
Overseas tax paid	(12)	—		(12)
Net cash (used in)/
generated from operating
activities	(40,674)	47,057		6,383

— 63 —

UNAUDITED PRO fORMA fINANCIAL INfORMATION Of THE ENLARGED GROUP

APPENDIX III

		Audited		Unaudited
	Audited	consolidated		pro forma
	consolidated	statement of		consolidated
	statement of	cash flows of		statement of
	cash flows	the Target		cash flows of
	of the Group	Group		the Enlarged
	for the year	for the year		Group
	ended 31	ended 31		for the year
	March	December	Pro forma	ended 31
	2011	2010	adjustment	March 2011
	HK$’000	HK$’000	HK$’000	HK$’000
Cash flow from investing
activities
Purchase of property, plant
and equipment	(12,759)	(6)		(12,765)
Additions of properties
under development for
sale	(48,792)	—		(48,792)
Additions of other
properties under
development	(1,699)	—		(1,699)
Net decrease in long term
prepayments	1,746	—		1,746
Proceeds from disposal
of property, plant and
equipment	2,547	159		2,706
Net cash (used in)/
generated from investing
activities	(58,957)	153		(58,804)
Cash flows from
financing activities
Repayment of borrowings	(5,696)	—		(5,696)
Repayment of borrowings
to related parties	—	(112,313)		(112,313)
Proceed from placement of
share, net of placement	534,556	—		534,556
Proceed from share
issued upon exercise of
warrants	66,042	—		66,042
Proceed from a joint
venture partner	59,270	—		59,270
Proceeds from borrowings	6,164	—		6,164
Proceeds from borrowing
from related parties	—	65,087		65,087
Advance from a director	10,446	—		10,446

— 64 —

UNAUDITED PRO fORMA fINANCIAL INfORMATION Of THE ENLARGED GROUP

APPENDIX III

		Audited		Unaudited
	Audited	consolidated		pro forma
	consolidated	statement of		consolidated
	statement of	cash flows of		statement of
	cash flows	the Target		cash flows of
	of the Group	Group		the Enlarged
	for the year	for the year		Group
	ended 31	ended 31		for the year
	March	December	Pro forma	ended 31
	2011	2010	adjustment	March 2011
	HK$’000	HK$’000	HK$’000	HK$’000
Net cash (used in)/
generated from financing
activities	670,782	(47,226)		623,556
Net increase/(decrease)
in cash and cash
equivalents	571,151	(16)		571,135
Cash and cash equivalents
at beginning of year	19,759	17		19,776
Effect of foreign exchange
rate changes	665	—		665
Cash and cash equivalents
at end of year	591,575	1		591,576

— 65 —

UNAUDITED PRO fORMA fINANCIAL INfORMATION Of THE ENLARGED GROUP

APPENDIX III

Notes to unaudited pro forma financial information

The directors of the Company are of the opinion that the subscription of the 11% equity interest in the Target Company in April 2011 and 40% equity interest in the Target Company, in aggregate 51% equity interest, are in substance acquisition of assets, instead of an acquisition of business and therefore is excluded from the scope of Hong Kong Financial Reporting Standard 3 “Business Combinations” (“HKFRS 3”) issued by the HKICPA and the pro forma adjustments have been made on this basis.
According to the First Capital Increase Agreement, the Group acquired 11% equity interest in the Target Company by way of capital contribution of RMB500,000,000, equivalent to HK$592,700,000. HK$58,604,000 of the capital contribution will be allocated to the registered capital account and the remaining contribution of HK$534,096,000 will be allocated to the capital reserve account of the Target Company.

Pursuant to the Second Capital Increase Agreement, the Group agreed to subscribe for the additional registered capital of RMB366,888,328 of the Target Company at a total cash consideration of RMB1,818,000,000, equivalent to HK$2,155,000,000. Upon Completion, HK$493,513,000 of the capital contribution will be allocated to the registered capital account and the remaining contribution of HK$2,254,187,000 will be allocated to the capital reserve account of the Target Company. The unaudited pro forma adjustments represents the increase in investment in the Target Company by the Group, and capital and capital reserve accounts of the Target Company.

The adjustment represented (i) the cost allocation adjustment to the intangible assets in the assets acquired by the Group, and (ii) the elimination of the Group’s investment in the Target Group against the capital and reserves of the Target Company and non-controlling interests of the Target Group upon Completion.

As the principal asset acquired in the Subscription is an “concession rights” held by the Target Group, for simplicity, the difference between the consideration and the carrying amount of the identified assets acquired and liabilities assumed of HK$3,387,090,000 is allocated to the cost of concession rights instead of allocation to the other identified assets acquired and liabilities of the Target Group. The management confirmed that they will apply consistent accounting treatment upon Completion.

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UNAUDITED PRO fORMA fINANCIAL INfORMATION Of THE ENLARGED GROUP

APPENDIX III

The cost allocation in respect of identified assets and liabilities of the Target Group as at 31 March 2011 is analysed as follows:

Property, plant and equipment Concession intangible assets Trade and other receivables Cash and bank balances Trade and other payables Amount due to holding company Amount due to former shareholding company Capital contribution by the Group (note 2) Total assets of the Target Group after capital contribution Net assets shared by the Group @51% Net assets shared by non-controlling interests @49% (5,387,647,000 X 49%)	Carrying amount HK$’000 1,294 1,963,640 280,730 787 (2,895,490) (44,135) (53,969) (747,143)	Cost allocation HK$’000 — 3,387,090 — — — — — 3,387,090	Amount HK$’000 1,294 5,350,730 280,730 787 (2,895,490) (44,135) (53,969) 2,639,947 2,747,700 5,387,647 2,747,700 2,639,947

The management has assessed whether there is any impairment on the concession intangible assets as at 31 March 2011 in accordance with HKAS 36 “Impairment of Assets”, based on the net cash flows to be generated from the expressway during the operation period, the management considers that there is no impairment on the concession intangible assets as at 31 March 2011 as if the Subscription was completed on the same date. The management confirmed that they will apply consistent accounting policies and principal assumptions to assess impairment of concession intangible assets in subsequent reporting periods in accordance with the requirements of HKAS 36.

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UNAUDITED PRO fORMA fINANCIAL INfORMATION Of THE ENLARGED GROUP

APPENDIX III

On Completion of the Subscription, the fair value of net identifiable assets, liabilities and contingent liabilities of the Target Group will have to be reassessed. As a result of the assessment, the cost allocation adjustment to the concession intangible assets may be different from that estimated as stated above for the purpose of preparation of the unaudited pro forma financial information. Accordingly, the actual fair value at the completion date of the transaction may be different from that presented above.

The adjustment reflected the non-controlling interests’ share of loss of the Target Group for the year.
For the purpose of the unaudited pro forma financial information of the Enlarged Group, amounts expressed in Renminbi have been translated to Hong Kong dollars at the rate of RMB1: HK$1.1854, which is the prevailing exchange rate as at 31 March 2011.

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UNAUDITED PRO fORMA fINANCIAL INfORMATION Of THE ENLARGED GROUP

APPENDIX III

B. REPORT fROM BDO LIMITED

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31 August 2011

The Board of Directors China Timber Resources Group Limited Room 1801-07 China Resources Building 26 Harbour Road Wanchai, Hong Kong

Dear Sirs,

We report on the unaudited pro forma financial information (the “Unaudited Pro Forma Financial Information”) of China Timber Resources Group Limited (the “Company”) and its subsidiaries (collectively referred to as the “Group”) set out on pages 56 to 68 in Appendix III of the circular dated 31 August 2011, which has been prepared by the directors of the Company, solely for illustrative purposes only, to provide information about how the subscription of 40% equity interest in Inner Mongolia Zhunxing Haul Expressway Company Limited (“Zhunxing”) might have affected the financial information presented. The basis of preparation of the Unaudited Pro Forma Financial Information is set out on page 56 of the Circular.

Respective Responsibilities of Directors of the Company and Reporting Accountants

It is the responsibility solely of the directors of the Company to prepare the Unaudited Pro Forma Financial Information in accordance with paragraph 4.29 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”) and with reference to Accounting Guideline 7 “Preparation of Pro Forma Financial Information for Inclusion in Investment Circulars” issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”).

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UNAUDITED PRO fORMA fINANCIAL INfORMATION Of THE ENLARGED GROUP

APPENDIX III

It is our responsibility to form an opinion, as required by paragraph 4.29(7) of the Listing Rules, on the Unaudited Pro Forma Financial Information and to report our opinion to you. We do not accept any responsibility for any reports previously given by us on any financial information used in the compilation of the Unaudited Pro Forma Financial Information beyond that owed to those to whom those reports were addressed by us at the dates of their issue.

Basis of Opinion

We conducted our work in accordance with Hong Kong Standard on Investment Circular Reporting Engagements 300 “Accountants’ Reports on Pro Forma Financial Information in Investment Circulars” issued by the HKICPA. Our work consisted primarily of comparing the unadjusted financial information with source documents, considering the evidence supporting the adjustments and discussing the Unaudited Pro Forma Financial Information with the directors of the Company. The engagement did not involve independent examination of any of the underlying financial information.

We planned and performed our work so as to obtain the information and explanations we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the Unaudited Pro Forma Financial Information has been properly compiled by the directors of the Company on the basis stated, that such basis is consistent with the accounting policies of the Group and that the adjustments are appropriate for the purpose of the Unaudited Pro Forma Financial Information as disclosed pursuant to paragraph 4.29(1) of the Listing Rules.

Our work did not constitute an audit or review performed in accordance with Hong Kong Standards on Auditing or Hong Kong Standards on Review Engagements issued by the HKICPA, and accordingly, we do not express any such audit or review assurance on the Unaudited Pro Forma Financial Information.

The Unaudited Pro Forma Financial Information is for illustrative purpose only, based on the judgments and assumptions of the directors of the Company, and, because of its hypothetical nature, it does not provide any assurance or indication that any event will take place in the future and may not be indicative of:

the financial position of the Enlarged Group as at 31 March 2011 or any future date; or
the results and cash flows of the Enlarged Group for the year ended 31 March 2011 or any future periods.

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UNAUDITED PRO fORMA fINANCIAL INfORMATION Of THE ENLARGED GROUP

APPENDIX III

Opinion

In our opinion:

a. the Unaudited Pro Forma Financial Information has been properly compiled by the directors of the Company on the basis stated;
b. such basis is consistent with the accounting policies of the Group; and
c. the adjustments are appropriate for the purposes of the Unaudited Pro Forma Financial Information as disclosed pursuant to paragraph 4.29(1) of the Listing Rules.

Yours faithfully

BDO Limited

Certified Public Accountants

Choi Man On

Practising Certificate number P02410

Hong Kong

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MANAGEMENT DISCUSSION AND ANALYSIS Of THE TARGET GROUP

APPENDIX Iv

The Target Company engages in toll road and expressway operation and management in Inner Mongolia with an exclusive right to build and operate the first heavy-duty toll expressway designed for coal transportation in the Inner Mongolia for 30 years (excluding the construction period).

RESULTS

The results of operations of the Target Group for each of the three years ended 31 December 2008, 2009 and 2010 and the three months ended 31 March 2010 and 2011 (the “Relevant Periods”) are contained in Appendix II – Financial Information of Target Group herein.

During the Relevant Periods, the Target Group had not generated any revenue from its operations.

Turnover

During the Relevant Periods, the Target Group recorded no turnover because construction of the Expressway was suspended. The Expressway is still under construction.

Administrative expenses and other operating expenses

The Target Group incurred administrative expenses of approximately RMB49,437,000, RMB24,089,000 and RMB16,728,000 for the years ended 31 December 2008, 2009 and 2010 and approximately RMB11,678,000 and RMB2,259,000 for the three months ended 31 March 2010 and 2011 respectively. The decrease in administrative expenses throughout the years was mainly due to suspension of construction of the Expressway

The Target Group incurred other operating expenses of approximately RMB118,909,000, RMB229,146,000 and RMB366,996,000 for the years ended 31 December 2008, 2009 and 2010 and approximately RMB260,510,000 and nil for the three months ended 31 March 2010 and 2011 respectively. These other operating expenses represent the compensation provision resulting from litigations with contractors and other compensation to suppliers due to suspension of construction of the Expressway during the Relevant Periods.

Loss for the year and total comprehensive income for the year

The Target Company recorded a loss of approximately RMB168,346,000, RMB253,235,000 and RMB384,076,000 for the years ended 31 December 2008, 2009 and 2010 and approximately RMB272,188,000 and RMB4,785,000 for the three months ended 31 March 2010 and 2011 respectively. The substantial losses incurred for the three years ended 31 December 2010 were primarily contributed by the compensation costs incurred due to suspension of construction of the Expressway.

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MANAGEMENT DISCUSSION AND

APPENDIX Iv

ANALYSIS Of THE TARGET GROUP

CAPITAL STRUCTURE, LIQUIDITY AND fINANCIAL RESOURCES

As the Expressway is still under construction, the Target Group has recorded no turnover during the Relevant Periods. For the three years ended 31 December 2008, 2009 and 2010 and the three months ended 31 March 2011, losses before taxation of the Target Group are approximately RMB168 million, RMB253 million, RMB384 million and RMB5 million respectively.

As at 31 December 2008, the net assets of the Target Group were approximately RMB12 million. As at 31 December 2009 and 2010 and 31 March 2011, the net liabilities of the Target Group were approximately RMB241 million, RMB626 million and RMB630 million respectively. In addition, the Target Group’s net current liabilities were approximately RMB1,648 million, RMB1,900 million, RMB2,283 million and RMB2,288 million as at 31 December 2008, 2009 and 2010 and 31 March 2011 respectively. The change from a net assets position to a net liabilities position starting from 2009 onward was due to the compensations claimed by contractors arising from the suspension of construction of the Expressway. The accruals was amounted to approximately RMB915 million as at 31 March 2011. All court cases have been finalised or settled by mutual agreement with the claimants by the Target Company.

The cash and cash equivalents held by the Target Group were approximately RMB380,000, RMB14,000, RMB1,000 and RMB664,000 as at 31 December 2008, 2009, 2010 and 31 March 2011 respectively. The low level of cash and bank balances were due to zero turnover during the Relevant Periods.

As at 31 March 2011, the Target Group has no outstanding bank borrowings. However, the Target Group had outstanding borrowings of approximately RBM45 million from Tong He, its former equityholder; and approximately RMB37 million from 首鋼控股有限責任公司 (Shougang Holdings Limited), its existing equityholder. The amounts due to Tong He is unsecured, interest free and have no fixed repayment terms while the amount due to its existing equityholder is unsecured, with interest bearing of 10% per annum and are repayable within one year.

The Target Group did not use any financial instrument for hedging purposes during the Relevant Periods.

SIGNIfICANT INvESTMENTS

There was no significant investment held by the Target Group during the Relevant Periods except the Expressway.

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MANAGEMENT DISCUSSION AND ANALYSIS Of THE TARGET GROUP

APPENDIX Iv

MATERIAL ACQUISITIONS AND DISPOSALS

There was no material acquisitions and disposals of subsidiaries and associated companies during the Relevant Periods.

EMPLOYEES AND RETIREMENT BENEfIT OBLIGATIONS

The Target Group had approximately 140, 40 and 35 employees in the PRC as at 31 December 2008, 2009 and 2010 respectively, and approximately 35 and 40 employees in the PRC as at 31 March 2010 and 2011 respectively. The Target Group implements remuneration and retirement benefit policy in accordance with the laws of the PRC.

The costs, including but not limited to salaries and bonus, contributions to defined contribution pension plans, paid by the Target Group to its staff were approximately RMB20,149,000, RMB9,026,000 and RMB8,575,000 for the years ended 31 December 2008, 2009 and 2010 and approximately RMB2,246,000 and RMB896,000 for the three months ended 31 March 2010 and 2011 respectively. The staff cost for the year ended 31 December 2009 and that for the three months ended 31 March 2011 are comparatively lower due to significant lay-off of employees in 2009 and lower directors’ remuneration during both periods.

The directors of the Target Company consider that they are the only key management personnel of the Target Group. There was no arrangement under which a director waived or agreed to waive any remuneration during the Relevant Periods. Further, none of the directors received compensation for the loss of office as a director of the Target Group in connection with the management of the affairs for the Relevant Periods.

CHARGES ON TARGET GROUP’S ASSETS

As at 31 December 2008, 2009 and 2010 as well as 31 March 2011, there were no charges on any assets of the Target Group.

GEARING RATIO

The gearing ratio of the Target Group as at 31 December 2008, 2009 and 2010 were 101%, 88% and 75% respectively and 75% as at 31 March 2011.

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MANAGEMENT DISCUSSION AND ANALYSIS Of THE TARGET GROUP

APPENDIX Iv

fOREIGN EXCHANGE EXPOSURE

The Target Group business operations, assets and liabilities are denominated mainly in RMB, thus foreign exchange risk is minimal.

CONTINGENT LIABILITIES

The Target Group has no contingent liabilities during the Relevant Periods.

MATERIAL INvESTMENT AND fUTURE PROSPECT

The Target Company has been granted the exclusive right to build, and operate for 30 years (excluding construction period), the first PRC heavy-duty toll expressway designed for coal transportation in the Inner Mongolia which is about 265 km.

The Expressway is designed to sustain 100 ton trucks whereas most other expressways in the PRC can only allow 55 ton trucks. The Target Company estimates that the construction of the Expressway will cost about RMB12.2 billion which may be financed by capital injection, bank borrowings or other sources.

Up to 31 March 2011, the Target Group has incurred approximately RMB1.7 billion in construction costs of the Expressway and the remaining construction costs to be incurred before completion by the end of 2012 is estimated to be approximately RMB10.5 billion.

Apart from the Group’s capital commitment in respect of the subscription of a 51% equity interest of the Target Group under the First Capital Increase Agreement and the Second Capital Increase Agreement, the Group does not have any additional financial commitment to the Target Group.

It is the plan of the Target Company to finance the construction costs through internal resources and bank loans. As at the Latest Practicable Date, China Development Bank has agreed in principle to provide approximately RMB8.8 billion loan facility to the Target Company.

The proposed toll fee for the Expressway is RMB0.15 per ton per km as stipulated in the Concession Agreement. The Expressway is currently under construction and expected to be opened to traffic in January 2013. Upon opening, the Target Company will contribute substantially to the turnover of the Enlarged Group.

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BUSINESS vALUATION REPORT

APPENDIX v

The following is the text of a letter prepared for inclusion in this circular, received from Jones Lang LaSalle Sallmanns Limited, an independent business valuer, in connection with the business valuation for its valuation as at 31 March 2011 of the fair value of 100% equity interest in Zhunxing Group.

6/F Three Pacific Place 1 Queen’s Road East Hong Kong

Dear Sirs,

In accordance with the instructions from China Timber Resources Group Limited (“China Timber” or the “Company”), we have undertaken a valuation exercise to express an independent opinion of the fair value of the equity interest in Inner Mongolia Zhunxing Heavy Haul Expressway Company Limited and its subsidiary (the “Target Group” or “Zhunxing Group”), as at 31 March 2011 (the “Valuation Date”). This letter summarizes the principal conclusions stated in our valuation report dated 31 August 2011.

The purpose of this valuation is to express an independent opinion of the fair value of the equity interest in the Target Group as at 31 March 2011 for acquisition reference, which does not include the fair value of the loan portion of the total investment of the Target Group.

Our valuation was carried out on a fair value basis. Fair value is defined as “the amount for which an asset could be exchanged or a liability settled, between knowledgeable, willing parties in an arm’s length transaction” .

INTRODUCTION

The Target Group was established in Inner Mongolia in the People’s Republic of China (“PRC”). It has the exclusive right to build, and operate for 30 years (excluding the construction period), the first PRC heavy-duty toll expressway designed for coal transportation in the Inner Mongolia that will run from the Jungar Banner which is the major coal production area located south of Hohhot in the Ordos, towards the north east for 265 km to Xinghe County which is a major logistics hub for coal distribution in the Northern China.

The Expressway is designed to sustain 100 ton trucks whereas most other expressways in the PRC can only allow 55 ton trucks. The proposed toll fee for the Expressway is up to RMB0.15 per ton per km depending on the tonnage and type of the vehicle.

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BUSINESS vALUATION REPORT

APPENDIX v

The Expressway is currently under construction and expected to be opened to traffic in January 2013. As at the Latest Practicable Date, about 30% of the construction has already been completed.

The details of the Expressway are as follows:

Expressway	Length	Capital Investment	Bank Loan	Total Investment	Concession Period
Jungar Banner to	265km	RMB3.66 billion	RMB8.54 billion	RMB12.20 billion	30 years
Xinghe County

vALUATION METHODOLOGY

Given the unique characteristics of the asset under valuation including the fact that the underlying Expressway is still under construction, there are substantial limitations for the market approach and the cost approach for valuing the underlying asset. The market approach requires market transactions of comparable assets as an indication of value. Market transactions on expressway assets tend to have very different transaction prices considering a number of factors including geographical areas, toll rates and traffic, and operational stages and status of the expressway assets. We have not identified any current market transactions which are comparable. The cost approach does not directly incorporate information about the economic benefits contributed by the underlying asset.

In view of the above, we have adopted the income approach for the valuation. The income approach allows for the prospective valuation of future profits and justifications for the present value of expected future cash flows. In this study, the fair value of the Target Group is estimated based on the present worth of future economic benefits to be derived from the projected income, assuming no major change in the local Government policies and regulations. Indications of value have been developed by discounting projected future net cash flows available for payment of shareholders’ interest and the repayment of shareholder’s loans to their present worth at discount rates which in our opinion are appropriate for the risks of the business. In considering the appropriate discount rate to be applied, we have taken into account a number of factors including the current cost of finance and the potential risks inherent in toll road operation.

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BUSINESS vALUATION REPORT

APPENDIX v

SCOPE Of INvESTIGATION

Our investigation included a site inspection of the Expressway which is under construction. Discussions with the management of the Target Group and the Company in relation to the history and nature of business of the Target Group, and review of the historical and projected financial information and other relevant documents of the Target Group were also conducted. We have also discussed with Parsons Brinckerhoff (Asia) Limited (“PBA”), the Expressway’s traffic consultant, on the bases and assumptions underlying the traffic projections.

The findings of PBA cover two future forecast scenarios: the “Optimistic” and “Conservative” scenarios. The “Optimistic” scenario assumes a high expectation of economic growth over the entire evaluation period. This scenario considers an optimistic outlook towards the future and assumes a quicker development pace. The “Conservative” scenario assumes a lower development growth potential and a much slower pace of growth than the Optimistic scenario. PBA prepared projections of the traffic volume, the toll charges and hence the toll revenues under both scenarios with respect to the subject toll road coverings the concession period. The base approach, which is derived by taking the averages of the “Optimistic” and “Conservative” scenarios prepared by PBA, has been adopted as the toll revenues stream for the subject toll road.

We believe the traffic projections provided by PBA to be reliable and legitimate. We have relied to a considerable extent on such information in arriving at our opinion of value.

BASIS Of OPINION

We have conducted our valuation in accordance with international valuation standards issued by International Valuation Standards Committee (“IVSC”). The valuation procedures employed include a review of legal status and economic condition of the Target Group and an assessment of key assumptions, estimates, and representations made by the proprietor or the operator of the toll road. All matters essential to the proper understanding of the valuation are disclosed in this valuation report.

The following factors form an integral part of our basis of opinion:

The economic outlook in general;
The assumption that the Expressway will be completed as planned;

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BUSINESS vALUATION REPORT

APPENDIX v

The nature of business and history of the operation concerned;
The financial condition of the Target Group;
Projected operating costs and management expenses;
Projected traffic flow, passenger volume and toll rates;
Market-driven investment returns of companies engaged in similar lines of business;
Financial and business risk of the business including continuity of income and the projected future results;
Consideration and analysis on the micro and macro economy affecting the subject asset;
Analysis on tactical planning, management standard and synergy of the subject assets; and
Assessment of the leverage and liquidity of the subject assets.

We planned and performed our valuation so as to obtain all the information and explanations that we considered necessary in order to provide us with sufficient evidence to express our opinion on the Target Group.

vALUATION ASSUMPTIONS

In determining the fair value of the Target Group, we have made the following key assumptions. These assumptions have, where appropriate, been re-evaluated and validated in order to provide a more accurate and reasonable basis for our assessed value.

We have assumed that the projected business can be achieved with the effort of the management of the Target Group and the Company;
In order to realize the growth potential of the business and maintain a competitive edge, additional manpower, equipment and facilities are necessary to be employed. For this valuation exercise, we have assumed that the facilities and systems proposed are sufficient for future expansion;

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BUSINESS vALUATION REPORT

APPENDIX v

We have assumed that there will be no material change in the existing political, legal, technological, fiscal or economic conditions, which might adversely affect the business of the Target Group;
We have assumed that the operational and contractual terms stipulated in the relevant contracts and agreements will be honoured;
We have been provided with copies of the operating licenses and company incorporation documents. We have assumed such information to be reliable and legitimate. We have relied to a considerable extent on such information provided in arriving at our opinion of value;
Natural weather can have an impact on toll roads, including flooding and other types of inclement weather. We have assumed that no extended closure will occur;
We have assumed the accuracy of the financial and operational information provided to us by the Target Group and the Company and relied to a considerable extent on such information in arriving at our opinion of value;
Based on tax codes applicable to the Target Company, we have assumed the income tax rate over the concession period of the Expressway as follows:

Year	2013	2014	2015	2016	2017	2018	-	2042
Income tax rate	0%	0%	12.5%	12.5%	12.5%			25%

We have assumed the capital structure of the Target Group will not change;
Based on the feasibility report of the Expressway and the management’s opinion, the operating and management expenses mainly include operating and management expenses, annual maintenance expenses and large scale repair expenses. The total operating and management expenses will be RMB13,350,000 for the first year, while the annual maintenance expenses will be RMB39,750,000 for the first year. Growth rate of 3% is assumed for the remaining years, which is determined after considering the long term inflation rate in China. The large scale repair and maintenance expenses will be RMB217,530,000 and RMB399,040,000 for the tenth and twentieth year respectively;
We have assumed that there are no hidden or unexpected conditions associated with the assets valued that might adversely affect the reported value. Further, we assume no responsibility for changes in market conditions after the Valuation Date;

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BUSINESS vALUATION REPORT

APPENDIX v

The traffic volume and toll revenue for the Expressway will conform to the level as projected by PBA in the average of conservative and optimistic scenarios. Their projection is mainly based on the expected annual GDP growth rate, vehicle types, existing road network and future transportation plan. We believe that the traffic growth rate and the toll charge growth rate projected by PBA are reasonable and, therefore, we have adopted their findings in developing the Optimistic and Conservative scenarios for the Expressway;
The Expressway under construction would be completed on schedule to the satisfaction of both the design engineer, the Target Group and the Company, and that all relevant standards and requirements of the government authorities will be met.

In determining the appropriate discount rate for the valuation, we have taken into account a number of factors including the current market condition and the underlying risks inherent in the business, such as uncertainty risk, etc. The Capital Assets Pricing Model (the “CAPM”) has been used in the evaluation of the discount rate.

Under CAPM, the appropriate expected rate of return is the sum of the risk-free return and the equity risk premium required by investors to compensate for the market risk assumed. In addition, the expected rate of return of the Target Group is expected to be affected by factors that are independent of the general market. This variability of the expected rate of return is referred to as the specific risk.

The following table summarizes the parameters used for the evaluation of the discount rates:

PARAMETERS fOR CAPM

Risk free rate	2.47%	Yield of 10-year exchange fund notes
Market return	8.09%	10-year Hang Seng Index Returns
Relevered Beta	0.873	Based on the beta of comparable companies
Illiquidity premium	1%	Comparing to listed companies, investing in the
		Subject Company, which are private companies, are
		riskier as private companies are less liquid. As such,
		a risk premium for lack of marketability of 1% is
		included.
Company specific risk	2%	Risk for construction status. As the toll road is under
		construction, the risk in this company is higher
		than the comparable companies; therefore, a 2%
		additional risk premium is included.
Size premium	1.88%	Source: Morningstar, Inc, “SBBI Valuation
		Yearbook 2011”

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BUSINESS vALUATION REPORT

APPENDIX v

Country risk premium 0.67% Based on the country premium between Hong Kong and China Discount rate 12.93%

In determining the beta, we have considered the information of certain listed companies in Hong Kong which are engaged in the business of operating expressways in China. The following table summarizes the betas of these companies as at 31 March 2011:

Certain Hong Kong listed companies in expressway business 5 year weekly beta

Sichuan Expressway Co., Ltd.	0.831
Jiangsu Expressway Co., Ltd.	0.846
Shenzhen Expressway Co., Ltd.	0.931
Zhejiang Expressway Co., Ltd.	0.904
Anhui Expressway Co., Ltd.	0.851

Source: Bloomberg

The 5 year weekly beta was calculated based on the regression analysis on the weekly returns of the relevant shares of the companies against the weekly returns of Hang Seng Index for the period from 31 March 2006 to 25 March 2011.

Please note that in arriving at our assessed value, we have only considered the revenue stream and expenses relevant to the core business of the Target Company. We have not made provision for other non-operating cash flow items such as interest income, exchange rate gain/loss, accrual for sinking funds, etc. in the valuation model.

SENSITIvITY ANALYSES

Two sensitivity analyses were prepared to project the results based on the changes of discount rate and the future forecast scenario. The following tables summarize the resulting values of the Target Group:

Discount Rate Sensitivity	Discount Rate Sensitivity	Scenario	Sensitivity
	Results (RMB		Results (RMB
Discount Rate	million)	Scenario	million)
11.93%	8,377	Optimistic	9,057
12.93%	7,048	Base	7,048
13.93%	5,923	Conservative	5,023

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APPENDIX v

LIMITING CONDITIONS

The conclusion of value is based on accepted valuation procedures and practices that rely substantially on the use of numerous assumptions and the consideration of many uncertainties, not all of which can be easily quantified or ascertained. Further, while the assumptions and other relevant factors are considered by us to be reasonable, they are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond the control of the Target Group, the Company and Jones Lang LaSalle Sallmanns Limited.

We do not intend to express any opinion on matters which require legal or other specialized expertise or knowledge, beyond what is customarily employed by valuers. Our conclusions assume continuation of prudent management of the Target Group over whatever period of time that is reasonable and necessary to maintain the character and integrity of the assets valued.

Based on the results of our investigations and analyses, we are of the opinion that as at 31 March 2011 the fair value of 100% equity interest in the Target Group is reasonably stated at the amount of RMB7,048,143,000 (RENMINBI SEvEN BILLION fORTY EIGHT MILLION ONE HUNDRED AND fORTY THREE THOUSAND) . Fair value of 51% equity interest in the Target Group is thus stated at RMB3,594,553,000 (RENMINBI THREE BILLION fIvE HUNDRED NINETY fOUR MILLION fIvE HUNDRED AND fIfTY THREE THOUSAND) .

Yours faithfully, For and on behalf of

Jones Lang LaSalle Sallmanns Limited

Simon M.K. Chan

FCPA

Regional Director

Note: Simon M.K. Chan is a CPA Fellow member of the Hong Kong Institute of Certified Public Accountants, a CPA Fellow member of CPA Australia and a Certified Valuation Analyst, who has extensive experience in valuation and corporate advisory business. He has provided a wide range of valuation services to numerous listed and private companies in different industries in Mainland China, Hong Kong, Singapore and the United States, including infrastructure companies like power plant companies and toll road companies.

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APPENDIX v

A. REPORT fROM BDO LIMITED

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31 August 2011

The Board of Directors China Timber Resources Group Limited Room 1801-07 China Resources Building 26 Harbour Road Wanchai, Hong Kong

Dear Sirs,

China Timber Resources Group Limited (the “Company”)

Underlying discounted future estimated cash flows of the business valuation on 內蒙古准興重載高速公路有限責任公司 (Inner Mongolia Zhunxing Haul Expressway Company Limited)

Independent Assurance Report

In accordance with our agreed terms of engagement, we have examined the arithmetical calculations of the discounted future estimated cash flows on which the business valuation (the “Valuation”) dated 31 August 2011, prepared by Jones Lang LaSalle Sallmanns Limited in respect of the appraisal of the fair values of the equity interests in 內蒙古准興重載高速公路有限責任公司 (Inner Mongolia Zhunxing Haul Expressway Company Limited, “Target Company”), is based. The Valuation is set out in Appendix V of the circular of the Company dated 31 August 2011 (the “Circular”) in connection with the subscription of the 40% equity interests in the Target Company by the Company. The Valuation which is determined based on the discounted future estimated cash flows is regarded as a profit forecast under Rule 14.61 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”).

Responsibilities of Directors for the Discounted future Estimated Cash flows

The directors of the Company are responsible for the preparation of the discounted future estimated cash flows in accordance with the bases and assumptions determined by the directors as set out on pages 79 to 82 of the Circular. This responsibility

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BUSINESS vALUATION REPORT

APPENDIX v

includes designing, implementing and maintaining internal control relevant to the preparation of the discounted future estimated cash flows for the Valuation and applying an appropriate basis of preparation; and making estimates that are reasonable in the circumstances.

Responsibilities of Reporting Accountants

It is our responsibility to form a conclusion, based on the arithmetical calculations of the discounted future estimated cash flows on which the Valuation is based and to report our conclusion solely to you, as a body, solely for the purpose of reporting under Rule 14.62(2) of the Listing Rules and for no other purpose. We accept no responsibility to any other person in respect of, arising out of, or in connection with our work.

Basis of Conclusion

We conducted our work in accordance with the Hong Kong Standard on Assurance Engagements 3000 “Assurance Engagements Other Than Audits or Reviews of Historical Financial Information”. This standard requires that we comply with ethical requirements and plan and perform the assurance engagement to obtain reasonable assurance on whether the discounted future estimated cash flows, so far as the arithmetical calculations are concerned, have been properly compiled in accordance with the bases and assumptions as set out on pages 79 to 82 of the Circular. We re-performed the arithmetical calculations and compared the compilation of the discounted future estimated cash flows with the bases and assumptions.

The discounted future estimated cash flows do not involve the adoption of accounting policies. The discounted future estimated cash flows depend on future events and on a number of assumptions which cannot be confirmed and verified in the same way as past results and not all of which may remain valid throughout the period. Accordingly, we have not reviewed, considered or conducted any work on the appropriateness and validity of the bases and assumptions on which the discounted future estimated cash flows are based and our work does not constitute any valuation of the equity interests in the Target Company, or an expression of an audit or review opinion of the Valuation.

Conclusion

Based on the foregoing, in our opinion, the discounted future estimated cash flows, so far as the arithmetical calculations are concerned, have been properly compiled in all material respects in accordance with the bases and assumptions made by the directors of the Company as set on pages 79 to 82 of the Circular.

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BUSINESS vALUATION REPORT

APPENDIX v

Use of Report

Our report is intended solely for the use of the Company in connection with the submission to The Stock Exchange of Hong Kong Limited and for inclusion in the Circular of the Company in connection with its subscription of the 40% equity interests in the Target Company. This report may not be suitable for other purposes.

Yours faithfully

BDO Limited

Certified Public Accountants

Choi Man On

Practising Certificate number P02410

Hong Kong

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BUSINESS vALUATION REPORT

APPENDIX v

B. REPORT fROM Deutsche Bank AG, Hong Kong Branch

31 August 2011

The Directors China Timber Resources Group Limited Room 1801-07 China Resources Building 26 Harbour Road Wanchai, Hong Kong

Dear Sirs,

We refer to the discounted cash flow forecasts underlying the business valuation (the “Valuation”) prepared by Jones Lang LaSalle Sallmanns Limited (“Sallmanns”) in relation to the appraisal of the valuation of the Target Company. The Valuation is regarded as a profit forecast under paragraph 29(2) of Appendix 1B of the Listing Rules and the Valuation is set out in Appendix V to the circular of the Company dated 31 August 2011 (the “Circular”), of which this report forms part of. Capitalised terms used in this letter have the same meanings as defined in the Circular unless the context otherwise requires.

We have reviewed the forecasts upon which the Valuation has been made for which you as the Directors are solely responsible, and have discussed with you and Sallmanns the information and documents provided by you which formed part of the bases and assumptions upon which the forecasts have been prepared. We have noted that no accounting policies of the Company have been adopted in its preparation as the Valuation relates only to cashflows.

We have reviewed the bases and assumptions made by the directors of the Company and adopted by Sallmanns as set out in the valuation report in Appendix V to the Circular. We have also considered the letter dated 31 August 2011 addressed to yourselves from BDO regarding the bases and assumptions upon which the Valuation has been made.

On the basis of the foregoing, we are satisfied that the forecasts upon which the Valuation has been made, for which you as the directors of the Company are solely responsible, have been made after due and careful enquiry by you.

Yours faithfully, For and on behalf of Deutsche Bank AG, Hong Kong Branch Amanda Lu Managing Director and Deutsche Bank AG, Hong Kong Branch Danny Lee Managing Director

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TRAFFIC REPORT

APPENDIX VI

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31 August 2011

The Directors China Timber Resources Group Limited Room 1801-07, 18/F, China Resources Building, 26 Harbour Road, Wanchai, Hong Kong

Dear Sirs,

TRAFFIC AND TOLL REVENUE STUDY FOR ZHUNXING HEAVY HAUL EXPRESSWAY EXECUTIVE SUMMARY

Parsons Brinckerhoff Asia (hereinafter referred to as “PBA” or the “Consultant”) is commissioned by China Timber Resources Group Limited (hereafter referred to as “CTRG” or the “Client”) to conduct a traffic and revenue study (hereinafter referred to as the “Study”) for Zhunxing Heavy Haul Expressway（准興重載高速公路）in Neimenggu Autonomous Region, the People’s Republic of China. The purpose of the Study is to project the future traffic on the subject expressway, and to forecast the potential revenues that can be generated from the operation.

This report summarizes the results and findings based on the technical analyses conducted. We confirm that the future traffic and revenue of the Study is projected in an independent and professional manner.

In conducting the Study, we have based our analyses on site investigation, interviews with local authorities, Inner Mongolia Zhunxing Heavy Haul Expressway Company Limited (hereinafter referred to as the “toll road company”), reviews of available data, feasibility reports and other relevant information. In utilizing the given information from the Company; we have sought confirmation from the management of the toll road company that no material factors have been omitted.

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TRAffIC REPORT

APPENDIX vI

The results of our analysis are presented in the “Traffic and Revenue Study for Zhunxing Expressway in Neimengu Autonomous Region”. A brief summary of our study approaches and findings are presented below:

1. INTRODUCTION

Zhunxing Heavy Haul Expressway begins at Dalu（大路鄉）in Zhungerqi（准格爾旗）on the west, runs across Liulintan Huanghe Bridge（柳林灘黃河大橋）, and ends at Tuanjiecun（團結村）in Xinghe（興和）on the east. Zhunxing Heavy Haul Expressway will be a major expressway that provides an alternative route between coal production areas, logistic parks and other major expressways.

Zhunxing Heavy Haul Expressway is a five-lane divided (three lanes in the westeast direction and two lanes in the east-west direction) expressway. The subject expressway is designed specifically for the transport of coal, therefore the design loading is to accommodate 100 tons (laden weight) coal trucks. The design speed of the Expressway is 80 km per hour. The proposed expressway has a total length of 265 km.

Description and key technical elements of the subject toll road have been summarized in Table 1.1.

Table 1.1 General Descriptions and Summary of Key Technical Elements

Technical Elements	Zhunxing Expressway
Highway Classification	Expressway
Access Control	Control Access
Configuration	5 lanes
Design Speed	80 km/hr
Length	265 km

2. OBJECTIvE AND SERvICE SCOPE

The objective of the study is to forecast the future travel demand and revenue potential of the subject expressway.

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APPENDIX vI

The scope of work comprises information collection, on-site traffic surveys, traffic analysis, future traffic projections and toll revenue forecasts. Major activities involve:

Review of available planning and feasibility studies related to the subject facility,
Collection of socio-economic information of the study area, specifically coal production information,
Collection of historical traffic and toll rate information of related facilities,
Formulation of traffic forecasting methodology,
Analyzing possible impacts from nearby developments and roads, and
Preparation of traffic forecasts for the toll facility, preparation of toll revenue projections in accordance with the traffic forecasts.

3. TRAffIC fORECASTING METHODOLOGY

The study was built upon the technical analysis from previous studies of similar nature conducted by the Consultant in China. Relevant information collected and accumulated from other projects had also been incorporated in this study. The methodology used for these traffic forecasts was synthesized from conventional methods which are widely adopted by toll road studies and have been applied to similar toll roads in China. The traffic forecasting methodology for this study is made up of three technical stages:

i. Data Inventory and Review

The key objective for this technical stage is to collect and organize the existing available information for the use of the next stage of work. Typical information to be inventoried includes historical network data, origindestination (O-D) data, traffic data, socio-economic data and previous analyses and reports.

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APPENDIX vI

ii. Definition of Technical Approach

The goal is to develop the most appropriate technical methodology for the study. The methodology selection depends on the availability and the quality of the data as well as the overall project programme.

iii. Travel Demand forecast

Synthesized the information and findings from previous stage, the existing traffic pattern is defined at this stage. With appropriate key traffic variables, the future travel demand and analyses are derived. These variables comprise:

Economic indicators and growth of travel demand,
Physical conditions of the road and its carrying capacity,
Vehicle classifications and vehicle mix,
Origin and destination for each class of vehicles.

To offer a better picture of the various possible outcomes in the future, the traffic forecasts are presented under two scenarios: optimistic and conservative cases.

4. KEY ASSUMPTIONS

The followings are some key assumptions in the projection of vehicular traffic:

The Zhunxing Expressway is a road designed for heavy traffic (laden weight 100 tons), therefore we expect the average vehicular weight carried on the road to exceed the current maximum load limit on most China expressways, which is 55 tons. However, it is anticipated that the average truck load will increase over time, as coal producers and transport operators make adjustments to their logistics and equipment to take advantage of the Zhunxing Expressway. It is assumed in this study that the average truck laden weight will increase from about 60 tons in 2013 (the opening year of the subject road) to 75 tons by 2023, and stabilize at 75 tons thereafter.

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TRAffIC REPORT

APPENDIX vI

The following table shows the coal transport characteristics of Zhungerqi in the recent past:

Table 4.1 Coal transport characteristics of Zhungerqi

		Export by		Export by Highway	Export by Highway
Year	Coal Export	Highway Mode		Mode via Xinghe
	(Million tons)	Million tons	%	Million tons	%
2009	137.6	58.5	42.5	38.6	28.0
2010	205.0	121.0	59.0	88.3	43.0

It would appear that there is an increasing trend in the highway market share for the transport of coal. The proportion of coal exported by highway via Xinghe is also on the rise. However, China is promoting the use of railways for both passenger and freight transport. Accordingly, we have made a somewhat conservative assumption that coal transport by highway through Xinghe will peak at 50% throughout the concession period.

Coal production and demand (and therefore coal transport) is projected to increase at a rate of 6-8% in the short term (2 years), then slowing to 2-3% per year towards the latter half of the concession period (beyond 2020).
A number of coal fired power plants are within the Zhunxing Expressway corridor. The following table shows the projected coal demand of these local power plants:

Table 4.2 Assumed coal demand of power plants in the corridor

Year	Coal	Demand in million tons	No. of Trucks/day
2013	8.11		278
2040	17.77		609

Other than coal transport from Zhunger to Xinghe, a portion of coal truck traffic from western provinces (Shaanxi, Ningxia, Xinjiang, etc.) to the east may also prefer the Zhunxing Expressway. The potential diversion rate is estimated at about 50%.

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TRAffIC REPORT

APPENDIX vI

The above coal truck traffic assumptions are applicable to west-to-east transport. On the return journey, the coal trucks will not be carrying a load, and since Zhunxing Expressway charges a higher per ton toll rate than other expressways in the corridor, it is anticipated that the east-to-west traffic volume on Zhunxing Expressway will be significantly lower than the westto-east volumes. For coal trucks originating from Zhungerqi, we assumed that half of the coal trucks will use Zhunxing Expressway for the return trip because it is more direct. For coal traffic originating in other provinces, the incentive to use Zhunxing Expressway when unladen is significantly lower, and we assumed only ⅓ of the trucks will use Zhunxing Expressway on return. For coal shipping to the local power plants, it is assumed that 100% will use Zhunxing Expressway for the round trip.
In addition to coal trucks, other non-coal related traffic may use the subject expressway. However, it is likely that only those trips between Zhungerqi and Xinghe/Wulanchabu will use the higher toll Zhunxing Expressway. This traffic is estimated based on the traffic surveys conducted by the Consultant.

5. SUMMARY Of TRAffIC PROJECTIONS

The traffic forecast for the Study is carried out for the period of 2013 to 2043. Projected daily traffic on the Zhunxing Expressway is summarized in Table 5.1. These are presented in “mixed vehicles” units under two scenarios.

Table 5.1 Average Daily Traffic (in mixed vehicles)

Year	Optimistic	Conservative
2013	7066	5982
2014	7271	6101
2015	7486	6226
2016	7654	6356
2017	7823	6495
2018	8091	6716
2023	9406	7604
2028	10850	8617
2033	12006	9540
2038	13270	10547
2043	14651	11645

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APPENDIX vI

6. TOLL RATE

At present there is no approved toll regime for Zhunxing Expressway. It is assumed that the toll rate for passenger vehicles will be the same as Jingzang Expressway. For goods vehicles, Jingzang Expressway’s “Basic Toll” is 0.07 RMB/ton/km; but for Zhunxing Expressway, the Basic Toll will be 0.15 RMB/ton/km according to toll road company officials.

Table 6.1 Assumed toll regime of Zhunxing Expressway

Description Toll Rate Passenger ≤ 19 seats 0.4 RMB/km vehicles 20 – 39 seats 0.5 RMB/km <40 seats 0.7 RMB/km Goods vehicles ≤ 20 tons 1.5 RMB/km 20 – 40 tons First 20 tons: 0.15 RMB/ton/km Portion above 20 tons: linear sliding scale decreasing from 0.15 RMB/ ton/km to 0.075 RMB/ ton/km ≥ 40 tons First 20 tons: 0.15 RMB/ton/km Portion above 20 tons: linear sliding scale decreasing from 0.15 RMB/ ton/km to 0.075 RMB/ ton/km Portion above 40 tons: 0.075 RMB/ton/km

7. SUMMARY Of fUTURE TOLL REvENUE ESTIMATIONS

The future daily toll revenue is calculated by applying the toll structure in Table 6.1 to the average daily traffic for each vehicle class. An annualization factor of 365 is used to calculate annual revenue in this study. Summaries of the toll revenue estimations of the Study are presented in Table 7.1 under two scenarios.

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APPENDIX vI

Table 7.1 Annual Revenue (in million RMB)

Year	Optimistic	Conservative
2013	2991.6	2437.7
2014	3104.4	2505.5
2015	3223.1	2576.5
2016	3321.9	2650.7
2017	3420.9	2728.2
2018	3580.0	2855.9
2023	4274.3	3320.2
2028	4969.1	3793.3
2033	5464.2	4196.0
2038	6070.2	4636.9
2043	6702.2	5119.7

8. CONCLUSION

The Consultant concluded that the traffic forecasts and toll revenue projections developed from the above methodology and on the above assumptions are in line with common professional practice and meet the objectives of the agreed scope of works with China Timber Resources Group Limited.

Yours Sincerely

PARSONS BRINCKERHOff (ASIA) LIMITED

Annie Lai

Project Manager

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GENERAL INfORMATION

APPENDIX vII

1. RESPONSIBILITY STATEMENT

This circular, for which the Directors collectively and individually accept full responsibility, includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Company. The Directors, having made all reasonable enquiries, confirm that to the best of their knowledge and belief the information contained in this circular is accurate and complete in all material respects and not misleading or deceptive, and there are no other matters the omission of which would make any statement herein or this circular misleading.

2. SHARE CAPITAL

The authorised and issued share capital of the Company as at the Latest Practicable Date and immediately following the issue of the Conversion Shares will be as follows (assuming no further Shares are issued or repurchased by the Company after the Latest Practicable Date up to the date of issue of the Conversion Shares):

Authorised		HK$
50,000,000,000	Shares as at the Latest Practicable Date	500,000,000

Issued and fully paid or credited as fully paid:

20,190,783,895	existing Shares in issue	201,907,838.95
5,000,000,000	Conversion Shares to be issued upon exercise	50,000,000
	of the Convertible Bonds in full
25,190,783,895	Shares in issue following the issue of the	251,907,838.95
	Conversion Shares to be issued upon exercise
	of the Convertible Bonds in full

The Conversion Shares shall rank pari passu in all aspects, including all rights as to dividend, voting and interest in capital, among themselves and with all other Shares in issue on the date of issue.

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GENERAL INfORMATION

APPENDIX vII

3. DISCLOSURE Of INTERESTS

(a) Directors and chief executives

Save as disclosed below, as at the Latest Practicable Date, according to the register of interest kept by the Company under Section 336 of the Securities and Future Ordinance (the “SFO”) and so far as was known to the Directors, none of the Directors and chief executive of the Company held any interest or short positions on the shares, underlying shares and debentures of the Company and its associated corporations (within the meaning of Part XV of the SFO) which (i) where required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they were taken or deemed to have under such provisions of the SFO); or (ii) were required, pursuant to section 352 of the SFO, to be entered in the register referred to therein; or (iii) were required, pursuant to the Model Code for Securities Transactions by Directors of Listed Companies (the “Model Code”) of the Listing Rules, to be notified to the Company and the Stock Exchange:

Long positions in the Shares and underlying shares of the Company

					Total	Approximate
	Number of Shares		Number of underlying Shares		number of Shares	percentage (%) of
	personal	corporate	personal	corporate	and underlying	issued
Name of Director	interest	interests	interest	interests	Shares held	share capital
Mr. Cao Zhong_(note 1)_	34,000,000	2,000,000,000	NIL	NIL	2,034,000,000	10.07
Mr. Fung Tsun Pong	1,071,362,449	1,055,500,000	NIL	NIL	2,126,862,449	10.53
(note 2)
Mr. Tsang Kam Ching	51,624,499	NIL	NIL	NIL	51,624,499	0.25
Note:

Mr. Cao Zhong was deemed to be interested in 2,000,000,000 Shares held by Champion Rise International Limited (“CRIL”), a company being wholly owned by him. CRIL is a substantial Shareholder and its shareholding in the Company is set out in the section headed “Substantial Shareholders” below.
Mr. Fung Tsun Pong was deemed to be interested in 1,055,500,000 Shares held by Ocean Gain Limited (“OGL”), a company being wholly owned by him. OGL is a substantial Shareholder and its shareholding in the Company is set out in the section headed “Substantial Shareholders” below.

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GENERAL INfORMATION

APPENDIX vII

Save as disclosed above, none of the Directors and their associates had any interest in the Shares and/or underlying Shares and its associated corporations, within the meaning of Part XV of the SFO, which were required to be notified to the Company and the Stock Exchange pursuant to section 341 of the SFO (including interests which they were deemed or taken to have under section 344 of the SFO) or which were required, pursuant to section 352 of the SFO, to be entered in the register referred to therein as at the Latest Practicable Date.

(b) Substantial Shareholders

Save as disclosed below, as at the Latest Practicable Date, according to the register of interest kept by the Company, under Section 336 of the SFO and so far as was known to the Directors, no other person or companies had any interest or short positions in the Shares, underlying Shares or debentures of the Company which would fall to be disclosed to the Company under the provision of Divisions 2 and 3 of Part XV of the SFO or who were, directly or indirectly, interested in 5% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meeting of any other members of the Group.

Long Position in Shares

					Total	Approximate
	Number	of Shares	Number of underlying Shares		number of Shares	percentage (%) of
	personal	corporate	personal	corporate	and underlying	issued
Name of Shareholders	interest	interests	interest	interests	Shares held	Share capital
中聚國際控股有限	NIL	4,275,862,068	NIL	NIL	4,275,862,068	21.16
公司(China Alliance
International Holding
Group Limited)
(note a)
Champion Rise	NIL	2,000,000,000	NIL	NIL	2,000,000,000	9.90
International Limited
(note b)
Ocean Gain Limited	NIL	1,055,500,000	NIL	NIL	1,055,500,000	5.22
(note c)
Allkeen Investments	NIL	1,016,000,000	NIL	NIL	1,016,000,000	5.03
Limited_(note d)_

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GENERAL INfORMATION

APPENDIX vII

					Total	Approximate
	Number of Shares		Number of underlying Shares		number of Shares	percentage (%) of
	personal	corporate	personal	corporate	and underlying	issued
Name of Shareholders	interest	interests	interest	interests	Shares held	Share capital
Vivid Beyond Securities	NIL	NIL	NIL	2,500,000,000	2,500,000,000	12.38
Limited_(note e)_
Fresh Generation	NIL	NIL	NIL	1,350,000,000	1,350,000,000	6.68
Development Limited
(note f)
Power Sky Investments	NIL	NIL	NIL	1,200,000,000	1,200,000,000	5.94
Limited_(note g)_

Note:

a. 中聚國際控股有限公司 (China Alliance International Holding Group Ltd.) (“China Alliance”) is wholly-owned by Mr. Zhang Lei.
b. Champion Rise International Limited is wholly-owned by Mr. Cao Zhong, the chief executive officer and an executive Director whose interest in Shares or underlying Shares is set out in the above section headed “Directors and chief executives”.
c. Ocean Gain Limited is wholly-owned by Mr. Fung Tsun Pong, an executive Director whose interest in Shares or underlying Shares is set out in the above section headed “Directors and chief executives”.
d. Allkeen Investments Limited is wholly-owned by Ms. Xu Yueyue.
e. Vivid Beyond Securities Limited, wholly-owned by Hu Wei, was interested in HK$140,000,000 convertible bonds issued by the Company which are convertible into 2,500,000,000 Shares at HK$0.056 per Share.
f. Fresh Generation Development Limited, wholly-owned by Hu Bing Zhuo, was interested in HK$75,600,000 convertible bonds issued by the company which are convertible into 1,350,000,000 Shares at HK$0.056 per Share.
g. Power Sky Investments Limited, wholly-owned by Xu Weidong, was interested in HK$67,200,000 convertible bonds issued by the Company which are convertible into 1,200,000,000 Shares at HK$0.056 per Share.

Save as disclosed above, as at the Latest Practicable Date, no other persons had any interests or short positions in the Shares, underlying Shares or debentures of the Company and its associated corporations as recorded in the register required to be kept by the Company under Section 336 of the SFO.

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GENERAL INfORMATION

APPENDIX vII

4. DIRECTORS’ INTERESTS IN ASSETS

As at the Latest Practicable Date, none of the Directors had any direct or indirect interest in any asset which had been since 31 March 2011, being the date to which the latest published audited financial statement of the Company were made up, acquired or disposed of by or leased to, or are proposed to be acquired or disposed of by or lease to any member of the Enlarged Group.

As at the Latest Practicable Date, none of the Directors or the directors of the Target Group is materially interested in any contract or arrangement which is significant in relation to the business of the Enlarged Group.

5. DIRECTORS’ COMPETING INTERESTS

As at the Latest Practicable Date, none of the Directors nor their respective associates was considered to have an interest in a business which competes or is likely to compete, either directly or indirectly, with the business of the Enlarged Group other than those businesses to which the Directors and their associates were appointed to represent the interests of the Company and/or the Enlarged Group.

6. MATERIAL CONTRACTS

As at the Latest Practicable Date, the following contracts (not being contracts entered into in the ordinary course of business) were entered into by members of the Enlarged Group within the two years immediately preceding the date of this circular and are, or may be, material:

(a) the Concession Agreement;
(b) a supplemental agreement dated 15 September 2009 entered into between the Group and China Alliance in relation to the acquisition of 宜昌新首鋼房地產開發有限公司 (Yichang Xinshougang Property Development Company Limited) by the Group for a consideration of HK$986 million;
(c) an equity line of credit agreement dated 5 January 2010 (the “ELC Agreement”) entered into between the Company, GEM Global Yield Fund Limited (“GEM”) and GEM Investment Advisors, Inc., (“GEMIA”) pursuant to which the Company has been granted the option to require GEM to subscribe for, up to HK$300 million worth of Shares structured under the equity line of credit and issued 1 billion warrants to GEM;

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GENERAL INfORMATION

APPENDIX vII

(d) an amendment deed dated 19 January 2010 entered into between the Company and GEMIA in relation to the ELC Agreement;
(e) a joint development agreement dated 16 August 2010 entered into between the Group and 湖北省大方房地產綜合開發有限公司 (Hubei Province Dafang Properties Development Company Limited) (“Dafang Properties”) pursuant to the which, the Group would contribute a land at Yichang City, Hubei Province whilst Dafang Properties would contribute capital required for the development and construction of the property project and both parties would share the economic benefit on a 65:35 basis;
(f) On 12 January 2011, the Company entered into a placing agreement with Guotai Junan Securities (Hong Kong) Limited, pursuant to which, the Company allotted and issued 1,800,000,000 new ordinary shares of HK$0.01 each to not less than six placees at a placing price of HK$0.30 per Share, raising approximately HK$534 million net proceeds;
(g) four share subscription agreements dated 13 January 2011 entered into between the Company and four independent third party investors pursuant to which the Company has agreed to issue a total of 7,000,000,000 new Shares at HK$0.40 per subscription Share. The said agreements were subsequently terminated on 28 April 2011.
(h) the First Capital Increase Agreement;
(i) the joint venture agreement dated 21 April 2011 entered into between Cheer Luck and the existing equity owners of the Target Company;
(j) The Second Joint Venture Agreement;
(k) the Second Capital Increase Agreement;
(l) the First Subscription Agreement;
(m) the Second Subscription Agreement; and
(n) the Third Subscription Agreement.

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GENERAL INfORMATION

APPENDIX vII

7. DIRECTORS’ SERvICE CONTRACTS

As at the Latest Practicable Date, none of the Directors had any existing or proposed service contract with the Company or any member of the Enlarged Group which is not expiring and determinable by the Enlarged Group within one year without payment of compensation other than statutory compensation.

8. LITIGATION

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

9. EXPERTS AND CONSENTS

Name

Qualification

BDO Limited

Certified Public Accountants

Jones Lang LaSalle Sallmanns Limited

Professional business valuer

Deutsche Bank AG, Hong Kong Branch

Licensed to conduct Type 1 (dealing in securities), Type 4 (advising on securities), Type 6 (advising on corporate finance), Type 9 (asset management) of the regulated activities under the SFO and a licensed bank under the Banking Ordinance (Chapter 155 of the Laws of Hong Kong).

Parsons Brinckerhoff (ASIA) Limited

Traffic Consultant

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GENERAL INfORMATION

APPENDIX vII

As at the Latest Practicable Date, the abovementioned experts (the “Experts”) did not have any direct or indirect shareholding, in any member of the Enlarged Group or any right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Enlarged Group.

The Experts have given and have not withdrawn their respective written consent to the issue of this circular with the inclusion of their respective letter and reference to their respective name in the form and context in which they are included.

The Experts do not have any interest, direct or indirect, in any assets which have been acquired or disposed of by or leased to any member of the Enlarged Group, or which are proposed to be acquired or disposed of by or leased to any member of the Enlarged Group since 31 March 2011, the date to which the latest published financial statements of the Company were made up.

The letter and report from the Experts included herein are given as of the date of this circular

10. DOCUMENTS AvAILABLE fOR INSPECTION

Copies of the following documents shall be available for inspection at the principal office of the Company at Room 1801-07, China Resources Building, 26 Harbour Road, Wanchai, Hong Kong, during normal business hours on any weekday, except public holidays, from the date of this circular up to and including the date of the EGM:

(a) the memorandum and articles of association of the Company;
(b) the memorandum and Amended and Restated Articles of Association of the Target Company;
(c) the annual reports of the Company for three years ended 31 March 2009, 2010 and 2011;
(d) the accountants’ report on the Target Group, the text of which is set out in Appendix II to this circular;
(e) the accountants’ report in respect of the unaudited pro forma financial information of the Enlarged Group, the text of which is set out in Appendix III to this circular;

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APPENDIX vII

(f) the business valuation report, the text of which is set out in Appendix V to this circular;
(g) the traffic report, the text of which is set out in the Appendix VI to this circular;
(h) the material contracts referred to in the section headed “Material Contracts” of this appendix;
(i) a copy of the circular of the Company dated 16 September 2010 for a major transaction in relation to entering into a joint development agreement;
(j) a copy of this circular; and
(k) the written consent of the Experts referred to in the section headed “Experts and Consents” of this appendix.

11. MISCELLANEOUS

(a) Having made reasonable enquiries and to the best knowledge of the Directors, as at the Latest Practicable Date, there was (i) no voting trust or other agreement or arrangement or understanding entered into by or binding upon any Shareholders; and (ii) no obligation or entitlement of any Shareholders, whereby he/she/it has or may have temporarily or permanently passed control over the exercise of the voting rights in respect of his/her/its Shares to a third party, either generally or on a case-by-case basis.
(b) Having made reasonable enquiries and to the best knowledge of the Directors, as at the Latest Practicable Date, there was no discrepancy between any Shareholder’s beneficial shareholding interest in the Company as disclosed in this circular and the number of Shares in respect of which it will control or will be entitled to exercise control over the voting rights at the EGM.
(c) The secretary of the Company is Ngan Wai Kam, Sharon, who is a practicing solicitor admitted in Hong Kong.

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NOTICE Of EGM

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CHINA TIMBER RESOURCES GROUP LIMITED （中國木業資源集團有限公司 *）

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 269)

NOTICE Of EXTRAORDINARY GENERAL MEETING

NOTICE IS HEREBY GIvEN that an extraordinary general meeting (“EGM”) of China Timber Resources Group Limited (the “Company”) will be held at 11:00 a.m. on Monday, 19 September 2011, at Boardroom 6, Mezzanine Floor, Renaissance Harbour View Hotel, 1 Harbour Road, Wanchai, Hong Kong (the “Meeting”), for the purpose of considering and, if thought fit, passing with or without amendments, the following resolutions as ordinary resolutions of the Company, and unless otherwise defined herein, the terms used herein shall have the same meanings as defined in the circular to the shareholders of the Company dated 31 August 2011 (the “Circular”):

ORDINARY RESOLUTIONS

1. “ THAT

(a) the Second Capital Increase Agreement (a copy of which has been produced to the Meeting and marked “A” and initialed by the Chairman of the Meeting for the purpose of identification) and all actions taken or to be taken by the Company pursuant to it as described in the Circular (a copy of which has been produced to the Meeting and marked “B” and initialed by the Chairman of the Meeting for the purpose of identification) be and are hereby generally and unconditionally approved, ratified and confirmed; and
(b) any one of the directors of the Company (the “Director(s)”) be and is hereby authorized for and on behalf of the Company to do all such acts and things, to sign and execute any agreements pursuant to and/or supplemental to the Second Capital Increase Agreement; and all such other documents, deeds, instruments and agreements and to take such steps as he may consider necessary, appropriate, desirable or expedient to give effect to or in connection with the said agreements or any of the transactions contemplated thereunder or incidental to any of them and all other matters incidental thereto.”

* For identification purpose only

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NOTICE Of EGM

2. “ THAT

(a) the subscription agreement dated 2 August 2011 (the “First Subscription Agreement”) entered into between the Company and Li Ka Shing (Canada) Foundation (the “First Subscriber”), a copy of which is tabled at the Meeting and marked “C” and initialed by the Chairman of the Meeting for identification purpose, pursuant to which the First Subscriber agreed to subscribe for 9% coupon convertible bonds due 2014 in the principal amount of HK$1,300 million (the “First Convertible Bonds”), which entitled the holders to convert the principal amount outstanding into shares of the Company at the initial conversion price of HK$0.40 per Share, be and is hereby approved, confirmed and ratified;
(b) the subscription agreement dated 2 August 2011 (the “Second Subscription Agreement”) entered into between the Company and China Life Insurance (Overseas) Company Limited (the “Second Subscriber”), a copy of which is tabled at the Meeting and marked “D” and initialed by the Chairman of the Meeting for identification purpose, pursuant to which the Second Subscriber agreed to subscribe for 9% coupon convertible bonds due 2014 in the principal amount of HK$600 million (the “Second Convertible Bonds”), which entitled the holders to convert the principal amount outstanding into shares of the Company at the initial conversion price of HK$0.40 per Share, be and is hereby approved, confirmed and ratified;
(c) the subscription agreement dated 2 August 2011 (the “Third Subscription Agreement”, which together with the First Subscription Agreement and the Second Subscription Agreement shall be collectively referred to as the “Subscription Agreements”) entered into between the Company and Dr. Lo Ka Shui (the “Third Subscriber”), a copy of which is tabled at the Meeting and marked “E” and initialed by the Chairman of the Meeting for identification purpose, pursuant to which the Third Subscriber agreed to subscribe for 9% coupon convertible bonds due 2014 in the principal amount of HK$100 million (the “Third Convertible Bonds”, which together with the First Convertible Bonds and the Second Convertible Bonds shall be collectively referred to as the “Convertible Bonds”), which entitled the holders to convert the principal amount outstanding into shares of the Company at the initial conversion price of HK$0.40 per Share, be and is hereby approved, confirmed and ratified;
(d) conditional upon the Listing Committee of The Stock Exchange of Hong Kong Limited granting the listing of, and permission to deal in, the shares of the Company to be issued pursuant to the conversion of the Convertible

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NOTICE Of EGM

Bonds (the “Conversion Shares”), any Director be and are hereby generally and specifically authorized to issue the Convertible Bonds and to allot and issue the Conversion Shares credited as fully paid at an initial conversion price of HK$0.40 per Share, subject to adjustment in accordance with the terms and conditions of the Convertible Bonds (the “Special Mandate”), and that the Conversion Shares shall, when allotted and issued, rank pari passu in all respects with all other shares of the Company in issue on the date of such allotments and issue, and that the Special Mandate is in addition to, and shall not prejudice nor revoke the existing general mandate granted to the Directors by the shareholders of the Company in the annual general meeting of the Company held on 11 August 2011 or such other general or special mandate(s) which may from time to time be granted to the Directors prior to the passing of this Resolution; and

(e) any Director be and is hereby authorized to execute all such documents and/or to do all such acts on behalf of the Company as he may consider necessary, desirable or expedient for the purpose of, or in connection with, the implementation and completion of the Subscription Agreements and the transactions contemplated thereunder.”

By Order of the Board China Timber Resources Group Limited Cao Zhong Chairman

Hong Kong, 31 August 2011

Registered office:

The Office of Caledonian Trust (Cayman) Limited Caledonian House, 69 Dr. Roy’s Drive, Grand Cayman, KY1-1102 Cayman Islands

Principal office of business:

Room 1801-07 China Resources Building 26 Harbour Road

Wanchai, Hong Kong

Notes:

(a) A member entitled to attend and vote at the above meeting is entitled to appoint one or more than one proxies to attend and vote on his behalf. A proxy need not be a member of the Company but must be present in person to represent the member.

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NOTICE Of EGM

(b) If the appointer is a corporation, the form of proxy must be under its common seal, or under the hand of an officer or attorney duly authorized on its behalf.
(c) In order to be valid, a form of proxy must be deposited at the Company’s Hong Kong branch share registrar, Tricor Progressive Limited at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong, as soon as possible and in any event not less than 48 hours before the time appointed for holding the meeting or any adjournment thereof. The completion and delivery of the form of proxy will not preclude you from attending and voting at the meeting if you so wish. In the event that you attend the meeting after having lodged the form of proxy, the form of proxy will be deemed to have been revoked.
(d) Where there are joint registered holders of any share, anyone of such persons may vote at the meeting, either personally or by proxy, in respect of such shares as if he was solely entitled thereto; but if more than one of such joint holders be present at the meeting personally or by proxy, that one of the said persons so present whose name stands first on the register of members of the Company in respect of such share shall alone be entitled to vote and will be accepted to the exclusion of other joint registered holders in respect hereof.
(e) The EGM is expected not to exceed half an hour, and all member and proxies shall be responsible for their own traveling expenses.

As at the date of this notice, the Board comprises three executive Directors, namely Mr. Cao Zhong, Mr. Fung Tsun Pong and Mr. Tsang Kam Ching, David; a non-executive Director namely Mr. Neil Bush; and three independent non-executive Directors, namely Mr. Yip Tak On, Mr. Jing Baoli and Mr. Bao Liang Ming.

— 108 —

AI assistant

Central Development Holdings Limited — Capital/Financing Update 2011

49236_rns_2011-08-30_7a9fc058-6aaf-47d7-8a93-d49dd26c8438.pdf

CHINA TIMBER RESOURCES GROUP LIMITED （中國木業資源集團有限公司 *）

MAJOR TRANSACTION IN RELATION TO THE SECOND CAPITAL INCREASE AGREEMENT AND PROPOSED ISSUE Of 9% COUPON CONvERTIBLE BONDS DUE 2014

financial Adviser to China Timber Resources Group Limited

CONTENTS

DEfINITIONS

CHINA TIMBER RESOURCES GROUP LIMITED （中國木業資源集團有限公司 *）

MAJOR TRANSACTION IN RELATION TO THE SECOND CAPITAL INCREASE AGREEMENT AND PROPOSED ISSUE Of 9% COUPON CONvERTIBLE BONDS DUE 2014

INTRODUCTION

THE SECOND CAPITAL INCREASE AGREEMENT

Date

Parties

The Consideration

Conditions Precedent

LETTER fROM THE BOARD

Completion

INfORMATION ON THE TARGET COMPANY

REASONS fOR AND BENEfITS Of THE SECOND EQUITY SUBSCRIPTION

LETTER fROM THE BOARD

LETTER fROM THE BOARD

fINANCIAL EffECTS TO THE GROUP ARISING fROM THE SECOND EQUITY SUBSCRIPTION

LISTING RULES IMPLICATIONS

PROPOSED ISSUE Of CONvERTIBLE BONDS

The first Subscription Agreement

Date:

Parties:

Principal terms of the first Convertible Bonds

LETTER fROM THE BOARD

The Second Subscription Agreement

Date:

Parties:

Principal terms of the Second Convertible Bonds

LETTER fROM THE BOARD

The Third Subscription Agreement

Date:

Parties:

Principal terms of the Third Convertible Bonds

Other terms of the Convertible Bonds

LETTER fROM THE BOARD

Comparison of conversion price

Conversion Shares

Convertible Bonds Conditions Precedent

APPLICATION fOR LISTING

REASONS fOR THE SUBSCRIPTION AGREEMENTS AND USE Of PROCEEDS

SHAREHOLDING Of THE COMPANY

fUND RAISING ACTIvITIES Of THE COMPANY IN THE LAST 12 MONTHS

LISTING RULES IMPLICATIONS

EGM

LETTER fROM THE BOARD

RECOMMENDATION

ADDITIONAL INfORMATION

(A) fINANCIAL INfORMATION INCORPORATED BY REfERENCE

(B) STATEMENT Of INDEBTEDNESS

(a) Borrowings

(b) Securities

(c) Contingent Liabilities

(d) Capital Commitment

(C) WORKING CAPITAL SUffICIENCY

(D) MATERIAL CHANGES

China Timber Resources Group Limited

DIRECTOR’S RESPONSIBILITY

REPORTING ACCOUNTANTS’ RESPONSIBILITY

OPINION — fINANCIAL INfORMATION

REvIEW CONCLUSION — COMPARATIvE fINANCIAL INfORMATION

EMPHASIS Of MATTER

A. fINANCIAL INfORMATION

1. Consolidated Statements of Comprehensive Income

2. Consolidated Statements of financial Position

3. Statements of financial Position

4. Consolidated Statements of Changes in Equity

5. Consolidated Statements of Cash flows

B. NOTES TO THE fINANCIAL INfORMATION

1. GENERAL INfORMATION AND BASIS Of PREPARATION

2. POTENTIAL IMPACT ARISING ON THE NEW HKfRSS NOT YET EffECTIvE

3. SIGNIfICANT ACCOUNTING POLICIES

(a) Statement of compliance

(b) Basis of measurement

(c) functional and presentation currency

Central Development Holdings Limited Capital/Financing Update 2011