China Water Industry Group Limited — Proxy Solicitation & Information Statement 2011

Jan 19, 2011

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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.

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

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

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(Incorporated in Cayman Islands with limited liability)

(Stock code: 1129)

PROPOSED REFRESHMENT OF GENERAL MANDATE TO ISSUE SHARES AND NOTICE OF EXTRAORDINARY GENERAL MEETING

Independent financial adviser to the Independent Board Committee and Independent Shareholders

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A letter from the Independent Board Committee containing its recommendation to the Independent Shareholders is set out on page 8 of this circular. A letter from Cinda International Capital Limited containing its advice to the Independent Board Committee and Independent Shareholders is set out on pages 9 to 16 of this circular.

A notice convening the extraordinary general meeting of China Water Industry Group Limited to be held at Concord Room III, 8/F., Renaissance Harbour View Hotel, 1 Harbour Road, Wanchai, Hong Kong on Friday, 11 February 2011 at 9:30 a.m. is set out on pages 17 to 19 of this circular. Whether or not you are able to attend the extraordinary general meeting, please complete and return the enclosed form of proxy in accordance with the instructions printed thereon and deposit at the Company’s branch share registrar, Union Registrars Limited at 18/F., Fook Lee Commercial Centre, Town Place, 33 Lockhart Road, Wanchai, Hong Kong, as soon as possible and in any event not less than 48 hours before the time appointed for holding the extraordinary general meeting or any adjourned meeting (as the case may be). Completion and return of the form of proxy will not preclude you from attending and voting at the extraordinary general meeting or any adjourned meeting (as the case may be) should you so wish.

19 January 2011

• for identification purpose only

CONTENTS

	Page
DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
LETTER FROM THE BOARD
INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	3
PROPOSED REFRESHMENT OF GENERAL MANDATE . . . . . . . . . . . . . . . . . .	4
EXTRAORDINARY GENERAL MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	6
RESPONSIBILITY STATEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	7
RECOMMENDATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	7
GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	7
LETTER FROM THE INDEPENDENT BOARD COMMITTEE. . . . . . . . . . . . . . . .	8
LETTER FROM CINDA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	9
NOTICE OF EGM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	17

– i –

DEFINITIONS

In this circular, the following expressions have the meanings respectively set opposite them unless the context otherwise requires:

“Articles”

Articles of Association of the Company

• “associates”

shall have the meaning ascribed to it under the Listing Rules

“Board”

the board of Directors

“Company”

China Water Industry Group Limited, a company incorporated in the Cayman Islands with limited liability and the Shares of which are listed on the main board of the Stock Exchange

“connected person(s)”

shall have the meaning ascribed to it under the Listing Rules

“Directors”

the directors of the Company

“EGM”

means the extraordinary general meeting of the Company to be held at Concord Room III, 8/F., Renaissance Harbour View Hotel, 1 Harbour Road, Wanchai, Hong Kong on Friday, 11 February, 2011 at 9:30 a.m., the notice of which is set out on pages 17 to 19

“General Mandate”

the mandate to allot and issue new Shares as set out in the Notice

“Group”

the Company and its subsidiaries from time to time

“HK$”

Hong Kong dollars, the lawful currency of Hong Kong

“Hong Kong”

the Hong Kong Special Administrative Region of the PRC

“Independent Board Committee”

a committee of independent non-executive Directors, comprising Messrs. Chang Kin Man, Wu Tak Lung and Gu Wen Xuan to advise the Independent Shareholders in relation to the refreshment of the General Mandate

– 1 –

DEFINITIONS

• “Independent Financial Cinda International Capital Limited, a licensed Adviser” or “Cinda” corporation to carry out type 1 (dealing in securities) and type 6 (advising on corporate finance) regulated activity under the SFO, being the independent financial adviser to the Independent Board Committee and the Independent Shareholders.

• “Independent Shareholders” Shareholders other than Mr. Yang Bin and Ms. Chu Yin Yin, Georgiana and their respective associates

• “Latest Practicable Date” 14 January, 2011, being the latest practicable date prior to the printing of this circular for ascertaining certain information in this circular

• “Listing Rules” the Rules Governing the Listing of Securities on the Stock Exchange

• “Notice”

means the notice convening the EGM which is set out on pages 17 to 19

• “PRC”

• means the People’s Republic of China

“SFO” the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong)

“Share(s)” ordinary share(s) of par value of HK$0.10 in the share capital of the Company “Shareholder(s)” holder of the Share(s) “Stock Exchange” The Stock Exchange of Hong Kong Limited “Takeover Code” the Hong Kong Code on Takeovers and Mergers

– 2 –

LETTER FROM THE BOARD

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(Incorporated in Cayman Islands with limited liability)

(Stock code: 1129)

Executive Directors: Mr. Li Yu Gui (Chairman) Mr. Yang Bin (Chief Executive Officer) Ms. Chu Yin Yin, Georgiana Mr. Li Wen Jun Mr. Tang Hui Ping

Registered Office: Butterfield House 68 Fort Street P. O. Box 609 Grand Cayman KY1-1107 Cayman Islands

Independent Non-executive Directors: Mr. Chang Kin Man Mr. Wu Tak Lung Mr. Gu Wen Xuan

Head office and principal place of business in Hong Kong: Room 1207, 12th Floor, West Tower, Shun Tak Centre No. 168-200 Connaught Road Central, Hong Kong

19 January 2011

To the Shareholders

Dear Sir or Madam,

PROPOSED REFRESHMENT OF GENERAL MANDATE TO ISSUE SHARES AND

NOTICE OF EXTRAORDINARY GENERAL MEETING

INTRODUCTION

The purpose of this circular is to provide you with information regarding the resolution to refresh the General Mandate to issue Shares to be proposed at the EGM to be held at Concord Room III, 8/F., Renaissance Harbour View Hotel, 1 Harbour Road, Wanchai, Hong Kong on Friday, 11 February 2011 at 9:30 a.m.

• for identification purpose only

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LETTER FROM THE BOARD

An Independent Board committee, comprising all the independent non-executive Directors, has been established to advise the Independent Shareholders in relation to the refreshment of the General Mandate. Cinda has been appointed as the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders in relation to the refreshment of the General Mandate.

A notice convening the EGM setting out the details of the resolution to be proposed at the EGM is set out on pages 17 to 19 of this circular.

PROPOSED REFRESHMENT OF GENERAL MANDATE

At the annual general meeting of the Company held on 3 June 2010 (the “ AGM ”), the Shareholders approved, among other things, ordinary resolution to approve the grant of a general mandate to the Directors to allot, issue and deal with Shares (the “ Existing General Mandate ”). As at the date of passing such resolution, there were a total of 2,706,379,000 Shares in issue and thus the Directors were authorised to issue and allot 20% thereof, being 541,275,800 Shares under the Existing General Mandate.

During the period from the grant of the Existing General Mandate to the Latest Practicable Date, the Existing General Mandate had been utilized as to 541,272,000 Shares, representing approximately 99.99% of the Existing General Mandate. 265,476,000 Shares of which were allotted and issued upon completion of the top-up placing of up to 265,476,000 new Shares by the Company pursuant to the top-up placing and subscription agreement dated 9 August 2010 entered into between Boost Skill Investments Limited, the Company and Kingston Securities Limited (the “ Placing Agent ”) as disclosed in the Company’s announcement dated 9 August 2010 (the “ Top-up Placing ”). 275,796,000 Shares of which were allotted and issued upon completion of the placing of up to 275,796,000 new Shares by the Company pursuant to the conditional placing agreement dated 9 August 2010 entered into between the Company and the Placing Agent as disclosed in the Company’s announcement dated 9 August 2010 (the “ Placing ”).

Immediately following completion of the Top-up Placing and the Placing, 3,800 new Shares representing only approximately 0.01% of the Existing General Mandate may be further allotted and issued under the Existing General Mandate.

As at the Latest Practicable Date, the Company has not made any refreshment of General Mandate since the 2010 AGM.

– 4 –

LETTER FROM THE BOARD

In order to allow the financial flexibility to raise further capital to finance future investments and/or future business development, the Board proposes to seek your approval by way of ordinary resolution to be proposed at the EGM to give the Directors a fresh general mandate to allot, issue and otherwise deal with additional Shares with an aggregate nominal amount not exceeding 20% of the aggregate nominal amount of the share capital of the Company in issue at the date of passing of such resolution set out in the Notice during the period from the date of the passing of such resolution up to: (a) the conclusion of the next annual general meeting of the Company; (b) the expiration of the period within which the next annual general meeting of the Company is required by the Articles of Association or any applicable laws of the Cayman Islands to be held; or (c) the passing of an ordinary resolution by the Shareholders in general meeting revoking or varying such mandate, whichever occurs first;

The Board considers that equity financing through the use of the General Mandate is an important avenue of resources to the Group, as it (i) does not create any interest paying obligations on the Group as in bank financing; (ii) is less costly and time-consuming than raising funds by way of rights issue or open offer; and (iii) provides the Company with the capability to capture any capital raising or prospective investment opportunity as and when it arises. The Board considers that such ability is crucial in a competitive and rapidly changing investment environment and in times of volatile market conditions. As at the Latest Practicable Date, the Board has no concrete plan for raising capital by issuing new Shares.

As at the Latest Practicable Date, the Company had an aggregate of 3,247,651,000 Shares in issue. Subject to the passing of the ordinary resolution for the approval of the refreshment of the General Mandate and on the basis that no further Shares are issued and/or repurchased by the Company up to the date of the EGM, the Company would be allowed under the General Mandate to allot and issue up to 649,530,200 new Shares, being 20% of the Shares in issue as at the Latest Practicable Date.

The following table summarises the fund raising activities of the Group during the last 12 months since the Latest Practicable Date:

				Actual use of
				Proceeds as at
Date of			Intended use of	the Latest
Announcement	Event	Net Proceeds	Proceeds	Practicable Date
9 August 2010	Top-up placing	approximately	For general	HK$17.67 million
	and subscription	HK$27.67	working capital	has been used for
	of 265,476,000	million from	of the Group	general working
	Shares and	the top-up		capital of the
	new placing of	placing and		Group
	275,796,000	subscription and
	Shares	approximately
		HK$28.79
		million from the
		new placing

– 5 –

LETTER FROM THE BOARD

EXTRAORDINARY GENERAL MEETING

Pursuant to Rule 13.36(4)(a) of the Listing Rules, refreshment of the General Mandate requires the approval of the Independent Shareholders at the EGM at which any of the controlling Shareholders and their associates, or where there are no controlling Shareholders, Directors (excluding independent non-executive Directors) and the chief executives and their respective associates shall abstain from voting in favour of the resolution approving the refreshment of the General Mandate. As at the Latest Practicable Date, the Company has no controlling Shareholders. Mr. Yang Bin and Ms. Chu Yin Yin, Georgiana, being Directors with shareholding interest, together with their respective associates were interested in 450,479,000, representing 13.86% of the Shares in issue, and 5,432,000 Shares, representing 0.17% of the Shares in issue, respectively, and controlled the voting rights in respect of these Shares. Accordingly, Mr. Yang Bin and Ms. Chu Yin Yin, Georgiana and their respective associates are required to abstain from voting in favour of the resolution approving the refreshment of the General Mandate as set out in the Notice.

The Board has been advised by Mr. Yang Bin and Ms. Chu Yin Yin, Georgiana together with their respective associates that they have no intention to vote against the resolutions to approve the refreshment of the General Mandate as set out in the Notice at the EGM. Other than Mr. Yang Bin and Ms. Chu Yin Yin, Georgiana together with their respective associates, no other Directors or their respective associates had any interests in the Shares as at the Latest Practicable Date and are required to abstain from voting in favour of the resolution approving the refreshment of the General Mandate as set out in the Notice at the EGM and no shareholder fall within the two categories described in Rules 13.36(4)(b)(i) and (ii) of the Listing Rules.

An Independent Board Committee has been established to make recommendations to the Independent Shareholders in respect of the refreshment of the General Mandate.

Cinda has been appointed as the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders in respect of the refreshment of the General Mandate.

A form of proxy for use at the EGM is enclosed. Whether or not you are able to attend the EGM, please complete and return the enclosed form of proxy in accordance with the instructions printed thereon and deposit at the Company’s branch share registrar, Union Registrars Limited at 18/F., Fook Lee Commercial Centre, Town Place, 33 Lockhart Road, Wanchai, Hong Kong, as soon as possible and in any event not less than 48 hours before the time appointed for holding of the EGM or any adjourned meeting (as the case may be). Completion and return of the form of proxy will not preclude you from attending and voting at the EGM or any adjourned meeting (as the case may be) should you so wish.

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LETTER FROM THE BOARD

RESPONSIBILITY STATEMENT

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

RECOMMENDATION

The Directors are of the opinion that the proposed ordinary resolution for granting to the Directors the General Mandate to issue Shares referred to in this circular is in the best interests of the Company and the Shareholders as a whole. The Directors therefore recommend you to vote in favour of such resolution at the EGM.

Your attention is drawn to the letter from the Independent Board Committee set out on page 8 of this circular and the letter from Cinda containing its advice and the principal factors which it has considered in arriving at its advice with regard to the refreshment of the General Mandate, as set out on pages 9 to 16 of this circular.

GENERAL INFORMATION

Cinda has given and has not withdrawn its written consent to the issue of this circular with the inclusion of its letter and references to its name in the form and context in which they respectively appear.

By Order of the Board China Water Industry Group Limited Li Yu Gui Chairman

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

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(Incorporated in Cayman Islands with limited liability)

(Stock code: 1129)

19 January 2011

To the Independent Shareholders

Dear Sir or Madam,

PROPOSED REFRESHMENT OF GENERAL MANDATE

We refer to the circular from the Company to the Shareholders dated 19 January 2011 (the “ Circular ”) of which this letter forms part. Terms defined in the Circular shall have the same meanings when used herein unless the context otherwise requires.

We have been appointed to advise you in connection with the refreshment of the General Mandate, details of which are set out in the “Letter from the Board” set out on pages 3 to 7 of the Circular. We wish to draw your attention to the “Letter from Cinda” set out on pages 9 to 16 of the Circular, which contains Cinda’s advice regarding the refreshment of the General Mandate.

Having taken into account the advice of Cinda, we consider the refreshment of the General Mandate to be fair and reasonable and in the interest of the Company and its Shareholders as a whole. Accordingly, we recommend the Independent Shareholders to vote in favour of the relevant ordinary resolution to be proposed at the EGM to approve the refreshment of the General Mandate.

Yours faithfully,

Mr. Chang Kin Man

Mr. Wu Tak Lung

Independent Non-executive Independent Non-executive Director Director

Mr. Gu Wen Xuan

Independent Non-executive Director

• for identification purpose only

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LETTER FROM CINDA

The following is the full text of a letter of advice from Cinda to the Independent Board Committee and the Independent Shareholders for the purpose of inclusion in this circular:

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45th Floor, COSCO Tower 183 Queen’s Road Central Hong Kong

19 January 2011

To the Independent Board Committee and the Independent Shareholders of China Water Industry Group Limited

Dear Sirs,

REFRESHMENT OF GENERAL MANDATE TO ISSUE SHARES

INTRODUCTION

We refer to our engagement as the independent financial adviser to the Independent Board Committee and the Independent Shareholders in respect of the refreshment of the General Mandate, details of which are set out in the letter from the Board (the “ Letter from the Board ”) contained in the circular (the “ Circular ”) of the Company to the Shareholders dated 19 January 2011, of which this letter forms part. Terms used in this letter shall have the same meanings as defined in the Circular unless the context otherwise requires.

Pursuant to Rule 13.36(4)(a) of the Listing Rules, refreshment of the General Mandate requires the approval of the Independent Shareholders at the EGM at which any of the controlling Shareholders and their associates, or where there are no controlling Shareholders, Directors (excluding independent non-executive Directors) and the chief executive of the Company and their respective associates shall abstain from voting in favour of the relevant resolution regarding the refreshment of the General Mandate to be proposed at the EGM. As at the Latest Practicable Date, the Company has no controlling Shareholders. Mr. Yang Bin, an executive Director and the chief executive officer of the Company, together with his associates were interested in 450,479,000 Shares, representing approximately 13.86% of the issued share capital of the Company. Ms. Chu Yin Yin, Georgiana, an executive Director of the Company was interested in 5,432,000 Shares, representing 0.17% of the issued share capital of the Company. As such, Mr. Yang Bin and Ms. Chu Yin Yin, Georgiana and their respective associates will be required to abstain from voting in favour of the resolution for the granting of the General Mandate at the EGM.

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LETTER FROM CINDA

The Independent Board Committee has been established to advise whether the refreshment of General Mandate is in the interest of the Company and the Independent Shareholders as a whole and to advise the Independent Shareholders on how to vote. The Independent Board Committee comprising Mr. Chang Kin Man, Mr. Wu Tak Lung and Mr. Gu Wen Xuan, all being independent non-executive Directors, has been formed to advise the Independent Shareholders in this respect.

BASIS OF OUR ADVICE

In arriving at our recommendation, we have relied on the information and facts provided by the Company and have assumed that any representations made to us are true, accurate and complete. We have also relied on the statements, information, opinions and representations contained in the Circular and the information and representations provided to us by the Directors and management of the Company. We have assumed that all information, representations and opinions contained or referred to in the Circular and all information, representations and opinions which have been provided by the Directors and management of the Company for which they are solely responsible, are true and accurate at the time they were made and will continue to be accurate at the date of the despatch of the Circular.

The Directors jointly and severally accept full responsibility for the accuracy of the information contained in the Circular and confirm, having made all reasonable enquiries, that to the best of their knowledge and belief, opinions expressed in the Circular have been arrived at after due and careful consideration and there are no other facts not contained in the Circular the omission of which would make any such statement contained in the Circular misleading. We consider that we have been provided with sufficient information on which to form a reasonable basis for our opinion. We have no reason to suspect that any relevant information has been withheld, nor are we aware of any fact or circumstance which would render the information provided and representations and opinions made to us untrue, inaccurate or misleading. Having made all reasonable enquiries, the Directors have further confirmed that, to the best of their knowledge, they believe there are no other facts or representations the omission of which would make any statement in the Circular, including this letter, misleading. We have not, however, carried out any independent verification of the information provided by the Directors and management of the Company, nor have we conducted any independent investigation into the business and affairs of the Group.

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LETTER FROM CINDA

PRINCIPAL FACTORS AND REASONS CONSIDERED

In arriving at our opinion to the Independent Board Committee and the Independent Shareholders in respect of the refreshment of the General Mandate, we have taken the following principal factors and reasons into consideration:

1. Background and reasons for the refreshment of the General Mandate

The Group is principally engaged in provision of water supply and sewage treatment as well as construction services in the PRC; investment in financial products and others.

At the AGM held on 3 June 2010, the Shareholders approved, among other things, ordinary resolutions to approve the grant of the Existing General Mandate to the Directors to issue, allot and deal with up to 541,275,800 Shares, representing 20% of the entire issued share capital of the Company as at the date of the AGM. Since the AGM to the Latest Practicable Date, the Existing General Mandate has not been refreshed.

According to the announcement of the Company dated 9 August 2010 in relation to the Top-up Placing and the Placing, 265,476,000 Top-up Placing Shares and 275,796,000 Placing Shares have been issued and allotted under the Existing General Mandate. Upon completion of the Top-up Placing on 12 August 2010 and the Placing on 30 November 2010, an aggregate of 541,272,000 new Shares were issued under the Existing General Mandate, representing approximately 99.99% of the Shares to be issue, allot and deal with under the Existing General Mandate. The net proceeds from the Top-up Placing of approximately HK$27.67 million and the Placing of HK$28.79 million were intended to be used for general working capital purposes. As advised by the Directors, as at the Latest Practicable Date, approximately HK$17.67 million of the net proceeds raised from the Top-up Placing and the Placing has been utilized as general working capital of the Group.

As the Existing General Mandate granted to the Directors has almost been fully utilized after completion of the Top-up Placing and the Placing, if the Existing General Mandate is not refreshed and assuming that no Shares will be issued or repurchased by the Company from the Latest Practicable Date to the date of the EGM, the Directors would only be allowed to further allot and issue up to 3,800 Shares, representing approximately 0.01% of the Existing General Mandate.

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LETTER FROM CINDA

In order to allow the financial flexibility to raise further capital to finance future investments and/or future business development, the Company wishes to seek approval of Independent Shareholders at the EGM to grant the General Mandate so that the Directors will be granted the authority to issue, allot and deal with new Shares not exceeding 20% of the total issued share capital of the Company as at the date of the EGM.

As at the Latest Practicable Date, the Company had an aggregate of 3,247,651,000 Shares in issue. On the basis that no Share would be issued and/or repurchased by the Company from the Latest Practicable Date up to the date of the EGM, the granting of the General Mandate would allow the Directors to issue, allot and deal with up to 649,530,200 new Shares, representing 20% of the aforesaid total issued share capital of the Company.

As discussed with the management of the Company, the Directors consider that equity financing through the use of the General Mandate is an important avenue of resources to the Group, as it (i) does not create any interest paying obligations on the Group as in bank financing; (ii) is less costly and time-consuming than raising funds by way of rights issue or open offer; and (iii) provides the Company with the capability to capture any capital raising or prospective investment opportunity as and when it arises. The Directors consider that such ability is crucial in a competitive and rapidly changing investment environment and in times of volatile market conditions.

In light of the above, and having considered that the next annual general meeting will not be held until around June 2011, which is around half-year time from the Latest Practicable Date, we are of the view that the refreshment of the General Mandate (i) would provide the Company with necessary financing flexibility for any funding needs for any future investments and business developments as and when they arise; (ii) will ensure the Company having sufficient general mandate, if so required, until the general mandate is approved in the next annual general meeting; and (iii) will facilitate the Company to raise funds in a meaningful quantum if and when necessary in a timely manner, we therefore consider that the refreshment of the General Mandate is in the interests of the Company and the Shareholders as a whole.

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LETTER FROM CINDA

2. Flexibility in financing

As advised by the Directors, we are given to understand that the Directors have no concrete plan for raising capital by issuing new Shares as at the Latest Practicable Date. If any potential investors offer attractive terms for investment in the Shares subject to the then market conditions, the Directors will consider and may conduct an equity fund raising exercise by issuing new Shares, the proceeds of which may be used as general working capital and/or supporting the Group’s future business development. The Directors consider that funding requirement or appropriate investment opportunities may or may not arise at any time prior to the next annual general meeting. If such opportunities arise prior to the next annual general meeting, decisions may have to be made within a limited period of time. The Directors therefore believe that (i) the refreshment of the General Mandate will provide the Company with flexibility in deciding the source of financing for any acquisition opportunities that may arise in the future; and (ii) the refreshment of the General Mandate will empower them to issue new Shares under the refreshed limit speedily as and when necessary, and without seeking further approval from the Shareholders.

Based on the above, we consider that (i) any share placement exercise are dependent, to a large extent, on prevailing market conditions and such opportunities for share placement exercise may not always arise; and (ii) the refreshment of General Mandate would provide the Company with the flexibility to issue and allot new Shares for equity fund raising activities, such as placing of new Shares, or as consideration for potential investments in the future as and when such opportunities arise, we therefore consider that the refreshment of the General Mandate is in the interests of the Shareholders and the Company as a whole.

– 13 –

LETTER FROM CINDA

3. Fund raising activities of the Company during the past twelve months

Set out below are the fund raising activities of the Company during the past twelve months immediately prior to the Latest Practicable Date:

Actual use of net proceeds Net as at Date of proceeds raised Intended use of the Latest announcement Transaction (approximately) net proceeds Practicable Date 9 August 2010 Top-up Placing HK$27.67 million Utilized for Used as approximately of 265,476,000 general HK$17.67 million new Shares working capital for general working purposes capital and the remaining balance is held at financial institution. 9 August 2010 Placing of HK$28.79 million Utilized for The net proceeds of 275,796,000 general HK$28.79 million new Shares working capital has not yet been purposes used but will be deposited in financial institution.

Save as disclosed herein, the Company has not conducted any other equity fund raising activities in the past twelve months immediately preceding the Latest Practicable Date.

4. Other financing alternatives

As advised by the Company, apart from equity financing, the Group will also consider other financing alternatives such as debt financing and bank borrowings before making investment decision. However, the Group will consider the cost and other terms of the funding to decide the means of financing in order to maximum the benefit to the Shareholders. Furthermore, these alternatives may subject to lengthy due diligence and negotiations. The Directors advised us that they would exercise due and careful consideration when choosing the best method of financing for the Group.

– 14 –

LETTER FROM CINDA

We consider that the refreshment of the General Mandate will provide the Company with an additional financing alternative and it is reasonable for the Company to have the flexibility in deciding the financing methods for its future business development and the efficient use of its fund. Based on the above, we are of the view that the refreshment of the General Mandate is in the interests of the Company and the Shareholders as a whole.

5. Potential dilution to Independent Shareholders’ shareholdings

We set out below the table depicting the shareholding structure of the Company (i) as at the Latest Practicable Date, and (ii) for illustrative purpose, upon full utilization of the refreshed General Mandate assuming that no further Shares will be issued or repurchased by the Company from the Latest Practicable Date to the date of the EGM:

Name of Shareholders Boost Skill Investments Limited (Note 1) Favor Jumbo Investments Limited (Note 2) Sure Ability Limited (Note 3) Ms. Chu Yin Yin, Georgiana Public Shareholders Shares to be issued under the General Mandate Total	As at the Latest Practicable Date Shares % 265,479,000 8.17 130,000,000 4.00 55,000,000 1.69 5,432,000 0.17 2,791,740,000 85.97 – – 3,247,651,000 100	Upon full utilization of the General Mandate (assuming no other Share is issued or repurchased by the Company) Shares % 265,479,000 6.81 130,000,000 3.34 55,000,000 1.41 5,432,000 0.14 2,791,740,000 71.63 649,530,200 16.67 3,897,181,200 100	Upon full utilization of the General Mandate (assuming no other Share is issued or repurchased by the Company) Shares % 265,479,000 6.81 130,000,000 3.34 55,000,000 1.41 5,432,000 0.14 2,791,740,000 71.63 649,530,200 16.67 3,897,181,200 100
			100

Notes:

1. Boost Skill Investments Limited is wholly and beneficially owned by Mr. Yang Bin, an executive director of the Company, and Mr. Li Jian Ping as to 60% and 40% respectively.

2. Favor Jumbo Investments Limited is a wholly-owned subsidiary of Boost Skill Investments Limited.

3. Sure Ability Limited is a wholly-owned subsidiary of Boost Skill Investments Limited.

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LETTER FROM CINDA

The table above illustrates that the shareholding of the public Shareholders in the Company would be decreased by approximately 14.34% upon full utilization of the General Mandate assuming no other Share(s) is/are issued or repurchased by the Company after the Latest Practicable Date up to the date of the EGM.

Taking into account that the refreshment of the General Mandate (i) allows the Company to raise capital by allotment and issuance of new Shares before the next annual general meeting; (ii) provides more flexibility and options of financing to the Group for future business development as well as for other potential future investments and/ or acquisitions as and when such opportunities arise; and (iii) the shareholding interests of all Shareholders in the Company will be diluted in proportion to their respective shareholdings upon any utilization of the General Mandate, we are of the opinion that the potential dilution to the shareholdings of the public Shareholders as just mentioned is acceptable.

RECOMMENDATIONS

Having taken into account the principal factors and reasons referred to the above, we are of the opinion that the terms of the General Mandate are fair and reasonable so far as the Independent Shareholders are concerned and the General Mandate is in the interests of the Company and the Shareholders as a whole. Accordingly, we would recommend the Independent Board Committee to advise the Independent Shareholders to vote in favour of the ordinary resolutions to be proposed at the EGM to approve the General Mandate.

Yours faithfully,

For and on behalf of

Cinda International Capital Limited

Robert Siu

Executive Director

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NOTICE OF EXTRAORDINARY GENERAL MEETING

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(Incorporated in Cayman Islands with limited liability)

(Stock code: 1129)

NOTICE IS HEREBY GIVEN that the extraordinary general meeting (the “ Extraordinary General Meeting ”) of the shareholders of China Water Industry Group Limited (the “ Company ”) will be held at Concord Room III, 8/F., Renaissance Harbour View Hotel, 1 Harbour Road, Wanchai, Hong Kong on Friday, 11 February 2011 at 9:30 a.m. to consider and, if thought fit, pass with or without amendments the following resolution as ordinary resolution:

1. “ THAT :

2. (a) subject to paragraph (c) of this resolution, and pursuant to the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “ Sock Exchange ”), the exercise by the Directors during the Relevant Period (as hereinafter defined) of all the powers of the Company to allot, issue and deal with additional shares in the share capital of the Company and to make or grant offers, agreements and options which might require the exercise of such powers be and is hereby generally and unconditionally approved;

3. (b) the approval in paragraph (a) of this resolution shall authorise the Directors during the Relevant Period to make or grant offers, agreements and options which might require the exercise of such powers after the end of the Relevant Period;

4. (c) the aggregate nominal amount of share capital allotted or agreed conditionally or unconditionally to be allotted (whether pursuant to options or otherwise) by the Directors pursuant to the approval in paragraph (a) of this resolution, otherwise than pursuant to (i) a Rights Issue (as hereinafter defined); or (ii) the grant or exercise of any option under the share option scheme of the Company or any other option scheme or similar arrangement for the time being adopted for the grant or issue of shares or rights to acquire shares of the Company; or (iii) any scrip dividend or similar arrangement providing for the allotment of shares in lieu of the whole or part of a dividend on shares of the Company in accordance with the articles of association of the Company in force from time to time; or (iv) any issue

5. for identification purpose only

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NOTICE OF EXTRAORDINARY GENERAL MEETING

of shares in the Company upon the exercise of rights of subscription or conversion under the terms of any existing warrants of the Company or any existing securities of the Company which carry rights to subscribe for or are convertible into shares of the Company, shall not exceed 20% of the aggregate nominal amount of the share capital of the Company in issue at the date of passing of this resolution and the authority pursuant to paragraph (a) of this resolution shall be limited accordingly; and

• (d) for the purpose of this resolution “Relevant Period” means the period from the date of the passing of this resolution until whichever is the earliest of:

• (i) the conclusion of the next annual general meeting of the Company;

• (ii) the expiration of the period within which the next annual general meeting of the Company is required by the articles of association of the Company, or any applicable law of the Cayman Islands to be held; and

• (iii) the passing of an ordinary resolution by the shareholders of the Company in general meeting revoking or varying the authority given to the Directors by this resolution.

“Rights Issue” means an offer of shares in the Company, or offer or issue of warrants, options or other securities giving rights to subscribe for shares open for a period fixed by the Directors to holders of shares in the Company on the register on a fixed record date in proportion to their holdings of shares (subject to such exclusion or other arrangements as the Directors may deem necessary or expedient in relation to fractional entitlements, or having regard to any restrictions or obligations under the laws of, or the requirements of, or the expense or delay which may be involved in determining the existence or extent of any restrictions or obligations under the laws of, or the requirements of, any jurisdiction applicable to the Company, or any recognised regulatory body or any stock exchange applicable to the Company).”

By order of the Board China Water Industry Group Limited Li Yu Gui

Chairman

Hong Kong, 19 January 2011

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NOTICE OF EXTRAORDINARY GENERAL MEETING

Registered Office: Principal place of business Butterfield House in Hong Kong: 68 Fort Street Room 1207, 12th Floor P. O. Box 609 West Tower, Shun Tak Centre Grand Cayman KY1-1107 No. 168-200 Connaught Road Central Cayman Islands Hong Kong

Notes:

1. A member of the Company entitled to attend and vote at the Extraordinary General Meeting convened by the above notice is entitled to appoint one or more proxies to attend and, on a poll, vote instead of such member. A proxy need not be a member of the Company.

2. In the case of joint holders of shares in the Company, the vote of the senior who tenders a vote whether in person or by proxy, shall be accepted to the exclusion of the vote(s) of the other joint holders, seniority being determined by the order in which names stand in the register of members.

3. In order to be valid, the form of proxy together with a power of attorney or other authority (if any) under which it is signed or a notarially certified copy thereof, must be deposited at the Company’s Hong Kong Branch Share Registrar, Union Registrars Limited at 18/F., Fook Lee Commercial Centre, Town Place, 33 Lockhart Road, Wanchai, Hong Kong not less than 48 hours before the time appointed for holding the Extraordinary General Meeting (or any adjournment thereof).

4. As at the date of this notice, the board of directors of the Company comprises Mr. Li Yu Gui, Mr. Yang Bin, Ms. Chu Yin Yin, Georgiana, Mr. Li Wen Jun and Mr. Tang Hui Ping all being executive Directors, and Mr. Chang Kin Man, Mr. Wu Tak Lung and Mr. Gu Wen Xuan, all being independent non-executive Directors.

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