China Railway Group Limited - Proxy Solicitation & Information Statement 2010

THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

If you have sold or transferred all your shares in China Railway Group Limited, you should at once hand this circular and the accompanying proxy forms and the reply slip to the purchaser or the transferee or to the bank, licensed securities dealer or other agent through whom the sale or transfer was effected for transmission to the purchaser or the transferee.

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. This circular is for the sole purpose of the EGM and H Shareholders’ Class Meeting of China Railway Group Limited and does not constitute an invitation or offer to acquire, purchase or subscribe for any securities.

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中國中鐵股份有限公司 CHINA RAILWAY GROUP LIMITED

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

(Stock Code: 390)

(1) PROPOSED PRIVATE PLACEMENT OF NEW A SHARES

(2) CONNECTED TRANSACTION: PROPOSED SUBSCRIPTION OF NEW A SHARES BY CRECG

(3) ISSUE OF SHORT TERM NOTES AND

NOTICE OF EXTRAORDINARY GENERAL MEETING AND NOTICE OF H SHAREHOLDERS’ CLASS MEETING

Independent Financial Advisor to the Independent Board Committee and Independent Shareholders

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A letter from the Board is set out on pages 4 to 28 of this circular. A letter from the Independent Board Committee is set out on page 29 of this circular. A letter from China Merchants Securities containing its advice to the Independent Board Committee and the Independent Shareholders of the Company is set out on pages 30 to 42 of this circular.

The Company will convene the EGM at 9:30 a.m. on Thursday, 12 August 2010, at Lecture Hall, China Railway Square, No. 69 Fuxing Road, Haidian District, Beijing, PRC, and will convene the A Shareholders’ Class Meeting immediately following the conclusion of the EGM or any adjournment thereof at Lecture Hall, China Railway Square, No. 69 Fuxing Road, Haidian District, Beijing, PRC, and the H Shareholder’s Class Meeting immediately following the conclusion of the A Shareholders’ Class Meeting or any adjustment thereof at Lecture Hall, China Railway Square, No. 69 Fuxing Road, Haidian District, Beijing, PRC. The notice of EGM and notice of H Shareholders’ Class Meeting are set out on pages EGM-1 to EGM-11 and pages H-1 to H-9 of this circular, respectively.

If you intend to appoint a proxy to attend the EGM or H Shareholders’ Class Meeting, you are required to complete and return the accompanying proxy forms in accordance with the instructions printed thereon. For holders of H Shares, the proxy forms should be returned to Computershare Hong Kong Investor Services Limited in person or by post not less than 24 hours before the time appointed for holding the EGM or the H Shareholders’ Class Meeting or any adjourned meetings thereof. Completion and return of the proxy forms will not preclude you from attending and voting in person at the EGM or the H Shareholders’ Class Meeting or at any adjourned meetings should you so wish.

If you intend to attend the EGM or the H Shareholders’ Class Meeting in person or by proxy, you are required to complete and return the reply slip to Computershare Hong Kong Investor Services Limited or to the Company’s Board of Directors’ Office on or before 22 July 2010.

28 June 2010

TABLE OF CONTENTS

			Page
DEFINITION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	. . . . . .	. . . . . . . .	1
LETTER FROM THE BOARD
1 INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . .	. . . . . .	. . . . . . . .	4
2 PROPOSED PRIVATE PLACEMENT OF NEW A SHARES		. . . . . . . .	6
3 SUBSCRIPTION OF NEW A SHARES BY CRECG	. . . . . .	. . . . . . . .	13
4 PURPOSE AND IMPACT OF THE PRIVATE PLACEMENT		. . . . . . .	16
5 RISK FACTORS RELATING TO THE PRIVATE PLACEMENT . . . . .			19
6 INFORMATION ON CRECG . . . . . . . . . . . . . . . . .	. . . . . .	. . . . . . . .	24
7 IMPLICATIONS UNDER THE HONG KONG LISTING RULES . . . .			24
8 ISSUE OF SHORT TERM NOTES . . . . . . . . . . . . . .	. . . . . .	. . . . . . . .	25
9 EGM AND H SHAREHOLDERS’ CLASS MEETING	. . . . .	. . . . . . . .	26
10 RECOMMENDATION . . . . . . . . . . . . . . . . . . . . . .	. . . . . .	. . . . . . . .	27
11 FURTHER INFORMATION . . . . . . . . . . . . . . . . . .	. . . . . .	. . . . . . . .	28
LETTER FROM THE INDEPENDENT BOARD COMMITTEE	. . . . .	. . . . . . . .	29
LETTER FROM CHINA MERCHANTS SECURITIES . . . . . .	. . . . . .	. . . . . . . .	30
APPENDIX I – THE REPORTS ON THE USE OF PROCEEDS FROM
PREVIOUS FUND RAISING EXERCISE . .		. . . . . . . .	I-1
APPENDIX II – THE FEASIBILITY STUDY REPORT .	. . . . . .	. . . . . . . .	II-1
APPENDIX III – GENERAL INFORMATION . . . . . . . .	. . . . . .	. . . . . . . .	III-1
NOTICE OF EGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	. . . . . .	. . . . . . . .	EGM-1
NOTICE OF H SHAREHOLDERS’ CLASS MEETING . . . . .	. . . . . .	. . . . . . . .	H-1

DEFINITION

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

“2009 AGM”
the 2009 annual general meeting of the Company to be held at Conference Room, Block A, China Railway Square, No. 69 Fuxing Road, Haidian District, Beijing, PRC at 10:00 a.m. on Tuesday, 29 June 2010
“A Shares”
ordinary shares of RMB1.00 each in the share capital of the Company which are listed on the Shanghai Stock Exchange and traded in RMB
“A Shareholders”
holders of A Shares
“A Shareholders’ Class Meeting”
the 2010 first class meeting of the A Shareholders to be held at Lecture Hall, China Railway Square, No. 69 Fuxing Road, Haidian District, Beijing, PRC on 12 August 2010 in the morning immediately following the conclusion of the EGM or any adjournment thereof
“associates”
has the meaning ascribed to it under the Hong Kong Listing Rules
“Board”
the board of directors of the Company
“BT”
the Build – Transfer mode
“China Merchants Securities” or “Independent Financial Advisor”
China Merchants Securities (HK) Co., Limited, the independent financial adviser to the Independent Board Committee and the Independent Shareholders in respect of the CRECG Subscription Agreement, being a licensed corporation for Type 1 (dealing in securities), Type 2 (dealing in futures contracts), Type 4 (advising on securities), Type 6 (advising on corporate finance) and Type 9 (asset management) regulated activities under the SFO
“the Company”
中國中鐵股份有限公司 (China Railway Group Limited), a joint stock limited company incorporated in the PRC and the H Shares and A Shares of which are listed on the Hong Kong Stock Exchange (stock code: 390) and the Shanghai Stock Exchange (stock code: 601390), respectively
“CRECG”
China Railway Engineering Corporation, a state-owned enterprise incorporated in the PRC and the controlling shareholder of the Company

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DEFINITION

“CRECG Subscription”
“CRECG Subscription Agreement”
“CSRC”
“Date of Benchmark Pricing”
“Directors”
“EGM”
“Group”
“H Shares”
“H Shareholders”
“H Shareholders’ Class Meeting”
“Hong Kong Listing Rules”
“Hong Kong Stock Exchange”
“Independent Board Committee”

the subscription of new A Shares by CRECG pursuant to the CRECG Subscription Agreement

the subscription agreement relating to the CRECG Subscription entered into between the Company and CRECG on 18 June 2010
the China Securities Regulatory Commission
19 June 2010, being the date of the announcement regarding the resolution passed at the thirty-first meeting of the first session of the board of directors of the Company

the directors of the Company

the 2010 first extraordinary general meeting of the Company to be held at Lecture Hall, China Railway Square, No. 69 Fuxing Road, Haidian District, Beijing, PRC at 9:30 a.m. on 12 August 2010
the Company and its subsidiaries
overseas listed foreign shares of RMB1.00 each in the share capital of the Company which are listed on the Hong Kong Stock Exchange and traded in Hong Kong dollars
holders of H Shares
the 2010 first class meeting of the H Shareholders to be held at Lecture Hall, China Railway Square, No. 69 Fuxing Road, Haidian District, Beijing, PRC on 12 August 2010 in the morning immediately following the conclusion of the A Shareholders’ Class Meeting or any adjournment thereof
the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited
The Stock Exchange of Hong Kong Limited
the independent board committee of the Company, comprising all independent non-executive Directors, to advise the Independent Shareholders in relation to the CRECG Subscription Agreement

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DEFINITION

“Independent Shareholders”
the Shareholders other than CRECG and its associates, who are neither involved nor interested in the CRECG Subscription Agreement
“Latest Practicable Date”
23 June 2010, being the latest practicable date prior to the printing of this circular for ascertaining certain information contained herein
“PRC”
the People’s Republic of China
“Private Placement”
the placing of not more than 1,517,880,000 new A Shares (subject to adjustment) by the Company to not more than 10 target investors (including CRECG)
“Profit Distribution Scheme”
the proposal relating to the 2009 profit distribution scheme to distribute a total profit of RMB1.35 billion by paying a cash dividend of RMB0.63 (including tax) for every 10 shares, which was considered and passed at the twenty-ninth meeting of the first session of the board of directors of the Company on 26 April 2010, which profit distribution will be tabled before the 2009 AGM for its consideration and approval
“Notes”
short term notes of principal amount not exceeding RMB5 billion proposed to be issued by the Company
“RMB” Renminbi, the lawful currency of the PRC
“SASAC” the State-owned Assets Supervision and Administration Commission of the State Council of the PRC
“SFO” the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong)
“Shareholders” A Shareholders and/or H Shareholders “Shares” A Shares and/or H Shares “trading day” a day on which the Shanghai Stock Exchange is open for trading in securities

For reference only, the figures in RMB referred to in this circular have been translated into Hong Kong dollars on the basis of an assumed exchange rate of HK$1 = RMB0.87935.

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LETTER FROM THE BOARD

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中國中鐵股份有限公司 CHINA RAILWAY GROUP LIMITED

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

(Stock Code: 390)

Executive Directors: Registered Office: Mr. LI Changjin (Chairman) 1 Xing Huo Road, Fengtai District Mr. BAI Zhongren Beijing 100070 PRC Non-executive Director: Mr. WANG Qiuming Place of Business in Hong Kong: Unit 1201-1203 Independent non-executive Directors: 12th Floor, APEC Plaza Mr. HE Gong 49 Hoi Yuen Road, Kwun Tong Mr. GONG Huazhang Kowloon Mr. WANG Taiwen Hong Kong

Mr. HE Gong Mr. GONG Huazhang Mr. WANG Taiwen Mr. SUN Patrick

28 June 2010

To the Shareholders

Dear Sir or Madam,

(1) PROPOSED PRIVATE PLACEMENT OF NEW A SHARES

(2) CONNECTED TRANSACTION: PROPOSED SUBSCRIPTION OF NEW A SHARES BY CRECG

(3) ISSUE OF SHORT TERM NOTES AND

NOTICE OF EXTRAORDINARY GENERAL MEETING AND H SHAREHOLDERS’ CLASS MEETING

1 INTRODUCTION

Reference is made to the announcement of the Company dated 19 June 2010 relating to the Private Placement and the CRECG Subscription Agreement.

On 18 June 2010, the Board announced that the Board has approved the Private Placement, pursuant to which the Company shall issue a maximum of 1,517,880,000 new A Shares for subscription to not more than 10 target investors (including CRECG). The issue price of the A Shares to be issued under the Private Placement shall be not less than RMB4.11 (approximately HK$4.67) per new A Share, which price is not less than 90% of the

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LETTER FROM THE BOARD

average trading price of the Company’s A Shares over the 20 trading days prior to the Date of Benchmark Pricing (the average trading price of the A Shares over the 20 trading days prior to the Date of Benchmark Pricing = the total turnover of the A Shares over the 20 trading days prior to the Date of Benchmark Pricing/the total trading volume of the A Shares over the 20 trading days prior to the Date of Benchmark Pricing). In the event that there is any ex-dividend or ex-right adjustment on the A Shares during the period from the Date of Benchmark Pricing to the date of issue under the Private Placement as a result of distribution of dividends, issue of bonus shares, capitalisation issue, issue of new shares or rights issue, the base issue price and the maximum number of Shares to be issued under the Private Placement shall be adjusted accordingly. The Board has also announced that as part of the Private Placement, the Company has entered into the CRECG Subscription Agreement with CRECG on 18 June 2010 pursuant to which, CRECG will, with a total subscription price of not exceeding RMB3.50 billion (approximately HK$3.98 billion), subscribe in cash for not more than 851,580,000 A Shares to be issued by the Company under the Private Placement. CRECG will not participate in the book-building exercise for the Private Placement, but has undertaken to accept the results of the price quotations by the other target investors and will subscribe at the same price as the other target investors.

CRECG is the controlling shareholder of the Company, holding approximately 56.10% of the Company’s Shares as at the Latest Applicable Date. Hence, CRECG is a connected person of the Company for the purpose of the Hong Kong Listing Rules. Accordingly, the subscription of new A Shares pursuant to the CRECG Subscription Agreement and the transaction contemplated thereunder constitutes a connected transactions of the Company under Chapter 14A of the Hong Kong Listing Rules and is subject to reporting, announcement and independent shareholders’ approval requirement under the Hong Kong Listing Rules. An Independent Board Committee comprising all the independent non-executive Directors has been formed to advise the Independent Shareholders on the terms of the CRECG Subscription Agreement. China Merchants Securities has been appointed as independent financial adviser to advise the Independent Board Committee and the Independent Shareholders on the same.

At an earlier Board meeting, the Board has also approved the issue of the Notes by the Company of a principal amount not exceeding RMB5 billion with a term of 365 days in single or multiple tranches in the PRC. The proceeds from the issue of the Notes will be used to repay loans and supplement the Company’s working capital.

The purposes of this circular are: (1) to provide information of the terms of: (i) the Private Placement, (ii) the CRECG Subscription Agreement, (iii) the CRECG Subscription and (iv) the issue of the Notes; (2) to set out the letter from the Independent Board Committee and the advice from the Independent Financial Adviser; and (3) to set out the notice of EGM and the notice of H Shareholders’ Class Meeting.

Special resolutions will be proposed to approve, amongst other things, the Private Placement and the issue of the Notes and an ordinary resolution will be proposed to approve the CRECG Subscription contemplated under the CRECG Subscription Agreement at the EGM to be held on 12 August 2010. Special resolutions will be proposed to approve, among other things, the Private Placement and an ordinary resolution will be proposed to approve the CRECG Subscription Agreement at the A Shareholders’ Class Meeting and H Shareholders’ Class Meeting. CRECG and its associates will abstain from voting in respect of the Private Placement, and in respect of the resolutions in relation to the Private Placement and the CRECG Subscription Agreement at the EGM, the A Shareholders’ Class Meeting and the H Shareholders’ Class Meeting.

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LETTER FROM THE BOARD

2 PROPOSED PRIVATE PLACEMENT OF NEW A SHARES

2.1 Types and nominal value of the Shares to be issued

The Shares to be issued under the Private Placement are RMB denominated ordinary shares with a nominal value of RMB1.00 per Share, which are listed domestically (A Shares).

2.2 Issue method

All of the A Shares subject to the placement will be issued by way of private placement to the target investors at a selected time within six months following the approval of the CSRC.

2.3 Target investors and subscription method

The Private Placement will be made to not more than 10 target investors (including CRECG). The target investors other than CRECG must fall within, among others, the securities investment fund management companies, securities companies, trust and investment companies, financial companies, insurance institutional investors, qualified foreign institutional investors (including the proprietary accounts of, or the investment product accounts under the management of, such investors) and other domestic corporate investors and natural persons complying with the requirements of the CSRC. Any fund management company holding shares with more than one investment accounts will be deemed as one target investor. The Board and the lead underwriter(s) to be appointed by the Company for the purpose of the Private Placement will decide on the target investors (other than CRECG) by a book-building exercise based on the principle of, amongst others, price bidding, and in accordance with the relevant requirements of the CSRC and the prices quoted by the target investors after the Company has obtained the approval documents in respect of the Private Placement.

All investors will subscribe for the A Shares to be issued under the Private Placement in cash.

As at the Latest Practicable Date, apart from the CRECG Subscription Agreement, the Company has not entered into any agreement with any potential investors in respect of the Private Placement. To the best knowledge, information and belief of the Directors, as at the Latest Practicable Date, apart from CRECG, the Company are not aware of any potential investors and their respective ultimate beneficial owners: (i) who are not third parties independent of the Company and are connected persons of the Company; and (ii) whether they will become substantial shareholders of the Company upon completion of their respective subscriptions of new A Shares. The Company will comply with the relevant requirements of the Hong Kong Listing Rules should there be any changes or if otherwise necessary.

2.4 Number of Shares to be issued

The number of A Shares to be issued under the Private Placement shall not exceed 1,517,880,000. CRECG will subscribe for not more than 851,580,000 new A Shares, and the actual number of Shares to be subscribed by CRECG will be determined according to the issue price of the A Shares under the Private Placement. Subject to such maximum number (which may be adjusted), the final number of

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LETTER FROM THE BOARD

Shares to be issued will be determined by the Board and relevant persons as authorised by the Board upon the authorisation by the Shareholders’ general meeting after consultation with the lead underwriter(s) of the Private Placement in accordance with the market conditions at the time of the issue.

The 1,517,880,000 new A Shares to be issued under the Private Placement represent: (i) approximately 8.88% of the existing issued A Shares and approximately 7.13% of the existing issued share capital of the Company; and (ii) approximately 8.16% of the issued A Shares and approximately 6.65% of the total issued share capital of the Company as enlarged by the Private Placement (assuming full subscription and a total issue of 1,517,880,000 new A Shares under the Private Placement).

2.5 Issue price and pricing principles

The Date of Benchmark Pricing in relation to the A Shares to be issued under the Private Placement shall be the date of announcement of the resolutions passed at the thirty-first meeting of the first session of the Board of Directors of the Company, being 19 June 2010. The issue price shall be not less than RMB4.11 (approximately HK$4.67) per new A Share, which price is not less than 90% of the average trading price of the Company’s A Shares over the 20 trading days prior to the Date of Benchmark Pricing (the average trading price of the A Shares over the 20 trading days prior to the Date of Benchmark Pricing = the total turnover of the A Shares over the 20 trading days prior to the Date of Benchmark Pricing/the total trading volume of the A Shares over the 20 trading days prior to the Date of Benchmark Pricing). In the event that there is any ex-dividend or ex-right adjustment on the A Shares during the period from the Date of Benchmark Pricing to the date of issue under the Private Placement as a result of distribution of dividends, issue of bonus shares, capitalisation issue, issue of new shares or rights issue, the base issue price under the Private Placement shall be adjusted accordingly.

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LETTER FROM THE BOARD

Based on the foregoing base issue price, the Board and the lead underwriter(s) shall determine the final issue price in accordance with the authorisation by the Shareholders’ general meeting, the Implementation Rules for the Non-Public Issuance of Shares by Listed Companies and the relevant requirements of the CSRC and will negotiate the price with reference to the relevant requirements of the CSRC and the prices quoted by the target investors. CRECG will not participate in the book-building exercise for the Private Placement, but has undertaken to accept the results of the price quotations by other target investors and will subscribe at the same price as the other target investors. The Company will make a separate announcement of the final issue price and the net amount of the capital raised following the completion of the Private Placement.

On 22 June 2010, being the last trading day of the A Shares before the Latest Practicable Date, the market price of the Company’s A Shares was RMB4.51 (approximately HK$5.13). Assuming full subscription under the Private Placement and a total of 1,517,880,000 new A Shares to be issued, the aggregate nominal value of new A Shares of par value RMB1.00 each to be issued is RMB1,517.88 million (approximately HK$1,726.14 million).

2.6 Adjustment of the number of Shares to be issued and the base issue price

In the event that there is any ex-dividend or ex-right adjustment on the A Shares during the period from the Date of Benchmark Pricing to the date of issue as a result of distribution of dividends, issue of bonus shares, capitalisation issue, issue of new shares or rights issue, the base issue price of the A Shares to be issued under the Private Placement shall be adjusted as follows:

Assuming “P0” denotes the base issue price prior to the adjustment; “N” denotes the number of bonus shares to be issued per share or the number of shares to be issued per share under the capitalisation issue; “K” denotes the number of new shares to be issued per share or the number of shares to be issued per share under the rights issue; “A” denotes the price of new share issue or rights issue; “D” denotes the dividend per share; and “P1” denotes the base issue price following the adjustment (subject to rounding off to two decimal places, and the base issue price of the A Shares under the Private Placement after adjustment being not less than the nominal value of RMB1.00 per Share):

Distribution of dividends: P1=P0–D

Issue of bonus shares or capitalisation issue: P1= P0/(1+N)

Issue of new shares or rights issue: P1=(P0+AK)/(1+K)

Where the three events above occur concurrently: P1=(P0-D+AK)/(1+K+N)

Furthermore, the maximum number of A Shares to be issued under the Private Placement and the maximum number of Shares to be subscribed for by CRECG shall be adjusted accordingly based on the aforesaid formula by reference to the base issue price after the adjustment arising out of any ex-right or ex-dividend adjustment.

The proposal relating to the Profit Distribution Scheme, which is to distribute a total profit of RMB1.35 billion by paying a cash dividend of RMB0.63 (including

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LETTER FROM THE BOARD

tax) for every 10 Shares, was considered and passed at the twenty-ninth meeting of the first session of the Board of Directors of the Company on 26 April 2010, which Profit Distribution Scheme will be tabled before the 2009 AGM for its consideration and approval. If the Profit Distribution Scheme is approved at the 2009 AGM, the base issue price of the A Shares to be issued under the Private Placement shall be adjusted to not less than RMB4.05 (approximately HK$4.61) per A Share, and the maximum number of the A Shares to be issued under the Private Placement shall be adjusted to not exceeding 1,540,350,000, among which no more than 864,190,000 new A Shares will be subscribed for by CRECG.

If the Profit Distribution Scheme is approved at the 2009 AGM, the adjusted number of 1,540,350,000 new A Shares to be issued under the Private Placement will represent: (i) approximately 9.01% of the existing issued A Shares and approximately 7.23% of the existing issued share capital of the Company; and (ii) approximately 8.27% of the issued A Shares and approximately 6.74% of the total issued share capital of the Company as enlarged by the Private Placement (assuming full subscription and a total issue of 1,540,350,000 new A Shares under the Private Placement after adjustment as a result of the approval of the Profit Distribution Scheme at the 2009 AGM).

2.7 Rights of the new A Shares

The new A Shares to be issued pursuant to the Private Placement, when fully paid and issued, will rank pari passu in all respects amongst themselves and with the A Shares in issue at the time of the issue and allotment of such new A Shares.

2.8 Lock-up arrangement

Under the Private Placement, CRECG must not transfer the Shares that it subscribes for under the Private Placement within 36 months from the date of completion of the Private Placement, and the other investors must not transfer the Shares that they subscribe for under the Private Placement within 12 months from the date of completion of the Private Placement.

2.9 Use of proceeds

The total amount of the proceeds from the Private Placement is expected not to exceed RMB6,239 million (approximately HK$7,095 million). Of such proceeds, the total subscription price payable by CRECG is expected not to exceed RMB3.50 billion (approximately HK$3.98 billion).

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LETTER FROM THE BOARD

The proceeds from the Private Placement of the A Shares shall be used for the following purposes:

No. Use of Proceeds 1 “Shenzhen Subway Line 5” BT project 2 “Shuangyong Bridge, Weiyi Bridge, Guangya Bridge and Northern Outer Ring Road” BT project in Liuzhou Total	Proposed Amount of Proceeds to be Applied RMB4,435 million (approximately HK$5,043 million) RMB1,804 million (approximately HK$2,052 million)
	RMB6,239 million (approximately HK$7,095 million)

Before the proceeds from the Private Placement is available to the Company, the Company shall, in accordance with the actual progress of the investment projects, invest in such projects using other internal capital resources, which will be replaced with the proceeds from the Private Placement pursuant to the procedures under the relevant legislation. In case of any insufficiency of the proceeds from the Private Placement for the investment in such projects, the shortfall shall be covered by the Company using other means. Within the scope of these projects, the Board may make appropriate adjustments to the amount of proceeds for the projects with reference to their actual progress and financial requirements and in accordance with requirements of relevant regulations.

2.10 Venue of listing

Upon expiration of the lock-up period, the A Shares to be issued under the Private Placement will be listed and traded on the Shanghai Stock Exchange.

2.11 Arrangements for accumulated profits prior to the Private Placement

The accumulated profits of the Company that remain undistributed prior to the Private Placement shall be amongst by the existing Shareholders and the holders of new A Shares following the completion of the Private Placement in order to align the interests of the existing Shareholders and the holders of new A Shares.

2.12 Term of effectiveness of the resolutions regarding the Private Placement

The resolutions regarding the Private Placement shall remain effective for a period of 12 months after the date of passing of such resolutions at the EGM, the A Shareholders’ Class Meeting and the H Shareholders’ Class Meeting.

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LETTER FROM THE BOARD

2.13 Conditions of the Private Placement

The Private Placement is conditional upon, among other things, (i) the passing of separate special resolutions by the Shareholders at the Shareholders’ general meeting approving the terms of the Private Placement as required by relevant PRC laws and regulations; (ii) the passing of special resolutions by A Shareholders and H Shareholders approving the Private Placement at the A Shareholders’ Class Meeting and the H Shareholders’ Class Meeting, respectively; and (iii) obtaining all necessary consents, approvals and authorisations from the relevant governmental authorities, including but not limited to the approvals from CSRC and SASAC.

2.14 Proposal on Private Placement of A Shares

The Proposal on Private Placement of A Shares of China Railway Group Limited (the “Proposal on Private Placement”) was considered and approved at the thirty-first meeting of the first session of the Board of the Company convened on 18 June 2010, and will be proposed at the EGM, the A Shareholders’ Class Meeting and the H Shareholders’ Class Meeting for approval. CRECG together with its associates will abstain from voting in respect of the relevant resolution at the EGM, the A Shareholders’ Class Meeting and the H Shareholders’ Class Meeting.

Major contents of the Proposal on Private Placement have been set out in relevant sections of this circular. For the full text of the Proposal on Private Placement, please refer to the relevant announcement made by the Company on the website of the Shanghai Stock Exchange on 19 June 2010.

2.15 Fulfillment of the conditions for the Private Placement by the Company

In accordance with the laws, regulations and regulatory documents of the PRC, such as the Company Law of the People’s Republic of China, the Securities Law of the People’s Republic of China, the Measures Governing the Issue of Securities by Listed Companies and the Implementation Rules for the Non-Public Issuance of Shares by Listed Companies and with reference to the Company’s actual conditions based upon the Company internal review, the Board has confirmed that the Company has satisfied the conditions for private placement of A Shares and has approved the Company’s application for the Private Placement of A Shares.

2.16 Waiver from making general offer

Pursuant to the requirements of relevant laws, regulations and regulatory documents of the PRC, the CRECG Subscription may trigger the obligations of CRECG to make a general offer.

A resolution to approve the exemption of CRECG from making a general offer will be proposed to the Independent Shareholders of the Company for consideration at the EGM. CRECG together with its associates will abstain from voting in respect of the relevant resolution at the EGM.

2.17 The Reports on the Use of Proceeds from Previous Fund Raising Exercise

The Company has previously obtained approval from CSRC to make initial public offerings of A Shares and H Shares from November to December in 2007 and

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LETTER FROM THE BOARD

has raised net proceeds of RMB21,934.2836 million (approximately HK$24,943.7466 million) and RMB20,242.1964 million (approximately HK$23,019.4989 million), respectively.

In accordance with relevant requirements, the Company has prepared the Report on the Use of Proceeds from Previous Fund Raising Exercise of the Company (A Share) and the Report on the Use of Proceeds from Previous Fund Raising Exercise of the Company (H Share) (together, the “Reports on the Use of Proceeds from Previous Fund Raising Exercise”). The Reports on the Use of Proceeds from Previous Fund Raising Exercise provides details of the actual use of proceeds previously raised from the initial offering of A Shares and H Shares of the Company, including detailed explanations on the actual projects invested and actual amount invested as well as comparisons of the actual use of proceeds with the use disclosed in the prospectus together with explanations as to the differences in use.

Deloitte Touche Tohmatsu CPA Ltd. has issued its verification report (the “Verification Report”) on the above two reports and is of the view that reports have been prepared in accordance with the Regulations on Reports on the Use of Proceeds from Previous Fund Raising Exercise (Zheng Jian Fa Xing Zi [2007] No. 500) issued by CSRC and that the reports have materially reflected the use of proceeds from the previous offering of A Shares and H Shares up to 31 December 2009.

The Reports on the Use of Proceeds from Previous Fund Raising Exercise and the Verification Report are set out in Appendix I to this circular. The Reports on the Use of Proceeds from Previous Fund Raising Exercise are subject to Shareholders’ approval by way of an ordinary resolution pursuant to requirements of the CSRC.

2.18 The Feasibility Study Report

The proceeds from the Private Placement are intended to be used for such infrastructure investment projects as the “Shenzhen Subway Line 5” BT project and “Shuangyong Bridge, Weiyi Bridge, Guangya Bridge and Northern Outer Ring Road” BT project in Liuzhou. The relevant details are set out in the project feasibility study on the raising of proceeds from the private placement of shares of the Company (the “Feasibility Study Report”), which is set out in Appendix II to this circular. The Feasibility Study Report is subject to Shareholders’ approval by way of an ordinary resolution pursuant to requirements of the CSRC.

2.19 Authorisations to the Board to complete matters relating to the Private Placement

The Board also proposes to seek the Shareholders’ approval by way of special resolution to grant to the Board and relevant authorised persons to deal with matters relating to the Private Placement.

2.20 Fund raising in the past twelve months

The Company has not conducted any fund raising activities involving the issue of Shares within the 12 months immediately prior to the Latest Practicable Date.

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LETTER FROM THE BOARD

3 SUBSCRIPTION OF NEW A SHARES BY CRECG

As part of the Private Placement, the Company has entered into the CRECG Subscription Agreement with CRECG on 18 June 2010, the terms of which are summarised as follows:

3.1 Shares and the number and consideration of Shares for Subscription

CRECG will, with a total subscription price of not exceeding RMB3.50 billion (approximately HK$3.98 billion), subscribe in cash for not more than 851,580,000 A Shares to be issued by the Company under the Private Placement.

Assuming full subscription and a total issue of 1,517,880,000 new A Shares under the Private Placement, among which 851,580,000 new A Shares will be subscribed for by CRECG, CRECG will hold an aggregate of not more than 12,801,590,000 A Shares, representing approximately 56.10% of the enlarged total issued share capital of the Company, immediately after completion of the CRECG Subscription.

As CRECG is a connected person of the Company, subscription of A Shares by CRECG pursuant to the CRECG Subscription Agreement constitutes a connected transaction, which is subject to reporting, announcement and Independent Shareholders’ approval requirements in accordance with the Hong Kong Listing Rules.

3.2 Subscription price and pricing method

CRECG will not participate in the book-building exercise for the Private Placement, but has undertaken to accept the results of the price quotations by the other target investors and will subscribe at the same price as the other target investors. In the event that there is any ex-dividend or ex-right adjustment on the A Shares during the period from the Date of Benchmark Pricing to the date of issue as a result of distribution of dividends, issue of bonus shares, capitalisation issue, issue of new shares or rights issue, the base issue price under the Private Placement shall be adjusted accordingly. The Company will make a separate announcement of the final issue price and the net amount of the capital raised following the completion of the Private Placement.

If the Profit Distribution Scheme is considered and approved at the 2009 AGM, the base issue price of the A Shares to be issued under the Private Placement shall be adjusted to not less than RMB4.05 (approximately HK$4.61) per new A Share, and the maximum number of the A Shares to be issued under the Private Placement shall be adjusted to not exceeding 1,540,350,000, among which no more than 864,190,000 new A Shares will be subscribed for by CRECG.

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LETTER FROM THE BOARD

Assuming full subscription and a total issue of 1,540,350,000 new A Shares under the Private Placement after adjustment as a result of the approval of the Profit Distribution Scheme at the 2009 AGM, among which 864,190,000 new A Shares will be subscribed for by CRECG, CRECG will hold an aggregate of 12,814,200,000 A Shares, representing approximately 56.10% of the enlarged total issued share capital of the Company, immediately after completion of the CRECG Subscription.

3.3 Lock-up period

CRECG must not transfer the Shares that it subscribes for under the Private Placement within 36 months from the date of completion of the Private Placement.

3.4 Subscription price payment method

After the Private Placement has been formally approved by the CSRC and in the course of the Private Placement, CRECG shall, when requested by the lead underwriter(s), pay the subscription price in full into the special bank account opened for the Private Placement, provided that the lead underwriter(s) shall give at least two working days’ notice to CSRC in respect of the date of such payment. Upon the payment of the subscription price into such account, the Company shall complete the capital verification procedures and the registration of the Shares issued under the Private Placement as required under relevant laws and regulations as soon as possible.

3.5 Conditions precedent of the CRECG Subscription Agreement

The CRECG Subscription Agreement shall become effective upon the satisfaction of all of the following conditions:

(a) the signing and stamping of the CRECG Subscription Agreement by the legal or authorised representative of each of the parties to the CRECG Subscription Agreement;
(b) the approval by SASAC of the Private Placement and the subscription by CRECG in cash for the Shares to be issued under the Private Placement;
(c) the approval by the Board, the Shareholders’ general meeting and the Shareholders’ Class Meetings of the Company of the Private Placement and the CRECG Subscription;
(d) the approval by the board of directors of CRECG of the CRECG Subscription;
(e) the approval by the non-connected Shareholders at the Shareholders’ general meeting of the Company of the exemption of CRECG from making a general offer, and the waiver by the CSRC of CRECG from its obligations relating to any general offer, in the event that the CRECG Subscription triggers any general offer obligations on the part of CRECG; and
(f) the approval by the CSRC of the Private Placement.

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As at the Latest Practicable Date, the CRECG Subscription Agreement has been signed and stamped by the legal or authorised representative of each of the parties to the CRECG Subscription Agreement, and the Private Placement and the CRECG Subscription have been approved by the Board and the CRECG Subscription has been approved by the board of directors of CRECG.

3.6 Shareholding structure of the Company

The table below sets out the Company’s existing shareholding structure and the shareholding structure immediately after completion of the Private Placement:

Name of shareholder China Railway Engineering Corporation Public holders of A Shares Public holders of H Shares Total Name of shareholder China Railway Engineering Corporation Public holders of A Shares Public holders of H Shares Investors under Private Placement Total	As at the Latest Practicable Date and prior to completion of the Private Placement and completion of the CRECG Subscription Number of Shares held Approximate percentage of shareholding in the Company’s total issued A Shares Approximate percentage of shareholding in the Company’s total issued share capital 11,950,010,000 A Shares 69.91% 56.10% 5,142,500,000 A Shares 30.09% 24.15% 4,207,390,000 H Shares – 19.75% 21,299,900,000 Shares 100% 100% Immediately after completion of the Private Placement (assuming full subscription and a total issue of 1,517,880,000 new A Shares under the Private Placement) Number of Shares held Approximate percentage of shareholding in the Company’s total issued A Shares Approximate percentage of shareholding in the Company’s total issued share capital 12,801,590,000 A Shares 68.79% 56.10% 5,142,500,000 A Shares 27.63% 22.54% 4,207,390,000 H Shares – 18.44% 666,300,000 A Shares 3.58% 2.92% 22,817,780,000 Shares 100% 100%	As at the Latest Practicable Date and prior to completion of the Private Placement and completion of the CRECG Subscription Number of Shares held Approximate percentage of shareholding in the Company’s total issued A Shares Approximate percentage of shareholding in the Company’s total issued share capital 11,950,010,000 A Shares 69.91% 56.10% 5,142,500,000 A Shares 30.09% 24.15% 4,207,390,000 H Shares – 19.75% 21,299,900,000 Shares 100% 100% Immediately after completion of the Private Placement (assuming full subscription and a total issue of 1,517,880,000 new A Shares under the Private Placement) Number of Shares held Approximate percentage of shareholding in the Company’s total issued A Shares Approximate percentage of shareholding in the Company’s total issued share capital 12,801,590,000 A Shares 68.79% 56.10% 5,142,500,000 A Shares 27.63% 22.54% 4,207,390,000 H Shares – 18.44% 666,300,000 A Shares 3.58% 2.92% 22,817,780,000 Shares 100% 100%
		100%

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LETTER FROM THE BOARD

Name of shareholder China Railway Engineering Corporation Public holders of A Shares Public holders of H Shares Investors under Private Placement Total	Immediately after completion of the Private Placement (assuming full subscription and a total issue of 1,540,350,000 new A Shares under the Private Placement after adjustment as a result of the approval of the Profit Distribution Scheme at the 2009 AGM) Number of Shares held Approximate percentage of shareholding in the Company’s total issued A Shares Approximate percentage of shareholding in the Company’s total issued share capital 12,814,200,000 A Shares 68.77% 56.10% 5,142,500,000 A Shares 27.60% 22.52% 4,207,390,000 H Shares – 18.42% 676,160,000 A Shares 3.63% 2.96% 22,840,250,000 Shares 100% 100%	Immediately after completion of the Private Placement (assuming full subscription and a total issue of 1,540,350,000 new A Shares under the Private Placement after adjustment as a result of the approval of the Profit Distribution Scheme at the 2009 AGM) Number of Shares held Approximate percentage of shareholding in the Company’s total issued A Shares Approximate percentage of shareholding in the Company’s total issued share capital 12,814,200,000 A Shares 68.77% 56.10% 5,142,500,000 A Shares 27.60% 22.52% 4,207,390,000 H Shares – 18.42% 676,160,000 A Shares 3.63% 2.96% 22,840,250,000 Shares 100% 100%
		100%

4 PURPOSE AND IMPACT OF THE PRIVATE PLACEMENT
4.1 Changes in the Company’s business, articles of association, shareholding structure, senior management personnel and revenue structures
- (i) Impact on the Company’s business and revenue structure

The Private Placement will not have a material impact on the principal activities and revenue structure of the Company, and will be conducive to the optimisation of the business structure adjustment and to the acceleration of the Company’s business transformation.

Currently, the Company’s principal activities are infrastructure construction, survey, design and consulting services, engineering equipment and component manufacturing, property development and other businesses, which have certain industrial fluctuations. Based on the analysis and research on the operations of similar domestic and overseas companies, the Board is of the view that the Company shall proactively push forward the industrial structure adjustment in order to realise the following objectives: firstly, to further enhance the Company’s profitability. Although both the Company’s asset scale and profit level have achieved a significant growth since its listing, there is still a gap between the Company’s profit margin level and that achieved by world class multinational companies in the industry. Therefore the Company needs to enhance its profitability. Secondly, the Company shall reinforce the Company’s competitiveness in the construction-related business sectors in order to establish new competitive advantages. As one of the largest comprehensive multi-functional construction groups in Asia, the Company has a long history and a renowned brand name known domestically and overseas, and has evident competitive advantages when participating in big and complex projects, yet the Company’s sustainable development requires new competitive advantages so as to enhance the Company’s core competitiveness.

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Investment in and operation of infrastructure projects is a development trend of the construction sector and an important means used by world class construction companies to improve their profit margin levels. The proceeds from the Private Placement of A Shares by the Company will be used in investment in infrastructure projects. The Board is of the view that the implementation of the investment projects to be carried out with the proceeds from the Private Placement will promote the industrial structure adjustment of and the gradual enhancement of the profitability of the Company, and will be conducive to the Company’s establishment of new competitive advantages and to the enhancement of the Company’s core competitiveness.

(ii) Impact on the Company’s articles of association, shareholding structure and senior management personnel structure

Upon completion of the Private Placement, the Company’s share capital will be increased accordingly, and the original shareholding structure of the Company’s existing shareholders will also be changed. The Company will, based on the actual result of the issue, effect amendments to the relevant provisions relating to share capital in the Company’s articles of association as well as effect changes to registration with the relevant industry and commerce department. The Private Placement will not result in any change to the Company’s senior management personnel structure.

4.2 Changes in the Company’s financial position, profitability and cash flows

(i) Impact on the Company’s financial position

With the implementation of China’s RMB4,000 billion investment plan and the growing infrastructure investment in foreign countries, the Company’s business scale has achieved a rapid development and the Company’s demand for funds has a gradually increasing. Upon completion of the Private Placement, both the Company’s asset scale and net asset scale will be increased simultaneously, which, on one hand, will help improve the financial position of the Company and provide strong assurance for the subsequent development of the Company, and on the other hand, will promote the growth of the Company’s business.

In addition, upon completion of the Private Placement, the Company’s gearing ratio (total liabilities/total assets) is expected to decrease, which will be conducive to the promotion of the sound operation of the Company.

(ii) Impact on the Company’s profitability

The proceeds from the Private Placement will be used to invest in infrastructure investment projects. As the profit margin level of such infrastructure investment business is higher compared to traditional infrastructure construction business, the Private Placement will help steadily enhance the long-term profit ability of the Company in the future.

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(iii) Impact on the Company’s cash flows

Upon completion of the Private Placement, the Company’s cash inflows from financing activities will increase significantly, and with the investment projects to be carried out with the proceeds from the Private Placement going into operation and bringing returns, future cash inflows from operating activities and cash outflows from investment activities will be increased.

4.3 Changes in the business relationship, management relationship, connected transactions and competition between the Company and the controlling shareholder and its affiliates

Upon completion of the Private Placement, there will be no material change in the business relationship and management relationship, and no new connected transactions or competition between the Company and the Company’s controlling shareholder CRECG and its affiliates will result from the Private Placement.

4.4 Upon completion of the Private Placement, whether there will be circumstances where the funds or assets of the Company will be appropriated by the controlling shareholder and its affiliates or where the Company will have to provide guarantee to the controlling shareholder and its affiliates

Upon completion of the Private Placement, the funds flow between the Company and the controlling shareholder and the other affiliates controlled by the controlling shareholder will be carried out in normal business operations, there will be no circumstances where the funds or assets of the Company will be appropriated in violation of regulations, and there will be no circumstances where the Company will have to provide guarantee to the controlling shareholder and its affiliates in violation of regulations.

4.5 Impact on the Company’s liabilities

As at 31 December 2009, the gearing ratio of the Company (on a consolidated basis) was 78.72% (expressed in accordance with the Accounting Standards for Business Enterprises of the PRC, same below). In January 2010, the Company issued its first tranche of corporate bonds of RMB6 billion. Therefore, as at the end of the first quarter of 2010, the gearing ratio of the Company (on a consolidated basis) increased to 78.89%. Upon completion of the Private Placement, the gearing ratio of the Company will decrease.

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5 RISK FACTORS RELATING TO THE PRIVATE PLACEMENT

5.1 Market risks

The business of the Company relies to a large extent on the expenditure of the State on railway and other public transport infrastructure (including highways, bridges, tunnels and other municipal projects). Any significant reduction in the State’s public budget on infrastructure, in particular on the transport infrastructure, will have an material adverse effect on the business of the Company.

The business of the Company in construction of highways, bridges and tunnels as well as in survey and design are faced with fierce market competition. The Company’s major competitors include large State-owned enterprises, local State-owned enterprises, private enterprises and multinational companies. In addition, the Ministry of Railways issued notices in 2004 and 2006, encouraging a moderate competition in the China’s railway construction industry and permitting other enterprises in the infrastructure sector with construction, survey, design and supervision qualifications to engage in domestic railway construction, and some construction companies have started to compete for railway construction projects. The Company expects a fierce competition from domestic enterprises and international competitors in the future, and an increasingly fierce competition will probably result in the decrease in the Company’s market share and have an adverse impact on the operating results and financial position of the Company.

The construction business of the Company requires its suppliers to promptly provide sufficient raw materials at a reasonable price. The prices of some raw materials in China (such as steel) have long been in a significant fluctuation. Therefore the Company may have to purchase sufficient raw materials at a relatively high price. In the meantime, the Company’s production and operation require a relatively high quality of raw materials, and a relatively low quality of raw materials may have an adverse impact on the quality of the construction projects of the Company. In case the Company fails to promptly purchase sufficient raw materials on reasonable commercial terms, the production and operation and the operating results of the Company will be adversely affected.

5.2 Financial risks

Most projects of the Company have a long construction period, and such contracts normally require the Company’s clients to pay by instalments based on the progress of projects. In different phases of a project, the Company normally will have to prepay relevant costs of a project, including the costs of materials, equipment and labour. Moreover, the clients usually will retain 5% or 10% of the contract value as quality guarantee deposit, which will be paid after the end of the quality guarantee period (normally one year after completion of the construction). Therefore the Company needs to prepay relevant costs and expenditures before receiving full payment from clients.

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Any overdue payments from its clients may pose a pressure on the working capital and cash flows of the Company. In case the projects on which the clients have overdue payments involve a relatively large cost expenditure, the funds of the Company that can otherwise be used on other projects will be occupied, and the operating results of the Company may be materially and adversely affected. Generally, the Company allocates provision for bad debts mainly based on the aging of receivables and other factors affecting the possibility for recovery of the accounts receivables. The Company cannot assure a prompt and full payment by clients to the Company, and cannot assure an effective management of any bad debts arising from instalment payments.

With the increase of the State’s investments in railway infrastructure market, as a leader in the industry, the Company’s financial indicators including value of new contracts entered into and revenue will be significantly increased accordingly, which results in a rapidly increasing demand for funds. The Company’s failure in procuring sufficient funds will probably impact the development plan and prospects of, and accordingly the operating results of, the Company.

5.3 Exchange rate risks

Most of the Company’s businesses are conducted in China, and most of the income and costs of the Company are denominated in RMB. However, some businesses of the Company involve settlement in foreign currencies, such as the infrastructure construction business, survey, design and consulting service business, engineering equipment export and component manufacturing business which are operated overseas. With the in-depth implementation of the Company’s development strategy and the continuous expansion of the scale of the Company’s overseas business, it is expected that the contribution to revenue and profit from the Company’s overseas business will continuously grow, and the change of exchange rates will probably increase the RMB costs, or decrease the RMB revenue, of the Company’s overseas businesses, or affect the prices of the Company’s products exported and imported, and all of which will impact on the operating results of the Company.

Restricted by the State’s foreign exchange administration policy, the proceeds from the initial public offering of H Shares by the Company at the end of 2007 could not be freely converted into RMB, and the exchange rate fluctuations had a relatively material impact on the Company’s financial positions in 2008. Although upon the approval of relevant authorities, an amount of HK$10 billion had been converted into RMB and transferred to the mainland China for use by the Company, as at 31 December 2009, there was still an amount equal to RMB5.562 billion deposited in foreign currencies, which amount is still subject to exchange rate fluctuations.

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5.4 Business and operational risks

(i) Limited pricing power in infrastructure construction business

Most investments in China’s transport infrastructure industry are directly controlled by State-invested entities. These entities, though not many, are the most important clients of the Company. If a State-invested entity, e.g. the Ministry of Railways, revises relevant policies or conducts direct consultations with the Company through exercising its administrative and regulatory powers so as to cut the contract price of a construction project, then both the Company’s financial position and operating results will be adversely affected. In addition, due to the increasingly fierce market competition, the prices for winning the bids in construction contracting projects are seriously affected and thereby the operating results of the Company are adversely affected.

(ii) Failure in accurately estimating or controlling costs and scope of work

As in substantially all contracts with regard to the Company’s infrastructure construction business, survey, design and consulting service business, as well as engineering equipment and components manufacturing business, it is required that the Company shall complete the project at an agreed fixed price or unit price. Therefore, the profitability of the Company on its projects or products depends on the ability to control costs effectively. High costs will result in a low profit of the project or even a loss to the Company. The gross cost of a project of the Company is affected by various factors which are out of the Company’s control, such as the climatic conditions, labour, capacity of equipment and the fluctuation of cost, change in scope of work for a project and change in prices of raw materials and components during the performance of the relevant contract. The increase in costs of any particular project, in particular those unanticipated or those change in costs not reflected in the contract price, will results in the Company being unable to achieve the estimated profit or even result in a loss to the Company on a project, thereby having adverse effect on the Company’s business, financial position and operating results.

(iii) Risks arising from hiring subcontractors for construction

In conducting the infrastructure construction business, the Company will hire subcontractors as necessary to provide adequate labour for large projects, which will enhance the Company’s capability to undertake projects, reduce the number of staff to be employed by the Company and allow the Company to have more flexibility when performing the relevant contract. Although the Company maintains a cooperative relationship with many qualified subcontractors across the PRC, the Company cannot assure that it will find qualified subcontractors timely whenever there is an increasing demand for labour and this will affect the Company’s capability to undertake

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new projects or to complete the existing projects in a timely manner. In addition, an increase in the cost of hiring a labour subcontractor will also affect the Company’s profitability. In case a subcontractor fails to provide services as required by the relevant contract, the Company will have to find a new subcontractor, which may cause a delay of the construction and an increase in the cost, thereby causing a negative effect on the profitability of the contract. In case the subcontractor fails to meet the Company’s standards, the quality of the project may be undermined, thereby the Company’s reputation will be damaged, and the Company may have to assume the risks of litigation and damages.

5.5 Management risks

With the expansion of the Company’s business scale and the diversification of the Company’s businesses, it is increasingly difficult for the Company to manage its subsidiaries. Meanwhile, with the external regulatory requirements for the standardised operation of the Company becoming increasingly strict and in-depth, the Company needs to further strengthen the management of its subsidiaries based on a full consideration of factors such as their business nature, human resources and management characteristics in order to achieve a sound and orderly development of the Company as a whole. If the Company fails to effectively improve and optimise its management structure, it will face certain risks in its future operation.

As for the non-wholly owned subsidiaries of the Company, although the Company owns their equity interests and has the rights to participate in their management, the Company cannot fully control all of their actions. The Company’s capability to manage its non-wholly owned subsidiaries depends on many factors, including the agreements executed among the Company and other shareholders of such subsidiaries, the rights and obligations of the Company thereunder as well as the decision-making procedures adopted by such subsidiary’s board or shareholders’ meeting. Therefore, a non-wholly owned subsidiary of the Company may not fully carry out all actions to the benefit of the Company.

5.6 Policy risks

Currently, RMB is still not a freely convertible currency under capital account. According to China’s prevailing foreign exchange administration policy, the recurrent foreign exchange transactions conducted by the Company, including distribution and payment of dividends, are not subject to the prior approval from the State Administration of Foreign Exchange. However, the Company may conduct such transactions only by presentation of relevant transaction certificates and only with the designated foreign exchange banks within the PRC. However, the foreign exchange transactions conducted by the Company under capital account must obtain the prior approval from the State Administration of Foreign Exchange. Inadequate foreign exchange quota may restrict the Company’s ability to distribute and pay dividends to its Shareholders or to meet any other foreign exchange needs. If the Company fails to obtain the required approval from the State Administration of Foreign Exchange, it will not be able to convert RMB into foreign currencies, and its capital expenditure plan as well as operating results and financial position may be materially and adversely affected.

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5.7 Risks relevant to the Private Placement

(i) Risks of obtaining the approvals for the Private Placement

The Private Placement is required to be considered and approved by the Shareholders’ general meeting and Shareholders’ Class Meetings of the Company and also approved by CSRC and other competent authorities. It is uncertain as to whether and when such approvals can be obtained.

(ii) Risks of investment projects using the proceeds from the Private Placement

The investment projects using the proceeds from the Private Placement are BT type infrastructure investment projects for subways, highways and bridges, the operations of which will be affected by some uncertain factors, mainly as follows:

• Risks of economic return of infrastructure investment projects

It is always difficult to accurately estimate and evaluate the economic return of infrastructure investment projects. They require large amounts of funds to be invested and have the risk that profits may be lower than expected and even the investments may not be effectively recovered.

• Legal risks of infrastructure investment projects

In China, BT is still a new mode of financing and construction with a relatively backward set of supporting laws. On the other hand, BT mode involves a range of activities including financing, investment, construction, transfer and many participants including government, project owners, investors, BT project companies, constructors, raw materials suppliers, financing guarantors, insurers, surveyors and designers, construction and supervision companies and subcontractors. The legal relationships among these parties are relatively complicated, therefore it is essential to standardise the relationship of rights and obligations among participants in the projects. For that reason, objectively speaking, legal risks exist.

• Policy risks of infrastructure investment projects

Policy risks may arise if there is a problem with the stability and continuity of the government’s policies and if the government is unable to repurchase upon the expiry of the projects due to its exhaustion of disposable government budget.

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LETTER FROM THE BOARD

(iii) Possible large fluctuation of stock price

Stock market is characterised by coexistence of investment return and risks. The Company’s Shares are dual listed on the Shanghai Stock Exchange and the Hong Kong Stock Exchange. In addition to the profitability and prospect of further development of the Company, the price of the Company’s Shares may also be affected by such diversified factors as investors’ expectation, supply and demand of stock, development and integration of the industry which the Company operates, macroeconomic conditions, capital markets trend, market psychology and various kinds of major and emergent events both within and outside the PRC. When considering to invest in the Shares of the Company, investors should assess the investment risks that may be caused by the factors mentioned above and make prudent decisions.

6 INFORMATION ON CRECG

CRECG, a state-owned enterprise, is the Company’s controlling shareholder holding 56.10% of the outstanding Shares of the Company. Its principal activities are management of equity investment and assets and other businesses.

The Company is primarily engaged in the infrastructure construction, survey, design and consulting services, engineering equipment and component manufacturing and property development businesses and other businesses.

7 IMPLICATIONS UNDER THE HONG KONG LISTING RULES

CRECG is the controlling shareholder of the Company, holding approximately 56.10% of the Company’s Shares as at the Latest Practicable Date. Hence, CRECG is a connected person of the Company for the purpose of the Hong Kong Listing Rules. Accordingly, the subscription of new A Shares pursuant to the CRECG Subscription Agreement and the transaction contemplated thereunder constitutes a connected transaction of the Company under Chapter 14A of the Hong Kong Listing Rules and is subject to reporting, announcement and independent shareholders’ approval requirements under the Hong Kong Listing Rules. An Independent Board Committee comprising all the independent non-executive Directors has been formed to advise the Independent Shareholders on the terms of the CRECG Subscription Agreement. China Merchants Securities has been appointed as the independent financial adviser to advise the Independent Board Committee and the Independent Shareholder on the same.

Special resolutions will be proposed to approve, amongst other things, the Private Placement and an ordinary resolution will be proposed to approve the CRECG Subscription contemplated under the CRECG Subscription Agreement at the EGM to be held on 12 August 2010. Special resolutions will be proposed, to approve, among other things, the Private Placement and an ordinary resolution will be proposed to approve the CRECG Subscription Agreement at the A Shareholders’ Class Meeting and H Shareholders’ Class Meeting. CRECG and its associates will abstain from voting in respect of the Private Placement, and in respect of the resolutions in relation to the Private Placement and the CRECG Subscription Agreement at the EGM, the A Shareholders’ Class Meeting and the H Shareholders’ Class Meeting.

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8 ISSUE OF SHORT TERM NOTES

In order to centralise the fund management, control the amount of loan financing and reduce the Company’s financing costs, the Board has approved the issue of Notes by the Company at an earlier Board Meeting. In 2009, the Company reinforced its capital and financing management and implemented various measures regarding centralised fund and budget management and financing approval, and which measures have shown remarkable results. While meeting the needs of the significant growth of the Company’s operation, the Company’s interest bearing liabilities only increased by RMB55 million over 2008. As such, the Company did not issue the RMB5 billion short term notes in 2009. In view of the market conditions in 2010, the Company’s principal business has considerable growth potential and substantial capital needs. Therefore, the Company proposed to issue the Notes subject to approval from Shareholders by way of a special resolution at the EGM and approval from relevant regulatory authorities. The Notes will not be listed and traded on any stock exchange.

Terms of issue of the Notes are as follows:

(a) Issue size

The Company proposes to offer the Notes of a principal amount not exceeding RMB5 billion.

(b) Term of the Notes

365 days

(c) Use of proceeds

The proceeds from the issue of the Notes will be used to repay loans and supplement the Company’s working capital and at least two-thirds of the proceeds will be used to repay loans.

(d) Issue method

The Notes will be issued in single or multiple tranches after registration. The registration shall be valid for two years.

(e) Arrangement as to whether or not to place the Notes to Shareholders.

There will not be any preferential placement of the Notes to Shareholders.

(f) Term of validity of the resolution

The special resolution passed at the EGM in respect of the issue of the Notes will remain effective within the registered period of the issue of the Notes or the duration of relevant matters after the date of passing of such resolution.

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LETTER FROM THE BOARD

In addition, it is also proposed by the Board that the Shareholders’ general meeting will, subject to its approval of the issue of the Notes, authorise two executive Directors, acting jointly or individually, to exercise all powers to handle all matters relating to the issue of the Notes, including but not limited to:

(i) to decide on specific terms, conditions and matters relating to the issue of the Notes, including but not limited to the actual issue size, the actual issue amount, the maturity dates, the issue price, the timing of the issue, whether or not to issue the Notes in tranches and the number of tranches and the use of proceeds within the scope as approved by the Shareholders’ general meeting;
(ii) to handle other matters relating to the issue of the Notes, including but not limited to engaging intermediaries, applying to the National Association of Financial Market Institutional Investors for approval in relation to the issue of the Notes, dealing with matters relating to the issue and trading of the Notes, executing all necessary legal documents and making relevant disclosure in accordance with applicable regulatory requirements; and
(iii) in the event there is any change to the market conditions or the policy of the regulatory authorities regarding the issue, apart from those matters which are required by the relevant laws and regulators and the articles of association of the Company to be reapproved by the Shareholders’ general meeting, to make appropriate adjustments to the proposal regarding the issue of the Notes in accordance with the directions from the regulatory authorities.

9 EGM AND H SHAREHOLDERS’ CLASS MEETING

The Company will convene the EGM at 9:30 a.m. on Thursday, 12 August 2010, at Lecture Hall, China Railway Square, No. 69 Fuxing Road, Haidian District, Beijing, PRC, and will convene the A Shareholders’ Class Meeting immediately following the conclusion of the EGM or any adjournment thereof at Lecture Hall, China Railway Square, No. 69 Fuxing Road, Haidian District, Beijing, PRC, and the H Shareholders’ Class Meeting immediately following the conclusion of the A Shareholders’ Class Meeting or any adjustment thereof at Lecture Hall, China Railway Square, No. 69 Fuxing Road, Haidian District, Beijing, PRC. The notice of EGM and notice of H Shareholders’ Class Meeting are set out on pages EGM-1 to EGM-11 and pages H-1 to H-9 of this circular, respectively.

If you intend to appoint a proxy to attend the EGM or the H Shareholders’ Class Meeting, you are required to complete and return the accompanying proxy forms in accordance with the instructions printed thereon. For holders of H Shares, the proxy forms should be returned to Computershare Hong Kong Investor Services Limited in person or by post not less than 24 hours before the time appointed for holding the EGM or the H Shareholders’ Class Meeting or any adjourned meeting thereof. Completion and return of the proxy forms will not preclude you from attending and voting in person at the EGM or the H Shareholders’ Class Meeting or at any adjourned meeting should you so wish.

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LETTER FROM THE BOARD

If you intend to attend the EGM or the H Shareholders’ Class Meeting in person or by proxy, you are required to complete and return the reply slip to the Computershare Hong Kong Investor Services Limited or to the Company’s Board of Directors’ Office on or before Thursday, 22 July 2010.

10 RECOMMENDATION

At the thirty-first meeting of the first session of the Board of Directors of the Company held on 18 June 2010, the Board (connected Director, being Li Changjin, abstained from voting) approved, among others, (i) the proposal on the Private Placement by the Company of A Shares to target investors (including types and nominal value of the Shares to be issued, issue method, target investors and subscription method, number of Shares to be issued, issue price and pricing principles, adjustment of the number of Shares to be issued and the base issue price, lock-up arrangement, use of proceeds, venue of listing, arrangements for accumulated profits prior to the Private Placement, and term of effectiveness of the resolutions), (ii) the Proposal on Private Placement, (iii) the contents of the CRECG Subscription Agreement entered into between the Company and CRECG. The Independent Directors, being He Gong, Gong Huazhang, Wang Taiwen and Sun Patrick, provided their opinions, considering that the implementation of the matters regarding the CRECG Subscription is reflective of the support and confidence of the controlling shareholder CRECG for the Company, instrumental to the development of the Company, consistent with the interests of the Company and its Shareholders as a whole, and free from any circumstances that may prejudice the interests of the Company and its Shareholders particularly its minority Shareholders.

China Merchants Securities has been appointed as the independent financial adviser to the Independent Board Committee and the Independent Shareholders on the terms of the CRECG Subscription Agreement. China Merchants Securities is of the view that the terms of the CRECG Subscription Agreement, including the subscription price for the CRECG Subscription, are (i) on normal commercial terms which are fair and reasonable so far as the Company and the Independent Shareholders as a whole are concerned; and (ii) in the ordinary and usual course of business and in the interests of the Company and its Shareholders as a whole. China Merchants Securities therefore advises the Independent Board Committee to recommend the Independent Shareholders to vote in favour of the resolutions in respect of the CRECG Subscription Agreement to be proposed at the EGM and the H Shareholders’ Class Meeting.

The Directors consider that the terms of the Private Placement, including the subscription price, are on normal commercial terms and are fair and reasonable based on the current market conditions and in the interests of the Company and the Shareholders as a whole, and accordingly, recommend the Independent Shareholders to vote in favour of the relevant resolutions to be proposed at the EGM and the H Shareholders’ Class Meeting.

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LETTER FROM THE BOARD

The terms of the CRECG Subscription Agreement were determined after arm’s length negotiations between the Company and CRECG. The Directors considers that the terms of the CRECG Subscription Agreement, including the subscription price, are on normal commercial terms and are fair and reasonable and in the interests of the Company and the Shareholders as a whole, and accordingly, recommend the Independent Shareholders to vote in favour of the relevant resolutions to be proposed at the EGM and the H Shareholders’ Class Meeting.

Your attention is drawn to the letter from the Independent Board Committee set out on page 29 of this circular and the letter of advice from the Independent Financial Adviser set out on pages 30 to 42 of this circular. The Independent Shareholders are advised to read the aforesaid letters before deciding as to how to vote on the resolutions approving the CRECG Subscription Agreement.

11 FURTHER INFORMATION

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

Yours faithfully, By Order of the Board of China Railway Group Limited Li Changjin Chairman

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

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中國中鐵股份有限公司 CHINA RAILWAY GROUP LIMITED

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

(Stock Code: 390)

28 June 2010

To the Shareholders

Dear Sir or Madam,

CONNECTED TRANSACTION: SUBSCRIPTION OF NEW A SHARES BY CRECG

We refer to the circular dated 28 June 2010 (the “Circular”) to the Shareholders of China Railway Group Limited (the “Company”) of which this letter forms a part. Unless otherwise specified, terms defined in the Circular shall have the same meanings when used in this letter.

We have been appointed as members of the Independent Board Committee to advise the Independent Shareholders as to whether the terms of the CRECG Subscription Agreement and the transactions contemplated thereunder are fair and reasonable and in the interests of the Company and the Shareholders as a whole. China Merchants Securities has been appointed as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in this regard.

We wish to draw your attention to the letter from the Board on pages 4 to 28 of the Circular and the letter from the China Merchants Securities set out on pages 30 to 42 of the Circular.

Having considered the advice given by the Independent Financial Adviser, we are of the opinion that the terms of the CRECG Subscription Agreement and CRECG Subscription contemplated thereunder are fair and reasonable and are in the interests of the Company and the Shareholders as a whole. Accordingly, we recommend the Independent Shareholders to vote in favour of the relevant resolutions to be proposed at the EGM and the H Shareholders’ Class Meeting.

Yours faithfully,

China Railway Group Limited

He Gong, Gong Huazhang, Wang Taiwen, Sun Patrick

Members of the Independent Board Committee

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LETTER FROM CHINA MERCHANTS SECURITIES

The following is the text of a letter from China Merchants Securities for the purpose of incorporation in this circular in connection with its advice to the Independent Board Committee in respect of the terms of the CRECG Subscription Agreement.

==> picture [31 x 31] intentionally omitted <==

48th Floor One Exchange Square Central Hong Kong 28 June 2010

To: The Independent Board Committee of China Railway Group Limited

Dear Sirs,

CONNECTED TRANSACTION: PROPOSED SUBSCRIPTION OF NEW A SHARES BY CRECG

INTRODUCTION

We refer to our engagement as the independent financial adviser to the Independent Board Committee in respect of the terms of the CRECG Subscription Agreement, details of which are set out in the letter from the Board (the “ Letter from the Board ”) contained in this circular dated 28 June 2010 (the “ Circular ”) issued by the Company, of which this letter forms part. Unless otherwise stated, terms used herein shall have the same meanings as those defined in the Circular.

The Board announced that the Board has approved the Private Placement on 18 June 2010, pursuant to which the Company shall issue a maximum of 1,517,880,000 new A Shares for subscription by not more than 10 target investors (including CRECG) at an issue price of not less than RMB4.11 (approximately HK$4.67) per new A Share. The Board has also announced that as part of the Private Placement, the Company has entered into the CRECG Subscription Agreement with CRECG on 18 June 2010, pursuant to which, CRECG will subscribe in cash for not more than 851,580,000 new A Shares under the Private Placement, with a total subscription price of not exceeding RMB3,500 million (approximately HK$3,980 million).

As at the Latest Practicable Date, CRECG is the controlling shareholder of the Company, holding approximately 56.10% of the total issued share capital of the Company. Hence, CRECG is a connected person of the Company for the purpose of the Hong Kong Listing Rules. Accordingly, the subscription of new A Shares pursuant to the CRECG Subscription Agreement and the transactions contemplated thereunder constitutes a connected transaction of the Company under Chapter 14A of the Hong Kong Listing Rules and is subject to reporting, announcement and independent shareholders’ approval requirement under the Hong Kong Listing Rules.

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LETTER FROM CHINA MERCHANTS SECURITIES

The EGM, the A Shareholders’ Class Meeting and H Shareholders’ Class Meeting will be convened to approve, amongst other things, the Private Placement and the transactions contemplated under the CRECG Subscription Agreement. CRECG and its associates will abstain from voting at the EGM, the A Shareholders’ Class Meeting and the H Shareholders’ Class Meeting convened for the purpose of approving, among others, the Private Placement and the CRECG Subscription Agreement.

An Independent Board Committee comprising all the independent non- executive Directors, namely Messrs. He Gong, Gong Huazhang, Wang Taiwen and Sun Patrick, has been formed to consider and advise the independent H Shareholders on whether the terms of the CRECG Subscription Agreement are on normal commercial terms, in ordinary and usual course of business of the Company, fair and reasonable so far as the Company and the independent H Shareholders as a whole and are in the interests of the Company and the Shareholders as a whole. We, China Merchants Securities, have been appointed as the independent financial adviser to advise the Independent Board Committee in these respects.

BASIS OF OUR OPINION

In formulating our advice and opinion, we have relied on the accuracy of the information and representations contained in the Circular which have been considered to be complete and relevant and the information obtained from the public domain. We have assumed that all statements, information and representations made or referred to in the Circular, for which the Directors are solely responsible, were true, accurate and complete in all material respects at the time when they were made and will continue to be so as at the date of the Circular. We have also assumed that all statements of belief, opinion and intention made by the Directors in the Circular were reasonably made after due and careful enquiry and were based on honestly held opinions. We have no reason to doubt the truth, accuracy and completeness of the information and representations provided to us by the Directors and the management of the Company and we have been advised by the Directors and the management of the Company that no material fact has been omitted from the information and representations provided in and referred to in the Circular. We have no reason to suspect that any material information has been withheld by the Directors or the management of the Company. We have not, however, carried out any independent verification of the information provided to us by the Directors and the management of the Company and the information obtained from the public domain, nor have we conducted any independent investigation into the affairs, the business and financial position and the future prospects of each member of the Group, CRECG and their respective shareholders and associates. Our opinion is based on the information and representations available to us as of the date of this letter. We have no obligation to update our advice and opinion to take into account circumstances and events occurring after the date of this letter. As a result, circumstances and events could occur prior to the approval of the CRECG Subscription that, if known to us at the time when we had rendered our advice and opinion, would have altered our advice and opinion.

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LETTER FROM CHINA MERCHANTS SECURITIES

INFORMATION OF THE GROUP AND CRECG

The Group is primarily engaged in the infrastructure construction, survey, design and consulting services, engineering equipment and component manufacturing and property development businesses and other businesses.

CRECG, a state-owned enterprise, is the Company’s controlling shareholder holding approximately 56.10% of the total issued share of the Company as at the Latest Practicable Date. Its principal activities are management of equity investment and assets and other businesses.

Set out below is a summary of the Group’s financial information prepared in accordance with the International Financial Reporting Standards (the “ IFRS ”) extracted from the 2009 annual report of the Company (the “ Annual Report ”) for each of the two years ended 31 December 2009:

In RMB million Revenue Gross profit Profit for the year Profit for the year attributable to owners of the Company In RMB million Total assets Total liabilities Net assets Net assets attributable to owners of the Company	For the year ended 31 December 2009 2008 (Audited) (Audited) 333,486 225,029 20,402 16,495 7,408 1,669 6,887 1,350 As at 31 December 2009 2008 (Audited) (Audited) 311,609 251,919 245,421 190,995 66,188 60,924 60,768 55,995

In 2009, the Group’s total revenue was approximately RMB333,486 million, representing an increase of approximately RMB108,457 million or approximately 48.2% compared with the relevant figure in 2008. The increase in the Group’s revenue in 2009 was primarily attributable to the increase in the volume of infrastructure construction projects benefiting from the increased investment in infrastructure construction in the PRC. In 2009, the value of new contracts increased by approximately 40.5% year-on-year to RMB601.8 billion. As compared with 2008, contract backlog increased by approximately 61.5% to approximately RMB679.5 billion in 2009.

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LETTER FROM CHINA MERCHANTS SECURITIES

In 2009, the Group’s cost of sales also increased by approximately 50.1% to approximately RMB313,084 million from approximately RMB208,534 million in 2008 due to expansion of the overall business of the Group. In 2009, gross profit of the Group increased by approximately RMB3,907 million or 23.7% to approximately RMB20,402 million from approximately RMB16,495 million in 2008. The overall gross profit margin in 2009 was approximately 6.1%, representing a decrease of approximately 1.2% from approximately 7.3% in 2008. It was mainly due to the lagging effect relating to the adjustment of contract prices for the new projects and the increase in labour cost.

The Group’s operating expenses, comprising selling and marketing expenses and administrative expenses, also increased by approximately RMB1,987 million or approximately 19.0% in 2009 from approximately RMB10,432 million in 2008 to approximately RMB12,419 million in 2009. The Group’s operating expenses increased in line with the total revenue of the Group. As a result of the increase in the Group’s total revenue which outweighed the aforementioned growth in cost of sales and total operating expenses, an increase in profit for the year and profit for the year attributable to owners of the Company were recorded in 2009. The Group recorded a profit for the year and a profit for the year attributable to the owners of the Company of approximately RMB7,408 million and RMB6,887 million respectively in 2009.

Net assets attributable to owners of the Company increased by approximately RMB4,773 million or approximately 8.5% from approximately RMB55,995 million as at 31 December 2008 to approximately RMB60,768 million as at 31 December 2009. The increase was mainly attributable to the increase in the Group’s profit in 2009.

PRINCIPAL FACTORS CONSIDERED

In arriving at our opinion and recommendation in respect of the terms of the CRECG Subscription, we have considered the following principal factors:

I. Reasons for and the benefits of the Private Placement and the CRECG Subscription

As advised by the Board, with the implementation of the PRC’s RMB4,000 billion investment plan and the growing infrastructure investment in foreign countries, the business scale of the Group has grown rapidly and the Group’s demand for funds has been gradually increasing. Upon completion of the Private Placement, both the Group’s asset scale and net asset scale will be increased simultaneously, which will help improving the financial position of the Group and provide strong assurance for the subsequent development of the Group.

We also understand from the Board that the Group shall proactively push forward the industrial structure adjustment in order to further enhance its profitability and reinforce its competitiveness in the construction-related business sectors with a view to establishing stronger competitive advantages. Investment in and operation of infrastructure projects is a development trend in the infrastructure construction sector and an important resort used by world class infrastructure construction companies to improve their profit margin. The proceeds from the Private Placement raised by the Group

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LETTER FROM CHINA MERCHANTS SECURITIES

will be used in investment in infrastructure projects including “Shenzhen Subway Line 5” BT project and “Shuangyong Bridge, Weiyi Bridge, Guangya Bridge and Northern Outer Ring Road” BT project in Liuzhou. Upon implementation of the investments in the abovementioned infrastructure projects, the Board expects that it will promote the industrial structure adjustment of and the gradual enhancement of the profitability of the Group, and will be conducive to the Group’s establishment of stronger competitive advantages and to the enhancement of the Group’s core competitiveness.

Taking into account of the above, we concur with the view of the Board that it is in the interests of the Company and the Shareholders as a whole to raise fund through equity financing by way of the Private Placement including the CRECG Subscription.

II. Principal terms of the Private Placement and the CRECG Subscription

• Private Placement

As stated in the Letter from the Board, the number of A Shares to be issued under the Private Placement shall not exceed 1,517,880,000 and will be made to not more than 10 target investors (including CRECG). The target investors other than CRECG must fall within, among others, the securities investment fund management companies, securities companies, trust and investment companies, financial companies, insurance institutional investors, qualified foreign institutional investors (including the proprietary accounts of, or the investment product accounts under the management of, such investors) and other domestic corporate investors and natural persons complying with the requirements of the CSRC.

The Board and the lead underwriter(s) to be appointed by the Company for the purpose of Private Placement will decide on the target investors other than CRECG by a book-building exercise based on the principle of, among others, price bidding, and in accordance with the relevant requirements of the CSRC and the prices quoted by the target investors after the Company has obtained the relevant approval documents in respect of the Private Placement. Subject to such maximum number of A Shares to be issued under the Private Placement of not more than 1,517,880,000 A Shares (which may be adjusted), the final number of Shares to be issued will be determined by the Board and relevant persons as authorised by the Board upon authorisation by the Shareholders’ general meeting after consultation with the lead underwriter(s) of the Private Placement in accordance with the then market conditions at the time of the issue.

In the event that there is any ex-dividend or ex-right adjustment on the A Shares during the period from the Date of Benchmark Pricing to the date of issue under the Private Placement as a result of distribution of dividends, issue of bonus shares, capitalisation issue, issue of new shares or rights issue, the maximum number of A Shares to be issued under the Private Placement and the maximum number of A Shares to be subscribed by CRECG shall be adjusted accordingly. Please refer to the paragraph headed “Adjustment of the number of Shares to be issued and the base issue price” under section headed “Proposed private placement of new A Shares” set out in the Letter from the Board contained in this Circular for details.

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LETTER FROM CHINA MERCHANTS SECURITIES

Please refer to the paragraph headed “Proposed private placement of new A Shares” set out in the Letter from the Board contained in this Circular for details of the Private Placement.

• The CRECG Subscription

As part of the Private Placement, the Company has entered into the CRECG Subscription Agreement with CRECG on 18 June 2010 pursuant to which CRECG will, at a total subscription price of not less than RMB3,500 million in cash for not more than 851,580,000 new A Shares to be issued by the Company under the Private Placement. In the event that there is any ex-dividend or ex-right adjustment on the A Shares during the period from the Date of Benchmark Pricing to the date of issue under the Private Placement as a result of distribution of dividends, issue of bonus shares, capitalisation issue, issue of new shares or rights issue, the maximum number of A Shares to be subscribed by CRECG shall be adjusted accordingly.

Assuming full subscription and a total issue of 1,517,880,000 new A Shares under the Private Placement, among which 851,580,000 new A Shares will be subscribed by CRECG, CRECG will hold an aggregate of 12,801,590,000 A Shares, representing approximately 56.10% of the enlarged total issued share capital of the Company, immediately after completion of the CRECG Subscription.

CRECG will not participate in the book-building exercise of the Private Placement, but has undertaken to accept the results of the price quotations by the other target investors and will subscribe for the new A Shares at the same price as other target investors. In the event that there is any ex-dividend or ex-right adjustment on the A Shares during the period from the Date of Benchmark Pricing to the date of issue under the Private Placement as a result of distribution of dividends, issue of bonus shares, capitalisation issue, issue of new shares or rights issue, the base issue price under the Private Placement shall be adjusted accordingly.

If the Profit Distribution Scheme is considered and approved at the 2009 AGM, the base issue price of the A Shares to be issued under the Private Placement shall be adjusted to not less than RMB4.05 (approximately HK$4.61) per A Share, and the maximum number of the A Shares to be issued under the Private Placement shall be adjusted to not exceeding 1,540,350,000 new A Shares, among which not more than 864,190,000 new A Shares will be subscribed for by CRECG.

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LETTER FROM CHINA MERCHANTS SECURITIES

Assuming full subscription and a total issue of 1,540,350,000 new A Shares under the Private Placement after adjustment as a result of the approval of the Profit Distribution Scheme at the 2009 AGM, among which 864,190,000 new A Shares will be subscribed by CRECG, CRECG will hold an aggregate of 12,814,200,000 A Shares, representing approximately 56.10% of the enlarged total issued share capital of the Company, immediately after completion of the CRECG Subscription.

The terms of the CRECG Subscription Agreement were determined after arm’s length negotiations between the Company and CRECG. The Directors considers that the terms of the CRECG Subscription Agreement, including the subscription price, are on normal commercial terms and are fair and reasonable and in the interests of the Company and the Shareholders as a whole. Please refer to the paragraph headed “Subscription of new A Shares by CRECG” set out in the Letter from the Board contained in this Circular for details of the CRECG Subscription.

III. The issue prices for the Private Placement and the CRECG Subscription

Under the Private Placement, the issue price of each new A Share shall be not less than RMB4.11 (approximately HK$4.67) per new A Share (the “ Minimum Issue Price ”) which is not less than 90% of the average trading price of the A Shares over the 20 trading days prior to the Date of Benchmark Pricing (the average trading price of the A Shares over the 20 trading days prior to the Date of Benchmark Pricing = the total turnover of the A Shares over the 20 trading days prior to the Date of Benchmark Pricing/the total trading volume of the A Shares over the 20 trading days prior to the Date of Benchmark Pricing). In the event that there is any ex-dividend or ex-right adjustment on the A Shares during the period from the Date of Benchmark Pricing to the date of issue under the Private Placement as a result of distribution of dividends, issue of bonus shares, capitalisation issue, issue of new shares or rights issue, the base issue price of each new A Share under the Private Placement shall be adjusted accordingly.

Based on the foregoing base issue price, the Board and the lead underwriter(s) shall determine the final issue price in accordance with the authorisation by the Shareholders’ general meeting,《上市公司非公開發行股票實施細則》(the Implementation Rules for the Non-Public Issuance of Shares by Listed Companies) and the relevant requirements of the CSRC (the “ Rules ”) and will negotiate the price with reference to the relevant requirements of the CSRC and the prices quoted by the target investors. As advised by the Directors, the basis in determining the Minimum Issue Price has been determined in compliance with the requirements of the Rules.

CRECG will not participate in the book-building exercise of the Private Placement, but has undertaken to accept the results of the price quotations by other target investors and will subscribe for the new A Shares at the same price as the other target investors.

On 11 June 2010, being the last trading day of the A Shares before the date of the announcement in relation to the Private Placement and the CRECG Subscription, the closing price of the A Shares was RMB4.57 (approximately HK$5.20).

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LETTER FROM CHINA MERCHANTS SECURITIES

The Minimum Issue Price represents:

(i) a discount of approximately 10.07% to the closing price of RMB4.57 per A Share as quoted on the Shanghai Stock Exchange on 11 June 2010 (the “ A Share Last Trading Day ”), being the last trading day immediately prior to the suspension of trading in A Share on 17 June 2010;
(ii) a discount of approximately 9.27% to the average of the closing prices of RMB4.53 per A Share as quoted on the Shanghai Stock Exchange for the ten consecutive trading days up to and including the A Share Last Trading Day; and
(iii) a discount of approximately 9.87% to the average of the closing prices of RMB4.56 per A Share as quoted on the Shanghai Stock Exchange for the 20 consecutive trading days up to and including the A Share Last Trading Day.

Given that (i) the Minimum Issue Price is determined in compliance with the relevant requirements of the Rules and (ii) CRECG will not participate in the book-building exercise of the Private Placement and will subscribe for the new A Shares at the same price as the other target investors, we have no reason to doubt the fairness and appropriateness of the basis in determining for the subscription price for the CRECG Subscription.

In assessing the Minimum Issue Price, we have compared the Minimum Issue Price with other issues of new A shares for fund raising in the secondary market of the PRC, which have been announced by companies whose H shares are also listed on the main board of the Hong Kong Stock Exchange during the past twelve months up to the Latest Practicable Date (the “ Comparable Issues ”), irrespective of whether such issues proceeded or has proceeded to completion or not. In this connection, we have, to our best knowledge, identified a total of five Comparable Issues which have fixed the issue prices of the new A shares, details of which are set out as follows:

					Discount of the	Discount of the
					issue price to the	issue price to the
					average closing price	average closing price
				Discount of the	of A shares for the	of A shares for the
				issue price to the	last 10 consecutive	last 20 consecutive
				closing price of A	trading days up to	trading days up to
			Issue price/	share on the last	and including the	and including the
			Proposed	trading day before	last trading day	last trading day
Date of			issue price	the respective	before the respective	before the respective
announcement	Name of issuer	Stock code	RMB	announcement	announcement	announcement
10 July 2009	China Eastern	670.HK/	4.75	10.9%	9.7%	9.9%
	Airlines	600115
	Corporation
	Limited
18 January 2010	Huaneng Power	902.HK/	7.13	9.3%	9.9%	9.8%
	International, Inc.	600011

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LETTER FROM CHINA MERCHANTS SECURITIES

					Discount of the	Discount of the
					issue price to the	issue price to the
					average closing price	average closing price
				Discount of the	of A shares for the	of A shares for the
				issue price to the	last 10 consecutive	last 20 consecutive
				closing price of A	trading days up to	trading days up to
			Issue price/	share on the last	and including the	and including the
			Proposed	trading day before	last trading day	last trading day
Date of			issue price	the respective	before the respective	before the respective
announcement	Name of issuer	Stock code	RMB	announcement	announcement	announcement
8 March 2010	China Southern	1055.HK/	5.66	14.5%	9.9%	9.0%
	Airlines Company	600029
	Limited
12 March 2010	Air China Limited	753.HK/	9.58	17.7%	12.8%	9.9%
		601111
27 April 2010	China Railway	1186.HK/	7.74	3.1%	5.0%	6.7%
	Construction	601186
	Corporation
	Limited
	Highest			17.7%	12.8%	9.9%
	Lowest			3.1%	5.0%	6.7%
	Average			11.1%	9.5%	9.1%
	The Private Placement	(based on the		10.07% (the “Last	9.27% (the “10-day	9.87% (the “20-day
	Minimum Issue Price)			Day Discount”)	Discount”)	Discount”)

Source: the official website of the Hong Kong Stock Exchange and Bloomberg

Note 1: According to the announcement issued by Aluminum Corporation of China Limited (“ CHALCO ”) (stock code: 2600.HK/601600) dated 30 June 2009, CHALCO proposed applying to the CSRC for an issue of not more than 1 billion additional A shares. The issue price per new A share of CHALCO will not be less than 90% of the average trading price of the A shares in the 20 days immediately preceding the pricing base date (the average trading price of the A shares in the 20 days immediately preceding the pricing base date = the total turnover of the A shares over the 20 days immediately preceding the pricing base date of the A shares/the total trading volume of the A shares over the 20 days immediately preceding the pricing base date of the A shares). As the proposed issue price of the relevant issue of A shares was not determined and disclosed in the relevant announcement, the A share issue of CHALCO is thus not considered as a comparable for above analysis.
Note 2: According to the announcement issued by China Oilfield Services Limited (“ China Oilfield ”) (stock code: 2883.HK/601808) dated 10 May 2010, the board of China Oilfield would convene an extraordinary general meeting and the class meetings of its A share shareholders and H share shareholders respectively for the grant of a specific mandate to the board of China Oilfield to allot and issue not more than 500 million new A shares by way of public offering. The issue price per new A share of China Oilfield would be not less than the lower of (i) the average trading price of the A shares for 20 trading days preceding the date of publication of the prospectus or the offering document to be issued by China Oilfield in connection with the A share issue in the PRC (the “ Offering Documents ”) or (ii) the average trading price of A shares on the trading day preceding the date of the Offering Documents. As the proposed issue price of the relevant issue of A shares was not determined and disclosed in the relevant announcement, the A share issue of China Oilfield is also not considered as a comparable for above analysis.

As shown in the table above, we note that the Last Day Discount, the 10-day Discount and the 20-day Discount fall within the range of those of the Comparable Issues.

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LETTER FROM CHINA MERCHANTS SECURITIES

Having considered the above, we are of the view that the basis in determining for the Minimum Issue Price is fair and reasonable.

IV. Alternative fund raising methods

As advised by the Directors, apart from the Private Placement, they have considered various fund raising methods, including debt financing, placement of new H Shares to independent investors, rights issue and open offer.

(i) Debt financing

As referred to the financial information prepared in accordance with the IFRS as set out in the Annual Report, the Group’s gearing ratio (calculated as total liabilities divided by total assets) was approximately 78.76% as at 31 December 2009 and net finance costs was approximately RMB2,324 million for the year ended 31 December 2009. The Directors consider that the current gearing ratio of the Group is relatively high. In view of the current financial condition of the Group, the Directors believe that obtaining further borrowings or other bank financing would increase the Group’s gearing ratio and finance costs, which, in turn, will have a negative impact on the performance of the Group’s financial results.

(ii) Placement of new H Shares in Hong Kong

As advised by the Directors, in view of the rapid business growth of the Group in the PRC in recent years and the funding requirement of the Group in Renminbi to finance its operation and new infrastructure investments in the PRC, it will be in the interest of the Company to issue A Shares to obtain the funding in Renminbi. If the Company conducts fund raising exercise by issuance of new H Shares, the Company is required to convert the foreign currencies raised from such issue to Renminbi, as well as to go through relevant procedures and approvals as required by the relevant PRC rules and regulations to transfer the proceeds back to the PRC for the Group’s uses.

(iii) Rights issue and open offer

A rights issue is an offer by way of rights to existing holders of securities which enables those holders to subscribe securities in proportion to their existing holdings. An open offer is an offer to existing holders of securities to subscribe securities, whether or not in proportion to their existing holdings, which are not allotted to them on renounceable documents. As rights issues and open offers have to be fully underwritten under Rule 7.19 and Rule 7.24 of the Hong Kong Listing Rules respectively in normal circumstances, they have to be completed in a relatively short time frame in order to mitigate the market risk to be borne by underwriters.

– 39 –

LETTER FROM CHINA MERCHANTS SECURITIES

The Directors consider that there exists certain difficulties for the Company to complete a rights issue or open offer in both Hong Kong and the PRC within a short period of time and in strict adherence with a pre-determined timetable in Hong Kong, taking into account the time for application and approval procedures as required by the CSRC and/or other PRC authorities which varies much from those of the Hong Kong Stock Exchange.

In light of the above, we are of the view that it is in the interests of the Company and the independent H Shareholders as a whole to raise funds by the Private Placement (and the CRECG Subscription) given that the issue of new A Shares in the Private Placement will strengthen the capital base and financial position of the Group, and would enable the Company to raise funds in Renminbi in a timely manner.

V. Rights of the new A Shares and lock-up arrangement of the new A Shares

The new A Shares to be issued pursuant to the Private Placement, when fully paid and issued, will rank pari passu in all respects amongst themselves and with the A Shares in issue at the time of the issue and allotment of such new A Shares.

The accumulated profits of the Company that remain undistributed prior to the Private Placement shall be shared amongst the existing Shareholders and the holders of new A Shares following the completion of the Private Placement in order to align the interests of the existing Shareholders and the holders of new A Shares.

Under the Private Placement, CRECG must not transfer the Shares that it subscribes for under the Private Placement within 36 months from the date of completion of the Private Placement, and the other investors must not transfer the Shares that they subscribed for under the Private Placement within 12 months from the date of completion of the Private Placement.

VI. Possible financial effects of the Private Placement

Assuming the respective target investors (including CRECG) will subscribe for the maximum number of new A Shares at the Minimum Issue Price, the total proceeds from the Private Placement is expected to be not exceeding RMB6,239 million before deduction of relevant expenses. Set out below is the analysis of the possible financial effects of the Private Placement (including the CRECG Subscription) on the Group’s financial position upon completion of the Private Placement (including the CRECG Subscription):

(i) Net assets attributable to owners of the Company

According to the financial information prepared in accordance with the IFRS as set out in the Annual Report, the Group had audited net assets attributable to owners of the Company of approximately RMB60,768 million as at 31 December 2009. With the injection of the total proceeds from the Private Placement of not more than RMB6,239 million in cash, the net assets attributable to owners of the Company will be enhanced by the net proceeds upon completion of the Private Placement.

– 40 –

LETTER FROM CHINA MERCHANTS SECURITIES

(ii) Gearing ratio

According to the financial information prepared in accordance with the IFRS as set out in the Annual Report, the Group’s gearing ratio (calculated as total liabilities divided by total assets) was approximately 78.76% as at 31 December 2009. Upon completion of the Private Placement, the Group’s total assets would be enhanced by the total proceeds of approximately RMB6,239 million. Accordingly, the gearing ratio would be decreased upon completion of the Private Placement.

In view of the above positive financial effects on the Group arising from the Private Placement (including the CRECG Subscription), we consider that the CRECG Subscription is in the interests of the Company and its Shareholders as a whole given the capital injection will enhance the financial position of the Group.

VII. Dilution effect on shareholding

Upon completion of the Private Placement, it is anticipated that the shareholding structure of the Company will be as follows:

CRECG – A Shares Public – Existing – A Shares – Investors under the Private Placement – A Shares Subtotal – A Shares Public – H shares Total	As at the Latest Practicable Date and prior to completion of the Private Placement Number of Shares held Approximate percentage of shareholding in the Company’s total issued A Shares Approximate percentage of shareholding in the Company’s total issued share capital	As at the Latest Practicable Date and prior to completion of the Private Placement Number of Shares held Approximate percentage of shareholding in the Company’s total issued A Shares Approximate percentage of shareholding in the Company’s total issued share capital	As at the Latest Practicable Date and prior to completion of the Private Placement Number of Shares held Approximate percentage of shareholding in the Company’s total issued A Shares Approximate percentage of shareholding in the Company’s total issued share capital	Immediately after completion of the Private Placement (assuming full subscription and a total issue of 1,517,880,000 new A Shares under the Private Placement) Number of Shares held Approximate percentage of shareholding in the Company’s total issued A Shares Approximate percentage of shareholding in the Company’s total issued share capital	Immediately after completion of the Private Placement (assuming full subscription and a total issue of 1,517,880,000 new A Shares under the Private Placement) Number of Shares held Approximate percentage of shareholding in the Company’s total issued A Shares Approximate percentage of shareholding in the Company’s total issued share capital	Immediately after completion of the Private Placement (assuming full subscription and a total issue of 1,517,880,000 new A Shares under the Private Placement) Number of Shares held Approximate percentage of shareholding in the Company’s total issued A Shares Approximate percentage of shareholding in the Company’s total issued share capital	Immediately after completion of the Private Placement (assuming full subscription and a total issue of 1,540,350,000 new A Shares under the Private Placement after adjustment as a result of the approval of the Profit Distribution Scheme at the 2009 AGM) Number of Shares held Approximate percentage of shareholding in the Company’s total issued A Shares Approximate percentage of shareholding in the Company’s total issued share capital	Immediately after completion of the Private Placement (assuming full subscription and a total issue of 1,540,350,000 new A Shares under the Private Placement after adjustment as a result of the approval of the Profit Distribution Scheme at the 2009 AGM) Number of Shares held Approximate percentage of shareholding in the Company’s total issued A Shares Approximate percentage of shareholding in the Company’s total issued share capital	Immediately after completion of the Private Placement (assuming full subscription and a total issue of 1,540,350,000 new A Shares under the Private Placement after adjustment as a result of the approval of the Profit Distribution Scheme at the 2009 AGM) Number of Shares held Approximate percentage of shareholding in the Company’s total issued A Shares Approximate percentage of shareholding in the Company’s total issued share capital
	11,950,010,000 5,142,500,000 – 5,142,500,000 4,207,390,000	69.91% 30.09% – 30.09% –	56.10% 24.15% – 24.15% 19.75%	12,801,590,000 5,142,500,000 666,300,000 5,808,800,000 4,207,390,000	68.79% 27.63% 3.58% 31.21% –	56.10% 22.54% 2.92% 25.46% 18.44%	12,814,200,000 5,142,500,000 676,160,000 5,818,660,000 4,207,390,000	68.77% 27.60% 3.63% 31.23% –	56.10% 22.52% 2.96% 25.48% 18.42%
	21,299,900,000	100.00%	100.00%	22,817,780,000	100.00%	100.00%	22,840,250,000	100.00%	100.00%

– 41 –

LETTER FROM CHINA MERCHANTS SECURITIES

As illustrated in the table above, CRECG’s shareholding in the Company will remain at approximately 56.10% immediately upon completion of the Private Placement (i) assuming full subscription and a total issue of 1,517,880,000 new A Shares under the Private Placement and (ii) assuming full subscription and a total issue of 1,540,350,000 new A Shares under the Private Placement after adjustment as a result of the approval of the Profit Distribution Scheme at the 2009 AGM. At the same time, the shareholding of the public A Shareholders will increase from approximately 24.15% to (i) approximately 25.46% immediately upon completion of the Private Placement assuming full subscription and a total issue of 1,517,880,000 new A Shares under the Private Placement and (ii) approximately 25.48% immediately upon completion of the Private Placement assuming full subscription and a total issue of 1,540,350,000 new A Shares under the Private Placement after adjustment as a result of the approval of the Profit Distribution Scheme at the 2009 AGM whilst the shareholding of the public H Shareholders will be diluted from approximately 19.75% to (i) approximately 18.44% immediately upon completion of the Private Placement assuming full subscription and a total issue of 1,517,880,000 new A Shares under the Private Placement and (ii) approximately 18.42% immediately upon completion of the Private Placement assuming full subscription and a total issue of 1,540,350,000 new A Shares under the Private Placement after adjustment as a result of the approval of the Profit Distribution Scheme at the 2009 AGM.

Having considered that the interest of the public H Shareholders in the Company will only be slightly diluted and the net assets per Share attributable to owners of the Company will increase upon completion of the Private Placement, we concur with the Directors’ view that the dilution effect on the shareholding interest of the public H Shareholders arising from the Private Placement (including the CRECG Subscription) is acceptable.

RECOMMENDATION

Having considered the above principal reasons and factors, we concur with the Directors’ view that the terms of the CRECG Subscription Agreement, including the subscription price for the CRECG Subscription, are (i) on normal commercial terms which are fair and reasonable so far as the Company and the independent H Shareholders as a whole; and (ii) in the ordinary and usual course of business and in the interests of the Company and its Shareholders as a whole. We therefore advise the Independent Board Committee to recommend the independent H Shareholders to vote in favour of the resolutions in respect of the CRECG Subscription Agreement to be proposed at the EGM and the H Shareholders’ Class Meeting.

Your faithfully, For and on behalf of

China Merchants Securities (HK) Co., Limited

Ronald T.L. Wan

Managing Director Investment Banking Department

Christine Au Executive Director Investment Banking Department

– 42 –

APPENDIX I THE REPORTS ON THE USE OF PROCEEDS FROM PREVIOUS FUND RAISING EXERCISE

The Reports on the Use of Proceeds from Previous Fund Raising Exercise is written in Chinese, with no official English translation. The English translation is provided solely for reference only. In case of any discrepancy between the two versions, the Chinese version shall prevail. The full version of the Reports on the Use of Proceeds from Previous Fund Raising Exercise is as follows:

VERIFICATION REPORT ON THE USE OF PROCEEDS FROM PREVIOUS FUND RAISING EXERCISE OF CHINA RAILWAY GROUP LIMITED (A SHARES)

Verification Report

De Shi Bao (He) Zi (10) No.E0043

The Board of Directors of China Railway Group Limited:

We have reviewed the report attached hereto in relation to the use of the proceeds from the offering of the A shares of China Railway Group Limited as at 31 December 2009 (hereinafter referred to as the “ Report on the Use of Proceeds from Previous Fund Raising Exercise ”).

1. Responsibility of the Board for the Report on the Use of Proceeds from Previous Fund Raising Exercise

It is the responsibility of the board of directors of China Railway Group Limited to prepare the Report on the Use of Proceeds from Previous Fund Raising Exercise in accordance with the Regulations of the China Securities Regulatory Commission Regarding the Report on the Use of Proceeds from Previous Fund Raising Exercise (No. Zheng Jian Fa Xing Zi [2007] 500) and to ensure that the contents of the Report on the Use of Proceeds from Previous Fund Raising Exercise are true, accurate and complete and free of any false records, misleading representations or major omissions.

2. Responsibility of the Certified Public Accountants

Our responsibility is to provide opinions in respect of the Report on the Use of Proceeds from Previous Fund Raising Exercise on the basis of the verification that we conducted in accordance with the provisions of the Standard No. 3101 on Other Assurance Engagements of Chinese Certified Public Accountants – Assurance Engagements Other Than the Audit or Review of Historical Financial Information, under which we are required to comply with the code of professional ethics, and plan and carry out the verification in order to acquire reasonable assurance as to the non-existence of any material misstatement in the Report on the Use of Proceeds from Previous Fund Raising Exercise.

– I-1 –

APPENDIX I THE REPORTS ON THE USE OF PROCEEDS FROM PREVIOUS FUND RAISING EXERCISE

We conducted such procedures as we deem necessary in the course of the verification to obtain the amounts and evidence of disclosure relating to the Report on the Use of Proceeds from Previous Fund Raising Exercise. We are confident that our verification has provided a reasonable basis for us to provide opinions.

3. Opinions

We are of the opinion that the Report on the Use of Proceeds from Previous Fund Raising Exercise of China Railway Group Limited has been prepared in accordance with the Regulations of the China Securities Regulatory Commission Regarding the Report on the Use of Proceeds from Previous Fund Raising Exercise (No. Zheng Jian Fa Xing Zi [2007] 500), and truthfully reflects in all material respects the actual use of the proceeds from the previous issue of the shares of China Railway Group Limited.

4. Use of this Report

This report shall be used only for the purpose of China Railway Group Limited applying with China Securities Regulatory Commission for a private placement of RMB-denominated ordinary shares, and shall not be used for any other purposes.

Deloitte Touche Tohmatsu CPA Ltd. Ma Yanmei Xu Bin Chinese CPAs

18 June 2010

– I-2 –

APPENDIX I THE REPORTS ON THE USE OF PROCEEDS FROM PREVIOUS FUND RAISING EXERCISE

REPORT ON THE USE OF PROCEEDS FROM PREVIOUS FUND RAISING EXERCISE OF CHINA RAILWAY GROUP LIMITED (A SHARES) (AS AT 31 DECEMBER 2009)

1. Basis

The Report on the Use of Proceeds from Previous Fund Raising Exercise has been prepared in accordance with the Regulations of the China Securities Regulatory Commission Regarding the Report on the Use of Proceeds from Previous Fund Raising Exercise (No. Zheng Jian Fa Xing Zi [2007] 500).

2. Amount, Receipt Time and Deposit of the Proceeds Previously Raised

With the approval granted by China Securities Regulatory Commission via its document known as Zheng Jian Fa Xing Zi [2007] No.396, China Railway Group Limited (hereinafter referred to as the “Company”) issued 4,675,000,000 RMB-denominated ordinary shares (the A Shares) on the Shanghai Stock Exchange at the issue price of RMB4.80 per share on 20 November 2007 and 21 November 2007, from which a total amount of RMB22,440,000,000 was raised. After deduction of issue costs of RMB405,920,000 in relation to the underwriting and sponsoring of the public offering, the net amount of proceeds of RMB22,034,080,000 (including the unpaid issue costs of RMB99,796,400 in relation to the public offering) from the public offering, was remitted into the designated account for proceeds of the Company. As at 26 November 2007, the amount of net proceeds the Company actually received from this issue of A Shares was RMB21,934,283,600, being the total proceeds from the public offering deducting the issue costs of RMB505,716,400, which was verified by Deloitte Touche Tohmatsu by its issuance of a capital verification report (De Shi Bao (Yan) Zi (07) No.B012).

The Company opened a designated account for proceeds at the business outlet of the head office of China Construction Bank Corporation Limited (“ CCB ”) and the Shijicheng Sub-branch of China Merchants Bank Co., Ltd. (“ CMB ”), respectively. The account numbers were 01101860300052500271 and 110902737910601, respectively. All proceeds raised from the A Shares and actually received after deduction of the issue costs were deposited into the designed account for proceeds at CCB. As at 31 December 2009, the balance of the designated account for proceeds at CCB was RMB0, and the designated account for proceeds at CMB was closed on 28 August 2009.

– I-3 –

APPENDIX I THE REPORTS ON THE USE OF PROCEEDS FROM PREVIOUS FUND RAISING EXERCISE

3. Comparison of the Uses of the Proceeds Previously Raised

(Unit: RMB10,000)

Net amount of the 2,203,408.00 Cumulative total 2,199,487.18 Interest income: 10,173.18 proceeds entered amount of in the books: proceeds used: Deducting part of 9,979.64 Total amount of the issue costs yet proceeds used to be paid: in each year: 2007: 1,329,262.74 Net proceeds: 2,193,428.36 2008: 812,692.01 2009: 57,532.43 Total amount of 54,000.00 proceeds of changed usage: Percentage of total 2.45% amount of proceeds of changed usage:

			Total Amount of		Amount of Investment of Proceeds	Amount of Investment of Proceeds	Amount of Investment of Proceeds
	Investment Project	Investment of Proceeds				as at Cut-off Date
							Difference
								between
								Actual	Date of
							Investment		the Project
								Amount	Entering into
		Promised			Promised			and	Scheduled
		Investment	Promised		Investment	Promised		Promised	Utilisation
		Amount	Investment		Amount	Investment	Investment		(or Project
		before	Amount	Actual	before	Amount	Actual	Amount	Completion
		Fund	after Fund	Investment	Fund	after Fund	Investment	after Fund	Progress as at
No.	Promised Investment Project	Raising	Raising	Amount	Raising	Raising	Amount	Raising	Cut-off Date)
								(Note 2)
1	Purchase of equipment	413,682.00	413,682.00	413,682.00	413,682.00	413,682.00	413,682.00	–	Not applicable
2	New production base for steel	35,300.00	35,300.00	35,300.00	35,300.00	35,300.00	35,300.00	–	End of 2009
	box bridge girders and
	large steel structures
3	Technological transformation	6,725.00	6,725.00	6,725.00	6,725.00	6,725.00	6,725.00	–	End of 2009
	project for adoption of
	domestically manufactured
	products for high-speed
	large-size turnouts

– I-4 –

APPENDIX I

THE REPORTS ON THE USE OF PROCEEDS FROM PREVIOUS FUND RAISING EXERCISE

Total Amount of Investment of Proceeds

Amount of Investment of Proceeds as at Cut-off Date

No. Investment Project Promised Investment Project 4 Project of underground garage and commercial properties at the southern square of West Railway Station 5 Shijiazhuang City Zhong Jing Si Ji Hua Cheng residential property project 6 Anqing City Xin Cheng Dong Yuan project_(Note 1)_ 7 Railway from Taiyuan to Zhongwei (Yinchuan) project 8 Supplemental working capital and bank loan repayment (including payment of part of the issue costs of RMB99,796,400) Total	Investment of Proce Promised Investment Amount before Fund Raising Promised Investment Amount after Fund Raising 37,728.00 37,728.00 62,565.00 62,565.00 104,000.00 50,000.00 200,000.00 200,000.00 1,343,408.00 1,397,408.00 2,203,408.00 2,203,408.00	eds Actual Investment Amount 37,728.00 60,000.00 38,471.00 200,000.00 1,407,581.08 2,199,487.18	Promised Investment Amount before Fund Raising 37,728.00 62,565.00 104,000.00 200,000.00 1,343,408.00 2,203,408.00	as at Cut- Promised Investment Amount after Fund Raising 37,728.00 62,565.00 50,000.00 200,000.00 1,397,408.00 2,203,408.00	off Date Actual Investment Amount 37,728.00 60,000.00 38,471.00 200,000.00 1,407,581.08 2,199,487.18	Date of the Project Entering into Scheduled Utilisation (or Project Completion Progress as at Cut-off Date) Difference between Actual Investment Amount and Promised Investment Amount after Fund Raising (Note 2) – June 2008 2,565.00 January 2011 11,529.00 23% – End of 2010 (10,173.18) Not applicable 3,920.82

Note 1: The amount invested in Anqing City Xin Cheng Dong Yuan project has changed. The amount of change was RMB540,000,000, representing 2.45% of the total amount of the proceeds raised. Reason for the change: the project needed to be re-planned and there was relatively a high uncertainty in the subsequent capital requirement of the project, and in order to increase the efficiency of the use of the proceeds raised, the use of the amount of RMB540,000,000 was changed to be used as supplemental working capital. This change was passed by a resolution at the 19th meeting of the first Board of Directors of the Company on 29 April 2009, and approved by the 2008 Annual General Shareholders’ Meeting of the Company on 25 June 2009.

Note 2: As at 31 December 2009, the actual amount of investment of the proceeds was RMB21,994,871,800, representing a reduction of RMB39,208,200 compared with the promised investment amount after the fund raising, which was mainly due to the fact that the construction of and investment in Shijiazhuang City Zhong Jing Si Ji Hua Cheng residential property project and Anqing City Xin Cheng Dong Yuan project have not been completed yet, and the actual investment amount in each of Si Ji Hua Cheng project and Xin Cheng Dong Yuan project fell short by RMB25,650,000 and RMB115,290,000, as compared with the promised investment amount after the fund raising. The amount of the proceeds actually used as supplemental working capital and bank loan repayment included the interest income on the proceeds and such interest income had not been included in the promised investment amount after fund raising, which resulted in an increase of RMB101,731,800 in the actual investment amount used in the supplemental working capital and bank loan repayment, as compared with the promised investment amount after fund raising.

– I-5 –

APPENDIX I THE REPORTS ON THE USE OF PROCEEDS FROM PREVIOUS FUND RAISING EXERCISE

4. Comparison of Realised Results of Investment Projects Using Proceeds Previously Raised

(All amounts expressed in RMB10,000)

		Investment
		Project
		Cumulative
		Production
		Capacity						Cumulative	Whether or not
		Utilisation						Realised	anticipated
	Actual Investment	Ratio as at	Promised	Actual	Results in Past Three		Years	Results as at	results have
Serial	Project	Cut-off Date	Results		(Note 1)			Cut-off Date	been achieved
No.	Project Name			2007	2008		2009
1	Purchase of	Not applicable	Not applicable	Not applicable	Not applicable		Not applicable	Not applicable	Not applicable
	equipment
2	New production	Not applicable	Target rate of	Not applicable	Not applicable		Not applicable	Not applicable	To be known
	base for steel		return on						only after
	box girders and		investment is						completion of
	large steel		not less than						the project
	structures		10%						(Note 2)
3	Technological	Not applicable	Target rate of	Not applicable	Not applicable		Not applicable	Not applicable	Not applicable
	transformation		return on						(Note 3)
	project for		investment is
	adoption of		not less than
	domestically		10%
	manufactured
	products for
	high-speed
	large-size
	turnouts
4	Project of	Not applicable	Target rate of	(768.96)	5,292.43		(2,658.83)	1,864.64	To be known
	underground		return on						only after
	garage and		investment is						completion of
	commercial		not less than						the project
	properties at the		15%						(Note 4)
	southern square
	of West Railway
	Station
5	Shijiazhuang City	Not applicable	Target rate of	(937.49)	6,429.90		5,692.53	11,184.94	To be known
	Zhong Jing Si Ji		return on						only after
	Hua Cheng		investment is						completion of
	residential		not less than						the project
	property project		15%						(Note 5)
6	Anqing City Xin	Not applicable	Target rate of	Nil		Nil	Nil	Nil	To be known
	Cheng Dong		return on						only after
	Yuan project		investment is						completion of
			not less than						the project
			15%						(Note 6)

– I-6 –

APPENDIX I

THE REPORTS ON THE USE OF PROCEEDS FROM PREVIOUS FUND RAISING EXERCISE

		Investment
		Project
		Cumulative
		Production
		Capacity						Cumulative	Whether or not
		Utilisation						Realised	anticipated
	Actual Investment	Ratio as at	Promised	Actual	Results in Past Three		Years	Results as at	results have
Serial	Project	Cut-off Date	Results		(Note 1)			Cut-off Date	been achieved
No.	Project Name			2007	2008		2009
7	Railway from	Not applicable	Target rate of	Nil		Nil	Nil	Nil	To be known
	Taiyuan to		return on						only after
	Zhongwei		investment is						completion of
	(Yinchuan)		not less than						the project
	project		10%						(Note 7)
8	Supplemental	Not applicable	Not applicable	Not applicable	Not applicable		Not applicable	Not applicable	Not applicable
	working capital
	and bank loan
	repayment

Note 1: The calculation standards and calculation method of the realised results of the Company are consistent with the calculation standards and calculation method of the promised results of the Company.
Note 2: As the steel box girder bridge and large steel structure production base of the Company, as at 31 December 2009, the base contracted for the construction of Nanjing Da Sheng Guan Bridge, Zhoushan Jin Tang Bridge, Ningbo, Wan Tou Bridge, the steel tower of Taizhou Bridge, the wind wall of Xi Hou Men Bridge, the ramp of Nanjing Qi Lin Bridge, Ji Yan Bridge, etc.
Note 3: Technological transformation project for adoption of domestically manufactured products for high-speed large-size turnouts was a project of upgrading of the capacity and performance of turnouts and it was difficult to account for its results independently. From an overall view, this project has laid a solid foundation for the Company to carry out subsequent consolidation of the production resources of turnouts.
Note 4: Project of underground garage and commercial properties at the southern square of West Railway Station has been completed. However, sales of the properties have not been completed, it is impossible to make an accurate estimate of overall results of the project.
Note 5: Phases 1 and 2 of Shijiazhuang City Zhong Jing Si Ji Hua Cheng residential property project have been all sold out. The remaining Phase 3 is still under construction. The time of completion and commencement of use is estimated to be January 2011.
Note 6: Anqing City Xin Cheng Dong Yuan project is at the stage of an initial input of investment, with 23% of the project being completed. It is impossible to make an accurate estimate of the overall results of the project.
Note 7: Railway from Taiyuan to Zhongwei (Yinchuan) project is a long term railway investment project, the return on which will be realised gradually after the project is completed and commences operation and receipt of payment. It is impossible to make an accurate estimate of the overall results of the project.

– I-7 –

APPENDIX I THE REPORTS ON THE USE OF PROCEEDS FROM PREVIOUS FUND RAISING EXERCISE

5. Comparison of Uses of Proceeds Previously Raised against Information Disclosed in Annual Report of the Company (as at 31 December 2009)

(Unit: RMB10,000)

Project Name Purchase of equipment New production base for steel box girders and large steel structures Technological transformation project for adoption of domestically manufactured products for high-speed large-size turnouts Project of underground garage and commercial properties at the southern square of West Railway Station Shijiazhuang City Zhong Jing Si Ji Hua Cheng residential property project Anqing City Xin Cheng Dong Yuan project Railway from Taiyuan to Zhongwei (Yinchuan) project Supplemental working capital and bank loan repayment Total	Actual Use of Proceeds 2007 2008 2009 169,353.23 239,109.64 5,219.13 25,646.30 7,355.70 2,298.00 682.65 2,397.32 3,645.03 23,527.00 14,201.00 – 13,000.00 34,000.00 13,000.00 427.95 20,266.75 17,776.30 5,262.00 194,738.00 – 1,091,363.61 300,623.60 15,593.97 1,329,262.74 812,692.01 57,532.43	Information Disclosed in Annual Report 2007 2008 2009 202,000.00 211,682.00 – – 13,275.00 22,025.00 – 6,725.00 – 37,700.00 28.00 – 62,565.00 – (2,565.00) – 50,000.00 (11,529.00) – 200,000.00 – 1,063,500.00 279,900.00 54,000.00 1,365,765.00 761,610.00 61,931.00	Information Disclosed in Annual Report 2007 2008 2009 202,000.00 211,682.00 – – 13,275.00 22,025.00 – 6,725.00 – 37,700.00 28.00 – 62,565.00 – (2,565.00) – 50,000.00 (11,529.00) – 200,000.00 – 1,063,500.00 279,900.00 54,000.00 1,365,765.00 761,610.00 61,931.00
			61,931.00

– I-8 –

APPENDIX I THE REPORTS ON THE USE OF PROCEEDS FROM PREVIOUS FUND RAISING EXERCISE

Note 1: The actual uses of the proceeds differed from the information disclosed in the annual report for each year of 2007-2009 primarily due to the inconsistency between the measurement standards of the use of the proceeds disclosed in the annual report and the measurement standards adopted in the Report on the Use of Proceeds from Previous Fund Raising Exercise. The measurement standards used in the Report on the Use of Proceeds from Previous Fund Raising Exercise in determination of their use were based on the time at which payment was actually made for the investment of the proceeds raised, and the measurement standards of the use of the proceeds disclosed in the annual report were based on the time at which the proceeds of the Company were actually allocated and paid to the second-tier subsidiaries of the Company.
Note 2: A negative figure was disclosed in the 2009 annual report with respect to the use of the proceeds in the projects. This was primarily due to an inconsistency between the measurement standards of the use of the proceeds used by us and that used by the regulatory authority, in determination of the use of the proceeds. The regulatory authority determined the use of the proceeds by examining whether the use of the proceeds was fully completed, and our personnel responsible for filling out and verifying the information determined the use of the proceeds by examining whether the allocation and payment of the proceeds according to the prescribed usage was completed. The management of the Company specifically reported the matter to the 26th meeting of the first Board of Directors of the Company and a correction was made and disclosed in the 2009 annual report.

6. Status of the Balance of Proceeds Not Used

As at 31 December 2009, the balance of the proceeds of the Company not used was RMB140,940,000, representing 0.64% of the total amount of the proceeds raised. The reason for the existence of such balance is that the investment projects have not been completed yet and the proceeds have not been fully applied.

7. Other Matters

Nil.

The Board of Directors of China Railway Group Limited

18 June 2010

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APPENDIX I THE REPORTS ON THE USE OF PROCEEDS FROM PREVIOUS FUND RAISING EXERCISE

VERIFICATION REPORT ON THE USE OF PROCEEDS FROM PREVIOUS FUND RAISING EXERCISE OF CHINA RAILWAY GROUP LIMITED (H SHARE)

Verification Report

De Shi Bao (He) Zi (10) No.E0044

The Board of Directors of China Railway Group Limited:

We have reviewed the report attached hereto in relation to the use of the proceeds from the offering of the H shares of China Railway Group Limited as at 31 December 2009 (hereinafter referred to as the “ Report on the Use of Proceeds from Previous Fund Raising Exercise ”).

1. Responsibility of the Board for the Report on the Use of Proceeds from Previous Fund Raising Exercise

2. Responsibility of the Certified Public Accountants

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APPENDIX I THE REPORTS ON THE USE OF PROCEEDS FROM PREVIOUS FUND RAISING EXERCISE

3. Opinions

4. Use of this Report

Deloitte Touche Tohmatsu CPA Ltd. Ma Yanmei Xu Bin Chinese CPAs

18 June 2010

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APPENDIX I THE REPORTS ON THE USE OF PROCEEDS FROM PREVIOUS FUND RAISING EXERCISE

REPORT ON THE USE OF PROCEEDS FROM PREVIOUS FUND RAISING EXERCISE OF CHINA RAILWAY GROUP LIMITED (H SHARE) (AS AT 31 DECEMBER 2009)

1. Basis

2. Amount, Receipt Time and Deposit of the Proceeds Previously Raised

With the approval granted by China Securities Regulatory Commission via its document known as Zheng Jian Guo He Zi [2007] No.35, China Railway Group Limited (hereinafter referred to as the “Company”) issued 3,824,900,000 H Shares (including over-allotment) on the main board of The Hong Kong Stock Exchange Limited at the issue price of HK$5.78 per share on 6 December 2007, from which a total amount of RMB20,971,574,800 was raised. After deduction of issue costs of RMB595,727,700 (excluding interests) in relation to the public offering, the net amount of proceeds of HK$21,458,305,500, or RMB20,375,847,100, (including the unpaid issue costs of RMB133,650,700 in relation to the public offering) from the public offering was remitted into the designated account for proceeds of the Company. As at 14 December 2007, the amount of net proceeds the Company actually received from this issue of H Shares was RMB20,242,196,400, being the total proceeds from the public offering of H Shares deducting the issue costs of RMB729,378,400 (after deduction of interests), which was verified by Deloitte Touche Tohmatsu by its issuance of a capital verification report (De Shi Bao (Yan) Zi (08) No.0010).

The Company deposited the aforesaid proceeds in dedicated bank accounts maintained with Bank of China (Hong Kong) Limited and their respective account numbers were HKD Account: 012-875-1-140062-8; AUD Account: 012-875-5-666519-6; USD Account: 012-875-9-236463-9. As at 31 December 2009, balances of these accounts were HKD22.56 million, USD376.16 million and AUD485.20 million, respectively.

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APPENDIX I THE REPORTS ON THE USE OF PROCEEDS FROM PREVIOUS FUND RAISING EXERCISE

3. Comparison of the Uses of the Proceeds Previously Raised

(Unit: RMB10,000)

Net amount of the 2,037,584.71 Cumulative total 1,129,779.12 Interest income (275,677.93) proceeds entered amount of and exchange in the books: proceeds used: gain/loss: Deducting part of 13,365.07 Total amount of the issue costs yet proceeds used to be paid: in each year: 2007: 20,166.40 Net proceeds: 2,024,219.64 2008: 248,842.56 2009: 860,770.16 Total amount of – proceeds of changed usage: – Percentage of total amount of proceeds of changed usage:

No. Investment Project Promised Investment Project and Actual Investment Project 1 Purchase of equipment 2 Overseas mining operations 3 Repayment of bank loans 4 Additional working capital and other general corporate purposes (including part of the unpaid issue costs of RMB133,650,700) Total	Total Amount of Investment of Proceeds Promised Investment Amount before Fund Raising Promised Investment Amount after Fund Raising Actual Investment Amount 1,344,805.91 1,344,805.91 752,858.98 346,389.40 346,389.40 192,640.43 142,630.93 142,630.93 132,370.51 203,758.47 203,758.47 51,909.20 2,037,584.71 2,037,584.71 1,129,779.12	Amount of Investment of Proceeds as at Cut-off Date Date of the Project Entering into Scheduled Utilisation (or Project Completion Progress as at Cut-off Date) Promised Investment Amount before Fund Raising Promised Investment Amount after Fund Raising Actual Investment Amount Difference between Actual Investment Amount and Promised Investment Amount after Fund Raising 1,344,805.91 1,344,805.91 752,858.98 591,946.93 Not applicable 346,389.40 346,389.40 192,640.43 153,748.97 Not applicable 142,630.93 142,630.93 132,370.51 10,260.42 Not applicable 203,758.47 203,758.47 51,909.20 151,849.27 Not applicable 2,037,584.71 2,037,584.71 1,129,779.12 907,805.59

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APPENDIX I THE REPORTS ON THE USE OF PROCEEDS FROM PREVIOUS FUND RAISING EXERCISE

4. Comparison of Realised Results of Investment Projects Using Proceeds Previously Raised

Not applicable.

5. Comparison of Uses of Proceeds Previously Raised against Information Disclosed in Annual Report of the Company (as at 31 December 2009)

(Unit: RMB10,000)

Project Name Purchase of equipment Overseas mining operations Repayment of bank loans Additional working capital and other general corporate purposes Total	Actual Use of Proceeds 2007 2008 2009 15,394.07 175,811.99 561,652.92 – 44,362.22 148,278.21 – – 132,370.51 4,772.33 28,668.35 18,468.52 20,166.40 248,842.56 860,770.16	Information Disclosed in Annual Report 2007 2008 2009 – 13,988.24 748,990.13 – 77,966.07 153,189.72 – – 132,370.51 – 9,998.21 64,834.04 – 101,952.52 1,099,384.40	Information Disclosed in Annual Report 2007 2008 2009 – 13,988.24 748,990.13 – 77,966.07 153,189.72 – – 132,370.51 – 9,998.21 64,834.04 – 101,952.52 1,099,384.40
			1,099,384.40

Note: The differences between the actual uses of the proceeds and the information disclosed in the annual report were primarily due to the following reason:

The actual uses of the proceeds differed from the information disclosed in the annual report for each year of 2007-2009 primarily due to the inconsistency between the measurement standards of the use of the proceeds disclosed in the annual report and the measurement standards adopted in the Report on the Use of Proceeds from Previous Fund Raising Exercise. The measurement standards used in the Report on the Use of Proceeds from Previous Fund Raising Exercise in determination of their use were based on the time at which payment was actually made for the investment of the proceeds raised, and the measurement standards of the use of the proceeds disclosed in the annual report were based on the time at which the proceeds of the Company were actually allocated and paid to the second-tier subsidiaries of the Company.

6. Status of the Balance of Proceeds Not Used

As at 31 December 2009, the balance of the proceeds of the Company not used was equal to RMB6,321,276,600, representing 31% of the total amount of the proceeds raised. The main reason for the existence of such balance is that some portions of the payments for the Company’s overseas mining operations and purchase of equipment from overseas are yet to be made.

The Board of Directors of China Railway Group Limited

18 June 2010

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APPENDIX II

THE FEASIBILITY STUDY REPORT

The Feasibility Study Report is written in Chinese, with no official English translation. The English translation is provided solely for reference only. In case of any discrepancy between the two versions, the Chinese version shall prevail. Figures in the Feasibility Study Report are expressed in accordance with the Accounting Standards for Business Enterprises of the PRC. The full version of the Feasibility Report is as follows:

PROJECT FEASIBILITY STUDY ON THE RAISING OF PROCEEDS FROM THE PRIVATE PLACEMENT OF A SHARES OF CHINA RAILWAY GROUP LIMITED

1 General Plan for the Use of the Proceeds from the Private Placement of A Shares

China Railway Group Limited (hereinafter referred to as “China Railway” or the “Company”) intends to issue by a private placement not more than 1,517,880,000 new A Shares to not more than 10 target investors, including China Railway Engineering Corporation (hereinafter referred to as “CRECG”) (hereinafter referred to as the “Private Placement”). The total amount of the proceeds from the Private Placement shall not exceed RMB6.239 billion, of which a sum of not exceeding RMB3.5 billion is from the subscription by CRECG. The proceeds from the Private Placement are intended to be used for such infrastructure investment projects as the “Shenzhen Subway Line 5” BT project and “Shuangyong Bridge, Weiyi Bridge, Guangya Bridge and Northern Outer Ring Road” BT project in Liuzhou. The particular investment projects and investment plans are as follows:

No. Use of Proceeds 1 “Shenzhen Subway Line 5” BT project 2 “Shuangyong Bridge, Weiyi Bridge, Guangya Bridge and Northern Outer Ring Road” BT project in Liuzhou Total	Proposed Amount of Proceeds being Used (RMB100 million) 44.35 18.04
	62.39

Before the proceeds from the Private Placement is effected, the Company shall, in accordance with the actual progress of the investment projects to be carried out with the proceeds from the Private Placement, invest in such projects in advance with its self-funded capital which is to be replaced by the proceeds from the Private Placement pursuant to the procedures under the relevant legislation. In case of any insufficiency of the proceeds from the Private Placement for the investment in such projects, the amount falling short shall be raised by the Company otherwise. Within the scope of these projects, the Board may make appropriate adjustments to the amount of proceeds for the projects with reference to their actual progress and financial requirements and in accordance with requirements of relevant regulations.

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APPENDIX II

THE FEASIBILITY STUDY REPORT

2 Basic Information of the Projects Using the Proceeds from the Private Placement

2.1 Shenzhen Subway Line 5 BT Project

2.1.1 Project overview

The Shenzhen Subway Line 5 is a key project that Shenzhen municipal government was committed to construct for its urban transport network when it applied for the host city status for the World University Games in 2011, starting from Qianhaiwan Station and, after crossing over four districts (including Yuenanshan, Baoan, Longgang and Luohu), ending at Huangbei Station. The total length of that line is 40.058 kilometers, consisting of a high-rise segment of 3.424 kilometers in length, an underground segment of 35.858 kilometers in length, and a transition segment of 0.776 kilometers in length. There are 27 stations in total along the line, including two high-rise stations and 25 underground stations.

In accordance with the provisions of the “Construction Agreement in relation to the Shenzhen Subway Line 5 BT Project and Related Engineering Work” and the “Construction Contract in relation to the Shenzhen Subway Line 5 BT Project and Related Engineering Work A (“ BT Project Contracts for Line 5 ”)” entered into by the Company and Shenzhen Metro Co., Ltd. (its name changed to Shenzhen Metro Group Co., Ltd.) in December 2007 and September 2008, respectively, as well as the “Supplemental Contract B01 to the Construction Contract in relation to the Shenzhen Subway Line 5 BT Project and Related Engineering Work A”, the “Supplemental Contract B02 to the Construction Contract in relation to the Shenzhen Subway Line 5 BT Project and Related Engineering Work A” and the “Supplemental Contract B03 to the Construction Contract in relation to the Shenzhen Subway Line 5 BT Project and Related Engineering Work A” entered into by the Company and Shenzhen Metro Group Co., Ltd. in September 2009, the scope of construction of the Shenzhen Subway Line 5 BT project includes the civil engineering work of the Shenzhen Subway Line 5 (other than two stations), the ordinary equipment installation, maintenance and engineering work, and the installation of some other equipment and systems. As a BT project contractor of the Shenzhen Subway Line 5, the Company is responsible for investment, financing and construction of the project and also for hand-over of the project to Shenzhen Metro Group Co., Ltd upon completion of the project construction. The project construction started in December 2007 and, as planned, will be completed in June 2011.

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THE FEASIBILITY STUDY REPORT

2.1.2 Qualifications and approvals

With respect to the Shenzhen Subway Line 5, following approvals have been obtained from relevant competent authorities:

(i) The Official Reply of the National Development and Reform Commission regarding the Feasibility Study Report in respect of the Shenzhen Subway Line 5 (Fa Gai Tou Zi [2008] No. 2312) was obtained for the project from the National Development and Reform Commission in August 2008;
(ii) The Official Reply regarding the Environmental Impact Report in respect of the Shenzhen Subway Line 5 (Huan Shen [2008] No. 82) was obtained for the project from the Ministry of Environmental Protection in February 2008; and
(iii) The Official Reply regarding the Pre-approval on Construction Sites in respect of the Shenzhen Subway Line 5 (Guo Tu Zi Yu Shen Zi [2008] No. 204) was obtained for the project from the Ministry of Land and Resources in June 2008.

2.1.3 Estimated investment amount and economic benefits

The estimated total investment in the Shenzhen Subway Line 5 BT project is RMB11.855 billion, of which RMB7.235 billion had been invested as at 31 December 2009, RMB4.435 billion is proposed to be funded by the proceeds from the Private Placement, and the remainder will be raised by the Company on its own. The financial internal return rate of the Shenzhen Subway Line 5 BT project is estimated to be 8%.

2.2 “Shuangyong Bridge, Weiyi Bridge, Guangya Bridge and Northern Outer Ring Road” BT Project in Liuzhou

In October 2008, the People’s Government of Liuzhou Municipality and the Company entered into a Cooperation Framework Agreement in relation to the “Three Bridges plus One Road” BT project in Liuzhou. The Company, as a party responsible for investment and construction of “Shuangyong Bridge, Weiyi Bridge, Guangya Bridge and Northern Outer Ring Road” BT project, will hand over the project to the People’s Government of Liuzhou Municipality upon completion of the project construction. In December 2008, China Railway Southwest Investment & Management Co., Ltd. (the “Southwest Investment”, a wholly owned subsidiary of the Company) authorised by the Company as the party responsible for the investment and construction of the project and Liuzhou Urban Investment and Construction Company authorised by the People’s Government of Liuzhou Municipality as the owner of the project entered into a Transfer Contract in relation to “Shuangyong Bridge, Weiyi Bridge, Guangya Bridge and Northern Outer Ring Road” BT Project Construction. Southwest Investment has established a project

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APPENDIX II

THE FEASIBILITY STUDY REPORT

company to carry out, as a BT project, the activities in relation to investment and financing, construction management, turn-key contract for construction, transfer and hand-over, recovery of investment, and entitlement to investment gain in respect of the “three bridges plus one road” in Liuzhou. The “three bridges plus one road” BT project in Liuzhou consists of four sub-projects, namely Shuangyong Bridge, Weiyi Bridge, Guangya Bridge and Northern Outer Ring Road. The buy-back period for each of such sub-projects is two years, commencing on the date of its construction completion.

2.2.1 Shuangyong Bridge

(i) Project overview

Shuangyong Bridge is located in the northern part of urban Liuzhou area, linking the Northern Outer Ring Road with Shuangyong Avenue in the south on the other side of Liujiang River, with a total length of 1,938.524 metres, including a 510-metre main bridge, a 988-metre bridge approach, a 81.722-metre approach road on the north bank and a 358.802-metre approach road on the south bank. The flyover crossing will have a total length of 1,436.8 metres. The main bridge will have a width of 38 metres, the bridge approach will have a width of 2 x 18 metres, the approach road on the north bank will have a width of 37 metres, the approach road on the south bank will have a width of 54 metres, and the flyover crossing will have a width of 20 metres. The construction of the Shuangyong Bridge project was commenced in May 2009 and is scheduled for completion in October 2011.

(ii) Qualifications and approvals
(a) The Official Reply of the Guangxi Development and Reform Commission regarding the Project Proposal in respect of the Shuangyong Bridge in Liuzhou (Gui Fa Gai Tou Zi [2006] No. 768) and the Circular on the Forwarding of the Official Reply of the Development and Reform Commission of the Autonomous Region regarding the Project Proposal in respect of the Shuangyong Bridge in Liuzhou (Liu Fa Gai Zhuan Fa [2006] No. 54) were obtained for the project from the Guangxi Development and Reform Commission and the Liuzhou Development and Reform Commission respectively in December 2006;
(b) The Official Reply regarding the Environmental Impact Report in respect of the Shuangyong Bridge in Liuzhou (Gui Huan Guan Zi [2007] No. 403) was obtained for the project from the Guangxi Environmental Protection Bureau in October 2007;

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THE FEASIBILITY STUDY REPORT

(c) The Official Reply of the People’s Government of Guangxi Zhuang Autonomous Region regarding the Implementation Plan in respect of the Changing of Purpose of the First Batch of Urban Construction Land and Agricultural Land and Land Requisition in Liuzhou in 2009 (Gui Zheng Tu Pi Han [2009] No. 483) was obtained for the project from the People’s Government of the Guangxi Zhuang Autonomous Region in September 2009.

2.2.2 Weiyi Bridge

(i) Project overview

Weiyi Bridge is located on Northern Outer Ring Road in Liuzhou, starting at the intersection of the planned Liutai Road and Northern Outer Ring Road, with a total length of 2,090 metres, including a 504-metre main bridge and a 1,586-metre bridge approach. There will be a 598.378-metre approach road on the south bank, which will have a 1,111.58-metre highway ramp on the left and a 1,088.694-metre highway ramp on the right. The main bridge will have a width of 43.5 metres and the bridge approach will have a width of 35 metres. The bridge can accommodate eight-lane two-way traffic. The construction of the Weiyi Bridge project was commenced in June 2009 and is scheduled for completion in November 2011.

(ii) Qualifications and approvals
(a) The Official Reply of the Guangxi Development and Reform Commission regarding the Project Proposal in respect of the Weiyi Bridge in Liuzhou (Gui Fa Gai Tou Zi [2006] No. 769) and the Circular on the Forwarding of the Official Reply of the Development and Reform Commission of the Autonomous Region regarding the Project Proposal in respect of the Weiyi Bridge in Liuzhou (Liu Fa Gai Zhuan Fa [2006] No. 55) were obtained for the project from the Guangxi Development and Reform Commission and the Liuzhou Development and Reform Commission respectively in December 2006;
(b) The Official Reply regarding the Environmental Impact Report in respect of the Weiyi Bridge Comprised in the Outer Ring Road (Northern Outer Ring) Project in Liuzhou (Gui Huan Guan Zi [2009] No. 142) was obtained for the project from the Guangxi Environmental Protection Bureau in June 2009;

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APPENDIX II

THE FEASIBILITY STUDY REPORT

(c) The Official Reply of the People’s Government of the Guangxi Zhuang Autonomous Region regarding the Implementation Plan in respect of the Changing of Purpose of the First Batch of Urban Construction Land and Agricultural Land and Land Requisition in Liuzhou in 2009 (Gui Zheng Tu Pi Han [2009] No. 483) was obtained for the project from the People’s Government of Guangxi Zhuang Autonomous Region in September 2009.

2.2.3 Guangya Bridge

(i) Project overview

Guangya Bridge is located to the west of downtown Liuzhou, leading to the city centre on the east bank via Guangya Road, and connecting with the Western Ring Road on the west bank via Hexi Road and Motan Road. The main construction works of the project include the major works and the renovation of Yaru Road. Guangya Bridge has a total length of 1,410.487 metres, including a 546-metre long, 36-metre wide main bridge and a 512-metre long bridge approach which comes with three different widths – 32, 30 and 25.5 metres. The bridge approach on the west bank, including the auxiliary road, has a total width of 44.5 metres. The approach road on the west bank will measure 249.722 metres in length and 47 metres in total width, while the approach road on the east bank will measure 102.765-metres in length and 30 metres in total width. The renovated Yaru Road will measure 242.988 metres in total length and 35 metres in total width. The northern highway ramp on the east bank will have a total length of 152.182 metres, the southern highway ramp will have a total length of 151.676 metres, the total width of the highway ramps being 15.5 metres. The construction of the Guangya Bridge project was commenced in September 2009 and is scheduled for completion in March 2012.

(ii) Qualifications and approvals

(a) The Official Reply of the Guangxi Development and Reform Commission regarding the Project Proposal in respect of the Guangya Bridge in Liuzhou (Gui Fa Gai Tou Zi [2008] No. 324) was obtained for the project from the Guangxi Development and Reform Commission in April 2008, and the Circular on the Forwarding of the Official Reply of the Development and Reform Commission of the Autonomous Region regarding the Project Proposal in respect of the Guangya Bridge in Liuzhou (Liu Fa Gai Zhuan Fa [2008] No. 24) was obtained for the project from the Liuzhou Development and Reform Commission in May 2008;

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THE FEASIBILITY STUDY REPORT

(b) The Official Reply regarding the Environmental Impact Report in respect of the Guangya Bridge in Liuzhou (Gui Huan Guan Zi [2009] No. 161) was obtained for the project from the Guangxi Environmental Protection Bureau in June 2009;
(c) The Official Reply of the People’s Government of Guangxi Zhuang Autonomous Region regarding the Implementation Plan in respect of the Changing of Purpose of the Second Batch of Urban Construction Land and Agricultural Land and Land Requisition in Liuzhou in 2009 (Gui Zheng Tu Pi Han [2009] No. 693) was obtained for the project from the People’s Government of Guangxi Zhuang Autonomous Region in December 2009.

2.2.4 Northern Outer Ring Road

(i) Project overview

The Northern Outer Ring Road starts at the intersection of Tanzhong Road West and Xi’e Road in Liuzhou, and ends at the eastern part of Liubei District on the other side of Liujiang River where it meets Shuangyong Bridge. It has a total length of 12,272.638 metres, with boundary lines measuring 70 metres across. The entrance to Tanzhong Road West at its starting point is within the scope of the project design, but Weiyi Bridge is not. The actual designed length of the project is 10,378.63 metres. The main construction works include the construction of the road, bridges and culverts, drainage system, traffic control system, traffic lights and greening. The construction of the Northern Outer Ring Road project was commenced in July 2009 and is scheduled for completion in January 2012.

(ii) Qualifications and approvals

(a) The Official Reply regarding the Preliminary Approval of the Outer Ring Road (Northern Outer Ring) Project (Liu Fa Gai Gui Hua [2006] No. 195) and the Official Reply regarding the Feasibility Study Report of the Outer Ring Road (Northern Outer Ring) Project (Liu Fa Gai Gui Hua [2006] No. 222) were obtained for the project from the Liuzhou Development and Reform Commission in August 2006;

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THE FEASIBILITY STUDY REPORT

(b) The Official Reply regarding the Environmental Impact Report in respect of the Outer Ring Road (Northern Outer Ring) Project in Liuzhou (Liu Huan Shen Zi [2008] No. 261) was obtained for the project from the Guangxi Environmental Protection Bureau in November 2008;
(c) The Official Reply of the People’s Government of Guangxi Zhuang Autonomous Region regarding the Implementation Plan in respect of the Changing of Purpose of the First Batch of Urban Construction Land and Agricultural Land and Land Requisition in Liuzhou in 2009 (Gui Zheng Tu Pi Han [2009] No. 483) was obtained for the project from the People’s Government of Guangxi Zhuang Autonomous Region in September 2009.
2.2.5 Estimated investment amount and economic benefits

The estimated total investment in the “three bridges plus one road” BT project in Liuzhou is RMB2.474 billion, of which RMB670 million had been invested as at 31 December 2009, RMB1.804 billion is proposed to be funded by the proceeds from the Private Placement, and the remainder will be raised by the Company on its own. The financial internal return rate of the “three bridges plus one road” BT project in Liuzhou is estimated to be 12%.

3 Necessity and Feasibility of the Implementation of the Proceeds Raising and Investment Projects
3.1 Optimisation of the Company’s Business Structure Adjustment and Quickening of the Company’s Business Transformation

There has been a rapid growth in all businesses of the Company since its listing, and the Company’s scale of business has expanded rapidly particularly owing to the government’s 4 trillion economic stimulus package. In 2009, the revenue from the main business was RMB344.047 billion, representing a year-on-year increase of 48.34%; the value of new contracts was RMB601.8 billion, representing a year-on-year increase of 40.44%. At the same time of the rapid business growth, the Company undertook a number of measures to adjust the business structure, management mode and development approach, in order to ensure the coordinated development of the “upstream, middle-stream and downstream” and established a sound operation in our principal business of infrastructure construction and synergy for the development of related business segments.

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APPENDIX II

THE FEASIBILITY STUDY REPORT

According to the Company’s overall strategy for its development, the Company is committed to consolidating its leadership in the rapidly expanding infrastructure construction market in the PRC and expanding its market share, continuing to carry out large-scale and high-profit complicated projects and engaging in high-profit products in reliance upon its advanced technical capabilities and equipments, increasing infrastructure investment and mineral resource development projects by leveraging on its strength in the infrastructure construction industry, so as to continually improve the Company’s operating efficiency and generate greater return on investment for its shareholders.

The proceeds from the Private Placement of A Shares will be used in infrastructure investment projects. The Company is of the view that the implementation of such investment projects will be conducive to the enhancement of the Company’s competitiveness in the infrastructure investment market and will lay solid foundations for the realisation of the strategic goals of optimising the Company’s business structure and hastening the transformation of the Company’s business transformation.

3.2 Further improvement of capital structure and reduction of gearing ratio

As at the end of 2009, the gearing ratio of the Company (on a consolidated basis) was 78.72%; in January 2010, the Company issued its first tranche of corporate bonds of RMB6 billion, therefore, as at the end of the first quarter of 2010, the gearing ratio of the Company (on a consolidated basis) was further increased to 78.89%. The proceeds from the Private Placement of A Shares will contribute to the reduction of the gearing ratio of the Company, thereby further improve the Company’s capital structure.

In summary, the proposed use of the proceeds from the Private Placement is in compliance with the national industrial policies and relevant laws and regulations. The Private Placement will be conducive to the enhancement of the Company’s competitiveness in the infrastructure investment market, the optimisation of the Company’s business structure, the enhancement of the Company’s financial strength, the reduction of the Company’s gearing ratio, the improvement of the Company’s capital structure, and is in line with the interests of the Company and its Shareholders as a whole.

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APPENDIX III

GENERAL INFORMATION

1. RESPONSIBILITY STATEMENT

This circular, for which the Directors collectively and individually accept full responsibility, includes particulars given in compliance with the Hong Kong Listing Rules for the purpose of giving information with regard to the Company. The Directors, having made all reasonable enquires, 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. DIRECTORS’, CHIEF EXECUTIVE’S AND SUPERVISORS’ INTERESTS AND SHORT POSITIONS IN SHARES, UNDERLYING SHARES AND DEBENTURES

Save as disclosed below, as at the Latest Practicable Date, none of the Directors, chief executive and supervisors of the Company had any interests or short position in the shares, underlying shares and debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) which will have to be notified to the Company and the Hong Kong Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests or short positions which they are taken or deemed to have under such provisions of the SFO), or which will be required, pursuant to section 352 of the SFO, to be entered in the register referred to therein or which will be required to be notified to us and the Hong Kong Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers:

				Approximate
		Number of	Approximate	Percentage
		A Shares	Percentage	of Total
Name of		Held (long	of Issued	Issued
Director/Supervisor	Capacity	position)	A Shares	Shares
		(Shares)	(%)	(%)
Directors
Mr. LI Changjin	Beneficial owner	105,700	0.0006	0.0005
Mr. BAI Zhongren	Beneficial owner	100,000	0.0006	0.0005
Mr. WANG Qiuming	Beneficial owner	50,000	0.0003	0.0002
Supervisor
Mr. YAO Guiqing	Beneficial owner	100,112	0.0006	0.0005

Save for Mr. Li Changjin (Chairman and Executive Director of the Company), who also serves as the chairman of CRECG, the controlling shareholder of the Company, none of the Directors or supervisors of the Company hold any positions with CRECG.

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APPENDIX III

GENERAL INFORMATION

Save as disclosed herein, none of the Directors and supervisors of the Company is a director or employee of a company which has, or is deemed to have, an interest or short position in the Shares or underlying Shares which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO.

3. CONSENT AND QUALIFICATION OF EXPERT

China Merchants Securities has given and has not withdrawn its consent to the issue of this circular with its letter of advice, report and references to its name included in the form and context in which it appears.

The following is the qualification of the expert who has given an opinion or advice which is contained in this circular:

Name Qualifications China Merchants A licensed corporation under the SFO for Type 1 Securities (dealing in securities), Type 2 (dealing in futures contracts), Type 4 (advising on securities), Type 6 (advising on corporate finance) and Type 9 (asset management) regulated activities under the SFO

As at the Latest Practicable Date, the above expert has no shareholding in any member of the Group or any right to subscribe for or to nominate persons to subscribe for securities in any member of the Group.

As at the Latest Practicable Date, the above expert has no direct or indirect interest in any asset which has been, since 31 December 2009, being the date to which the latest published audited accounts of the Company were made up, acquired or disposed of by or leased to, or were proposed to be acquired or disposed of by or leased to, any member of the Group.

4. NO MATERIAL ADVERSE CHANGE

As at the Latest Practicable Date, the Directors were not aware of any material adverse change in the financial or trading positions of the Company since 31 December 2009, being the date of the latest published audited financial statements of the Company.

5. DIRECTORS’ AND SUPERVISORS’ SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors and supervisors of the Company has entered into or is proposed to enter into a service contract with the Company or its subsidiaries that is not determinable within one year without payment of compensation (other than statutory compensation).

– III-2 –

APPENDIX III

GENERAL INFORMATION

6. COMPETING BUSINESS

As at the Latest Practicable Date, none of the Directors nor their respective associates held any interest in any business that competes or competed or is or was likely to compete, either directly or indirectly, with the Group’s business.

7. DIRECTORS’ AND SUPERVISORS’ INTERESTS IN THE GROUP’S ASSETS OR CONTRACTS OR ARRANGEMENTS SIGNIFICANT TO THE GROUP

As at the Latest Practicable Date, none of the Directors or supervisors of the Company had any interest, either directly or indirectly, in any assets which have been, since 31 December 2009, being the date to which the latest published audited accounts of the Company were made up, acquired or disposed of by or leased to any member of the Group, or were proposed to be acquired or disposed of by or leased to any member of the Group.

As at the Latest Practicable Date, none of the Directors nor supervisors of the Company was materially interested, either directly or indirectly, in any contract or arrangement entered into by any member of the Group which was subsisting as at the Latest Practicable Date and which was significant in relation to the business of the Group.

8. MATERIAL LITIGATION

As at the Latest Practicable Date, the Group was a party to certain litigations arising from the ordinary course of business. The likely outcome of such contingent liabilities, obligations or other legal proceedings cannot be ascertained at present, but the management of the Group believes that, any possible legal liability which may incur form such litigation shall not have material adverse effect on the financial position of the Group.

9. MISCELLANEOUS

(a) Mr. Yu Tengqun and Mr. Tam Chun Chung act as joint company secretary of the Company. Mr. Yu is an arbitrator of China International Economic and Trade Arbitration Commission and an arbitrator of Beijing Arbitration Commission. Mr. Tam is a member of the Hong Kong Institution of Certified Public Accountants and a fellow of the Chartered Association of Certified Accountants.
(b) The registered office of the Company is at No. 1 Xinghuo Road, Fengtai District, Beijing, the PRC. The principal place of business of the Company in Hong Kong is Unit 1201-1203, 12/F, APEC Plaza, 49 Hoi Yuen Road, Kwun Tong, Kowloon, Hong Kong.
(c) Computershare Hong Kong Investor Services Limited, the H-share registrar of the Company in Hong Kong, is located at 17M Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong.

– III-3 –

APPENDIX III

GENERAL INFORMATION

10. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection at the principle place of business of the Company in Hong Kong during normal business hours on any business day (except public holidays) from the date of this circular up to and including 12 July 2010:

(a) the CRECG Subscription Agreement;
(b) the letter of recommendation from the Independent Board Committee dated 28 June 2010, the text of which is set out on page 29 of this circular;
(c) the letter of advice issued by the Independent Financial Adviser dated 28 June 2010, the text of which is set out on pages 30 to 42 of this circular;
(d) the written consent given by China Merchants Securities as referred to in the paragraph headed “Consent and qualification of expert” in Appendix III of this circular;
(e) the Feasibility Study Report; and
(f) the Reports on the Use of Proceeds from Previous Fund Raising Exercise.

– III-4 –

NOTICE OF EGM

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中國中鐵股份有限公司 CHINA RAILWAY GROUP LIMITED

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

(Stock Code: 390)

NOTICE OF EXTRAORDINARY GENERAL MEETING

NOTICE IS HEREBY GIVEN that the 2010 First Extraordinary General Meeting (the “EGM”) of China Railway Group Limited (the “Company”), will be held at Lecture Hall, China Railway Square, No. 69 Fuxing Road, Haidian District, Beijing, PRC on Thursday, 12 August 2010 at 9:30 a.m., to consider and, if thought fit, pass the following resolutions:

As ordinary resolutions:

To consider and approve the proposal on the fulfilment of the conditions for the private placement of A Shares by the Company;
To consider and approve the proposal regarding the conditional share subscription agreement between the Company and China Railway Engineering Corporation (Note 1);
To consider and approve the proposal on the matters relating to the connected party transactions in respect of the issue of A Shares of the Company;
To consider and approve the proposal on the exemption of the controlling shareholder of the Company from making a general offer;
To consider and approve the reports on the use of proceeds from previous fund raising exercise of the Company (Note 2);
To consider and approve the feasibility study report on use of proceeds from the private placement of A Shares of the Company (Note 3);

– EGM-1 –

NOTICE OF EGM

As special resolutions:

To consider and approve each of the following in relation to the proposal on the private placement of A Shares to target investors (Note 4):
1 Types and nominal value of the Shares to be issued:
The Shares to be issued under the Private Placement are RMB denominated ordinary shares with a nominal value of RMB1.00 per Share, which are listed domestically (A Shares).
2 Issue method:
All of the A Shares subject to the placement will be issued by way of private placement to the target investors at a selected time within six months following the approval of the CSRC.
3 Target investors and subscription method:
The Private Placement will be made to not more than 10 target investors (including CRECG). The target investors other than CRECG must fall within, among others, the securities investment fund management companies, securities companies, trust and investment companies, financial companies, insurance institutional investors, qualified foreign institutional investors (including the proprietary accounts of, or the investment product accounts under the management of, such investors) and other domestic corporate investors and natural persons complying with the requirements of the CSRC. Any fund management company holding shares with more than one investment accounts will be deemed as one target investor. The Board and the lead underwriter(s) will decide on the target investors (other than CRECG) by a book-building exercise based on the principle of, amongst others, price bidding, and in accordance with the relevant requirements of the CSRC and the prices quoted by the target investors after the Company has obtained the approval documents in respect of the Private Placement.

All investors will subscribe for the A Shares to be issued under the Private Placement in cash.

– EGM-2 –

NOTICE OF EGM

4 Number of Shares to The number of A Shares to be issued under the be issued: Private Placement shall not exceed 1,517,880,000. CRECG will subscribe for not more than 851,580,000 A Shares, and the actual number of Shares to be subscribed by CRECG will be determined according to the issue price of the A Shares under the Private Placement. Subject to such maximum number, the final number of Shares to be issued will be determined by the Board and relevant persons as authorised by the Board upon the authorisation by the Shareholders’ general meeting after consultation with the lead underwriter(s) of the Private Placement in accordance with the market conditions at the time of the issue. In the event that there is any ex-dividend or ex-right adjustment on the A Shares during the period from the Date of Benchmark Pricing to the date of issue under the Private Placement as a result of distribution of dividends, issue of bonus shares, capitalization issue, issue of new shares or rights issue, the maximum number of Shares to be issued under the Private Placement and the maximum number of Shares to be subscribed by CRECG shall be adjusted accordingly.

– EGM-3 –

NOTICE OF EGM

5 Issue price and pricing principles:

The Date of Benchmark Pricing in relation to the A Shares to be issued under the Private Placement shall be the date of announcement of the resolutions passed at the thirty-first meeting of the first session of the Board of Directors of the Company, being 19 June 2010. The issue price of the A Shares to be issued under the Private Placement shall be not less than RMB4.11 per new A Share, which price is not less than 90% of the average trading price of the Company’s A Shares over the 20 trading days prior to the Date of Benchmark Pricing (the average trading price of the A Shares over the 20 trading days prior to the Date of Benchmark Pricing = the total turnover of the A Shares over the 20 trading days prior to the Date of Benchmark Pricing/the total trading volume of the A Shares over the 20 trading days prior to the Date of Benchmark Pricing). In the event that there is any ex-dividend or ex-right adjustment on the A Shares during the period from the Date of Benchmark Pricing to the date of issue under the Private Placement as a result of distribution of dividends, issue of bonus shares, capitalisation issue, issue of new shares or rights issue, the base issue price shall be adjusted accordingly.

– EGM-4 –

NOTICE OF EGM

6 Adjustment of the number of Shares to be issued and the base issue price:

Distribution of dividends: P1=P0–D

Issue of bonus shares or capitalisation issue: P1= P0/(1+N)

Issue of new shares or rights issue: P1=(P0+AK)/(1+K)

Where the three events above occur concurrently: P1=(P0-D+AK)/(1+K+N)

– EGM-5 –

NOTICE OF EGM

The proposal relating to the Profit Distribution Scheme, which is to distribute a total profit of RMB1.35 billion by paying a cash dividend of RMB0.63 (including tax) for every 10 Shares, was considered and passed at the twenty-ninth meeting of the first session of the Board of Directors of the Company on 26 April 2010, which Profit Distribution Scheme will be tabled before the 2009 AGM for its consideration and approval. If the Profit Distribution Scheme is approved at the 2009 AGM, the base issue price of the A Shares to be issued under the Private Placement shall be adjusted to not less than RMB4.05 per A Share, and the maximum number of the A Shares to be issued under the Private Placement shall be adjusted to not exceeding 1,540,350,000, among which no more than 864,190,000 new A Shares will be subscribed for by CRECG.

7 Lock-up arrangement:

– EGM-6 –

NOTICE OF EGM

8 Use of proceeds:

The total amount of the proceeds from the Private Placement is expected not to exceed RMB6,239 million. Of such proceeds, the total subscription price payable by CRECG is expected not to exceed RMB3.50 billion.

The proceeds from the Private Placement shall be used for the following purposes:

No. Use of Proceeds 1 “Shenzhen Subway Line 5” BT project 2 “Shuangyong Bridge, Weiyi Bridge, Guangya Bridge and Northern Outer Ring Road” BT project in Liuzhou	Proposed Amount of Proceeds to be Applied RMB4,435 million RMB1,804 million

Total

RMB6,239 million

Before the proceeds from the Private Placement is available to the Company, the Company shall, in accordance with the actual progress of the investment projects, invest in such projects using other internal capital resources which will be replaced with the proceeds from the Private Placement pursuant to the procedures under the relevant legislation. In case of any insufficiency of the proceeds from the Private Placement for the investment in such projects, the shortfall shall be covered by the Company using other means. Within the scope of these projects, the Board may make appropriate adjustments to the amount of proceeds for the projects with reference to their actual progress and financial requirements and in accordance with requirements of relevant regulations.

9 Venue of listing: Upon expiration of the lock-up period, the A Shares to be issued under the Private Placement will be listed and traded on the Shanghai Stock Exchange.

– EGM-7 –

NOTICE OF EGM

10 Arrangements for accumulated profits prior to the Private Placement:
The accumulated profits of the Company that remain undistributed prior to the Private Placement shall be shared amongst the existing Shareholders and holders of new A Shares of the Company following the completion of the Private Placement in order to align the interests of the existing Shareholders and holders of new A Shares of the Company.
11 Term of effectiveness of the resolutions regarding the Private Placement:
- The resolution regarding the Private Placement shall remain effective for a period of 12 months after the date of passing of such resolutions at the Shareholders’ general meeting, the A Shareholders’ Class Meeting and the H Shareholders’ Class Meeting.
To consider and approve the proposal on private placement of A Shares of the Company (Note 5);
To consider and approve the following authorisations to the Board and the relevant authorised persons in connection with the private placement of A Shares, including but not limited to:
(a) to authorise the Chairman and the authorised person of the Chairman to handle all matters in connection with the Private Placement, including but not limit to, determining the timing, number of shares, commencement and closing dates, price and target investors;
(b) to authorise the Chairman and the authorised person of the Chairman to open a special account for the proceeds from the Private Placement, execute major contracts to be executed during the implementation of investment projects to be carried out with the proceeds from the Private Placement;
(c) to authorise the Chairman and the authorised person of the Chairman to handle the application procedures for the Private Placement, to formulate, prepare, revise, finalise and execute all documents relating to the Private Placement, and to sign all contracts, agreements and documents relating to the Private Placement;
(d) to authorise the Board to adjust the arrangement of investment projects to be carried out with the proceeds from the Private Placement within the scope of the resolutions of the Shareholders’ general meeting;
(e) to authorise the Chairman and the authorised person of the Chairman to handle the capital verification procedures relating to the Private Placement;

– EGM-8 –

NOTICE OF EGM

(f) to authorise the Chairman and the authorised person of the Chairman to handle the subscription, registration, lock-up and listing on Shanghai Stock Exchange of the Shares after the Private Placement;
(g) to authorise the Board to adjust the plan of the Private Placement in response to the changes in policies of the securities regulatory authorities on private placement of shares and the comments of relevant regulatory authorities on the application of the Private Placement;
(h) to authorise the Chairman and the authorised person of the Chairman to make consequential amendments to the relevant provisions in the articles of association of the Company upon completion of the Private Placement and handle relevant approval procedures, and to deal with relevant registration procedures relating to the change of the registered capital of the Company;
(i) to authorise the Chairman and the authorised person of the Chairman to handle other matters related to the Private Placement; and
(j) this authorisation will be valid for twelve months from the date of approval by the Shareholders’ general meeting of the Company.
To consider and approve the issue of short term notes by the Company of principal amount not exceeding RMB5 billion with a term of 365 days (the “Notes”) in single or multiple tranches in the PRC after registration and the proceeds from the issue of the Notes be used to repay loans and supplement the Company’s working capital and at least two-thirds of the proceeds be used to repay loans, within the registered period of the issue of the Notes or the duration of relevant matters after the date of passing of this resolution, and to authorise two executive Directors, acting jointly or individually to exercise all powers to handle all matters relating to the issue of the Notes, including but not limited to:
(i) to decide on specific terms, conditions and matters relating to the issue of the Notes, including but not limited to the actual issue size, the actual issue amount, the maturity dates, the issue price, the timing of the issue, whether or not to issue the Notes in tranches and the number of tranches and the use of proceeds within the scope as approved by the Shareholders’ general meeting;
(ii) to handle other matters relating to the issue of the Notes, including but not limited to engaging intermediaries, applying to the National Association of Financial Market Institutional Investors for approval in relation to the issue of the Notes, dealing with matters relating to the issue and trading of the Notes, executing all necessary legal documents and making relevant disclosure in accordance with applicable regulatory requirements; and

– EGM-9 –

NOTICE OF EGM

(iii) in the event there is any change to the market conditions or the policy of the regulatory authorities regarding the issue, apart from those matters which are required by the relevant laws and regulators and the articles of association of the Company to be reapproved by the Shareholders’ general meeting, to make appropriate adjustments to the proposal regarding the issue of the Notes in accordance with the directions from the regulatory authorities.

By order of the Board Yu Tengqun Tam Chun Chung Joint Company Secretaries

Beijing, the PRC, 28 June 2010

Notes:

Proposed subscription of new A Shares by CRECG and the CRECG Subscription Agreement

Reference is made to the announcement dated 19 June 2010 and the circular dated 28 June 2010 issued by the Company.

Since CRECG is the controlling shareholder of the Company, holding approximately 56.10% shares of the Company. Hence, CRECG is a connected person of the Company for the purpose of the Hong Kong Listing Rules. Accordingly, the subscription of new A Shares pursuant to the CRECG Subscription Agreement and the transactions contemplated thereunder constitute connected transactions of the Company which is subject to approval by independent shareholder as required under Chapter 14A of the Hong Kong Listing Rules. CRECG and its associates will abstain from voting at the EGM on the resolution approving the proposed subscription of new A Shares by CRECG and the transactions and matters incidental thereto.

This resolution shall not be implemented without obtaining necessary approvals from CSRC.

Details are set out in Appendix I to the circular of the Company dated 28 June 2010.
Details are set out in Appendix II to the circular of the Company dated 28 June 2010.
The Private Placement is conditional upon, among others, obtaining necessary approvals from CSRC.
Major contents of the Proposal on Private Placement have been set out in relevant sections of the circular of the Company dated 28 June 2010. For the full text of the Proposal on Private Placement, please refer to the relevant announcement made by the Company on the website of the Shanghai Stock Exchange on 19 June 2010.
Closure of register of members and eligibility for attending the EGM

Shareholders who submit their share transfer application forms to the Company’s share registrar before close of business on Thursday, 22 July 2010 and become registered as shareholders on the register of members of the Company are entitled to attend the EGM.

Holders of the Company’s H shares are advised that the register of members will be closed from Friday, 23 July 2010 to Thursday, 12 August 2010 (both days inclusive). Holders of H shares whose names appear on the register of members of the Company maintained in Hong Kong at the close of business on Thursday, 22 July 2010 are entitled to attend the EGM.

– EGM-10 –

NOTICE OF EGM

Holders of H shares who wish to attend the EGM but have not registered the transfer documents are required to deposit the transfer document together with the relevant share certificates at the H share registrar of the Company, Computershare Hong Kong Investor Services Limited, at 17M Floor, Hopewell Centre, 183 Queen’s Road East, Wan Chai, Hong Kong at or before 4:30 p.m., Thursday, 22 July 2010.

7. Registration procedures for attending the EGM

Shareholders attending the EGM in person or by proxy shall present their identity certification. If the attending shareholder is the authorised legal representative of the company’s shareholders, the board or other decision making authority, then such attending shareholder shall present a copy of the relevant resolution of the board or other decision making authority appointing it as its legal or authorised representative in order to attend the EGM on behalf of such company.

8. Notice of attendance

Shareholders who intend to attend the EGM in person or by proxy should return the reply slip in person, by post or by facsimile to the Company’s Board of Directors’ Office or Computershare Hong Kong Investor Services Limited on or before Thursday, 22 July 2010.

The Company’s Board of Directors’ Office is located at Room 511, Building A, China Railway Square, No. 69 Fuxing Road, Haidian District, Beijing 100039, PRC (Contact Persons: Mr. Wan Ming/Ms Duan Yinhua, Tel: (8610) 5187 8197/5187 8069, Fax: (8610) 5187 8417).

The address of Computershare Hong Kong Investor Services Limited is 17M Floor, Hopewell Centre, 183 Queen’s Road East, Wan Chai, Hong Kong (Tel: (852) 2862 8555, Fax: (852) 2865 0990).

9. Proxy

Shareholders entitled to attend and vote at the EGM may appoint one or more proxies to attend and vote in their stead. A proxy need not be a shareholder of the Company.

The instrument appointing a proxy must be in writing under the hand of a shareholder or his attorney duly authorised in writing. If the shareholder is a corporate body, the proxy form must be either executed under its common seal or under the hand of its director(s) or duly authorised attorney(s). If the proxy form is signed by an attorney of the shareholder, the power of attorney authorising that attorney to sign or other authorisations document must be notarised.

To be valid, the proxy form together with the power of attorney or other authorisation document (if any) signed by the authorised person or notarially certified power of attorney must be delivered to Computershare Hong Kong Investor Services Limited (for holders of H shares) not less than 24 hours before the designated time for the holding of the EGM.

Completion and return of a proxy form will not preclude a shareholder from attending in person and voting at the EGM if he so wishes, but in such event the instrument appointing a proxy shall be deemed to be revoked.

10. Other business

Shareholders and their proxies attending the EGM shall be responsible for their own travelling and accommodation expenses.

– EGM-11 –

NOTICE OF H SHAREHOLDERS’ CLASS MEETING

==> picture [55 x 55] intentionally omitted <==

中國中鐵股份有限公司 CHINA RAILWAY GROUP LIMITED

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

(Stock Code: 390)

NOTICE OF H SHAREHOLDERS’ CLASS MEETING

NOTICE IS HEREBY GIVEN that the 2010 first class meeting of H Shareholders (“H Shareholders’ Class Meeting”) of China Railway Group Limited (the “Company”) will be held at Lecture Hall, China Railway Square, No. 69 Fuxing Road, Haidian District, Beijing, PRC on Thursday, 12 August 2010 in the morning immediately following the conclusion of the A Shareholders’ Class Meeting of the Company or any adjournment thereof, to consider and approve the following as appropriate:

As ordinary resolution:

To consider and approve the proposal regarding the conditional share subscription agreement between the Company and China Railway Engineering Corporation (Note 1);

As special resolutions:

To consider and approve each of the following in relation to the proposal on the private placement of A Shares to target investors (Note 2):
1 Types and nominal The Shares to be issued under the Private value of the Placement are RMB denominated ordinary Shares to be shares with a nominal value of RMB1.00 per issued: Share, which are listed domestically (A Shares).
2 Issue method: All of the A Shares subject to the placement will be issued by way of private placement to the target investors at a selected time within six months following the approval of the CSRC.

– H-1 –

NOTICE OF H SHAREHOLDERS’ CLASS MEETING

3 Target investors and subscription method:

The Private Placement will be made to not more than 10 target investors (including CRECG). The target investors other than CRECG must fall within, among others, the securities investment fund management companies, securities companies, trust and investment companies, financial companies, insurance institutional investors, qualified foreign institutional investors (including the proprietary accounts of, or the investment product accounts under the management of, such investors) and other domestic corporate investors and natural persons complying with the requirements of the CSRC. Any fund management company holding shares with more than one investment accounts will be deemed as one target investor. The Board and the lead underwriter(s) will decide on the target investors (other than CRECG) by a book-building exercise based on the principle of, amongst others, price bidding, and in accordance with the relevant requirements of the CSRC and the prices quoted by the target investors after the Company has obtained the approval documents in respect of the Private Placement.

All investors will subscribe for the A Shares to be issued under the Private Placement in cash.

– H-2 –

NOTICE OF H SHAREHOLDERS’ CLASS MEETING

– H-3 –

NOTICE OF H SHAREHOLDERS’ CLASS MEETING

5 Issue price and pricing principles:

The Date of Benchmark Pricing in relation to the A Shares to be issued under the Private Placement shall be the date of announcement of the resolutions passed at the thirty-first meeting of the first session of the Board of Directors of the Company, being 19 June 2010. The issue price of the A Shares to be issued under the Private Placement shall be not less than RMB4.11 per new A Share, which price is not less than 90% of the average trading price of the Company’s A Shares over the 20 trading days prior to the Date of Benchmark Pricing (the average trading price of the A Shares over the 20 trading days prior to the Date of Benchmark Pricing = the total turnover of the A Shares over the 20 trading days prior to the Date of Benchmark Pricing/ the total trading volume of the A Shares over the 20 trading days prior to the Date of Benchmark Pricing). In the event that there is any ex-dividend or ex-right adjustment on the A Shares during the period from the Date of Benchmark Pricing to the date of issue under the Private Placement as a result of distribution of dividends, issue of bonus shares, capitalisation issue, issue of new shares or rights issue, the base issue price shall be adjusted accordingly.

– H-4 –

NOTICE OF H SHAREHOLDERS’ CLASS MEETING

6 Adjustment of the number of Shares to be issued and the base issue price:

Distribution of dividends: P1=P0–D

Issue of bonus shares or capitalisation issue: P1= P0/(1+N)

Issue of new shares or rights issue: P1=(P0+AK)/(1+K)

Where the three events above occur concurrently: P1=(P0-D+AK)/(1+K+N)

– H-5 –

NOTICE OF H SHAREHOLDERS’ CLASS MEETING

7 Lock-up arrangement:

– H-6 –

NOTICE OF H SHAREHOLDERS’ CLASS MEETING

8 Use of proceeds:

The proceeds from the Private Placement shall be used for the following purposes:

No. Use of Proceeds 1 “Shenzhen Subway Line 5” BT project 2 “Shuangyong Bridge, Weiyi Bridge, Guangya Bridge and Northern Outer Ring Road” BT project in Liuzhou Total	Proposed Amount of Proceeds to be Applied RMB4,435 million RMB1,804 million
	RMB6,239 million

Before the proceeds from the Private Placement is available to the Company, the Company shall, in accordance with the actual progress of the investment projects, invest in such projects using other internal capital resources which will be replaced with the proceeds from the Private Placement pursuant to the procedures under the relevant legislation. In case of any insufficiency of the proceeds from the Private Placement for the investment in such projects, the shortfall shall be covered by the Company using other means. Within the scope of these projects, the Board may make appropriate adjustments to the amount of proceeds for the projects with reference to their actual progress and financial requirements and in accordance with requirements of relevant regulations.

9 Venue of listing:

Upon expiration of the lock-up period, the A Shares to be issued under the Private Placement will be listed and traded on the Shanghai Stock Exchange.

– H-7 –

NOTICE OF H SHAREHOLDERS’ CLASS MEETING

10 Arrangements for accumulated profits prior to the Private Placement:

The accumulated profits of the Company that remain undistributed prior to the Private Placement shall be shared amongst the existing Shareholders and holders of new A Shares of the Company following the completion of the Private Placement in order to align the interests of the existing Shareholders and holders of new A Shares of the Company.

11 Term of The resolution regarding the Private Placement effectiveness of shall remain effective for a period of 12 months the resolutions after the date of passing of such resolutions at regarding the the Shareholders’ general meeting, the A Private Placement: Shareholders’ Class Meeting and the H Shareholders’ Class Meeting.
To consider and approve the proposal on private placement of A Shares of the Company (Note 3).

By order of the Board Yu Tengqun Tam Chun Chung Joint Company Secretaries

Beijing, the PRC, 28 June 2010

Notes:

Proposed subscription of new A Shares by CRECG and the CRECG Subscription Agreement

Reference is made to the announcement dated 19 June 2010 and the circular dated 28 June 2010 issued by the Company.

Since CRECG is the controlling shareholder of the Company, holding approximately 56.10% shares of the Company. Hence, CRECG is a connected person of the Company for the purpose of the Hong Kong Listing Rules. Accordingly, the subscription of new A Shares pursuant to the CRECG Subscription Agreement and the transactions contemplated thereunder constitute connected transactions of the Company which is subject to approval by independent shareholder as required under Chapter 14A of the Hong Kong Listing Rules. CRECG and its associates will abstain from voting at the H Shareholders’ Class Meeting on the resolution approving the proposed subscription of new A Shares by CRECG and the transactions and matters incidental thereto.

This resolution shall not be implemented without obtaining necessary approvals from CSRC.

The Private Placement is conditional upon, among others, obtaining necessary approvals from CSRC.
Major contents of the Proposal on Private Placement have been set out in relevant sections of the circular of the Company dated 28 June 2010. For the full text of the Proposal on Private Placement, please refer to the relevant announcement made by the Company on the website of the Shanghai Stock Exchange on 19 June 2010.

– H-8 –

NOTICE OF H SHAREHOLDERS’ CLASS MEETING

4. Closure of register of members and eligibility for attending the H Shareholders’ Class Meeting

H Shareholders who submit their share transfer application forms to the Company’s share registrar before close of business on Thursday, 22 July 2010 and become registered as shareholders on the register of members of the Company are entitled to attend the H Shareholders’ Class Meeting.

Holders of the Company’s H shares are advised that the register of members will be closed from Friday, 23 July 2010 to Thursday, 12 August 2010 (both days inclusive). Holders of H Shares whose names appear on the register of members of the Company maintained in Hong Kong at the close of business on Thursday, 22 July 2010 are entitled to attend the H Shareholders’ Class Meeting.

Holders of H Shares who wish to attend the H Shareholders’ Class Meeting but have not registered the transfer documents are required to deposit the transfer document together with the relevant share certificates at the H share registrar of the Company, Computershare Hong Kong Investor Services Limited, at 17M Floor, Hopewell Centre, 183 Queen’s Road East, Wan Chai, Hong Kong at or before 4:30 p.m., Thursday, 22 July 2010.

5. Registration procedures for attending the H Shareholders’ Class Meeting

Shareholders attending the H Shareholders’ Class Meeting in person or by proxy shall present their identity certification. If the attending shareholder is the authorised legal representative of the company’s shareholders, the board or other decision making authority, then such attending shareholder shall present a copy of the relevant resolution of the board or other decision making authority appointing it as its authorised legal or official representative in order to attend the H Shareholders’ Class Meeting on behalf of such company.

6. Notice of attendance

Shareholders who intend to attend the H Shareholders’ Class Meeting in person or by proxy should return the reply slip in person, by post or by facsimile to the Company’s Board of Directors’ Office or Computershare Hong Kong Investor Services Limited on or before Thursday, 22 July 2010.

The Company’s Board of Directors’ Office is located at Room 511, Block A, China Railway Square, No. 69 Fuxing Road, Haidian District, Beijing 100039, PRC (Contact Persons: Mr. Wan Ming/Ms Duan Yinhua, Tel: (8610) 5187 8197/5187 8069, Fax: (8610) 5187 8417).

The address of Computershare Hong Kong Investor Services Limited is 17M Floor, Hopewell Centre, 183 Queen’s Road East, Wan Chai, Hong Kong (Tel: (852) 2862 8555, Fax: (852) 2865 0990).

7. Proxy

Shareholders entitled to attend and vote at the H Shareholders’ Class Meeting may appoint one or more proxies to attend and vote in their stead. A proxy need not be a shareholder of the Company.

To be valid, the proxy form together with the power of attorney or other authorisation document (if any) signed by the authorised person or notarially certified power of attorney must be delivered to Computershare Hong Kong Investor Services Limited for holders of H shares not less than 24 hours before the designated time for the holding of the H Shareholders’ Class Meeting.

Completion and return of a proxy form will not preclude a shareholder from attending in person and voting at the H Shareholders’ Class Meeting if he so wishes, but in such event the instrument appointing a proxy shall be deemed to be revoked.

8. Other business

Shareholders and their proxies attending the H Shareholders’ Class Meeting shall be responsible for their own travelling and accommodation expenses.

– H-9 –

AI assistant

China Railway Group Limited — Proxy Solicitation & Information Statement 2010

49185_rns_2010-06-27_02e19046-5411-4d18-963a-d571b88f862e.pdf

THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

中國中鐵股份有限公司 CHINA RAILWAY GROUP LIMITED

(1) PROPOSED PRIVATE PLACEMENT OF NEW A SHARES

(2) CONNECTED TRANSACTION: PROPOSED SUBSCRIPTION OF NEW A SHARES BY CRECG

(3) ISSUE OF SHORT TERM NOTES AND

NOTICE OF EXTRAORDINARY GENERAL MEETING AND NOTICE OF H SHAREHOLDERS’ CLASS MEETING

中國中鐵股份有限公司 CHINA RAILWAY GROUP LIMITED

(Stock Code: 390)

(1) PROPOSED PRIVATE PLACEMENT OF NEW A SHARES

(2) CONNECTED TRANSACTION: PROPOSED SUBSCRIPTION OF NEW A SHARES BY CRECG

(3) ISSUE OF SHORT TERM NOTES AND

NOTICE OF EXTRAORDINARY GENERAL MEETING AND H SHAREHOLDERS’ CLASS MEETING

1 INTRODUCTION

2 PROPOSED PRIVATE PLACEMENT OF NEW A SHARES

2.1 Types and nominal value of the Shares to be issued

2.2 Issue method

2.3 Target investors and subscription method

2.4 Number of Shares to be issued

2.5 Issue price and pricing principles

2.6 Adjustment of the number of Shares to be issued and the base issue price

2.7 Rights of the new A Shares

2.8 Lock-up arrangement

2.9 Use of proceeds

2.10 Venue of listing

2.11 Arrangements for accumulated profits prior to the Private Placement

2.12 Term of effectiveness of the resolutions regarding the Private Placement

2.13 Conditions of the Private Placement

2.14 Proposal on Private Placement of A Shares

2.15 Fulfillment of the conditions for the Private Placement by the Company

2.16 Waiver from making general offer

2.17 The Reports on the Use of Proceeds from Previous Fund Raising Exercise

2.18 The Feasibility Study Report

2.19 Authorisations to the Board to complete matters relating to the Private Placement

2.20 Fund raising in the past twelve months

3 SUBSCRIPTION OF NEW A SHARES BY CRECG

3.1 Shares and the number and consideration of Shares for Subscription

3.2 Subscription price and pricing method

3.3 Lock-up period

3.4 Subscription price payment method

3.5 Conditions precedent of the CRECG Subscription Agreement

3.6 Shareholding structure of the Company

4.2 Changes in the Company’s financial position, profitability and cash flows

(i) Impact on the Company’s financial position

(ii) Impact on the Company’s profitability

4.5 Impact on the Company’s liabilities

5 RISK FACTORS RELATING TO THE PRIVATE PLACEMENT

5.1 Market risks

5.2 Financial risks

5.3 Exchange rate risks

5.4 Business and operational risks

(ii) Failure in accurately estimating or controlling costs and scope of work

(iii) Risks arising from hiring subcontractors for construction

5.5 Management risks

5.6 Policy risks

5.7 Risks relevant to the Private Placement

(ii) Risks of investment projects using the proceeds from the Private Placement

• Risks of economic return of infrastructure investment projects

• Legal risks of infrastructure investment projects

• Policy risks of infrastructure investment projects

(iii) Possible large fluctuation of stock price

6 INFORMATION ON CRECG

7 IMPLICATIONS UNDER THE HONG KONG LISTING RULES

8 ISSUE OF SHORT TERM NOTES

(a) Issue size

(b) Term of the Notes

(c) Use of proceeds

(d) Issue method

(e) Arrangement as to whether or not to place the Notes to Shareholders.

(f) Term of validity of the resolution

9 EGM AND H SHAREHOLDERS’ CLASS MEETING

10 RECOMMENDATION

11 FURTHER INFORMATION

中國中鐵股份有限公司 CHINA RAILWAY GROUP LIMITED

(Stock Code: 390)

To the Shareholders

CONNECTED TRANSACTION: SUBSCRIPTION OF NEW A SHARES BY CRECG

CONNECTED TRANSACTION: PROPOSED SUBSCRIPTION OF NEW A SHARES BY CRECG

China Railway Group Limited Proxy Solicitation & Information Statement 2010