COSCO SHIPPING Development Co., Ltd. - Proxy Solicitation & Information Statement 2012

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in any doubt as to any aspect of this circular or as to the action to be taken, you should consult a stockbroker and 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 Shipping Container Lines Company Limited, you should at once hand this circular to the purchaser or the transferee or to the bank, stockbroker 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 does not constitute an invitation or offer to acquire, purchase or subscribe for the securities of China Shipping Container Lines Company Limited.

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

(Stock code: 02866)

REVISION OF THE EXISTING ANNUAL CAP FOR THE CONTINUING CONNECTED TRANSACTIONS AND

RENEWED NON-EXEMPT CONTINUING CONNECTED TRANSACTIONS

AND

MAJOR TRANSACTIONS

AND

APPOINTMENT OF NEW NON-EXECUTIVE DIRECTOR

AND PROPOSED AMENDMENTS TO ARTICLES OF ASSOCIATION

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

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* The Company is registered as a non-Hong Kong company under Part XI of the Companies Ordinance (Chapter 32 of the Laws of Hong Kong) under its Chinese name and the English name “China Shipping Container Lines Company Limited”.

12 November 2012

	Pages
DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
LETTER FROM THE BOARD. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	6
LETTER FROM THE INDEPENDENT BOARD COMMITTEE . . . . . . . . . . . . .	28
LETTER FROM THE INDEPENDENT FINANCIAL ADVISER . . . . . . . . . . . . .	30
APPENDIX I – FINANCIAL INFORMATION OF THE GROUP. . . . . . . .	51
APPENDIX II – GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . .	53

– i –

DEFINITIONS

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

“Articles of Association”

articles of association of the Company, as revised and amended from time to time

“associate”

has the meaning ascribed thereto under the Listing Rules

“Board”

the board of directors of the Company

“CBRC”
China Banking Regulatory Commission (中國銀行業監督管理委員會)
“China Shipping”

China Shipping (Group) Company (中國海運(集團)總公司), a wholly PRC state-owned enterprise and the controlling Shareholder, having an approximately 47.48% shareholding interest in the Company

“China Shipping Group”

China Shipping and its subsidiaries and associates (excluding the Group)

“Company”

China Shipping Container Lines Company Limited (中海集裝箱運輸股份有限公司), a joint stock limited company established in the PRC, of which 3,751,000,000 H shares are listed on the Stock Exchange and 7,932,125,000 A shares are listed on the Shanghai Stock Exchange

“Connected Persons”

the China Shipping Group, CS Agency (Bangkok), CS Agency (Indonesia), CS Finance Company, CSS, Dalian Terminal and West Basin

“CS Agency (Bangkok)”

China Shipping (Bangkok) Co. Ltd. (中國海運船務(曼谷) 有限公司), which is owned as to 50% by China Shipping

“CS Agency (Indonesia)”
PT Zhonghai Indo Shipping (中國海運船務(印尼) 有限公司), which is owned as to 49% by China Shipping
“CSDC”

China Shipping Development Company Limited (中海發展股份有限公司), a limited liability company incorporated in the PRC whose H shares and A shares are listed on the Stock Exchange and Shanghai Stock Exchange respectively, and is owned as to about 46.36% by China Shipping

– 1 –

DEFINITIONS

“CS Finance Company”

China Shipping Finance Company Limited (中海集團財務有限責任公司), a limited liability company established by the Company, China Shipping, Guangzhou Maritime Transport (Group) Co. Ltd. (廣州海運(集團)有限公司), CSDC and China Shipping (Hainan) Haisheng Shipping and Enterprise Co., Ltd. (中海(海南)海盛船務股份有限公司) in the PRC (i.e. owned as to 25%, 25%, 20%, 25% and 5% by each of them, respectively)

“CSRC” China Securities Regulatory Commission (中國證券監督管理委員會)
“CSS” China Shipping & Sinopec Suppliers Co., Ltd. (中石化中海船舶燃料供應有限公司), a limited liability company incorporated in the PRC jointly controlled by China Shipping and Sinopec Sales Company Limited (中國石化銷售有限公司) (i.e. owned as to 50% by each of them)
“Dalian Terminal”
Dalian Dagang China Shipping Container Terminal Co., Ltd. (大連大港中海集裝箱碼頭有限公司), which is owned as to 35% by China Shipping
“Directors” the directors of the Company

“EGM” the Company’s extraordinary general meeting to be convened for the purposes of approving (i) the Revised Cap under the Master Supply Agreement; (ii) the Renewed Non-Exempt Continuing Connected Transactions and their respective proposed annual caps for each of the three years ending 31 December 2013, 2014 and 2015; (iii) the appointment of new nonexecutive Director; and (iv) the Proposed Amendments “Financial Services Framework the financial services framework agreement dated 31 Agreement” December 2009 entered into between the Company and China Shipping, pursuant to which China Shipping shall procure CS Finance Company to provide the Group with a range of financial services including (i) deposit services; (ii) loan services; (iii) settlement services; and (iv) other financial services as approved by CBRC “First Master Liner and Cargo the master liner and cargo agency agreement dated 10 Agency Agreement” May 2004 entered into between the Company, China Shipping, Shanghai Puhai, CS Agency (Indonesia) and CS Agency (Bangkok)

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DEFINITIONS

“First Master Loading and the master loading and unloading agreement dated 10 Unloading Agreement” May 2004 entered into between the Company, China Shipping, Shanghai Terminal, Zhanjiang Terminal and Dalian Terminal
“Group” the Company and its subsidiaries
“Hong Kong” Hong Kong Special Administrative Region of the PRC
“Independent Board Committee” a committee of the Board comprising all the independent non-executive Directors, namely, Mr. Shen Kangchen, Mr. Jim Poon (also known as Pan Zhanyuan), Mr. Shen Zhongying, Mr. Wu Daqi and Ms. Zhang Nan
“Independent Financial Adviser” Guotai Junan Capital Limited
“Independent Shareholders” the shareholders of the Company except the China Shipping Group
“Latest Practicable Date” 7 November 2012, being the latest practicable date prior to the printing of this circular for the purpose of ascertaining certain information contained in this circular
“Listing Rules” The Rules Governing the Listing of Securities on the Stock Exchange
“Master Supply Agreement” the master supply agreement dated 10 May 2004 entered into between the Company, China Shipping and CSS
“Model Code” the Model Code for Securities Transactions by Directors of Listed Issuers, as set out in Appendix 10 to the Listing Rules
“PBC” People’s Bank of China (中國人民銀行)
“percentage ratio” has the meaning ascribed thereto under the Listing Rules
“PRC”
the People’s Republic of China which for the purposes of this circular excludes Hong Kong, the Macau Special Administrative Region of the PRC and Taiwan
“Proposed Amendments” amendments to the Articles of Association as proposed by the Board at the Board meeting held on 20 September 2012

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DEFINITIONS

“Proposed Transactions”
“Renewed Non-Exempt Continuing Connected Agreements”
“Renewed Non-Exempt Continuing Connected Transactions”
“Revised Cap”
“Revised Master Provision of Containers Agreement”
“RMB”
“Second Master Loading and Unloading Agreement”

has the meaning ascribed thereto under Part I of this circular

consist of: (i) the Master Supply Agreement; (ii) the First Master Liner and Cargo Agency Agreement; (iii) the First Master Loading and Unloading Agreement; (iv) the Second Master Loading and Unloading Agreement; (v) the Revised Master Provision of Containers Agreement; and (vi) the Financial Services Framework Agreement

the transactions: (i) in respect of products and/or services to be provided to the Group under the Master Supply Agreement, the First Master Liner and Cargo Agency Agreement, the First Master Loading and Unloading Agreement and Second Master Loading and Unloading Agreement; (ii) in respect of containers to be purchased by the Group under the Revised Master Provision of Containers Agreement; (iii) in respect of maximum daily outstanding balance of deposits (including accrued interest and handling fee) placed by the Group with CS Finance Company under Financial Services Framework Agreement; (iv) in respect of maximum daily outstanding balance of loans (including accrued interest and handling fee) granted by CS Finance Company to the Group under Financial Services Framework Agreement; and (v) in respect of settlement services to be provided to the Group under Financial Services Framework Agreement

the proposed revised annual cap for the year ending 31 December 2012 for the transactions in respect of the products and services provided to the Group under the Master Supply Agreement

the master provision of containers agreement dated 10 April 2007 entered into between the Company and China Shipping, which is based on the original master provision of containers agreement for the manufacture and supply (including sale and/or lease) of containers by the China Shipping Group to the Group
Renminbi, the lawful currency of the PRC
the master loading and unloading agreement dated 10 May 2004 entered into between the Company and West Basin

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DEFINITIONS

“SFO”	the Securities and Futures Ordinance (Chapter 571 of the
	Laws of Hong Kong) as amended and supplemented from
	time to time
“Shanghai Puhai”	Shanghai Puhai Shipping Co., Ltd. (上海浦海航運有限公
	司), a limited liability company incorporated in the PRC
	and a wholly-owned subsidiary of the Company
“Shanghai Terminal”	Shanghai China Shipping Container Terminal Co. Ltd.
	(上海港中海集裝箱碼頭有限公司), which is owned as to
	50% by the Group
“Shareholder(s)”	the shareholder(s) of the Company
“Stock Exchange”	The Stock Exchange of Hong Kong Limited
“subsidiary”	has the meaning ascribed thereto under the Listing Rules
“Supervisors”	the supervisors of the Company
“TEU”	twenty-foot equivalent unit, a standard unit of measurement
	of the volume of a container with a length of 20 feet, height
	of 8 feet and 6 inches and width of 8 feet
“US”	the United States of America
“US$”	United States dollars, the lawful currency of the US
“West Basin”	West Basin Container Terminal LLC. (洛杉磯西港池碼頭
	有限公司), which is owned as to 40% by China Shipping
“Zhanjiang Terminal”	Zhanjiang China Shipping Container Terminal Co. Ltd.
	(湛江港中海集裝箱碼頭有限公司), which is owned as to
	50% by the Group
“%”	per cent

The exchange rate adopted in this circular for illustration purpose only is US$1.00 = RMB6.50.

– 5 –

LETTER FROM THE BOARD

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

(Stock code: 02866)

Executive Directors: Mr. Li Shaode Mr. Xu Lirong Mr. Huang Xiaowen Mr. Zhang Guofa Mr. Zhao Hongzhou

Legal address in the PRC: Room A-538 Yangshan International Trade Center No.188 Ye Sheng Road Yangshan Free Trade Port Area Shanghai The PRC

Non-executive Directors:

Mr. Zhang Jianhua Mr. Wang Daxiong Mr. Zhang Rongbiao Mr. Xu Hui

Independent non-executive Directors: Mr. Shen Kangchen Mr. Jim Poon (also known as Pan Zhanyuan) Mr. Shen Zhongying Mr. Wu Daqi Ms. Zhang Nan

Principal place of business in the PRC: 27th Floor 450 Fu Shan Road Pudong New District Shanghai The PRC

Principal place of business in Hong Kong: 59/F, One Island East 18 Westlands Road Island East Hong Kong 12 November 2012

To the Shareholders

Dear Sir or Madam,

REVISION OF THE EXISTING ANNUAL CAP FOR THE CONTINUING CONNECTED TRANSACTIONS AND RENEWED NON-EXEMPT CONTINUING CONNECTED TRANSACTIONS AND MAJOR TRANSACTIONS AND APPOINTMENT OF NEW NON-EXECUTIVE DIRECTOR AND PROPOSED AMENDMENTS TO ARTICLES OF ASSOCIATION

I. INTRODUCTION

Reference is made to the Company’s announcement dated 20 September 2012. The main purpose of this circular is to provide you with, among other things:

* The Company is registered as a non-Hong Kong company under Part XI of the Companies Ordinance (Chapter 32 of the Laws of Hong Kong) under its Chinese name and the English name “China Shipping Container Lines Company Limited”.

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LETTER FROM THE BOARD

(a) further information as is necessary to enable you to make an informed decision on whether to vote for or against the resolutions to be proposed at the EGM relating to:
(i) the Revised Cap under the Master Supply Agreement;
(ii) the Renewed Non-Exempt Continuing Connected Transactions and their respective proposed annual caps for each of the three years ending 31 December 2013, 2014 and 2015;
((i) and (ii) collectively, the “ Proposed Transactions ”)
(iii) the appointment of new non-executive Director as described in this circular; and
(iv) the Proposed Amendments as described in this circular;
(b) the letter of advice from the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders relating to the Proposed Transactions;
(c) the letter of recommendation from the Independent Board Committee to the Independent Shareholders relating to the Proposed Transactions; and
(d) the notice of EGM relating to (i) the Proposed Transactions; (ii) the appointment of new non-executive Director as described in this circular; and (iii) the Proposed Amendments.

II. REVISION OF THE EXISTING ANNUAL CAP FOR THE CONTINUING CONNECTED TRANSACTIONS

A. Background

Reference is made to the Company’s announcements dated 24 January 2007, 10 April 2007, 8 October 2009 and 15 December 2009 and the circulars to the Company’s shareholders dated 16 February 2007 and 29 October 2009.

As previously disclosed, on 10 May 2004, the Company entered into the Master Supply Agreement with China Shipping and CSS for the provision of the fresh water, vessel fuel, lubricants, spare parts and other products, generators for the containers and other related and ancillary services: (i) by China Shipping, CSS and their respective subsidiaries and associates; and (ii) to the Group. Transactions under the Master Supply Agreement constitute continuing connected transactions of the Company under the Listing Rules.

The initial term of the Master Supply Agreement is three years, with effect from 10 May 2004. Upon the expiry of such initial term, the Master Supply Agreement shall automatically extend for further terms of three years (subject to compliance of the Listing Rules), unless any relevant party gives to the other party(ies) a written notice of termination at least three months prior to such expiry date. Accordingly, the Master Supply Agreement will extend for a further term of three years with effect from 10 May 2013 subject to the approval of the Independent Shareholders by way of an ordinary resolution at the EGM.

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LETTER FROM THE BOARD

The Master Supply Agreement provides that each product and service as contemplated by the transactions under the Master Supply Agreement must be provided in accordance with the following general pricing principles: (a) state-prescribed price; (b) where there is no state-prescribed price, then according to relevant market price and on principle of fairness and reasonableness; or (c) where there is no market price, then according to the contracted price.

For the purpose of the Master Supply Agreement: “state-prescribed price” means the price set by the relevant laws, regulations and other governmental regulatory documents issued by the relevant departments of the PRC government; “market price” means the price at which the same or comparable type of products or services are provided from or to (as appropriate) independent third parties in the same area on normal commercial terms in the ordinary course of business; and “contracted price” means the relevant cost incurred in providing such product or service plus a profit margin 0.74% thereof.

For each of the implementation agreements in respect of the products and services to be provided to the Group as contemplated under this agreement, such products and services are provided in accordance with the following pricing principles: (a) the fresh water shall be provided at a price based on the state-prescribed price; (b) the refined fuel shall be provided at a price based on the state-prescribed price and the other vessel fuel shall be provided at a price based on the market price (as there is no state-prescribed price) which should be obtained with reference to the oil prices of other major shipping companies or relevant public website; and (c) the spare parts and others shall be provided at a price based on the market price which should be obtained by comparing the quoted prices of other suppliers providing similar services.

Owing to various reasons set out below, the Directors believe that the existing annual cap for the transactions in respect of the products and services provided to the Group under the Master Supply Agreement will not be sufficient for the Group’s current requirements and therefore on 20 September 2012, the Board proposed to revise the existing annual cap to RMB2,500,000,000 for the year ending 31 December 2012, subject to the approval of the Independent Shareholders by way of an ordinary resolution at the EGM. In arriving at such proposed revised annual cap, the Directors have considered the following factors:

(i) the historical figures (as set out in Part II, Section B of this circular) for 2010, 2011 and six months ended 30 June 2012;
(ii) driven by higher global cruel oil price, the average West Texas Intermediate (WTI) crude oil price rose from US$94.95/barrel in 2011 to US$98.15/barrel in the first half of 2012, representing a year-on-year increase of 3.4%. In the first half of 2012, the unit prices of fuels consumed by the Company increased by 17% year-on-year, and its fuel expenses increased by 25% as compared with the corresponding period of 2011;
(iii) the fuels under such continuing connected transactions were mainly supplied to the 4,000-4,700TEU vessels operating on the domestic trade routes of the

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LETTER FROM THE BOARD

Company. It is expected that the addition of one such vessel will require an additional purchase of 1,300 to 1,500 tonnes of fuels each month. In order to further improve its operational advantage in domestic trade routes, the Company has focused its effort on developing premium domestic trade routes. In the first half of 2012, under the backdrop of a generally depressed foreign trade market, the Company timely adjusted its operation strategy to keep on putting more shipping capacity on domestic trade routes; and

(iv) owing to the above reasons, the fuels expenses for the first half of 2012 grew by 25% as compared with the corresponding period of 2011. It is expected that the transaction value under the Master Supply Agreement for the second half of 2012 will be RMB1,099,000,000.

The Company will ensure that the existing annual cap for the year ending 31 December 2012 for the transactions in respect of the products and services provided to the Group under the Master Supply Agreement will not be exceeded before complying with the reporting, announcement and Independent Shareholders’ approval requirements for continuing connected transactions under Chapter 14A of the Listing Rules.

B. Historical Caps, Historical Figures and Proposed Revised Annual Cap

The following table sets out the historical caps, historical figures and proposed revised annual cap of the transactions in respect of the products and services provided to the Group under the Master Supply Agreement, details of which are set out in Part II, Section A of this circular.

					(RMB’000)
					Proposed
					Revised
Historical Caps	for	Historical Figures for 2010,			Annual Cap
2010-2012		2011 and 30	June 2012		for 2012
1,711,200	(2010)	1,474,367		(2010)	2,500,000
1,895,500	(2011)	1,786,671		(2011)
2,088,840	(2012)	1,191,546		(as of
			30 June 2012)

C. Reasons for and Benefits of Transactions

The Company was established in 1997 as the container shipping arm of China Shipping. Due to the long established and close business relationship between the members of the Group and the China Shipping Group, a number of transactions have been entered into and are to be entered into between the Group and China Shipping, CSS and their respective subsidiaries and associates, which are individually significant and collectively essential to the core business and operation of container marine transportation of the Group.

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LETTER FROM THE BOARD

In addition, as China Shipping is one of the key state-owned enterprises and is a large shipping conglomerate that operates across different regions, sectors and countries, and the relevant Connected Persons (while most of which are associates of China Shipping), are well-known marine transportation corporations with outstanding competency in shipping industry and have developed good experience and service systems in respect of provisions of the products and services under such transactions. The cooperation between the Group, China Shipping, CSS and their respective subsidiaries and associates enables the Group and the China Shipping Group to fully leverage on their advantages to achieve better operating performance.

Finally, the terms and conditions provided by China Shipping, CSS and their respective subsidiaries and associates in relation to such transactions are generally more favourable to the Group than those provided by independent third parties to the Group, or those provided by China Shipping, CSS and their respective subsidiaries and associates to independent third parties.

D. Implications under the Listing Rules

As the proposed revised annual cap for the year ending 31 December 2012 for the transactions in respect of the products and services provided to the Group under the Master Supply Agreement is expected to be more than 5% of the applicable percentage ratios on an annual basis, therefore, the proposed revised annual cap for the year ending 31 December 2012 for such transactions is subject to the reporting, announcement and Independent Shareholders’ approval requirements for continuing connected transactions under Chapter 14A of the Listing Rules.

III. RENEWED NON-EXEMPT CONTINUING CONNECTED TRANSACTIONS

A. Background

The Board has been monitoring the Renewed Non-Exempt Continuing Connected Transactions. In view of the continuous development of the Group and based on the internal forecasts of forthcoming demand, on 20 September 2012, the Board decided to continue the Renewed Non-Exempt Continuing Connected Transactions after 31 December 2012 and proposed their respective proposed annual caps for each of the three years ending 31 December 2013, 2014 and 2015, subject to the approval of the Independent Shareholders by way of an ordinary resolution at the EGM.

Please refer to the Company’s announcements dated 24 January, 10 April 2007, 8 October 2009, 15 December 2009 and the circulars to the Shareholders dated 16 February 2007 and 29 October 2009 for background information in relation to the Renewed Non-Exempt Continuing Connected Transactions entered into between the Group and the relevant Connected Persons. Set out below is the general terms of the Renewed Non-Exempt Continuing Connected Transactions followed by a summary in respect of each of the Renewed Non-Exempt Continuing Connected Transactions. Please refer to Part III, Section D, Table a of this circular for the respective historical caps, historical figures and future caps of each of the Renewed Non-Exempt Continuing Connected Transactions.

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LETTER FROM THE BOARD

B. General Terms

1. Connected Persons

China Shipping is the controlling Shareholder. Therefore, China Shipping and its associate(s) are connected persons (as defined in the Listing Rules) of the Company under the Listing Rules.

Each of CS Agency (Bangkok), CS Agency (Indonesia), CS Finance Company, CSS, Dalian Terminal and West Basin is an associate of China Shipping and is therefore a connected person (as defined in the Listing Rules) of the Company under the Listing Rules.

2. General Principles, Price and Terms

Each of the Renewed Non-Exempt Continuing Connected Agreements contains the binding principles, guidelines and terms and conditions in accordance with which any and all products and services contemplated thereby are to be provided by the relevant provider to the relevant recipient.

Each of the Renewed Non-Exempt Continuing Connected Agreements requires in general terms that:

(a) the quality of such products and services to be provided should be satisfactory to the recipient;
(b) the price at which such products and services are to be provided must be fair and reasonable; and
(c) the terms and conditions on which such products and services are to be provided should be no less favourable to the Group than those offered from or to (as appropriate) the relevant Connected Persons, their subsidiaries and/or associates to or from (as appropriate) independent third parties; and offered from or to (as appropriate) independent third parties to or from (as appropriate) the Group.

3. Price Determination

Each of the Renewed Non-Exempt Continuing Connected Agreements (save and except for the Financial Services Framework Agreement) provides that each relevant product or service must be provided in accordance with the following general pricing principles:

(a) state-prescribed prices;
(b) where there is no state-prescribed price, then according to relevant market prices and on principle of fairness and reasonableness; or

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LETTER FROM THE BOARD

For the purpose of each of the Renewed Non-Exempt Continuing Connected Agreements:

“state-prescribed price” means the price set by the relevant laws, regulations and other governmental regulatory documents issued by the relevant departments of the PRC government;

“market price” means the price at which the same or comparable type of products or services are provided from or to (as appropriate) independent third parties in the same area on normal commercial terms in the ordinary course of business; and

“contracted price” means the relevant cost incurred in providing such products or services plus a profit margin ranging from 0% to 12.25% thereof.

4. Term and Termination

The initial term of each of the Renewed Non-Exempt Continuing Connected Agreements is three years, with effect from 10 May 2004, save and except for (i) the Revised Master Provision of Containers Agreement, the initial term of which is three years, with effect from 10 April 2007; and (ii) the Financial Services Framework Agreement, the initial term of which is three years, with effect from 31 December 2009. Upon the expiry of such initial term, each of the Renewed Non-Exempt Continuing Connected Agreements shall automatically extend for further terms of three years (subject to compliance of the Listing Rules), unless any relevant party gives to the other party(ies) a written notice of termination at least three months prior to such expiry date. Accordingly, subject to the approval of the Independent Shareholders by way of an ordinary resolution at the EGM, each of the Renewed Non-Exempt Continuing Connected Agreements will extend for a further term of three years with effect from 10 May 2013, save and except for (i) the Revised Master Provision of Containers Agreement will extend for a further term of three years with effect from 10 April 2013; and (ii) the Financial Services Framework Agreement will extend for a further term of three years with effect from 31 December 2012.

During the term of each of the Renewed Non-Exempt Continuing Connected Agreements, termination of any implementation agreement described below may be effected from time to time by any one of the parties to the relevant implementation agreement providing at least a three months’ written notice of termination to the other party(ies).

5. Implementation Agreements

It is envisaged that from time to time and as required, individual implementation agreements may be entered into between the Group and the relevant Connected Persons, and their respective subsidiaries and/or associates, as appropriate.

Each implementation agreement will set out the specific products and services requested by the relevant party and any detailed technical and other specifications which may be relevant to those products or services. The implementation agreements may only

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LETTER FROM THE BOARD

contain provisions which are in all material respects consistent with the binding principles, guidelines, terms and conditions in accordance with which such products and services are required to be provided as contained in the relevant Renewed Non-Exempt Continuing Connected Agreements.

As the implementation agreements are simply further elaborations on the provision of the products and services as contemplated by each of the Renewed Non-Exempt Continuing Connected Agreements, they do not constitute new categories of continuing connected transactions under Chapter 14A of the Listing Rules.

C. Summary

1. Master Supply Agreement

Please refer to Part II, Section A of this circular for background information in relation to this agreement and the transactions contemplated thereby and the basis for the proposed revised annual cap for the year ending 31 December 2012 for such transactions.

The proposed annual caps for the transaction amounts for the products and services to be provided to the Group under this agreement for each of the three years ending 31 December 2013, 2014 and 2015 are RMB2,946,000,000, RMB3,185,000,000 and RMB3,431,000,000 respectively. In arriving at such annual caps, the Directors have considered the following factors:

(i) the historical figures (as set out in Part III, Section D, Table a of this circular) for 2010, 2011 and six months ended 30 June 2012;
(ii) the Company focuses its effort on developing premium routes to further enhance its advantage in domestic trade route operation. As a result, the Company took up a much larger market share than its peers. In the first half of 2012, under the backdrop of a generally depressed foreign trade market, the Company timely adjusted its operation strategy to put more shipping capacity on domestic trade routes;
(iii) in order to further enhance the operational advantage of domestic trade routes, the Company focuses on establishing profitable domestic trade routes and continues to increase investment on the shipping capacity of domestic trade routes. It is expected that on average there will be two 4,250-4,700TEU large vessels coming into service each year from 2013 to 2015;
(iv) the vessels of the Company for domestic trade routes mainly use fuel oil (FO) FO180 fuel, the average market price of which was RMB5,515 per ton between January to June in 2012. The average purchase price of FO180 fuel under the Master Supply Agreement will be approximately RMB5,381 per ton from January to June 2012. The average purchase price for all fuel under the Master Supply Agreement is RMB5,500 per ton from January to June 2012; and
(v) it is expected that the demand for the supplies under this agreement, which include marine fuels (being the key component), lubricants and spare parts,

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LETTER FROM THE BOARD

will increase. It is based on estimation of the fuel prices for the whole year of 2012 and the next three years in accordance with the WTI prices and domestic FO prices for the period from January to July 2012. The number of 4,250 – 4,700 TEU vessels (and a small number of 2,700 – 2,900 TEU vessels) (the fuel consumption of small-size vessels is discounted to those of 4,000 TEU vessels or larger) will be steadily put into operation on domestic trade routes in 2012 and the next three years, and the transaction value in respect of fuel supply for 2012 and the next three years which is calculated on the basis of an additional purchase of 1,300 to 1,500 tonnes of fuels each month for each additional 4,000 – 4,700 TEU vessels.

2. First Master Liner and Cargo Agency Agreement

On 10 May 2004, the Company entered into the First Master Liner and Cargo Agency Agreement with China Shipping, Shanghai Puhai, CS Agency (Indonesia) and CS Agency (Bangkok) for the provision of sales and marketing services, port agency services (arrange for berthing of vessels, customs, towage, pilotage, loading and discharging of the cargo and/or containers), container services (stuffing and unstuffing of cargo, preparing documents for custom clearance, undertaking leasing of containers, arranging for container repairs and maintenance), accounting and financial services and other related and ancillary services by: (i) China Shipping, Shanghai Puhai, CS Agency (Indonesia) and CS Agency (Bangkok) and their respective subsidiaries and associates; to (ii) the Group.

For each of the implementation agreements in respect of the services to be provided to the Group as contemplated under this agreement, such services are provided in consideration of the commission determined in accordance with the market prices which should be obtained by comparing the quoted prices of other suppliers providing similar services.

The proposed annual caps for the transaction amounts for the services to be provided to the Group under this agreement for each of the three years ending 31 December 2013, 2014 and 2015 are RMB693,000,000, RMB795,000,000 and RMB913,000,000 respectively. In arriving at such annual caps, the Directors have considered the following factors:

(i) the historical figures (as set out in Part III, Section D, Table a of this circular) for 2010, 2011 and six months ended 30 June 2012; and
(ii) such transaction value is mainly generated as a result of the agency services provided by China Shipping Group for the Group’s foreign trade routes. The number of containers carried by the Group on foreign trade routes in the first half of 2012 increased by 11.54% as compared with the corresponding period of 2011, and the shipping market is expected to recover in the next few years. It is predicted that rising labour costs will drive up the agency fee. According to the Company’s shipping capacity plan, its shipping capacity for 2015 will be 29.4% higher from 2012 level. The three-year average annual shipping capacity will increase by approximately 10%, while the transaction value for 2013 to 2015 will increase by 15% annually.

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LETTER FROM THE BOARD

3. First Master Loading and Unloading Agreement and Second Master Loading and Unloading Agreement

On 10 May 2004, the Company entered into the First Master Loading and Unloading Agreement with China Shipping, Shanghai Terminal, Zhanjiang Terminal and Dalian Terminal for the provision of container loading and unloading services and other related and ancillary services: (i) by China Shipping, Shanghai Terminal, Zhanjiang Terminal and Dalian Terminal and their respective subsidiaries and associates; and (ii) to the Group.

On 10 May 2004, the Company also entered into the Second Master Loading and Unloading Agreement with West Basin for the provision of the same services aforesaid: (i) by West Basin and its subsidiaries and associates; and (ii) to the Group.

For each of the implementation agreements in respect of the services to be provided to the Group as contemplated under these agreements, such services are provided in consideration of the services charges determined in accordance with the market prices which should be obtained by comparing the hardware facilities, service quality, service attitude and the quoted prices of other suppliers providing similar services.

The proposed annual caps for the transaction amounts for the services to be provided to the Group under these agreements for each of the three years ending 31 December 2013, 2014 and 2015 are RMB748,000,000, RMB860,000,000 and RMB989,000,000 respectively. In arriving at such annual caps, the Directors have considered the following factors:

(i) the historical figures (as set out in Part III, Section D, Table a of this circular) for 2010, 2011 and six months ended 30 June 2012; and
(ii) such transaction volume is generated by the Company’s foreign trade route from the contact port of the China Shipping Group through loading and unloading containers. The number of containers carried by the Group on foreign trade routes in the first half of 2012 increased by 11.54% as compared with the corresponding period of 2011, and the shipping market is expected to recover in the next few years. It is predicted that rising labour costs and energy price will drive up the loading and unloading rates. According to the Company’s shipping capacity plan, its shipping capacity for 2015 will be 29.4% higher from 2012 level. The three-year average annual shipping capacity will increase by approximately 10%, while the transaction value of loading and unloading for 2013 to 2015 will increase by 15% annually.

4. Revised Master Provision of Containers Agreement in respect of containers to be purchased by the Group

On 10 April 2007, the Company entered into the Revised Master Provision of Containers Agreement with China Shipping for the manufacture and supply (including sell and/or lease) of containers by the China Shipping Group to the Group.

For each of the implementation agreements in respect of the containers to be purchased by the Group as contemplated under this agreement, such purchase prices are determined based on the market price which should be obtained through the bidding procedures of bid enquiry price and negotiated price between the bidding suppliers and the container manufacturing project bidding team of the Company.

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LETTER FROM THE BOARD

The proposed annual caps for the transaction amounts for the purchase of containers by the Group under this agreement for each of the three years ending 31 December 2013, 2014 and 2015 are RMB488,000,000, RMB910,000,000 and RMB1,300,000,000 respectively. In arriving at such annual caps, the Directors have considered the following factors:

(i) the historical figures (as set out in Part III, Section D, Table a of this circular) for 2010, 2011 and six months ended 30 June 2012; and
(ii) according to the characteristics of the industry, the number of containers owned are allocated in the proportion of 2 to 1 of the Group’s total shipping capacity; the transaction value under this agreement is calculated based on a 40% increase in the total number of containers owned with US$2,500/TEU. The total shipping capacity of the Group is estimated at 630,000TEU, 700,000TEU and 800,000TEU, respectively, for 2013 to 2015 in calculation of.the annual transaction value under this agreement.

5. Financial Services Framework Agreement in respect of deposit services to be provided to the Group

As disclosed in the announcements dated 8 October 2009 and 15 December 2009 and the circular to the Shareholders dated 29 October 2009, on 31 December 2009, the Company entered into the Financial Services Framework Agreement with China Shipping, pursuant to which China Shipping shall procure CS Finance Company to provide the Group with a range of financial services including (i) deposit services; (ii) loan services; (iii) settlement services; and (iv) other financial services as approved by CBRC.

Under the Financial Services Framework Agreement, CS Finance Company shall accept deposits from the Group at interest rates not lower, and thus no less favourable, than (a) the lower limit of the relevant rates stipulated by PBC for the same type of deposits; (b) the interest rates offered by any independent third parties for the same type of deposits; or (c) the interest rates at which CS Finance Company accepts from any independent third parties for the same type of deposits.

For each of the implementation agreements in respect of the deposit services to be provided to the Group as contemplated under this agreement, such deposit services are provided in accordance with the following pricing principles: (a) the domestic RMB deposits shall be taken at a price based on the benchmark interest rate stipulated by PBC or at the prime rate (the floating upward) within the floating range allowed by such stipulation; and (b) the foreign and domestic US$ deposits shall be taken at a price based on the prevailing market rates which should be obtained by making inquiries of various banks so that the price determined is not lower than the highest one quoted by such banks.

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LETTER FROM THE BOARD

The proposed annual caps for the transaction amounts for the deposit services to be provided to the Group under this agreement for each of the three years ending 31 December 2013, 2014 and 2015 are RMB8,000,000,000, RMB9,000,000,000 and RMB10,000,000,000 respectively. In arriving at such annual caps, the Directors have considered the following factors:

(i) the historical figures of the maximum daily outstanding balance of deposits (including accrued interest and handling fee) placed by the Group with CS Finance Company (as set out in Part III, Section D, Table a of this circular) for 2010, 2011 and six months ended 30 June 2012; and
(ii) firstly, the business volume is expected to continue to grow along with the increase in the Group’s total shipping capacity; secondly, the transaction value grows as a result of surge in the loans and lendings; thirdly, the Company has the deposit of RMB13.3 billion as at 20 September 2012; fourthly, the business volume will continues to increase from 2013 to 2015.

Regarding the effect of these transactions on the earnings and assets and liabilities of the Company, as CS Finance Company will provide the Company with the RMB deposit services based on the state-prescribed interest or at prime interest (the floating upward) and the foreign currency deposit services based on the interest more favorable than the market interest, therefore, it is expected that these transactions will not have any material effects on the Group’s earnings, assets and liabilities.

6. Financial Services Framework Agreement in respect of loan services to be provided to the Group

Under the Financial Services Framework Agreement, CS Finance Company shall provide loan to the Group at interest rates not higher, and thus no less favourable, than (a) the relevant rates stipulated by PBC for the same type of loan; (b) the interest rates offered by any independent third parties for the same type of loan; or (c) the interest rates at which CS Finance Company provides to any independent third parties with the same credit rating for the same type of loan.

For each of the implementation agreements in respect of the loan services to be provided to the Group as contemplated under this agreement, such loan services are provided in accordance with the following pricing principles: (a) the domestic RMB loans shall be provided at a price based on the benchmark interest rates stipulated by the PBC or at the prime interest rate (the floating downward) within the floating range allowed by such stipulation; and (b) the foreign and domestic US$ loans shall be provided at a price based on the prevailing market rates which should be obtained by making inquiries of various banks so that the price determined is not higher than the lowest one quoted by such banks.

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LETTER FROM THE BOARD

The proposed annual caps for the transaction amounts for the loan services to be provided to the Group under this agreement for each of the three years ending 31 December 2013, 2014 and 2015 are RMB5,000,000,000, RMB6,000,000,000 and RMB7,000,000,000 respectively. In arriving at such annual caps, the Directors have considered the following factors:

(i) the historical figures of the maximum daily outstanding balance of loans (including accrued interest and handling fee) granted by CS Finance Company to the Group (as set out in Part III, Section D, Table a of this circular) for 2010, 2011 and six months ended 30 June 2012; and
(ii) China Shipping has stated that it will allocate resources by using CS Finance Company as a platform to offer financial support to the Group at lower financial costs. Therefore, certain domestic RMB loans of the Group will be handled through CS Finance Company so as to lower the Group’s finance costs in future. According to its domestic vessel manufacturing and ports investment plan and operation development plan, it is expected that the Group will have a capital requirement of RMB6 billion to RMB9 billion and a finance demand of RMB4 billion to RMB6 billion for the period from 2013 to 2015.

7. Financial Services Framework Agreement in respect of settlement services to be provided to the Group

According to the “Approval of Opening of Foreign Exchange Settlement Business by China Shipping Finance Company Limited” dated 18 June 2012 and issued by Shanghai branch of State Administration of Foreign Exchange (Shanghai Hui Fu No.7 (2012)) (《 關於中海集團財務有限責任公司開辦結售匯業務的批覆 》) (上海匯覆(2012)7 號), CS Finance Company was granted its qualification to provide settlement services, the scope of which consists of foreign exchange sale and purchase business within China Shipping itself or within the China Shipping Group.

Under the Financial Services Framework Agreement, the fees charged by CS Finance Company for the provision of settlement services to the Group shall not be higher, and thus no less favourable, than (a) the upper limit (if applicable) of the fees stipulated by PBC to be charged for the same type of services; (b) the fees charged by any independent third party for the same type of services; or (c) the fees charged by CS Finance Company for the same type of services on any independent third party with the same credit rating.

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LETTER FROM THE BOARD

For each of the implementation agreements in respect of the settlement services to be provided to the Group as contemplated under this agreement, the settlement services are provided in accordance with the prevailing market rates which should be obtained by making inquiries of various banks to ensure the price is more favorable than those offered by other banks.

The proposed annual caps for the transaction amounts for settlement services to be provided to the Group under this agreement for each of the three years ending 31 December 2013, 2014 and 2015 are US$700,000,000 (equivalent to RMB4,550,000,000), US$800,000,000 (equivalent to RMB5,200,000,000) and US$900,000,000 (equivalent to RMB5,850,000,000), respectively. In arriving at such annual caps, the Directors have considered the following factors:

(i) the historical figures (as set out in Part III, Section D, Table a of this circular) for 2010, 2011 and six months ended 30 June 2012;
(ii) the accumulated amounts of the Group’s foreign exchange settlements in the last three years were over US$500 million on average per year. With the continued development of the Group’s business and the fluctuations in foreign exchange rates, it is expected that the transaction amount for the three years from 2013 to 2015 is US$700,000,000, US$800,000,000 and US$900,000,000 respectively;
(iii) in the first half of 2012, especially in the first quarter, the container shipping market experienced a downturn, thus the Group recorded low revenue; while in the third quarter of 2012, the Group’s revenue increased significantly than that in the first half of the year. It is expected that such business will grow substantially in the second half of 2012, and sustain a steady growth in the coming three years;
(iv) it is expected that US$ will be depreciated against RMB since the launch of quantitative easing 3 (also known as QE3) by the US government. As a result, the Group will increase and speed up its foreign exchange settlement in the coming three years; and
(v) in coming three years, the Group’s shipping capacity will continue to grow and the average annual shipping volume is expected to increase by 10%, which will lead to a correspondent growth in transaction volumes under this agreement.

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LETTER FROM THE BOARD

D. Historical Caps, Historical Figures and Future Caps

The following table sets out the respective historical caps, historical figures and future caps of the Renewed Non-Exempt Continuing Connected Transactions, details of which are set out in Part III, Sections B and C of this circular.

Table a – Renewed Non-exempt Continuing Connected Transactions

							(RMB’000)
		Historical Caps		Historical Figures		Proposed
			for 2010,	for 2010, 2011		Future Caps
Transactions under the		2011 and 2012		and 30 June 2012		for 2013-2015
(1)	Master Supply Agreement in respect of	1,711,200	(2010)	1,474,367	(2010)	2,946,000	(2013)
	products and services to be provided to the Group	1,895,500	(2011)	1,786,671	(2011)	3,185,000	(2014)
		2,088,840	(2012)(Note (b))	1,191,546	(as of	3,431,000	(2015)
					30 June
					2012)
(2)	First Master Liner and Cargo Agency	704,860	(2010)	545,319	(2010)	693,000	(2013)
	Agreement in respect of services to be provided to the Group	774,360	(2011)	574,977	(2011)	795,000	(2014)
		850,970	(2012)	286,280	(as of	913,000	(2015)
					30 June
					2012)
(3)	First Master Loading and Unloading	702,450	(2010)	483,778	(2010)	748,000	(2013)
	Agreement and Second Master Loading and Unloading Agreement in respect of	772,750	(2011)	461,889	(2011)	860,000	(2014)
	services to be provided to the Group	849,930	(2012)	230,427	(as of	989,000	(2015)
					30 June
					2012)
(4)	Revised Master Provision of Containers	984,860	(2010)	336,434	(2010)	488,000	(2013)
	Agreement in respect of containers to be purchased by the Group	755,220	(2011)	63,744	(2011)	910,000	(2014)
		579,490	(2012)	0	(as of	1,300,000	(2015)
					30 June
					2012)
(5)	Financial Services Framework	5,000,000	(2010)	4,005,117	(2010)	8,000,000	(2013)
	Agreement in respect of maximum daily outstanding balance of deposits	5,500,000	(2011)	4,003,742	(2011)	9,000,000	(2014)
	(including accrued interest and handling	6,000,000	(2012)	3,664,485	(as of	10,000,000	(2015)
	fee) to be placed by the Group with CS				30 June
	Finance Company				2012)
(6)	Financial Services Framework	1,500,000	(2010)	80,000	(2010)	5,000,000	(2013)
	Agreement in respect of maximum daily outstanding balance of loans (including	1,700,000	(2011)	98,306	(2011)	6,000,000	(2014)
	accrued interest and handling fee) to be	1,900,000	(2012)	29,245	(as of	7,000,000	(2015)
	granted by CS Finance Company to the				30 June
	Group				2012)
(7)	Financial Services Framework	–	(2010)(Note (a))	4,249,375	(2010)(Note(d))	4,550,000	(2013)
	Agreement in respect of settlement services to be provided to the Group	–	(2011)(Note (a))	2,743,130	(2011)(Note(d))	5,200,000	(2014)
		–	(2012)(Note (a))	1,870,765	(as of	5,850,000	(2015)
					30 June
					2012)(Note(d))

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LETTER FROM THE BOARD

Notes:

(a) No historical cap for each of the three years ended 31 December 2010, 2011 and 2012 is set out herein due to the fact that, as disclosed in the announcement of the Company dated 8 October 2009, the transactions in respect of settlement services provided to the Group under the Financial Services Framework Agreement were continuing connected transactions exempt from the reporting, announcement and Independent Shareholders’ approval requirements under Chapter 14A of the Listing Rules.
(b) As disclosed in this circular, the existing annual cap for the year ending 31 December 2012 for the transactions in respect of the products and services to be provided to the Group under the Master Supply Agreement is proposed to be revised to RMB2,500,000,000.
(c) These historical caps, historical figures and future caps have been converted to RMB in this table for ease and consistency of reference.
(d) These historical figures represent the aggregate transaction value for each of the three years ended 31 December 2010, 2011 and 2012 in respect of the settlement services provided to the Group by independent third parties.

E. Reasons for and Benefits of Transactions

In respect of the Renewed Non-Exempt Continuing Connected Transactions other than transactions under the Financial Services Framework Agreement

The Company was established in 1997 as the container shipping arm of China Shipping. Due to the long established and close business relationship between the members of the Group and the China Shipping Group, a number of transactions have been entered into and are to be entered into between the Group and the relevant Connected Persons and their respective subsidiaries and associates, which are individually significant and collectively essential to the core business and operation of container marine transportation of the Group.

In addition, as China Shipping is one of the key state-owned enterprises and is a large shipping conglomerate that operates across different regions, sectors and countries, and the relevant Connected Persons (while most of which are associates of China Shipping), are well-known marine transportation corporations with outstanding competency in shipping industry and have developed good experience and service systems in respect of the products and services under the continuing connected transactions set out above. The cooperation with China Shipping and other Connected Persons enables the Group to fully leverage on their advantages to achieve better operating performance.

Finally, the terms and conditions provided by the relevant Connected Persons in relation to the continuing connected transactions set out above are generally more favourable to the Group than those provided by independent third parties to the Group, or those provided by the relevant Connected Persons to independent third parties.

In respect of transactions under the Financial Services Framework Agreement

The terms and conditions of deposit services, loan services, settlement services and other financial services provided by CS Finance Company under the Financial Services Framework Agreement are generally more favourable to the Group than those provided by independent third parties, or those provided by CS Finance Company to independent third parties.

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LETTER FROM THE BOARD

Furthermore, the Group is not restricted under the Financial Services Framework Agreement to approach, and in fact may choose, any bank or financial institution to satisfy its financial service needs. Its criteria in making the choice could be made on costs and quality of services. Therefore, the Group may, but is not obliged to, continue to use CS Finance Company’s deposit services, loan services, settlement services and other financial services if the service quality provided is competitive. Having such flexibility afforded under the Financial Services Framework Agreement, the Group is able to better manage its current capital and cashflow position.

In addition, it is also expected that CS Finance Company will mainly provide more efficient deposit services, loan services and settlement services to the Group, as compared to independent third-party banks.

F. Implications under the Listing Rules

In respect of the proposed annual caps for each of the three years ending 31 December 2013, 2014 and 2015 for the Renewed Non-Exempt Continuing Connected Transactions, the applicable percentage ratios are expected to be more than 5% on an annual basis. Therefore, such transactions, together with their respective proposed annual caps for each of the three years ending 31 December 2013, 2014 and 2015, are subject to the reporting, announcement and Independent Shareholders’ approval requirements for continuing connected transactions under Chapter 14A of the Listing Rules.

In respect of the proposed annual caps for each of the three years ending 31 December 2013, 2014 and 2015 for the transactions in respect of the deposit services provided to the Group under the Financial Services Framework Agreement, the applicable percentage ratios are expected to be more than 25% but less than 100% on an annual basis. Therefore, such transactions also constitute major transactions of the Company under Rule 14.06(3) of the Listing Rules and are subject to the reporting, announcement and Independent Shareholders’ approval requirements for major transactions under Chapter 14 of the Listing Rules.

IV. GENERAL INFORMATION

The Group is principally engaged in the operation and management of international and domestic container marine transportation.

China Shipping is a large shipping conglomerate that operates across different regions, sectors and countries. The China Shipping Group (including the Group) have five specialised shipping fleets (including oil tankers, tramps, passenger vessels, container vessels and special vessels).

CS Agency (Bangkok) is principally engaged in the agency of vessels and goods transportation.

CS Agency (Indonesia) is principally engaged in the agency of vessels and goods transportation.

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LETTER FROM THE BOARD

CS Finance Company is principally engaged in the deposit, loan, settlement and other related financial services.

CSS is principally engaged in the supply of vessel fuel and lubricants.

Dalian Terminal is principally engaged in the loading and unloading of containers and related services.

Shanghai Puhai is principally engaged in the transportation of containers.

Shanghai Terminal is principally engaged in the loading and unloading of containers and related services.

West Basin is principally engaged in the loading and unloading of containers and related services.

Zhanjiang Terminal is principally engaged in the loading and unloading of containers and related services.

In view of their relationship with China Shipping and their respective material interests in the Proposed Transactions, Mr. Li Shaode, Mr. Xu Lirong, Mr. Huang Xiaowen and Mr. Zhang Guofa (being executive Directors), Mr. Zhang Jianhua, Mr. Wang Daxiong, Mr. Zhang Rongbiao and Mr. Xu Hui (being non-executive Directors) had abstained from voting on the Board resolutions on 20 September 2012 in relation to the Proposed Transactions.

V. APPOINTMENT OF NEW NON-EXECUTIVE DIRECTOR

Reference is made to the announcement of the Company dated 26 June 2012.

Mr. Lin Jianqing (“ Mr. Lin ”) tendered his resignation from the office of the nonexecutive Director on 18 June 2012 due to adjustments in working positions. The resignation of Mr. Lin took effect on 26 June 2012.

The Board further announces that China Shipping proposed to nominate Mr. Ding Nong (“ Mr. Ding ”) in place of Mr Lin for appointment as a non-executive Director at the EGM. The official appointment of Mr. Ding is subject to the approval by the Shareholders at the EGM. The appointment of Mr. Ding as a non-executive Director will be effective from the conclusion of the EGM until the conclusion of the annual general meeting of the Company for the year 2012, i.e. on or around June 2013. The brief biographical details of Mr. Ding proposed to be appointed are set out in paragraph (a) of the explanatory notes to the notice of the EGM pursuant to Rule 13.51(2) of the Listing Rules.

VI. PROPOSED AMENDMENTS TO ARTICLES OF ASSOCIATION

Reference is made to the Company’s announcement dated 20 September 2012.

The Board, at its meeting on 20 September 2012, proposed to make amendments to the Articles of Association, based on the actual circumstances of the Company and the relevant requirements under the “Notice Regarding Further Implementation of Cash Dividends

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LETTER FROM THE BOARD

Distribution of Listed Companies” (Zheng Jian Fa [2012] No.37) (《關於進一步落實上市公司現金分紅有關事項的通知》) (證監發[2012]37號) issued by CSRC. The Proposed Amendments are subject to the approval of the Shareholders by way of a special resolution at the EGM.

Details of the Proposed Amendments are as follows:

1. The following articles are proposed to be added following Article 16.13 of the Articles of Association and the numbering of subsequent articles thereto be adjusted accordingly:

“Article 16.14 The basic principles of the profit distribution policy of the Company are as follows:

(i) the Company shall take full account of return to investors and distribute dividend to its shareholders each year in proportion to the distributable profit realized in the year concerned (being the lower of the amounts as stated in the financial statements and the consolidated financial statements of the parent company);
(ii) the Company shall devote itself in creating reasonable return to its shareholders, maintain the continuity and stability of its profit distribution policy, and operate its businesses for the long-term interest of the Company, the entire interest of all its shareholders and the sustainable development of the Company; the Company’s profit distribution shall neither exceed the amount of accumulated distributable profit nor undermine its ongoing operation;
(iii) the Company shall give priority to dividend distribution in cash.

Article 16.15 The profit distribution policy of the Company is specified as follows:

(i) profit shall be distributed in the following manner: the Company may distribute dividends in cash, in shares or in a combination of both. The Company may distribute an interim profit if practicable.
(ii) specific circumstances and proportions of cash dividend of the Company are as follows:

If the Company makes profit and its total accumulated undistributed profit are positive with adequate liquidity in the current year, the Company may distribute dividend in cash provided that it shall not undermine the subsequent ongoing operation of the Company. In addition, the profit to be distributed in cash each year shall not be less than 10% of the distributable profit realized in that year.

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LETTER FROM THE BOARD

(iii) conditions for distributing dividends in shares by the Company are as follows:

Where the Company’s business is in a sound condition, and the Board considers that the share price of the Company does not reflect its share capital size and distributing dividend in shares is in the entire interest of all the shareholders of the Company, the Company may propose dividend distribution in shares provided that the above conditions for cash dividend are fully satisfied.

Article 16.16 Procedures for reviewing the profit distribution plan of the Company are as follows:

(i) the Company shall have various channels to consult its minority shareholders and independent directors for their expectation of distribution. The Company’s profit distribution plan shall be drafted by the management of the Company with reference to investors’ opinions, and shall then be submitted to the Board and the supervisory committee of the Company for consideration. The Board shall thoroughly discuss the profit distribution plan, record in detail the contents of the recommendations of the management, key points of the speeches of the Directors present at the meeting, opinions of independent directors, voting results of the Board, etc. and form written minutes to be properly kept as the Company’s records. The Board shall thoroughly discuss the rationality of the profit distribution plan and form a specific resolution and submit it to the general meeting for consideration.
(ii) if the Board receives a distribution plan from other shareholders that satisfies relevant conditions, the Board shall ask the relevant shareholders for the specific reasons and background of such plan, and publish an announcement setting out the contents and reasons of the plan in accordance with the “Rules of Procedures for General Meeting” of the Company and submit it to the general meeting for consideration.
(iii) after the end of an accounting year, when the Board meeting does not propose any plan for profit distribution in cash in spite of making profit in that accounting year, it shall explain matters such as the specific reasons for not proposing any profit distribution in cash and the actual usage of the profit retained by it for the independent directors to issue their opinions on such issues, and then submit the same at the general meeting for approval in accordance with the relevant laws, regulations and regulatory policies.

Article 16.17 Any alteration of the Company’s profit distribution policy: In case of war, natural disasters and other force majeure, or changes in the Company’s external operational environment resulting in material impact on its production and operations, or relatively significant changes in the Company’s operational position, the Company may adjust its profit distribution policy.

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LETTER FROM THE BOARD

The Board shall conduct specific discussion over adjustment to its profit distribution policy, provide detailed reasons for such adjustment, form a written report to be considered by independent Directors, and then submit the same at the general meeting for approval by way of a special resolution. In considering alterations to its profit distribution policy, the Company shall make internet voting accessible to its shareholders.”

2. Article 16.16 of the Articles of Association

Which originally reads as: “Provided that the Articles of Association are observed, the Board may decide to distribute interim or special dividends.”

is proposed to be deleted and the numbering of subsequent articles thereto be adjusted accordingly.

VII. EGM

A notice convening the EGM to be held at 2:00 p.m. on Wednesday, 5 December 2012 at the conference room of China Shipping Shanghai Yangshan International Container Storage & Transportation Co., Ltd., No. 156 Jiechang Road, Lingang Logistics Area, Pudong New District, Shanghai, the PRC for the Shareholders to consider and, if thought fit, approve (i) the Proposed Transactions; (ii) the appointment of new non-executive Director; and (iii) the Proposed Amendments was despatched to the Shareholders on 22 October 2012 pursuant to Rule 19A.39A of the Listing Rules.

China Shipping is the controlling Shareholder, therefore the China Shipping Group are connected persons (as defined under the Listing Rules) of the Company. Pursuant to Rule 14A.59(5) of the Listing Rules, where independent shareholders’ approval is required with regard to a connected transaction, any connected person with a material interest in such transaction and any shareholder with a material interest in such transaction and its associates, will not vote on such transaction. Accordingly, the China Shipping Group shall at the EGM abstain from voting on the Proposed Transactions, which must be taken by way of poll as required under the Listing Rules except where the chairman of the EGM, in good faith, decides to allow a resolution which relates purely to a procedural or administrative matter to be voted on by a show of hands. As at the Latest Practicable Date, the China Shipping Group controlled or were entitled to exercise control over the voting rights in respect of 5,361,837,500 A shares and 184,761,000 H shares in the Company, representing approximately 47.48% of the entire issued share capital of the Company. To the extent that the Company is aware having made all reasonable enquiries, as at the Latest Practicable Date:

(i) there was no voting trust or other agreement or arrangement or understanding entered into by or binding upon the China Shipping Group;
(ii) the China Shipping Group were not subject to any obligation or entitlement whereby they had or might have temporarily or permanently passed control over the exercise of the voting right in respect of their shares in the Company to a third party, whether generally or on a case-by-case basis; and
(iii) it was not expected that there would be any discrepancy between the China Shipping Group’s beneficial shareholding interest in the Company and the number of shares in the Company in respect of which they would control or would be entitled to exercise control over the voting right at the EGM.

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LETTER FROM THE BOARD

As far as the Directors are aware, other than the China Shipping Group, no other Shareholder has a material interest in the Proposed Transactions and has to abstain from voting at the EGM on the Proposed Transactions.

The Independent Board Committee has been established to advise the Independent Shareholders on the Proposed Transactions. The Independent Financial Adviser has been appointed to advise the Independent Board Committee and the Independent Shareholders in respect of the Proposed Transactions. The letter from the Independent Board Committee and its recommendations to the Independent Shareholders is set out on pages 28 to 29 of this circular, and the letter of advice from the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders is set out on pages 30 to 50 of this circular.

A proxy form and a reply slip were also despatched to the Shareholders on 22 October 2012 for use at the EGM. Whether or not you are able to attend the EGM, you are requested to complete, sign and return the enclosed proxy form for the EGM in accordance with the instructions printed thereon as soon as possible and in any event not less than 24 hours before the time for holding the EGM or any adjournment thereof. Shareholders who intend to attend the EGM are also requested to complete, sign and return the enclosed reply slips for the EGM in accordance with the instructions printed thereon as soon as possible and in any event not later than 20 days before the date of the EGM.

VIII. RECOMMENDATION

Your attention is drawn to the letter from the Independent Board Committee which is set out on pages 28 to 29 of this circular, and the letter from the Independent Financial Adviser which is set out on pages 30 to 50 of this circular.

Having taken into account the advice of the Independent Financial Adviser, the Independent Board Committee considers that the terms of (i) the Revised Cap under the Master Supply Agreement; and (ii) the Renewed Non-Exempt Continuing Connected Transactions and their respective proposed annual caps for each of the three years ending 31 December 2013, 2014 and 2015 are fair and reasonable, on normal commercial terms or on terms no less favourable than those available to or from independent third parties, and shall be entered into on a continuing and regular basis in the ordinary and usual course of business of the Company, and that they are in the best interest of the Company and its Shareholders as a whole. Accordingly, the Independent Board Committee recommends the Independent Shareholders to vote in favour of the ordinary resolutions in respect of the Proposed Transactions to be proposed at the EGM.

The Directors consider that the proposed appointment of new non-executive Director and the Proposed Amendments are in the best interests of the Company and its Shareholders as a whole, and accordingly, recommend the Shareholders to vote in favour of the ordinary resolutions in respect of the proposed appointment of new non-executive Director and the special resolutions in respect of the Proposed Amendments to be proposed at the EGM.

By Order of the Board China Shipping Container Lines Company Limited Li Shaode

Chairman

– 27 –

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

(a joint stock limited company incorporated in the People’s Republic of China with limited liability) (Stock code: 02866)

12 November 2012

To the Independent Shareholders

Dear Sir or Madam,

REVISION OF THE EXISTING ANNUAL CAP FOR THE CONTINUING CONNECTED TRANSACTIONS AND RENEWED NON-EXEMPT CONTINUING CONNECTED TRANSACTIONS

We refer to the circular dated 12 November 2012 (the “ Circular ”) to the shareholders of China Shipping Container Lines Company Limited (the “ Company ”) of which this letter forms 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, which has been established to advise the Independent Shareholders in respect of:

(i) the Revised Cap under the Master Supply Agreement; and
(ii) the Renewed Non-Exempt Continuing Connected Transactions and their respective proposed annual caps for each of the three years ending 31 December 2013, 2014 and 2015.

((i) and (ii) collectively, the “ Proposed Transactions ”), details of which are set out in the letter from the Board contained in the Circular. None of us has a material interest in the Proposed Transactions.

China Shipping is the controlling Shareholder. Therefore, the China Shipping Group are connected persons of the Company under the Listing Rules. The Proposed Transactions entered into between the Company and the China Shipping Group constitute continuing connected transactions of the Company.

* The Company is registered as a non-Hong Kong company under Part XI of the Companies Ordinance (Chapter 32 of the Laws of Hong Kong) under its Chinese name and the English name “China Shipping Container Lines Company Limited”.

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

In respect of each of the Proposed Transactions, the applicable percentage ratios are expected to be more than 5% on an annual basis. Therefore, the Proposed Transactions are subject to the Independent Shareholders’ approval as required under Rule 14A.48 of the Listing Rules.

Guotai Junan Capital Limited has been appointed as the independent financial adviser to advise us in respect of the Proposed Transactions. We wish to draw your attention to the letter of advice from Guotai Junan Capital Limited set out on pages 30 to 50 of the Circular.

As members of the Independent Board Committee, we have discussed with the management of the Company in relation to the Proposed Transactions, and the basis upon which the terms of such Proposed Transactions have been determined and the said annual caps have been calculated. We have also taken into account the principal factors and reasons considered by Guotai Junan Capital Limited in forming its opinion in relation to the Proposed Transactions, and have discussed with Guotai Junan Capital Limited its letter of advice.

On the basis of the above, we consider, and agree with the view of Guotai Junan Capital Limited, that the terms of the Proposed Transactions are fair and reasonable, on normal commercial terms or on terms no less favourable than those available to or from independent third parties, and shall be entered into on a continuing and regular basis in the ordinary and usual course of business of the Company, and that they are in the best interest of the Company and its Shareholders as a whole.

Accordingly, we recommend you to vote in favour of the ordinary resolutions in respect of the Proposed Transactions to be proposed at the EGM.

Yours faithfully,

Mr. Shen Kangchen, Mr. Jim Poon (also known as Zhanyuan Pan), Mr. Shen Zhongying, Mr. Wu Daqi and Ms. Zhang Nan

Independent Board Committee

– 29 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The following is the text of the letter of advice dated 12 November 2012 from Guotai Junan Capital Limited to the Independent Board Committee and the Independent Shareholders in respect of the revision of the existing annual cap for the continuing connected transactions and the Renewed Non-Exempt Continuing Connected Transactions prepared for the purpose of incorporation into this circular:

==> picture [108 x 38] intentionally omitted <==

27th Floor, Low Block, Grand Millennium Plaza, 181 Queen’s Road Central, Hong Kong

12 November 2012

To the Independent Board Committee and
the Independent Shareholders of China Shipping Container Lines Company Limited

Dear Sir or Madam,

REVISION OF THE EXISTING ANNUAL CAP FOR THE CONTINUING CONNECTED TRANSACTIONS AND

RENEWED NON-EXEMPT CONTINUING CONNECTED TRANSACTIONS AND MAJOR TRANSACTIONS

INTRODUCTION

We refer to our appointment as the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders in respect of (i) the revision of the existing annual cap under the Master Supply Agreement; and (ii) the transactions contemplated under the Master Supply Agreement, the First Master Liner and Cargo Agency Agreement, the First Master Loading and Unloading Agreement, the Second Master Loading and Unloading Agreement, the Revised Master Provision of Containers Agreement in respect of containers to be purchased by the Group and the Financial Services Framework Agreement (collectively, the “ Agreements ”) and the annual caps (the “ Annual Caps ”) for the three years ending 31 December 2015 thereof. Particulars of the above are set out in the “Letter from the Board” (the “ Board’s Letter ”) contained in the circular of the Company to the Shareholders dated 12 November 2012 (the “ Circular ”) of which this letter forms part. Unless the context requires otherwise, capitalised terms used in this letter shall have the same meanings as those defined in the Circular.

China Shipping is the controlling shareholder of the Company. Accordingly, the transactions with members of the China Shipping Group contemplated under the Agreements would constitute continuing connected transactions for the Company. As certain of the applicable percentage ratios in respect of the Revised Cap and Annual Caps are expected to be

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

more than 5%, such transactions are subject to the reporting, announcement as well as Independent Shareholders’ approval requirements under the Listing Rules. In respect of the deposit services provided to the Group under the Financial Services Framework Agreement, the applicable percentage ratios are expected to be more than 25% but less than 100% on an annual basis. Therefore, such transactions also constitute major transactions of the Company under Chapter 14 of the Listing Rules.

In this connection, the Company will seek Independent Shareholders’ approval for (i) the Revised Cap under the Master Supply Agreement; (ii) the Renewed Non-Exempt Continuing Connected Transactions and their respective proposed annual caps for each of the three years ending 31 December 2013, 2014 and 2015 at the EGM. The Independent Board Committee, comprising all the independent non-executive Directors, namely, Mr. Shen Kangchen, Mr. Jim Poon (also known as Pan Zhanyuan), Mr. Shen Zhongying, Mr. Wu Daqi and Ms. Zhang Nan, has been formed to make recommendation to the Independent Shareholders on whether the Proposed Transactions are in the ordinary and usual course of business, normal commercial terms, fair and reasonable and in the interests of the Company and the Shareholders as a whole and whether the Revised Cap and the Annual Caps are fair and reasonable so far as the Independent Shareholders are concerned. We, Guotai Junan Capital Limited, have been appointed as the Independent Financial Adviser to advise the Independent Board Committee and Independent Shareholders in this regard.

In formulating our opinion, we have relied on the information and facts supplied, and the opinions expressed, by the Directors and management of the Company and have assumed that the information and facts provided and opinions expressed to us are true, accurate and complete in all material aspects and will remain so up to the date of the Circular. We have also sought and received confirmation from the Directors that no material facts have been omitted from the information supplied and opinions expressed to us. We have relied on such information and consider that the information we have received is sufficient for us to reach our advice as set out in this letter and to justify our reliance on such information. We have no reason to believe that any material information has been withheld, or to doubt the truth or accuracy of the information provided. We have, however, not conducted any independent investigation into the business, affairs or financial position of the Group and the China Shipping Group nor have we carried out any independent verification of the information supplied.

PRINCIPAL FACTORS CONSIDERED

On 20 September 2012, the Directors proposed to revise the existing annual cap under the Master Supply Agreement. Also, the Board decided to continue the Renewed Non-Exempt Continuing Connected Transactions for a further term of three years after 31 December 2012 and proposed the respective annual caps for each of the three years ending 31 December 2015. In arriving at our recommendation in respect of the Proposed Transactions, we have considered the following principal factors:

Background

The Company was established in 1997 as the container shipping arm of China Shipping. The Group is principally engaged in the operation and management of international and domestic container marine transportation. Set out below is the Group’s revenue for the two years ended 31 December 2011 and the six months ended 30 June 2012 (as extracted from the 2011 annual report and 2012 interim report of the Company).

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

	For the	year ended	For the six	months ended
	31 December		30	June
	2011	2010	2012	2011
	RMB’000	RMB’000	RMB’000	RMB’000
			(unaudited)	(unaudited)
Revenue	28,246,498	34,808,706	15,309,835	13,966,904

As set out in the Board’s Letter, China Shipping is a large shipping conglomerate that operates across different regions, sectors and countries. Most of its associates are well-known marine transportation corporations with outstanding competency in shipping industry and have developed good experience and service systems in respect of the products and services under the Proposed Transactions. The China Shipping Group has a long established and close business relationship with the Group. The Proposed Transactions which have been entered into and are to be entered into between them are significant and essential to the core business and operation of container marine transportation of the Group. The cooperation with China Shipping enables the Group to fully leverage on their advantages to achieve better operating performance.

Prospects of container shipping industry

As disclosed in the Company’s 2012 interim report, demand from the European and US economies remained weak, while the container transportation capacity expanded continuously. Fuel prices also remained persistently high, creating immense pressure on shipping companies. Market trends then showed signs of improvement, demand in container transportation increased and freight rates recovered gradually in the second quarter. In the second half of 2012, the European economy is expected to be affected by the ongoing debt crisis while the prospect for recovery remains unclear. The US economy on the other hand shows initial signs of recovery which is likely to stimulate trading demand. In Asia, the trend for steady growth will continue.

Set out below is the historical figures for 2010 and 2011; estimate figures for 2012 and forecast figures for 2013 to 2015 of the Company’s shipping capacity and shipping volume:

				Year
	2010	2011	2012	2013	2014	2015
	(Actual)	(Actual)	(Estimate)	(Forecast)	(Forecast)	(Forecast)
Total shipping capacity
(’000 TEU)	506	603	619	630	700	800
Annual growth rate	1.8%	19.3%	2.6%	1.8%	11.1%	14.3%
Total annual shipping
volume (’000 TEU)	7,208	7,438	8,190	9,800	10,780	11,860
Annual growth rate	7%	3.2%	19.7%	10%	10%	10%

Source: Company

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As shown above, the Company’s annual shipping capacity increased by approximately 1.8% and 19.3% respectively for the two years ended 31 December 2011. Whereas, the total shipping volume increased by approximately 7% and 3.2% respectively. For the year ending 31 December 2012, the shipping capacity and volume are expected to be approximately 619,000TEU and 8,190,000TEU respectively.

As advised by the Directors, the Company has already placed and intends to place purchase orders for new vessels with aggregate shipping capacity amounting to 176,040TEU during the three years ending 31 December 2015. Taking into the above acquisition plan and the lease of new vessels, the Directors expect that the Group’s shipping capacity will be increased to approximately 630,000TEU, 700,000TEU and 800,000TEU, representing an increase by 1.8%, 11.1% and 14.3% for the three years ending 31 December 2015 respectively.

As revealed in the Company’s 2012 interim report, the Group’s loaded container volume in the first half of 2012 recorded an increase of 15.2% over that of the same period of 2011. Further, the Group will implement procedures in the second half of 2012 including improving service standards, putting more resources on marketing, refining the global service network and exploring extended services. Taking into account (i) improving market trends; (ii) the Group’s procedures for business development and (iii) the intended increase in shipping capacity, the Directors expect that the Group’s shipping volume will increase by 10% annually for the three years ending 31 December 2015.

In view of the above, we concur with the Directors’ view that the total shipping capacity and total shipping volume are expected to increase accordingly.

As advised by the Company’s management, with the expected increase in shipping capacity and volume, the total transaction amount under the Proposed Transactions is expected to increase accordingly.

General price and quality terms

Each of the Proposed Transactions requires in general terms that:

(a) the quality of such products and services to be provided should be satisfactory to the recipient;
(b) the price at which such products and services are to be provided must be fair and reasonable; and
(c) the terms and conditions on which such products and services are to be provided should be no less favourable to the Group than those offered from or to (as appropriate) the relevant Connected Persons, their subsidiaries and/or associates to or from (as appropriate) independent third parties; and offered from or to (as appropriate) independent third parties to or from (as appropriate) the Group.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

In particular, each of the Proposed Transactions (save and except for the Financial Services Framework Agreement) must be provided in accordance with the following general pricing principles:

(a) state-prescribed prices;
(b) where there is no state-prescribed price, then according to relevant market prices and on principle of fairness and reasonableness; or
(c) where there is no market price, then according to the contracted price.

The Directors consider that the above terms are on normal commercial terms, fair and reasonable and that it is in the best interest of the Company and the Shareholders as a whole to continue these transactions with the China Shipping Group.

DETAILED ANALYSIS ON EACH OF THE AGREEMENTS

I. Master Supply Agreement

On 10 May 2004, the Company entered into the Master Supply Agreement with China Shipping and CSS for the provision of fresh water, vessel fuel, lubricants, spare parts and other products, generators for the containers and other related and ancillary services (the “ Material Supplies ”) (i) by China Shipping, CSS and their respective subsidiaries and associates; and (ii) to the Group.

1. Reasons for sourcing of supplies

Vessel fuel and other Material Supplies are essential to the container marine transportation operation. According to the Company’s 2012 interim report, fuel cost accounted for approximately 32.7% of the total operation costs. As advised by the Directors, purchase of vessel fuel, which was mainly used in domestic trade route, accounted for over 90% of the total Materials Supplies in recent years.

China Shipping is one of the key state-owned enterprises and has been a long-term supplier for Material Supplies to the Company. CSS is principally engaged in supply of vessel fuel and lubricants. The sourcing of vessel fuel and other Material Supplies from China Shipping and CSS enables the Group to fully leverage on their advantages to achieve better operating performances.

Based on the above, we concur with the Directors’ view that the transactions contemplated under Master Supply Agreement are in the ordinary and usual course of business of the Group.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

2. Terms of the Master Supply Agreement

As disclosed in the Board’s Letter, for each of the implementation agreements in respect of the products and services to be provided to the Group as contemplated under the Master Supply Agreement, such products and services are provided in accordance with the following pricing principles: (a) the fresh water shall be provided at a price based on the state-prescribed price; (b) the refined fuel shall be provided at a price based on the state-prescribed price and the other vessel fuel shall be provided at a price based on the market price (as there is no state-prescribed price) which should be obtained with reference to the oil prices of other major shipping companies or relevant public website; and (c) the spare parts and others shall be provided at a price based on the market price which should be obtained by comparing the quoted prices of other suppliers providing similar services.

As advised by the Directors, purchase of vessel fuel accounted for over 90% of the total Materials Supplies during each of the two years ended 31 December 2012 and up to 30 June 2012. The vessels of the Company for domestic trade routes mainly use fuel oil (FO) FO180 vessel fuel. Set out below is the comparison of average market price for FO180 and average price for FO180 under Master Supply Agreement for the two years ended 31 December 2011 and the six months ended 30 June 2012:

			For the
			period
	For the	year ended	ended
	31 December		30 June
	2010	2011	2012
	RMB/tonne	RMB/tonne	RMB/tonne
Average Market Price	4,775	5,162	5,515
Average Price under
Master Supply Agreement	4,696	5,055	5,381

We have reviewed (i) historical transactions with China Shipping, CSS and their respective subsidiaries and associates under the Master Supply Agreement on a sampling basis; and (ii) market price of the vessel fuel, and noted that the prices offered by China Shipping, CSS and their respective subsidiaries and associates were no less favourable than the market price.

Based on the above, we concur with the Directors’ view that the relevant transactions are on normal commercial terms, fair and reasonable and in the interest of the Company and the Shareholders as a whole.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

3. Proposed revised cap and annual caps

Set out below is the original annual caps for three years ending 31 December 2012, the actual amount paid for the Material Supplies by the Company to China Shipping, CSS and their respective subsidiaries and associates for each of two years ended 31 December 2011 and six months ended 30 June 2012, and the proposed revised cap and annual caps for the four years ending 31 December 2015:

	For the year ended	For the year ended	31 December	31 December
	2010	2011		2012
	RMB’000	RMB’000		RMB’000
Historical Annual Caps	1,711,200	1,895,500		2,088,840
Actual Amount	1,474,367	1,786,671		1,191,546
			(up to 30 June 2012)
	For the year ended 31 December
	2012	2013	2014	2015
	RMB’000	RMB’000 RMB’000		RMB’000
Proposed Caps	2,500,000	2,946,000 3,185,000		3,431,000

Based on the above table, we noted that the historical transaction amount under the Master Supply Agreement has been increasing. We also noted that the historical purchase amount under the Master Supply Agreement for each of two years ended 31 December 2011 and up to 30 June 2012 did not exceed their respective cap amounts.

As disclosed in the Board’s Letter, the unit prices of fuels consumed by the Company increased by 17% year-on-year, and its fuel expenses increased by 25% as compared to the corresponding period in 2011. The actual transaction amount up to 30 June 2012 had reached approximately RMB1,192 million, which represents approximately 57% of the existing 2012 annual cap. The Directors expected that further transactions will be incurred under the Master Supply Agreement for the second half of 2012. Accordingly, the Directors consider that the existing 2012 annual cap will not be sufficient.

As disclosed in the Board’s Letter, the Company focuses its effort on developing premium routes to further enhance its advantage in domestic trade route operation and continues to increase investment on the shipping capacity of domestic trade routes. It is expected that on average there will be two large vessels of 4,250 – 4,700 TEU coming into service each year from 2013 to 2015. The Company advised that the total annual vessel fuel consumption is estimated to be approximately 400,000 tonnes, 456,000 tonnes, 492,000 tonnes and 528,000 tonnes for the four years ending 31 December 2015, taking into consideration of the vessels are in full operation.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Based on the average purchase price for vessel fuel under the Master Supply Agreement for the six months ended 30 June 2012, the expected annual purchase of vessel fuel for four years ending 31 December 2015 will be approximately RMB2,200,000,000, RMB2,508,000,000, RMB2,706,000,000 and RMB2,904,000,000 respectively.

Together with the expected annual purchase of other Material Supplies, the proposed Revised Cap and Annual Caps for the four years ending 31 December 2015 under the Master Supply Agreement are approximately RMB2,500,000,000, RMB2,946,000,000, RMB3,185,000,000 and RMB3,431,000,000 respectively.

Taking into account the anticipated increase in shipping capacity, and the expected increase in consumption in vessel fuel and other Material Supplies, we concur with the view of the Directors that the proposed Revised Cap and the proposed annual caps under the Master Supply Agreement are fair and reasonable so far as the Independent Shareholders are concerned.

II. First Master Liner and Cargo Agency Agreement

On 10 May 2004, the Company entered into the First Master Liner and Cargo Agency Agreement with China Shipping, Shanghai Puhai, CS Agency (Indonesia) and CS Agency (Bangkok) for the provision of sales and marketing services, port agency services (arrange for berthing of vessels, customs, towage, pilotage, loading and discharging of the cargo and/or containers), container services (stuffing and unstuffing of cargo, preparing documents for custom clearance, undertaking leasing of containers, arranging for container repairs and maintenance), accounting and financial services and other related and ancillary services (collectively, the “ Liner and Cargo Agency Services ”) by (i) China Shipping, Shanghai Puhai, CS Agency (Indonesia) and CS Agency (Bangkok) and their respective subsidiaries and associates; to (ii) the Group.

1. Reasons for the sourcing of liner and cargo agency services

As advised by the Directors, the Group did not have its own port agency services in foreign countries and certain non-major ports in the PRC. Therefore, it has to engage the Liner and Cargo Agency Services for its ordinary course of business.

China Shipping Group is a large shipping conglomerate that operates across different regions, sectors and countries. China Shipping, Shanghai Puhai, CS Agency (Indonesia) and CS Agency (Bangkok) are principally engaged in the transportation of containers and the agency of vessels and goods transportation.

Based on the above, we concur with the Directors’ view that the transactions contemplated under First Master Liner and Cargo Agency Agreement are in the ordinary and usual course of business of the Group.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

2. Terms of the First Master Liner and Cargo Agency Agreement

As disclosed in the Board’s Letter, for each of the implementation agreements in respect of the services to be provided to the Group as contemplated under the First Master Liner and Cargo Agency Agreement, such services are provided in consideration of the commission determined in accordance with the market prices which should be obtained by comparing the quoted prices of other suppliers providing similar services.

Set out below is the price range of relevant historical transactions, selected on a sampling basis, offered under the First Master Liner and Cargo Agency Agreement and offered by independent third parties during the two years ended 31 December 2011 and six months ended 30 June 2012:

For two years ended 31 December 2011 and six months ended 30 June 2012

Husbandry fees[(1)] (per time) Price offered by independent third – parties US$600 US$700 Price offered under the First Master Liner and Cargo Agency Agreement US$600 Booking Commission[(2)] (per standard container)

Price offered by independent third parties for inward container US$10 – US$25 for outward container US$10 – US$25 Price offered under the First Master Liner and Cargo Agency Agreement for inward container US$5 – US$20 for outward container US$5 – US$20

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

For two years ended 31 December 2011 and six months ended 30 June 2012

Operation Commission[(2)]

(per container)

Price offered by independent third parties

for inward container for outward container Price offered under the First Master

– US$10 US$20 – US$10 US$15

Liner and Cargo Agency Agreement for inward container US$10 – US$20 for outward container US$5 – US$15

Note (1): Husbandry price per first call for CSCL vessel. Note (2): Booking and operation commission for cargoes to/from East Asia/South East Asia area.

Based on the review above, we noted that the prices offered by the China Shipping Group were no less favourable than those offered by independent third parties. In this regard, we concur with the Directors’ view that the relevant transactions are on normal commercial terms, fair and reasonable, and in the interest of the Company and the Shareholders as a whole.

3. Proposed annual caps

Set out below is the annual caps for three years ending 31 December 2012, the actual amount paid for the Liner and Cargo Agency Services by the Company to China Shipping, Shanghai Puhai, CS Agency (Indonesia) and CS Agency (Bangkok) and their respective subsidiaries and associates for each of two years ended 31 December 2011 and six months ended 30 June 2012, and the proposed annual caps for the three years ending 31 December 2015.

	For the year ended 31 December	For the year ended 31 December	For the year ended 31 December
	2010	2011	2012
	RMB’000	RMB’000	RMB’000
Historical Annual Caps	704,860	774,360	850,970
Actual Amount	545,319	574,977	286,280

(up to 30 June 2012)

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

			For	year ended 31 December	year ended 31 December
			2013	2014	2015
			RMB’000	RMB’000	RMB’000
Proposed	Annual	Caps	693,000	795,000	913,000

Based on the above table, we noted that the historical transaction amount under the First Master Liner and Cargo Agency Agreement remained at a level of over RMB540 million each year. We also noted that the historical amount of total transaction amount under the First Master Liner and Cargo Agency Agreement for each of the two years ended 31 December 2011 and up to 30 June 2012 did not exceed their respective cap amounts.

As disclosed in the Board’s Letter, the number of containers carried by the Group on foreign trade routes in the first half of 2012 increased by 11.54% as compared to the same period in 2011. The shipping market is expected to recover in the next few years and the agency fee will be driven up. As advised by the Directors, shipping capacity for 2015 will be 29.4% higher from 2012 level. The three-year average annual shipping capacity will increase by approximately 10%, while the transaction value for 2013 to 2015 will increase by 15% annually.

Taking into account the historical transaction amount and the anticipated market recovery, we concur with the view of the Directors that the proposed annual caps for the three years ending 31 December 2015 for the First Master Liner and Cargo Agency Agreement are fair and reasonable so far as the Independent Shareholders are concerned.

III. First Master Loading and Unloading Agreement & Second Master Loading and Unloading Agreement (collectively, the “Master Loading and Unloading Agreements”)

On 10 May 2004, the Company entered into the First Master Loading and Unloading Agreement with China Shipping, Shanghai Terminal, Zhanjiang Terminal and Dalian Terminal and the Second Master Loading and Unloading Agreement with West Basin for the provision of container loading and unloading services and other related and ancillary services (collectively, the “ Container Loading and Unloading Services ”): (i) by China Shipping, Shanghai Terminal, Zhanjiang Terminal and Dalian Terminal, West Basin and their respective subsidiaries and associates; and (ii) to the Group.

1. Reasons for using the container loading and unloading services

The Group is principally engaged in the operation and management of international and domestic container marine transportation. As advised by the Directors, the Group requires loading and unloading of containers for its trade routes from the contact port as part of its business operation.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

China Shipping Group has established long term relationship with the Group. China Shipping, Shanghai Terminal, Zhanjiang Terminal, Dalian Terminal and West Basin are principally engaged in the loading and unloading of containers and related services.

Based on the above, we concur with the Directors’ view that transactions contemplated under the Master Loading and Unloading Agreements are in the ordinary and usual course of business of the Group.

2. Terms of the Master Loading and Unloading Agreements

As disclosed in the Board’s Letter, for each of the implementation agreements in respect of the services to be provided to the Group as contemplated under the Master Loading and Unloading Agreements, such services are provided in consideration of the services charges determined in accordance with the market prices which should be obtained by comparing the hardware facilities, service quality, service attitude and the quoted prices of offer suppliers providing similar services.

We have reviewed historical transactions in respect of the above services provided by (i) China Shipping Group; and (ii) independent third parties on a sampling basis, and noted that the prices offered by the China Shipping Group were no less favourable than those offered by independent third parties.

Based on the above, we concur with the Director’ view that the relevant transactions are on normal commercial terms, fair and reasonable, and in the interest of the Company and the Shareholders as a whole.

3. Proposed annual caps

Set out below is the annual caps for three years ending 31 December 2012, the actual amount incurred for the Container Loading and Unloading Services for the two years ended 31 December 2011 and six months ended 30 June 2012, and the proposed annual caps for the three years ending 31 December 2015.

	For the year ended	For the year ended	31 December
	2010	2011	2012
	RMB’000	RMB’000	RMB’000
Historical Annual Caps	702,450	772,750	849,930
Actual Amount	483,778	461,889	230,427
			(up to 30 June 2012)

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

			For	year ended 31 December	year ended 31 December
			2013	2014	2015
			RMB’000	RMB’000	RMB’000
Proposed	Annual	Caps	748,000	860,000	989,000

Based on the above, we noted that the historical annual transaction amounts under the Master Loading and Unloading Agreements remained at a level of over RMB450 million each year. We also noted that the historical amount of total transaction amount under the Master Loading and Unloading Agreements for the two years ended 31 December 2011 and up to 30 June 2012 did not exceed their respective cap amounts.

As disclosed in the Board’s Letter, the number of containers carried by the Group on foreign trade routes in the first half of 2012 increased by 11.54% as compared with the corresponding period of 2011.

The Directors’ expected that the shipping market to recover in the next few years and the loading and unloading rates will be driven up. The Group’s business volume would continue to grow along with the increase in the Group’s shipping capacity. As advised by the Directors, shipping capacity for 2015 will be 29.4% higher from 2012 level. The three-year average annual shipping capacity will increase by approximately 10%, while the transaction value of Container Loading and Unloading Services for 2013 to 2015 will increase by 15% annually.

Taking into account the historical transaction amount, the anticipated increase in shipping volume and the rates charged for the Container Loading and Unloading Services, we consider that the proposed annual caps for the three years ending 31 December 2015 for the Master Loading and Unloading Agreements are fair and reasonable so far as the Independent Shareholders are concerned.

IV. Revised Master Provision of Containers Agreement in respect of containers to be purchased by the Group

On 10 April 2007, the Company entered into the Revised Master Provision of Containers Agreement with China Shipping for the manufacture and supply (including sell and/or lease of) containers by the China Shipping Group to the Group.

1. Reasons for sourcing containers from the China Shipping Group

The Group is principally engaged in the operation and management of international and domestic container marine transportation. As such, the Group requires containers to carry out its transportation business. As advised by the Directors, the Group could purchase and/or lease containers in its operation.

China Shipping is a large shipping conglomerate that operates across different regions, sectors and countries and has established long-term relationship with the Group. The cooperation with China Shipping Group enables the Group to fully leverage on their advantages to achieve better operating performance.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Based on the above, we concur with the Directors’ view that the containers purchase transactions contemplated under Revised Master Provision of Containers Agreement are in the ordinary and usual course of business of the Group.

2. Terms of the Revised Master Provision of Containers Agreement in respect of containers to be purchased by the Group

As disclosed in the Board’s Letter, for each of the implementation agreements in respect of the containers to be purchased by the Group as contemplated under the Master Provision of Containers Agreement, such purchase prices are determined based on the market price which should be obtained through the bidding procedures of bid enquiry price and negotiated price between the bidding suppliers and the container manufacturing project bidding team of the Company.

We have reviewed historical transactions in respect of the above purchases provided by (i) China Shipping; and (ii) other independent third parties on a sampling basis, and noted that the prices offered by China Shipping were no less favourable than those offered by independent third parties.

Based on the above, we concur with the Directors’ view that the transactions are on normal commercial terms, fair and reasonable, and in the interest of the Company and the Shareholders as a whole.

3. Proposed annual caps

Set out below is the annual caps for three years ending 31 December 2012, the actual amount paid for the purchase of container by the Company to China Shipping for the two years ended 31 December 2011 and six months ended 30 June 2012, and the proposed annual caps for the three years ending 31 December 2015.

	For the year ended	For the year ended	31 December
	2010	2011	2012
	RMB’000	RMB’000	RMB’000
Historical Annual Caps	984,860	755,220	579,490
Actual Amount	336,434	63,744	–
			(up to 30 June 2012)
	For the year ended		31 December
	2013	2014	2015
	RMB’000	RMB’000	RMB’000
Proposed Annual Caps	488,000	910,000	1,300,000

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Based on the above, we noted that the historical purchase amount under the Revised Master Provision of Containers Agreement dropped since 2010. We also noted that the Group did not purchase containers under the Revised Master Provision of Containers Agreement for the six months ended 30 June 2012. As advised by the Directors, as demand from the European and US economies remained weak in the first half year 2012, the Group had carefully monitored its shipping capacity and did not purchase new containers during the relevant period.

Based on the Group’s forecasted shipping capacity, the Directors expected that the number of containers required will be 1,260,000TEU, 1,400,000TEU and 1,600,000TEU in the next three years respectively. The expected shortfall of 34,000TEU, 140,000TEU and 200,000TEU in the next three years will be satisfied by purchasing and/or leasing new containers. Among which, it is anticipated that 30,000TEU, 56,000TEU and 80,000TEU will be purchased in the next three years whilst the remaining shortfall will be satisfied by way of lease.

Based on the recent market price of containers, the total expected purchase value under the Revised Master Provision of Containers Agreement are RMB488,000,000, RMB910,000,000 and RMB1,300,000,000 for the three years ending 31 December 2015.

Taking into account of the anticipated increase in shipping capacity and the Group’s container capacity requirements, we consider that the proposed annual caps for the three years ending 31 December 2015 under the Revised Master Provision of Containers Agreement are fair and reasonable so far as the Independent Shareholders are concerned.

V. Financial Services Framework Agreement

On 31 December 2009, the Company entered into the Financial Services Framework Agreement with China Shipping, pursuant to which China Shipping shall procure CS Finance Company to provide the Group with a range of financial services including (i) deposit services; (ii) loan services; (iii) settlement services; and (iv) other financial services as approved by CBRC.

– 44 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

1. Background and reasons for sourcing the financial services from the China Shipping Group

Set out below is a summary of the Group’s balances on cash and cash equivalent, long-term and short-term borrowings as at 31 December 2010, 2011 and 30 June 2012 (as extracted from the Company’s 2011 annual report and 2012 interim report) and the transaction volume for settlement services for the two years ended 31 December 2011 and six-months ended 30 June 2012:

				As at/
				For the
		As at/		period
	For the year		ended	ended
	31	December		30 June
	2010		2011	2012
	RMB million	_RMB _	million	RMB million
Cash and cash equivalent	10,648		7,073	13,705
Long-term and short-term
Borrowings	11,501		15,858	25,985
Settlement Services	4,249		2,743	1,870

Based on the above table, the Group has a substantial amount of cash and cash equivalent as well as borrowings. In addition, as advised by the management of the Company, the Group has regular needs for settlement services in respect of its payment and receipts in foreign currencies. Therefore, financial services including deposit, loan and settlement services are essential in the Group’s operation.

CS Finance Company is principally engaged in deposit, loan, settlement and other related financial services and is supervised by the PBC. As disclosed in the Company’s announcement dated 13 February 2009, the Company entered into an investment agreement with China Shipping and its subsidiaries, i.e. China Shipping Development Company Limited, China Shipping (Hainan) Haisheng Shipping and Enterprise Co., Ltd. and Guangzhou Maritime Transport (Group) Co. Ltd., for the establishment of CS Finance Company in Shanghai, the PRC. As at 30 June 2012, the Company had 25% shareholding interest in CS Finance Company.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As advised by the Company’s management, the entering into of the Financial Services Framework Agreement provides the Group an additional choice to satisfy its financial services needs. Having such flexibility afforded under the Financial Services Framework Agreement, the Group is able to better manage its current capital and cashflow position. In addition, the Company expected that CS Finance Company will provide more efficient deposit services, loan services and settlement services to the Group, as compared to independent third-party banks.

Based on the above, the Directors consider that the entering into of this agreement is beneficial to the Company. As such, we concur with the Directors’ view that the entering into of the deposit, loan and settlement services provided by CS Finance Company under the Financial Services Framework Agreement is in the ordinary and usual course of business of the Group.

2. Terms of the Financial Services Framework Agreement

As disclosed in the board’s Letter, the Group is not restricted under the Financial Services Framework Agreement to approach, and in fact may choose, any bank or financial institution to satisfy its financial services needs. Therefore, the Group may, but is not obliged to, continue to use CS Finance Company’s services.

Deposit

Under the Financial Services Framework Agreement, CS Finance Company shall accept deposits from the Group at interest rates not lower, and thus no less favourable, than (a) the lower limit of the relevant rates stipulated by PBC for the same type of deposits; (b) the interest rates offered by any independent third parties for the same type of deposits; or (c) the interest rate at which CS Finance Company accepts from any independent third parties for the same type of deposits.

As disclosed in the Board’s Letter, for each of the implementation agreements in respect of the deposit services to be provided to the Group as contemplated under the Financial Services Framework Agreement, such deposit services are provided in accordance with the following pricing principles: (a) the domestic RMB deposits shall be taken at a price based on the benchmark interest rate stipulated by PBC or at the prime rate (the floating upward) within the floating range allowed by such stipulation; and (b) the foreign and domestic US$ deposits shall be taken at a price based on the prevailing market rates which should be obtained by making inquiries of various banks so that the price determined is not lower than the highest one quoted by such banks.

We have reviewed, on a sampling basis, the historical interest rates offered by CS Finance Company and by third-party banks. We have also reviewed the interest rates as published by the PBC. Based on our review, we noted that the deposit rates offered by CS Finance Company were no less favourable than those stipulated by PBC and offered by third-party banks for the same type of deposits.

– 46 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Loan

As disclosed in the Board’s Letter, for each of the implementation agreements in respect of the loan services to be provided to the Group as contemplated under the Financial Services Framework Agreement, such loan services are provided in accordance with the following pricing principles: (a) the domestic RMB loans shall be provided at a price based on the benchmark interest rates stipulated by the PBC or at the prime interest rate (the floating downward) within the floating range allowed by such stipulation; and (b) the foreign and domestic US$ loans shall be provided at a price based on the prevailing market rates which should be obtained by making inquiries of various banks so that the price determined is not higher than the lowest one quoted by such banks.

We have reviewed, on a sampling basis, the interest rate offered by CS Finance Company and the interest rates as published by the PBC and third-party banks. Based on our review, we noted that the interest rates offered by CS Finance Company to the Company were no less favourable than those stipulated by PBC and third-party banks for similar type of loans.

Settlement Service

Under the Financial Services Framework Agreement, the fees charged by CS Finance Company for the provision of foreign exchange settlement services to the Group shall not be higher, and thus no less favourable, than (a) the upper limit (if applicable) of the fees stipulated by PBC to be charged for the same type of services; (b) the fees charged by any independent third party for the same type of services; or (c) the fees charged by CS Finance Company for the same type of services on any independent third party with the same credit rating.

As disclosed in the Board’s Letter, for each of the implementation agreements in respect of the settlement services to be provided to the Group as contemplated under the Financial Services Framework Agreement, the settlement services are provided in accordance with the prevailing market rates which should be obtained by making inquiries of various banks to ensure the price is more favorable than those offered by other banks.

Taking into consideration the above factors, we concur with the Directors’ view that the transactions are on normal commercial terms, fair and reasonable and in the interest of the Company and the Shareholders as a whole.

– 47 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

3. Proposed Annual Caps

Set out below is the proposed annual caps under Financial Services Framework Agreement for the three years ending 31 December 2015:

For	the	year ended 31 December	year ended 31 December
2013		2014	2015
RMB’000		RMB’000	RMB’000

Proposed Annual Caps

Proposed Annual Caps
Maximum daily outstanding
balance of deposits (including
accrued interest and handling
fee) to be placed by the Group
with CS Finance Company	8,000,000	9,000,000	10,000,000
Maximum daily outstanding
balance of loans (including
accrued interest and handling
fee) to be granted by CS
Finance Company to the Group	5,000,000	6,000,000	7,000,000
Settlement services	4,550,000	5,200,000	5,850,000

Deposit

As at 31 December 2010, 31 December 2011 and 30 June 2012, the cash and cash equivalent position of the Group were RMB10.6 billion, RMB7.1 billion, RMB13.7 billion respectively.

We noted that the maximum daily outstanding amount during the two years ended 31 December 2011 and six months ended 30 June 2012 were RMB4.0 billion, RMB4.0 billion and RMB3.6 billion respectively.

As explained above, the Directors expected that the Group’s business volume would continue to grow along with the increase in the Group’s total shipping capacity. In addition, the Company had a deposit of RMB13.3 billion as at 20 September 2012.

Based on the above and in particular the Group’s latest cash positions, we consider that the proposed annual caps for the three years ending 31 December 2015 under the Financial Services Framework Agreement are fair and reasonable so far as the Independent Shareholders are concerned.

Loan

As at 31 December 2010, 31 December 2011 and 30 June 2012, the Group’s short-term and long-term borrowings amounted to RMB11.5 billion, RMB15.9 billion and RMB26.0 billion respectively.

– 48 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As disclosed in the Board’s Letter, the maximum daily outstanding balance of loans (including accrued interest and handling fee) granted by CS Finance Company to the Group during the two years ended 31 December 2011 and six months ended 30 June 2012 were RMB80 million, RMB98 million and RMB29 million, respectively. We also noted from the Company’s interim report that the Group had long-term borrowing of RMB2 billion from CS Finance Company.

Further, the Directors expected that the Group will have a capital requirement of approximately RMB6 billion to RMB9 billion and a finance demand of RMB4 billion to RMB6 billion for the period from 2013 to 2015. In addition, as advised by the Directors, as CS Finance Company would offer more favourable terms than other third-party banks, the Group will secure loans through CS Finance Company so as to lower the Group’s finance costs in future. In light of the above, the proposed annual caps for the loan services under the Financial Services Framework Agreement for the three years ending 31 December 2015 will be RMB5 billion, RMB6 billion and RMB7 billion respectively.

Based on the above and in particular the Group’s expected financing needs, we consider that the proposed annual caps for the three years ending 31 December 2015 under the Financial Services Framework Agreement are fair and reasonable so far as the Independent Shareholders are concerned.

Settlement

The Group’s accumulated amounts of foreign exchange settlements for the two years ended 31 December 2011 and the six months ended 30 June 2012 were approximately RMB4.2 billion, RMB2.7 billion and RMB1.9 billion respectively (i.e. over US$500 million on average per year).

As confirmed with the Directors, the Group did not engage CS Finance Company for the provision of such settlement services in the past. Following the approval granted by the relevant authorities to CS Finance Company to operate foreign exchange settlement business in June 2012, the Directors expected that more settlement services will be sought from CS Finance Company.

As explained above, the Directors expected that the Group’s business volume would continue to grow along with the increase in the Group’s total shipping capacity. With the continued development of the Group’s business, the transaction amount for settlement services is expected to increase as well. In light of the above, the Group expected the transaction amounts for the three years ending 31 December 2015 will be US$700 million (equivalent to RMB4.55 billion), US$800 million (equivalent to RMB5.20 billion) and US$900 million (equivalent to RMB5.85 billion) respectively.

Based on the above and in particular the historical transaction amount, we consider that the proposed annual caps for the three years ending 31 December 2015 under the Financial Services Framework Agreement are fair and reasonable so far as the Independent Shareholders are concerned.

– 49 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

RECOMMENDATION

Taking into consideration the above factors, in particular, the background, the general price and quality terms and the detailed analysis on each of the Agreements, we are of the view that the terms of the Proposed Transactions are on normal commercial terms, fair and reasonable and in the interests of the Company and the Shareholders as a whole, and the entering into of the Proposed Transactions are in the ordinary course of business. Also, we consider that the Revised Cap and the Annual Caps are fair and reasonable so far as the Independent Shareholders are concerned. Accordingly, we recommend the Independent Board Committee to advise the Independent Shareholders to vote in favour of the ordinary resolutions for approving Revised Cap, and the Renewed Non-exempt Continuing Connected Transactions and the Annual Caps at the EGM.

Yours faithfully, For and on behalf of Guotai Junan Capital Limited Vincent Cheung Associate Director

– 50 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

1. THREE-YEAR FINANCIAL INFORMATION OF THE GROUP

The Company is required to set out in this circular the information for the last three financial years with respect to the profits and losses, financial record and position, set out as a comparative table and the latest published audited balance sheet together with the notes on the annual accounts for the last financial year for the Group.

The audited consolidated financial statements of the Company for the years ended 31 December 2011, 2010 and 2009 together with the relevant notes to the financial statements of the Company can be found on pages 63 to 161 of the annual report of the Company for the year ended 31 December 2011, pages 66 to 163 of the annual report of the Company for the year ended 31 December 2010 and pages 67 to 171 of the annual report of the Company for the year ended 31 December 2009. Please also see below the hyperlinks to the said annual reports:

http://www.hkexnews.hk/listedco/listconews/SEHK/2012/0427/LTN20120427528.pdf http://www.hkexnews.hk/listedco/listconews/sehk/20110428/LTN201104281050.pdf http://www.hkexnews.hk/listedco/listconews/sehk/20100430/LTN20100430021.pdf

The unaudited consolidated financial statements of the Company for the periods ended 30 June 2012, 2011 and 2010 together with the relevant notes to the financial statements of the Company can be found on pages 16 to 44 of the interim report of the Company for the period ended 30 June 2012, pages 17 to 46 of the interim report of the Company for the period ended 30 June 2011 and pages 13 to 40 of the interim report of the Company for the period ended 30 June 2010. Please also see below the hyperlinks to the said interim reports:

http://www.hkexnews.hk/listedco/listconews/SEHK/2012/0926/LTN20120926174.pdf http://www.hkexnews.hk/listedco/listconews/SEHK/2011/0927/LTN20110927290.pdf http://www.hkexnews.hk/listedco/listconews/SEHK/2010/0914/LTN20100914135.pdf

2. STATEMENT OF INDEBTEDNESS

Debt Securities and Term Loans

As at the close of business of 30 September 2012, save as disclosed in respect of the borrowings and indebtedness of the Group below, the Group has no debt securities issued or outstanding, or authorised or otherwise created but unissued, and no term loans, distinguishing between guaranteed, unguaranteed, secured (whether the security is provided by the Company or by independent third parties) or unsecured.

Borrowings and Indebtedness

As at the close of business of 30 September 2012, being the latest practicable date for the purpose of this statement of indebtedness prior to the printing of this circular, the Group has outstanding borrowings and indebtedness of approximately RMB31,016,339,228, comprising secured bank loans of approximately RMB6,782,252,824, unsecured bank loans of approximately RMB19,081,057,160, finance leases obligations of approximately RMB398,389,864 and other unsecured obligations of approximately RMB4,754,639,980.

– 51 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Contingent Liabilities

As at the close of business of 30 September 2012, the Group has no material contingent liability or guarantees.

Mortgage and Charges

As at the close of business of 30 September 2012, the Group’s general banking facilities and the above outstanding secured borrowings were secured by the Group’s property, plant and equipment and certain bank deposits.

Save as aforesaid or as otherwise mentioned herein and apart from intra-group liabilities, the Group did not have any outstanding mortgages, charges, debentures, loan capital, debt securities, bank loans and overdrafts or other similar borrowings or indebtedness, liabilities under acceptance (other than normal trade bills) or acceptance credits or hire purchase commitments, guarantees or other material contingent liabilities as at the close of business on 30 September 2012.

3. WORKING CAPITAL

Taking into account the terms of the transactions in respect of the deposit services provided to the Group under the Financial Services Framework Agreement and the financial resources available to the Group, including the internally generated funds and the available banking facilities, the Directors are of the opinion that the Group has sufficient working capital for its present requirements, that is for at least the next 12 months from the date of this circular.

4. FINANCIAL AND TRADING PROSPECTS

The shipping market in early 2012 continues the downturn in 2011, with the weak demand in European and US economies, continued expansion of the size of container shipping capacity, coupled with the high fuel prices, shipping companies are all operating under great pressure. However, the subsequent market situation has still been improved, the demand for container transport picked up, the freight routes gradually restored, and the operations of most shipping companies has been improved. It is expected that some time in the future, the European economy will continue to be subject to the debt-crisis, remaining an unclear recovery outlook; the US economy has initially shown the signs of warming, trading demand is expected to be increased; and the Asian region will continue to show its steady growth. With the continued investment of additional shipping capacity, the oversupply pressure will remain in a long period of time. Overall, the container shipping market will continue to face oil price volatility, intense competition and other uncertainties, and the market is still full of challenges and opportunities.

5. MATERIAL ADVERSE CHANGE

The Directors confirm that there has been no material adverse change in the financial or trading position of the Group since 31 December 2011, being the date to which the latest published audited accounts of the Company have been made up.

– 52 –

GENERAL INFORMATION

APPENDIX II

1. RESPONSIBILITY STATEMENT

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

2. INTERESTS AND SHORT POSITIONS OF DIRECTORS, SUPERVISORS AND CHIEF EXECUTIVES IN SHARES, UNDERLYING SHARES AND DEBENTURES

As at the Latest Practicable Date, the interests or short positions of the Directors, Supervisors or chief executive(s) of the Company in the shares, underlying shares or debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) which was required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests or short positions which any such Directors, Supervisors or chief executive(s) is taken or deemed to have under such provisions of the SFO) or which was required to be entered in the register required to be kept by the Company pursuant to Section 352 of the SFO or which was otherwise required to be notified to the Company and the Stock Exchange pursuant to the Model Code were as follows:

Number of Capacity in which underlying H underlying H Name shares involved shares were held Directors Li Shaode 3,382,100 Beneficial owner Huang Xiaowen 3,334,050 Beneficial owner Zhang Guofa 2,218,050 Beneficial owner Zhao Hongzhou 2,604,000 Beneficial owner Zhang Jianhua 1,240,000 Beneficial owner Wang Daxiong 1,240,000 Beneficial owner Xu Hui 1,085,000 Beneficial owner

Percentage figure in the H shares

0.090% (Long position) 0.089% (Long position) 0.059% (Long position) 0.069% (Long position) 0.033% (Long position) 0.033% (Long position) 0.029% (Long position)

– 53 –

GENERAL INFORMATION

APPENDIX II

Number of Capacity in which underlying H underlying H Percentage figure Name shares involved shares were held in the H shares Supervisors Chen Decheng 948,600 Beneficial owner 0.025% (Long position) Tu Shiming 246,450 Beneficial owner 0.007% (Long position) Kou Laiqi 156,550 Beneficial owner 0.004% (Long position) Wang Xiuping 1,395,000 Beneficial owner 0.037% (Long position)

Notes:

In accordance with the “Resolution Regarding Adoption and Approval of the H Share Appreciation Rights Scheme and Implementation Methods” passed at the Company’s second special general meeting in 2005 held on 12 October 2005, the Company implemented a H share appreciation rights scheme as appropriate incentive policy. Details of the original Scheme were set out in the Company’s circular to the Shareholders dated 26 August 2005 and each amended Scheme was produced to the annual general meetings of the Company held on 20 June 2006, 26 June 2007 and 26 June 2008, respectively. The above disclosed represents the interests in H Shares of the Company held by the Directors and the Supervisors under the Share Appreciation Rights Scheme.

Save as disclosed above, as at the Latest Practicable Date, none of the Directors, Supervisors or chief executive(s) of the Company had any interests or short positions in the shares, underlying shares or debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO which was required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests or short positions which any such Directors, Supervisors or chief executive(s) is taken or deemed to have under such provisions of the SFO) or which was required to be entered in the register required to be kept by the Company pursuant to Section 352 of the SFO or which was otherwise required to be notified to the Company and the Stock Exchange pursuant to the Model Code adopted by the Company.

3. POSITIONS HELD BY DIRECTORS AND SUPERVISORS OF THE COMPANY IN SUBSTANTIAL SHAREHOLDER(S)

As at the Latest Practicable Date:

(a) Li Shaode, an executive director, is also the chairman and secretary to the Party Committee of China Shipping;
(b) Xu Lirong, an executive director, is also the director, general manager and member of the Party Committee of China Shipping;
(c) Huang, Xiaowen, an executive director, is also the director, deputy general manager and member of the Party Committee of China Shipping;

– 54 –

GENERAL INFORMATION

APPENDIX II

(d) Zhang Guofa, an executive director, is also the deputy general manager and member of the Party Committee of China Shipping; and
(e) Wang Daxiong, a non-executive director, is also the deputy general manager and member of the Party Committee of China Shipping.

Save as disclosed above, none of the Directors or Supervisors of the Company was, as at the Latest Practicable Date, a director or employee of a company which had an interest or short position in the Shares or underlying shares of the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO.

4. SERVICE CONTRACTS

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

5. DIRECTORS’ AND SUPERVISORS’ INTERESTS

As at the Latest Practicable Date:

(a) none of the Directors or Supervisors had any direct or indirect interest in any assets which had been, since 31 December 2011 (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; and
(b) none of the Directors or Supervisors was materially interested in any contract or arrangement subsisting as at the Latest Practicable Date and which was significant in relation to the business of the Group.

6. NO MATERIAL ADVERSE CHANGE

The Directors are not aware of any material adverse change in the financial or trading position of the Group since 31 December 2011 (being the date to which the latest published audited accounts of the Company were made up).

7. COMPETING INTERESTS

As at the Latest Practicable Date, none of the Directors and any of their associate(s) had interest in a business which competes or may compete with the business of the Group, or may have any conflicts of interest with the Group pursuant to Rule 8.10 of the Listing Rules.

– 55 –

GENERAL INFORMATION

APPENDIX II

8. CONSENT OF EXPERT

(a) The Independent Financial Adviser, which is a licensed corporation to carry out type 6 (advising on corporate finance) regulated activities under the SFO, has given and has not withdrawn its written consent to the issue of this circular with the inclusion of its letter and reference to its name in the form and context in which they respectively appear.
(b) As at the Latest Practicable Date, the Independent Financial Adviser neither had any shareholding in any member of the Group nor had any right (whether legally enforceable or not) to subscribe for or nominate persons to subscribe for any securities in any member of the Group.
(c) As at the Latest Practicable Date, the Independent Financial Adviser did not have any direct or indirect interest in any assets which had been, since 31 December 2011 (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.

9. LITIGATION

As at the Latest Practicable Date, no litigation or claims of material importance was known to the Directors to be pending or threatened against any member of the Group.

10. MATERIAL CONTRACTS

Save for the following material contracts, the Group has not entered into any material contract (not being contracts entered into in the ordinary course of business of the Group) within the two years immediately preceding the date of this circular:

(a) a capital increase agreement dated 27 May 2011 entered into between China Shipping, Guangzhou Maritime Transport (Group) Co. Ltd., the Company, CSDC and China Shipping (Hainan) Haisheng Shipping and Enterprise Co., Ltd. to increase their respective capital contribution in the amount of RMB75,000,000, RMB60,000,000, RMB75,000,000, RMB75,000,000 and RMB15,000,000, respectively, to CS Finance Company by way of cash in proportion to their existing shareholdings in CS Finance Company (Note: details of the agreement were disclosed in the Company’s announcement dated 27 May 2011);
(b) an equity transfer agreement dated 20 October 2011 entered into between the Company and China Shipping Logistics (Overseas) Co., Ltd., pursuant to which the Company agreed to acquire 25% equity interest in Shanghai China Shipping YangShan International Container Land-Warehousing Co., Ltd. from China Shipping Logistics (Overseas) Co., Ltd. in the aggregate consideration of RMB33,879,708.96 (Note: details of the agreement were disclosed in the Company’s announcement dated 20 October 2011);

– 56 –

GENERAL INFORMATION

APPENDIX II

(c) two vessel acquisition agreements and one vessel option agreement all dated 28 October 2011 entered into between China Shipping Container Lines (Hong Kong) Co., Limited (“CSCL (HK)”), a wholly-owned subsidiary of the Company, China Shipbuilding & Offshore International Co., Dalian Shipbuilding Industry Co., Ltd., China Shipbuilding Trading Co., Ltd. and Hudong-Zhonghua Shipbuilding (Group) Co., Ltd. (the above companies other than CSCL (HK) are collectively known as the “Vendors/Grantors”), pursuant to which CSCL (HK) agreed to purchase eight vessels and acquire options to purchase four optional vessels from Vendors/Grantors in the aggregate consideration of US$754,240,000 (Note: details of the agreements were disclosed in the Company’s announcement dated 28 October 2011);
(d) an entrusted loan agreement dated 26 March 2012 entered into between the Company, China Shipping and CS Finance Company, pursuant to which China Shipping entrusted CS Finance Company to provide a loan in the amount of RMB2,000,000,000 to the Company (Note: details of the agreement were disclosed in the Company’s announcement dated 30 March 2012); and
(e) a joint venture agreement dated 29 August 2012 entered into between CSCL HK, China Shipping Development (Hong Kong) Marine Co., Ltd. and China Shipping Regional Holdings Sdn Bhd for their establishment of China Shipping (Singapore) Petroleum PTE. LTD. in Singapore (Note: details of the agreement were disclosed in the Company’s announcement dated 29 August 2012).

11. MISCELLANEOUS

(a) The secretary of the Company is Mr. Ye Yumang. Mr. Ye is currently the Company Secretary of the Company and the General Manager of the Directorate Secretary Office of the Company, as well as a senior economist. From 1989 to 1996, he engaged in vessel technique and administrative matters in Shanghai Shipping (Group) Company. From May 1995 to August 1995, Mr. Ye was the assistant company secretary of CSDC. From August 1995 to April 2000, he was the joint company secretary of CSDC. From April 2000 to March 2003, he was the company secretary for CSDC. Mr. Ye graduated from Shanghai Maritime University in 1989, with a Master’s degree in mechanical engineering. In March 2007, Mr. Ye got his master’s degree in EMBA from the Shanghai Finance & Economy University. Mr. Ye became a fellow of the Hong Kong Institute of Chartered Secretaries in November 2008. Mr. Ye joined the Company in November 2002.
(b) The legal address in the PRC of the Company is Room A-538, Yangshan International Trade Center, No. 188 Ye Sheng Road, Yangshan Free Trade Port Area, Shanghai, the PRC and the principal place of business in the PRC of the Company is 27th Floor, 450 Fu Shan Lu, Pudong New District, Shanghai, the PRC. The Hong Kong H Share registrar and transfer office of the Company is Computershare Hong Kong Investor Services Limited at Shops 1712-1716, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong.

– 57 –

GENERAL INFORMATION

APPENDIX II

12. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection during normal business hours at the principal place of business of the Company in Hong Kong at 59/F, One Island East, 18 Westlands Road, Island East, Hong Kong from the date of this circular up to 5 December 2012 (both days inclusive):

(a) the Master Supply Agreement, the First Master Liner and Cargo Agency Agreement, the First Master Loading and Unloading Agreement, the Second Master Loading and Unloading Agreement, the Revised Master Provision of Containers Agreement and the Financial Services Framework Agreement;
(b) the letter of advice dated 12 November 2012 from the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders, the text of which is set out on pages 30 to 50 of this circular;
(c) the written consent issued by the Independent Financial Adviser to the Company as referred to in the paragraph headed “Consent of Expert” in this Appendix;
(d) the letter of recommendation dated 12 November 2012 from the Independent Board Committee to the Independent Shareholders, the text of which is set out on pages 28 to 29 of this circular;
(e) the memorandum and articles of association or equivalent documents of the Company;
(f) the material contracts referred to in the paragraph headed “Material Contracts” in this Appendix II;
(g) the annual report of the Company for the two years ended 31 December 2010 and 2011; and
(h) this circular.

– 58 –

AI assistant

COSCO SHIPPING Development Co., Ltd. — Proxy Solicitation & Information Statement 2012

50782_rns_2012-11-12_70b24b57-5aca-41e6-bdb5-73397a62b72f.pdf

(Stock code: 02866)

REVISION OF THE EXISTING ANNUAL CAP FOR THE CONTINUING CONNECTED TRANSACTIONS AND

RENEWED NON-EXEMPT CONTINUING CONNECTED TRANSACTIONS

AND

MAJOR TRANSACTIONS

AND

APPOINTMENT OF NEW NON-EXECUTIVE DIRECTOR

AND PROPOSED AMENDMENTS TO ARTICLES OF ASSOCIATION

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

To the Shareholders

I. INTRODUCTION

II. REVISION OF THE EXISTING ANNUAL CAP FOR THE CONTINUING CONNECTED TRANSACTIONS

A. Background

LETTER FROM THE BOARD

B. Historical Caps, Historical Figures and Proposed Revised Annual Cap

C. Reasons for and Benefits of Transactions

LETTER FROM THE BOARD

D. Implications under the Listing Rules

III. RENEWED NON-EXEMPT CONTINUING CONNECTED TRANSACTIONS

A. Background

B. General Terms

1. Connected Persons

2. General Principles, Price and Terms

3. Price Determination

4. Term and Termination

5. Implementation Agreements

C. Summary

1. Master Supply Agreement

2. First Master Liner and Cargo Agency Agreement

3. First Master Loading and Unloading Agreement and Second Master Loading and Unloading Agreement

4. Revised Master Provision of Containers Agreement in respect of containers to be purchased by the Group

5. Financial Services Framework Agreement in respect of deposit services to be provided to the Group

6. Financial Services Framework Agreement in respect of loan services to be provided to the Group

LETTER FROM THE BOARD

D. Historical Caps, Historical Figures and Future Caps

Table a – Renewed Non-exempt Continuing Connected Transactions

LETTER FROM THE BOARD

E. Reasons for and Benefits of Transactions

In respect of the Renewed Non-Exempt Continuing Connected Transactions other than transactions under the Financial Services Framework Agreement

In respect of transactions under the Financial Services Framework Agreement

F. Implications under the Listing Rules

IV. GENERAL INFORMATION

V. APPOINTMENT OF NEW NON-EXECUTIVE DIRECTOR

VI. PROPOSED AMENDMENTS TO ARTICLES OF ASSOCIATION

2. Article 16.16 of the Articles of Association

VII. EGM

VIII. RECOMMENDATION

REVISION OF THE EXISTING ANNUAL CAP FOR THE CONTINUING CONNECTED TRANSACTIONS AND RENEWED NON-EXEMPT CONTINUING CONNECTED TRANSACTIONS

REVISION OF THE EXISTING ANNUAL CAP FOR THE CONTINUING CONNECTED TRANSACTIONS AND

RENEWED NON-EXEMPT CONTINUING CONNECTED TRANSACTIONS AND MAJOR TRANSACTIONS

INTRODUCTION

PRINCIPAL FACTORS CONSIDERED

Background

Prospects of container shipping industry

General price and quality terms

DETAILED ANALYSIS ON EACH OF THE AGREEMENTS

I. Master Supply Agreement

1. Reasons for sourcing of supplies

2. Terms of the Master Supply Agreement

3. Proposed revised cap and annual caps

II. First Master Liner and Cargo Agency Agreement

1. Reasons for the sourcing of liner and cargo agency services

2. Terms of the First Master Liner and Cargo Agency Agreement

3. Proposed annual caps

III. First Master Loading and Unloading Agreement & Second Master Loading and Unloading Agreement (collectively, the “Master Loading and Unloading Agreements”)

1. Reasons for using the container loading and unloading services

2. Terms of the Master Loading and Unloading Agreements

3. Proposed annual caps

IV. Revised Master Provision of Containers Agreement in respect of containers to be purchased by the Group

1. Reasons for sourcing containers from the China Shipping Group

2. Terms of the Revised Master Provision of Containers Agreement in respect of containers to be purchased by the Group

3. Proposed annual caps

COSCO SHIPPING Development Co., Ltd. Proxy Solicitation & Information Statement 2012