Dida Inc. — Proxy Solicitation & Information Statement 2005

Jan 17, 2005

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

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

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.

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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)

Continuing Connected Transactions Connected and Discloseable Transactions Construction of New Vessels Transactions

Proposed appointment of a new executive director and a new supervisor

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

GUOTAI JUNAN CAPITAL LIMITED

A letter from the Board is set out on pages 6 to 29 of this circular.

A letter from the Independent Board Committee comprised of the three independent non-executive Directors is set out on page 30 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 31 to 44 of this circular.

A notice convening the EGM of the Company to be convened and held at 10:00 a.m. on Tuesday, 1 March 2005 at Room 319, 700 Dong Da Ming Road, Shanghai, the People’s Republic of China is set out on pages 50 to 54 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 the meeting. Completion and return of the proxy form will not preclude you from attending and voting in person at the meeting or at any adjourned meeting should you so wish.

14 January 2005

CONTENTS

		Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		1
**Letter from the **	Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	6
**Letter from the **	Independent Board Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	30
**Letter from the **	Independent Financial Adviser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	31
Appendix —	General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	45
Notice of Extraordinary General Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		50

— i —

DEFINITIONS

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

||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
|“Annual|Caps”|the|proposed|annual|caps|for|the|Continuing|Connected|
|Transactions|as|set|out|in|pages|9-18|of|this|circular|
|“associates”|has|the|meaning|ascribed|thereto|in|the|Listing|Rules|
|“Bareboat|Charterparties|Valuer”|Sino-Shipbroking|Ltd.,|an|independent|maritime|consulting|
|firm,|which|issued|a|valuation|report|setting|out,|among|
|others,|its|independent|valuation|of|the|charter|payments|for|
|various|container|vessels|leased|to|or|from|the|Group|
|“Board”|the|board|of|Directors|
|“China|Shipping|(HK)|Holdings”|China|Shipping|(Hong|Kong)|Holdings|Company|Limited|
|(|)|
|“Company”|China|Shipping|Development|Company|Limited|
|(|),|a|joint|stock|limited|company|
|incorporated|with|limited|liability|under|the|laws|of|the|PRC,|
|the|H|Shares|of|which|are|listed|on|the|Stock|Exchange|
|“Connected|Transactions”|the|transactions|contemplated|under|the|First|Sale|and|
|Purchase|Agreement|and|the|Second|Sale|and|Purchase|
|Agreement|
|“Construction|of|New|Vessels|the|transactions|contemplated|under|the|Dalian|Agreement|
|Transactions”|and|Guangzhou|Agreement|
|“Container|Vessels”|four|container|vessels|named|“Xiangli”,|“Xiangmao”,|
|“Xiangyue”|and|“Xiangzhuang”|
|“Continuing|Connected|the|transactions|contemplated|under|the|First|Bareboat|
|Transactions”|Charterparties,|the|Second|Bareboat|Charterparty,|the|Third|
|Bareboat|Charterparties,|the|Fourth|Bareboat|Charterparty|
|and|Fifth|Bareboat|Charterparty|
|“CS|Container|Lines”|China|Shipping|Container|Lines|Company|Limited|
|(|)|
|“CS|Container|Lines|(Asia)”|China|Shipping|Container|Lines|(Asia)|Co.|Ltd.|
|(|)|
|“CS|Industry”|China|Shipping|Industry|Company|Limited|(|)|
|“Dalian|Agreement”|an|unconditional|agreement|dated|30|December|2004|and|
|entered|into|between|Dalian|Shipbuilding|(as|the|seller)|and|
|the|Company|(as|the|buyer)|for|the|construction|of|a|298,000|
|tonnes|vessel|for|the|transportation|of|crude|oil|

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

— 1 —

DEFINITIONS

• “Dalian Shipbuilding” Dalian Shipbuilding Heavy Industry Company Limited ( ), a Chinese shipbuilder which, to the best of the Directors’ knowledge, information and belief having made all reasonable enquiries, is an independent third party that is not connected with the Directors, chief executive(s) or substantial shareholders of the Company or any of its subsidiaries or any of their respective associates (as defined under the Listing Rules)

• “Director(s)” the director(s) of the Company “EGM” the extraordinary general meeting of the Company to be convened and held at 10:00 a.m. on 1 March 2005

• “EGM Notice” the notice of the EGM “Fifth Bareboat Charterparty” a conditional bareboat charterparty dated 22 December 2004

a conditional bareboat charterparty dated 22 December 2004 whereby China Shipping (HK) Holdings has agreed to lease to the Company an oil tanker named “Song Lin Wan” for a term of three years commencing from 1 January 2005.

• “First Bareboat Charterparties”

separate conditional bareboat charterparties dated 22 December 2004 whereby the Company has agreed to lease to CS Container Lines the Container Vessels for a term of three years commencing from 1 January 2005

• “First Sale and Purchase a conditional sale and purchase agreement dated 22 December Agreement” 2004 whereby the Company has agreed to sell an oil tanker named “Daqing 242” to CS Industry for a consideration of RMB24,840,000 (approximately HK$23,433,962)

• “Fourth Bareboat Charterparty”

a conditional bareboat charterparty dated 22 December 2004 whereby Shanghai Shipping has agreed to lease to the Company an oil tanker named “Daqing 88” for a term of three years commencing from 1 January 2005

“Group”

the Company and its subsidiaries

• “Group Company”

China Shipping (Group) Company ( )

• “Guangzhou Agreement”

an unconditional agreement dated 30 December 2004 and entered into between Guangzhou Shipyard (as the seller) and the Company (as the buyer) for the construction of four 52,500 tonnes vessels for the transportation of crude oil

— 2 —

DEFINITIONS

“Guangzhou Shipyard”	Guangzhou Shipyard International Company Limited ( ), a Chinese shipbuilder which, to the
	best of the Directors’ knowledge, information and belief
	having made all reasonable enquiries, is not a connected
	person of the Company and is not connected with the
	Directors, chief executive(s) or substantial shareholders of
	the Company or any of its subsidiaries or any of their
	respective associates (as defined under the Listing Rules)
“Guotai Junan”	Guotai Junan Capital Limited, a corporation licensed to
	conduct type 6 (advising on corporate finance) regulated
	activities under the SFO and an independent financial adviser
	to the Independent Board Committee and Independent
	Shareholders
“H Share(s)”	overseas listed foreign invested share(s) of nominal value
	RMB1.00 each in the share capital of the Company
“Hong Kong”	the Hong Kong Special Administrative Region of the PRC
“Independent Board Committee”	an independent committee of the board of directors of the
	Company, comprising Mr. Xie Rong, Mr. Hu Honggao and Mr.
	Zhou Zhanqun, the independent non-executive Directors
“Independent Shareholder(s)”	the shareholder(s) of the Company other than Group Company
	and its associates
“Independent Third Party”	independent third party not connected with the directors,
	supervisors, promoters, substantial shareholders or
	management shareholders of the Company or any of its
	subsidiaries or their respective associates
“Latest Practicable Date”	11 January 2005, being the latest practicable date prior to the
	printing of this circular for ascertaining certain information
	contained herein
“Listing Rules”	Rules Governing the Listing of Securities on The Stock
	Exchange of Hong Kong Limited
“Other Container Vessels”	container vessels named “Xiangda”, “Xiangxiu”, “Xiangxin”
	and “Xiangwang”
“PRC”	the People’s Republic of China which, for the purposes of this
	circular, excludes Hong Kong, the Macau Special
	Administrative Region and Taiwan

— 3 —

DEFINITIONS

“SFO”	Securities and Futures Ordinance (Chapter 571 of the laws of
	Hong Kong)
“Second Bareboat Charterparty”	a conditional bareboat charterparty dated 22 December 2004
	whereby Xiang Xiu Shipping has agreed to lease to CS
	Container Lines (Asia) a container vessel named “Xiangzhu”
	for a term of three years commencing from 1 January 2005.
“Second Sale and Purchase	a conditional sale and purchase agreement dated 22 December
Agreement”	2004 whereby the Company has agreed to sell an oil tanker
	named “Ninghe” (which weighs 23,926 light tonnes) to CS
	Industry which proposes thereafter to dismantle it and sell it
	as scrap metal for the consideration of RMB58,045,433
	(HK$54,759,842).
“Shanghai Shipping”	Shanghai Shipping Industrial Company Limited ( )
“Shareholder(s)”	shareholder(s) of the Company
“Stock Exchange”	The Stock Exchange of Hong Kong Limited
“Supervisor(s)”	supervisor(s) of the Company
“Third Bareboat Charterparties”	separate conditional bareboat charterparties dated 22
	December 2004 whereby each of Xiang Da Shipping, Xiang
	Xiu Shipping, Xiang Xin Shipping and Xiang Wang Shipping
	has agreed to lease to CS Container Lines (Asia) the Other
	Container Vessels for a term of three years commencing from
	1 January 2005
“Transactions”	the Continuing Connected Transactions and the Connected
“Xiang Da Shipping”	Transactions Xiang Da Shipping S.A. ( ), an indirect
“Xiang Wang Shipping”	wholly-owned subsidiary of the Company Xiang Wang Shipping S.A. ( ), an indirect
“Xiang Xin Shipping”	wholly-owned subsidiary of the Company Xiang Xin Shipping S.A. ( ), an indirect
“Xiang Xiu Shipping”	wholly-owned subsidiary of the Company Xiang Xiu Shipping S.A. ( ), an indirect
	wholly-owned subsidiary of the Company

— 4 —

DEFINITIONS

“RMB”	Renminbi yuan, the lawful currency of the PRC
“HK$”	Hong Kong dollar, the lawful currency of Hong Kong
“US$”	United States dollar, the lawful currency of the United States
“%”	percentage or per centum

For the purpose of this circular, unless otherwise specified, conversion of RMB into HK$ is based on the exchange rate of RMB1.06=HK$1.00 and conversion of US$ into HK$ is based on the exchange rate of US$1.00=HK$7.75.

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.

— 5 —

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) Sun Zhitang Wang Daxiong Yao Zuozhi Wang Kunhe

Independent Non-Executive Directors:

Xie Rong Hu Honggao Zhou Zhanqun

Registered Office: 168 Yuanshen Road Shanghai The PRC

Principal place of business in Hong Kong: 39th Floor Gloucester Tower The Landmark 11 Pedder Street Central Hong Kong

14 January 2005

To the Shareholders

Dear Sir/Madam,

Continuing Connected Transactions Connected and Discloseable Transactions

Construction of New Vessels Transactions

Proposed appointment of a new executive director and a new supervisor

1. INTRODUCTION

On 22 December 2004, the Board announced that the Company and certain of its subsidiaries have entered into the Transactions with certain associates (as defined under the Listing Rules) of Group Company.

On 30 December 2004, the Board announced that the Company entered into the Construction of New Vessels Transactions with each of Guangzhou Shipping and Dalian Shipbuilding, respectively.

— 6 —

LETTER FROM THE BOARD

Group Company holds approximately 50.51% of the issued share capital of the Company and is a controlling shareholder of the Company. Each of CS Container Lines, CS Container Lines (Asia), Shanghai Shipping, China Shipping (HK) Holdings and CS Industry is an associate (as defined under the Listing Rules) of Group Company and is a connected person (as defined under the Listing Rules) of the Company. Hence, the transactions contemplated under the First Bareboat Charterparties, Second Bareboat Charterparty, Third Bareboat Charterparties, Fourth Bareboat Charterparty, Fifth Bareboat Charterparty constitute Continuing Connected Transactions of the Company and the transactions contemplated under the First Sale and Purchase Agreement and Second Sale and Purchase Agreement constitute the Connected Transactions of the Company for the purposes of the Listing Rules.

As the applicable percentage ratio(s) (other than the profits ratio) in respect of the Transactions are more than 2.5%, the Transactions are not only subject to the reporting and announcement requirements under Rules 14A.45 to 14A.47 of the Listing Rules but also require the approval of the Independent Shareholders. The Connected Transactions when aggregated with the previous disposal of “Daqing 45” and “Daqing 246” by the Company constitute discloseable transactions of the Company for the purpose of the Listing Rules. Please refer to the announcements issued by the Company on 20 September 2004 and 7 October 2004, respectively.

The relevant percentage ratio(s) in respect of the Construction of New Vessels Transactions is more than 5% but less than 25%, therefore, the Construction of New Vessels Transactions constitute discloseable transactions of the Company for the purpose of the Listing Rules.

The terms and conditions of each of the Transactions have been negotiated on an arm’s length basis and are normal commercial terms. The Board considers the Transactions to be fair and reasonable, and are in the interests of the Company and the Shareholders, taken as a whole.

The purpose of this circular is (i) to provide you with further information in respect of the Transactions (including recommendations from the Independent Board Committee and opinion rendered from the Independent Financial Adviser) and the Construction of New Vessels Transactions; and (ii) to give you notice of the EGM at which ordinary resolutions will be proposed to seek the approval from the Independent Shareholders for the Transactions, the Annual Caps and the appointment of a new executive Director and a new supervisor of the Company.

2. FIRST BAREBOAT CHARTERPARTIES DATED 22 DECEMBER 2004

2.1 Parties

Lessor: The Company Lessee: CS Container Lines

2.2 Container Vessels

“Xiangli”, “Xiangmao”, “Xiangyue” and “Xiangzhuang” were constructed by an independent shipyard in Tianjin, the PRC. “Xiangli” was commissioned into service in 1992 and has a gross tonnage of approximately 18,391 tonnes. “Xiangmao” and “Xiangyue” were commissioned into

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LETTER FROM THE BOARD

service in 1995 and each has a gross tonnage of approximately 18,112 tonnes. “Xiangzhuang” was commissioned into service in 1993 and has a gross tonnage of approximately 18,391 tonnes. “Xiangli, “Xiangmao”, “Xiangyue” and “Xiangzhuang” are currently leased to CS Container Lines for transportation along the domestic coast and the route from the PRC to Japan.

2.3 Leasing of the Container Vessels

Pursuant to the First Bareboat Charterparties, the Company and CS Container Lines have agreed to the leasing of the Container Vessels to CS Container Lines, on the terms and conditions set out therein.

2.4 Charter payment and payment terms

Pursuant to the First Bareboat Charterparties, CS Container Lines will pay the Company an aggregate annual charter payment of US$4,088,000 (approximately HK$31,682,000).

Other than the payment for the first and the last calendar month being made according to the actual number of chartered days in the month, the monthly charter payment during the charter period shall be paid fifteen days in advance of the first day of the next calendar month by CS Container Lines. The Company has appointed an independent maritime consulting firm (the “ Bareboat Charterparties Valuer ”), being a qualified professional valuer, to issue a valuation report setting out, among others, its independent valuation of the charter payments for the Container Vessels.

Since the Container Vessels are (a) dry-bulk cargo vessels which have been modified to become container vessels; and (b) slow and their condition only allows them to engage in short haul transportation, the Bareboat Charterparties Valuer has expressed the opinion that it was not able to provide a valuation of the charter payments for the Container Vessels.

Having considered the above stated conditions of the Container Vessels, the Company and CS Container Lines have agreed for charter payments of the Container Vessels to be set at approximately 20% below the independent valuation amount of US$3,560.86 (approximately HK$27,597) per day, which represents a valuation of the charter payment for a normal container vessel of similar size to the Container Vessels (without taking into account the above stated conditions of the Container Vessels) as in October 2004 made by the Bareboat Charterparties Valuer. The Board confirms that the charter payments received by the Group is on no less favourable terms, than those that might otherwise be available to the Group from independent third parties. The Group currently does not lease any of its container vessels to any independent third party. The Board and the Bareboat Charterparties Valuer confirm that there had been no material change in the market charter payment from October to December 2004.

The Board considers such determination basis and consequently such charter payments to be fair and reasonable, on normal commercial terms and are in the interests of the Company and the Shareholders, taken as a whole.

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LETTER FROM THE BOARD

2.5 Charter period

The First Bareboat Charterparties became effective on 1 January 2005 and will expire on 31 December 2007 (both dates inclusive).

2.6 Other significant terms

During the charter period of the First Bareboat Charterparties, CS Container Lines shall:

• (i) be responsible for all necessary repair of the Container Vessels;

• (ii) insure each of the Container Vessels against marine, war and compensation risks; and

• (iii) have the right to re-charter the Container Vessels, but CS Container Lines shall be entitled to the rights and be liable for the relevant obligations under the First Bareboat Charterparties.

During the charter period of the First Bareboat Charterparties, the Company is not allowed to transfer its ownership of the Container Vessels or assign the right to receive any of the charter payments.

Should any dispute arise between the Company and CS Container Lines in respect of the First Bareboat Charterparties, which remains unresolved after reasonable discussions, such dispute shall be referred to the China Maritime Arbitration Committee for arbitration in Shanghai, the PRC.

The First Bareboat Charterparties are subject to confirmation, ratification and approval by the Independent Shareholders at the EGM. The First Bareboat Charterparties will be terminated if the Independent Shareholders do not approve the resolution approving the entering into of the First Bareboat Charterparties at the EGM.

2.7 Annual Cap

The annual aggregate charter payment which is estimated to be payable by CS Container Lines to the Company for each of the three financial years ended 31 December 2007 is US$4,088,000 (RMB31,682,000).

The historical charter payment paid by CS Container Lines for the Container Vessels to the Company for the three financial years ended 31 December 2004 was RMB18,980,000.

The 67% increase in the charter payments is attributable to (i) the increase in the manufacturing costs of new vessels by approximately 30% in the past 12 months which leads to an increase in demand for charterparties and enhance an increase in the corresponding charter payments; (ii) the increase in the interest/lending rates worldwide (such as the United States and the PRC) which would increase the financing costs of the Group; (iii) the positive market sentiments in particular, the coastal bulk freight

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LETTER FROM THE BOARD

transportation market recorded an increase in the market freight transportation fees for coastal container vessel transportation by at least 30%; (iv) the independent valuation as mentioned above; and (v) the physical condition of the Container Vessels (i.e. each of the Container Vessels has a relatively large tonnage of approximately 18,112 tonnes).

3. SECOND BAREBOAT CHARTERPARTY DATED 22 DECEMBER 2004

3.1 Parties

Lessor: Xiang Xiu Shipping Lessee: CS Container Lines (Asia)

3.2 Container Vessel

“Xiangzhu” was constructed by an independent shipyard in Romania and was commissioned into service in 1994. It has a gross tonnage of approximately 7,864 tonnes. “Xiangzhu” is currently leased to CS Container Lines (Asia) for transportation along the domestic coast and the route from the PRC to Japan.

3.3 Leasing of “Xiangzhu”

Pursuant to the Second Bareboat Charterparty, Xiang Xiu Shipping and CS Container Lines (Asia) have agreed to the leasing of “Xiangzhu” to CS Container Lines (Asia), on the terms and conditions set out therein.

3.4 Charter payment and payment terms

Pursuant to the Second Bareboat Charterparty, CS Container Lines (Asia) will pay Xiang Xiu Shipping an aggregate annual charter payment of US$1,095,000 (approximately HK$8,486,250).

Other than the payment for the first and the last calendar month being made according to the actual number of chartered days in the month, the monthly charter payment during the charter period shall be paid fifteen days in advance of the first day of the next calendar month by CS Container Lines (Asia). The charter payment is determined with reference to a valuation of the charter payment for “Xiangzhu” of US3,317.77 per day as per a valuation report issued by the Bareboat Charterparties Valuer. The Board considers such determination basis and consequently such charter payments to be fair and reasonable, on normal commercial terms and are in the interests of the Company and the Shareholders, taken as a whole.

The Board and the Bareboat Charterparties Valuer confirm that there had been no material change in the relevant market charter payment from October to December 2004.

3.5 Charter period

The Second Bareboat Charterparty became effective on 1 January 2005 and will expire on 31 December 2007 (both dates inclusive).

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LETTER FROM THE BOARD

3.6 Other significant terms

During the charter period of the Second Bareboat Charterparty, CS Container Lines (Asia) shall:

• (i) be responsible for all necessary repair of “Xiangzhu”;

• (ii) insure “Xiangzhu” against marine, war and compensation risks; and

• (iii) have the right to re-charter “Xiangzhu”, but CS Container Lines (Asia) shall be entitled to the rights and be liable for the relevant obligations under the Second Bareboat Charterparty.

During the charter period of the Second Bareboat Charterparty, Xiang Xiu Shipping is not allowed to transfer its ownership of “Xiangzhu” or assign the right to receive any of the charter payments.

Should any dispute arise between the Xiang Xiu Shipping and CS Container Lines (Asia) in respect of the Second Bareboat Charterparty, which remains unresolved after reasonable discussions, such dispute shall be referred to the China Maritime Arbitration Committee for arbitration in Shanghai, the PRC.

The Second Bareboat Charterparty is subject to confirmation, ratification and approval by the Independent Shareholders at the EGM. The Second Bareboat Charterparty will be terminated if the Independent Shareholders do not approve the resolution approving the entering into of the Second Bareboat Charterparty by the Company at the EGM.

3.7 Annual Cap

The fee which is estimated to be payable by CS Container Lines (Asia) to Xiang Xiu Shipping for each of the three financial years ending 31 December 2007 is US$1,095,000 (approximately RMB9,066,600).

The historical charter payment paid by CS Container Lines (Asia) for “Xiangzhu” to Xiang Xiu Shipping for each of the three financial years ended 31 December 2004 was US$730,000 (approximately RMB6,044,400).

The 50% increase in the charter payments is attributable to (i) the increase in the manufacturing costs of new vessels by approximately 30% in the past 12 months which leads to an increase in demand for charterparties and enhance an increase in the corresponding charter payments; (ii) the increase in the interest/lending rates worldwide (such as the United States and the People’s Republic of China) which would increase the financing costs; (iii) the positive market sentiment, in particular, the coastal bulk freight transportation market recorded an increase in the market freight transportation fees for coastal container vessel transportation by at least 30%; (iv) the independent valuation as mentioned above; and (v) the physical condition of “Xiangzhu” vessel (i.e. the “Xingzhu” vessel has a relatively small tonnage of approximately 7,864 tonnes).

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LETTER FROM THE BOARD

4. THIRD BAREBOAT CHARTERPARTIES DATED 22 DECEMBER 2004

4.1 Parties

For “Xiangda” Lessor: Xiang Da Shipping Lessee: CS Container Lines (Asia) For “Xiangxiu” Lessor: Xiang Xiu Shipping Lessee: CS Container Lines (Asia) For “Xiangxin” Lessor: Xiang Xin Shipping Lessee: CS Container Lines (Asia) For “Xiangwang” Lessor: Xiang Wang Shipping Lessee: CS Container Lines (Asia)

4.2 Other Container Vessels

“Xiangda” and “Xiangxiu” were constructed by an independent third party shipyard in the Republic of Korea, and were commissioned into service in 1994. Each has a gross tonnage of 4,018 tonnes.

“Xiangxin” and “Xiangwang” were constructed by an independent third party shipyard in the Republic of Korea, and were commissioned into service in 1995. Each has a gross tonnage of approximately 4,960 tonnes.

The Other Container Vessels are currently leased to CS Container Lines (Asia) for coastal container vessel transportation.

4.3 Leasing of the Other Container Vessels

Pursuant to the Third Bareboat Charterparties, each of Xiang Da Shipping. Xiang Xiu Shipping, Xiang Xin Shipping and Xiang Wang Shipping has agreed to lease to CS Container Lines (Asia) “Xiangda”, “Xiangxiu”, “Xiangxin” and “Xiangwang”, respectively for transportation along the domestic coast and the route from the PRC to Japan.

4.4 Charter Payment and Payment Terms

Pursuant to the Third Bareboat Charterparties, CS Container Lines (Asia) will pay to Xiang Da Shipping, Xiang Xiu Shipping, Xiang Xin Shipping and Xiang Wang Shipping, an aggregate annual charter payment of US$2,825,100 (approximately HK$21,894,525) for the Other Container Vessels.

Other than the payment for the first and the last calendar month being made according to the actual number of chartered days in the month, the monthly charter payment for each of the Other Container Vessels shall be paid fifteen days in advance of the first day of the next calendar month by

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LETTER FROM THE BOARD

CS Container Lines (Asia). The charter payment is determined with reference to a valuation of the charter payments for the Other Container Vessels as per a valuation report issued by the Bareboat Charterparties Valuer. The valuation amount for each of “Xiang Xing” and “Xiang Wang” is US$2,158.04 per day and the valuation amount for each of “Xiang Xiu” and “Xiang Da” is US$1,200.57 per day. The Board considers such determination basis and consequently such charter payments to be fair and reasonable, on normal commercial terms, and are in the interests of the Company and the Shareholders, taken as a whole. The Board and the Bareboat Charterparties Valuer confirm that there had been no material change in the market charter payment from October to December 2004.

4.5 Delivery

The Other Container Vessels will be delivered to CS Container Lines (Asia) at where they are being berthed at the time of delivery.

4.6 Charter period

The Third Bareboat Charterparties became effective on 1 January 2005 and will expire on 31 December 2007 (both dates inclusive).

4.7 Other significant terms

During the charter period of the Third Bareboat Charterparties, CS Container Lines (Asia) shall:

• (i) be responsible for all necessary repair of the Other Container Vessels;

• (ii) insure each of the Other Container Vessels against marine, war and compensation risks; and

• (iii) have the right to re-charter the Other Container Vessels, but CS Container Lines (Asia) shall be entitled to the rights and be liable for the relevant obligations under the Third Bareboat Charterparties.

During the charter period of the Third Bareboat Charterparties, each of Xiang Da Shipping, Xiang Xiu Shipping, Xiang Xin Shipping and Xiang Wang Shipping is not allowed to transfer its ownership of the Other Container Vessel concerned or assign the right to receive any of the charter payments.

Should any dispute arise between each of Xiang Da Shipping, Xiang Xiu Shipping, Xiang Xin Shipping and Xiang Wang Shipping and CS Container Lines (Asia) in respect of the Third Bareboat Charterparties, which remains unresolved after reasonable discussions, such dispute shall be referred to the China Maritime Arbitration Committee for arbitration in Shanghai, the PRC.

The Third Bareboat Charterparties are subject to confirmation, ratification and approval by the Independent Shareholders at the EGM. The Third Bareboat Charterparties will be terminated if the Independent Shareholders do not approve the resolution approving the entering into of the Third Bareboat Charterparties at the EGM.

— 13 —

LETTER FROM THE BOARD

4.8 Annual Cap

The aggregate fee which is estimated to be payable by CS Container Lines (Asia) to Xiang Da Shipping, Xiang Xiu Shipping, Xiang Xin Shipping and Xiang Wang Shipping collectively for each of the three financial years ending 31 December 2007 is US$2,825,100 (approximately RMB23,391,828).

The historical aggregate charter payment paid by CS Container Lines (Asia) for the Other Container Vessels to Xiang Da Shipping, Xiang Xiu Shipping, Xiang Xin Shipping and Xiang Wang Shipping collectively for each of the three financial years ended 31 December 2004 was US$2,336,000 (approximately RMB19,342,080).

The 20.9% increase in the charter payments is attributable to (i) the increase in the manufacturing costs of vessels by approximately 30% in the past 12 months which leads to an increase in demand for charterparties and enhance an increase in the corresponding charter payments; (ii) the increase in the interest/lending rates worldwide (such as the United States and the People’s Republic of China) which would increase the financing costs; (iii) the positive market sentiment in particular, coastal bulk freight transportation market recorded an increase in the market freight transportation fees for coastal container transportation by at least 30%; (iv) the Other Container Vessels having a relatively small tonnage of approximately 4,000 tonnes each which affect the extent of increase in the charter payments; and (v) the independent valuation as mentioned above.

5. FOURTH BAREBOAT CHARTERPARTY DATED 22 DECEMBER 2004

5.1 Parties

Lessor: Shanghai Shipping Lessee: The Company

5.2 “Daqing 88”

“Daqing 88” was constructed by an independent third party shipyard in Japan, and was acquired by Shanghai Shipping upon completion of its construction. It was commissioned into service in 1986. It has a gross tonnage of approximately 90,261 tonnes. “Daqing 88” is used for international (mainly from the Middle East to the Far East) refined oil transportation and domestic crude oil transportation.

5.3 Leasing of “Daqing 88”

Pursuant to the Fourth Bareboat Charterparty, Shanghai Shipping and the Company have agreed to the leasing of “Daqing 88”, to the Company.

5.4 Charter payment and payment terms

Under the Fourth Bareboat Charterparty, the Company will pay to Shanghai Shipping an aggregate annual charter payment of US$3,467,500 (approximately HK$26,873,125) which is expected to be funded by internal resources.

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LETTER FROM THE BOARD

The monthly charter payment for “Daqing 88” will be payable by the Company in advance on the first working day of each calender month. The charter payment is determined with reference to a valuation amount of the charter payment for “Daqing 88” of US$9,500 per day as per a valuation report issued by the Bareboat Chaterparties Valuer. The Board considers determination basis and consequently such charter payment to be fair and reasonable, on normal commercial terms and are in the interest of the Company and the Shareholders, taken as a whole. The Board and the Bareboat Charterparties Valuer confirm that there had been no material change in the market charter payment from October to December 2004.

5.5 Delivery

“Daqing 88” will be delivered to the Company at a safe port in the area en route from Japan to Singapore, pursuant to the Fourth Bareboat Charterparty.

At the time of delivery, Shanghai Shipping shall ensure that “Daqing 88” shall in every way be fit to carry petroleum products, be in good order and condition, and in every way fit for the service concerned. Shanghai Shipping shall further ensure that the “Daqing 88” shall comply with the regulations in force so as to enable it to pass through the Suez and Panama Canals by day and night without delay.

5.6 Charter period

The Fourth Bareboat Charterparty became effective on 1 January 2005 and will expire on 31 December 2007 (both dates inclusive).

5.7 Other Significant Terms

During the charter period of the Fourth Bareboat Charterparty, Shanghai Shipping shall:

• (i) be responsible for all necessary repair of “Daqing 88”;

• (ii) insure “Daqing 88” against marine, war and compensation risks; and

• (iii) have the right to recharter “Daqing 88”, but the Company shall be entitled to the rights and be liable to the obligations under the Fourth Bareboat Charterparty.

During the charter period of the Fourth Bareboat Charterparty, Shanghai Shipping is not allowed to transfer its ownership of the “Daqing 88” concerned or assign the right to receive any of the charter payment.

Should any dispute arise between Shanghai Shipping and the Company in respect of the Fourth Bareboat Charterparty, which remains unresolved after reasonable discussions, such dispute shall be referred to the China Maritime Arbitration Committee for arbitration in Shanghai, the PRC.

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LETTER FROM THE BOARD

The Fourth Bareboat Charterparty is subject to the confirmation, ratification and approval by the Independent Shareholders at the EGM. The Fourth Bareboat Charterparty will be terminated if the Independent Shareholders do not approve the resolution approving the Fourth Bareboat Charterparty in the EGM.

5.8 Annual Cap

The aggregate fee which is estimated to be payable by the Company to Shanghai Shipping for each of the three financial years ended 31 December 2007 is US$3,467,500 (approximately RMB28,710,900).

The historical charter payment for “Daqing 88” paid by the Company to Shanghai Shipping for each of the 3 financial years ended 31 December 2004 was US$4,307,000 (approximately RMB35,661,960). Daqing 88 has been leased from Shanghai Shipping to the Company since 1998.

Despite the positive market sentiment for international refined oil transportation business for the route from the Middle East to the Far East, there has been a downward adjustment to the charter payments. This is attributable to the fact that “Daqing 88” has operated for 18 years. Due to the wear and tear of “Daqing 88”, the operational maintenance costs, which shall be borne by the Company, are expected to be substantial.

6. FIFTH BAREBOAT CHARTERPARTY DATED 22 DECEMBER 2004

6.1 Parties

Lessor: China Shipping (HK) Holdings Lessee: The Company

6.2 “Song Lin Wan”

“Song Lin Wan” was constructed by an independent third party shipyard in Japan, and was acquired by China Shipping (HK) Holdings upon completion of its construction on 27 November 2002, with a gross tonnage of approximately 110,000 tonnes. “Song Lin Wan” is used for international refined oil transportation from the Middle East to the Far East.

6.3 Leasing of “Song Lin Wan”

Pursuant to the Fifth Bareboat Charterparty, China Shipping (HK) Holdings and the Company have agreed to the leasing of “Song Lin Wan” to the Company.

6.4 Charter payment and payment terms

Under the Fifth Bareboat Charterparty, the Company will pay to China Shipping (HK) Holdings an aggregate annual charter payment of US$6,935,000 (approximately HK$53,746,250) which is expected to be funded by internal resources.

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LETTER FROM THE BOARD

The monthly charter payment for “Song Lin Wan” shall be payable by the Company in advance on the first working day of each calender month. The charter payment is determined with reference to a valuation of the charter payment for “Song Lin Wan” of US$18,951.08 per day as per a valuation report issued by the Bareboat Chaterparties Valuer. The Board considers such determination basis and consequently such charter payment to be fair and reasonable, on normal commercial terms and are in the interests of the Company and the Shareholders, taken as a whole. The Board and the Bareboat Charterparties Valuer confirm that there has been no material change in the market charter payment from October to December 2004.

6.5 Delivery

“Song Lin Wan” will be delivered to the Company at a safe port in the area enroute from Japan to Singapore, pursuant to the Fifth Bareboat Charterparty.

China Shipping (HK) Holdings shall ensure that “Song Lin Wan” shall in every way be fit to carry petroleum products and be in good order and condition at the time of delivery. China Shipping (HK) Holdings shall further ensure that “Song Lin Wan” shall comply with the relevant regulations in force so as to enable it to pass through the Suez and Panama Canals by day and night without delay.

6.6 Charter period

The Fifth Bareboat Charterparty became effective on 1 January 2004 and will expire on 31 December 2007 (both dates inclusive)

6.7 Other significant terms

During the charter period of the Fifth Bareboat Charterparty, China Shipping (HK) Holdings shall:

• (i) be responsible for all necessary repair of “Song Lin Wan”;

• (ii) insure “Song Lin Wan” against marine, war and compensation risks; and

• (iii) have the right to recharter “Song Lin Wan”, but the Company shall be entitled to the rights and be liable to the obligations under the Fifth Bareboat Charterparty.

During the charter period of the Fifth Bareboat Charterparty, China Shipping (HK) Holdings is not allowed to transfer its ownership of the “Song Lin Wan” concerned or assign the right to receive any of the charter payment.

Should any dispute arise between China Shipping (HK) Holdings and the Company in respect of the Fifth Bareboat Charterparty, which remains unresolved after reasonable discussions, such dispute shall be referred to the China Maritime Arbitration Committee for arbitration in Shanghai, the PRC.

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LETTER FROM THE BOARD

The Fifth Bareboat Charterparty is subject to the confirmation, ratification and approval by the Independent Shareholders in the EGM. The Fifth Bareboat Charterparty will be terminated if the Independent Shareholders do not approve the resolution approving the entering into of the Fifth Bareboat Charterparty in the EGM.

6.8 The Cap

The fee which is estimated to be payable by the Company to China Shipping (HK) Holdings for each of the 3 financial years ended 31 December 2007 is US$6,935,000.

The historical charter payment paid by the Company for “Song Lin Wan” to China Shipping (HK) Holdings for each of the 3 financial years ended 31 December 2004 was nil, US$4,964,000 and US$4,964,000. “Song Lin Wan” has been leased from China Shipping (HK) Holdings since it was acquired by China Shipping (HK) Holdings upon completion of its construction at the end of 2002.

The 39.7% increase in the charter payments is attributable to (i) increase in the manufacturing costs of different kinds of vessels by 30% in the past 12 months which leads to an increase in demand for charterparties and enhance an increase in the corresponding charter payments; (ii) the increase in the interest/lending rates worldwide (such as the United States and the People’s Republic of China) which would increase the financing costs; (iii) the positive market sentiment for large refined oil tankers for the route from the Middle East to the Far East; (iv) the increase in 30%-40% for charterparties of the oil tankers concerned here; (v) the condition of “Song Lin Wan” (i.e. it has operated for about 2 years and has a relatively large tonnage of approximately 10,000 tonnes); and (vi) the independent valuation report as mentioned above.

7. THE FIRST SALE AND PURCHASE AGREEMENT DATED 22 DECEMBER 2004

7.1 Parties

Vendor: The Company Purchaser: CS Industry

7.2 Oil Tanker

The oil tanker “Daqing 242” was constructed by China Dalian Shipyard, an independent third party. It was commissioned into service in March 1976. The Oil Tanker weighs 8,228 net tonnage. The oil tanker “Daqing 242” has been owned by the Company from its commencement of service. The oil tanker “Daqing 242” is currently used by the Company as crude oil domestic transportation.

7.3 Sale of the oil tanker “Daqing 242”

Pursuant to the First Sale and Purchase Agreement, the Company has agreed to sell and CS Industry has agreed to purchase the oil tanker “Daqing 242”. CS Industry has also undertaken to the Company that it shall not employ the oil tanker “Daqing 242” in a business which competes with the Company.

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LETTER FROM THE BOARD

7.4 Purchase price and payment terms

Pursuant to the First Sale and Purchase Agreement, CS Industry will pay to the Company a sum of RMB24,840,000 (approximately HK$23,433,962) for the oil tanker “Daqing 242” as consideration for the purchase of the oil tanker “Daqing 242”. The Company has appointed an independent qualified valuer for vessels, China Consultants of Accountants and Financial Management Co. Ltd. ( ), to issue a valuation report which sets out the valuation amount of RMB24,610,000 as at 31 August 2004. Such valuation amount is based on the market rate of a normal oil tanker of similar size to the oil tanker “Daqing 242”. The consideration for the sale of the oil tanker “Daqing 242” had been determined with reference to the above valuation amount. The net book value of the oil tanker “Daqing 242” as at 30 November 2004 was RMB16,714,080.06 (approximately HK$15,768,000.05). The net profit expected to arise from the sale of the oil tanker “Daqing 242”, being the difference between the consideration in respect of the sale and the net book value of the oil tanker “Daqing 242”, is RMB8,125,919.94 (approximately HK$7,665,962.21). The Company intends to use the net proceeds arising from the sale of the oil tanker “Daqing 242” as its working capital. The net profits before taxation and extraordinary items which are attributable to the oil tanker “Daqing 242” for the 2 financial years ended 31 December 2003 were RMB16,492,920.09 and RMB18,913,994.54 respectively. The net profits after taxation and extraordinary items which are attributable to the oil tanker “Daqing 242” for the 2 financial years ended 31 December 2003 were RMB14,018,982.08 and RMB16,076,895.36, respectively.

Pursuant to the First Sale and Purchase Agreement, the consideration has been paid by CS Industry by remittance to the Company’s designated bank account and the oil tanker “Daqing 242” will be delivered to CS Industry in the middle of January 2005. The full amount of the consideration (without interest) will be returned to CS Industry if the Independent Shareholders do not approve the resolution approving the entering into of the First Sale and Purchase Agreement at the EGM.

7.5 Other significant terms

The Company has warranted that upon delivery of the oil tanker “Daqing 242”, the oil tanker “Daqing 242” will not be subject to any priority rights, liabilities or pledges, and will not carry any illegal material.

All responsibilities, liabilities and risks relating to the delivery of the oil tanker “Daqing 242” shall be borne by the Company prior to delivery of the oil tanker “Daqing 242”, and by CS Industry immediately after such delivery.

The First Sale and Purchase Agreement is subject to the usual force majeure provisions. In the event of occurrence of force majeure events such as earthquake, fire, tidal wave and war and, as a result, the First Sale and Purchase Agreement cannot be performed by the Company, the Company shall notify CS Industry of the termination of the First Sale and Purchase Agreement immediately.

If CS Industry fails to pay the total amount of the consideration in accordance with the First Sale and Purchase Agreement, the Company shall have the right to terminate the First Sale and Purchase Agreement and claim for any consequential losses and interest.

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LETTER FROM THE BOARD

CS Industry has undertaken not to engage the oil tanker “Daqing 242” in a competing business with the Company.

Should any dispute arise between the Company and CS Industry in respect of the First Sale and Purchase Agreement, which remains unresolved after reasonable discussions, such dispute shall be referred to the China Maritime Arbitration Commission, for arbitration in Shanghai, the PRC.

The First Sale and Purchase Agreement is subject to the confirmation, ratification and approval by the Independent Shareholders in the EGM. The First Sale and Purchase Agreement became effective on 1 January 2005 but will be subject to ratification from the Independent Shareholders in the EGM. The First Sale and Purchase Agreement will be terminated if the Independent Shareholders do not approve the resolution approving the First Sale and Purchase Agreement in the EGM.

There are no conditional precedents to the First Sale and Purchase Agreement.

8. THE SECOND SALE AND PURCHASE AGREEMENT DATED 22 DECEMBER 2004

8.1 Parties

Vendor: The Company Purchaser: CS Industry

8.2 Oil tanker “Ninghe”

The oil tanker “Ninghe” was constructed by China Dalian Shipyard, an independent third party shipyard in the PRC, and was commissioned into service in January 1974. The oil tanker “Ninghe” weighs 23,926 light tonne. The oil tanker “Ninghe” is currently used by the Company for international crude oil transportation. Under the PRC laws, it can only be used for such purposes until 31 December 2004.

8.3 Sale of the oil tanker “Ninghe”

Pursuant to the Second Sale and Purchase Agreement, the Company has agreed to sell and CS Industry has agreed to purchase the oil tanker “Ning He”, and thereafter to dismantle it and sell it as scrap metal.

8.4 Purchase price and payment terms

Pursuant to the Sale and Purchase Agreement, the consideration for the sale of oil tanker “Ninghe” is RMB58,045,433 (HK$54,759,842). CS Industry has paid to the Company, by remittance, 10% of the consideration. The remaining 90% of the consideration will be paid at the date of delivery (which is expected to be end of January 2005). The purchase price was determined based on the current market price of scrap metal at the rate of US$293 per light tonne. No valuation has been performed. As the oil tanker “Ning He” will cease in operation from the beginning of January 2005 onwards. As a result, the Board decided to dismantle it and sell it as scrap metal.

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LETTER FROM THE BOARD

The net book value of the oil tanker “Ninghe” as at 30 November 2004 was RMB929,600 (approximately HK$879,981). The net profit expected to arise from the sale of the oil tanker “Ninghe”, being the difference between the consideration for such sale and the net book value of the oil tanker “Ninghe”, is RMB57,115,800 (approximately HK$53,882,830). The Company intends to use the net proceeds arising from the sale of the oil tanker “Ninghe” as its working capital. The net profits before taxation and extraordinary items attributable to the oil tanker “Ninghe” for the 2 financial years ended 31 December 2003 are RMB59,713,764.98 and RMB29,465,541.85, and the net profits after taxation and extraordinary items attributable to the oil tanker “Ninghe” for the 2 financial years ended 31 December 2003 are RMB50,756,700.23 and RMB25,045,710.57.

8.5 Other significant terms

The Company has warranted that upon delivery of the oil tanker “Ninghe”, the oil tanker “Ninghe” will not be subject to any liabilities or pledges, and will not carry any illegal material.

All responsibilities, liabilities and risks relating to the delivery of the oil tanker “Ninghe” shall be borne by the Company prior to delivery of the oil tanker, and by CS Industry after such delivery.

The Second Sale and Purchase Agreement is subject to the usual force majeure provisions. In the event of occurrence of force majeure events such as earthquake, fire, tidal wave and war and, as a result, the Second Sale and Purchase Agreement cannot be performed by the Company, the Company shall return the payment received from CS Industry in accordance with the Second Sale and Purchase Agreement, the Company shall have the right to terminate the Second Sale and Purchase Agreement and claim for any consequential losses and interest.

Should any dispute arise between the Company and CS Industry in respect of the Second Sale and Purchase Agreement, which remains unresolved after reasonable discussions, such dispute shall be referred to the China Maritime Arbitration Commission, which was established in accordance with a decision made by the State Council of the People’s Republic of China, for arbitration in Shanghai, the PRC.

The Second Sale and Purchase Agreement is subject to the confirmation, ratification and approval by the Independent Shareholders in the EGM. The Second Sale and Purchase Agreement became effective on 1 January 2005 but will be subject to ratification from the Independent Shareholders in the EGM. The Second Sale and Purchase Agreement will be terminated if the Independent Shareholders do not approve the resolution approving the entering into of the Second Sale and Purchase Agreement in the EGM.

There are no conditional precedents to the Second Sale and Purchase Agreement.

9. DALIAN AGREEMENT DATED 30 DECEMBER 2004

On 30 December 2004, the Company (as the buyer) entered into the Dalian Agreement with Dalian Shipbuilding (as the seller) for the construction of a 298,000 tonnes vessel for transportation of crude oil. The consideration for the construction of the vessel is approximately US$98.8 million (equivalent to approximately HK$765.7 million). The entering into of the Dalian agreement constitutes a discloseable transaction of the Company under Chapter 14 of the Listing Rules.

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LETTER FROM THE BOARD

Dalian Shipbuilding is a Chinese shipbuilder. To the best of the Directors’ knowledge, information and belief having made all reasonable enquiries, Dalian Shipbuilding and its ultimate beneficial owner, are not connected persons of the Company, and are not connected with the Directors, chief executive(s) or substantial shareholders of the Company or any of its subsidiaries or any of their respective associates (as defined under the Listing Rules).

The terms of the Dalian Agreement were determined on an arm’s length basis and are normal commercial terms. The Directors, including the independent non-executive Directors, consider them to be fair and reasonable and to be in the interests of the Company and the Shareholders as a whole based on their experience in the crude oil vessel transportation industry.

Terms of the Dalian Agreement

The price of the subject vessel will be payable in Renminbi in 5 equal instalments at various stages of the construction of the vessel,

• (i) for the first instalment, within 15 business days after the Dalian Agreement was entered into;

• (ii) for the second instalment, within 20 business days of the receipt of the relevant invoice issued by Dalian Shipbuilding;

• (iii) for the third and fourth instalments, within 5 business days of the receipt of the relevant invoice issued by Dalian Shipbuilding; and

• (iv) for the final instalment, within 5 business days of the receipt of all documentation in relation to completion of the vessel by Dalian Shipbuilding.

As at the Latest Practicable Date, no payment has been made by the Company. The vessel is expected to be delivered to the Company in or before November 2007.

10. GUANGZHOU AGREEMENT DATED 30 DECEMBER 2004

On 30 December 2004, the Company (as the buyer) entered into the Guangzhou Agreement with Guangzhou Shipyard (as the seller) for the construction of four 52,500 tonnes vessels for the transportation of crude oil. The total consideration for the construction of the four vessels is approximately US$143.2 million (equivalent to approximately HK$1,109.8 million). The entering into of the Guangzhou Agreement constitutes a discloseable transaction of the Company under Chapter 14 of the Listing Rules.

Guangzhou Shipyard is a Chinese shipbuilder. To the best of the Directors’ knowledge, information and belief having made all reasonable enquiries, Guangzhou Shipyard and its ultimate beneficial owner, are not connected persons of the Company, and are not connected with the Directors, chief executive(s) or substantial shareholders of the Company or any of its subsidiaries or any of their respective associates (as defined under the Listing Rules).

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LETTER FROM THE BOARD

The terms of the Guangzhou Agreement were determined on an arm’s length basis and are normal commercial terms. The Directors, including the independent non-executive Directors, consider them to be fair and reasonable and to be in the interests of the Company and the Shareholders as a whole based on their experience in the crude oil vessel transportation industry.

Terms of the Guangzhou Agreement

The price of each of the four vessels will be payable in Renminbi in 5 instalments. The first instalment for the four vessels, each of which amounting to 10% of the total price (being a sum of US$14.32 million (equivalently to approximately HK$110.98 million)), is payable within 15 days after the Guangzhou Agreement is entered into. The second to fourth instalments for the four vessels, each of which amounting to 10% of the total price (being a sum of approximately US$14.32 million (equivalent to approximately HK$110.98 million)), is payable at various stages of the construction of each vessel and within 5 business days of the receipt of the relevant invoice issued by Guangzhou Shipyard to the Company. The final instalment for each vessel, each of which amounting to 60% of the total price (being a sum of approximately US$85.92 million (equivalent to approximately HK$665.88 million) is payable within 10 business days of the receipt of all documentation in relation to the completion of each vessel by Guangzhou Shipyard. As at the Latest Practicable Date, no payment has been made by the Company.

The first vessel is expected to be delivered in or before June 2007. The second vessel is expected to be delivered in or before September 2007. The third vessel is expected to be delivered in or before December 2007. The fourth vessel is expected to be delivered in or before April 2008.

Finance Terms

The construction of the vessels under the Dalian Agreement and the Guangzhou Agreement will be funded by internal resources. If such internal resources are not sufficient, then the Company may utilise its bank borrowings.

11. REASONS FOR AND BENEFITS OF ENTERING INTO THE TRANSACTIONS

For the First Bareboat Charterparties, Second Bareboat Charterparty, Third Bareboat Charterparties:

Oil and cargo transportation are major businesses of the Group. Therefore, the Group has taken a series of effective measures in order to achieve maximum usage of its shipping capacity (including leasing some of its spare shipping capacity). The First Bareboat Charterparties, Second Bareboat Charterparty and Third Bareboat Charterparties enable the Group to achieve the above aim. The Directors believe that since Group Company and the Group had maintained an amicable and continual business relationship, the continuation of the transactions as contemplated under the First Bareboat Charterparties, Second Bareboat Charterparty and Third Bareboat Charterparties would continue to bring a steady stream of income to the Group.

The Group does not and is not prepared to carry on container shipping business. It has leased the subject vessels under the First Bareboat Charterparties, Second Bareboat Charterparty

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LETTER FROM THE BOARD

and Third Bareboat Charterparties to CS Container Lines or CS Container Lines (Asia) for more than six years. The leasing of those vessels has brought in a steady stream of revenue to the Group. Therefore, the Board has decided to utilize the same container vessels by way of leasing.

The leasing of some of the Company’s spare shipping capacity to Group Company under the First Bareboat Charterparties, Second Bareboat Charterparty and Third Bareboat Charterparties would not have any material adverse impact on the business operations of the Group.

For the Fourth Bareboat Charterparty and Fifth Bareboat Charterparty:

The Group also aims to maintain the steady increase in its operating results in relation to refined oil transportation for the route from the Middle East to the Far East. The leasing of “Song Lin Wan” and “Daqing 88”, both of which are relatively large oil tankers, would enable the Group to enhance its international shipping capacity.

For the First Sale and Purchase Agreement

In accordance with a notice issued by the Ministry of Communication of the PRC on 9 April 2001, the oil tanker “Daqing 242” has reached the age for mandatory special routine inspection ( ). A more extensive programme of maintenance, repair and inspection is expected for such oil tanker. The Board estimates that the maintenance and repair costs for “Daqing 242” would thus be increased significantly. “Daqing 242” is now mainly used for crude oil shipping along the domestic coast of the PRC. Due to the drastic decrease of shipping volume of crude oil from the Daqing Oilfield and Shengli Oilfield in northern China, the net profits attributable to “Daqing 242” decreased by more than 70% for the nine months period ended 30 September 2004, as compared with the same period in 2003.

The Board has decided to sell “Daqing 242” as it expects the profits to be generated from it would not cover its operational costs in 2005. The Board believes that the disposal of “Daqing 242” will not have any material adverse impact on the Company’s net assets and earnings. The disposal of “Daqing 242” will provide the Company with more working capital. The Board currently does not have plan on any specific use of such working capital.

For the Second Sale and Purchase Agreement

The oil tanker “Ning He” came into operation in 1973 and has now met the deadline for mandatory scrappage of oil tankers, as stipulated by the Ministry of Communication of the PRC ( ). In accordance with the notice issued by the Ministry of Communication of the PRC on 9 April 2001, the mandatory scrappage age of “Ning He” is 31 years. “Ning He” is well worn through its 31 years of service and its cabin and communication facilities are outdated. “Ning He” will cease operation from the beginning of January 2005 onwards. As a result, the Board has decided to dismantle it and sell it as scrap metal. CS Industry is a special service entity which specializes in ship dismantling business. The Board believes that the

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LETTER FROM THE BOARD

disposal of “Ning He” will provide the Company with more working capital. The Board currently does not have plan on any specific use of such working capital. The Board believes that the disposal of “Ning He” will not have any material adverse impact on the Company’s net assets and earnings.

For the Construction of New Vessels Transactions

Since the first quarter of 2004, the crude oil transportation market has been very busy. The Directors are optimistic of the demand in such market in 2005. The Directors also believe that the shipping market will maintain persistent growth in 2005. The Directors are of the view that the construction and ownership of the vessels under the Dalian Agreement and Guangzhou Agreement 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 Directors are of the view that the entering into of the Construction of New Vessels Transactions does not have a material adverse impact on the earnings, assets and liabilities of the Group.

12. BUSINESS

The business of the Company mainly involves coastal, ocean and Yangtze River cargo transportation, oil transportation, international passenger transportation, chartering, cargo agency and cargo transportation agency. CS Container Lines and CS Container Lines (Asia) are principally engaged in the operation and management of international and domestic container marine transportation. Shanghai Shipping is principally engaged in the management and operation of marine transportation. The business of CS Industry mainly involves ship repair, ship construction, purchase of second hand ships, ship dismantling and ship leasing. The business of Xiang Da Shipping, Xiang Xiu Shipping, Xiang Xin Shipping and Xiang Wang Shipping mainly involves domestic and international container transportation. The business of China Shipping (HK) Holdings is marine transportation. The business of Dalian Shipbuilding and Guangzhou Shipyard involves design and construction of vessels.

13. LISTING RULES REQUIREMENTS

CS Container Lines (Asia) is a wholly-owned subsidiary of CS Container Lines. Shanghai Shipping is a wholly owned subsidiary of the Group Company. Each of CS Container Lines, CS Container Lines (Asia), Shanghai Shipping, China Shipping (HK) Holdings and CS Industry is an associate (as defined under the Listing Rules) of the Group Company and is a connected person (as defined under the Listing Rules) of the Company. Hence, the Transactions constitute connected transactions of the Company for the purposes of the Listing Rules.

As the applicable percentage ratios in respect of the Transactions are more than 2.5%, the Transactions are not only subject to the reporting and announcement requirements under Rules 14A.45 to 14A.47 of the Listing Rules but also require the approval of the Independent Shareholders.

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LETTER FROM THE BOARD

The Connected Transactions when aggregated with the previous sale of the oil tankers “Daqing 45” and “Daqing 246” by the Company constitute discloseable transactions for the purpose of the Listing Rules since the relevant percentage ratio exceeds 5% but is less than 25%.

The relevant percentage ratio(s) in respect of the Construction of New Vessels Transactions is more than 5% but less than 25%, therefore, the Construction of New Vessels Transactions constitute discloseable transactions of the Company for the purpose of the Listing Rules.

The terms and conditions of the Transactions have been negotiated on an arm’s length basis and are normal commercial terms. The Board considers the Transactions to be fair and reasonable, and are in the interests of the Company and the Shareholders, taken as a whole.

14. NOMINATION FOR APPOINTMENT OF AN ADDITIONAL NEW EXECUTIVE DIRECTOR AND AN ADDITIONAL SUPERVISOR

As disclosed in the announcement issued by the Company on 29 November 2004, the Company proposes to nominate Mr. Mao Shi Jia (“Mr. Mao”) for election at the EGM as an executive Director.

Mr. Mao, aged 54, is the general manager of the Company. Mr. Mao graduated from Shanghai Maritime College in 1974, having majored in maritime piloting. Mr. Mao joined Shanghai COSCO in 1974, and was formerly a captain and manager of Shanghai Cosco International Cargo Transportation Company and Beijing COSCO International Cargo Transportation Company, the Deputy General Manager of Shanghai COSCO, the General Manager of China Merchants Group Ming Hua Shipping Company and China Merchant Transportation Group. Mr. Mao joined Group Company in January 2001, and was General Manager of China Shipping Terminal Development Co., Ltd and China Shipping Logistics Co., Ltd.. Since November 2002, Mr. Mao has served as an assistant president of Group Company. Mr. Mao has been engaged in shipping enterprise management and operation for more than 20 years. He is well experienced in navigation and enterprise operation and management. Except for Group Company, China Shipping Terminal Development Co., Ltd. (a subsidiary of Group Company) and China Shipping Logistics Co., Ltd (a subsidiary of Group Company), the companies mentioned in this paragraph are Independent Third Parties. Mr. Mao did not hold any directorship in any listed public companies in the last three years.

Save and except for his relationship with the Group and Group Company as stated above, Mr. Mao does not have any relationship with any other Directors, senior management, substantial shareholders or controlling shareholders of the Company. Mr. Mao has no interest in the shares of the Company within the meaning of Part XV of the Securities and Futures Ordinance. Mr. Mao will enter into a service contract with the Company which will take effect from his appointment. The term of his service will be effective from the conclusion of the EGM until the conclusion of the annual general meeting of the Company for the year 2006 (to be held on or around 27 May 2006). His remuneration as an executive Director has not been determined but is expected to be determined, based on the qualification and experience of Mr. Mao, in March 2005. The Company will issue an announcement upon determination of such remuneration. Mr. Mao is entitled to a monthly salary of approximately HK$45,000 for being a general manager of the Company. Mr. Mao is not entitled to any other emoluments as a general manager of the Company payable by the Group.

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LETTER FROM THE BOARD

As disclosed in an announcement issued by the Company on 29 November 2004, the Company also proposes to nominate Mr. Yan Mingyi (“Mr. Yan”) for election at the EGM as a supervisor of the Company.

Mr. Yan, aged 59, was an executive director of the Company until 29 November 2004. Mr. Yan joined Shanghai Bureau of Maritime Transportation Association in 1970 and was formerly a deputy manager, then general manager of Oil Tankers Branch of the Company until March 2003. Since 1995, he has been a deputy general manager of Shanghai Shipping Group Company (a wholly-owned subsidiary of Group Company), as well as a director of China Ship Building Association, a member of BV Shipping Association (Asia Pacific) and the China Committee of NK Shipping Association. Mr. Yan graduated from Dalian Maritime University with a professional qualification in marine piloting in 1968. He has engaged in navigation and shipping management and has extensive experience in enterprise management. Except for Group Company and Shanghai Shipping Group Company, the companies mentioned in this paragraph are the Independent Third Parties. Mr. Yan did not hold any directorship in any listed companies in the last three years, save as an executive director of the Company until 29 November 2004.

Save and except for his relationship with the Group and Group Company as stated above, Mr. Yan does not have any relationship with any other Directors, senior management, substantial shareholders or controlling shareholders of the Company. Mr. Yan has no interest in the shares of the Company within the meaning of Part XV of the Securities and Futures Ordinance. Mr. Yan will enter into a service contract with the Company which will take effect from his appointment. The term of his service will be effective from the conclusion of the EGM until the conclusion of the annual general meeting of the Company for the year 2006 (to be held on or around 27 May 2006). His remuneration as a supervisor has not been determined and is expected to be determined, based on the qualification and experience of Mr. Yan, in March 2005. The Company will issue an announcement upon determination of such remuneration. It is expected that Mr. Yan will be entitled to an annual salary only as remuneration. Mr. Yao is at present not entitled to any remuneration payable by the Group.

15. EGM

Set out in pages 50 to 54 of this circular is the notice to convene and hold the EGM at Room 319, 700 Dong Da Ming Road, Shanghai, The People’s Republic of China at 10:00 a.m. on Tuesday, 1 March 2005. It is proposed that ordinary resolutions for the approval of the Transactions and the Annual Caps for the Continuing Connected Transactions be put to the shareholders of the Company for their consideration and voting by way of poll at the EGM. It is also proposed that an ordinary resolution for the approval of the appointment of Mr. Mao Shi Jia as an executive Director and an ordinary resolution for the approval of the appointment of Mr. Yan Mingyi as a supervisor of the Company be put to the Shareholders for their consideration at the EGM.

For the purposes of the EGM, the register of members of the Company will be closed from 29 January 2005 to 28 February 2005 (both days inclusive), during which no transfer of shares will be registered. Accordingly, holders of H shares of the Company and holders of domestic shares of the Company (including A Shares) whose names appear on the register of members of the Company at the close of business on 28 January 2005 shall have the right to attend the EGM.

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LETTER FROM THE BOARD

Each Shareholder who has the right to attend and vote at the EGM, is entitled to appoint one or more proxies, whether they are Shareholders or not, to attend and vote on his behalf at the EGM.

A proxy form for use in connection with the EGM is enclosed. Whether or not you are able to attend the meeting, please complete and return the enclosed proxy form in accordance with the instructions printed thereon as soon as practicable and in any event not less than 24 hours before the time appointed for holding of the meeting. Completion and return of the proxy form will not preclude you from attending and voting in person at the meeting or any adjourned meeting should you so wish.

In view of the interest of Group Company and its associates, which controls or is entitled to exercise control over the voting rights in respect of its entire 50.51% shareholding in the Company, in the Transactions and the Annual Caps, they will abstain from voting at the EGM.

16. POLL PROCEDURE

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.”

17. RECOMMENDATION

The Board, including the Independent Board Committee, is of the opinion that the terms of the Transactions and the Annual Caps are fair and reasonable and are in the interests of the Company and the Shareholders as a whole. Accordingly, the Board recommends that the Independent Shareholders vote in favour of the ordinary resolutions set out in the notice of the EGM for the approval of the Transactions.

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LETTER FROM THE BOARD

18. GENERAL

An Independent Board Committee, comprising Mr. Xie Rong, Mr. Hu Honggao and Mr. Zhou Zhanqun, has been formed to advise the Independent Shareholders in respect of the Transactions and the Annual Caps. Guotai Junan Capital Limited has also been appointed as the Independent Financial Adviser for the purpose of advising the Independent Board Committee and the Independent Shareholders in respect of the Transactions and the Annual Caps.

19. ADDITIONAL INFORMATION

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

Yours faithfully,

China Shipping Development Company Limited Li Shaode Chairman

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

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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)

14 January 2005

To the Independent Shareholders

Dear Sir or Madam,

Continuing Connected Transactions and Connected and Discloseable Transactions

We have been appointed as the Independent Board Committee to advise you in connection with the Transactions, details of which are set out in the Letter from the Board contained in the circular to the shareholders of the Company dated 14 January 2005 (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 Transactions and the advice and opinion of the Independent Financial Adviser in relation thereto as set out on pages 31 to 44 of the Circular, we are of the opinion that the terms of the Transactions and the Annual Caps are fair and reasonable and the Transactions 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 EGM to approve the Transactions and the Annual Caps.

Yours faithfully, Mr. Xie Rong Mr. Hu Honggao Mr. Zhou Zhanqun Independent Independent Independent non-executive Director non-executive Director non-executive Director

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Guotai Junan Capital Limited

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

14 January 2005

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

Dear Sirs,

CONTINUING CONNECTED TRANSACTIONS AND CONNECTED TRANSACTIONS

INTRODUCTION

We refer to our appointment as the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders in respect of the Transactions and the Annual Caps, particulars of which are set out in a circular to the Shareholders dated 14 January 2005 (the “Circular”) and in which this letter is reproduced. Unless the context requires otherwise, terms used in this letter shall have the same meanings as given to them under the definitions section of the Circular.

As set out in the letter from the Board contained in the Circular (the “ Board’s Letter ”), the Group Company holds approximately 50.51% of the issued share capital of the Company and is the controlling shareholder of the Company. Each of CS Container Lines, CS Container Lines (Asia), Shanghai Shipping, China Shipping (HK) Holdings and CS Industry is an associate (as defined under the Listing Rules) of the Group Company and is a connected person (as defined under the Listing Rules) of the Company. As such, (i) the leasing of vessels (the “ Leasing ”) for a term of three years from 1 January 2005 pursuant to the renewal of the vessel leasing agreements (which include the First Bareboat Charterparties, the Second Bareboat Charterparty, the Third Bareboat Charterparties, the Fourth Bareboat Charterparty and the Fifth Bareboat Charterparties) (the “ Vessel Leasing Agreements ”), (ii) the sale of oil tanker named “Daqing 242” (the “ Sale ”) under the First Sale and Purchase Agreement and (iii) the disposal of oil tanker named “Ninghe” (the “ Disposal ”) under the Second Sale and Purchase Agreement constitute connected transactions for the Company.

As both the applicable percentage ratios in respect of the Leasing (on an annual basis) and in respect of the Sale and the Disposal (on an aggregate basis) are more than 2.5%, the Transactions are subject to the reporting, announcement as well as independent shareholders’ approval requirements under Chapter 14A of the Listing Rules.

Accordingly, the Company will convene the EGM on 1 March 2005 to approve the Transactions and the Annual Caps by the Independent Shareholders. In this connection, the Circular containing, inter alia, the information relating to the Vessel Leasing Agreements, the First Sale and Purchase Agreement and the Second Sale and Purchase Agreement, the recommendation from the Independent

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Board Committee and this letter, is despatched to the Shareholders. In particular, this letter will set out our recommendations to the Independent Board Committee as to whether the terms of the Transactions and the Annual Caps are fair and reasonable and whether the Transactions are in the interests of the Company and its shareholders.

In formulating our opinion, we have relied on the accuracy of the information and representations contained in the Circular and have assumed that all information and representations made or referred to in the Circular were true at the time they were made and continue to be true as at the date of the Circular. We have also assumed that all statements of belief, opinion and intention made by the Directors in the Circular were reasonably made after due enquiry. We consider that we have reviewed sufficient information to reach an informed view, to justify relying on the accuracy of the information contained in the Circular and to provide a reasonable basis for our opinion. We have no reason to suspect that any material facts have been omitted or withheld from the information contained or opinions expressed in the Circular nor to doubt the truth, accuracy and completeness of the information and representations provided to us by the Directors. We have not, however, conducted an independent in-depth investigation into the affairs of the Company.

I. LEASING

Principal factors considered

In arriving at our recommendation in respect of the Leasing, we have considered the following principal factors:

(a) Background

The Group is principally engaged in the domestic and international shipping business. The main business scope of the Group includes: coastal sea, ocean and Yangtze River cargo transportation, oil transportation, international passenger transportation, chartering, cargo agency and cargo transportation agency.

On 23 December 2003, the Group entered into a series of vessel leasing agreements with certain associates of the Group Company and those vessel leasing transactions would be expired on 31 December 2004. Details of which are set out in the announcement of the Company dated 23 December 2003 (the “ Previous Announcement ”). However, following the release of the Previous Announcement, some market watchers criticized whether the charter payments for various charterparties did reflect the market rates. On 13 May 2004, the Company released a clarification announcement to address their concern (see the announcement of the Company dated 13 May 2004 (the “ Clarification Announcement ”)). On 22 December 2004, several vessel leasing agreements (which include the First Bareboat Charterparties, the Second Bareboat Charterparty, the Third Bareboat Charterparties, the Fourth Bareboat Charterparty and the Fifth Bareboat Charterparty) were renewed for a term of three years with effect from 1 January 2005. Details of which are set out in the Board’s Letter of the Circular.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(b) Reasons for the Leasing

As mentioned above, oil and cargo transportation are major businesses of the Group. The Group has taken a series of effective measures in order to achieve maximum usage of its shipping capacity. It aims to maintain the steady increase in its operating results in relation to oil and cargo transportation. The renewal of the leasing of the Group’s container vessels (namely “Xiangli”, “Xiangmao”, “Xiangyue”, “Xiangzhuang”, “Xiangzhu”, “Xiangda”, “Xiangxiu”, “Xiangxin” and “Xiangwang”) (“ Nine Vessels ”) to certain subsidiaries of the Group Company as stipulated in the First Bareboat Charterparties, the Second Bareboat Charterparty and the Third Bareboat Charterparties will enable the Group to achieve the maximum utilization of its vessel fleets and bring into a steady stream of income. For each of the three years ended 31 December 2004, the Group received an aggregated charter revenue of approximately RMB44.3 million for the Nine Vessels.

As advised by the Directors, the Nine Vessels have been leased to the Company’s connected parties following its group reorganisation in 1998. They are employed by CS Container Lines and CS Container Lines (Asia) for their container shipping business. CS Container Lines was listed on the Stock Exchange on 16 June 2004. The Board acknowledged that (i) the Company has a right to purchase some shareholding of CS Container Lines from the Group Company and (ii) the Group Company has undertaken (and procured its subsidiaries) not to engage in any business which competes with the container shipping business of CS Container Lines (being also set out in the prospectus of CS Container Lines dated 4 June 2004). The Board advised us that since the Group is not prepared to carry out container shipping business itself, the Nine Vessels have been leased to these connected parties for a history of more than six years and the leasing of those vessels can bring into a steady stream of income, the Group decided to utilize these container vessels by way of leasing.

Besides, as mentioned in the Board’s Letter, the Group also aims to maintain the steady increase in its operating results in relation to oil and cargo transportation for international route. The renewal of the Fourth Bareboat Charterparty and Fifth Bareboat Charterparty will enable the Company to lease two large-sized ocean oil tankers namely, “Daqing 88” and “Song Lin Wan” for the business of transshipment of imported oil by ocean route. As advised by the Directors, “Daqing 88” and “Song Lin Wan” have been leased from the Company’s connected parties since 1998 and 2003 respectively. Such renewal will secure the Group to have more international shipping capacity to meet the continuous increase in the imported oil products to the PRC. For each of the three years ended 31 December 2004, the Group paid an aggregate vessel charter fee of approximately US$4.31 million (or RMB35.6 million) for the leasing of “Daqing 88”. For each of the two years ended 31 December 2004, the Group paid an aggregate vessel charter fee of approximately US$4.96 million (or RMB41.0 million) for the leasing of “Song Lin Wan”.

Accordingly, given the leasing of the Nine Vessels for more than six years, the steady stream of income from leasing of the Nine Vessels and the provision of more international shipping capacity by “Daqing 88” and “Song Lin Wan” as discussed above, we consider that it is in the interest of the Company and its shareholders to have those vessels leased to and from certain associates of the Group Company pursuant to the Leasing.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(c) Terms of the Vessel Leasing Agreements

Basis of determining the charter payment rates

An independent valuation of the charter payment for the Nine Vessels, “Daqing 88” and “Song Lin Wan” in October 2004 was performed by an international professional maritime consulting firm. The following table sets out the historical, the valued and the proposed daily charter payment rates for each of the vessels under the Vessel Leasing Agreements:

		Daily rate			Premium over
		valued by	Specific		(or discount	Proposed
	Historical	the valuer	adjustment	Proposed	to) valued	annual
	daily rate	in October	made by the	daily rate	daily rate	charter
Name of Vessels	(2003 — 2004)	2004	Company	(2005 — 2007)	(Note 2)	payment
Lease to connected parties
First Bareboat Charterparties						US$4,088,000
Xiangli	RMB13,000	US$3,561	20%	US$2,800	—
	(or US$1,572)	(Note 1)	(discount)	(round up)
Xiangmao	RMB13,000	US$3,561	20%	US$2,800	—
	(or US$1,572)	(Note 1)	(discount)	(round up)
Xiangyue	RMB13,000	US$3,561	20%	US$2,800	—
	(or US$1,572)	(Note 1)	(discount)	(round up)
Xiangzhuang	RMB13,000	US$3,561	20%	US$2,800	—
	(or US$1,572)	(Note 1)	(discount)	(round up)
Second Bareboat Charterparty						US$1,095,000
Xiangzhu	US$2,000	US$3,318	—	US$3,000	9.6%
					(discount)
Third Bareboat Charterparties						US$2,825,100
Xiangda	US$1,200	US$1,201	—	US$1,370	14.1%
					(premium)
Xiangxiu	US$1,200	US$1,201	—	US$1,370	14.1%
					(premium)
Xiangxin	US$2,000	US$2,158	—	US$2,500	15.8%
					(premium)
Xiangwang	US$2,000	US$2,158	—	US$2,500	15.8%
					(premium)
Lease from connected parties
Fourth Bareboat Charterparty						US$3,467,500
Daqing 88	US$11,800	US$9,660	—	US$9,500	1.6%
				(round up)	(discount)
Fifth Bareboat Charterparty						US$6,935,000
Song Lin Wan	US$13,600	US$18,951	—	US$19,000	0.2%
				(round up)	(premium)

Table 1

Note:

1. The daily rate valued by the valuer is based on the conditions of a normal container vessel similar to these four vessels.

2. The premium over (or discount to) the daily rate valued by the valuer is determined with reference to the proposed daily rate.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Regarding the valuation methodology adopted by the valuer ((a) for normal vessels similar to “Xiangli”, “Xiangmao”, “Xiangyue” and “Xiangzhuang” under the First Bareboat Charterparties, (b) for “Xiangzhu” under the Second Bareboat Charterparty, (c) for “Xiangda”, “Xiangxiu”, “Xiangxin” and “Xiangwang” under the Third Bareboat Charterparties, (d) for “Daqing 88” under the Fourth Bareboat Charterparty and (e) for “Song Lin Wan” under the Fifth Bareboat Charterparty), we noted that the daily charter payment rates are the monthly payment divided by 30 days, where the monthly payment is determined by a formula using the assumptions of (i) the ship financing period of 10 years (i.e. the sale of the vessel and bareboat charter back), (ii) the financing cost based on 10-year US bond rate plus premium of 4%, (iii) the sale price of vessel with similar age and tonnages in 2004, and (iv) the estimated residual value after 10 years (without considering the exact particular of each vessel). However, for the oil tanker “Daqing 88”, given that it has only 5 years remaining usage life, the financing period for this vessel has adjusted to 5 years. In particular, this valuation methodology has accounted for the charter period, age and tonnages, but not the detailed particulars of each vessel (such as country of construction and registration, detailed technical specifications and engine type). As advised by the valuer, such valuation methodology is quite common in this industry for determining the charter payment for bareboat charters (like container vessels and oil tankers).

First Bareboat Charterparties

We were informed by the Company’s management that the four container vessels (namely “Xiangli’, “Xiangmao”, “Xiangyue” and “Xiangzhuang”) were actually converted from bulk vessels into container vessels which have lower speed than the normal container vessels. Since these vessels are (i) dry-bulk cargo vessels which have been modified to become container vessels and (ii) slow speed (and their condition mainly allows them to engage in coastal transportation), the valuer has expressed the opinion that it was not able to provide a proper valuation of the charter payments for any of them (also stated in the Clarification Announcement). Nevertheless, having considered the stated conditions of these four vessels, the Company and CS Container Lines have agreed for their charter payments to be approximately 20% below the independent valuation amount of the charter payment of a “normal” container vessel (i.e. of similar size) as estimated by the valuer.

Notwithstanding that no proper valuation of the charter payments for “Xiangli”, “Xiangmao”, “Xiangyue” and “Xiangzhuang” was provided, it is not unacceptable to us that the determination of their charter payments was based on the independent valuation amount of the charter payment of a normal container vessel (of similar size to these four vessels) with an appropriate adjustment. In particular, taking into account the stated conditions of these four vessels (i.e. (i) dry-bulk cargo vessels which have been modified to become container vessels and (ii) slow speed), we consider that the discount of approximately 20% to the valuation amount, which was negotiated between the Company and CS Container Lines, is moderate and acceptable. As such, we consider that the proposed daily charter payment rates for the First Bareboat Charterparties are fair and reasonable and the terms of which are on normal commercial terms.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Second Bareboat Charterparty

As the vessel (namely “Xiangzhu”) has a relatively small container size with less operational efficiency and is suitable only for short route transportation, the Board is of the view that the proposed daily charter payment rate for “Xiangzhu” should be set at a discount of approximately 9.6% to the valuation amount (which does not reflect the conditions of relatively small container size with less operational efficiency and the short navigation range). As such, we consider that the proposed daily charter payment rate for the Second Bareboat Charterparty is fair and reasonable and the terms of which are on normal commercial terms.

Third Bareboat Charterparties

The four vessels (namely “Xiangda”, “Xiangxiu”, “Xiangxin” and “Xiangwang”) under the Third Bareboat Charterparties are primarily based on the independent valuation amount and the market premium of about 15% after the negotiations with CS Container Lines (Asia) on obtaining more favour terms for the Group. As such, we consider that the proposed daily charter payment rates for the Third Bareboat Charterparties are fair and reasonable and the terms of which are on normal commercial terms.

Fourth Bareboat Charterparty

The daily leasing rate of the oil tanker (namely “Daqing 88”) under the Fourth Bareboat Charterparty is primarily based on the independent valuation amount. As such, we consider that the proposed daily charter payment rate for the Fourth Bareboat Charterparty is fair and reasonable and the terms of which are on normal commercial terms.

Fifth Bareboat Charterparty

The other oil tanker (namely “Song Lin Wan”) under the Fifth Bareboat Charterparty is primarily based on the independent valuation amount. As such, we consider that the proposed daily charter payment rate for the Fifth Bareboat Charterparty is fair and reasonable and the terms of which are on normal commercial terms.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(d) Annual Caps

Regarding the Annual Caps in relation to the Leasing, the aggregate Annual Caps are approximately US$18.41 million (or HK$143.6 million) for each of the three years ending 31 December 2007 which are the annual charter payment under the charterparties being determined with reference to the lease amounts under the valuation being performed by an independent international professional maritime consulting firm in October 2004 and some adjustments made by the Company. Details of the Annual Caps of the Vessel Leasing Agreements are set out in the following table:

	Historical	Proposed
	2003 — 2004	2005 — 2007
	(Yearly)	(Yearly)
	(US$)	(US$)
Lease to connected parties
First Bareboat Charterparties	2,296,000	4,088,000
Second Bareboat Charterparty	730,000	1,095,000
Third Bareboat Charterparties	2,336,000	2,825,100
Lease from connected parties
Fourth Bareboat Charterparty	4,307,000	3,467,500
Fifth Bareboat Charterparty	4,964,000	6,935,000
Lease to and from connected parties
Aggregate Annual Caps	—	18,410,600

Table 2

As shown in Table 1 and Table 2 above, the proposed daily charter payment rate for each of the Nine Vessels under the First Bareboat Charterparties, the Second Bareboat Charterparty and the Third Bareboat Charterparties as well as “Song Lin Wan” under the Fifth Bareboat Charterparty is higher than the historical rate. As mentioned in the Board’s Letter, the increase in the charter payments for each of the Nine Vessels and “Song Lin Wan” is attributable to (i) the increase in the manufacturing costs of vessels by 30% to 50% in the past 12 months, (ii) the increase in the interest/lending rates worldwide (such as the United States and the PRC) which would increase the finance costs of the Company, (iii) the positive market sentiments, (iv) the independent valuation and (v) the physical conditions of the vessels.

The Directors advised us that the substantial increase in charter payments regarding the Annual Caps in Table 2 was generally attributable to the overall recovery of the existing maritime industry. Currently, the Nine Vessels provide container shipping services between Japan and the PRC. For both oil tankers namely “Song Lin Wan” and “Daqing 88”, they provide refined petroleum products transportation services between the Middle East and the PRC. Based on the index charts of “ ” (China Containerized Freight Index) “ ( )” (China Containerized Freight Index — Japan Service) and “ — ”

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(Baltic International Tanker Routes Index Trend — refined petroleum products) released from (Shanghai Shipping Exchange) recently as obtained by the Company and reviewed by us, both of the indices for transportation costs relating to container vessels (for Japan line) and oil tankers (for international line) which have fluctuated significantly from time to time increased by at least 30% in 2004. As such, the proposed charter payment under the charterparties for the coming three years (from 2005 to 2007) being determined with reference to the amount valued by the valuer in October 2004 is likely to be higher than the historical charter payment for the past two years (from 2003 to 2004).

However, the proposed daily charter payment rate for “Daqing 88” under the Fourth Bareboat Charterparty is lower than the historical rate. As set out in the Board’s Letter, the decrease to the charter payments for “Daqing 88” is attributable to the fact that “Daqing 88” has operated for 18 years. Due to the wear and tear of the equipment of “Daqing 88”, the operational maintenance costs, which shall be borne by the Company, are expected to be substantial.

From the Clarification Announcement, the Company addressed the concerns in relation to the deviation of historical daily rate and market rate of the subject vessels in 2004. The daily rate of each vessel as currently proposed by the Company is dependent on the actual conditions (such as speed and operational efficiency) of the subject vessels and it may not be necessary for any of those vessels to lease or be leased at the market rate provided by the valuer.

Taking into account the charter payments for the vessels which are primarily based on the independent valuation amount, the specific adjustment relating to the conditions of the vessels and the market premium as anticipated under the positive market sentiment in the PRC shipping industry as mentioned earlier, we consider that the proposed Annual Caps for the Leasing are fair and reasonable.

Besides, the Annual Caps for the Leasing for each of the three years ending 31 December 2007 are subject to, inter alia, proper disclosure by the Company of such connected transaction in its annual report, the review by the Company’s auditors of the terms under which the Leasing is provided and the confirmation by the Independent Directors that the connected transactions have been entered into in accordance with the respective annual Annual Caps for the Leasing and the terms set out therein during the year.

Recommendation

Taking into consideration the above factors, in particular, the reasons for the Leasing, the basis of determining the charter payment rates of the vessels and the Annual Caps, we consider that the Vessel Leasing Agreements are in the interest of the Group and the terms of which, being on normal commercial terms, (together with the Annual Caps) are fair and reasonable so far as the Shareholders are concerned. Accordingly, we recommend the Independent Board Committee to advise the Independent Shareholders to vote in favour of the ordinary resolutions for approving the Vessel Leasing Agreements at the EGM.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

II. SALE

Principal factors considered

In arriving at our recommendation in respect of the Sale, we have considered the following principal factors:

(a) Reasons for the Sale

On 22 December 2004, CS Industry, a subsidiary of the Group Company, entered into the First Sale and Purchase Agreement, pursuant to which, CS Industry agreed to purchase the oil tanker of “Daqing 242” from the Company. It is expected that CS Industry will revamp “Daqing 242” as a barge. In particular, CS Industry has undertaken to the Company that it shall not employ “Daqing 242” in a business which competes with the Company. Details of which are set out in the Board’s Letter of the Circular.

As mentioned therein, “Daqing 242” has been mainly used by the Group for crude oil shipping along the domestic coast in the PRC since March 1976 with weight of 8,228 net tonnages. The Directors consider that the disposal of “Daqing 242” was due to (i) a continuous decline in volume of ocean transportation of northern pipe oil from Daqing Oilfield and Shengli Oilfield in the northern China since the production volume at Daqing Oilfield and Shengli Oilfield has gradually decreased and some customers have switched to use alternative transportation channels, such as road and oilpipe, to transport the oil products from these two oilfields and (ii) the Group’s overall development strategy of oil tanker fleets. It is noted that the Company also sold an oil tanker named “Daqing 246” on 7 October 2004 which is similar to “Daqing 242” to CS Industry for the same reason (see the announcement of the Company on 7 October 2004).

According to the information provided by the Company, the volume of ocean transportation of northern pipe oil from Daqing Oilfield and Shengli Oilfield in the northern China has declined significantly in 2004. It leads to spare shipping capacity for transporting crude oil along the domestic coastal route. For the two years ended 31 December 2003 and the nine months ended 30 September 2004, the shipment volume of “Daqing 242” was approximately 721,000 tonnes, 1,201,000 tonnes and 530,000 tonnes respectively. Since the volume of ocean transportation of northern pipe oil from Daqing Oilfield and Shengli Oilfield is expected to further decline, the Directors believe that the sale of “Daqing 242” is an effective measure to help achieve the maximum usage of its oil shipping capacity for the domestic coastal route.

Besides, given its overall development strategy of oil tanker fleets, the Group will continue to have new vessels to join its oil transportation fleets in the next two years so as to replace some of its aging oil tankers. The Directors believe that the sale of “Daqing 242” will not affect the capability of the Company in oil shipping.

Pursuant to a notice issued by the Ministry of Communications of the PRC on 9 April 2001, the age of “Daqing 242” has reached for mandatory special routine inspection ( ). Hence, more extensive maintenance, repair and inspection programmes are expected for “Daqing 242”. The Company anticipates that the repair and maintenance cost for “Daqing 242” will increase substantially.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Taking into account (i) the continuous decline in volume of ocean transportation of northern pipe oil from Daqing Oilfield and Shengli Oilfield, (ii) the high operating age of this tanker, (iii) the increasing repair and maintenance cost as anticipated and (iv) the implementation of its overall development strategy of oil tanker fleets, we consider that it is in the interest of the Company and its shareholders to sell “Daqing 242”.

(b) Terms of First Sale and Purchase Agreement

Consideration and payment terms

Pursuant to the First Sale and Purchase Agreement, CS Industry will pay the Company within 5 banking days following the signing of the First Sale and Purchase Agreement a consideration of RMB24.84 million (or HK$23.43 million) for the purchase of “Daqing 242”. The consideration for the sale of “Daqing 242” which has been paid by CS Industry by remittance to the Company’s designated bank account was determined with reference to the valuation amount of RMB24.61 million (or HK$23.22 million) as at 31 August 2004 (the “ Valuation Amount ”). The net book value of “Daqing 242” as at 30 November 2004 was approximately RMB16.71 million (or HK$15.76 million).

Valuation

An independent valuation of “Daqing 242” as at 31 August 2004 was performed by an independent professional valuer in the PRC. “Daqing 242” has been valued on a fair market basis by the valuer at RMB24.61 million (or HK$23.22 million) as at 31 August 2004.

As advised by the valuer, the method of indexing was adopted in the valuation of the fair value of “Daqing 242”. Such method does not account for the profit generating ability of a particular vessel. Under this valuation methodology, the valuer selected a sample of 3 vessels which are most comparable (in terms of vessel’s type, usage, specifications and capacity) to the oil tanker of “Daqing 242” from some “third parties” sales records in 2004. Comparison on various factors (such as the vessel’s type, usage, age, country of construction, specifications, engine and capacity) was made with the selected vessels in this valuation. The price of “Daqing 242” was calculated by (i) index referencing to each of those vessels, (ii) averaging their indexed price and (iii) discounting by 15% based on the usual negotiation between the buyer and seller.

We noted from the valuer that it had good experience in the valuation of similar vessels in the PRC and the method of indexing has also been widely adopted in such kind of valuation. The index being assigned to each of the aforesaid factors of an individual vessel in this valuation was generally in accordance with the valuer’s own experience. In particular, the valuer indicated to us that it is not necessary for any index to be a linear function of any specific factor (say the vessel’s age).

As stated in the Board’s Letter, the Directors consider that the terms of the First Sale and Purchase Agreement, being negotiated on an arm’s length basis and on normal commercial terms, are fair and reasonable so far as the Shareholders are concerned. Based on the valuation method adopted

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

and our discussion with the independent professional valuer, we concur with the Directors’ view that the consideration for the Sale which was determined with reference to the Valuation Amount is fair and reasonable and the terms of the First Sale and Purchase Agreement are on normal commercial terms.

(c) Financial effects from the Sale on the Group

Earnings

Profits before taxation and extraordinary items attributable to “Daqing 242” for the two financial years ended 31 December 2003 were approximately RMB16.5 million and RMB18.9 million respectively. For the nine months ended 30 September 2004, profit before taxation and extraordinary items of “Daqing 242” was approximately RMB5.5 million respectively. The decline in earnings for the nine months ended 30 September 2004 was attributed to the continuous decline in volume of ocean transportation of northern pipe oil from Daqing Oilfield and Shengli Oilfield. After the sale of “Daqing 242”, the Group will cease to record revenue and profit from this oil tanker. Nevertheless, in view that the volume of ocean transportation of northern pipe oil from Daqing Oilfield and Shengli Oilfield is expected to further decline since the production volume at Daqing Oilfield and Shengli Oilfield has gradually decreased and some customers have switched to use alternative transportation channels, such as road and oilpipe, to transport the oil products from these two oilfields and the repair and maintenance cost of “Daqing 242” will increase substantially, the Board believes that the contribution from “Daqing 242” to the Group will reduce. In particular, as mentioned in the Board’s Letter, the Board expects that the profits to be generated from “Daqing 242” would not cover its operational costs in 2005. And accordingly, the Sale will not have any adverse impact on the operating profit of the Group.

“Daqing 242” will be sold at approximately RMB24.84 million which is close to the valuation of RMB24.61 million by the independent professional valuer as at 31 August 2004. As the net book value of “Daqing 242” amounted to approximately RMB16.71 million as at 30 November 2004, the Group would realize a gain of approximately RMB8.13 million in its profit and loss account upon completion of the First Sale and Purchase Agreement.

Net asset value

The unaudited net asset value of the Group as at 30 June 2004 was approximately RMB7,524.4 million. As discussed above, the Group would realize a gain of approximately RMB8.13 million after the Sale and the net asset value of the Group would increase accordingly.

Working capital

As at 30 June 2004, the Group had an unaudited bank and cash balance of approximately RMB883.9 million and net current assets of approximately RMB770.8 million. The Directors advised us that proceeds from the Sale will be used as working capital of the Group. As such, upon completion of the First Sale and Purchase Agreement and the full payment of consideration by CS Industry in cash, the cash position of the Group will increase by approximately RMB24.84 million.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Taking into account the gain from the Sale, the improvement in the net asset value and the working capital, and despite that the Company will cease to record revenue and profit from “Daqing 242” as discussed above, we consider that the Sale will have positive financial effects on the Group.

Recommendation

Taking into consideration the above factors, in particular, the reasons for the Sale, the basis of determining the consideration and the financial effects from the Sale on the Group, we consider that the First Sale and Purchase Agreement is in the interest of the Group and the terms of which, being on normal commercial terms, are fair and reasonable so far as the Shareholders are concerned. Accordingly, we recommend the Independent Board Committee to advise the Independent Shareholders to vote in favour of the ordinary resolution for approving the First Sale and Purchase Agreement at the EGM.

III. DISPOSAL

Principal factors considered

In arriving at our recommendation in respect of the Disposal, we have considered the following principal factors:

(a) Reasons for the Disposal

On 22 December 2004, the Company entered into the Second Sale and Purchase Agreement, pursuant to which, CS Industry agreed to purchase the oil tanker of “Ninghe” from the Company. It is expected that CS Industry will dismantle “Ninghe” and sell it as scrap metal. Details of which are set out in the Board’s Letter of the Circular.

As mentioned therein, “Ninghe” came into operation in January 1974 and will meet the deadline for mandatory scrappage of oil tanker at the beginning of January 2005, as stipulated by the Ministry of Communications of the PRC ( ). Pursuant to a notice issued by the Ministry of Communications of the PRC on 9 April 2001, the mandatory scrappage age of the old tanker is 31 years. “Ninghe” is well worn through its 31 years of services and its cabin and communication facilities are out-dated. Given that “Ninghe” is required to cease in operation from the beginning of January 2005 onwards, the Directors believe that it is inevitable of the Company to dispose of “Ninghe”. It is noted that the Company also disposed of a similar oil tanker named “Daqing 45” on 20 September 2004 to Guangdong Province Jiangmen City Yuzhou Ship Dismantling Company Limited ( ) for dismantling for the same reason (see the announcement of the Company on 20 September 2004). In this regard, we consider that the disposal of “Ninghe” by the Company is in the interest of the Company and its shareholders.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(b) Terms of the Second Sale and Purchase Agreement

Consideration and payment terms

Pursuant to the Second Sale and Purchase Agreement, CS Industry will pay within 20 working days following the signing of the Second Sale and Purchase Agreement the Company in cash a consideration of approximately RMB58.05 million (or HK$54.76 million) for “Ninghe”. The selling price was determined with reference to the current market price of scrap metal for scrappage vessels in the PRC at the rate of US$293 per light tonne. The Directors advised us that no independent professional valuation on “Ninghe’ was performed since it was not worth for the Company to appoint an independent professional valuer to value “Ninghe” which would reach its age of mandatory scrappage one month later.

As mentioned earlier, the Company disposed of a similar oil tanker named “Daqing 45” on 20 September 2004. The selling price of such oil tanker was determined at the rate of US$310 per light tonne, being the scrap metal price for scrappage vessels in the PRC at the time of the disposal of “Daqing 45”. Based on some recent quotations from independent third parties as obtained by the Company and reviewed by us, the current market prices of scrap metal for scrappage vessels in the PRC ranged from US$255 to US$305 per long tonne. The Directors consider that the terms of the Second Sale and Purchase Agreement, including the selling price, being negotiated on an arm’s length basis and on normal commercial terms, are fair and reasonable so far as the Shareholders are concerned. Given that the selling price of US$293 for “Ninghe” which reached its age of mandatory scrappage as mentioned above falls within the aforesaid range, we concur with the Directors’ view that the selling price is fair and reasonable and the terms of the Second Sale and Purchase Agreement are on normal commercial terms.

(c) Financial effects from the Disposal on the Group

Earnings

Profits before taxation and extraordinary items attributable to “Ninghe” for the two financial years ended 31 December 2003 were approximately RMB59.7 million and RMB29.4 million respectively. For the nine months ended 30 September 2004, revenue and profit before taxation and extraordinary items of “Ninghe” were approximately RMB67.8 million and RMB38.2 million respectively. After the disposal of “Ninghe”, the Group will cease to record revenue and profit from this oil tanker. Nevertheless, as mentioned above, “Ninghe” will reach its age of mandatory scrappage two months later and retire from services. This means that whether “Ninghe” is disposed of or not, the Group is unlikely to obtain any revenue and profit therefrom. As advised by the Directors, since the Group will continue to have new vessels to join its oil transportation fleets in the next two years so as to replace some of its aging oil tankers, it is anticipated that the earnings of the Group will not adversely affected by the Disposal.

“Ninghe” will be sold at approximately RMB58.05 million. As the book value of “Ninghe” amounted to approximately RMB929,600 as at 30 November 2004, the Group would realize a gain of approximately RMB57.12 million in its profit and loss account upon completion of the Second Sale and Purchase Agreement.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Net asset value

The unaudited net asset value of the Group as at 30 June 2004 was approximately RMB7,524.4 million. As discussed above, the Group would realize a gain of approximately RMB57.12 million after the Disposal and the net asset value of the Group would increase accordingly.

Working capital

As at 30 June 2004, the Group had an unaudited bank and cash balance of approximately RMB883.9 million and net current assets of approximately RMB770.8 million. The Directors advised us that proceeds from the Disposal will be used as working capital of the Group. As such, upon completion of the Second Sale and Purchase Agreement and the full payment of consideration by CS Industry in cash, the cash position of the Group will increase by approximately RMB58.05 million.

Taking into account the gain from the Disposal, the improvement in the net asset value and the working capital as discussed above, we consider that the Disposal will have positive financial effects on the Group.

Recommendation

Taking into consideration the above factors, in particular, the reasons for the Disposal, the basis of determining the selling price of “Ninghe” and the financial effects from the Disposal on the Group, we consider that the Second Sale and Purchase Agreement is in the interest of the Group and the terms of which, being on normal commercial terms, are fair and reasonable so far as the Shareholders are concerned. Accordingly, we recommend the Independent Board Committee to advise the Independent Shareholders to vote in favour of the ordinary resolutions for approving the Second Sale and Purchase Agreement at the EGM.

Yours faithfully, For and on behalf of Guotai Junan Capital Limited David Lui

Executive Director

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APPENDIX — GENERAL INFORMATION

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 and chief executives, 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 and the proposed executive Director (Mr. Mao) has had any material interest, direct or indirect, in any asset which, since 31 December 2003, 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. Yao Zuozhi, all executive Directors, has entered into a service contract with the Company for a period of three (3) year commencing from 28 May 2003, unless terminated by not less than three (3) months’ notice in writing served by either party.

Mr. Sun Zhitang, an executive Director, has entered into a service contract with the Company for a period commencing from 10 June 2004 to 27 May 2006 unless terminated by not less than three (3) months’ notice in writing served by either party.

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APPENDIX — GENERAL INFORMATION

Mr. Wang Kunhe, an executive Director, has entered into a service contract with the Company for a term commencing from 17 August 2004 to 27 May 2006 unless terminated by not less than three (3) months’ notice in writing served by either party.

The above Directors’ service contracts do not specify the Directors’ emoluments. The Directors’ emoluments, which are determined by the Board, are based on the experience and expertise of the Directors and the business of the Group.

Save as disclosed above, none of the Directors has or is proposed to have 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.

For the year ended 31 December 2003, Mr. Li Shaode was entitled to approximately RMB570,000 as director’s emoluments, Mr. Yao Zuozhi was entitled to approximately RMB400,000 as director’s emoluments and Mr. Wang Daxiong was entitled to RMB510,000 as director’s emoluments. For the year ended 31 December 2004, Mr. Wang Kunhe was entitled to approximately RMB170,000 as director emoluments (from 17 August 2004 to 31 December 2004) and Mr. Sun Zhitang was entitled to approximately RMB292,500 as directors’ emoluments (from 10 June 2004 to 31 December 2004). 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 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

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APPENDIX — GENERAL INFORMATION

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	Percentage
			number of	of total
		Number	the relevant	number of
Name of shareholders	Class of shares	of shares	class of shares	issued shares
Group Company (Note)	State-owned	1,680,000,000	100%	50.51%
	shares
HSBC Asset Management
(Hong Kong) Limited	H shares	146,406,000	11.3%	4.4%

Note: Mr. Li Shaode is the vice president and party secretary of Group Company. Mr. Sun Zhitang, Mr. Wang Daxiong and Mr. Yao Zuozhi are vice presidents of Group Company.

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. MATERIAL ADVERSE CHANGE

The Directors are not aware of any material adverse change in the financial position or trading prospects of the Group since 31 December 2003, the date to which the latest audited financial statements of the Group were made up.

4. LITIGATION

Neither the Company 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.

5. CONSENT AND EXPERT

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

Name Qualification

Guotai Junan Capital Limited Licensed under the SFO for type 6 (advising on corporate finance) regulatory activity under the SFO

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APPENDIX — GENERAL INFORMATION

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 the reference to its name in the form and context in which it 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.

6. MISCELLANEOUS

• (i) The legal address and head office 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 39th Floor, Gloucester Tower, The Landmark, 11 Pedder Street, 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.

• (v) Mr. Wang Kangtian, being a PRC qualified accountant, is the qualified accountant of the Company appointed under Rules 3.29 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 Society of Accountants (now known as the Hong Kong Institute of Certified Public Accountants) (“HKICPA”) or a similar body of accountants recognized by HKICPA for the purpose of granting exemptions from 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 28 December 2004. The Company has appointed Mr. Li Chung Kwong, Andrew who is a fellow member of the HKICPA to assist Mr. Wang from 28 December 2004 to 27 December 2007.

• (vi) In the event of inconsistency, the English language text of this circular shall prevail over the Chinese language text.

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APPENDIX — GENERAL INFORMATION

7. DOCUMENTS FOR INSPECTION

Copies of the following documents will be available for inspection at the office of Coudert Brothers at 39th Floor, Gloucester Tower, The Landmark, 11 Pedder Street, Central, Hong Kong during normal business hours on any weekday (except public holidays) from the date of this circular up to and including 27 January 2005:

• (a) the letter of recommendation from the Independent Board Committee, the text of which is set out on page 30 of this circular;

• (b) the letter issued by the Independent Financial Adviser, the text of which is set out on pages 31 to 44 of the circular;

• (c) the service agreements of the Directors referred to in paragraph 2 of this appendix;

• (d) the First Bareboat Charterparties;

• (e) the Second Bareboat Charterparty;

• (f) the Third Bareboat Charterparties;

• (g) the Fourth Bareboat Charterparty;

• (h) the Fifth Bareboat Charterparty;

• (i) the First Sale and Purchase Agreement;

• (j) the Second Sale and Purchase Agreement;

• (k) the Dalian Agreement; and

• (l) the Guangzhou Agreement.

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NOTICE OF EXTRAORDINARY 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 EXTRAORDINARY GENERAL MEETING

NOTICE IS HEREBY GIVEN that an extraordinary general meeting (the “ EGM ”) of China Shipping Development Company Limited (the “ Company ”) will be held at 10 a.m. on Tuesday, 1 March 2005 at Room 319, 700 Dong Da Ming Road, Shanghai, The People’s Republic of China, to consider and, if thought fit, approve the following ordinary resolutions:

1. “ THAT the conditional bareboat charterparties dated 22 December 2004 (the “ First Bareboat Chaterparties ”) entered into between the Company and China Shipping Container Lines Co. Ltd. (“ CS Container Lines ”) for the lease of four container vessels named “Xiangli”, “Xiangmao”, “Xiangyue” and “Xiangzhuang” by the Company to CS Container Lines for a term of three years commencing from 1 January 2005, the continuing connected transactions contemplated thereunder and the proposed annual cap for the continuing connected transactions contemplated thereunder, be and are hereby approved, ratified and confirmed; 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 First Bareboat Charterparties.”

2. “ THAT the conditional bareboat charterparty dated 22 December 2004 (the “ Second Bareboat Charterparty ”) entered into between Xiang Xiu Shipping S.A. ( ) (“ Xiang Xiu Shipping ”)and China Shipping Container Lines (Asia) Co. Ltd. ( ) (“ CS Container Lines (Asia) ”) for the lease of a container vessel named “Xiangzhu” by Xiang Xiu Shipping to CS Container Lines (Asia) for a term of three years commencing from 1 January 2005, the continuing connected transactions contemplated thereunder and the proposed annual cap for the continuing connected transactions contemplated thereunder, are hereby approved, ratified and confirmed 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 Second Bareboat Charterparty.”

3. “ THAT the conditional bareboat charterparties dated 22 December 2004 (the “ Third Bareboat Charterparties ”) entered into between each of Xiang Da Shipping S.A. ( ) (“ Xiang Da Shipping ”), Xiang Xiu Shipping, Xiang Xin Shipping S.A. ( ) (“ Xiang Xin Shipping ”) and Xiang Wang Shipping S.A ( ) (“ Xiang Wang Shipping ”) and CS Container Lines (Asia) for the lease of various container vessels named “Xiangda”, “Xiangxiu”, “Xiangxin” and “Xiangwang” respectively, by

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NOTICE OF EXTRAORDINARY GENERAL MEETING

Xiang Da Shipping, Xiang Xiu Shipping, Xiang Xin Shipping and Xiang Wang Shipping, respectively, to CS Container Lines (Asia) for a term of three years commencing from 1 January 2005, the continuing connected transactions contemplated thereunder and the proposed annual cap for the continuing connected transactions contemplated thereunder, be and are hereby approved, ratified and confirmed 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 Third Bareboat Charterparties..”

1. “ THAT a conditional charterparty dated 22 December 2004 (the “ Fourth Bareboat Charterparty ”) entered into between the Company and Shanghai Shipping Industrial Company Limited ( ) (“ Shanghai Shipping ”) for the lease of an oil tanker named “Daqing 88” by Shanghai Shipping to the Company for a term of three years commencing from 1 January 2005, the continuing connected transactions contemplated thereunder and the proposed annual cap for the continuing connected transactions contemplated thereunder, be and are hereby approved, ratified and confirmed 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 Fourth Bareboat Charterparties.”

2. “ THAT a conditional charterparty dated 22 December 2004 (the “ Fifth Bareboat Charterparty ”) entered into between the Company and China Shipping (Hong Kong) Holdings Company Limited ( ) (“ China Shipping (HK) Holdings ”) for the lease of an oil tanker named “Song Lin Wan” by China Shipping (HK) Holdings to the Company for a term of three years from China Shipping (HK) Holdings to the Company for a term of three years commencing from 1 January 2005, the continuing connected transactions contemplated thereunder and the proposed annual cap for the continuing connected transactions contemplated thereunder, be and are hereby approved, ratified and confirmed 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 Fifth Bareboat Charterparty.”

3. “ THAT a conditional sale and purchase agreement dated 22 December 2004 (the “ First Sale and Purchase Agreement ”) entered into between the Company and China Shipping Industry Company Limited ( ) (“ CS Industry ”) for the sale of an oil tanker named “Daqing 242” by the Company to CS Industry, and the transactions contemplated thereunder, be and are hereby approved, ratified and confirmed 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 First Sale and Purchase Agreement.”

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NOTICE OF EXTRAORDINARY GENERAL MEETING

1. “ THAT a conditional sale and purchase agreement dated 22 December 2004 (the “ Second Sale and Purchase Agreement ”) entered into between the Company and CS Industry for the sale of an oil tanker named “Ning He” to CS Industry, and the transactions contemplated thereunder, be and are hereby approved, ratified and confirmed 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 Second Sale and Purchase Agreement.”

2. “ THAT Mr. Mao Shi Jia be and is hereby appointed as an executive director of the Company with effect from the conclusion of the EGM until the conclusion of the annual general meeting of the Company for the year 2006 (i.e. to be held on or around 27 May 2006) and the board of directors of the Company be and is hereby authorized to make such amendments (if any) to the articles of association of the Company as it thinks fit so as to reflect any consequential changes resulting from such appointment.”

3. “THAT Mr. Yan Mingyi be and is hereby appointed as a supervisor of the Company with effect from the conclusion of the EGM until the conclusion of the annual general meeting of the Company for the year 2006 (i.e. to be held on or around 27 May 2006) and the board of directors of the Company be and is hereby authorized to make such amendments (if any) to the articles of association of the Company as it thinks fit so as to reflect any consequential changes resulting from such appointment.”

By Order of the Board

China Shipping Development Company Limited Yao Qiaohong

Company Secretary

14 January 2005 Shanghai The People’s Republic of China

Notes:

• (A) The H Share register of the Company will be closed from 29 January 2005 to 28 February 2005 (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 28 January 2005, are entitled to attend and vote at the EGM after completing the registration procedures for attending the meeting. In order to be entitled to attend and vote at the EGM, share transfer documents should be lodged with the Company’s H share registrar not later than 4:00 p.m. on 28 January 2005.

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NOTICE OF EXTRAORDINARY GENERAL MEETING

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 Domestic Shares, who intend to attend the EGM, must complete the reply slips for attending the EGM 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 EGM, i.e. no later than 8 February 2005.

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 EGM is entitled to appoint in writing one or more proxies, whether a shareholder or not, to attend and vote on his behalf at the EGM. 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.

• (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, 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 Domestic 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 EGM. Notes (C) to (D) also apply

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NOTICE OF EXTRAORDINARY GENERAL MEETING

to holders of Domestic 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 EGM or any adjournment, thereof in order for such documents to be valid.

• (G) If a proxy attends the EGM on behalf of a shareholder, he should produce his ID 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 EGM, such legal representative should produce his/her ID 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 EGM, such representative should produce his ID 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 EGM is expected to last for half a day. Shareholders attending the EGM are responsible for their own transportation and accommodation expenses.

IMPORTANT: IF YOU WISH TO VOTE FOR ANY RESOLUTION, PUT AN INDICATION IN THE BOX MARKED “FOR”. IF YOU WISH TO VOTE AGAINST ANY RESOLUTION, PUT AN INDICATION IN THE BOX MARKED “AGAINST”. Failure to complete the boxes will entitle your proxy to cast your vote(s) or abstain at his/her discretion.

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