THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in doubt about this circular, you should consult appropriate independent advisers.

If you have sold all your shares in China Shipping Development Company Limited, you should at once hand this circular and the enclosed proxy form to the purchaser or to the bank, stockbroker or other agent through whom the sale was effected for transmission to the purchaser.

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

==> picture [66 x 48] intentionally omitted <==

CHINA SHIPPING DEVELOPMENT COMPANY LIMITED (a joint stock limited company incorporated in the People’s Republic of China with limited liability)

(Stock Code: 1138)

CONNECTED AND MAJOR TRANSACTIONS CONSTRUCTION OF NEW VESSELS

AND

CONSTRUCTION OF NEW TANKERS

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

A letter from the Board is set out on pages 5 to 13 of this circular.

A letter from the Independent Board Committee is set out on page 14 of this circular.

A letter from the Independent Financial Adviser, containing its advice to the Independent Board Committee and the Independent Shareholders is set out on pages 15 to 22 of this circular.

A notice convening the AGM of the Company to be convened and held at 10:00 a.m. on Friday, 8 June 2007 at 700 Dong Da Ming Road, Shanghai, the People’s Republic of China is set out on pages N-1 to N-4 of this circular. Whether or not you are able to attend the above meeting, please complete and return the enclosed proxy form in accordance with the instructions printed thereon as soon as practicable and in any event by not less than 24 hours before the time appointed for the holding of the meetings. Completion and return on the proxy form will not preclude you from attending and voting in person at the meetings or at any adjourned meetings should you so wish.

20 April 2007

	Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Expected Timetable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4
Letter from the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
Letter from the Independent Board Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	14
Letter from the Independent Financial Advisor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	15
Appendix I Financial Information of the Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	I-1
Appendix II General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	II-1
Notice of Annual General Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	N-1

— i —

DEFINITIONS

==> picture [456 x 589] intentionally omitted <==

----- Start of picture text -----

|||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|“AGM”|annual|general|meeting|of|the|Shareholders|to|be|convened|by|
|the|Company|to|consider|and,|if|thought|fit,|to|approve|
|(amongst|other|things)|the|Bulk|Carrier|Agreements|and|the|
|Tanker|Agreements|
|“A|Shares”|PRC-listed|Domestic|Shares|in|the|share|capital|of|the|
|Company,|with|a|par|value|of|RMB1.00|each,|which|are|
|subscribed|for|and|traded|in|RMB|and|listed|on|the|Shanghai|
|Stock|Exchange|
|“associate(s)”|has|the|meaning|ascribed|thereto|in|the|Hong|Kong|Listing|
|Rules|
|“Board”|the|board|of|Directors|
|“Bulk|Carrier(s)”|the|bulk|carrier(s)|to|be|constructed|pursuant|to|the|Bulk|
|Carrier|Agreements|
|“Bulk|Carrier|Agreements”|twelve|agreements|all|dated|29|March,|2007,|each|of|which|is|
|entered|into|between|the|Vendors|and|the|Company|for|the|
|construction|of|a|Bulk|Carrier|(for|a|total|of|twelve|Bulk|
|Carriers)|for|the|transportation|of|bulk|cargo|
|“Company”|China|Shipping|Development|Company|Limited|
|(|),|a|joint|stock|limited|company|
|incorporated|in|the|PRC|with|limited|liability,|whose|H|
|Shares|have|been|listed|on|the|Main|Board|since|1994|and|
|whose|A|Shares|have|been|listed|on|the|Shanghai|Stock|
|Exchange|since|2002|
|“China|Shipping”|(China|Shipping|(Group)|Company*),|a|
|PRC|state-owned|enterprise|and|the|controlling|shareholder|
|of|the|Company,|currently|holding|47.46%|of|the|registered|
|capital|of|the|Company|
|“China|Shipping|Group”|China|Shipping|and|its|subsidiaries|(excluding|the|Group)|
|“CS|Development|Hong|Kong”|China|Shipping|Development|(Hong|Kong)|Marine|Co.,|
|Limited|(|),|a|wholly-owned|
|subsidiary|of|the|Company|
|“Director(s)”|the|director(s)|of|the|Company|
|“Domestic|Shares”|domestic|shares|of|RMB1.00|each|in|the|registered|capital|of|
|the|Company|

----- End of picture text -----

— 1 —

DEFINITIONS

“dwt” dead weight tons, the unit of measurement of weight capacity of vessels, which is the total weight a ship can carry, including cargo, bunkers, water, stores, spare and crew at a specified draft
“Group”
the Company and its existing subsidiaries
“H Shares”
H shares of par value RMB1.00 each in the share capital of the Company, being overseas listed foreign invested shares
“HK$”
the lawful currency of Hong Kong dollars
“Hong Kong” or “HK” the Hong Kong Special Administrative Region of the PRC
“Hong Kong Listing Rules” Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited, as amended from time to time
“Independent Board Committee” Messrs. Ma Xun, Xie Rong, Hu Honggao and Zhou Zhanqun, all being independent non-executive Directors, have been appointed as members of the independent board committee of the Company to advise the Independent Shareholders on, inter alia, how to vote on the resolutions relating to the Bulk Carrier Agreements and the Tanker Agreements
“Independent Financial Adviser” Evolution Watterson Securities Limited, a corporation licensed to carry on type 1 (dealing in securities) and type 6 (advising on corporate finance) regulated activities under the Securities and Futures Ordinance, the independent financial adviser appointed to make the relevant recommendation to the Independent Board Committee and the Independent Shareholders in relation to the Bulk Carrier Agreements and the Tanker Agreements
“Independent Shareholder(s)” the Shareholders other than China Shipping and its associates (as defined in the Listing Rules)
“Latest Practicable Date” 17 April 2007, being the latest practicable date prior to the printing of this circular for ascertaining certain information contained herein
“PRC” People’s Republic of China
“RMB” Renminbi Yuan, the lawful currency of the PRC
“Shareholder(s)” shareholder(s) of the Company
“Stock Exchange” The Stock Exchange of Hong Kong Limited

— 2 —

DEFINITIONS

“Supervisor(s)”	the supervisor(s) of the Company
“Tanker(s)”	the Tanker(s) to be constructed pursuant to the Tanker
	Agreements
“Tanker Agreements”	two agreements both dated 12 April 2007, each of which is
	entered into between the Vendors and CS Development Hong
	Kong for the construction of a Tanker (for a total of two
	Tankers) for the transportation of oil and oil products
“US$”	the lawful currency of the United States of America
“Vendors”	(China Shipping Industrial Co., Ltd.*) and
	(China Shipping Industrial (Jiangsu)
	Co., Ltd.*)
“%”	percentage or per centum

For identification purpose only

For the purpose of this circular, unless otherwise specified, the conversion of US$ into HK$ is based on the exchange rate of US$1.00 = HK$7.80, and the conversion of RMB into HK$ is based on the exchange rate of RMB1.00 = HK$1.003.

For ease of reference, the names of the PRC-incorporated companies and entities have been included in this circular in both the Chinese and English languages. In the event of any inconsistency, the Chinese name prevails.

— 3 —

EXPECTED TIMETABLE

Date of despatch of this circular . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Friday, 20 April 2007
Last date for returning the reply slip for the AGM . . . . . . . . . . . . . . . . . . .Saturday, 19 May 2007
Latest time for lodging proxy forms for the AGM . . . . . . . . . . .10:00 a.m., Thursday, 7 June 2007
Time and date of AGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10:00 a.m., Friday, 8 June 2007

— 4 —

LETTER FROM THE BOARD

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CHINA SHIPPING DEVELOPMENT COMPANY LIMITED

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

(Stock Code: 1138)

Executive Directors: Li Shaode (Chairman) Lin Jianqing Wang Daxiong Zhang Guofa Mao Shijia Wang Kunhe

Independent Non-Executive Directors:

Ma Xun Xie Rong Hu Honggao Zhou Zhanqun

Registered Office: 168 Yuanshen Road Shanghai The PRC

Principal place of business in Hong Kong: 20/F., Alexandra House 16-20 Charter Road Central, Hong Kong

20 April 2007

To the Shareholders

Dear Sir/Madam,

CONNECTED AND MAJOR TRANSACTIONS CONSTRUCTION OF NEW VESSELS

AND

CONSTRUCTION OF NEW TANKERS

1. INTRODUCTION

By an announcement dated 29 March 2007, the Board announced that the Company entered into the Bulk Carrier Agreements with the Vendors for the construction of twelve Bulk Carriers each of 57,300 dwt for transportation of bulk cargo for a consideration of approximately RMB$3,274,200,000 (equivalent to approximately HK$3,307,272,727).

— 5 —

LETTER FROM THE BOARD

By an announcement dated 12 April 2007, the Board announced that CS Development Hong Kong entered into the Tanker Agreements with the Vendors for the construction of two Tankers each of 46,500 dwt for transportion of oil and oil products for a consideration of approximately US$92,400,000 (equivalent to approximately HK$720,720,000).

The purpose of this circular is to provide the Shareholders with further information on the terms of the construction of the Bulk Carriers and the Tankers and to convene the AGM to seek the approval of the Shareholders and the Independent Shareholders.

2. THE CONSTRUCTION OF THE BULK CARRIERS

Background information

On 29 March, 2007, the Company entered into the Bulk Carrier Agreements with the Vendors for the construction of the Bulk Carriers each of 57,300 dwt for the transportation of bulk cargo. The total consideration for the construction of the Bulk Carriers is approximately RMB3,274,200,000 (equivalent to approximately HK$3,307,272,727). The consideration is determined by reference to the market price for the past six months of bulk carriers of tonnage between 50,000 dwt to 70,000 dwt and with similar specifications.

The principal terms and conditions of the Bulk Carrier Agreements are summarised as follows:-

Date: 29 March, 2007 Parties Purchaser: the Company Vendors: The Vendors. To the best of the Directors’ knowledge, information and belief having made all reasonable enquiries, each of the Vendors is a wholly-owned subsidiary of China Shipping. Since China Shipping is the controlling shareholder of the Company, the transactions contemplated under the Bulk Carrier Agreements are connected transactions for the Company under the Listing Rules and are subject to the approval of the Independent Shareholders at the AGM.

— 6 —

LETTER FROM THE BOARD

Price:

The price of the Bulk Carriers will be payable in RMB. Relevant payments under each of the Bulk Carrier Agreements will be payable in 5 instalments at various stages of the construction of the relevant bulk carrier:

(i) for the first instalment, to pay 20% of the price within 10 business days upon receipt of the Vendors’ payment demand and valid receipt after the Bulk Carrier Agreements become effective;
(ii) for the second instalment, to pay 20% of the price within 5 business days of the date on which the Vendors’ payment demand and valid receipt has been received by the Company, and that the Company has signed the certificate for commencement of work;
(iii) for the third instalment to pay 20% of the price within 5 business days of the date on which the Company received payment demand and valid receipt from the Vendors and the Company has signed a construction loading permit;
(iv) for the fourth instalment to pay 20% of the price within 5 business days of the date on which the Company received payment demand and valid from the Vendors and the Company has signed a sea loading certificate; and
(v) for the final instalment to pay 20% of the price within 5 business days of the date on which the Vendors and the Company signed all documents in relation to delivery of the relevant vessel and the Company receiving a valid receipt from the Vendors.

Delay adjustment in price:

Each of the twelve Bulk Carrier Agreements provides that there will be no adjustment in the price of the relevant Bulk Carrier if the delivery is delayed for a period not exceeding 60 days. If the delay exceeds 60 days but does not exceed 210 days, there will be a reduction in the price of the relevant Bulk Carrier based on a daily reduction of RMB48,000. If the delay exceeds 210 days, the Company has the right to cancel the relevant Bulk Carrier Agreement and the Vendors will return all previous payments by the Company together with interest. Delay will be permitted on account of force majeure event.

There will be other adjustments in price of the relevant Bulk Carrier if its performance (such as speed, fuel consumption rate, tonnage) exceeds or falls below certain agreed criteria.

Expected Delivery Date:

Condition:

The expected delivery dates for each of the Bulk Carriers are on or before 31 December 2008, 30 January 2009, 30 May 2009, 30 June 2009, 30 Decmber 2009, 15 February 2010, 15 May 2010, 15 September 2010, 30 September 2010, 30 October 2010, 28 February 2011 and 30 March 2011 respectively.

The Bulk Carrier Agreements are conditional upon the approval of the Independent Shareholders at the AGM.

— 7 —

LETTER FROM THE BOARD

Reasons for, and benefits of the construction of the Bulk Carriers

The Directors are optimistic of the demand in the domestic coal transportation market and the international bulk cargo delivery markets and its persistent growth in the coming years. The Directors are of the view that the construction and ownership of the Bulk Carriers will enable the Group to take advantage of the business opportunities in the shipping market, enjoy economies of scale, optimize its overall route arrangements and improve its operating efficiency and profitability, so as to improve its operating efficiency and profitability and to increase its market share in the domestic coal transportation market. The construction of the Bulk Carriers will be funded by the Company as to approximately 80% of the price by bank borrowings (i.e. approximately RMB2,619,360,000) and approximately 20% of the price by cash (i.e. approximately RMB654,840,000).

No financial information or pro forma financial information has been prepared in respect of the Bulk Carriers as the Bulk Carriers have yet to be constructed.

3. THE CONSTRUCTION OF THE TANKERS

Background Information

On 12 April, 2007, CS Development Hong Kong entered into the Tanker Agreements with the Vendors for the construction of two Tankers each of 46,500 dwt for the transportation of oil and oil products. The total consideration for the construction of the Tankers is approximately US$92,400,000 (equivalent to approximately HK$720,720,000). The consideration is determined by reference to the market price for the past 6 months of oil tankers of tonnage between 40,000 dwt and 50,000 dwt with similar specifications.

The principal terms and conditions of the Tanker Agreements are summarised as follows:

Date: 12 April 2007 Parties: Purchasers: CS Development Hong Kong Vendors: The Vendors. To the best of the Directors’ knowledge, information and belief having made all reasonable enquiries, each of the Vendors is a wholly-owned subsidiary of China Shipping. Since China Shipping is the controlling shareholder of the Company, the transactions contemplated under the Tanker Agreements are connected transactions for the Company under the Listing Rules and are subject to the approval of the Independent Shareholders at the AGM.

— 8 —

LETTER FROM THE BOARD

Price:

The price of the Tankers will be payable in United States dollars. Relevant payments under each of the Agreements will be payable in instalments at various stages of the construction of the relevant Tanker. In respect of one of the Tankers:

(i) for the first instalment, to pay 60% of one of the Tankers of the price within 5 business days upon receipt of the Vendors’ payment demand and valid receipt after the Tanker Agreements become effective;
(ii) for the second instalment, to pay 20% of the price within 5 business days of the date on which CS Development Hong Kong received payment demand and valid receipt from the Vendors and CS Development Hong Kong has signed a sea loading certificate; and
(iii) for the final instalment to pay 20% of the price within 30 days of the date on which the Vendors and CS Development Hong Kong signed all documents in relation to delivery of the relevant vessel.

As for the other Tanker, the payment schedule is as follows:

(i) for the first instalment, to pay 40% of one of the Tankers of the price within 5 business days upon receipt of the Vendors’ payment demand and valid receipt after the Tanker Agreements become effective;
(ii) for the second instalment, to pay 20% of the price within 5 business days of the date on which CS Development Hong Kong received payment demand and valid receipt from the Vendors and CS Development Hong Kong has signed a docking certificate;
(iii) for the third instalment, to pay 20% of the price within 5 business days of the date on which CS Development Hong Kong received payment demand and a valid receipt from the Vendors and CS Development Hong Kong has signed a sea loading certificate; and
(iv) for the final instalment to pay 20% of the price within 30 days of the date on which the Vendors and CS Development Hong Kong signed all documents in relation to delivery of the relevant vessel.

— 9 —

LETTER FROM THE BOARD

Delay adjustment in price: Each of the Agreements provides that there will be no adjustment in the price of the relevant Tanker if the delivery is delayed for a period not exceeding 60 days. If the delay exceeds 60 days but does not exceed 90 days, there will be a reduction in the price of the relevant Tanker based on a daily reduction of US$6,000. If the delay exceeds 90 days but does not exceed 120 days, there will be a reduction in the price of the relevant Tanker based on a daily reduction of US$8,000. If the delay exceeds 120 days but does not exceed 240 days, there will be a reduction in the price of the relevant Tanker based on a daily reduction of US$10,000. If the delay exceeds 240 days, CS Development Hong Kong has the right to cancel the relevant Agreement and the Vendors will return all previous payments by CS Development Hong Kong together with interest, failing which it may accept the relevant Tanker based on the above daily reduction rates not exceeding US$2,000,000 in total, or subject to further negotiations between the parties. Delay will be permitted on account of force majeure event.

There will be other adjustments in price of the relevant Tanker if its performance (such as speed, fuel consumption rate, tonnage) exceeds or falls below certain agreed criteria.

Expected Delivery Date: The expected delivery date for one of the Tankers is the later of 16 months after the Vendor’s receipt of the first instalment payment or 31 October 2008. The expected delivery date of the other Tanker is the later of 20 months after the Vendor’s receipt of the first instalment payment or 30 January 2009.

Conditions: The Agreements are conditional upon the approval of Independent Shareholders at the AGM

Reasons for, and benefit of the construction of the Tankers

The Directors are optimistic of the demand in the oil transportation market and its persistent growth in the coming years. The Directors are of the view that the construction and ownership of the Tankers will enable the Group to take advantage of the business opportunities in the shipping market, enjoy economies of scale, optimize its overall route arrangements and improve its operating efficiency and profitability.

The construction of the Tankers will be funded by CS Development Hong Kong as to approximately 80% of the price by bank borrowings (i.e. approximately US$73,920,000) and approximately 20% of the price by cash (i.e. approximately US$18,480,000).

No financial information on pro forma information has been prepared in respect of the Tankers as the Tanker have yet to be constructed.

— 10 —

LETTER FROM THE BOARD

4. MAJOR AND CONNECTED TRANSACTIONS

Under the Listing Rules, the entering into of the Bulk Carrier Agreements will be aggregated with the agreements for the construction of 2 oil tankers of 46,000 dwt each between CS Development Hong Kong and the Vendors, details of which were contained in the Company’s announcement dated 16 February 2007. Further, the entering into of the Tanker Agreements will be aggregated with the agreements for the construction of 2 oil Tankers of 46,000 dwt each between CS Development Hong Kong and the Vendors, details of which were entered in the Company’s announcement dated 16 February 2007, and the Bulk Carrier Agreements. Save for the aforesaid, the Company considers, that there were no prior transactions between the Group and the Vendors which may require aggregation under Rule 14A 25 of the Listing Rules. Since China Shipping is the controlling shareholder of the Company, the transactions contemplated under the Bulk Carrier Agreements and the Tanker Agreements are connected transactions for the Company under the Listing Rules and are subject to the approval of the Independent Shareholders at the AGM. Under the Listing Rules, any connected person with a material interest in the transaction, and any shareholder with a material interest in the transaction and its associates, will not vote. As China Shipping is the controlling shareholder of the Company and has a material interest in the transactions, it and its associates will abstain from voting on the Bulk Carrier Agreements and the Tanker Agreements. Save for the aforesaid, the Company is not aware of any other Shareholders which are required to abstain from voting.

The Independent Board Committee has been appointed to advise the Independent Shareholders as to whether the terms of the transaction contemplated under the Bulk Carrier Agreements and the Tanker Agreements are fair and reasonable and whether they are in the interests of the Company and its Shareholders as a whole. The Independent Financial Advisor has been appointed to advise the Independent Board Committee and the Independent Shareholders.

5. AGM

It is proposed that the AGM be convened on Friday, 8 June 2007 to consider and if thought fit, approve (amongst other things) the construction of the Bulk Carriers and the Tankers.

A notice of the AGM to be held at 10:00 a.m. on Friday, 8 June 2007 at 700 Da Ming Road, Shanghai, the People’s Republic of China at which relevant resolutions will be proposed to approve, among other things, the construction of the Bulk Carriers and the Tankers is set out on pages N-1 to N-4 of this circular.

A form of proxy for use at the AGM is enclosed. Whether or not you are able to attend the AGM, you are requested to complete the accompanying form of proxy in accordance with the instructions printed thereon and return the same to the Company’s branch share registrar in Hong Kong, Hong Kong Registrars Ltd. at Room 1712-1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong as soon as possible and in any event not less than 24 hours before the time appointed for any adjournment thereof. Completion and return of the form of proxy shall not preclude you from attending and voting in person at the AGM or any adjourned meeting should you so wish.

— 11 —

LETTER FROM THE BOARD

Pursuant to the articles of association of the Company, a resolution put to vote at a general meeting shall be decided on a show of hands unless a poll is required by the rules of the Stock Exchange or the SFC (before or on the declaration of the result of the show of hands or on withdrawal of any other demand for a poll) is duly demanded. A poll may be demanded by:

(a) the Chairman of the meeting;
(b) at least two members present in person or by a duly authorized corporate representative or by proxy and entitled to vote at the meeting;
(c) any member or members present in person or by a duly authorized corporate representative or by proxy and representing in the aggregate not less than one-tenth of the total voting rights of all members having the right to attend and vote at the meeting; or
(d) any member or members present in person or by a duly authorized corporate representative or by proxy and holding shares conferring a right to attend and vote at the meeting on which there have been paid up sums in the aggregate equal to not less than one-tenth of the total sum paid up on all shares conferring that right.

6. INFORMATION ABOUT THE COMPANY AND CHINA SHIPPING

The business scope of the Company includes coastal, ocean and Yangtze River cargo transportation, container transportation, oil transportation, international passenger transportation chartering, cargo agency and cargo transportation agency.

As at the Latest Practicable Date, the Company has 139 bulk carriers, totalling approximately 4,880,000 dwt. As such, upon completion of the construction of the 12 Bulk Carriers, the Company is expected to have a total of 151 bulk carriers, totalling approximately 5,567,600 dwt.

As of 31 December 2006, the Company has 69 oil tankers, totalling approximately 3,400,000 dwt. As such, upon completion of the construction of the 2 Tankers and the 2 other tankers being constructed by the Vendor (details of which were published in the Company’s announcement dated 16 February 2007), the Company is expected to have a total of 73 Tankers, totalling approximately 3,585,000 dwt.

The business scope of China Shipping includes import and export business, trading, coastal and ocean cargo transportation, dry bulk cargo transportation, supply of food for vessels, management of docks and other services in relation to the above. Each of the Vendors is in the business of shipbuilding and repairing.

— 12 —

LETTER FROM THE BOARD

7. RECOMMENDATION

The Board, including the independent non-executive Directors, is of the view that the terms of each of the Bulk Carrier Agreements and Tanker Agreements are determined on an arm’s length basis, on normal commercial terms and fair and reasonable and in the interests of the Company and the Shareholders as a whole. Accordingly, the Board recommends the Shareholders vote in favour of the ordinary resolutions set out in the notice the AGM for the approval of the Bulk Carrier Agreements and Tanker Agreements.

8. ADDITIONAL INFORMATION

Your attention is drawn to the letter from the Independent Board Committee, the letter from the Independent Financial Advisor and the additional information set out in the Appendices to this circular.

Yours faithfully, China Shipping Development Company Limited Li Shaode Chairman

— 13 —

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

==> picture [66 x 49] intentionally omitted <==

CHINA SHIPPING DEVELOPMENT COMPANY LIMITED (a joint stock limited company incorporated in the People’s Republic of China with limited liability)

(Stock Code: 1138)

20 April 2007

To the Independent Shareholders

Dear Sir or Madam,

CONNECTED AND MAJOR TRANSACTIONS CONSTRUCTION OF NEW VESSELS AND CONSTRUCTION OF NEW TANKERS

We have been appointed as the Independent Board Committee to advise you in connection with the construction of the Bulk Carriers and the Tankers, details of which are set out in the Letter from the Board contained in the circular to the Shareholders dated 20 April 2007 (the “Circular”), of which this letter forms part. Terms defined in the Circular shall have the same meanings when used herein unless the context otherwise requires.

Having considered the Bulk Carrier Agreements and the Tanker Agreements and the advice and opinion of the Independent Financial Adviser in relation thereto as set out on pages 15 to 22 of the Circular, we are of the opinion that the terms of the Bulk Carrier Agreements and the Tanker Agreements are fair and reasonable and are entered into on normal commercial terms so far as the Independent Shareholders are concerned and the construction of the Bulk Carriers and the Tankers are in the interests of the Company and the Shareholders as a whole. We therefore recommend that you vote in favour of the ordinary resolutions to be proposed at the AGM to approve the Bulk Carrier Agreements and the Tanker Agreements.

Yours faithfully,

Mr. Ma Xun Mr. Xie Rong Mr. Hu Honggao Mr. Zhou Zhanqun Independent Independent Independent Independent non-executive Director non-executive Director non-executive Director non-executive Director

— 14 —

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

5th Floor, 8 Queen’s Road Central, Hong Kong Tel: (852) 2525 1990 Fax: (852) 2526 1990

20 April 2007

The Independent Board Committee

and the Independent Shareholders

China Shipping Development Company Limited 168 Yuanshen Road Shanghai The PRC

Dear Sirs,

CONNECTED AND MAJOR TRANSACTIONS CONSTRUCTION OF NEW VESSELS AND CONSTRUCTION OF NEW TANKERS

INTRODUCTION

We refer to our appointment as independent financial adviser to the Independent Board Committee in respect of the Bulk Carrier Agreements in relation to the construction of twelve Bulk Carriers of 57,300 dwt each entered into between the Company and the Vendors on 29 March 2007, and the Tanker Agreements entered into between CS Development Hong Kong and the Vendors on 12 April 2007 in relation to the construction of two oil tankers of 46,500 dwt each. Details of the Bulk Carrier Agreements and Tanker Agreements are set out in the circular dated 20 April 2007 (the “Circular”) to the Shareholders, of which this letter forms part. Capitalized terms in this letter have the same meanings as those defined in the Circular unless the context otherwise requires.

China Shipping is the controlling shareholder of the Company holding 47.46% shareholding interests in the total issued share capital of the Company. Each of the Vendors is a wholly-owned subsidiary of China Shipping. Therefore, each of the Vendors is a connected person of the Company and, consequently, the transactions contemplated under the Bulk Carrier Agreements and Tanker Agreements are connected transactions for the Company under the Listing Rules and are subject to the approval of the Independent Shareholders at the AGM. The entering into the Bulk Carrier Agreements and Tanker Agreements will constitute a major transaction for the purpose of the Listing Rules.

We have been appointed by the Company to advise the Independent Board Committee and the Independent Shareholders as to whether or not the terms of the Bulk Carrier Agreements and Tanker Agreements are on normal commercial terms, fair and reasonable so far as the Independent Shareholders are concerned and are in the interest of the Company and the Shareholders as a whole.

— 15 —

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

In formulating our recommendation, we have considered, amongst other things, (i) the Bulk Carrier Agreements and Tanker Agreements; (ii) the Company’s 2006 annual results announcement dated 29 March 2007 and the Company’s 2006 interim report; and (iii) the financial information as set out in the Appendix I to the Circular. We have also discussed with the management of the Group their plans and prospects for the Group.

In arriving at our recommendation, we have relied on the information and facts provided by the Company and have assumed that any representations made to us are true, accurate and complete. We have also relied on the statements, information, opinions and representations contained in the Circular and the information and representations provided to us by the Directors and management of the Company. We have assumed that all information, representations and opinions contained or referred to in the Circular and all information, representations and opinions which have been provided by the Directors and management of the Company for which they are solely responsible, are true and accurate at the time they were made and will continue to be accurate at the date of the despatch of the Circular. The Directors jointly and severally accept full responsibility for the accuracy of the information contained in the Circular and confirm, having made all reasonable enquiries, that to the best of their knowledge and belief, opinions expressed in the Circular have been arrived at after due and careful consideration and there are no other facts not contained in the Circular the omission of which would make any such statement contained in the Circular misleading. We consider that we have been provided with sufficient information on which to form a reasonable basis for our opinion. We have no reason to suspect that any relevant information has been withheld, nor are we aware of any fact or circumstance which would render the information provided and representations and opinions made to us untrue, inaccurate or misleading. We have not, however, for the purpose of this exercise, carried out any independent verification of the information provided by the Directors and management of the Company, nor have we conducted an independent investigation into the business and affairs of the Group.

PRINCIPAL FACTORS AND REASONS

In arriving at our opinion on the terms of the Bulk Carrier Agreements and Tanker Agreements, we have taken into consideration the following factors and reasons:

I Bulk Carrier Agreements

Key terms

Date of agreement : 29 March 2007 Parties : ● The Company

the Vendors

Subject matter : the Vendors has agreed to construct twelve bulk carriers each of 57,300 dwt for the Company Consideration : RMB3,274.2 million (about HK$3,307.3 million) in aggregate

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Payment terms : The consideration will be payable in five equal instalments with each instalment payable at various stages of the construction of the relevant bulk carrier, details of which are set out in the “Letter from the Board” of the Circular.
Expected Delivery : The expected delivery date for the first bulk carrier is on or before 31 Date December 2008 and the last one on or before 30 March 2011 respectively.

2. Basis of the Consideration

As disclosed in the “Letter from the Board” of the Circular, the aggregate consideration of RMB3,274.2 million for twelve bulk carriers of 57,3000 dwt each is determined on the arm’s length basis. We have identified a number of new bulk carriers of similar dwt currently being constructed, according to the information published by China Shipping Technology Research & Economy Development Institute ( ), an independent research institution in the PRC specialized in the shipping and shipbuilding industry, our findings suggest that bulk carrier with dwt between 53,000 and 57,000 are of prices ranged between RMB261 million to RMB312 million. As such, we are of the view that the consideration of the Bulk Carriers (each at RMB272.85 million) is in line the prevailing market price of bulk carriers of the similar dwt.

3. Financial Effects

As disclosed in the “Letter from the Board” in the Circular, the construction of the Bulk Carriers will be funded by the Company as to about 80% by bank borrowings and about 20% by cash. Accordingly, following the delivery of the Bulk Carriers, the Group’s fixed assets will increase by about RMB3,274.2 million, whilst current assets (mainly cash) will decrease by about RMB654.84 million and bank borrowings will increase by about RMB2,619.36 million.

Based on the annual results announcement of the Company for the financial year ended 31 December 2006 that was published on 30 March 2007, the Group’s audited non-current debt and the equity attributable to equity holders of the parent amounted to about RMB1,888.1 million and RMB12,596.9 million, representing a gearing ratio (non-current debt / shareholders’ equity) of about 15%. Such gearing ratio is significantly lower than that of several shipping companies listed on the Stock Exchange which are also engaged in the ship transportation business including, among others, bulk shipping and oil shipping business similar to the Group, whose average gearing ratio exceeds 50%.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As disclosed in the “Letter from the Board” in the Circular, the Group currently has a fleet of 139 bulk carriers, of which about 8 vessels with 57,000 dwt which is approximately equivalent to the dwt of the new Bulk Carrier being contracted. For the year ended 31 December 2006, the average gross profit derived from a bulk carrier of 57,000 dwt amounted to about RMB37.69 million. The Company further advised that interest rate of the bank borrowing of RMB2,619.36 million will be about 6% as indicated by the Company’s existing banks. When comparing the estimate interest cost per bulk carrier with the average gross profit generated by a bulk carrier of 57,000 dwt in 2006, we note that the estimate interest cost represents about 34.7% of the said average gross profit generated by a bulk carrier of 57,000 dwt in 2006.

The Directors are of the view, and we agree with them, that the construction of twelve new Bulk Carriers would bring about additional revenue to the Group. As such, we are of the view that the Group’s financing arrangement for the Bulk Carrier Agreements is acceptable and therefore the transactions contemplated by the Bulk Carrier Agreements are fair and reasonable so far as the Company and its shareholders are concerned and are in the interest of the Company and the Shareholders as a whole.

Reasons for and benefit of the Bulk Carrier Agreements

The Group is principally engaged in the cargo transportation, container transportation, oil transportation, chartering, cargo agency and cargo transportation agency in international and PRC domestic routes.

Coal shipment (including other dry bulk shipment) has been one of the core businesses of the Group. For each of the two years ended 31 December 2005 and 2006, revenue derived from them amounted to about 45.9% and 44.9% of the Group’s total revenue, respectively.

As disclosed in the “Letter from the Board” of the Circular, the Directors hold an optimistic view on the further potential of the domestic coal transportation market and the international bulk cargo delivery market in the coming years. According to the information published by the National Bureau of Statistics of China, by the end of 2004, China has become the third largest exporting country in the world. Since 2004, China has also become the world’s largest iron ore importing country. Being one of the world’s fastest growing economies in the past decade with a compound growth rate of about 10%, China’s strong demand for ship transportation is expected to continue.

We are of the view that the construction of the Bulk Carriers would help the Group to further expand its bulk fleet and to enhance its position and market share in this sector in the PRC, which is in line with the Group’s business strategy as stated in its 2006 interim report. Therefore we consider the transactions contemplated by the Bulk Carrier Agreements fair and reasonable so far as the Company and its shareholders are concerned and are in the interest of the Company and the Shareholders as a whole.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

II Tanker Agreements

Key terms

Date of agreement : 12 April 2007

Parties : ● CS Development Hong Kong
the Vendors
Subject matter : the Vendors has agreed to construct two Tankers of 46,500 dwt each for CS Development Hong Kong
Consideration : US$92.4 million (about HK$720.72 million)
Payment terms : In respect of one of the Tankers:
for the first instalment, to pay 60% of one of the Tankers of the price within 5 business days upon receipt of the Vendors’ payment demand and valid receipt after the Tanker Agreements become effective;
for the second instalment, to pay 20% of the price within 5 business days of the date on which CS Development Hong Kong received payment demand and valid receipt from the Vendors and CS Development Hong Kong has signed a sea loading certificate; and
for the final instalment to pay 20% of the price within 30 days of the date on which the Vendors and CS Development Hong Kong signed all documents in relation to delivery of the relevant vessel.

As for the other Tanker, the payment schedule is as follows:

for the first instalment, to pay 40% of one of the Tankers of the price within 5 business days upon receipt of the Vendors’ payment demand and valid receipt after the Tanker Agreements become effective;
for the second instalment, to pay 20% of the price within 5 business days of the date on which CS Development Hong Kong received payment demand and valid receipt from the Vendors and CS Development Hong Kong has signed a docking certificate;
for the third instalment, to pay 20% of the price within 5 business days of the date on which CS Development Hong Kong received payment demand and a valid receipt from the Vendors and CS Development Hong Kong has signed a sea loading certificate; and

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

for the final instalment to pay 20% of the price within 30 days of the date on which the Vendors and CS Development Hong Kong signed all documents in relation to delivery of the relevant vessel.
Expected Delivery : The expected delivery date for one of the Tankers is the later of 16 months Date after the Vendor’s receipt of the first instalment payment or 31 October 2008. The expected delivery date of the other Tanker is the later of 20 months after the Vendor’s receipt of the first instalment payment or 30 January 2009
Basis of the Consideration

As disclosed in the “Letter from the Board” in the Circular, the aggregate consideration of US$ 92.4 million (about HK$720.72 million) for two Tankers is determined on the arm’s length basis. We have identified a number of new oil tankers of similar dwt currently being constructed, according to the information published by China Shipping Technology Research & Economy Development Institute. Our findings suggest that prices of oil tankers of the similar dwt are in the range between US$43 million to US$49million. As such, we are of the view that the consideration of the Tankers (each at US$46.2 million) is in line the prevailing market price of oil tankers of the similar dwt.

According to the general practice of the shipbuilding industry, payments for the price of ships are normally made in five equal installments payable at each of five major milestones of the construction progress and stage of completion, namely, (i) signing of agreement; (ii) commencement of construction; (iii) keel laying; (iv) launching; and (iv) ship delivery. As confirmed by the Company, at the time when the Tanker Agreements was entered into, the construction progress of one of the Tankers has already in the keel laying stage; therefore, the Company agrees to make the first payment up to 60% of the price of the consideration as the first payment. As for the other Tanker, the Company confirmed that at the time when the Tanker Agreements was entered into, the construction progress has already commenced construction; therefore, the Company agrees to make the first payment up to 40% of the price of the consideration as the first payment. On such basis, we are of the view that payment terms for the Tankers are in line with the general market practice and therefore fair and reasonable so far as the Company and its shareholders are concerned.

3. Financial Effects

As disclosed in the “Letter from the Board” in the Circular, the construction of the Tankers will be funded by the Company as to about 80% by bank borrowings and about 20% by cash. Accordingly, following the delivery of the Tankers, the Group’s fixed assets will increase by about US$ 92.4 million (about HK$720.72 million), whilst current assets will decrease by US$18.48 million (about HK$144.14 million) and bank borrowings will increase by US$73.92 million (about HK$576.58 million).

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As advised by the Company, interest rate of the US dollar bank borrowing will be determined with reference to the then prevailing Libor plus 45 basis points. As further advised by the Company, the Group currently operates a fleet of 10 tankers each of 42,000 dwt, which generated an average unaudited gross profit of about RMB41.3 million per tanker for 2006, according the Company’s analysis and its unaudited management accounts for 2006. When comparing the estimate interest cost per tanker with the average gross profit derived from a tanker of 42,000 dwt in 2006, we note that the estimate interest cost represents about 39.6% of the average gross profit derived from a tanker of 42,000 dwt in 2006.

The Directors are of the view, and we agree with them, that the construction of the Tankers would bring about additional revenue to the Group. As such, we are of the view that the Group’s financing arrangement for the Tanker Agreements is acceptable and therefore the transactions contemplated by the Tanker Agreements are fair and reasonable so far as the Company and its shareholders are concerned and are in the interest of the Company and the Shareholders as a whole.

Reasons for and benefit of the Tanker Agreements

Oil transportation has been one of the core businesses of the Group. For each of the two years ended 31 December 2006, revenue derived from the oil shipment amounted to about 54.1% and 55.1% of the Group’s total revenue respectively.

As disclosed in the “Letter from the Board” in the Circular, the Directors hold an optimistic view on the further development in the oil shipping industry. According to the information published by the National Bureau of Statistics of China, since 2004, China has become the world’s second largest crude oil importing country after the United States driven by China’s growing economic. Being one of the world’s fastest growing economies in the past decade, China’s GDP has increased at a compound annual growth rate of about 10%. It has been estimated by China’s National Development and Reform Commission that the China’s oil demand will keep growing at or above the GDP rate growth rate.

With China’s increasing demand for energy and resources in supporting of its economic development, we believe the growth momentum in the oil-shipping industry is sustainable in the coming years. We are of the view that the construction of the Tankers would help the Group to further expand its oil tanker fleet and to enhance its position and market share in the oil shipping sector in the PRC, which is in line with the Group’s business strategy as stated in its 2006 interim report. Therefore we consider the transactions contemplated under the Tanker Agreements fair and reasonable so far as the Company and its shareholders are concerned and are in the interest of the Company and the Shareholders as a whole.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

RECOMMENDATION

Having considered the above principal factors and reasons, we are of the opinion that the terms of the Bulk Carrier Agreements and the Tanker Agreements are on normal commercial terms, in the ordinary and usual course of business of the Group, and are fair and reasonable so far as the Independent Shareholders are concerned and are in the interest of the Company and the Shareholders as a whole.

Accordingly, we would recommend the Independent Board Committee to advise the Independent Shareholders to vote in favor of the resolutions to approve the Bulk Carrier Agreements and the Tanker Agreements at the upcoming AGM.

Yours faithfully, For and on behalf of Evolution Watterson Securities Limited Edward Wu Director

— 22 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Summary of the audited consolidated financial information for the three years ended 31 December 2006

The following financial information has been extracted from the published unqualified audited financial statements of China Shipping Development Company Limited (the “Company”) and its subsidiaries (the “Group”) for the three years ended 31 December 2006.

Year 2006 Rmb’000 9,574,912 (6,193,679)	ended 31 December 2005 2004 Rmb’000 Rmb’000 8,515,191 6,452,479 (5,155,273) (4,017,284) 3,359,918 2,435,195 266,186 212,944 (253,295) (237,654) (90,699) (150,182) (135,593) (106,012) — — 3,146,517 2,154,291 (452,639) (308,674) 2,693,878 1,845,617 2,691,200 1,844,527 2,678 1,090 2,693,878 1,845,617 80.91 cents 55.46 cents 31 December 2005 2004 Rmb’000 Rmb’000 13,387,357 11,718,604 (2,513,667) (3,047,233) (24,969) (12,291) 10,848,721 8,659,080	ended 31 December 2005 2004 Rmb’000 Rmb’000 8,515,191 6,452,479 (5,155,273) (4,017,284) 3,359,918 2,435,195 266,186 212,944 (253,295) (237,654) (90,699) (150,182) (135,593) (106,012) — — 3,146,517 2,154,291 (452,639) (308,674) 2,693,878 1,845,617 2,691,200 1,844,527 2,678 1,090 2,693,878 1,845,617 80.91 cents 55.46 cents 31 December 2005 2004 Rmb’000 Rmb’000 13,387,357 11,718,604 (2,513,667) (3,047,233) (24,969) (12,291) 10,848,721 8,659,080
3,381,233 386,614 (223,514) (113,749) (128,721) — 3,301,863 (543,015)	3,359,918 266,186 (253,295) (90,699) (135,593) — 3,146,517 (452,639)	2,435,195 212,944 (237,654 (150,182 (106,012 —
		2,154,291 (308,674
2,758,848	2,693,878
2,755,850 2,998	2,691,200 2,678	1,844,527 1,090
2,758,848 82.86 cents 2006 Rmb’000 17,223,562 (4,626,638) — 12,596,924	2,693,878 80.91 cents 31 December 2005 Rmb’000 13,387,357 (2,513,667) (24,969) 10,848,721

— I-1 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

CONSOLIDATED INCOME STATEMENT Year ended 31 December 2006

Notes Revenue 5 Operating costs Gross profit Other income and gains 5 Administrative expenses Other expenses Finance costs 7 PROFIT BEFORE TAX 6 Tax 10 PROFIT FOR THE YEAR Attributable to: Equity holders of the parent 11 Minority interests DIVIDEND Proposed final 12 EARNINGS PER SHARE ATTRIBUTABLE TO ORDINARY EQUITY HOLDERS OF THE PARENT 13	2006 Rmb’000 9,574,912 (6,193,679)	2005 Rmb’000 8,515,191 (5,155,273) 3,359,918 266,186 (253,295) (90,699) (135,593) 3,146,517 (452,639) 2,693,878 2,691,200 2,678 2,693,878 997,800 80.91 cents
	3,381,233 386,614 (223,514) (113,749) (128,721) 3,301,863 (543,015)	3,359,918 266,186 (253,295 (90,699 (135,593
		3,146,517 (452,639
	2,758,848
	2,755,850 2,998	2,691,200 2,678
	2,758,848 997,800 82.86 cents

— I-2 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

CONSOLIDATED BALANCE SHEET 31 December 2006

Notes NON-CURRENT ASSETS Property, plant and equipment 14 Available-for-sale investments 17 Deferred staff expenditure 19 Deferred tax assets 30 Total non-current assets CURRENT ASSETS Bunker oil inventories Trade and bills receivables 20 Prepayments, deposits and other receivables 21 Equity investments at fair value through profit or loss 18 Derivative financial instruments 25 Cash and cash equivalents 22 Total current assets CURRENT LIABILITIES Trade payables 23 Tax payable Other payables and accruals 24 Current portion of interest-bearing bank and other borrowings, and finance lease payables 26 Total current liabilities NET CURRENT ASSETS/(LIABILITIES) TOTAL ASSETS LESS CURRENT LIABILITIES NON-CURRENT LIABILITIES Deferred tax liabilities 30 Interest-bearing bank and other borrowings, and finance lease payables 27 Total non-current liabilities Net assets EQUITY Equity attributable to equity holders of the parent Issued capital 31 Reserves 32 Proposed final dividend 12 Minority interests Total equity	2006 Rmb’000 15,079,291 4,578 45,333 20,090	2005 Rmb’000 11,468,121 4,000 58,117 20,795
	15,149,292 202,432 428,159 619,857 159,000 1,044 663,778 2,074,270 227,299 56,001 868,625 1,506,573 2,658,498 (584,228) 14,565,064 80,082 1,888,058 1,968,140	11,551,033
		266,701 227,913 163,783 — — 1,177,927
		1,836,324
		216,888 41,417 519,315 295,641
		1,073,261
		763,063
		12,314,096 — 1,440,406
		1,440,406
	12,596,924	10,873,690
	3,326,000 8,273,124 997,800 12,596,924 —	3,326,000 6,524,921 997,800
		10,848,721 24,969
	12,596,924	10,873,690

— I-3 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

CONSOLIDATED SUMMARY STATEMENT OF CHANGES IN EQUITY Year ended 31 December 2006

Note TOTAL EQUITY At beginning of year As previously reported Adoption of a new accounting policy As restated Net profit for the year Change in the exchange fluctuation reserve and net gains and losses not recognised in the income statement 32 Change in fair value of available-for-sale investments 32 Change in fair value of derivative financial instruments 32 Dividend paid on ordinary shares Equity attributable to equity holders of the parent Minority interests Total equity	2006 Rmb’000 10,848,721 —	2005 Rmb’000 8,659,080 1,386 8,660,466 2,691,200 (4,045) — — (498,900) 10,848,721 24,969 10,873,690
	10,848,721 2,755,850 (10,890) 182 861 (997,800) 12,596,924 —	8,660,466 2,691,200 (4,045 — — (498,900
		10,848,721 24,969
	12,596,924

— I-4 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

CONSOLIDATED CASH FLOW STATEMENT Year ended 31 December 2006

Notes Net cash inflow from operating activities 33(a) CASH FLOWS FROM INVESTING ACTIVITIES Interest received Payments for construction in progress Purchases of items of property, plant and equipment Proceeds from disposal of items of property, plant and equipment Liquidation of a subsidiary 33(c) Addition in equity investments at fair value through profit or loss Addition in available-for-sale investments Net cash outflow from investing activities CASH FLOWS FROM FINANCING ACTIVITIES Interest paid Dividend paid New bank loans Repayment of bank loans Capital element of finance lease rental payments Minority share of increase in capital of a subsidiary Net cash inflow/(outflow) from financing activities NET DECREASE IN CASH AND CASH EQUIVALENTS Cash and cash equivalents at beginning of year Effect of foreign exchange rate changes, net CASH AND CASH EQUIVALENTS AT END OF YEAR ANALYSIS OF BALANCES OF CASH AND CASH EQUIVALENTS Cash and bank balances Time deposits with original maturity of less than three months when acquired	2006 Rmb’000 3,366,584 24,893 (3,340,095) (1,173,642) 162,224 (45,221) (74,200) (364)	2005 Rmb’000 3,677,542 24,508 (2,616,029) (19,923) 134,831 — — — (2,476,613) (143,394) (498,900) 1,070,250 (1,704,602) (64,957) 10,000 (1,331,603) (130,674) 1,312,646 (4,045) 1,177,927 865,715 312,212 1,177,927
	(4,446,405) (124,248) (997,800) 3,948,194 (2,228,995) (60,615) — 536,536 (543,285) 1,177,927 29,136	(2,476,613
		(143,394 (498,900 1,070,250 (1,704,602 (64,957 10,000
		(1,331,603
		(130,674 1,312,646 (4,045
	663,778
	626,329 37,449	865,715 312,212
	663,778

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

BALANCE SHEET 31 December 2006

Notes NON-CURRENT ASSETS Property, plant and equipment 14 Investments in subsidiaries 15 Investments in jointly-controlled entities 16 Available-for-sale investments 17 Deferred staff expenditure 19 Deferred tax assets 30 Total non-current assets CURRENT ASSETS Bunker oil inventories Trade and bills receivables 20 Prepayments, deposits and other receivables 21 Equity investments at fair value through profit or loss 18 Cash and cash equivalents 22 Total current assets CURRENT LIABILITIES Trade payables 23 Tax payable Other payables and accruals 24 Current portion of interest-bearing bank and other borrowings, and finance lease payables 26 Total current liabilities NET CURRENT ASSETS TOTAL ASSETS LESS CURRENT LIABILITIES NON-CURRENT LIABILITIES Deferred tax liabilities 30 Interest-bearing bank and other borrowings, and finance lease payables 27 Total non-current liabilities Net assets EQUITY Issued capital 31 Reserves 32 Proposed final dividend 12 Total equity	2006 Rmb’000 10,715,050 4,140 931,839 4,578 45,333 15,854	2005 Rmb’000 9,746,029 386,009 100,000 4,000 58,117 15,565
	11,716,794 192,132 392,038 2,195,406 159,000 370,808 3,309,384 213,899 52,293 332,793 1,366,995 1,965,980 1,343,404 13,060,198 12,752 760,620 773,372	10,309,720
		257,506 210,827 1,336,108 — 602,710
		2,407,151
		203,898 39,688 360,634 265,356
		869,576
		1,537,575
		11,847,295 — 1,364,593
		1,364,593
	12,286,826	10,482,702
	3,326,000 7,963,026 997,800	3,326,000 6,158,902 997,800
	12,286,826	10,482,702

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO FINANCIAL STATEMENTS 31 December 2006

1. CORPORATE INFORMATION

China Shipping Development Company Limited (the “Company”) is a joint stock company with limited liability established in the People’s Republic of China (the “PRC”). The registered office of the Company is located at 168 Yuan Shen Road, Shanghai, the PRC. During the year, the Company and its subsidiaries (the “Group”) were involved in the following principal activities:

(a) investment holding; and
(b) oil and cargo shipment along the PRC coast and international shipment.

In the opinion of the directors, the Company’s ultimate holding company is China Shipping (Group) Company (“China Shipping”), a state-owned enterprise established in the PRC.

2.1 BASIS OF PREPARATION

These financial statements have been prepared in accordance with Hong Kong Financial Reporting Standards (“HKFRSs”) (which also include Hong Kong Accounting Standards (“HKASs”) and Interpretations) issued by the Hong Kong Institute of Certified Public Accountants, accounting principles generally accepted in Hong Kong and the disclosure requirements of the Hong Kong Companies Ordinance. They have been prepared under the historical cost convention, except for the measurement of certain items of property, plant and equipment, derivative financial instruments and equity investments, which have been measured at fair value. These financial statements are presented in Renminbi (“Rmb”) and all values are rounded to the nearest thousand except when otherwise indicated.

Basis of consolidation

The consolidated financial statements include the financial statements of the Company and its subsidiaries for the year ended 31 December 2006. The results of subsidiaries are consolidated from the date of acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date that such control ceases. All significant intercompany transactions and balances within the Group are eliminated on consolidation.

Minority interests represent the interests of outside shareholders not held by the Group in the results and net assets of the Company’s subsidiaries.

2.2 IMPACT OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS

The Group has adopted the following new and revised HKFRSs for the first time for the current year’s financial statements. Except for in certain cases, giving rise to new and revised accounting policies and additional disclosures, the adoption of these new and revised standards and interpretation has had no material effect on these financial statements.

HKAS 21 Amendment Net Investment in a Foreign Operation HKAS 27 Amendment Consolidated and Separate Financial Statements: Amendments as a consequence of the Companies (Amendment) Ordinance 2005

Financial Guarantee Contracts

HKAS 39 & HKFRS 4 Financial Guarantee Contracts Amendments HKAS 39 Amendment Cash Flow Hedge Accounting of Forecast Intragroup Transactions HKAS 39 Amendment The Fair Value Option HK(IFRIC)-Int 4 Determining whether an Arrangement contains a Lease

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

The principal changes in accounting policies are as follows:

(a) HKAS 21 The Effects of Changes in Foreign Exchange Rates

Upon the adoption of the HKAS 21 Amendment regarding a net investment in a foreign operation, all exchange differences arising from a monetary item that forms part of the Group’s net investment in a foreign operation are recognised in a separate component of equity in the consolidated financial statements irrespective of the currency in which the monetary item is denominated. This change has had no material impact on these financial statements as at 31 December 2006 or 31 December 2005.

(b) HKAS 27 Consolidated and Separate Financial Statements

The adoption of the revised HKAS 27 has resulted in a change in accounting policy relating to the definition of a subsidiary for the purpose of the consolidated financial statements. This change has had no material impact on these financial statements.

(c) HKAS 39 Financial Instruments: Recognition and Measurement
(i) Amendment for financial guarantee contracts

This amendment has revised the scope of HKAS 39 to require financial guarantee contracts issued that are not considered insurance contracts to be recognised initially at fair value and to be remeasured at the higher of the amount determined in accordance with HKAS 37 Provisions, Contingent Liabilities and Contingent Assets and the amount initially recognised less, when appropriate, cumulative amortisation recognised in accordance with HKAS 18 Revenue. The adoption of this amendment has had no material impact on these financial statements.

(ii) Amendment for the fair value option

This amendment has changed the definition of a financial instrument classified as fair value through profit or loss and has restricted the use of the option to designate any financial asset or any financial liability to be measured at fair value through the income statement. The Group had not previously used this option, and hence the amendment has had no effect on the financial statements.

(iii) Amendment for cash flow hedge accounting of forecast intragroup transactions

This amendment has revised HKAS 39 to permit the foreign currency risk of a highly probable intragroup forecast transaction to qualify as a hedged item in a cash flow hedge, provided that the transaction is denominated in a currency other than the functional currency of the entity entering into that transaction and that the foreign currency risk will affect the consolidated income statement. As the Group currently has no such transactions, the amendment has had no effect on these financial statements.

(d) HK(IFRIC)-Int 4 Determining whether an Arrangement contains a Lease

The Group has adopted this interpretation as of 1 January 2006, which provides guidance in determining whether arrangements contain a lease to which lease accounting must be applied. This interpretation has had no material impact on these financial statements.

— I-8 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

2.3 IMPACT OF ISSUED BUT NOT YET EFFECTIVE HONG KONG FINANCIAL REPORTING STANDARDS

The Group has not applied the following new and revised HKFRSs, that have been issued but are not yet effective, in these financial statements.

HKAS 1 Amendment Capital Disclosures HKFRS 7 Financial Instruments: Disclosures HKFRS 8 Operating Segments HK(IFRIC)-Int 7 Applying the Restatement Approach under HKAS 29 Financial Reporting in Hyperinflationary Economies HK(IFRIC)-Int 8 Scope of HKFRS 2 HK(IFRIC)-Int 9 Reassessment of Embedded Derivatives HK(IFRIC)-Int 10 Interim Financial Reporting and Impairment HK(IFRIC)-Int 11 HKFRS 2-Group and Treasury Share Transaction HK(IFRIC)-Int 12 Service Concession Arrangements

HKAS 1 Amendment shall be applied for annual periods beginning on or after 1 January 2007. The revised standard will affect the disclosures about qualitative information about the Group’s objective, policies and processes for managing capital; quantitative data about what the Company regards as capital; and compliance with any capital requirements and the consequences of any non-compliance.

HKFRS 7 shall be applied for annual periods beginning on or after 1 January 2007. The standard requires disclosures that enable users of the financial statements to evaluate the significance of the Group’s financial instruments and the nature and extent of risks arising from those financial instruments and also incorporates many of the disclosure requirements of HKAS 32.

HKFRS 8 shall be applied for annual periods beginning on or after 1 January 2009 and will replace the existing HKAS 14 “Segment Reporting”. HKFRS 8 requires an entity to adopt the “management approach” to report on the financial performance of its operating segments. Generally, the information to be reported would be that used internally for the purpose of evaluating segment performance and deciding resources allocation to operating segments. Such information may be different from what is used for preparing the income statement and balance sheet. HKFRS 8 therefore requires explanation of the basis on how the segment information is prepared and reconciled to the income statement and balance sheet.

HK(IFRIC)-Int 7, HK(IFRIC)-Int 8, HK(IFRIC)-Int 9, HK(IFRIC)-Int 10 HK(IFRIC)-Int 11 and HK(IFRIC)-Int 12 shall be applied for annual periods beginning on or after 1 March 2006, 1 May 2006, 1 June 2006, 1 November 2006, 1 March 2007 and 1 January 2008, respectively.

The Group is in the process of making an assessment of the impact of these new and revised HKFRSs upon initial application. So far, it has concluded that while the adoption of the HKAS 1 Amendment and HKFRS 7 may result in new or amended disclosures, these new and revised HKFRSs are unlikely to have a significant impact on the Group’s results of operations and financial position.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Subsidiaries

A subsidiary is an entity whose financial and operating policies the Company controls, directly or indirectly, so as to obtain benefits from its activities.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

The results of subsidiaries are included in the Company’s income statement to the extent of dividends received and receivable. The Company’s investments in subsidiaries are stated at cost less any impairment losses.

Joint ventures

A joint venture is an entity set up by contractual arrangement, whereby the Group and other parties undertake an economic activity. The joint venture operates as a separate entity in which the Group and the other parties have an interest.

The joint venture agreement between the venturers stipulates the capital contributions of the joint venture parties, the duration of the joint venture entity and the basis on which the assets are to be realised upon its dissolution. The profits and losses from the joint venture’s operations and any distributions of surplus assets are shared by the venturers, either in proportion to their respective capital contributions, or in accordance with the terms of the joint venture agreement.

A joint venture is treated as:

(a) a subsidiary, if the Group has unilateral control, directly or indirectly, over the joint venture;
(b) a jointly-controlled entity, if the Group does not have unilateral control, but has joint control, directly or indirectly, over the joint venture;
(c) an associate, if the Group does not have unilateral or joint control, but holds, directly or indirectly, generally not less than 20% of the joint venture’s registered capital and is in a position to exercise significant influence over the joint venture; or
(d) an equity investment accounted for in accordance with HKAS 39, if the Group holds, directly or indirectly, less than 20% of the joint venture’s registered capital and has neither joint control of, nor is in a position to exercise significant influence over, the joint venture.

Jointly-controlled entities

A jointly-controlled entity is a joint venture that is subject to joint control, resulting in none of the participating parties having unilateral control over the economic activity of the jointly-controlled entity.

The Group’s interests in its jointly-controlled entities are accounted for by proportionate consolidation, which involves recognising its share of the jointly-controlled entities’ assets, liabilities, income and expenses with similar items in the consolidated financial statements on a line-by-line basis. Adjustments are made to bring into line any dissimilar accounting policies that may exist.

The results of jointly-controlled entities are included in the Company’s income statement to the extent of dividends received and receivable. The Company’s investments in jointly-controlled entities are treated as non-current assets and are stated at cost less any impairment losses.

Related parties

A party is considered to be related to the Group if:

(a) the party, directly or indirectly through one or more intermediaries, (i) controls, is controlled by, or is under common control with, the Group; (ii) has an interest in the Group that gives it significant influence over the Group; or (iii) has joint control over the Group;

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

(b) the party is an associate;
(c) the party is a jointly-controlled entity;
(d) the party is a member of the key management personnel of the Group or its parent;
(e) the party is a close member of the family of any individual referred to in (a) or (d); or
(f) the party is an entity that is controlled, jointly controlled or significantly influenced by or for which significant voting power in such entity resides with, directly or indirectly, any individual referred to in (d) or (e).

Property, plant and equipment and depreciation

Property, plant and equipment, other than construction in progress, are stated at cost or valuation less accumulated depreciation and any impairment losses. The cost of an item of property, plant and equipment comprises its purchase price, costs transferred from construction in progress, any directly attributable costs of bringing the asset to its working condition and location for its intended use, as well as interest charges relating to funds borrowed during the periods of construction, installation and testing. Expenditure incurred after items of property, plant and equipment have been put into operation, such as repairs and maintenance, is normally charged to the income statement in the period in which it is incurred. In situations where it can be clearly demonstrated that the expenditure has resulted in an increase in the future economic benefits expected to be obtained from the use of an item of property, plant and equipment, and where the cost of the item can be measured reliably, the expenditure is capitalised as an additional cost of that asset or as a replacement.

Depreciation is calculated on the straight-line basis to write off the cost or valuation of each item of property, plant and equipment to its residual value over its estimated useful life. The principal annual rates used for this purpose are as follows:

Leasehold improvements	10%
Vessels	4.36% to 19.2%
Machinery and equipment	6.67% to 20%
Motor vehicles	10% to 12.5%
Buildings	3.33%

Where parts of an item of property, plant and equipment have different useful lives, the cost or valuation of that item is allocated on a reasonable basis among the parts and each part is depreciated separately.

Residual values, useful lives and depreciation method are reviewed, and adjusted if appropriate, at each balance sheet date.

An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss on disposal or retirement recognised in the income statement in the year the asset is derecognised is the difference between the net sales proceeds and the carrying amount of the relevant asset.

Construction in progress mainly represents the construction or renovation of vessels, which is stated at cost less any impairment losses, and is not depreciated. Cost comprises direct costs of construction and capitalised borrowing costs on related borrowed funds during the periods of construction, installation and testing. Capitalisation of borrowing costs ceases when substantially all the activities necessary to prepare the asset for its intended use are completed. No provision for depreciation is made on construction in progress until such time when the relevant assets are completed and put into use. Construction in progress is reclassified to the appropriate category of property, plant and equipment when completed and ready for use.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Impairment of non-financial assets other than goodwill

Where an indication of impairment exists, or when annual impairment testing for an asset is required (other than inventories, deferred tax assets and financial assets), the asset’s recoverable amount is estimated. An asset’s recoverable amount is calculated as the higher of the asset’s or cash-generating unit’s value in use and its fair value less costs to sell, and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets, in which case, the recoverable amount is determined for the cash-generating unit to which the asset belongs.

An impairment loss is recognised only if the carrying amount of an asset exceeds its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. An impairment loss is charged to the income statement in the period in which it arises, unless the asset is carried at a revalued amount, in which case the impairment loss is accounted for in accordance with the relevant accounting policy for that revalued asset.

An assessment is made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such indication exists, the recoverable amount is estimated. A previously recognised impairment loss of an asset other than goodwill and certain financial assets is reversed only if there has been a change in the estimates used to determine the recoverable amount of that asset, however not to an amount higher than the carrying amount that would have been determined (net of any depreciation), had no impairment loss been recognised for the asset in prior years. A reversal of such impairment loss is credited to the income statement in the period in which it arises, unless the asset is carried at a revalued amount, in which case the reversal of the impairment loss is accounted for in accordance with the relevant accounting policy for that revalued asset.

Leases

Leases that transfer substantially all the rewards and risks of ownership of assets to the Group, other than legal title, are accounted for as finance leases. At the inception of a finance lease, the cost of the leased asset is capitalised at the present value of the minimum lease payments and recorded together with the obligation, excluding the interest element, to reflect the purchase and financing. Assets held under capitalised finance leases are included in property, plant and equipment, and depreciated over the shorter of the lease terms and the estimated useful lives of the assets. The finance costs of such leases are charged to the income statement so as to provide a constant periodic rate of charge over the lease terms.

Leases where substantially all the rewards and risks of ownership of assets remain with the lessor are accounted for as operating leases. Where the Group is the lessor, assets leased by the Group under operating leases are included in non-current assets, and rentals receivable under the operating leases are credited to the income statement on the straight-line basis over the lease terms. Where the Group is the lessee, rentals payable under the operating leases are charged to the income statement on the straight-line basis over the lease terms.

Deferred staff expenditure

According to a housing reform scheme in Shanghai, the PRC, arrangements were made to transfer staff quarters to employees who agreed to remain in service for a period of 10 years. The net book value of the related staff quarters is recorded as deferred staff expenditure and is amortised on the straight-line basis to the income statement over the estimated beneficial period of 10 years.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Investments and other financial assets

Financial assets in the scope of HKAS 39 are classified as loans and receivables, available-for-sale financial assets and financial assets at fair value through profit or loss, as appropriate. When financial assets are recognised initially, they are measured at fair value, plus, in the case of investments not at fair value through profit or loss, directly attributable transaction costs. The Group considers whether a contract contains an embedded derivative when the Group first becomes a party to it. The embedded derivatives are separated from the host contract which is not measured at fair value through profit or loss when the analysis shows that the economic characteristics and risks of embedded derivatives are not closely related to those of the host contract.

The Group determines the classification of its financial assets after initial recognition and, where allowed and appropriate, re-evaluates this designation at the balance sheet date.

All regular way purchases and sales of financial assets are recognised on the trade date, that is, the date that the Group commits to purchase or sell the asset. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the period generally established by regulation or convention in the marketplace.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are subsequently carried at amortised cost using the effective interest method. Amortised cost is calculated taking into account any discount or premium on acquisition and includes fees that are an integral part of the effective interest rate and transaction costs. Gains and losses are recognised in the income statement when the loans and receivables are derecognised or impaired, as well as through the amortisation process.

Available-for-sale financial assets

Available-for-sale financial assets are non-derivative financial assets in listed and unlisted equity securities that are designated as available for sale or are not classified in any of the other two categories. After initial recognition, available-for-sale financial assets are measured at fair value, with gains or losses recognised as a separate component of equity until the investment is derecognised or until the investment is determined to be impaired, at which time the cumulative gain or loss previously reported in equity is included in the income statement.

When the fair value of unlisted equity securities cannot be reliably measured because (a) the variability in the range of reasonable fair value estimates is significant for that investment, or (b) the probabilities of the various estimates within the range cannot be reasonably assessed and used in estimating fair value, such securities are stated at cost less any impairment losses.

Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss include financial assets held for trading and financial assets designated upon initial recognition as at fair value through profit or loss. Financial assets are classified as held for trading if they are acquired for the purpose of sale in the near term. Derivatives, including separated embedded derivatives, are also classified as held for trading unless they are designated as effective hedging instruments or financial guarantee contracts. Gains or losses on investments held for trading are recognised in the income statement.

Fair value

The fair value of investments that are actively traded in organised financial markets is determined by reference to quoted market bid prices at the close of business at the balance sheet date. For investments where there is no active market, fair value is determined using valuation techniques. Such techniques include using recent arm’s length market transactions; reference to the current market value of another instrument which is substantially the same; a discounted cash flow analysis; and other valuation models.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Impairment of financial assets

The Group assesses at each balance sheet date whether there is any objective evidence that a financial asset or a group of financial assets is impaired.

Assets carried at amortised cost

If there is objective evidence that an impairment loss on loans and receivables carried at amortised cost has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate (i.e., the effective interest rate computed at initial recognition). The carrying amount of the asset is reduced either directly or through the use of an allowance account. The amount of the impairment loss is recognised in the income statement.

The Group first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, and individually or collectively for financial assets that are not individually significant. If it is determined that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, the asset is included in a group of financial assets with similar credit risk characteristics and that group is collectively assessed for impairment. Assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognised are not included in a collective assessment of impairment.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed. Any subsequent reversal of an impairment loss is recognised in the income statement, to the extent that the carrying value of the asset does not exceed its amortised cost at the reversal date.

In relation to trade receivables, a provision for impairment is made when there is objective evidence (such as the probability of insolvency or significant financial difficulties of the debtor) that the Group will not be able to collect all of the amounts due under the original terms of an invoice. The carrying amount of the receivables is reduced through the use of an allowance account. Impaired debts are derecognised when they are assessed as uncollectible.

Assets carried at cost

If there is objective evidence that an impairment loss on an unquoted equity instrument that is not carried at fair value because its fair value cannot be reliably measured has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset. Impairment losses on these assets are not reversed.

Available-for-sale financial assets

If an available-for-sale asset is impaired, an amount comprising the difference between its cost (net of any principal payment and amortisation) and its current fair value, less any impairment loss previously recognised in the income statement, is transferred from equity to the income statement. Impairment losses on equity investments classified as available for sale are not reversed through the income statement.

Derecognition of financial assets

A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is derecognised where:

the rights to receive cash flows from the asset have expired;

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

the Group retains the rights to receive cash flows from the asset, but has assumed an obligation to pay them in full without material delay to a third party under a “pass-through” arrangement; or
the Group has transferred its rights to receive cash flows from the asset and either (a) has transferred substantially all the risks and rewards of the asset, or (b) has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

Where the Group has transferred its rights to receive cash flows from an asset and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognised to the extent of the Group’s continuing involvement in the asset. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay.

Where continuing involvement takes the form of a written and/or purchased option (including a cash-settled option or similar provision) on the transferred asset, the extent of the Group’s continuing involvement is the amount of the transferred asset that the Group may repurchase, except in the case of a written put option (including a cash-settled option or similar provision) on an asset measured at fair value, where the extent of the Group’s continuing involvement is limited to the lower of the fair value of the transferred asset and the option exercise price.

Financial liabilities at amortised cost (including interest-bearing loans and borrowings)

Financial liabilities, including trade and other payables and interest-bearing bank and other borrowings, are initially stated at fair value less directly attributable transaction costs and are subsequently measured at amortised cost, using the effective interest method unless the effect of discounting would be immaterial, in which case they are stated at cost.

Gains and losses are recognised in the income statement when the liabilities are derecognised as well as through the amortisation process.

Derecognition of financial liabilities

A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires.

When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and a recognition of a new liability, and the difference between the respective carrying amounts is recognised in the income statement.

Derivative financial instruments and hedging

The Group uses derivative financial instruments, such as forward currency contracts and interest rate swaps to hedge its risks associated with interest rate and foreign currency fluctuations. Such derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at fair value. Derivatives are carried as assets when the fair value is positive and as liabilities when the fair value is negative.

Any gains or losses arising from changes in fair value on derivatives that do not qualify for hedge accounting are taken directly to the income statement.

The fair value of forward currency contracts is calculated by reference to current forward exchange rates for contracts with similar maturity profiles. The fair value of interest rate swap contracts is determined by reference to the present value of estimated future cash flows.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

For the purpose of hedge accounting, hedges are classified as:

fair value hedges when hedging the exposure to changes in the fair value of a recognised asset or liability or an unrecognised firm commitment (except for foreign currency risk); or
cash flow hedges when hedging the exposure to variability in cash flows that is either attributable to a particular risk associated with a recognised asset or liability or a highly probable forecast transaction, or a foreign currency risk in an unrecognised firm commitment.

At the inception of a hedge relationship, the Group formally designates and documents the hedge relationship to which the Group wishes to apply hedge accounting, the risk management objective and its strategy for undertaking the hedge. The documentation includes identification of the hedging instrument, the hedged item or transaction, the nature of the risk being hedged and how the Group will assess the hedging instrument’s effectiveness in offsetting the exposure to changes in the hedged item’s fair value or cash flows attributable to the hedged risk. Such hedges are expected to be highly effective in achieving offsetting changes in fair value or cash flows and are assessed on an ongoing basis to determine that they actually have been highly effective throughout the financial reporting periods for which they were designated.

Hedges which meet the strict criteria for hedge accounting are accounted for as follows:

Cash flow hedges

The effective portion of the gain or loss on the hedging instrument is recognised directly in equity, while the ineffective portion is recognised immediately in the income statement.

Amounts taken to equity are transferred to the income statement when the hedged transaction affects the income statement, such as when hedged financial income or financial expense is recognised or when a forecast sale occurs. Where the hedged item is the cost of a non-financial asset or non-financial liability, the amounts taken to equity are transferred to the initial carrying amount of the non-financial asset or non-financial liability.

If the forecast transaction or firm commitment is no longer expected to occur, the amounts previously recognised in equity are transferred to the income statement. If the hedging instrument expires or is sold, terminated or exercised without replacement or rollover, or if its designation as a hedge is revoked, the amounts previously recognised in equity remain in equity until the forecast transaction or firm commitment occurs.

Revenue recognition

Revenue is recognised when it is probable that the economic benefits will flow to the Group and when the revenue can be measured reliably, on the following bases:

(a) from shipping operations, on the percentage of completion basis;

(b) from vessel chartering, on a time proportion basis over the lease terms;
(c) from vessel management, in the period in which the vessels are managed in accordance with the respective agreements;
(d) from the sale of goods, when the significant risks and rewards of ownership have been transferred to the buyer, provided that the Group maintains neither managerial involvement to the degree usually associated with ownership, nor effective control over the goods sold;

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APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

(e) interest income, on an accrual basis using the effective interest method by applying the rate that discounts the estimated future cash receipts through the expected life of the financial instrument to the net carrying amount of the financial asset; and
(f) dividend income, when the shareholders’ right to receive payment has been established.

In prior years, the Group adopted completion method to account for the revenue from shipping operations as a close approximation to the percentage of completion method. Since the Group has been increasingly engaged in long-distance voyages, the directors consider it would be more appropriate to adopt the percentage of completion method to account for the revenue from shipping operations starting from 1 January 2006. Since the impact of this change to the current year profit and loss and the opening balance of retained profits are immaterial, no prior year adjustments have been made to the financial statements.

Bunker oil inventories and ship stores and spare parts

Bunker oil inventories are stated at cost less any provisions considered necessary by the directors. Cost is determined on the weighted average cost method basis.

Ship stores and spare parts are charged as operating expenses when purchased.

Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, i.e., assets that necessarily take a substantial period of time to get ready for their intended use or sale, are capitalised as part of the cost of those assets. The capitalisation of such borrowing costs ceases when the assets are substantially ready for their intended use or sale. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs capitalised.

Income tax

Income tax comprises current and deferred tax. Income tax is recognised in the income statement, or in equity if it relates to items that are recognised in the same or a different period directly in equity.

Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities.

Deferred tax is provided, using the liability method, on all temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

Deferred tax liabilities are recognised for all taxable temporary differences, except:

where the deferred tax liability arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and
in respect of taxable temporary differences associated with investments in subsidiaries and interests in jointly-controlled entities, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

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APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

Deferred tax assets are recognised for all deductible temporary differences, carryforward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carryforward of unused tax credits and unused tax losses can be utilised except:

where the deferred tax asset relating to the deductible temporary differences arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and
in respect of deductible temporary differences associated with investments in subsidiaries and interests in jointly-controlled entities, deferred tax assets are only recognised to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Conversely, previously unrecognised deferred tax assets are reassessed at each balance sheet date and are recognised to the extent that it is probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date.

Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.

Foreign currencies

These financial statements are presented in Renminbi, which is the Company’s functional and presentation currency. Each entity in the Group determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency. Foreign currency transactions are initially recorded using the functional currency rates ruling at the date of the transactions. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency rates of exchange ruling at the balance sheet date. All differences are taken to the income statement. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined.

The functional currencies of certain overseas subsidiaries are currencies other than the Renminbi. As at the balance sheet date, the assets and liabilities of these entities are translated into the presentation currency of the Company at the exchange rates ruling at the balance sheet date, and their income statements are translated into Renminbi at the weighted average exchange rates for the year. The resulting exchange differences are included in the exchange fluctuation reserve. On disposal of a foreign entity, the deferred cumulative amount recognised in equity relating to that particular foreign operation is recognised in the income statement.

For the purpose of the consolidated cash flow statement, the cash flows of overseas subsidiaries are translated into Renminbi at the exchange rates ruling at the dates of the cash flows. Frequently recurring cash flows of overseas subsidiaries which arise throughout the year are translated into Renminbi at the weighted average exchange rates for the year.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Dividends

Final dividends proposed by the directors are classified as a separate allocation of retained profits within the equity section of the balance sheet, until they have been approved by the shareholders in a general meeting. When these dividends have been approved by the shareholders and declared, they are recognised as a liability.

Cash and cash equivalents

For the purpose of the consolidated cash flow statement, cash and cash equivalents comprise cash on hand and demand deposits, and short term highly liquid investments which are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value, and have a short maturity of generally within three months when acquired, less bank overdrafts which are repayable on demand and form an integral part of the Group’s cash management.

For the purpose of the balance sheet, cash and cash equivalents comprise cash on hand and at banks, including term deposits and assets similar in nature to cash, which are not restricted as to use.

Provisions

A provision is recognised when a present obligation (legal or constructive) has arisen as a result of a past event and it is probable that a future outflow of resources will be required to settle the obligation, provided that a reliable estimate can be made of the amount of the obligation.

When the effect of discounting is material, the amount recognised for a provision is the present value at the balance sheet date of the future expenditures expected to be required to settle the obligation. The increase in the discounted present value amount arising from the passage of time is included in finance costs in the income statement.

Estimation uncertainty

The key assumptions concerning the future and other key sources of estimation uncertainty at the balance sheet date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are discussed below.

Depreciation of vessels

The Group determines the depreciation amount of vessels based on the estimated useful lives and residual values, which are reviewed at each balance sheet date. The principal assumptions for the Group’s estimation of the useful lives and residual values include those related to the mode of operations, government regulations and scrap value of vessels in future. The carrying amount of the Group’s vessels as at 31 December 2006 was Rmb11,821,067,000.

Provision for losses incurred in accidents

Provision for losses incurred in accidents is made based on an assessment of the outcome of negotiations, arbitration or litigation and the recoverability of losses from insurance companies, which requires management’s judgement and estimates. Where the actual outcome or expectation in future is different from the original estimate, such differences will impact the carrying value of the provisions and losses incurred in accidents/write-back in the period in which such estimate has been changed.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

4. SEGMENT INFORMATION

Segment information is presented by way of two segment formats: (i) on a primary segment reporting basis, by business segment; and (ii) on a secondary segment reporting basis, by geographical segment.

The Group’s operating businesses are structured and managed separately, according to the nature of their operations and the services they provide. Each of the Group’s business segments represents a strategic business unit that offers services which are subject to risks and returns that are different from those of the other business segments. The Group’s business segments are categorised as follows:

(a) oil shipment;
(b) coal shipment; and
(c) other dry bulk shipment

In determining the Group’s geographical segments, revenues and results are attributed to the segments based on domestic and international shipment.

Business segments

The following table presents revenue and results information for the Group’s business segments for the years ended 31 December 2006 and 2005.

Oil shipment 2006 2005 Rmb’000 Rmb’000 Segment revenue: Revenue 5,280,260 4,604,473 Segment results 1,767,750 1,726,895 Unallocated revenue: Other income and gains Unallocated operating expenses: Administrative expenses Other expenses Finance costs Profit before tax Tax Profit for the year	Oil shipment 2006 2005 Rmb’000 Rmb’000 Segment revenue: Revenue 5,280,260 4,604,473 Segment results 1,767,750 1,726,895 Unallocated revenue: Other income and gains Unallocated operating expenses: Administrative expenses Other expenses Finance costs Profit before tax Tax Profit for the year	Coal shipment 2006 2005 Rmb’000 Rmb’000 3,414,539 2,992,241 1,194,866 1,138,117	Coal shipment 2006 2005 Rmb’000 Rmb’000 3,414,539 2,992,241 1,194,866 1,138,117	Other dry bulk shipment 2006 2005 Rmb’000 Rmb’000 880,113 918,477 418,617 494,906	Other dry bulk shipment 2006 2005 Rmb’000 Rmb’000 880,113 918,477 418,617 494,906	Consolidated 2006 2005 Rmb’000 Rmb’000 9,574,912 8,515,191 3,381,233 3,359,918 386,614 266,186 (223,514) (253,295) (113,749) (90,699) (128,721) (135,593) 3,301,863 3,146,517 (543,015) (452,639) 2,758,848 2,693,878
1,767,750	1,726,895	1,194,866	1,138,117	418,617	494,906	3,381,233
						386,614 266,186 (223,514) (253,295 (113,749) (90,699 (128,721) (135,593 3,301,863 3,146,517 (543,015) (452,639
						2,758,848

The net book values of oil vessels and cargo vessels at 31 December 2006 amounted to Rmb7,172,571,000 (2005: Rmb6,424,833,000) and Rmb4,648,496,000 (2005: Rmb4,100,716,000), respectively. Since the Group’s assets and liabilities (other than the vessels) are not directly employed according to its business segments, nor could they be allocated to these segments on a reasonable basis, business segment information relating to segment assets and liabilities is not presented.

— I-20 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Geographical segments

The following table presents revenue and segment results from operating activities by geographical area of operations for the years ended 31 December 2006 and 2005.

Year ended 31 December 2006

Domestic International Other income and gains Administrative expenses Other expenses Finance costs Profit before tax Year ended 31 December 2005 Domestic International Other income and gains Administrative expenses Other expenses Finance costs Profit before tax	Revenue Contribution Rmb’000 Rmb’000 5,608,341 1,780,051 3,966,571 1,601,182 9,574,912 3,381,233 386,614 (223,514) (113,749) (128,721) 3,301,863 Revenue Contribution Rmb’000 Rmb’000 5,127,511 1,845,935 3,387,680 1,513,983 8,515,191 3,359,918 266,186 (253,295) (90,699) (135,593) 3,146,517	Revenue Contribution Rmb’000 Rmb’000 5,608,341 1,780,051 3,966,571 1,601,182 9,574,912 3,381,233 386,614 (223,514) (113,749) (128,721) 3,301,863 Revenue Contribution Rmb’000 Rmb’000 5,127,511 1,845,935 3,387,680 1,513,983 8,515,191 3,359,918 266,186 (253,295) (90,699) (135,593) 3,146,517
		266,186 (253,295 (90,699 (135,593

The principal assets employed by the Group are located in the PRC, and accordingly, no segment analysis of assets and expenditure has been prepared for the year.

— I-21 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

5. REVENUE, OTHER INCOME AND GAINS

Revenue represents gross revenue arising from shipping operations, net of business taxes. Pursuant to various tax rules and regulations in the PRC, revenues derived from sea freighting attributable to voyages departing from ports in the PRC and from vessel chartering services are both subject to business tax at a rate of 3%. Business taxes charged to the income statement for the year amounted to Rmb194,214,000 (2005: Rmb184,962,000).

An analysis of revenue, other income and gains is as follows:

Revenue Oil shipments Coal shipments Other dry bulk shipments Other income Interest income Rental income from bare-boat chartering Service income from vessel management Income from coal sale Others Gains Gain on disposal of items of property, plant and equipment, net Exchange losses, net Fair value gains on equity investments at fair value through profit or loss Others Other income and gains	Group 2006 Rmb’000 5,280,260 3,414,539 880,113 9,574,912	2005 Rmb’000 4,604,473 2,992,241 918,477 8,515,191 24,508 77,891 13,302 37,009 5,327 158,037 107,529 (7,609) — 8,229 108,149 266,186
	24,893 71,120 14,818 47,782 4,721 163,334 170,259 (43,517) 84,800 11,738 223,280	24,508 77,891 13,302 37,009 5,327
		158,037
		107,529 (7,609 — 8,229
		108,149
	386,614

— I-22 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

6. PROFIT BEFORE TAX

The Group’s profit before tax is arrived at after charging/(crediting):

Cost of shipping services rendered: Bunker oil inventories consumed and port fees Others Depreciation Operating lease rentals: Land and buildings Vessels Auditors’ remuneration Staff costs (including directors’ remuneration (note 8)): Wages, salaries and hiring of sea crew Pension scheme contributions Provision for bad and doubtful debts Write-off of construction in progress Amortisation of deferred staff expenditure Loss on liquidation of a subsidiary Dry-docking and repairs	Group 2006 Rmb’000 3,174,600 3,019,079 1,000,165 22,592 380,391 402,983	2005 Rmb’000 2,423,751 2,731,522 922,049 23,255 218,590
		241,845
	3,278 623,080 81,712	3,174 666,931 80,414
	704,792 247 2,875 12,784 17,254 413,058	747,345
		1,075 8,545 12,784 — 436,582

— I-23 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

7. FINANCE COSTS

Interest on bank loans and other borrowings wholly repayable within five years Interest on finance leases Total interest Less: Interest capitalised	Group 2006 Rmb’000 123,932 4,789	2005 Rmb’000 138,563 3,422
	128,721 —	141,985 (6,392
	128,721	135,593

8. DIRECTORS’ AND SUPERVISORS’ REMUNERATION

Directors’ and supervisors’ remuneration for the year, disclosed pursuant to the Listing Rules and Section 161 of the Companies Ordinance, is as follows:

Fees Other emoluments: Salaries, allowances and benefits in kind Pension scheme costs Total	Directors 2006 2005 Rmb’000 Rmb’000 180 180 1,495 1,388 46 32 1,721 1,600	Supervisors 2006 2005 Rmb’000 Rmb’000 — — 353 1,262 17 32 370 1,294	Supervisors 2006 2005 Rmb’000 Rmb’000 — — 353 1,262 17 32 370 1,294
			1,294

(a) Independent non-executive directors

The fees paid to independent non-executive directors during the year were as follows:

Mr. Zhou Zhanqun Mr. Hu Honggao Mr. Xie Rong Mr. Ma Xun	2006 Rmb’000 60 60 60 — 180	2005 Rmb’000 60 60 60 —
		180

There were no other emoluments payable to the independent non-executive directors during the year (2005: Nil).

— I-24 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

(b) Executive directors and a non-executive director and supervisors

Fees Salaries, allowances and benefits in kind Pension scheme contributions Total remuneration Rmb’000 Rmb’000 Rmb’000 Rmb’000 — — — — — — — — — — — — — — — — — 701 29 730 — 794 17 811 — — — — — 1,495 46 1,541 — — — —	Fees Salaries, allowances and benefits in kind Pension scheme contributions Total remuneration Rmb’000 Rmb’000 Rmb’000 Rmb’000 — — — — — — — — — — — — — — — — — 701 29 730 — 794 17 811 — — — — — 1,495 46 1,541 — — — —	Fees Salaries, allowances and benefits in kind Pension scheme contributions Total remuneration Rmb’000 Rmb’000 Rmb’000 Rmb’000 — — — — — — — — — — — — — — — — — 701 29 730 — 794 17 811 — — — — — 1,495 46 1,541 — — — —	Fees Salaries, allowances and benefits in kind Pension scheme contributions Total remuneration Rmb’000 Rmb’000 Rmb’000 Rmb’000 — — — — — — — — — — — — — — — — — 701 29 730 — 794 17 811 — — — — — 1,495 46 1,541 — — — —
			1,541
			—
— — — — —	— — 353 — —	— — 17 — —	— — 370 — —
—	353	17	370
— — — — — —	— — — — 621 767	— — — — 16 16	— — — — 637 783
—	1,388	32	1,420
— — —	— 550 712	— 16 16	— 566 728
—	1,262	32	1,294

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

— I-25 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

9. FIVE HIGHEST PAID EMPLOYEES

The five highest paid employees during the year included three (2005: four) directors or supervisors, details of whose remuneration are set out in note 8 above. Details of the remuneration of the remaining two (2005: one) non-director, non-supervisor, highest paid employee for the year are as follows:

Salaries, allowances and benefits in kind Pension scheme contributions	Group 2006 Rmb’000 1,005 58 1,063	2005 Rmb’000 627 16
		643

The number of non-director, non-supervisor, highest paid employees whose remuneration fell within the following band is as follows:

			Number	of	employees
			2006		2005
Nil	to	Rmb1,000,000	2			1

10. TAX

Pursuant to the directive 1998 (250) jointly issued by the Shanghai State Tax Bureau and the Shanghai Bureau of Finance on 8 October 1998, the Company is entitled to a preferential income tax rate of 15% effective from 1 January 1998. Accordingly, PRC income tax of the Company has been provided at the rate of 15% (2005: 15%) on the estimated assessable profits for the year.

— I-26 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

No Hong Kong profits tax has been provided as no assessable profits were earned in or derived from Hong Kong during the year (2005: Nil). Taxes on profits assessable elsewhere, if applicable, have been calculated at the rates of tax prevailing in the countries in which the Group operates, based on existing legislation, interpretations and practices in respect thereof.

Group: Current — Hong Kong Current — PRC Charge for the year Overprovision in prior years Deferred (note 30) Total tax charge for the year	Group 2006 Rmb’000 — 464,149 (1,706) 80,572 543,015	2005 Rmb’000 — 455,370 (2,796) 65 452,639

A reconciliation of the tax expense applicable to profit before tax using the statutory rate for the country in which the Company, its subsidiaries and jointly-controlled entities are domiciled to the tax expense at the effective tax rate, and a reconciliation of the applicable rate (i.e., the statutory tax rate) to the effective tax rate, is as follows:

Profit before tax Tax at the statutory tax rate Higher tax rate for specific provinces Adjustments in respect of current tax of previous periods Expenses not deductible for tax Income not subject to tax Tax charge at the Group’s effective rate	2006 Rmb’000 3,301,863	%	2005 Rmb’000 3,146,517	% 15.0 — (0.1) 0.2 (0.7) 14.4
	495,279 43,120 (1,706) 11,489 (5,167)	15.0 1.3 (0.1) 0.4 (0.1)	471,978 — (2,796) 4,967 (21,510)	15.0 — (0.1 0.2 (0.7
	543,015	16.5	452,639

— I-27 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

11. PROFIT ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT

The consolidated profit attributable to equity holders of the parent for the year ended 31 December 2006 includes a profit of Rmb2,801,742,000 (2005: Rmb2,477,262,000) which has been dealt with in the financial statements of the Company (note 32).

12. DIVIDEND

									2006	2005
									Rmb’000	Rmb’000
Proposed	final	—	Rmb0.30	(2005:	Rmb0.30)	per	ordinary	share	997,800	997,800

The proposed final dividend for the year is subject to the approval of the Company’s shareholders at the forthcoming annual general meeting.

13. EARNINGS PER SHARE ATTRIBUTABLE TO ORDINARY EQUITY HOLDERS OF THE PARENT

The calculation of basic earnings per share amounts is based on the profit for the year attributable to ordinary equity holders of the parent of Rmb2,755,850,000 (2005: Rmb2,691,200,000) and 3,326,000,000 (2005: 3,326,000,000) shares in issue during the year.

Diluted earnings per share amounts for the years ended 31 December 2006 and 2005 have not been disclosed as no diluting events existed during these years.

— I-28 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

14. PROPERTY, PLANT AND EQUIPMENT

Group

31 December 2006

Leasehold improvements Rmb’000 Cost or valuation At beginning of year 50,264 Transfers — Additions — Disposals — Exchange realignment — At 31 December 2006 50,264 Accumulated depreciation At beginning of year 11,028 Provided during the year 8,620 Disposals — Exchange realignment — At 31 December 2006 19,648 Impairment loss At 31 December 2006 — At 31 December 2005 — Accumulated depreciation and impairment loss At 31 December 2006 19,648 At 31 December 2005 11,028 Net book value At 31 December 2006 30,616 At 31 December 2005 39,236	Vessels Machinery and equipment Rmb’000 Rmb’000 17,850,782 48,410 872,231 4,360 1,663,433 4,221 (796,984) (2,811) (40,026) —	Vessels Machinery and equipment Rmb’000 Rmb’000 17,850,782 48,410 872,231 4,360 1,663,433 4,221 (796,984) (2,811) (40,026) —	Motor vehicles Rmb’000 14,244 17 4,105 (831) —	Buildings Construction in progress Rmb’000 Rmb’000 18,376 866,778 10 (876,618) 404 3,205,484 — (2,875) — —	Buildings Construction in progress Rmb’000 Rmb’000 18,376 866,778 10 (876,618) 404 3,205,484 — (2,875) — —	Total Rmb’000 18,848,854 — 4,877,647 (803,501) (40,026) 22,882,974 7,379,797 1,000,165 (577,215) — 7,802,747 936 936 7,803,683 7,380,733 15,079,291 11,468,121
50,264	19,549,436 7,325,233 977,432 (574,296) — 7,728,369 — — 7,728,369 7,325,233	54,180 33,761 12,075 (2,201) — 43,635 — — 43,635 33,761	17,535 8,027 1,580 (718) — 8,889 936 936 9,825 8,963	18,790 1,748 458 — — 2,206 — — 2,206 1,748	3,192,769	22,882,974
11,028 8,620 — —					— — — —	7,379,797 1,000,165 (577,215 —
19,648					—	7,802,747
—					—	936
—					—	936
19,648					—	7,803,683
11,028					—	7,380,733
30,616	11,821,067 10,525,549	10,545 14,649	7,710 5,281	16,584 16,628	3,192,769
39,236					866,778

— I-29 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Group

31 December 2005

	Vessels Machinery and equipment Rmb’000 Rmb’000 14,951,793 44,211 2,970,020 1,457 101,688 6,896 (172,719) (4,154)	Vessels Machinery and equipment Rmb’000 Rmb’000 14,951,793 44,211 2,970,020 1,457 101,688 6,896 (172,719) (4,154)	Motor vehicles Rmb’000 13,388 — 1,287 (431)	Buildings Construction in progress Rmb’000 Rmb’000 17,923 1,293,408 — (2,985,146) 1,104 2,567,061 (651) (8,545)	Buildings Construction in progress Rmb’000 Rmb’000 17,923 1,293,408 — (2,985,146) 1,104 2,567,061 (651) (8,545)	Buildings Construction in progress Rmb’000 Rmb’000 17,923 1,293,408 — (2,985,146) 1,104 2,567,061 (651) (8,545)
50,264	17,850,782 6,567,212 904,436 (146,415) 7,325,233 — — 7,325,233 6,567,212	48,410 27,272 10,248 (3,759) 33,761 — — 33,761 27,272	14,244 7,196 1,186 (355) 8,027 936 936 8,963 8,132	18,376 1,611 261 (124) 1,748 — — 1,748 1,611	866,778	18,848,854
5,110 5,918 —					— — —	6,608,401 922,049 (150,653
11,028					—	7,379,797
—					—	936
—					—	936
11,028					—	7,380,733
5,110					—	6,609,337
39,236					866,778

— I-30 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Company

31 December 2006

	Vessels Machinery and equipment Rmb’000 Rmb’000 15,248,783 46,469 532,604 4,360 2,497 4,018 (287,468) (2,775)	Vessels Machinery and equipment Rmb’000 Rmb’000 15,248,783 46,469 532,604 4,360 2,497 4,018 (287,468) (2,775)	Motor vehicles Rmb’000 12,046 — 3,500 (831)	Buildings Construction in progress Rmb’000 Rmb’000 6,395 703,845 — (536,964) — 1,792,582 — (2,875)	Buildings Construction in progress Rmb’000 Rmb’000 6,395 703,845 — (536,964) — 1,792,582 — (2,875)	Buildings Construction in progress Rmb’000 Rmb’000 6,395 703,845 — (536,964) — 1,792,582 — (2,875)
50,264	15,496,416 6,268,877 796,460 (275,654) 6,789,683 — — 6,789,683 6,268,877	52,072 32,908 11,745 (2,170) 42,483 — — 42,483 32,908	14,715 6,900 1,178 (718) 7,360 936 936 8,296 7,836	6,395 1,124 165 — 1,289 — — 1,289 1,124	1,956,588	17,576,450
11,028 8,621 —					— — —	6,320,837 818,169 (278,542
19,649					—	6,860,464
—					—	936
—					—	936
19,649					—	6,861,400
11,028					—	6,321,773
30,615					1,956,588

— I-31 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Company

31 December 2005

	Vessels Machinery and equipment Rmb’000 Rmb’000 12,680,025 43,018 2,740,774 1,457 703 6,148 (172,719) (4,154)	Vessels Machinery and equipment Rmb’000 Rmb’000 12,680,025 43,018 2,740,774 1,457 703 6,148 (172,719) (4,154)	Motor vehicles Rmb’000 11,061 — 1,287 (302)	Buildings Construction in progress Rmb’000 Rmb’000 7,046 1,247,276 — (2,755,900) — 2,219,882 (651) (7,413)	Buildings Construction in progress Rmb’000 Rmb’000 7,046 1,247,276 — (2,755,900) — 2,219,882 (651) (7,413)	Buildings Construction in progress Rmb’000 Rmb’000 7,046 1,247,276 — (2,755,900) — 2,219,882 (651) (7,413)
50,264	15,248,783 5,628,688 786,604 (146,415) 6,268,877 — — 6,268,877 5,628,688	46,469 26,885 9,782 (3,759) 32,908 — — 32,908 26,885	12,046 6,394 796 (290) 6,900 936 936 7,836 7,330	6,395 1,077 171 (124) 1,124 — — 1,124 1,077	703,845	16,067,802
5,110 5,918 —					— — —	5,668,154 803,271 (150,588
11,028					—	6,320,837
—					—	936
—					—	936
11,028					—	6,321,773
5,110					—	5,669,090
39,236					703,845

The net book value of the Group’s vessels held under finance leases included in the total amount of property, plant and equipment at 31 December 2006 amounted to Rmb342,323,000 (2005: Rmb364,639,000). The depreciation charge for the year in respect of such assets amounted to Rmb22,316,000 (2005: Rmb22,316,000).

— I-32 —

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

Certain of the Group’s and the Company’s property, plant and equipment are leased to other parties under operating leases. Further details of the assets under operating lease arrangements are as follows:

		Group		Company
	2006	2005	2006	2005
	Rmb’000	Rmb’000	Rmb’000	Rmb’000
Vessels
Cost at 31 December	976,926	989,187	527,166	512,216
Accumulated depreciation at 31 December	571,232	543,362	337,179	303,494

Further summary details of the operating leases are included in note 37(a) to the financial statements.

Certain of the Group’s vessels existing as at 31 August 1994 were revalued at that date by Colliers Jardine Appraisals Limited, independent professionally qualified valuers, on an open market existing use basis. Since then, no further revaluation of the Group’s vessels has been carried out, as the Group has relied upon the exemption granted under the transitional provisions in paragraph 80A of HKAS 16 from the requirement to carry out revaluations on a regular basis of its vessels which were stated at valuation at that time. Had these vessels been carried at historical cost less accumulated depreciation and impairment losses, their carrying amounts would have been approximately Rmb818,613,000 (2005: Rmb899,962,000).

At 31 December 2006, certain of the Group’s vessels with a net book value of approximately Rmb2,267,948,000 (2005: Rmb2,249,791,000) were pledged to secure general banking facilities granted to the Group (note 27).

15. INVESTMENTS IN SUBSIDIARIES


				2006	2005
				Rmb’000	Rmb’000
Unlisted	shares,	at	cost	4,140	386,009

Particulars of the Group’s principal subsidiary are as follows:

	Place of	Nominal value		Percentage
	incorporation/	of issued/	Class	of equity
	registration	registered	of shares	attributable to	Principal
Name	and operations	capital	in issue	the Company	activities
				Direct Indirect
China Shipping Development	Hong Kong	US$500,000	Ordinary	100% —	Investment
(Hong Kong) Marine Co.,					holding
Limited

The above table lists the subsidiary of the Company which, in the opinion of the directors, principally affected the results for the year or formed a substantial portion of the net assets of the Group. To give details of other subsidiaries would, in the opinion of the directors, result in particulars of excessive length.

— I-33 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

16. INVESTMENTS IN JOINTLY-CONTROLLED ENTITIES


				2006	2005
				Rmb’000	Rmb’000
Unlisted	shares,	at	cost	931,839	100,000

The Group’s other payable balances due to the jointly-controlled entities are disclosed in note 24 to the financial statements.

Particulars of the jointly-controlled entities are as follows:

			Percentage of
			ownership
			interest, voting
		Place of	power and
	Particulars of	incorporation/	profit sharing
	issued shares	registration and	attributable to	Principal
Name	held	operations	the Company	activities
Directly held by the Company:
Shanghai Friendship Marine Co., Ltd.	Registered Capital	PRC/	50%	Provision of
	of Rmb1 each	Mainland China		shipping services
Zhuhai New Century Marine Co., Ltd.	Registered Capital	PRC/	50%	Provision of
	of Rmb1 each	Mainland China		shipping services
Shanghai Times Shipping Co., Ltd.	Registered capital	PRC/	50%	Provision of
	of Rmb1 each	Mainland China		shipping services

The financial statements of the above jointly-controlled entities are coterminous with those of the Group. Material transactions between the jointly-controlled entities and the Group companies have been adjusted for.

— I-34 —

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

The following table illustrates the summarised financial information of the Group’s jointly-controlled entities:

Share of the jointly-controlled entities’ assets and liabilities: Current assets Non-current assets Current liabilities Non-current liabilities Net assets Share of the jointly-controlled entities’ results: Revenue Other income Total revenue Total expenses Tax Profit after tax AVAILABLE-FOR-SALE INVESTMENTS Listed equity investments, at fair value: Shanghai Unlisted equity investments, at cost	2006 Rmb’000 241,131 904,770 (56,460) (182,272) 907,169	2006 Rmb’000 241,131 904,770 (56,460) (182,272) 907,169
	573,229 59,971 633,200 (547,821) (11,676)	400,858 49,856
		450,714 (366,939 (11,505

17. AVAILABLE-FOR-SALE INVESTMENTS

During the year, the gross gain on the Group’s available-for-sale investments, net of tax impact, recognised directly in equity amounted to Rmb182,000 (2005: Nil).

The above investments consist of investments in equity securities which were designated as available-for-sale financial assets and have no fixed maturity date or coupon rate.

The fair values of listed equity investments are based on quoted market prices. As at 31 December 2006, unlisted equity investments with a carrying amount of Rmb4,000,000 (2005: Rmb4,000,000) were stated at cost because the directors are of the opinion that their fair value cannot be measured reliably.

— I-35 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

18. EQUITY INVESTMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS

	Group and Company	Group and Company
	2006	2005
	Rmb’000	Rmb’000
Listed equity investments, at fair value:
Shanghai	159,000	—

The above equity investments at 31 December 2006 classified as held for trading were, upon initial recognition, designated by the Group as financial assets at fair value through profit or loss.

The market value of the Group’s short-term investments at the date of approval of these financial statements was approximately Rmb182,800,000.

19. DEFERRED STAFF EXPENDITURE

Group and Cost At beginning of year and 31 December 2006 Accumulated amortisation At beginning of year Amortisation provided during the year At 31 December 2006 Net book value At 31 December 2006 At 31 December 2005	Company Rmb’000 127,845 69,728 12,784
	82,512
	45,333
	58,117

20. TRADE AND BILLS RECEIVABLES

Note Trade and bills receivables Due from fellow subsidiaries 28 Provision for doubtful debts Trade and bills receivables, net	Group 2006 2005 Rmb’000 Rmb’000 438,579 248,033 807 — (11,227) (20,120) 428,159 227,913	Company 2006 2005 Rmb’000 Rmb’000 402,277 230,488 — — (10,239) (19,661 392,038 210,827	Company 2006 2005 Rmb’000 Rmb’000 402,277 230,488 — — (10,239) (19,661 392,038 210,827
			210,827

— I-36 —

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

An aged analysis of the trade and bills receivables of the Group and the Company as at the balance sheet date, based on the invoice date, is as follows:

Group 2006 2005 Balance Percentage Balance Percentage Rmb’000 % Rmb’000 % 430,046 98 231,038 93 — — — — 9,340 2 16,995 7 439,386 100 248,033 100 (11,227) (20,120)	Group 2006 2005 Balance Percentage Balance Percentage Rmb’000 % Rmb’000 % 430,046 98 231,038 93 — — — — 9,340 2 16,995 7 439,386 100 248,033 100 (11,227) (20,120)	Group 2006 2005 Balance Percentage Balance Percentage Rmb’000 % Rmb’000 % 430,046 98 231,038 93 — — — — 9,340 2 16,995 7 439,386 100 248,033 100 (11,227) (20,120)	Group 2006 2005 Balance Percentage Balance Percentage Rmb’000 % Rmb’000 % 430,046 98 231,038 93 — — — — 9,340 2 16,995 7 439,386 100 248,033 100 (11,227) (20,120)
			100
	)	(20,120)
428,159 227,913 Company 2006 2005 Balance Percentage Balance Percentage Rmb’000 % Rmb’000 % 392,937 98 213,493 93 — — — — 9,340 2 16,995 7 402,277 100 230,488 100 (10,239) (19,661)
			100
	)	(19,661)
392,038		210,827

The Group normally allows a credit period of 30 days to its major customers. In view of the fact that the Group’s trade receivables relate to a large number of diversified customers, there is no significant concentration of credit risk. Trade receivables are non-interest-bearing.

— I-37 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

21. PREPAYMENTS, DEPOSITS AND OTHER RECEIVABLES

			Group	Company	Company
		2006	2005	2006	2005
	Note	Rmb’000	Rmb’000	Rmb’000	Rmb’000
Prepayments		3,234	9,872	—	—
Deposits and other debtors		101,007	38,933	66,845	26,317
Due from fellow subsidiaries	28	516,059	115,322	284,457	115,202
Due from subsidiaries		—	—	1,844,515	1,194,900
Provision for doubtful debts		(443)	(344)	(411)	(311)
		619,857	163,783	2,195,406	1,336,108

22. CASH AND CASH EQUIVALENTS

Cash and bank balances Time deposits Cash and cash equivalents	Group 2006 2005 Rmb’000 Rmb’000 626,329 865,715 37,449 312,212 663,778 1,177,927	Company 2006 2005 Rmb’000 Rmb’000 370,808 554,289 — 48,421 370,808 602,710	Company 2006 2005 Rmb’000 Rmb’000 370,808 554,289 — 48,421 370,808 602,710
			602,710

Cash at banks earns interest at floating rates based on daily bank deposit rates. Short term time deposits are made for varying periods of between one day and three months depending on the immediate cash requirements of the Group, and earn interest at the respective short-term time deposit rates. The carrying amounts of the cash and cash equivalents approximate to their fair values. At the balance sheet date, the cash and bank balances of the Group denominated in US$ amounted to Rmb181,687,000 (2005: Rmb488,494,000).

23. TRADE PAYABLES

Note Trade payables Due to fellow subsidiaries 28	Group 2006 2005 Rmb’000 Rmb’000 223,005 209,261 4,294 7,627 227,299 216,888	Company 2006 2005 Rmb’000 Rmb’000 213,899 197,903 — 5,995 213,899 203,898	Company 2006 2005 Rmb’000 Rmb’000 213,899 197,903 — 5,995 213,899 203,898
			203,898

— I-38 —

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

An aged analysis of the trade payables as at the balance sheet date, based on the invoice date, is as follows:

			Group
		2006			2005
	Balance	Percentage		Balance	Percentage
	Rmb’000	%	Rmb’000		%
Within one year	226,151	99		214,449	99
One to two years	869	1		302	—
Over two years	279	—		2,137	1
	227,299	100		216,888	100
			Company
		2006			2005
	Balance	Percentage		Balance	Percentage
	Rmb’000	%	Rmb’000		%
Within one year	212,751	99		201,482	99
One to two years	869	1		279	—
Beyond two years	279	—		2,137	1
	213,899	100		203,898	100

The trade payables are non-interest-bearing and are normally settled in one to three months.

24. OTHER PAYABLES AND ACCRUALS

			Group		Company
		2006	2005	2006	2005
	Note	Rmb’000	Rmb’000	Rmb’000	Rmb’000
Accruals		157,390	204,710	145,766	200,269
Other liabilities		189,853	298,016	179,088	151,800
Due to jointly-controlled entities		1,163	—	2,325	—
Due to fellow subsidiaries	28	520,219	16,589	5,614	8,565
		868,625	519,315	332,793	360,634

Other payables are non-interest-bearing and have an average term of one to three months.

— I-39 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

24. DERIVATIVE FINANCIAL INSTRUMENTS

Group

					2006
				Contract/		Fair
				notional amount	Values Assets
				Rmb’000		Rmb’000
Cross	currency	swap	agreements	913,837		1,044

The carrying amounts of forward currency contracts are the same as their fair values.

Cash flow hedges

As at 31 December 2006, the Group held two cross currency swap agreements designated as hedges in respect of expected future JPY bank loans for which the Group has firm commitments.

The terms of the cross currency swap agreements have been negotiated to match the terms of the commitments. The cash flow hedges of the expected future JPY bank loans were assessed to be highly effective and a net gain of Rmb861,000 was included in the hedging reserve as follows:

Total fair value gains included in the hedging reserve Deferred tax on fair value gains Net gains on cash flow hedges	2006 Rmb’000 1,044 (183)
	861

26. CURRENT PORTION OF INTEREST-BEARING BANK AND OTHER BORROWINGS, AND FINANCE LEASE PAYABLES

Notes Current portion of bank and other borrowings 27 Current portion of finance lease payables 29	Group 2006 2005 Rmb’000 Rmb’000 1,467,012 233,225 39,561 62,416 1,506,573 295,641	Company 2006 2005 Rmb’000 Rmb’000 1,337,150 228,225 29,845 37,131 1,366,995 265,356	Company 2006 2005 Rmb’000 Rmb’000 1,337,150 228,225 29,845 37,131 1,366,995 265,356
			265,356

On 5 March 2007, a bank loan of Rmb720,000,000 included in the current portion of bank and other borrowings at the balance sheet date has been replaced by a long-term loan offered by the bank.

— I-40 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

27. INTEREST-BEARING BANK AND OTHER BORROWINGS, AND FINANCE LEASE PAYABLES

Effective interest rate (%) Maturity Current Finance lease payables (note 29) 3.25 - 6.12 2007 Bank loans - secured 5.19 - 6.84 or Libor + 0.42 - 0.85 2007 Bank loans - unsecured 5.022 or Libor + 0.48 2007 Non-current Finance lease payables (note 29) 6.12 2008-2013 Bank loans - secured 5.19 - 6.84 or Libor + 0.42 - 0.85 2008-2016 Bank loans - unsecured Libor + 0.48 2008-2016	Group 2006 2005 Rmb’000 Rmb’000 39,561 62,416 237,251 233,225 1,229,761 — 1,506,573 295,641 55,901 93,661 1,763,830 1,346,745 68,327 — 1,888,058 1,440,406 3,394,631 1,736,047	Company 2006 2005 Rmb’000 Rmb’000 29,845 37,131 117,150 228,225 1,220,000 — 1,366,995 265,356 — 27,848 760,620 1,336,745 — — 760,620 1,364,593 2,127,615 1,629,949	Company 2006 2005 Rmb’000 Rmb’000 29,845 37,131 117,150 228,225 1,220,000 — 1,366,995 265,356 — 27,848 760,620 1,336,745 — — 760,620 1,364,593 2,127,615 1,629,949
			265,356
			27,848 1,336,745 —
			1,364,593
			1,629,949

— I-41 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Group 2006 2005 RMB’000 RMB’000 1,467,012 233,225 247,012 233,225 741,606 619,675 843,539 493,845	Group 2006 2005 RMB’000 RMB’000 1,467,012 233,225 247,012 233,225 741,606 619,675 843,539 493,845	Company 2006 2005 RMB’000 RMB’000 1,337,150 228,225 117,150 228,225 352,020 614,675 291,450 493,845	Company 2006 2005 RMB’000 RMB’000 1,337,150 228,225 117,150 228,225 352,020 614,675 291,450 493,845
3,299,169 39,561 7,864 23,623 24,414 95,462	1,579,970 62,416 39,556 26,690 27,415 156,077	2,097,770 29,845 — — — 29,845	1,564,970
			37,131 27,848 — —
			64,979
3,394,631	1,736,047	2,127,615	1,629,949

The Group’s bank loans are secured by pledges of the Group’s 8 vessels (2005: 19 vessels) with an aggregate net book value at 31 December 2006 of Rmb2,267,948,000 (2005: Rmb2,249,791,000).

Bank loans of Rmb211,840,000 were guaranteed by China Shipping as at 31 December 2006 (2005: Nil).

The carrying amounts of the Group’s and the Company’s interest-bearing bank and other borrowings approximate to their fair values.

Except for secured bank loans of Rmb1,349,135,000 which are denominated in United States dollars, all borrowings are in Renminbi.

28. BALANCES WITH SUBSIDIARIES, FELLOW SUBSIDIARIES, JOINTLY-CONTROLLED ENTITIES, AND RELATED COMPANIES

Except for the balances due to fellow subsidiaries with a total amount of Rmb498,521,000 which are interest-bearing at a rate of 5.022% and are due within one year, the balances are unsecured, interest-free and have no fixed terms of repayment. The carrying amounts of these balances approximate to their fair values.

— I-42 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

29. FINANCE LEASE PAYABLES

As at 31 December 2006, the Group had non-cancellable finance leases for the purchase of vessels. The terms of such leases are for a period of 11 years except for one of the Group’s jointly-controlled entities which had non-cancellable finance leases for a period of 7 years and 7 months. All these terms commence from the respective dates of delivery of the vessels. The Group has the option to purchase the leased vessels at the end of the lease terms. At 31 December 2006, the total future minimum lease payments under finance leases and their present values were as follows:

Group Minimum lease payments Present value of minimum lease payments 2006 2005 2006 2005 Rmb’000 Rmb’000 Rmb’000 Rmb’000 43,248 67,369 39,561 62,416 10,904 43,300 7,864 39,555 32,743 36,116 23,623 26,690 28,640 34,982 24,414 27,416	Group Minimum lease payments Present value of minimum lease payments 2006 2005 2006 2005 Rmb’000 Rmb’000 Rmb’000 Rmb’000 43,248 67,369 39,561 62,416 10,904 43,300 7,864 39,555 32,743 36,116 23,623 26,690 28,640 34,982 24,414 27,416	Group Minimum lease payments Present value of minimum lease payments 2006 2005 2006 2005 Rmb’000 Rmb’000 Rmb’000 Rmb’000 43,248 67,369 39,561 62,416 10,904 43,300 7,864 39,555 32,743 36,116 23,623 26,690 28,640 34,982 24,414 27,416	Group Minimum lease payments Present value of minimum lease payments 2006 2005 2006 2005 Rmb’000 Rmb’000 Rmb’000 Rmb’000 43,248 67,369 39,561 62,416 10,904 43,300 7,864 39,555 32,743 36,116 23,623 26,690 28,640 34,982 24,414 27,416
115,535 (20,073) 95,462 (39,561)	181,767 (25,690) 156,077 (62,416)	95,462	156,077

55,901	93,661

— I-43 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Company Minimum lease payments Present value of minimum lease payments 2006 2005 2006 2005 Rmb’000 Rmb’000 Rmb’000 Rmb’000 30,491 38,941 29,845 37,131 — 28,451 — 27,848 30,491 67,392 29,845 64,979 (646) (2,413) 29,845 64,979 (29,845) (37,131)	Company Minimum lease payments Present value of minimum lease payments 2006 2005 2006 2005 Rmb’000 Rmb’000 Rmb’000 Rmb’000 30,491 38,941 29,845 37,131 — 28,451 — 27,848 30,491 67,392 29,845 64,979 (646) (2,413) 29,845 64,979 (29,845) (37,131)	Company Minimum lease payments Present value of minimum lease payments 2006 2005 2006 2005 Rmb’000 Rmb’000 Rmb’000 Rmb’000 30,491 38,941 29,845 37,131 — 28,451 — 27,848 30,491 67,392 29,845 64,979 (646) (2,413) 29,845 64,979 (29,845) (37,131)	Company Minimum lease payments Present value of minimum lease payments 2006 2005 2006 2005 Rmb’000 Rmb’000 Rmb’000 Rmb’000 30,491 38,941 29,845 37,131 — 28,451 — 27,848 30,491 67,392 29,845 64,979 (646) (2,413) 29,845 64,979 (29,845) (37,131)
			64,979
	) )	(2,413) 64,979 (37,131)
29,845 (29,845
—		27,848

30. DEFERRED TAX

The movements in deferred tax liabilities and assets during the year are as follows:

Deferred tax liabilities

Group

Unremitted earnings Available -for-sale investments Rmb’000 Rmb’000 At 1 January 2006 — — Deferred tax charged to the income statement during the year (note 10) 67,147 — Deferred tax debited to equity during the year — 32 Gross deferred tax liabilities at 31 December 2006 67,147 32	Cash flow hedge Equity investments at fair value through profit or loss Rmb’000 Rmb’000 — — — 12,720 183 — 183 12,720	Total Rmb’000 — 79,867 215
		80,082

— I-44 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Company

At 1 January 2006 Deferred tax charged to the income statement during the year Deferred tax debited to equity during the year Gross deferred tax liabilities at 31 December 2006 Deferred tax assets At 1 January Deferred tax credited/(charged) to the income statement during the year (note 10) Gross deferred tax assets at 31 December	Available -for-sale investments Equity investments at fair value through profit or loss Total Rmb’000 Rmb’000 Rmb’000 — — — — 12,720 12,720 32 — 32 32 12,720 12,752 Group Company Deductible tax depreciation Deductible tax depreciation 2006 2005 2006 2005 Rmb’000 Rmb’000 Rmb’000 Rmb’000 20,795 20,860 15,565 14,319 (705) (65) 289 1,246 20,090 20,795 15,854 15,565	Total Rmb’000 — 12,720 32
		12,752
		15,565

There are no income tax consequences attaching to the payment of dividends by the Company to its shareholders.

31. ISSUED CAPITAL

		Group	and Company
	2006	2006	2005	2005
	Number	Rmb’000	Number	Rmb’000
	of shares		of shares
Registered, issued and fully paid
State-owned legal person shares/A shares of
Rmb1.00 each	1,578,500,000	1,578,500	1,578,500,000	1,578,500
H shares of Rmb1.00 each	1,296,000,000	1,296,000	1,296,000,000	1,296,000
Listed A shares of Rmb1.00 each	451,500,000	451,500	451,500,000	451,500
	3,326,000,000	3,326,000	3,326,000,000	3,326,000

— I-45 —

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

					Total	equity	Rmb’000		4,846,471		1,386	4,847,857	2,693,878	—	(4,045)		—		(997,800)		10,000	6,549,890	2,758,848	—	(10,890)		—		(997,800)	—	861		182	(27,967)	8,273,124
					Minority	interests	Rmb’000		12,291		—	12,291	2,678	—	—		—		—		10,000	24,969	2,998	—	—		—		—	—	—		—	(27,967)	—
						Total	Rmb’000		4,834,180		1,386	4,835,566	2,691,200	—	(4,045)		—		(997,800)		—	6,524,921	2,755,850	—	(10,890)		—		(997,800)	—	861		182	—	8,273,124
					Retained	profits	Rmb’000		1,654,022		1,386	1,655,408	2,691,200	(556,835)	—		3,117		(997,800)		—	2,795,090	2,755,850	(276,202)	—		8,150		(997,800)	—	—		—	26,222	4,311,310
Group	Attributable to equity holders of the parent	Available-	for-sale	General investment Exchange	surplus Hedging revaluation fluctuation	reserve reserve reserve reserve	Rmb’000 Rmb’000 Rmb’000 Rmb’000		93,158 — — (91)		— — — —	93,158 — — (91)	— — — —	— — — —	— — — (4,045)		— — — —		— — — —		— — — —	93,158 — — (4,136)	— — — —	— — — —	— — — (10,890)		— — — —		— — — —	— — — —	— 861 — —		— — 182 —	— — — —	93,158 861 182 (15,026)
			Statutory	public	welfare	fund	Rmb’000		385,470		—	385,470	—	275,700	—		—		—		—	661,170	—	—	—		—		—	(661,170)	—		—	—	—
				Statutory	surplus	reserve	Rmb’000		483,641		—	483,641	—	281,135	—		—		—		—	764,776	—	276,202	—		—		—	661,170	—		—	(26,222)	1,675,926
					Revaluation	reserve	Rmb’000		180,096		—	180,096	—	—	—		(3,117)		—		—	176,979	—	—	—		(8,150)		—	—	—		—	—	168,829
				Share	premium	account	Rmb’000		2,037,884		—	2,037,884	—	—	—		—		—		—	2,037,884	—	—	—		—		—	—	—		—	—	2,037,884
								At 1 January 2005	As previous reported	Adoption of a new	accounting policy	As restated	Profit for the year	Transfers from/(to) reserves	Exchange realignment	Release on disposal of items of	property, plant and equipment	Proposed final 2005 dividend	(note 12)	Capital injection by minority	interests for the year	At 31 December 2005	Profit for the year	Transfers from/(to) reserves	Exchange realignment	Release on disposal of items of	property, plant and equipment	Proposed final 2006 dividend	(note 12)	Reclassification	Net gains on cash flow hedges	Changes in fair value of	available-for-sale investments	Liquidation of a subsidiary	At 31 December 2006

— I-46 —

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

				Total	Rmb’000	4,679,440	2,477,262	—		—	(997,800)	6,158,902	2,801,742	—		—	(997,800)	—		182	7,963,026
			Retained	profits	Rmb’000	1,518,890	2,477,262	(538,218)		3,117	(997,800)	2,463,251	2,801,742	(274,111)		8,150	(997,800)	—		—	4,001,232
Available-	for- sale	investment	revaluation	reserve	Rmb’000	—	—	—		—	—	—	—	—		—	—	—		182	182
		General	surplus	reserve	Rmb’000	93,158	—	—		—	—	93,158	—	—		—	—	—		—	93,158
		Statutory	public	welfare fund	Rmb’000	379,709	—	269,109		—	—	648,818	—	—		—	—	(648,818)		—	—
		Statutory	surplus	reserve	Rmb’000	472,867	—	269,109		—	—	741,976	—	274,111		—	—	648,818		—	1,664,905
			Revaluation	reserve	Rmb’000	176,932	—	—		(3,117)	—	173,815	—	—		(8,150)	—	—		—	165,665
		Share	premium	account	Rmb’000	2,037,884	—	—		—	—	2,037,884	—	—		—	—	—		—	2,037,884
						At 1 January 2005	Profit for the year	Transfers from/(to) reserves	Release on disposal of items of property, plant and	equipment	Proposed final 2005 dividend (note 12)	At 31 December 2005 and beginning of year	Profit for the year	Transfers from/(to) reserves	Release on disposal of items of property, plant and	equipment	Proposed final 2006 dividend (note 12)	Reclassification	Changes in fair value of available-for-sale	investments	At 31 December 2006

— I-47 —

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

In accordance with the Company Law of the PRC and the Company’s articles of association, the Company is required to allocate 10% of its profit after tax, as determined in accordance with PRC GAAP and regulations applicable to the Company, to the statutory surplus reserve (the “SSR”) until the SSR reaches 50% of the registered capital of the Company. Subject to certain restrictions set out in the Company Law of the PRC and the Company’s articles of association, part of the SSR may be converted to increase share capital, provided that the remaining balance after capitalisation is not less than 25% of the registered capital.

In prior year, in accordance with the Company Law of the PRC, the Company was required to transfer 5% to 10% of its profit after tax, as determined in accordance with PRC GAAP and regulations applicable to the Company, to its statutory public welfare fund (the “PWF”) which is a non-distributable reserve other than in the event of the liquidation of the Company. The PWF must be used for capital expenditure on staff welfare facilities and these facilities remain as property of the Company unless subsequently transferred or disposed of.

Pursuant to the relevant regulations, the appropriation of PWF was discontinued with effect from 1 January 2006, and the remaining PWF is reclassified to SSR.

The directors have proposed to transfer Rmb274,111,000 (2005: Rmb269,109,000) to SSR, represents 10% (2005: 10%) of the Company’s profit after tax of Rmb2,741,108,000 (2005: Rmb2,691,090,000), as determined in accordance with PRC GAAP. The transfer to the SSR is subject to shareholders’ approval at the forthcoming annual general meeting.

According to the relevant regulations in the PRC, the reserves available for distribution is the lower of the amount determined under PRC GAAP and the amount determined under HK GAAP. On this basis, as at 31 December 2006, before the proposed final dividend, the Company had a reserve of Rmb4,999,032,000 (2005: Rmb3,461,051,000) available for distribution as dividends.

In addition, in accordance with the Company Law of the PRC, an amount of approximately Rmb2,037,884,000 (2005: Rmb2,037,884,000) standing to the credit of the Company’s share premium account was available for distribution by way of future capitalisation issues.

— I-48 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

33. NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT

(a) Reconciliation of profit before tax to net cash inflow from operating activities

Profit before tax Adjustments for: Interest income Depreciation Amortisation of deferred staff expenditure Provision/(write-back of provision) for bad debts Gain on disposal of property, plant and equipment, net Losses on liquidation of a subsidiary Fair value gain on equity investments at fair value through profit or loss Write-off of construction in progress Operating profit before working capital changes Increase in trade and bills receivables (Increase)/decrease in bunker oil inventories Decrease in prepayments Increase in deposits and other debtors (Increase)/decrease in amounts due from fellow subsidiaries Increase in trade payables Increase/(decrease) in accruals Increase in other liabilities Increase in amounts due to fellow subsidiaries Increase in amounts due to jointly-controlled entities Cash generated from operations Interest paid Income tax paid Net cash inflow from operating activities	2006 Rmb’000 3,301,863 (24,893) 1,000,165 12,784 247 (170,259) 17,254 (84,800) 2,875	2005 Rmb’000 3,146,517 (24,508) 922,049 12,784 1,075 (107,529) — — 8,545 3,958,933 (74,400) (120,449) 1,321 (1,062) 108,653 50,174 32,091 23,999 18,295 — 3,997,555 135,593 (455,606) 3,677,542
	4,055,236 (199,587) 64,269 6,638 (62,074) (170,098) 13,744 (51,793) 26,448 1,776 1,163 3,685,722 128,721 (447,859)	3,958,933 (74,400 (120,449 1,321 (1,062 108,653 50,174 32,091 23,999 18,295 —
		3,997,555 135,593 (455,606
	3,366,584

— I-49 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

(b) Major non-cash transactions

The Group incurred payables of Rmb134,611,000 to shipyards for vessels which were under construction as at 31 December 2005.

The Group incurred payables to China Shipping Group and its fellow subsidiaries of Rmb498,521,000 for the purchases of 9 dry bulk cargo vessels as at 31 December 2006.

During the year, the Group sold vessels to one of its fellow subsidiaries and recorded receivables of Rmb231,446,000 as at 31 December 2006.

(c) Liquidation of a subsidiary

Net assets disposed of: Cash and bank balances Minority interests Loss on liquidation of a subsidiary Satisfied by: Cash	2006 Rmb’000 632,708 (27,967) 604,741 (17,254) 587,487 587,487

An analysis of the net outflow of cash and cash equivalents in respect of the liquidation of a subsidiary is as follows:

Cash consideration Cash and bank balances disposed of Net outflow of cash and cash equivalents in respect of the liquidation of a subsidiary	2006 Rmb’000 587,487 (632,708) (45,221)

34. PENSION SCHEME

The Group is required to contribute to a pension scheme (the “Scheme”) for the eligible employees. Under the Scheme, the Group’s retirement benefit obligations to its existing and future retiring employees is limited to its annual contributions equivalent to 22.5% (2005: 22.5%) of the basic salaries of the Group’s employees, after certain adjustments on individual employees’ salaries in accordance with applicable regulations. Contributions by the Group to the Scheme for the year ended 31 December 2006 amounted to Rmb79,591,000 (2005: Rmb78,612,000).

— I-50 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

35. PLEDGE OF ASSETS

Details of the Group’s bank loans secured by the assets of the Group are included in note 27 to the financial statements.

36. CONTINGENT LIABILITIES

(i) In March 2005, one of the Company’s cargo vessels “Hualing” collided with a vessel of a German company. In June 2005, the Company was sued by the German company, claiming US$10 million (equivalent to approximately Rmb78 million) in compensation for the losses arising from the accident. The Company has made provision as at 31 December 2006 for the estimated loss from the claim taking into consideration the amount that could be compensated by the insurance company.
(ii) In December 2005, one of the Company’s oil tankers “Daqing 91” leaked fuel during its voyage. According to a settlement agreement among Ministry of Communication, the Company and local authorities such as Maritime Safety Administration of Shandong Province, the Company would assume responsibility of the accident. The Company has made provision for the estimated loss from the claims taking into consideration the amount that could be compensated by the insurance company.

37. OPERATING LEASE ARRANGEMENTS

(a) As lessor

The Group leases certain of its vessels under operating lease arrangements, with leases negotiated for terms ranging from 1 to 12 years.

As at 31 December 2006, the Group had total future minimum lease rental receivables under non-cancellable operating leases falling due as follows:

Within one year In the second to fifth years, inclusive After five years	Group 2006 2005 Rmb’000 Rmb’000 91,119 75,283 6,839 78,875 — — 97,958 154,158	Company 2006 2005 Rmb’000 Rmb’000 40,813 43,647 6,839 47,239 — — 47,652 90,886	Company 2006 2005 Rmb’000 Rmb’000 40,813 43,647 6,839 47,239 — — 47,652 90,886
			90,886

— I-51 —

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

The Company entered into several bare-boat charter party agreements with its jointly-controlled entities, whereby the Company has agreed to lease to its jointly-controlled entities. The charter commitment for these vessels is as follows:

As lessor: Within one year In the second to fifth years, inclusive	2006 Rmb’000 4,875 — 4,875	2005 Rmb’000 5,000 4,875
		9,875

(b) As lessee

The Group entered into non-cancellable operating lease arrangements on vessels, vehicles and buildings. The leases are negotiated for terms ranging from one to six years.

As at 31 December 2006, the Group and the Company had total future minimum lease payments under non-cancellable operating leases falling due as follows:

		Group		Company
	2006	2005	2006	2005
	Rmb’000	Rmb’000	Rmb’000	Rmb’000
Within one year	103,103	221,680	278,673	188,999
In the second to fifth years, inclusive	1,802	120,909	671,925	89,273
After five years	—	—	852,277	—
	104,905	342,589	1,802,875	278,272

In addition, the Group’s share of the jointly-controlled entities’ total future minimum lease payments under non-cancellable operating leases is as follows:

Within one year In the second to fifth years, inclusive	2006 Rmb’000 33,644 17,454 51,098	2005 Rmb’000 56,165 23,754
		79,919

— I-52 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

38. COMMITMENTS

In addition to the operating lease commitments detailed in note 37(b) above, the Group and the Company had the following capital commitments at the balance sheet date:

Contracted, but not provided for: Construction of vessels Purchases of vessels Authorised, but not contracted for: Renovation of vessels Capital contributions payable to jointly- controlled entities	Group 2006 2005 Rmb’000 Rmb’000 7,633,629 1,881,664 1,230,479 —	Group 2006 2005 Rmb’000 Rmb’000 7,633,629 1,881,664 1,230,479 —	Company 2006 2005 Rmb’000 Rmb’000 4,624,093 1,724,618 1,142,450 —	Company 2006 2005 Rmb’000 Rmb’000 4,624,093 1,724,618 1,142,450 —
	8,864,108 — —	1,881,664 31,200 70,000	5,766,543 — —	1,724,618 31,200 70,000
	8,864,108	1,982,864	5,766,543	1,825,818

In addition, the Group’s share of the jointly-controlled entities’ capital commitments at the balance sheet date was as follows:

Contracted, but not provided for: Construction of vessels Purchases of vessels Renovation of vessels	2006 Rmb’000 512,446 952,375 — 1,464,821	2005 Rmb’000 189,246 67,991 15,365
		272,602

— I-53 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

39. DIFFERENCES IN FINANCIAL STATEMENTS PREPARED UNDER HK GAAP AND PRC GAAP

The Group has prepared a separate set of financial statements for the year ended 31 December 2006 in accordance with accounting principles generally accepted in the PRC (“PRC GAAP”). The major differences between the financial statements prepared under PRC GAAP and those under HK GAAP are as follows:

Profit attributable to equity holders of the parent under HK GAAP Adjustments for depreciation, gain on disposal of vessels and deferred staff expenditure, etc. Profit attributable to equity holders of the parent under PRC GAAP Equity attributable to equity holders of the parent under HK GAAP Adjustments for revaluation surplus, depreciation, gain on disposal of vessels and deferred staff expenditure, etc. Equity attributable to equity holders of the parent under PRC GAAP	2006 Rmb’000 2,755,850 4,943 2,760,793	2005 Rmb’000 2,691,200 23,023 2,714,223 10,848,721 (137,497) 10,711,224
	12,596,924 (131,028)	10,848,721 (137,497
	12,465,896

40. RELATED PARTY TRANSACTIONS

In addition to the transactions and balances detailed elsewhere in these financial statements, business transactions between the Group and its holding company, fellow subsidiaries and jointly-controlled entities of the Group as well as related parties for the year ended 31 December 2006, which are also considered by the directors as related party transactions, are set out below:

(1) A services agreement dated 3 April 2001 between the Company and China Shipping became effective subsequent to an approval by the independent shareholders at an extraordinary general meeting held on 22 May 2001. Pursuant to the services agreement and a supplementary agreement entered into on 8 January 2004, China Shipping or its subsidiaries or jointly-controlled entities will provide to the Group the necessary supporting shipping materials and services for the ongoing operations of the Group, including the provision of dry-docking and repairs services, lubricating oil, fresh water supplies, raw materials and bunker oil, as well as other services. The service agreement has been updated by a new agreement entered into between China Shipping (and its subsidiaries and jointly-controlled entities) and the Company on 31 October 2006 which became effective from 1 January 2007 and will last for a period of 3 years. The fees for the agreed supplies payable to China Shipping were determined with reference to, depending on applicability and availability, any one among the state price, market price or cost.

— I-54 —

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

Further details of the principal amounts paid by the Group to China Shipping, its subsidiaries or jointly-controlled entities in respect of the services agreement for the year ended 31 December 2006 are set out below:

		2006	2005
	Pricing basis	Total value	Total value
		Rmb’000	Rmb’000
Dry-docking and repairs	State-fixed price or	279,921	343,325
	market price
Supply of lubricating oil, fresh water supplies,	Market price	1,596,164	1,332,408
raw materials, bunker oil, mechanical and
electrical engineering, ship stores and repairs
and maintenance services for lifeboats
Whitewashing and water treatment for vessels	State-fixed price or	10,033	11,436
	market price
Installation, repairs and maintenance of	State-fixed price	31,562	23,740
telecommunication and navigational services
Hiring of sea crews	Market price	164,050	200,132
Accommodation, lodging and transportation for	Market price	7,813	5,949
employees
Medical services (for existing employees)	State-fixed price	1,391	1,596
Miscellaneous management services	Market price	46,970	41,789
Agency commissions	Market price	71,896	64,866
Service fees on the sale and purchase of vessels,	Market prices	1,245	3,530
accessories and other equipment

In connection with the above transactions and for other operating purposes, the Group made prepayments or advances to subsidiaries and jointly-controlled entities of China Shipping from time to time.

(2) Save for the related party transactions outlined above, details of the Group’s related party transactions with the holding company, fellow subsidiaries, jointly-controlled entities and related companies are as follows:

		2006	2005
	Notes	Rmb’000	Rmb’000
Vessel chartering charges paid	(a)	89,638	97,041
Agency commissions paid		897	880
Vessel chartering income received	(b)	(107,027)	(96,609)
Sale of vessels	(c)	(283,720)	(123,463)
Vessel management fees	(d)	(12,219)	(11,282)
Purchases of vessels	(e)	712,173	—

Notes:

(a) The Company has entered into the following agreements:
A time charter party agreement on 22 December 2004 with one of its fellow subsidiaries, namely China Shipping (Hong Kong) Holdings Co., Ltd., whereby the Company has agreed to lease from this fellow subsidiary a vessel for a term of three years commencing 1 January 2005. The charter payment for this vessel for the year ended 31 December 2006 was Rmb55,965,000.

— I-55 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

A time charter party agreement on 22 December 2004 with one of its fellow subsidiaries, namely Shanghai Shipping Industrial Co., Ltd., whereby the Company has agreed to lease from this fellow subsidiary a vessel for a term of three years commencing 1 January 2005. The charter payment for this vessel for the year ended 31 December 2006 was Rmb27,777,000.
A time charter party agreement with one of its fellow subsidiaries, namely Zhuhai Shipping Enterprise Co., Ltd., in the prior year, whereby the Company agreed to lease from this fellow subsidiary a vessel for a term commencing 1 January 2002 and ending on 9 September 2006, the scrap date of the vessel. The charter payment for this vessel for the year ended 31 December 2006 was Rmb5,896,000.
(b) The Company has entered into the following agreements:
Together with one of its subsidiaries, namely China Shipping Development (Hong Kong) Marine Co., Limited (“China Shipping Hong Kong”), various bare-boat charter party agreements on 22 December 2004 with one of their fellow subsidiaries, namely China Shipping Container Lines Co., Ltd. (“CSC”), whereby the Company and China Shipping Hong Kong have agreed to lease to this fellow subsidiary four and five vessels for a term of three years commencing 1 January 2005. The chartering income for these vessels for the year ended 31 December 2006 was Rmb64,094,000.
Various bare-boat charter party agreements in 1998 with one of its fellow subsidiaries, namely CSC, whereby the Company has agreed to lease to this fellow subsidiary three vessels for a term of 12 years commencing 4 September 1998, 18 September 1998 and 23 September 1998, respectively, for a total consideration of Rmb2,520,000 for the year ended 31 December 2006.
A time charter party agreement with one of its jointly-controlled entities, namely Shanghai Times Shipping Co., Ltd. (“Times Shipping”), whereby Times Shipping has agreed to lease from the Company a vessel for a term of one year commencing 1 January 2006. Times Shipping has agreed to engage the Company’s voyage charter service in the year. The charter income for this vessel for the year ended 31 December 2006 was Rmb30,048,000.*
A bare-boat charter party agreement with one of its jointly-controlled entities, namely Shanghai Friendship Marine Co., Ltd. (“Friendship”), whereby Friendship has agreed to lease from the Company a vessel for a term of two years commencing 21 December 2005. The charter income for this vessel for the year ended 31 December 2006 was Rmb5,000,000.*
A bare-boat charter party agreement in year 2002 with one of its fellow subsidiaries, namely Shanghai Puhai Marine Co., Ltd., whereby the Company has agreed to lease to this fellow subsidiary a vessel for a term commencing 1 January 2002 and ending on the scrap date of the vessel. The chartering income for this vessel for the year ended 31 December 2006 was Rmb1,200,000.
Some voyage charter party agreements with New Century, whereby New Century has agreed to engage the Company’s voyage charter services in year 2006. The charter income for these voyage charter services for the year ended 31 December 2006 was Rmb1,998,000.*
Some voyage charter party agreements with Times Shipping, whereby Times Shipping has agreed to engage the Company voyage charter services in year 2006. The charter income for these voyage charter services for the year ended 31 December 2006 was Rmb2,167,000.*
(c) The Company and one of its fellow subsidiaries, namely Yuzhou Ship Dismantling Company Limited, entered into a sale and purchase agreement on 21 April 2006, whereby the Company has agreed to sell and the fellow subsidiary has agreed to purchase the oil tanker named “Daqing 232”, and thereafter to dismantle it for scrap metal. The consideration for the sale of this vessel was Rmb10,245,000 as determined based on the market price of scrap metal.

— I-56 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

On 11 December 2006, China Shipping Hong Kong, a wholly-owned subsidiary of the Company, entered into a sale and purchase agreement with one of its fellow subsidiaries, namely China Shipping Haisheng (Hong Kong) Co., Ltd. Pursuant to this agreement, China Shipping Hong Kong has agreed to sell 4 oil tankers to China Shipping Haisheng HK for a total consideration of Rmb240,800,000 as determined by reference to the asset valuation report of the oil tankers dated 21 September 2006 issued by an independent and qualified PRC valuer.

The Company and one of its fellow subsidiaries, namely Digang Dili Material Recovery Company (“Dili Recovery Company), entered into two sale and purchase agreements on 22 December 2005 and 28 December 2006, respectively, whereby the Company has agreed to sell and Dili Recovery Company has agreed to purchase two oil tankers, and thereafter to dismantle them for scrap metal. The consideration for the sale of these vessels was respectively Rmb15,388,000 and Rmb17,287,000, respectively, as determined based on the market price of scrap metal.

(d) On 27 May 1998, the Company entered into two cargo vessel management agreements with Dalian Shipping (Group) Company (“Dalian Shipping”) and Guangzhou Maritime Transport (Group) Company Limited (“Guangzhou Maritime”) for the management of their 15 and 57 cargo vessels (the “Cargo Vessels”), respectively. Each of the cargo vessel management agreements contains an option exercisable by the Company at any time prior to the expiration thereof to acquire any of the Cargo Vessels, and under which the Company has a right of first refusal in respect of any proposed sale of the Cargo Vessels. In the event that Dalian Shipping or Guangzhou Maritime ceases to own any of the Cargo Vessels, the management fees shall be reduced accordingly by the percentage represented by the tonnage of the vessels disposed of to the total tonnage of the Cargo Vessels.

On 22 June 2005, the Company entered into two supplementary agreements with Guangzhou Maritime and Dalian Shipping, respectively. According to these agreements, Guangzhou Maritime should pay the Company Rmb10,136,000 (2005: Rmb9,199,000) for the management of its cargo vessels during the year ended 31 December 2006, while Dalian Shipping should pay Rmb2,083,000 (2005: Rmb2,083,000) for similar services in the same year.

(e) On 31 October 2006, the Company exercised the option mentioned in note (d) above by entering into an acquisition agreement with China Shipping to acquire 42 cargo vessels for a total consideration of Rmb2.47 billion. Nine vessels had been delivered to the Company as at 31 December 2006 according to the acquisition agreement. The remaining 33 vessels were delivered to the Company in January and March 2007.
(f) Pursuant to a board resolution passed on 19 October 2006, the Company acquired the 50% equity interest in Times Shipping held by Hainan Haixiang for a consideration of Rmb411,839,000. After the transaction, Hainan Haixiang was liquidated on 31 December 2006.
(g) Pursuant to a board resolution passed on 24 November 2006, the Company made an additional capital injection of Rmb350 million to Times Shipping.
(h) Pursuant to two bare-boat charter party agreements both dated 20 October 1994, Shanghai Shipping (Group) Company (“Shanghai Shipping”, formerly the Company’s holding company and now a fellow subsidiary) agreed to charter two vessels to the Company from their respective dates of delivery to the Company until full repayment of the principal and interest of the related loans borrowed by Shanghai Shipping to purchase the vessels and under which, on due completion of the charters, the vessels will become the Company’s property. The vessels were delivered to the Company on 1 January 1996. The principal amounts to be paid each year until 2007 total approximately DM7.6 million. With the currency reform in Europe starting from 1 January 2002, the principal amounts re-denominated to Euro amount to approximately EURO3.9 million.

— I-57 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

(i) Pursuant to the share transfer agreement entered into between the Company and China Shipping on 9 September 2002, the Company transferred its 25% equity interest in CSC to China Shipping for a consideration of Rmb1. The Company is entitled to an option to buy back from China Shipping all or part of the interest in CSC disposed of on terms and for considerations to be agreed between the two parties (“the Option”). It was resolved in the board meeting of the Company on 8 January 2004 that the Company would not exercise the option within three years from the date when CSC was converted into a joint stock limited company, which was on 3 March 2004.
(3) Outstanding balances with related parties:

Details of the Group’s current account balances with its fellow subsidiaries as at the balance sheet date are disclosed in notes 20, 21, 23 and 24 to the financial statements.

(4) Compensation of key management personnel of the Group:

Fees Other emoluments: Salaries, allowances and benefits in kind Pension scheme contributions	2006 Rmb’000 180 2,852 122 3,154	2005 Rmb’000 180 3,570 96
		3,846

Details of directors’ and supervisors’ emoluments are included in note 8 to the financial statements.

Except for the vessel chartering transactions with certain jointly-controlled entities of the Group, namely New Century, Times Shipping and Friendship, as disclosed with asterisks in paragraph (2)(b) above, and the capital injection to Times Shipping as disclosed in paragraph (2)(g) above, the above related party transactions as disclosed in paragraphs (1) and (2) also constitute connected transactions or continuing connected transactions as defined in Chapter 14A of the Listing Rules.

41. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

The Group’s principal financial instruments comprise bank loans, finance leases, and cash and short-term deposits. The main purpose of these financial instruments is to raise finance for the Group’s operations. The Group has various other financial assets and liabilities such as trade receivables and trade payables, which arise directly from its operations.

The Group also enters into derivative transactions, principally including interest rate swaps and forward currency contracts. The purpose is to manage the interest rate and currency risks arising from the Group’s operations and its sources of finance.

It is, and has been, throughout the year under review, the Group’s policy that no trading in financial instruments shall be undertaken.

— I-58 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

The main risks arising from the Group’s financial instruments are cash flow interest rate risk, foreign currency risk, credit risk and liquidity risk. The board reviews and agrees policies for managing each of these risks and they are summarised below.

Cash flow interest rate risk

The Group’s exposure to the risk of changes in market interest rates relates primarily to the Group’s long-term debt obligations with a floating interest rate.

The Group’s policy is to manage its interest cost using a mix of fixed and variable rate debts. The Group’s policy is to maintain all its interest-bearing borrowings at fixed interest rates. To manage this in a cost-effective manner, the Group enters into interest rate swaps, whereby the Group agrees to exchange, at specified intervals, the difference between fixed and variable rate interest amounts calculated by reference to an agreed-upon notional principal amount. These swaps are designated to hedge underlying debt obligations. At 31 December 2006, after taking into account the effect of the interest rate swaps, all of the Group’s interest-bearing borrowings bore interest at fixed rates.

Foreign currency risk

The Group has transactional currency exposures. Such exposures arise from sales or purchases by operating units in currencies other than the units’ functional currency. Approximately 41.4% (2005: 39.7%) of the Group’s revenue is denominated in currencies other than the functional currency of the operating units earning the revenue, whilst almost 76.9% (2005: 77.9%) of costs are denominated in the unit’s functional currency.

It is the Group’s policy to negotiate the terms of the hedge derivatives to match the terms of the hedged item to maximise the effectiveness of the hedges.

The Group entered into swap arrangements for borrowings denominated in foreign currencies other than USD.

Credit risk

The Group trades only with recognised and creditworthy third parties. It is the Group’s policy that all customers who wish to trade on credit terms are subject to credit verification procedures. In addition, receivable balances are monitored on an ongoing basis and the Group’s exposure to bad debts is not significant.

The credit risk of the Group’s other financial assets, which comprise cash and cash equivalents, available-for-sale financial assets and certain derivative instruments and other receivables, arises from default of the counterparty, with a maximum exposure equal to the carrying amount of these instruments.

Since the Group trades only with recognised and creditworthy third parties, there is no requirement for collateral.

Liquidity risk

The Group’s objective is to maintain a balance between continuity of funding and flexibility through the use of bank loans and finance leases.

— I-59 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

42. POST BALANCE SHEET EVENTS

(a) On 5 March 2007, a bank loan of Rmb720,000,000 included in the current portion of bank and other borrowing has been replaced by a long-term loan offered by the bank.
(b) During the 5th Session of the 10th National People’s Congress, which was concluded on 16 March 2007, the PRC Corporate Income Tax Law (“the New Corporate Income Tax Law”) was approved and will become effective on 1 January 2008. The New Corporate Income Tax Law introduces a wide range of changes which include, but are not limited to, the unification of the income tax rate for domestic-invested and foreign-invested enterprises at 25%. Since the detailed implementation and administrative rules and regulations have not yet been announced, the future financial impact of the New Corporate Income Tax Law to the Group cannot be reasonably estimated at this stage.

43. APPROVAL OF THE FINANCIAL STATEMENTS

The financial statements were approved and authorised for issue by the board of directors on 29 March 2007.

WORKING CAPITAL

Taking into account the financial resources available to the Group, including internally generated funds and the available banking facilities, the Directors of the Company are of the opinion that the Group has sufficient working capital for its requirement for at least 12 months from the date of this circular.

INDEBTEDNESS

Borrowings

At the close of business on 31 March 2007, being the latest practicable date for the purpose of this indebtedness statement prior to the printing of this circular, the Group had outstanding borrowings and finance lease payables of approximately Rmb2,628 million, comprising bank borrowings of approximately Rmb1,666 million secured by mortgages, bank borrowings of approximately Rmb212 million guaranteed by China Shipping (Group) Co., Ltd., unsecured bank borrowings of approximately Rmb720 million and finance lease payables of approximately Rmb30 million guaranteed by Ministry of Communications of The People’s Republic of China. The bank borrowings of Rmb1,666 million were repayable within 1 to 10 years. The secured bank borrowings were secured by mortgage of 7 vessels with an aggregate carrying value of approximately Rmb2,108 million.

Other liabilities

The Group had outstanding balance with China Shipping (Group) Co., Ltd. and its subsidiaries which was approximately Rmb1,296 million to acquire 42 cargo vessels at 31 March 2007.

— I-60 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Disclaimer

Save as aforesaid and apart from intra-group liabilities and normal trade payables, the Group did not have any loan capital issued or agreed to be issue, bank overdrafts, loans, debt securities issued and outstanding, and authorized or otherwise created but unissued and term loans or other borrowings, indebtedness in the nature of borrowings, liabilities under acceptance credits, debentures, mortgages, charges, finance lease or hire purchase commitments, which are either guaranteed, unguaranteed, secured or unsecured, guarantees or other material contingent liabilities outstanding at the close of business on 31 March 2007.

MATERIAL ADVERSE CHANGE

As at the Latest Practicable Date, the Directors are not aware of any material adverse changes in the financial or trading position of the Group since 31 December 2006, the date to which the latest published audited consolidated accounts of the Group were made up.

MANAGEMENT DISCUSSION AND ANALYSIS ON FINANCIAL POSITION

Oil Transportation

Oil transportation has been one of the Group’s core businesses. In 2006, facing with the changes in both international and domestic oil shipping market, the Group proactively made adjustments to its operational structure. The Group focused on the foreign trade oil transportation, and made great efforts to strengthen its domestic oil shipment market to maintain favorable economic efficiency.

For coastal oil shipment in the PRC, under the influence of the crude oil pipeline along the Yangtze River, the Group’s import volume of transshipped crude oil declined slightly, but the Group made great effort to explore the market of offshore oil shipment and strengthen the management of domestic coastal product oil shipment, so as to sustain its leading position in the domestic oil shipping market. For shipment of foreign trade oil, in spite of the significant fluctuations in the shipping market, the Group’s revenue from such shipping business increased due to improved market research and further enhancing communications and cooperations with the Group’s major customers.

Dry Bulk Cargo Transportation

During the first half of 2006, the overall demand in domestic coal transportation remained stable due to the impact of the macro control policy adopted by the PRC and the increase in the supply of hydro power consumption. During the second half of 2006, high quality coal was in short supply, and the ports were very congested with traffic. Facing with such market changes, the Group has made active adjustment to the allocation of its shipping capacity according to the cargo supply, and achieved favorable economic efficiency by improving the bunker surcharge mechanism and late fee structure.

— I-61 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Effect of the Construction of the Bulk Carriers and the Tankers

The price for the Bulk Carriers to be constructed under the Bulk Carrier Agreements is approximately RMB3,274,200,000 (equivalent to approximately HK$3,307,272,727). The price for the Tankers to be constructed under the Tanker Agreements is approximately US$92,400,000 (equivalent to approximately HK$720,720,000). The construction of each of the vessels under the Bulk Carrier Agreements and the Tanker Agreements will be funded as to approximately 80% of the price by bank borrowings and approximately 20% of the price by internal resources. The financing by way of bank borrowings is expected to increase the Company’s level of borrowings. Taking into account the Company’s capital and shareholders’ base, the Company considers that bank borrowing is the best means of financing for the construction of the relevant Bulk Carriers and Tankers. The Directors and the Independent non-executive Directors believe that in light of the Company’s fleet expansion plan, it is fair and reasonable and in the interest of the Company and the Shareholders as a whole to finance the transaction with such bank borrowings. Money will be drawn down from the bank borrowings as and when required for each instalment payment. As such, the construction of the Bulk Carriers and the Tankers will result in increase in both assets and liabilities of the Company, but liability will be matched by the corresponding asset. Since 80% of the price will be funded by bank borrowings, the construction of the Bulk Carriers and the Tankers is not expected to have a material adverse impact on the net assets of the Group. They are not expected to have any effect on the earnings of the Company, since a relevant vessel will only contribute to the turnover of the Group after it has been delivered.

As at 31 Decemeber 2006, the Group had a gearing ratio (being the difference of interest-bearing liabilities and bank loans divided by the net assets) of 21.7%.

Risk on Foreign Currency

As at 31 December 2006, the Group’s foreign exchange liabilities mainly comprised of finance lease rental payable in EURO dollars equivalent to approximately RMB29,845,000. In addition, the Company would pay dividend of H shares in Hong Kong dollars.

The Group’s revenue from foreign shipment is denominated and translated into US dollars. Given the increasing significance of the Group’s international shipping business, changes in exchange rate would have certain impacts on the Group’s profitability. Therefore, in respect of the changes in exchange rate, the Group will enhance the study of the impact of exchange rate mechanism on shipping enterprises. It will also implement effective measures proactively to minimise exchange risks.

— I-62 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Employees

As at the Latest Practicable Date, the Company had approximately 5,000 employees. Adjustment of employee remuneration are calculated in accordance with the Company’s turnover and profitability and is determined by assessing the correlation between the total salary paid and the economic efficiency of the enterprise. Under this mechanism, management of employees remuneration will be more efficient while employees will be motivated to work hard to bring encouraging results of the Company. Save for the remuneration disclosed above, the Company does not maintain any share option scheme for its employees and the employees do not enjoy any bonus. The Company regularly provides for its administrative personnel training on various subjects, including operation management, foreign languages, computer skills, industry knowhow and policies and laws. These training may be in different forms, such as seminars, site visits and study tours.

Business prospects

It is estimated that the world economy will remain prosperous in 2007. The International Monetary Fund estimated that the growth rate of the world economy will reach approximately 4.9% as compared with 2006, and the world trade volume will increase by approximately 7.6% accordingly. On the other hand, the continuous development of the PRC economy will push the demand for energy resources such as oil, coal and iron ores.

In terms of oil transportation, after the international crude oil transportation market reached its historical high in November 2004, the supply of shipping capacity of the tankers increased rapidly and surpassed the rate of increase in the corresponding demand, resulting in the downward trend of shipping rates in the past two years. The International Energy and Source Organization estimated that the world average daily demand of crude oil would increase by approximately 1.7% in 2007 as compared with 2006, which will stimulate an increase of 3% in the oil shipping demand throughout the world. However, the growth of the capacity of the tanker fleet will sustain an increase of 9%, in accordance with Clarkson Research, one of the world’s biggest shipbrokers. As a result, the shipping rates for the international oil transportation are estimated to sustain the downward trend, which will ease off in 2008. On the other hand, the domestic oil transportation market is expected to be stable in 2007.

In 2007, the global bulk shipping market will remain stable. The BDI index is expected to remain at a high level due to the high demand for iron ore, coal, steel and cement. The Group will continue to explore the imported coal and iron ore shipment market. The Group will also improve its management performance for its international bulk shipping business at the same time, so as to prepare for its expanding cargo carrier fleet in such market.

In terms of coastal coal transportation, the annual shipment volume is estimated to increase by 30 million tons by the year 2010 in accordance with the market research made by the Company. The Group will further strengthen communications with major clients and expand fleet appropriately so as to increase the market share. At present, the Group has entered into all the contracts for shipment of thermal coal for 2007, and the average shipping rates increased as compared with 2006.

— I-63 —

GENERAL INFORMATION

APPENDIX II

1. RESPONSIBILITY STATEMENT

This circular includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Company. The Directors collectively and individually accept full responsibility for the accuracy of the information contained in this circular and confirm, having made all reasonable enquiries, that to the best of their knowledge and belief there are no other facts the omission of which would make any statement herein misleading.

2. DISCLOSURE OF INTERESTS

Directors’ Interests and Short Positions

As at the Latest Practicable Date, none of the Directors, chief executives and Supervisors, nor their associates, had any interest and short positions in the shares, underlying shares and debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) which were required to be notified to the Company and the Stock Exchange which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 and the Stock Exchange under the provisions of Divisions 7 and 8 of Part XV of the SFO or pursuant to the Model Code for Securities Transactions by Directors of Listed Companies as set out in appendix 10 of the Listing Rules to be notified to the Company and the Stock Exchange or which are required, pursuant to section 352 of the SFO, to be entered in the register referred to therein.

Directors’ Interest in Any Asset Acquired, Disposed or Leased

None of the Directors or Supervisors has had any material interest, direct or indirect, in any asset which, since 31 December 2006, being the date to which the latest audited consolidated financial statements of the Group have been made up, had been acquired or disposed of by or leased to any member of the Group or was proposed to be acquired or disposed of by or leased to any member of the Group.

Directors’ Service Contracts

Each of Mr. Li Shaode, Mr. Wang Daxiong, Mr. Zhang Guofa, Mr. Mao Shijia and Mr. Wang Kunhe, all executive Directors, has entered into a service contract with the Company for a period of three (3) years commencing from 26 May 2006 to 25 May 2009, unless terminated by not less than three (3) months’ notice in writing served by either party. During the term of services, they are not entitled to any remuneration nor bonus payments as Directors.

Mr. Lin Jianging, an executive director, has entered into a service contract with the Company for a period of three (3) years commencing from 28 December 2006 to 25 May 2009, unless terminated by not less than three (3) months in writing served by either party. During the term of services, he is not entitled to any remuneration nor bonus payments as a Director.

Mr. Xie Rong, Mr. Hu Honggao and Mr. Zhou Zhanqun, all independent non-executive Directors, have entered into service contracts with the Company for a term commencing from 26 May 2006 to 25 May 2009 unless terminated by not less than 3 months’ notice in writing served by either party.

— II-1 —

GENERAL INFORMATION

APPENDIX II

Mr. Ma Xun, an independent-executive director, has entered into a service contract with the Company for a term commencing from 28 December 2006 to 25 May 2009, unless terminated by not less three (3) months notice in writing served by either party.

The annual director’s fee for each independent non-executive Director is RMB60,000. The independent non-executive Directors’ emoluments, which are determined by the Board and after the mutual agreement of the parties, are based on the experience and expertise of the Directors and the business of the Group.

None of the Directors or supervisors has a service contract with the Company or any of its subsidiaries which is not determinable by the Group within one (1) year without the payment of compensation other than statutory compensation.

The Directors are not entitled to any compensation if their respective service contracts are to be terminated by the Group.

Directors’ Interest in Contracts

No contracts of significance to which the Company, any of its holding companies, fellow subsidiaries or subsidiaries was a party and in which a Director or supervisor had a material interest and which is significant to the Group’s business, whether directly or indirectly, subsisted at the date of this circular. None of the Directors or their respective associates has any competing interest (as would be required to be disclosed to be disclosed under Rule 8.10 of the Listing Rules if each of them were a controller shareholder of the Company for the purpose of the Listing Rules).

Substantial Shareholders

As at the Latest Practicable Date, so far as known to any Directors or chief executives of the Company, the following persons (other than a Director or chief executive of the Company) had, or were deemed or taken to have interests or short positions in the shares or underlying shares of the Company which would fall to be disclosed to the Company and the Stock Exchange under the provisions of Divisions 2 and 3 of Part XV of the SFO or, who were, directly or indirectly, interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any other member of the Group or had any option in respect of such capital:

				Percentage of
				total number of	Percentage of
		Class of	Number of	the relevant	total number of
Name	of shareholders	shares	shares	class of shares	issued shares
China	Shipping Group (Note)	A Shares	1,578,500,000	77.76%	47.46%

Note: Mr. Li Shaode is the president of China Shipping Group. Mr. Lin Jianqing is the vice president of China Shipping. Mr. Wang Daxiong is the vice president of China Shipping. Mr. Zhang Guofa is the vice president of China Shipping.

— II-2 —

APPENDIX II

GENERAL INFORMATION

Save as disclosed above, so far as is known to the Directors or chief executives of the Company, no other person (not being a Director or chief executive of the Company) who had any interests or short positions in shares or underlying shares of the Company which would fall to be disclosed to the Company and the Stock Exchange, under the provisions of Divisions 2 and 3 of Part XV of the SFO, or who was, directly or indirectly, interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any other member of the Group or held any option in respect of such capital.

3. LITIGATION

Neither the Group nor any of its subsidiaries is engaged in any litigation or arbitration of material importance and no litigation or claim of material importance known to the Directors to be pending or threatened by or against the Company or any of its subsidiaries.

4. MATERIAL CONTRACT

There are no material contracts (not being contracts entered into in the ordinary course of business) entered into by members of the Group within 2 years preceding the date of this circular.

5. CONSENT AND EXPERT

The following table lists the qualification of the professional adviser who has given opinion or advice, which is contained in this circular:

Name Qualification Evolution Watterson Securities Limited Independent financial adviser and a licensed corporation to carry out Type 1 (dealing in securities) and Type 6 (advising on corporate finance) regulatory activities under the SFO

The Independent Financial Adviser has given and has not withdrawn its written consent to the issue of this circular with the inclusion of its letter and/or opinions and/or the references to its name in the form and context in which it respectively appears.

As at the Latest Practicable Date, (i) the Independent Financial Adviser did not have any interest, either direct or indirect, in any assets which had been, since the date to which the latest published audited financial statements of the Company were made up acquired or disposed of by or leased to any member of the Group or are proposed to be acquired or disposed of by or leased to any member of the Group; and (ii) the Independent Financial Adviser did not have any shareholding interests in any member of the Group and it did not have any right, whether legally enforceable or not, to subscribe for or nominate persons to subscribe for securities of any members of the Group.

— II-3 —

GENERAL INFORMATION

APPENDIX II

6. MISCELLANEOUS

(i) The legal address of the Company is at 168 Yuanshen Road, Shanghai, The People’s Republic of China.
(ii) The principal place of business of the Company in Hong Kong is 20th Floor, Alexandra House, 16-20 Chater Road, Central, Hong Kong.
(iii) The Company’s branch share registrar and transfer office in Hong Kong is at Hong Kong Registrars Limited at Rooms 1712-1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong.
(iv) The secretary of the Company is Ms. Yao Qiaohong. Ms. Yao obtained a company secretary training certificate from the Shanghai Stock Exchange.
(v) Mr. Wang Kangtian, being a PRC qualified accountant, is the qualified accountant of the Company appointed under Rules 3.24 of the Listing Rules. Mr. Wang Kangtian is able to meet the requirement as set out in Rule 3.24 of the Listing Rules except that he is not a fellow or associate of the Hong Kong Institute of Certified Public Accountants (“HKICPA”) or a similar body of accountants recognized by HKICPA for the purpose of granting exemptions form the examination requirement for membership of HKICPA. The Stock Exchange has agreed to grant a three-year conditional waiver to the Company from strict compliance with Rule 3.24 of the Listing Rules commencing from 28th December, 2004. From 28th December, 2004 to 19th September, 2006, Mr. Wang was assisted by Mr. Li Chung Kwong, Andrew, a fellow member of the HKICPA. From 20th September, 2006 to 27th December, 2007, the Company has appointed Mr. Yip Sai On, David, a fellow member of the HKICPA, to assist Mr. Wang.
(vi) In the event of inconsistency, the English language text of this circular shall prevail over the Chinese language text.

7. DOCUMENTS FOR INSPECTION

Copies of the following documents will be available for inspection at the office of Richards Butler at 20th Floor, Alexandra House, 16-20 Chater Road, Central, Hong Kong during normal business hours on any weekday (except public holidays) from the date of this circular up to and including Friday, 8 June 2007:

(a) The letter from the Independent Board Committee, the text of which is set out on page 14 of this circular;
(b) The letter issued by the Independent Financial Adviser, the text of which is set out on pages 15 to 22 of the circular;

— II-4 —

GENERAL INFORMATION

APPENDIX II

(c) the annual reports of the Company for the years ended 31 December 2005 and 31 December 2006;
(d) the Bulk Carrier Agreements;
(e) the Tanker Agreements;
(f) the consent letter from Evolution Watterson Securities Limited referred to in the paragraph headed “Consent and Expert” in this Appendix;
(g) the memorandum and articles of association of the Company;
(h) a copy of the circular dated 14 March 2007 for a major transaction in relation to construction of new very large iron ore carriers, a connected transaction in relation to construction of new tankers and a major transaction in relation to construction of new tankers; and
(i) copies of the two agreements all dated 16 February 2007, each of which is entered into between the Vendors and CS Development Hong Kong for the construction of one tanker (for a total of two tankers) for the transportation of oil.

— II-5 —

NOTICE OF ANNUAL GENERAL MEETING

==> picture [66 x 49] intentionally omitted <==

CHINA SHIPPING DEVELOPMENT COMPANY LIMITED

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

(Stock Code: 1138)

NOTICE OF THE ANNUAL GENERAL MEETING

Notice is hereby given that the annual general meeting (the “ AGM ”) of China Shipping Development Company Limited (the “ Company ”) will be held at 10:00 a.m. on Friday, 8 June 2007 at 700 Dong Da Ming Road, Shanghai, the People’s Republic of China to consider and, if thought fit, pass the following resolutions:

Ordinary Resolutions

“ THAT the twelve construction agreements all dated 29 March 2007, between the Company, China Shipping Industrial Co., Ltd. and China Shipping Industrial (Jiangsu) Co., Ltd., each for the construction of one bulk carrier (for a total of twelve bulk carriers), details of which are set out in the circular of the Company dated 20 April 2007, be and are hereby approved; and the directors of the Company be and are hereby authorized to do such other acts and things and execute such other documents which in their opinion may be necessary or desirable to implement the agreements.”
“ THAT the two tanker construction agreements both dated 12 April 2007, between China Shipping Development (Hong Kong) Marine Co., Limited, China Shipping Industrial Co., Ltd. and China Shipping Industrial (Jiangsu) Co., Ltd., each for the construction of one tanker (for a total of two tankers), details of which are set out in the circular of the Company dated 20 April 2007, be and are hereby approved; and the directors of the Company be and are hereby authorized to do such other acts and things and execute such other documents which in their opinion may be necessary or desirable to implement the agreements.”
“ THAT the 2006 Report of the Board of Directors of the Company be and is hereby approved;”
“ THAT the 2006 Report of the Supervisory Committee of the Company be and is hereby approved;”
“ THAT the 2006 audited financial statements of the Company prepared by its international auditors and domestic auditors respectively for the year ended 31 December 2006 be and is hereby approved;”
“ THAT the 2006 dividend distribution plan of the Company be and is hereby approved;
“ THAT the remuneration of the directors and the supervisors of the Company and reimbursements for independent non-executive directors of the Company for 2007 be and is hereby approved;”

— N-1 —

NOTICE OF ANNUAL GENERAL MEETING

“ THAT the reappointment of Shanghai Zhonghua Huyin CPA and Ernst & Young as the domestic and international auditors of the Company for 2007, respectively, and the grant of the authorization to the Board of Directors of the Company to determine their remuneration be and is hereby approved;”
“ THAT the report on use of proceeds from the issue of 350,000,000 new A Shares on 23 May 2002 be and is hereby approved.”
“ THAT the appointment of Mr. Yan Zhi Chung as a supervisor of the Company be and is hereby approved.”

Special resolution

“ THAT the amendments to the Company’s articles of association to change the number of supervisors from 3 persons to 3-5 persons be and are hereby approved.”

Details of Proposed Supervisor for election at the AGM

Mr. Yan Zhi Chung (“Mr. Yan”)

Mr. Yan, born in May 1957, is a senior engineer and general manager of Guangzhou Marine Transport (Group) Company Limited. He was formally the general manager of China Shipping Development Company Limited Tanker Company— (Guangzhou Branch), the general manager of the transportation department of China Shipping (Group) Company, the vice president of the China Shipping (H.K.) Holdings Co., Ltd., and the general manager of China Shipping International Ship Management Co., Ltd.

In accordance with the articles of association of the Company, Mr. Yan’s appointment will be with effect from 8 June 2007 until 25 May 2009 subject to shareholders’ approval. Mr. Yan will enter into a service contract with the Company. Save as disclosed above, Mr. Yan did not hold any directorship in listed public companies in the last three years, and he is not related to any director, senior management or substantial or controlling Shareholder of the Company. He is not interested in any shares of the Company within the meaning of Part XV of the SFO. During the proposed term of appointment, Mr. Yan will not be entitled to any remuneration nor bonus payments as a supevisor. There is no other information relating to the appointment of Mr. Yan that is required to be disclosed pursuant to Rule 13.52(2)(h) to (v) of the Listing Rules. Save as disclosed herein, there are no other matters that need to be brought to the attention of the shareholders of the Company.

By Order of the Board

China Shipping Development Company Limited Yao Qiaohong

Company Secretary

20 April 2007 Shanghai The People’s Republic of China

— N-2 —

NOTICE OF ANNUAL GENERAL MEETING

(A) The H share register of the Company will be closed from Wednesday, 9 May 2007 to Thursday, 7 June 2007 (both days inclusive), during which no transfer of H shares will be effected. Any holders of H shares of the Company, whose names appear on the Company’s register of members at the close of business on Tuesday, 8 May 2007, are entitled to attend and vote at the AGM after completing the registration procedures for attending the meeting. In order to be entitled to attend and vote at the AGM, share transfer documents should be lodged with the Company’s H share registrar not later than 4:00 p.m. on Tuesday, 8 May 2007.

The address of the share registrar (for share transfer) for the Company’s H Shares is as follows:

Hong Kong Registrars Limited Rooms 1712-1716 17th Floor Hopewell Centre 183 Queen’s Road East Wanchai Hong Kong

(B) Holders of H Shares and A Shares, who intend to attend the AGM, must complete the reply slips for attending such meetings and return them to the Office of the Secretary to the Board of Directors of the Company not later than 20 days before the date of the AGM, i.e. no later than 19 May 2007.

Details of the Office of the Secretary to the Board of Directors of the Company are as follows:

Room 1601, 700 Dong Da Ming Road, Shanghai, People’s Republic of China Postal Code: 200080 Tel: 86(21) 6596 6666 Fax: 86(21) 6596 6160

(C) Each holder of H Shares who has the right to attend and vote at the AGM is entitled to appoint in writing one or more proxies, whether a shareholder or not, to attend and vote on his behalf at the AGM. A proxy of a shareholder who has appointed more than one proxy may only vote on a poll.
(D) The instrument appointing a proxy must be in writing under the hand of the appointor or his attorney duly authorised in writing. If that instrument is signed by an attorney of the appointor, the power of attorney authorising that attorney to sign, or other documents of authorisation, must be notarially certified.

— N-3 —

NOTICE OF ANNUAL GENERAL MEETING

(E) To be valid, the form of proxy, and if the form of proxy is signed by a person under a power of attorney or other authority on behalf of the appointor, a notarially certified copy of that power of attorney or other authority, must be delivered to the Company’s H Shares share registrar, Hong Kong Registrars Limited, at Room 1712-1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Hong Kong, not less than 24 hours before the time for holding the EGM or any adjournment thereof in order for such documents to be valid.
(F) Each holder of A Shares is entitled to appoint in writing one or more proxies, whether a shareholder or not, to attend and vote on its behalf at the AGM. Notes (C) to (D) also apply to holders of A Shares, except that the proxy form or other documents of authority must be delivered to the Office of the Secretary to the Board of Directors, the address of which is set out in Note (B) above, not less than 24 hours before the time for holding the AGM or any adjournment, thereof in order for such documents to be valid.
(G) If a proxy attends the AGM on behalf of a shareholder, he should produce his identity card and the instrument signed by the proxy or his legal representative, which specifies the date of its issuance. If the legal representative of a legal person share shareholder attends the AGM, such legal representative should produce his identity card and valid documents evidencing his capacity as such legal representative. If a legal person share shareholder appoints a representative of a company other than its legal representative to attend the AGM, such representative should produce his identity card and an authorization instrument affixed with the seal of the legal person share shareholder and duly signed by its legal representative.
(H) Set out below is the procedure by which shareholders and the chairman of any shareholders’ meeting may demand a poll pursuant to article 74 of articles of association of the Company:
“At any general meeting of shareholders, a resolution shall be decided on a show of hands unless a poll is demanded before or after any vote by show of hands by:
(1) the chairman of the meeting;
(2) at least two shareholders, who possess the right to vote, present in person or by proxy; or
(3) any shareholder or shareholders present in person or by proxy and representing in the aggregate not less than one-tenth of the total voting rights of all shareholders having the right to attend and vote at the meeting.

Unless a poll is so demanded, a declaration by the chairman of the meeting that a resolution has on a show of hands been carried or not carried and an entry to that effect in the minutes of the meeting shall be conclusive evidence of the fact, without proof of the number or proportion of the votes recorded for or against such resolution.

A demand for a poll may be withdrawn by the person who made the demand.”

(I) The AGM is expected to last an hour. Shareholders attending the AGM are responsible for their own transportation and accommodation expenses.

— N-4 —

AI assistant

Dida Inc. — AGM Information 2007

50671_rns_2007-04-23_3a03eac7-cad8-4fe2-a4db-900b39e956fb.pdf

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

CONNECTED AND MAJOR TRANSACTIONS CONSTRUCTION OF NEW VESSELS

AND

CONSTRUCTION OF NEW TANKERS

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

EXPECTED TIMETABLE

CHINA SHIPPING DEVELOPMENT COMPANY LIMITED

CONNECTED AND MAJOR TRANSACTIONS CONSTRUCTION OF NEW VESSELS

AND

CONSTRUCTION OF NEW TANKERS

1. INTRODUCTION

LETTER FROM THE BOARD

2. THE CONSTRUCTION OF THE BULK CARRIERS

Background information

LETTER FROM THE BOARD

LETTER FROM THE BOARD

Reasons for, and benefits of the construction of the Bulk Carriers

3. THE CONSTRUCTION OF THE TANKERS

Background Information

LETTER FROM THE BOARD

LETTER FROM THE BOARD

Reasons for, and benefit of the construction of the Tankers

LETTER FROM THE BOARD

4. MAJOR AND CONNECTED TRANSACTIONS

5. AGM

LETTER FROM THE BOARD

6. INFORMATION ABOUT THE COMPANY AND CHINA SHIPPING

7. RECOMMENDATION

8. ADDITIONAL INFORMATION

CONNECTED AND MAJOR TRANSACTIONS CONSTRUCTION OF NEW VESSELS AND CONSTRUCTION OF NEW TANKERS

CONNECTED AND MAJOR TRANSACTIONS CONSTRUCTION OF NEW VESSELS AND CONSTRUCTION OF NEW TANKERS

INTRODUCTION

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

PRINCIPAL FACTORS AND REASONS

I Bulk Carrier Agreements

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

2. Basis of the Consideration

3. Financial Effects

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

II Tanker Agreements

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

3. Financial Effects

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

RECOMMENDATION

Summary of the audited consolidated financial information for the three years ended 31 December 2006

CONSOLIDATED INCOME STATEMENT Year ended 31 December 2006

CONSOLIDATED BALANCE SHEET 31 December 2006

CONSOLIDATED SUMMARY STATEMENT OF CHANGES IN EQUITY Year ended 31 December 2006

CONSOLIDATED CASH FLOW STATEMENT Year ended 31 December 2006

BALANCE SHEET 31 December 2006

NOTES TO FINANCIAL STATEMENTS 31 December 2006

1. CORPORATE INFORMATION

2.1 BASIS OF PREPARATION

Basis of consolidation

2.2 IMPACT OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS

2.3 IMPACT OF ISSUED BUT NOT YET EFFECTIVE HONG KONG FINANCIAL REPORTING STANDARDS

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Subsidiaries

Joint ventures

Jointly-controlled entities

Related parties

Property, plant and equipment and depreciation

Impairment of non-financial assets other than goodwill

Leases

Deferred staff expenditure

Investments and other financial assets

Loans and receivables

Available-for-sale financial assets

Financial assets at fair value through profit or loss

Fair value

Impairment of financial assets

Assets carried at amortised cost

Assets carried at cost

Available-for-sale financial assets

Dida Inc. AGM Information 2007