Dida Inc. — Proxy Solicitation & Information Statement 2006

Nov 13, 2006

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

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

This circular appears for information proposes only and does not constitute on invitation or offer to acquire, purchase or subscribe for the securities.

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)

MAJOR AND CONNECTED TRANSACTION RELATING TO THE PROPOSED ACQUISITION OF THE VESSELS PROPOSED ISSUE OF CONVERTIBLE BONDS

CONTINUING CONNECTED TRANSACTIONS RELATING TO THE NEW SERVICES AGREEMENT

MAJOR TRANSACTION RELATING TO CONSTRUCTION OF NEW VESSELS

Financial Adviser to China Shipping Development Company Limited

China International Capital Corporation (Hong Kong) Limited

Independent Financial Adviser to the Independent Board Committee

Evolution Watterson Securities Limited

A letter from the Board is set out on pages 6 to 25 of this circular.

A letter from the Independent Board Committee is set out on page 26 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 27 to 40 of this circular.

A notice convening the EGM of the Company to be convened and held at 2:00 p.m. on Thursday, 28 December 2006 at 700 Dong Da Ming Road, Shanghai, the People’s Republic of China and notice convening class meetings of the Company are set out on pages N-1 to N-8 of this circular. Whether or not you are able to attend the above meeting, please complete and return the enclosed proxy form in accordance with the instructions printed thereon as soon as practicable and in any event by not less than 24 hours before the time appointed for the holding of the meetings. Completion and return on the proxy form will not preclude you from attending and voting in person at the meetings or at any adjourned meetings should you so wish.

13 November 2006

CONTENTS

	Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Expected Timetable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
Letter from the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	6
Letter from the Independent Board Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	26
Letter from the Independent Financial Adviser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	27
Appendix I Details of the Vessels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	I-1
Appendix II Financial Information on China Shipping Development
Company Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	II-1
Appendix III Financial Information on the Acquired Vessels . . . . . . . . . . . . . . . . . . . . .	III-1
Appendix IV Unaudited Pro Forma Financial Information on the Enlarged Group . . .	IV-1
Appendix V General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	V-1
Notice of Extraordinary General Meeting and
the Class Meeting for Holders of H Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	N-1

— i —

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|||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|DEFINITIONS|
|“A|Shares”|PRC-listed|Domestic|Shares|in|the|share|capital|of|the|
|Company,|with|a|par|value|of|RMB1.00|each,|which|are|
|subscribed|for|and|traded|in|RMB|and|listed|on|the|Shanghai|
|Stock|Exchange|
|“Acquisition”|the|acquisition|of|the|assets|in|the|Vessels|pursuant|to|the|
|Acquisition|Agreement|
|“Acquisition|Agreement”|the|agreement|on|the|transfer|of|assets|in|the|Vessels|dated|31|
|October|2006|between|the|Company|and|China|Shipping|
|“Agreed|Supplies”|the|necessary|supporting|shipping|materials|and|services|to|be|
|provided|to|the|Company|pursuant|to|the|New|Services|
|Agreement|
|“Annual|Caps”|the|proposed|annual|caps|for|the|transactions|contemplated|
|under|the|New|Services|Agreement|
|“associate(s)”|has|the|meaning|ascribed|thereto|in|the|Hong|Kong|Listing|
|Rules|
|“Board”|the|board|of|Directors|
|“Bond|Issue”|the|proposed|issue|of|the|Convertible|Bonds|
|“Company”|China|Shipping|Development|Company|Limited|
|(|),|a|joint|stock|limited|company|
|incorporated|in|the|PRC|with|limited|liability,|whose|H|
|Shares|have|been|listed|on|the|Main|Board|since|1994|and|
|whose|A|Shares|have|been|listed|on|the|Shanghai|Stock|
|Exchange|since|2002|
|“China|Shipping”|(China|Shipping|(Group)|Company*),|a|
|PRC|state-owned|enterprise|and|the|controlling|shareholder|
|of|the|Company,|currently|holding|47.46%|of|the|registered|
|capital|of|the|Company|
|“China|Shipping|Group”|China|Shipping|and|its|subsidiaries|(excluding|the|Group)|
|“Construction”|the|construction|of|four|VLCCs|pursuant|to|the|Construction|
|Agreements|
|“Construction|Agreements”|four|construction|agreements|all|dated|28|October,|2006,|each|
|of|which|is|entered|into|between|the|Vendors|and|the|
|Company|for|the|construction|of|one VLCC|(for|a|total|of|four|
|VLCCs)|for|the|transportation|of|crude|oil|

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— 1 —

DEFINITIONS

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|||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
|“Convertible|Bonds”|RMB2|billion|(approximately|HK$1.94|billion)|of|bonds|
|convertible|into|new|A|shares|of|nominal|value|of|RMB1.00|
|each|of|the|Company|
|“CSRC”|(China|Securities|Regulatory|
|Commission)|
|“CSSC”|(China|State|Shipbuilding|Corporation),|
|a|Chinese|state-owned|shipbuilder.|To|the|best|of|the|
|Directors’ knowledge,|information|and|belief|having|made|all|
|reasonable|enquiries,|CSSC|and|its|ultimate|beneficial|owners|
|are|independent|third|parties|not|connected|with|the|Company|
|and|its|connected|persons|(as|defined|under|the|Listing|Rules)|
|“Dalian|Shipping”|(Dalian|Shipping|(Group)|Company),|a|
|wholly-owned|subsidiary|of|China|Shipping|
|“Director(s)”|the|director(s)|of|the|Company|
|“Domestic|Shares”|domestic|shares|of|RMB1.00|each|in|the|registered|capital|of|
|the|Company|
|“dwt”|dead|weight|tons,|the|unit|of|measurement|of|weight|capacity|
|of|vessels,|which|is|the|total|weight|a|ship|can|carry,|
|including|cargo,|bunkers,|water,|stores,|spare|and|crew|at|a|
|specified|draft|
|“Effective|Date”|the|date|on|which|all|the|conditions|precedent|under|the|
|Acquisition|Agreement|have|been|satisfied|(or|waived|as|
|applicable)|
|“EGM”|extraordinary|general|meeting|of|the|Shareholders|to|be|
|convened|by|the|Company|to|consider|and,|if|thought|fit,|to|
|approve,|among|other|things,|the|Acquisition|Agreement,|the|
|New|Services|Agreement,|the|Bond|Issue|and|the|
|Construction|
|“Enlarged|Group”|the|Group,|together|with|the|Vessels|
|“Group”|the|Company|and|its|existing|subsidiaries|
|“Guangzhou|Longxue”|(CSSC|Guangzhou|Longxue|
|Shipbuilding|Co.,|Ltd*),|a|Chinese|shipbuilder.|To|the|best|of|
|the|Directors’ knowledge,|information|and|belief|having|made|
|all|reasonable|enquiries,|Guangzhou|Longxue|and|its|ultimate|
|beneficial|owners|are|independent|third|parties|not|connected|
|with|the|Company|and|its|connected|persons|(as|defined|under|
|the|Listing|Rules)|

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— 2 —

DEFINITIONS

• “Guangzhou Maritime” (Guangzhou Maritime (Group) Co., Ltd*), a wholly owned subsidiary of China Shipping

• “Guangzhou Shipyard” (Guangzhou Shipyard International Company Limited*), a Chinese shipbuilder. To the best of the Directors’ knowledge, information and belief having made all reasonable enquiries, Guangzhou Shipyard and its ultimate beneficial owners are independent third parties not connected with the Company and its connected persons (as defined under the Listing Rules)

• “H Shares” H shares of par value RMB1.00 each in the share capital of the Company, being overseas listed foreign invested shares

• “HK$” the lawful currency of Hong Kong dollars “Hong Kong” or “HK” the Hong Kong Special Administrative Region of the PRC “Hong Kong Listing Rules” Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited, as amended from time to time

• “Independent Board Committee” Messrs. Xie Rong, Hu Honggao and Zhou Zhanqun, all being independent non-executive Directors, have been appointed as members of the independent board committee of the Company to advise the Independent Shareholders on, inter alia, how to vote on the resolutions relating to the Transactions

• “Independent Financial Adviser” Evolution Watterson Securities Limited, the independent financial adviser appointed to make the relevant recommendation to the Independent Board Committee and the Independent Shareholders in relation to the Transactions, being a registered investment adviser and dealer under the Securities and Futures Ordinance

• “Independent Shareholder(s)” the Shareholder(s) other than China Shipping and its associates

• “Latest Practicable Date” 10 November 2006, being the latest practicable date prior to the printing of this circular for ascertaining certain information contained herein

• “New Services Agreement” the supply of shipping materials and services agreement dated 31 October 2006 between the Company and China Shipping

• “PRC” People’s Republic of China “PRC Domestic Valuer” (DeveChina International Appraisal Co.), an independent valuer recognized by SASAC

• “RMB” Renminbi Yuan, the lawful currency of the PRC

— 3 —

DEFINITIONS

“SASAC” “Services Agreement” “Shareholder(s)” “State Price” “Stock Exchange” “Transactions” “US$” “Valuation Report” “Vendors” “Vessel Management Agreements” “Vessels” “VLCC(s)” “%”

(State-owned Assets Supervision and Administration Commission of the State Council) the supply of shipping materials and services agreement dated 3 April 2001 between the Company and China Shipping (as amended by the supplemental agreement dated 8 January 2004 between the Company and China Shipping) shareholder(s) of the Company the price stipulated from time to time by the relevant pricing authorities of the PRC national government or municipal government of Shanghai Municipality or any PRC governmental body The Stock Exchange of Hong Kong Limited The Acquisition and the transactions contemplated under the New Services Agreement the lawful currency of the United States of America the independent valuation report no. DC (2006) No. 166 dated 28 September 2006 issued by the PRC Domestic Valuer CSSC and Guangzhou Longxue the agreements dated 27 May 1998 entered into between the Company and each of Guangzhou Maritime and Dalian Shipping (and the supplemental agreements thereof) for the management of 31 and 7 dry bulk cargo carriers owned by Guangzhou Maritime and Dalian Shipping, respectively 42 vessels to be acquired pursuant to the Acquisition Agreement Very Large Crude Oil Carrier(s) percentage or per centum

* For identification purpose only

For the purpose of this circular, unless otherwise specified, the conversion of RMB into HK$ is based on the exchange rate of RMB1.03=HK$1.00 and the conversion of US$ into HK$ is based in 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.

— 4 —

EXPECTED TIMETABLE

Date of despatch of this circular . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Monday, 13 November 2006	Date of despatch of this circular . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Monday, 13 November 2006
Last date for returning the reply slip for the EGM	. . . . . . . . . . . . . . . . . .Friday, 8 December 2006
Last date for returning the reply slip for the class
meeting of the H Shareholders . . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . .Friday, 8 December 2006
Latest time for lodging proxy forms for the EGM	. . . . .2:00 p.m., Wednesday, 27 December 2006
Latest time for lodging proxy forms for the class
meeting of the H Shareholders . . . . . . . . . . . . .	. . . . .2:00 p.m., Wednesday, 27 December 2006
Time and date of EGM . . . . . . . . . . . . . . . . . . . .	. . . . . . 2:00 p.m., Thursday, 28 December 2006
Time and date of the class meeting
of the H Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Thursday, 28 December 2006,
	immediately as soon as conclusion of EGM

— 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) Wang Daxiong Zhang Guofa Mao Shijia Wang Kunhe

Non-executive Director Yao Zuozhi

Registered Office: 168 Yuanshen Road Shanghai The PRC

Principal place of

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

Independent Non-Executive Directors: Xie Rong Hu Honggao Zhou Zhanqun

13 November 2006

To the Shareholders

Dear Sir/Madam,

MAJOR AND CONNECTED TRANSACTION RELATING TO THE PROPOSED ACQUISITION OF THE VESSELS

PROPOSED ISSUE OF CONVERTIBLE BONDS

CONTINUING CONNECTED TRANSACTIONS RELATING TO THE NEW SERVICES AGREEMENT

MAJOR TRANSACTION RELATING TO CONSTRUCTION OF NEW VESSELS

1. INTRODUCTION

By an announcement dated 1 November 2006, the Board announced that the Company has entered into the Acquisition Agreement with China Shipping to acquire the assets in the Vessels for a consideration of RMB2.47 billion (approximately HK$2.40 billion).

For the purpose of financing the Acquisition, the Company has decided to proceed with the Bond Issue, which is expected to be completed within 12 months from the Effective Date of the Acquisition Agreement. In case the Convertible Bonds are not issued or the Bond Issue has not been completed at the time the Company is required to make payment to fund the Acquisition, the Company will meet such payments through bank loans and/or general working capital.

— 6 —

LETTER FROM THE BOARD

By an announcement dated 1 November 2006, the Board announced that the Company entered into the New Services Agreement with China Shipping pursuant to which China Shipping Group agreed to provide to the Group certain Agreed Supplies for the ongoing operations for all vessels owned by the Group and which, upon completion of the Acquisition, would include the Vessels. The fees for the Agreed Supplies payable to China Shipping Group were determined with reference to, depending on applicability and availability, any one of the State Price, market price or cost.

By an announcement dated 30 October 2006, the Company entered into the Construction Agreements for the construction of 4 VLCCs each of 308,000 dwt for the transportation of crude oil. The total consideration for the Construction is approximately US$457,040,000 (approximately HK$3,542,060,000).

The purpose of this circular is (i) to provide the Shareholders with further information on the terms of the Transactions (including recommendations from the Independent Board Committee and the opinion rendered from the Independent Financial Advisor), the Bond Issue and the Construction; and (ii) to convene the EGM to seek the approval of the Shareholders and the Independent Shareholders (as the case may be) with respect to the Transactions, the Bond Issue and the Construction.

2. THE ACQUISITION

On 27 May 1998, the Company entered into the Vessel Management Agreements with Guangzhou Maritime and Dalian Shipping for the management of various dry bulk cargo vessels to avoid competition between the Group and the China Shipping Group. On 30 July 2004 and 22 June 2004, the Company entered into two supplemental agreements with Guangzhou Maritime and Dalian Shipping, respectively. Pursuant to these agreements, the Company was granted a purchase option, exercisable at any time prior to the expiration of the term of the Vessel Management Agreements, to acquire any of the cargo vessels subject to the Vessel Management Agreements.

The expiration date of the terms of the Vessel Management Agreements is 31 December 2006. However it is a term of the Acquisition Agreement that the Vessel Management Agreements will be terminated as soon as possible and in any event, the Vessel Management Agreements in respect of the corresponding Vessels will terminate no later than the date when such corresponding Vessels are delivered to the Company pursuant to the Acquisition Agreement.

On 9 October 2006 the Company issued a clarification announcement concerning its intention to expand its fleet. In furtherance to such announcement, on 31 October 2006 the Company elected to exercise the purchase option under the Vessel Management Agreements to acquire the relevant dry bulk cargo carriers as well as other dry bulk cargo carriers and as a result, the parties entered into the Acquisition Agreement, details of which are set out below.

The principal terms and conditions of the Acquisition are summarized as follows:

31 October 2006

Date:

— 7 —

LETTER FROM THE BOARD

Parties: Seller: China Shipping, a PRC state-owned enterprise and the controlling shareholder of the Company. The China Shipping Group (including one company listed on the Shanghai Stock Exchange and one company listed on the Stock Exchange) is a large shipping conglomerate that operates in different regions of the world Purchaser: The Company Assets to be purchased: (a) 32 PRC-registered dry bulk cargo carriers of approximately 972,351 dwt in aggregate; and (b) 10 foreign-registered dry bulk cargo carriers of approximately 433,555 dwt in aggregate. Consideration: RMB2.47 billion (approximately HK$2.40 billion), which was determined by reference to the appraised value of the Vessels as at 30 June 2006, as assessed by the PRC Domestic Valuer, an independent valuer recognized by the SASAC. The consideration is subject to possible adjustments according to the result of the approval by the SASAC. In the event the adjustment of the consideration does not exceed two per cent (2%) (inclusive) of the consideration, the final consideration shall be adjusted accordingly. If the adjustment of the consideration exceeds two per cent (2%) of the consideration, the final consideration shall be further negotiated by both parties. The Directors are of the view that such consideration, which was determined after arm’s length negotiation, is fair and reasonable so far as the Company and the Shareholders are concerned. Payment terms: The consideration will be payable in two installments: the first installment of RMB741 million (approximately HK$719.42 million), being 30% of the total consideration, will be due and payable within 5 business days from the Effective Date and the second installment of RMB1.729 billion (approximately HK$1.679 billion), being the remaining 70% of the total consideration, together with accrued interest thereon from the Effective Date until the date of payment based on prevailing lending rates of commercial banks in the PRC, will be due and payable within 1 year from the Effective Date. The exact amount of the two installments will be subject to possible adjustments according to the result of the approval of the Valuation Report by the SASAC as referred to above. Conditions Precedents: The effectiveness of the Acquisition Agreement is conditional upon the following conditions being satisfied:

— 8 —

LETTER FROM THE BOARD

• (a) the signing of the Acquisition Agreement;

• (b) the approval of the transactions under the Acquisition Agreement by the Board and the Independent Shareholders at the EGM; and

• (c) the approval by the SASAC.

None of the condition precedents above can be waived. As of the date of this circular, the Acquisition Agreement has been signed and approved by the Board and the approvals by the Independent Shareholders at the EGM and the SASAC have not been fulfilled. The Acquisition Agreement will not be subject to the approval of the Shanghai Stock Exchange and is not conditional upon the Bond Issue.

For the two financial years ended 31 December 2005, the unaudited net profit before tax and extraordinary items attributable to the Vessels were RMB716,700,000 (approximately HK$695,825,000) and RMB872,117,000 (approximately HK$846,716,000) respectively. Applying a hypothetical tax rate of 15%, the unaudited profit after tax and extraordinary items attributable to the Vessels were RMB609,195,000 (approximately HK$591,451,000) and RMB741,299,450 (approximately HK$719,708,000) respectively. Pursuant to the Valuation Report, as at 30 June 2006, the original book value of the Vessels was RMB2,672,622,158.45 (approximately HK$2,594,779,000, and net book value was RMB450,846,641.18 (approximately HK$437,715,000).

• Note: Various different tax rates applied to the profit attributable to the Vessels. For illustrative purpose, a hypothetical tax rate of 15% was applied to the profit attributable to the Vessels, which tax rate would have been applicable if the Vessels were acquired by the Company during the relevant period. The hypothetical tax rate of 15% used in calculation of the profit after tax attributable to the Vessels and has been determined based on the Company’s tax rate, which is 15%.

The Acquisition, intended to be financed by the Bond Issue (if proceeded with), is expected to result in increase in both assets and liabilities of the Company. With reference to Appendix IV of this Circular and on the basis set out therein, the increase will be approximately RMB2.47 billion (equivalent to approximately HK$2.4 billion).

Reasons for, and benefits of, the Acquisition

The Directors are of the view that the Acquisition would enhance the development of the dry bulk cargo transportation business of the Company, and therefore would be in the interests of the Company and the Shareholders as a whole for the following reasons:

1. The Group leading position in the domestic shipping market will be strengthened. Following the Acquisition, the Group will own 121 dry bulk cargo carriers aggregating approximately 4.55 million dwt, representing an increase of 42 vessels aggregating approximately 1.4 million dwt comparing to the Company’s current dry bulk cargo carrier fleet.

2. The Group’s international coverage in terms of its dry bulk transportation business will be diversified. The Group’s dry bulk cargo transportation business currently focuses on coastal transportation, with domestic transportation and international transportation businesses accounting for approximately 77% and 23% of the Group’s revenue of dry bulk business in 2005

— 9 —

LETTER FROM THE BOARD

respectively. Based on the Group’s revenue of dry bulk business in 2005, should the Acquisition be approved and the Vessels acquired, the Group’s domestic transportation and international transportation businesses will account for approximately 73% and 27% of the Group’s revenue of dry bulk business. By comparison, the Acquired Vessels have a more balanced regional distribution of dry bulk cargo transportation business, with its domestic transportation and international transportation businesses accounting for 63% and 37% of its revenue of dry bulk cargo business in 2005 respectively. Following the Acquisition, the Group will have a significantly larger dry bulk cargo fleet with an expanded international operation. The Acquisition will enable the Group to expand its international dry bulk transportation operations and improve its business portfolio.

1. The financial results of China Shipping Group’s domestic dry bulk business will be consolidated and the management incentives will be enhanced. The Company currently receives a fee in respect of its management of the domestic dry bulk cargo transportation business of China Shipping Group pursuant to the Vessel Management Agreements. The management fee, which is calculated by reference to the dwt of the dry bulk cargo carriers to be acquired, amounts to only a certain portion of the profits generated by the carriers. Following the Acquisition, the Company would be able to consolidate the financial performance of the dry bulk cargo transportation business being managed under the Vessel Management Agreements. As such, the management incentive can be enhanced and the value of the Company’s management team can be better reflected.

2. The Directors believe that the Acquisition will strengthen the capital base of its dry bulk cargo transportation business and will enhance the subsequent financing capacity of such business in the debt and capital markets. With a consolidated dry bulk fleet, the Company is expected to be in a better position to expand its oil transportation and dry bulk cargo transportation business in the future.

The Directors therefore are of the view that the Acquisition is therefore favorable to, and in the interests of, the Company and the Shareholders as a whole.

3. CONVERTIBLE BONDS

The current proposed principal terms and conditions of the Bond Issue are summarized as follows (such terms and conditions will have to be approved by CSRC and be finalised in the relevant offering memorandum):

Total issuing amount: RMB 2 billion Yuan (approximately HK$1.94 billion)

Bond maturity: 5 years Issue price:

According to the face value of the Convertible Bonds which will be issued in integral principal amounts of RMB100 Yuan (approximately HK$97.09) with 10 Convertible Bonds with an aggregate principal amount of RMB1,000 Yuan (approximately HK$970.87) forming one board lot

— 10 —

LETTER FROM THE BOARD

Coupon rate:

The range of interest rates is preliminarily estimated to be between 1.30% to 2.70% per annum, with the upper limit being subject to any adjustment of the bank deposit interest rate of the People’s Bank of China. The actual interest rate will be determined by the Board as authorized by the shareholders of the Company in a general meeting after consultation with the sponsor (lead underwriter) and in accordance with state policies, market conditions and the requirements of the Company.

Interest and principal repayment (prior to conversion or redemption):

The interest will be paid annually in arrears. The principal (prior to conversion or redemption) will be repaid at 105% of the face value of the Convertible Bonds (inclusive of the last installment of interest), after the fifth anniversary of the issue of the Convertible Bonds in accordance with the repayment procedure set out in the relevant offering memorandum.

Conversion price:

The initial conversion price of the Convertible Bonds will be the higher of the arithmetic mean of the closing prices of the A Shares for the 20 trading days immediately before the issue of the relevant offering memorandum and the weighted average trading price of the A shares on the trading day immediately preceding the issue of the aforesaid memorandum, with an additional upward margin of 10% to 20% and rounded up to cents.

Conversion price will be subject to adjustment in the event of bonus issues of shares, conversion of common reserve into share capital, issue or placing of new shares and other events which would have an impact on the capital structure of or shareholders’ interests in the Company.

During the conversion period of the Convertible Bonds, in the event that the closing prices of the A Shares for at least 20 trading days out of any 30 consecutive trading days are lower than 85% of the then conversion price, the Board is entitled to propose a special resolution to the shareholders of the Company in a general meeting for a downward adjustment of the conversion price. The adjusted conversion price shall not be lower than the higher of the arithmetic mean of the closing prices of the A Shares for the 20 trading days immediately before the meeting of the shareholders of the Company held to consider and approve the said conversion price adjustment and the weighted average trading price of the A Shares on the trading day immediately preceding the aforesaid general meeting.

— 11 —

LETTER FROM THE BOARD

Conversion mechanism:

Applications to convert to A Shares may be made by the holders of the Convertible Bonds at any time during the conversion period in accordance with the conditions set out in the relevant offering memorandum at the conversion price then effective during the conversion period where processing of the conversion applications are not suspended. Holders of the Convertible Bonds may convert all or part of the Convertible Bonds.

Conversion period:

At any time from and including the day immediately after the expiry of the six months period commencing from the completion of issue of the Convertible Bonds, up to and including the fifth anniversary of the issue of the Convertible Bonds

Redemption on maturity:

The Company shall redeem all outstanding Convertible Bonds on maturity at 105% of the nominal value of the Convertible Bonds (inclusive of accrued interest)

• Redemption at the option of the Company:

During the conversion period of the Convertible Bonds, in the event that the closing price of the A Shares in any 20 consecutive trading days shall be equal to or higher than 130% of the then conversion price, the Company shall be entitled to redeem all or part of the Convertible Bonds then outstanding, immediately following the expiry of the aforementioned 20 consecutive trading days period, in accordance with the specified redemption procedure, at 103% of the nominal value of the Convertible Bonds (inclusive of accrued interest).

• Redemption at the option of the holders of the Convertible Bonds:

During the conversion period of the Convertible Bonds, in the event that the closing prices of the A Shares in any 30 consecutive trading days shall be lower than 75% of the then conversion price, the holders of the Convertible Bonds may require the Company to redeem all or part of the Convertible Bonds held by them at 105% of the nominal values of the Convertible Bonds (inclusive of accrued interest).

If the shareholders of the Company approve a change in the use of proceeds from the issue of the Convertible Bonds or CSRC deems that there has been a material change in the use of the same proceeds, the holders of the Convertible Bonds may require the Company to redeem all or part of the Convertible Bonds held by them at 103% of the nominal values of the Convertible Bonds (inclusive of accrued interest).

— 12 —

LETTER FROM THE BOARD

Target subscribers:

Subject to the subscription priority referred to below, the Bond Issue will be open for public subscription by target subscribers including natural persons, legal persons, securities investment funds and other investors who have complied with the relevant laws and regulations, who are holders of securities accounts opened at the Shanghai Branch of China Securities Depositary and Clearing Corporation Limited (save for those prohibited by PRC laws and regulations).

The shareholders of A Shares shall have priority of subscribing in the proportion of RMB0.9 for every A Share held by shareholders of A Shares whose names are listed on the register of members as at the registration date as stated in the offering memorandum of the issue of the Convertible Bonds, to be converted in board lots of RMB1,000, and fractions to be rounded to the nearest figure. As fractions will be rounded to the nearest figure, there may be discrepancies in the total amount. China Shipping and its associates have not made a decision whether or not to subscribe for the Convertible Bonds and if they do, they will comply with the connected transaction requirements of the Hong Kong Listing Rules where applicable.

Listing of bonds:

An application is expected to be made to the Shanghai Stock Exchange for the listing of the Convertible Bonds on the Shanghai Stock Exchange

The timing of the Bond Issue will be determined by the Board after careful consideration and taking into account the prevailing market conditions and all other relevant factors at the time. The actual terms and conditions of the Convertible Bonds will be determined by the Board prior to the Bond Issue. The Bond Issue is conditional upon the completion of the Acquisition.

Proposed use of proceeds

The purpose of the issue of the Convertible Bonds is to enable the Company to fund the proposed Vessel Acquisitions. Further funds required for the Vessel Acquisitions will be financed by bank loans and/or general working capital. In case the Convertible Bonds are not issued or the Bond Issue has not been completed at the time when the Company is required to make payments for the Vessel Acquisitions, the Company will meet such payments through bank loans and/or general working capital. As at the Latest Practicable Date, the breakdown of source of funding has not been decided.

Reasons for the Bond Issue

The Board has carefully considered different financing options for the funding requirements of the Company. It believes that the Bond Issue is the most appropriate option for the Company for the following reasons:

• (a) the Bond Issue would allow the Company to take advantage of the current favorable low interest rate environment, thereby lowering the Company’s overall funding cost and improving the capital structure;

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LETTER FROM THE BOARD

• (b) the Bond Issue, as a convertible bonds issue, would generally allow the Company to pay a lower interest coupon payment than for a straight bond issue; and

• (c) the Bond Issue would not lead to any immediate dilution of the Company’s basic earnings per share which would arise in the case of a new issue of A Shares.

Impact of the Bond Issue on capital structure of the Company

Upon conversion of the Convertible Bonds, there would be an increase in the number of A Shares held by the public. Shareholders’ equity interest in the Company will be diluted as a result of the exercise of the conversion rights attached to the Convertible Bonds. The exact size of the above increase in number of A Shares will depend upon the final terms of the Convertible Bonds, including, amongst other terms, the conversion price at which the Convertible Bonds will be converted into A Shares. It is currently contemplated that the initial conversion price will be determined with reference to a premium over the higher of the average closing price of A Shares for 20 trading days immediately prior to the issue of the relevant offering memorandum and the weighted average price of the A shares on the trading day immediately preceding the issue of the aforesaid memorandum. The final terms of the Convertible Bonds are expected to be determined only after the completion of a roadshow and agreed between the underwriting syndicate and the Company.

There is no minimum floor conversion price. For illustrative purposes only, assuming full conversion of the Convertible Bonds and that the conversion price equals to RMB9.22 Yuan (being the average closing price of the A Shares for the last 5 trading days ending on 31 October 2006 before the suspension of trading in the shares on 1 November 2006, with an upward margin of 10%), the percentage of shareholding of the existing shareholders of the Company are follows:

Approximate percentage of shareholding immediately before conversion in full of the Convertible Bonds Approximate number of Shares immediately before conversion in full of the Convertible Bonds Approximate percentage of shareholding immediately after conversion in full of the Convertible Bonds (assuming full subscription by existing Shareholders of A Shares) Approximate number of Shares immediately after conversion in full of the Convertible Bonds (assuming full subscription by existing Shareholders of A Shares) Approximate percentage of Shares immediately after conversion in full of the Convertible Bonds (assuming no subscription by existing Shareholders of A Shares) Approximate number of Shares immediately after conversion in full of the Convertible Bonds (assuming no subscription by existing Shareholders of A Shares) (million) (million) (million) China Shipping* 47.46% 1,578.5 48.90% 1,732.6 44.55% 1,578.5 Existing Shareholders of A Shares (public) 13.57% 451.5 13.99% 495.6 12.75% 451.5 Holders of Convertible Bonds acquired through public subscription 0% 0 0.53% 18.7 6.12% 216.9 Existing Shareholders of H shares (public) 38.97% 1,296.0 36.58% 1,296.0 36.58% 1,296.0 Public 52.54% 1,748.0 51.10% 1,810.3 55.45% 1,964.4 100.00% 3,326.0 100.00% 3,542.9 100.00% 3,542.9	Approximate percentage of shareholding immediately before conversion in full of the Convertible Bonds Approximate number of Shares immediately before conversion in full of the Convertible Bonds Approximate percentage of shareholding immediately after conversion in full of the Convertible Bonds (assuming full subscription by existing Shareholders of A Shares) Approximate number of Shares immediately after conversion in full of the Convertible Bonds (assuming full subscription by existing Shareholders of A Shares) Approximate percentage of Shares immediately after conversion in full of the Convertible Bonds (assuming no subscription by existing Shareholders of A Shares) Approximate number of Shares immediately after conversion in full of the Convertible Bonds (assuming no subscription by existing Shareholders of A Shares) (million) (million) (million) China Shipping* 47.46% 1,578.5 48.90% 1,732.6 44.55% 1,578.5 Existing Shareholders of A Shares (public) 13.57% 451.5 13.99% 495.6 12.75% 451.5 Holders of Convertible Bonds acquired through public subscription 0% 0 0.53% 18.7 6.12% 216.9 Existing Shareholders of H shares (public) 38.97% 1,296.0 36.58% 1,296.0 36.58% 1,296.0 Public 52.54% 1,748.0 51.10% 1,810.3 55.45% 1,964.4 100.00% 3,326.0 100.00% 3,542.9 100.00% 3,542.9	Approximate percentage of shareholding immediately before conversion in full of the Convertible Bonds Approximate number of Shares immediately before conversion in full of the Convertible Bonds Approximate percentage of shareholding immediately after conversion in full of the Convertible Bonds (assuming full subscription by existing Shareholders of A Shares) Approximate number of Shares immediately after conversion in full of the Convertible Bonds (assuming full subscription by existing Shareholders of A Shares) Approximate percentage of Shares immediately after conversion in full of the Convertible Bonds (assuming no subscription by existing Shareholders of A Shares) Approximate number of Shares immediately after conversion in full of the Convertible Bonds (assuming no subscription by existing Shareholders of A Shares) (million) (million) (million) China Shipping* 47.46% 1,578.5 48.90% 1,732.6 44.55% 1,578.5 Existing Shareholders of A Shares (public) 13.57% 451.5 13.99% 495.6 12.75% 451.5 Holders of Convertible Bonds acquired through public subscription 0% 0 0.53% 18.7 6.12% 216.9 Existing Shareholders of H shares (public) 38.97% 1,296.0 36.58% 1,296.0 36.58% 1,296.0 Public 52.54% 1,748.0 51.10% 1,810.3 55.45% 1,964.4 100.00% 3,326.0 100.00% 3,542.9 100.00% 3,542.9	Approximate percentage of shareholding immediately before conversion in full of the Convertible Bonds Approximate number of Shares immediately before conversion in full of the Convertible Bonds Approximate percentage of shareholding immediately after conversion in full of the Convertible Bonds (assuming full subscription by existing Shareholders of A Shares) Approximate number of Shares immediately after conversion in full of the Convertible Bonds (assuming full subscription by existing Shareholders of A Shares) Approximate percentage of Shares immediately after conversion in full of the Convertible Bonds (assuming no subscription by existing Shareholders of A Shares) Approximate number of Shares immediately after conversion in full of the Convertible Bonds (assuming no subscription by existing Shareholders of A Shares) (million) (million) (million) China Shipping* 47.46% 1,578.5 48.90% 1,732.6 44.55% 1,578.5 Existing Shareholders of A Shares (public) 13.57% 451.5 13.99% 495.6 12.75% 451.5 Holders of Convertible Bonds acquired through public subscription 0% 0 0.53% 18.7 6.12% 216.9 Existing Shareholders of H shares (public) 38.97% 1,296.0 36.58% 1,296.0 36.58% 1,296.0 Public 52.54% 1,748.0 51.10% 1,810.3 55.45% 1,964.4 100.00% 3,326.0 100.00% 3,542.9 100.00% 3,542.9	Approximate percentage of shareholding immediately before conversion in full of the Convertible Bonds Approximate number of Shares immediately before conversion in full of the Convertible Bonds Approximate percentage of shareholding immediately after conversion in full of the Convertible Bonds (assuming full subscription by existing Shareholders of A Shares) Approximate number of Shares immediately after conversion in full of the Convertible Bonds (assuming full subscription by existing Shareholders of A Shares) Approximate percentage of Shares immediately after conversion in full of the Convertible Bonds (assuming no subscription by existing Shareholders of A Shares) Approximate number of Shares immediately after conversion in full of the Convertible Bonds (assuming no subscription by existing Shareholders of A Shares) (million) (million) (million) China Shipping* 47.46% 1,578.5 48.90% 1,732.6 44.55% 1,578.5 Existing Shareholders of A Shares (public) 13.57% 451.5 13.99% 495.6 12.75% 451.5 Holders of Convertible Bonds acquired through public subscription 0% 0 0.53% 18.7 6.12% 216.9 Existing Shareholders of H shares (public) 38.97% 1,296.0 36.58% 1,296.0 36.58% 1,296.0 Public 52.54% 1,748.0 51.10% 1,810.3 55.45% 1,964.4 100.00% 3,326.0 100.00% 3,542.9 100.00% 3,542.9	Approximate percentage of shareholding immediately before conversion in full of the Convertible Bonds Approximate number of Shares immediately before conversion in full of the Convertible Bonds Approximate percentage of shareholding immediately after conversion in full of the Convertible Bonds (assuming full subscription by existing Shareholders of A Shares) Approximate number of Shares immediately after conversion in full of the Convertible Bonds (assuming full subscription by existing Shareholders of A Shares) Approximate percentage of Shares immediately after conversion in full of the Convertible Bonds (assuming no subscription by existing Shareholders of A Shares) Approximate number of Shares immediately after conversion in full of the Convertible Bonds (assuming no subscription by existing Shareholders of A Shares) (million) (million) (million) China Shipping* 47.46% 1,578.5 48.90% 1,732.6 44.55% 1,578.5 Existing Shareholders of A Shares (public) 13.57% 451.5 13.99% 495.6 12.75% 451.5 Holders of Convertible Bonds acquired through public subscription 0% 0 0.53% 18.7 6.12% 216.9 Existing Shareholders of H shares (public) 38.97% 1,296.0 36.58% 1,296.0 36.58% 1,296.0 Public 52.54% 1,748.0 51.10% 1,810.3 55.45% 1,964.4 100.00% 3,326.0 100.00% 3,542.9 100.00% 3,542.9	Approximate percentage of shareholding immediately before conversion in full of the Convertible Bonds Approximate number of Shares immediately before conversion in full of the Convertible Bonds Approximate percentage of shareholding immediately after conversion in full of the Convertible Bonds (assuming full subscription by existing Shareholders of A Shares) Approximate number of Shares immediately after conversion in full of the Convertible Bonds (assuming full subscription by existing Shareholders of A Shares) Approximate percentage of Shares immediately after conversion in full of the Convertible Bonds (assuming no subscription by existing Shareholders of A Shares) Approximate number of Shares immediately after conversion in full of the Convertible Bonds (assuming no subscription by existing Shareholders of A Shares) (million) (million) (million) China Shipping* 47.46% 1,578.5 48.90% 1,732.6 44.55% 1,578.5 Existing Shareholders of A Shares (public) 13.57% 451.5 13.99% 495.6 12.75% 451.5 Holders of Convertible Bonds acquired through public subscription 0% 0 0.53% 18.7 6.12% 216.9 Existing Shareholders of H shares (public) 38.97% 1,296.0 36.58% 1,296.0 36.58% 1,296.0 Public 52.54% 1,748.0 51.10% 1,810.3 55.45% 1,964.4 100.00% 3,326.0 100.00% 3,542.9 100.00% 3,542.9
	52.54%	1,748.0	51.10%	1,810.3	55.45%	1,964.4
	100.00%	3,326.0	100.00%	3,542.9	100.00%	3,542.9

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LETTER FROM THE BOARD

• China Shipping currently holds 47.46% of domestic shares of the Company which are subject to an undertaking not to transfer such shares until and including 29 December 2008. As the Convertible Bonds are being offered on a pro rata basis to existing shareholders of A Shares in priority to other eligible persons, this percentage of shareholding immediately after conversion in full of the Convertible Bonds assumes that China Shipping will take up its priority right to subscribe for its pro rata share of the Convertible Bonds. China Shipping has not made a decision whether or not to subscribe for the Convertible Bonds and if it does not, its percentage shareholdings immediately after conversion in full of the Convertible Bonds will be approximately 44.55% and that of the holders of A Shares will be approximately 18.87%.

The Directors do not currently expect that the Bond Issue will adversely affect the minimum number of shares of the Company and H Shares which are, under the Hong Kong Listing Rules, required to be held by members of the public. If there is such adverse effect, the Company intends to adopt necessary measures to meet the relevant requirement. Upon full conversion of the Convertible Bonds, there will not, by reason only of such conversion, result in any change in control of the Company. Further announcements will be made once the terms and conditions of the Convertible Bonds are determined and the relevant offering memorandum is issued.

Any new A Shares to be issued upon conversion of the Convertible Bonds will rank pari passu with, and within the same class as the A Shares in issue on the relevant conversion date in all respects, save in respect of entitlement to dividends and other distributions which will depend on, inter alia, the conversion date(s) for the Convertible Bonds.

There will be separate class meetings for holders of H shares and A shares approving the Bond Issue as per the requirements of Listing Rule 19A.38. However, the Transactions will be approved by an EGM and will not be approved by way of separate class meetings as the Transactions do not affect the rights of a particular class of shareholders only. In relation to the Bond Issue, the relevant resolutions can be categorised into (a) approval of the use of proceeds of the Bond Issue and (b) the terms of the Convertible Bonds. China Shipping (Group) Company, the controlling shareholder of the Company, is obliged to abstain from voting on the resolutions on the use of proceeds. If those resolutions are not passed, the Bond Issue will not proceed. Save for the aforesaid, China Shipping (Group) Company may vote on the resolution approving the terms of the Bond Issue. The notice of the EGM and the respective class meetings will be given to the holders of the Company’s H shares and A shares separately.

Upon approval of the Bond Issue at the EGM and the respective class meetings, the issue of the Convertible Bonds will still be subject to the approval of CSRC. The timing of the Bond Issue shall be subject to the approval of CSRC, as well as the bond market conditions in the PRC. Further announcement will be made by the Company when the CSRC’s approval has been obtained and the maturity period and the coupon rate of the Convertible Bonds have been fixed.

4. NEW SERVICES AGREEMENT

Background Information

Pursuant to the Services Agreement, China Shipping (or other members of the China Shipping Group) had agreed to provide the necessary supporting shipping materials and services for the on-going operations of the oil transportation business and dry bulk cargo transportation business including dry-docking and repairs services, supplies of lubricating oil, fresh water supplies, raw

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LETTER FROM THE BOARD

materials, bunker oil, as well as other services for a term of ten (10) years which commenced in 2001. The Stock Exchange has granted a waiver from strict compliance with the relevant requirements of the Hong Kong Listing Rules in respect of these continuing connected transactions for a period of three financial years up to 31 December 2006.

Subject to the conditions of the New Services Agreement having been fulfilled (or waived, as the case may be), the New Services Agreement will be effective as from 1 January 2007 and will supersede the Services Agreement. The New Services Agreement ensures the continuity of the established and long-term business relationship between China Shipping Group and the Group.

Major terms of the New Services Agreement

Date: 31 October 2006 Parties: Party A: China Shipping Party B: The Company

Shipping materials and services provided:

The Company has entered into the New Services Agreement with China Shipping pursuant to which China Shipping Group agreed to provide to the Group certain Agreed Supplies for the ongoing operations for all vessels owned or bareboat chartered by the Group and which, upon completion of the Acquisition, would include the Vessels.

The Agreed Supplies, to be provided for the vessels owned or bareboat chartered by the Group, include:

1. supply of lubricating oil, fresh water supplies, raw materials, bunker oil, mechanical and electrical engineering, ship stores and repairs and maintenance services for life boats;

2. whitewashing and water treatment for vessels;

3. installation, repairs and maintenance of telecommunication and navigational services;

4. dry docking, repairs and improvements;

5. hiring of sea crew;

6. accommodation, lodging and transportation for employees;

7. medical services (for existing employees);

8. miscellaneous management services;

9. agency commissions; and

10. service fees on sale and purchase of vessels, accessories and other equipment.

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LETTER FROM THE BOARD

Fees for the supply of shipping materials and services:

The fee for the Agreed Supplies will be determined by reference to the State Price. If a State Price is not available for any of the Agreed Supplies referred to above, reference will be made to its market price. Where there is no market price, a price based on the actual book cost incurred by the China Shipping Group for providing the Agreed Supplies will be referred to.

Annual Cap:

The aggregate fee in any financial year for the Agreed Supplies will depend on the quantity of the Agreed Supplies provided to the Group. Pursuant to the New Services Agreement, the annual cap for the Agreed Supplies will be as follows:

				Assuming that the	Assuming that the
				Acquisition is not	Acquisition is completed
**Year **	**ending **	**31 **	December	completed	by 31 December 2006
2007				RMB3,237,900,000	RMB4,090,000,000
				(approximately	(approximately
				HK$3,143,592,000)	HK$3,970,874,000)
2008				RMB4,048,900,000	RMB4,942,000,000
				(approximately	(approximately
				HK$3,930,971,000)	HK$4,798,058,000)
2009				RMB4,576,900,000	RMB5,589,000,000
				(approximately	(approximately
				HK$4,443,592,000)	HK$5,426,214,000)

These annual caps have been determined based on the actual amounts paid by the Group to the China Shipping Group in the last three financial years ended 31 December 2005, actual payments for the six months ended 30 June 2006, management’s estimates of fleet operational costs over the next three years ending 31 December 2009 and management’s estimates of State Prices and other relevant market developments. The increment of the annual caps for the three years have been determined based on the estimated increase in shipping capacity (as a result of the delivery of vessels already commissioned for construction as well as historical expansion trends of the Company) and the estimated increase in revenue as a result of the increase in shipping capacity. The shipping capacities for the three years ended 31 December 2009 is estimated to be approximately 8,990,000 dwt, 10,110,000 dwt and 13,260,000 dwt respectively.

For the two years ended 31 December 2005 and the six months ended 30 June 2006, the amount spent on the Agreed Supplies were RMB1,513,999,000 (approximately HK$1,469,901,000), RMB2,208,771,000 (approximately HK$2,144,438,000) and RMB1,103,156,000 (approximately HK$1,071,025,000) respectively. Pursuant to the terms of the Services Agreement, the average annual caps for the Agreed Supplies is based on the actual revenue generated by the Company during the

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LETTER FROM THE BOARD

relevant year. For the two years ended 31 December 2005 and the six months ended 30 June 2006, the annual caps for the first two years and the cap for the six months ended 30 June 2006 based on financial figures as of 30 June 2006 of the Company are approximately RMB2,184,685,000 (approximately HK$2,121,053,000), RMB2,879,750,000 (approximately HK$2,795,874,000) and RMB1,552,390,000 (approximately HK$1,507,175,000) respectively.

Term:

The New Services Agreement is for a term of 3 years, starting from 1 January 2007 and ending on 31 December 2009.

Condition:

The New Services Agreement is conditional upon approval of the Independent Shareholders at the EGM. However, the New Services Agreement is not conditional upon completion of the Bond Issue and/or the Acquisition Agreement. As mentioned above, the annual caps proposed for approval by Independent Shareholders would increase if the Acquisition is completed.

Effective date:

The New Services Agreement will take effect from 1 January 2007, upon which the Services Agreement will be terminated.

Reasons for, and benefits of, entering into the New Services Agreement

The New Services Agreement is essential to the operation of the shipping businesses of the Group as it will provide the necessary supporting services and shipping supplies to all the vessels owned and bareboat chartered by the Group and, if the Acquisition is completed, including the Vessels. In general, material terms and conditions for the provision of the Agreed Supplies under the New Services Agreement, including the pricing structure, items of services and service standards, are consistent with those under the Services Agreement.

The terms of and consideration payable under the New Services Agreement have been arrived at after arm’s length negotiation and are based on normal commercial terms.

The Directors consider its terms to be fair and reasonable so far as the Shareholders are concerned and are in the interests of the Company.

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LETTER FROM THE BOARD

5. CONSTRUCTION AGREEMENTS

Background Information

By an announcement dated 30 October 2006, the Board announced that the Company has entered into the Construction Agreements with the Vendors on 28 October 2006 for the construction of four VLCCs each of 308,000 dwt for the transportation of crude oil. The total consideration for the construction of the VLCCs is approximately US$457,040,000 (equivalent to approximately HK$3,542,060,000). The consideration is determined by reference to the market price of vessels of similar sizes and function.

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

Date: 28 October 2006

Parties Seller: CSSC and Guangzhou Langxue. CSSC is a stateowned Chinese shipbuilder and Guangzhou Longxue, its wholly-owned subsidiary, is also Chinese shipbuilder. To the best of the Directors’ knowledge, information and belief having made all reasonable enquiries, each of the Vendors and its ultimate beneficial owners are independent third owners not connected with the Company and its connected persons (as defined in the Hong Kong Listing Rules).

Purchaser: the Company.

Price:

The price of the VLCCs will be payable in Renminbi. Relevant payments under each of the Construction Agreements will be payable in 5 instalments at various stages of the construction of the relevant vessel:

• (i) for the first instalment, to pay 20% of the price within 15 business days after the Construction Agreements were entered into;

• (ii) for the second, third and fourth instalment, to pay 20% of the price within 7 business days of the receipt of the relevant invoice issued by the Vendors; and

• (iii) for the final instalment, to pay 20% of the price within 7 business days of the receipt of all documentation in relation to completion of the relevant VLCC by the Vendors.

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LETTER FROM THE BOARD

Delay adjustment in price:

Each of the four Construction Agreements provides that there will be no adjustment in the price of the relevant VLCC if the delivery is delayed for a period not exceeding 30, 30, 45 and 60 days respectively. If the delay exceeds such period of time but does not exceed 210, 210, 225 and 240 days respectively, there will be a reduction in the price of the relevant VLCC determined on the basis of the extent of the delay, up to a maximum reduction of US$4,200,000.

If the delay exceeds 210, 210, 225 and 240 days respectively, unless the parties agree otherwise, the Company has the right to accept delivery of the relevant VLCC with a reduction in price of US$4,200,000 or refuse to accept delivery of the relevant VLCC in which case all payments paid under the relevant Agreement together with interests will be refunded to the Company.

Expired Delay Date:

The expected delivery date for each of the four VLCCs is on or before 31 October 2009, 31 December 2009, 31 March 2010 and 30 June 2010 respectively.

Condition: The Construction Agreements are conditional upon the approval of the Shareholders at the EGM.

The construction of the VLCCs will be funded as to approximately 80% of the price by bank borrowings and approximately 20% of the price by internal resources.

On 31 March 2006, the Company has entered into an agreement with Guangzhou Shipyard for the construction of four tankers of 42,000 dwt each, details of which were contained in the Company’s discloseable transaction announcement dated 31 March 2006. To the best of the Directors’ knowledge, information and belief, Guangzhou Longxue is a wholly-owned subsidiary of CSSC and Guangzhou Shipyard is an associate of CSSC. For the purpose of the Listing Rules, these transactions will be aggregated with the transactions contemplated by the Construction Agreements. Accordingly, the entering into of the Construction Agreements constitutes a major transaction of the Company under Chapter 14 of the Hong Kong Listing Rules.

Reasons for, and benefits of the Construction

The Directors are optimistic of the demand in the crude oil transportation market and its persistent growth in the coming years. The Directors are of the view that the construction and ownership of the VLCCs will enable the Group to take advantage of the business opportunities in the shipping market, enjoy economies of scale, optimize its overall route arrangements and improve its operating efficiency and profitability. The construction of the VLCCs will be funded as to approximately 80% of the price by bank borrowings and approximately 20% of the price by internal resources. Money will be drawn down from the bank borrowings as and when required for each instalment payment. On this basis, the Construction is expected to result in increase in both assets and liabilities of the Company by approximately 80% of the price (equivalent to approximately

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LETTER FROM THE BOARD

US$365,632,000). Since 80% of the price will be funded by bank borrowings, the Construction is not expected to have a material adverse impact on the net assets of the Group. The Construction is not expected to have any effect on the earnings of the Company after a VLCCS is delivered, which is expected to contribute to the turnover of the Group.

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

6. MAJOR TRANSACTIONS AND CONNECTED TRANSACTION

Each of the Acquisition and the Construction constitutes a major transaction for the Company under Rule 14.06(3) of the Hong Kong Listing Rules. As at the date of this circular, China Shipping and its associates are presently beneficially interested in 1,578,500,000 Domestic shares, representing approximately 47.46 per cent. of the existing issued share capital of the Company and is therefore its controlling shareholder. As such, China Shipping is a connected person of the Company within the meaning of the Hong Kong Listing Rules and the Transactions constitute connected transactions for the Company for the purpose of the Hong Kong Listing Rules.

Independent Shareholders’ Approval

By virtue of the size of the Transactions and the relationship of the parties thereto, the Acquisition constitutes a major acquisition and a connected transaction of the Company and the New Services Agreement constitutes continuing connected transactions, both requiring prior Independent Shareholders’ approval under the Hong Kong Listing Rules.

Shareholders’ Approval

By virtue of the size of the Construction as aggregated with other transactions referred to in section 5 above, the Construction constitutes a major acquisition of the Company requiring prior shareholders’ approval under the Hong Kong Listing Rules.

In connection with the Bond Issue, the relevant resolutions can be categorised into (a) approval of the use of proceeds of the Bond Issue and (b) the terms of the Convertible Bonds. China Shipping, the controlling shareholder of the Company, and its associates is obliged to abstain from voting on the resolutions on the use of proceeds. If that resolution is not passed, the Bond Issue will not proceed. Save for the aforesaid, China Shipping and its associates may vote on the resolution approving the terms of the Bond Issue. No other shareholders will need to abstain from voting at the EGM for approving the Bond Issue.

Independent Board Committee

The Independent Board Committee has been established to advise the Independent Shareholders in respect of the Transactions.

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LETTER FROM THE BOARD

Independent Financial Adviser

Evolution Watterson Securities Limited has been appointed as the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders in respect of the Transactions.

7. EGM

It is therefore proposed that the EGM and H shareholders’ and A shareholders’ class meetings (in relation to item 2 below only) be convened on Thursday, 28 December 2006 to propose resolutions to vote by poll, among other things, the following:

1. the Acquisition Agreement;

2. the Bond Issue;

3. the New Services Agreement, the Annual Caps and the Company’s participation pursuant to the terms thereunder; and

4. the Construction Agreements

In connection with the EGM and the respective class meetings, the Company and any of its associates and any Shareholders who are materially interested or involved in the Transactions, other than as shareholders of the Company, will abstain from voting on the resolutions proposed in respect of the Transactions. China Shipping and its associates will abstain from voting at the EGM on the resolutions in respect of the Acquisition and the New Services Agreement.

A notice of the EGM to be held at 2:00 p.m. on Thursday, 28 December 2006 at 700 Da Ming Road, Shanghai, the People’s Republic of China at which relevant resolutions will be proposed to approve, among other things, the Acquisition Agreement and the Acquisition pursuant to the terms thereunder, the Bond Issue, the New Services Agreement and the Construction are set out on pages N-1 to N-8 of this circular.

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

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LETTER FROM THE BOARD

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

• (a) the Chairman of the meeting;

• (b) at least two members present in person or by a duly authorized corporate representative or by proxy and entitled to vote at the meeting;

• (c) any member or members present in person or by a duly authorized corporate representative or by proxy and representing in the aggregate not less than one-tenth of the total voting rights of all members having the right to attend and vote at the meeting; or

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

8. CLASS MEETINGS OF THE H SHAREHOLDERS AND THE A SHAREHOLDERS

Under the Listing Rules, a separate class meeting of holders of A Shares will have to be convened by the Company for the purpose of approving the proposed terms of the Convertible Bonds. The Company has been advised that under PRC law, there will also have to be a resolution to put forward to the holders of A Shares for them to approve the use of proceeds and China Shipping would be obliged to abstain from voting on that resolution. If that resolution is not passed, the Bond Issue will not proceed. China Shipping would otherwise be entitled to vote on the resolution regarding the proposed terms of the Bond Issue. For the Company to be able to proceed with the Bond Issue, resolutions put to both class meetings of holders of H Shares and holders of A Shares must be passed.

A separate notice to convene the class meeting of the A Shareholders will be given to A Shareholders separately.

A notice of the class meeting of the H Shareholders to be held immediately after the conclusion or adjournment of the class meeting of the holders of the A Shares on Thursday, 28 December 2006 at 700 Da Ming Road, Shanghai, the People’s Republic of China at which relevant resolutions will be proposed to approve the Bond Issue is set out on pages N-5 to N-6 of this circular.

A form of proxy for use at the class meeting of the H Shareholders is enclosed. Whether or not you are able to attend the class meeting of the H Shareholders, you are requested to complete the accompanying form of proxy for the relevant class meeting in accordance with the instructions printed thereon and return the same to the Company’s branch share registrar in Hong Kong, Hong Kong Registrars Ltd. at Room 1712-1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai,

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LETTER FROM THE BOARD

Hong Kong as soon as possible and in any event not less than 24 hours before the time appointed for any adjournment thereof. Completion and return of the form of proxy shall not preclude you from attending and voting in person at the class meeting of the H Shareholders or any adjourned meeting should you so wish.

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

• (a) the Chairman of the meeting; or

• (b) at least two members present in person or by a duly authorized corporate representative or by proxy and entitled to vote at the meeting; or

• (c) any member or members present in person or by a duly authorized corporate representative or by proxy and representing in the aggregate not less than one-tenth of the total voting rights of all members having the right to attend and vote at the meeting; or

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

9. INFORMATION ABOUT THE COMPANY AND CHINA SHIPPING

The business scope of the Company includes coastal, ocean and Yangtze River cargo transportation, container transportation, oil transportation, international passenger transportation, chartering, cargo agency and cargo transportation agency. The business scope of China Shipping includes import and export business, trading, coastal and ocean cargo transportation, dry bulk cargo transportation, supply of food for vessels, management of docks and other services in relation to the above.

10. 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 so far as the Shareholders are concerned and are in the interests of the Company and the Shareholders as a whole. The Board (including independent non-executive Directors) also considers the terms of the Bond Issue (subject to finalisation of its terms) are fair and reasonable. Accordingly, the Board recommends the Independent Shareholders vote in favor of the ordinary resolutions set out in the notice of the EGM for the approval of the Transactions and the Bond Issue.

Further, the Board, including the independent non-executive Directors, is of the view that the terms of the Construction Agreements are determined on an arm’s length basis, on normal commercial terms and fair and reasonable and in the interests of the Company and the Shareholders as a whole. Accordingly, the Board recommends the Shareholders vote in favour of the ordinary resolution set out in the role of the EGM for the approval of the Construction Agreements.

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LETTER FROM THE BOARD

11. ADDITIONAL INFORMATION

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

Yours faithfully,

China Shipping Development Company Limited Li Shaode

Chairman

— 25 —

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)

13 November 2006

To the Independent Shareholders

Dear Sir or Madam,

THE ACQUISITION AND THE TRANSACTIONS CONTEMPLATED UNDER THE NEW SERVICES AGREEMENT

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 dated 13 November 2006 (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 27 to 40 of the Circular, we are of the opinion that the terms of the Transactions and the Annual Caps are fair and reasonable so far as the Independent Shareholders are concerned 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

The following is the text of a letter of advice from the Independent Financial Advisor to the Independent Board Committee and the Independent Shareholders, which has been prepared for the purpose of inclusion in this Circular, setting out its advice to the Independent Board Committee and the Independent Shareholders.

==> picture [164 x 35] intentionally omitted <==

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

13 November 2006

The Independent Board Committee

and the Independent Shareholders

China Shipping Development Company Limited 168 Yuanshen Road

Shanghai The PRC

Dear Sirs,

MAJOR AND CONNECTED TRANSACTION RELATING TO THE PROPOSED ACQUISITION OF THE VESSELS AND

CONTINUING CONNECTED TRANSACTIONS RELATING TO THE NEW SERVICES AGREEMENT

INTRODUCTION

We refer to our appointment as independent financial adviser to the Independent Board Committee in relation to the proposed acquisition of the Vessels and the Continuing Connected Transactions relating to the New Services Agreement, detailed of which are set out in the Circular dated 13 November 2006 to the Shareholders, of which this letter forms part. Capitalized terms in this letter have the same meanings as those defined in the Circular unless the context otherwise requires.

On 31 October 2006, the Company and its controlling shareholder, China Shipping, have entered into the Acquisition Agreement pursuant to which the Company agrees to acquire from China Shipping the assets in the Vessels for a consideration of RMB2.47 billion. These Vessels comprise 32 PRC-registered and 10 foreign-registered dry bulk cargo carriers of China Shipping.

On 31 October 2006, the Company also entered into the New Services Agreement with China Shipping pursuant to which China Shipping Group agreed to provide to the Group certain Agreed Supplies for the ongoing operations for all vessels owned by the Group and which, upon completion of the Acquisition, would include the Vessels.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

China Shipping is the controlling shareholder of the Company holding 47.46% of the issued share capital of the Company and therefore is a connected person to the Company. Consequently, the acquisition of the Vessels and transactions under the New Services Agreement constitute a connected transaction of the Company under the Hong Kong Listing Rules; and are subject to, among other things, the approval of the Independent Shareholders.

We have been appointed by the Company to advise the Independent Board Committee and the Independent Shareholders as to whether or not the terms of the Acquisition Agreement and the New Services Agreement are fair and reasonable so far as the Independent Shareholders are concerned and are in the interest of the Company and the Shareholders as a whole.

In formulating our recommendation, we have considered, amongst other things, (i) the Acquisition Agreement; (ii) the New Services Agreement; (ii) the Assets Valuation Report; (iii) the Company’s 2005 annual report and 2006 interim report; and (iv) the financial information as set out in the Appendix II to IV to the Circular. We have also discussed with the management of the Group their plans and prospects for the Group.

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

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

PRINCIPAL FACTORS AND REASONS

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

I ACQUISITION AGREEMENT

1. Background information

The Group is principally engaged in the cargo shipping and oil tanker business.

China Shipping, a PRC state-owned enterprise and the controlling shareholder of the Company, is a large shipping conglomerate operates in different regions of the PRC and across the world.

As stated in the “Letter from the Board”, on 27 May 1998, the Company entered into the Vessel Management Agreements with Dalian Shipping and Guangzhou Maritime for the management of various dry bulk cargo vessels to avoid competition between the Group and the China Shipping Group. On 30 July 2004 and 22 June 2004, the Company entered into two supplemental agreements with Guangzhou Maritime and Dalian Shipping respectively. Pursuant to these agreements, the Company was granted a purchase option, exercisable at any time prior to the expiration of the term of the Vessel Management Agreements, to acquire any of the cargo vessels subject to the Vessel Management Agreements. On 31 October 2006, the Company elected to exercise the purchase option under the Vessel Management Agreements to acquire the relevant dry bulk cargo carriers as well as other dry bulk cargo carriers and as a result, the parties entered into the Acquisition Agreement, details of which are set out below.

2. Key terms of the Acquisition Agreement

Date of agreement: 31 October 2006

Parties: ● China Shipping (as Vendor) ● The Company (as Purchaser)

Subject matter: The Company agreed to acquire from China Shipping Group the following assets:

(1) 32 PRC-registered dry bulk cargo carriers; and

• (2) 10 foreign-registered dry bulk cargo carriers.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Consideration:

RMB2.47 billion, which was determined by reference to the appraised value of the Vessels (the “Appraised Value”) as at 30 June 2006, as assessed by the PRC Domestic Valuer, an independent valuer to the Group recognized by SASAC. The consideration is subject to possible adjustments according to the result of the approval by the SASAC. In the event the adjustment of the consideration does not exceed two per cent (2%) (inclusive) of the consideration, the final consideration shall be adjusted accordingly. If the adjustment of the consideration exceeds two per cent (2%) of the consideration, the final consideration shall be further negotiated by both parties.

Payment terms:

The consideration will be payable in two installments: the first installment of RMB741 million, being 30% of the total consideration, will be due and payable on within 5 Business Days from the Effective Date and the second installment of RMB1.729 billion, being the remaining 70% of the total consideration, together with accrued interest thereon from the Effective Date until the date of payment based on prevailing lending rates of commercial banks in the PRC, will be due and payable within 1 year from the Effective Date. The exact amount of the two installments will be subject to possible adjustments according to the result of the approval of the Valuation Report by the SASAC as referred to above.

3. Information on the Vessels

A summary of key information of the Vessels is set out as follows:

Nature		No. of vessels		DWT (tonnes)
PRC-registered dry bulk cargo carriers owned by China Shipping Foreign-registered dry bulk cargo carriers owned by China Shipping		32 10		972,351 433,555
Total		42		1,405,906

The average age of the Vessels is about 20.8 years which represents an average remaining useful life of about 12.2 years according to the relevant regulations in the PRC. As advised by the Company, the average age of the dry bulk cargo fleets currently owned by the Company is about 18.7 years, about 2.1 years newer than the Vessels. Having considered that the Acquisition of the entire dry bulk cargo fleet from China Shipping Group is a strategic acquisition that allows the Group to further consolidate its dry bulk shipping operation and expand the Group’s market share, we consider the acquisition of vessels whose age are slightly above the average ship-age of the Group’s current fleet justifiable.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The following is a summary of the combined results of the Vessels extracted from the Appendix III to the Circular.

	2003	2004	2005	1H 2005	1H 2006
		(Unaudited/RMB’000)
Revenue	1,099,206	1,518,988	1,788,313	957,737	855,064
Operating costs	(737,866)	(801,903)	(917,474)	(432,398)	(532,537)
Gross profit	361,340	717,085	870,839	525,339	322,527
Other income and gains	3,000	3,009	2,955	1,488	—
Other expenses	(165)	(241)	(238)	(157)	—
Financial costs	(5,225)	(3,153)	(1,439)	(1,439)	—
Profit before tax	358,950	716,700	872,117	525,231	322,527

Note: The above financial information in the table above is prepared in according with accounting policies which are in compliance with Hong Kong Financial Reporting Standards, details of which is set out in the Appendix III to this circular.

As shown in the table above, for the three years ended 31 December 2005, unaudited revenue and profit before tax experienced fast growth with a compound annual growth rate of about 28% and 56% respectively. The results were mainly driven by strong demand for shipping transportation due to fast-paced economic development in China. Unaudited revenue and profit before tax in the first half 2006 dropped by about 11% and 39% from the corresponding period in 2005 due to the fall in freight rates and rise in fuel costs.

Revenue of the Vessels was mainly generated from shipping operations, of which about 76% were attributed to coal shipment and the remaining 24% were attributed to other dry bulk shipment for 2005; and about 80% to coal shipment and 20% to other dry bulk shipment in the first half of 2006.

4. Valuation for the Vessels

Pursuant to the Acquisition Agreement, valuation for the Vessels is determined with reference to the appraised value of about RMB2,462,054,000 as at 30 June 2006, as set out in the Valuation Report to be filed with the SASAC.

The Valuation Report is prepared by the PRC Domestic Valuer, which is an independent third party of the Group. The PRC Domestic Valuer had experience in valuation of several large shipping companies listed on the Stock Exchange.

According to the Valuation Report, two methods are used in valuation of the Vessels, namely, replacement cost method and market value method; and the appraised value amounts to RMB2,172,126,000 and RMB2,462,054,000 respectively.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The replacement cost method, often employed for the evaluation of fix assets including vessels, calculates the value of the subject assets based on an estimated cost required to replace the subject assets or estimate the cost of acquiring a new vessel and then subtract the remaining life of the vessel to arrive at current value. The appraised value under the market value method was arrived at based on the historical second-hand vessel prices adjusted by various factor including, among others, vessel types, dwt, vessel age and terms of sale. Although both methods are commonly used for fix assets valuation, we are more favorable with the market value approach as it makes direct reference with the historical transaction prices in the second-hand vessels market.

As part of our analysis of the Consideration, we have compared the valuation multiples represented by the Consideration with selected four listed companies (the“Comparables”) which are principally engaged in dry bulk shipping business as the Vessels. We set out in the following table the price earnings (“P/E”) and price to book (“P/B”) ratios of the Comparables based on their respective relevant share prices as at the Latest Practicable Date and publicly available historical financial data:

Comparables Pacific Basin Shipping Ltd. Mitsui OSK Lines Ltd Kawasaki Kisen Kaisha Ltd Nippon Yusen Kabushiki Kaisha The Company Average The Vessels	Nature Dry bulk shipping services through the operation of a fleet of vessels Operates a large fleet of dry bulk carriers, oil tankers and containerships and offers shipping services around the world Operates marine cargo services mainly includes dry bulk, oil and containers around the world Shipping operation including dry bulk, oil, LNG and container transportation around the world Oil and cargoes shipping in the PRC and cross the world	Place Hong Kong Japan Japan Japan China	P/E (note 1) 5.3 10.4 7.6 10.3 11.0 8.9 3.3	P/B
				(note 2) 2.5 2.8 1.9 1.7 2.7 2.3 1.0

Source: Bloomberg and the respective annual report of the Comparables Notes:

(1) P/E is calculated based on the respective share prices as at the Latest Practicable Date for the Comparables divided by the respective earnings per share (“EPS”) for the year ended 31st March 2006, except in the case of Pacific

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Basin Shipping Ltd., which is for the year ended 31 December 2005. EPS are calculated based on the respective earnings for the year ended 31 December divided by the number of shares in issue as at 31 March 2006, except in the case of Pacific Basin Shipping Ltd. for 2005 which is based on the number of shares in issue as at 31 December 2005, the date of its latest available reported results. In the case of the Vessels, P/E is calculated based on the Consideration and the adjusted annual earnings after deduction of 15% income tax for the year ended 31 December 2005.

• (2) P/B multiples are calculated based on the respective share prices as at the Latest Practicable Date for the Comparables divided by the respective net asset value (“NAV”) per share as at 31 March 2006, except in the case of Pacific Basin Shipping Ltd. which is based on the NAV per share as at 30 June 2006, the date of its latest available reported results. NAV per share are calculated based on the NAV as at 31 March divided by the number of shares in issue as at 31 March 2006 except in the case of Pacific Basin Shipping Ltd. for 2005 which is based on the number of shares in issue as at 30 June 2006. In the case of the Vessels, P/B is calculated based on the Consideration and the Appraised Value.

As shown above, the P/E and P/B of the Comparables range from 5.3 to 11.0 and 1.7 to 2.8 respectively. While the average P/E and P/B amounts to 8.9 and 2.3 respectively, which are higher than those of the Vessels of 3.3 and 1.1 respectively, suggesting that comparables tend to trade at relatively high P/E and premium to underlying net assets. On such basis, we are of the view the Consideration is fair and reasonable.

5. Pro forma financial impact of the Acquisition

5.1 Earnings

According to the financial information on the Group and the Vessels as set forth in the Appendix II and Appendix III, the unaudited net profit of the Group for the six months ended 30 June 2006 amounted to about RMB1,293.7 million; unaudited profit before tax of the Vessels for the same period amounted to about RMB322.5 million. For each of the three years ended 31 December 2006, unaudited profit before tax of the Vessels amounted to about RMB359 million, RMB716.7 million and RMB872.1 million respectively. Given the profitable track record of the Vessels, we are of the view that the Acquisition is likely to bring about additional profit to the Group.

5.2 NAV

The table below sets out the impact of the Acquisition on the NAV of the Group according to the financial information on the Group and the Enlarged Group as set forth in the Appendix II to IV to the Circular:

Combined NAV (after minority interests) NAV per Share	**As at **	30 June 2006
	The Group Before Acquisition	Enlarged Group After Acquisition
	(unaudited) (RMB million) 11,121.7 RMB3.344	(unaudited pro forma) (note) (RMB million) 11,121.7 RMB3.344

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Note: NAV per Share is calculated based on 3,326 million Shares being in issue as at 30 June 2006.

As illustrated in the table above, upon completion of the Acquisition, the pro forma unaudited NAV per Share would remain changed at RMB3.344, as the consideration of the Vessels has been agreed with reference to the Appraised Value. Therefore, the Acquisition has no impact on the combined NAV and NAV per Share of the Group.

According to the financial information on the Enlarged Group as set forth in the Appendix IV, net current liabilities of the Enlarged Group would increase from RMB841.4 million to RMB3,311.4 million. The increase of about RMB2.47 billion represent the consideration of the Acquisition which will be due and payable to China Shipping within 1 year from the Effective Date. As disclosed in the “Letter from the Board”, the Company proposes to issue the RMB2 billion Convertible Bonds following the Acquisition with a term of five years for the purpose of financing the Acquisition. The net current liabilities position of the Enlarged Group is expected to improve after the issue of the Convertible Bonds. As such, we are of the view that the increase in the net current liabilities resulting from the Acquisition is justifiable and the Acquisition is in the interest of the Company and its shareholders as whole.

5.3 Gearing ratio

The table below sets out the debt ratio (non-current liabilities / shareholders’ equity) of the Company before and after the Acquisition according to the financial information on the Group and the Enlarged Group as set forth in the Appendix II to IV to the Circular:

For the six months ended 30 June 2006 The Group Before Acquisition Enlarged Group After Acquisition (unaudited) (RMB million) (unaudited pro forma) (note) (RMB million) Total non-current liabilities 1,390.4 1,390.4 Equity attributable to equity holders of the parent 11,121.7 11,121.7 Gearing ratio 12.5% 12.5%	For the six months ended 30 June 2006	For the six months ended 30 June 2006
	The Group Before Acquisition	Enlarged Group After Acquisition
		(unaudited pro forma) (note) (RMB million) 1,390.4 11,121.7 12.5%

Note: Assuming that the Acquisition had been completed as at 1 January 2006.

As indicated above, gearing ratio will remain unchanged at 12.5%; as such the Acquisition has no major impact on the gearing ratio of the Group.

6 Source of funding for the Acquisition

As disclosed in the “Letter from the Board”, the Company proposes to issue RMB2 billion Convertible Bonds following the Acquisition with a term of five years to fund the Acquisition. Further

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

funds required for the Vessel Acquisitions will be financed by bank loans and/or general working capital. Having considered (i) the Bond Issue will not lead to any immediate dilution of the Company’s basic earnings per share; and (ii) the Bond Issue carries a lower coupon rate, preliminarily estimated to be between 1.30% to 2.70% per annum, which is lower than a straight bond issue and is lower than the prevailing borrowing rate therefore reduces the Company’s funding cost, we consider the Bond Issue is in the interest of the Company and its shareholders as a whole.

7 Reasons for and benefits of the Acquisition

Apart from assessing the financial impact on the Group as set out above, we have also discussed with the management of the Company in respect of the Group’s business development strategies. Our key findings are as below:

• (i) Continuing growth in the shipping transportation industry in the PRC

Demand for shipping transportation has been increasing rapidly over the past few years in the PRC as the volume of export and import from and to the PRC continue to grow as a result of the fast-paced economic development in the PRC. By the end of the 2004, China has replaced Japan as the world’s third largest exporting country, in terms of the total export volume which amounted to about US$593 billion in 2004, after Germany and the United States according to information published by the World Trade Organization. Since 2004, China has also become the world’s second largest crude oil importing country and the world’s largest iron ore importing country. Being one of the world’s fastest growing economies in the past decade, China’s GDP has increased at a compound annual growth rate (“CAGR”) of about 10%, according to the statistics of the National Bureau of Statistics of China. For the first three quarters in 2006, China’s GDP increased about 10.7% compared to the same period in 2005. The Directors consider, and we are agree with them, that the fast-paced economic development in the PRC is expected to continue and will present good opportunities in the shipping transportation industry.

• (ii) Expansion on the total shipping capacity to maintain competitiveness

The Group currently operates a fleet of 79 dry bulk cargo carriers aggregating approximately 3.15 million dwt. Upon completion of the Acquisition, the Enlarged Group will have a fleet of 121 dry bulk cargo carriers aggregating of approximately 4.55 million dwt, representing an increase of about 53% and 44% respectively. As a result, the Group’s shipping capacity will be substantially enhanced after the Acquisition, which in our view will further strengthen the Group’s leading position in the dry bulk shipping transportation sector in China.

(iii) Achieving a balanced shipping routes composition

As set out in the “Letter from the Board’ in this Circular, the Company mainly operates its dry bulk cargo carriers along the coasts of the PRC, whereas China Shipping Group mainly operates its dry bulk cargo carriers along both the domestic and international shipping routes. In 2005, domestic and international transportation accounted for 77% and 23% of the turnover of the Company.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Upon completion of the Acquisition, the Group’s dry bulk cargo shipping transportation coverage is expected to be enhanced with more international routes, resulting turnover arising from international transportation to increase from 23% to 27% in 2005. We are of the view that a more balanced route composition will not only enable the Group to capture the growing market opportunities within the PRC but will also enhance the Group’s ability to resist industry cyclical fluctuations within the country.

Having considered the above reasons, we conclude that the Acquisition is in the interests of the Company and the Shareholders as a whole.

II NEW SERVICES AGREEMENT

1. Existing continuing connected transactions with China Shipping Group

As stated in the “Letter from the Board”, pursuant to the Services Agreement, China Shipping (or other members of the China Shipping Group) had agreed to provide the Group with the necessary supporting shipping materials and services for its on-going operations of the oil transportation business and dry bulk cargo transportation business including dry-docking and repairs services, supplies of lubricating oil, fresh water, raw materials, bunker oil, as well as other services of a term of ten (10) years which commenced in 1998. The Stock Exchange had granted a waiver from strict compliance with the relevant requirements of the Hong Kong Listing Rules in respect of these continuing connected transactions for a period three financial years up to 31 December 2006. Subject to the conditions of the New Services Agreement having been fulfilled (or waived, as the case may be), the New Services Agreement will become effective as from 1 January 2007 and will supersede the Services Agreement.

2. Key terms of the New Services Agreement

Date: 31 October 2006

Parties: ● China Shipping ● The Company

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Subject matter:

China Shipping Group agreed to provide the Group certain Agreed Supplies for the ongoing operations for all vessels owned or bareboat chartered by the Group and which, upon completion of the Acquisition, would include the Vessels. The Agreed Supplies include:

• supply of lubricating oil, fresh water supplies, raw materials, bunker oil, mechanical and electrical engineering, ship stores and repairs and maintenance services for life boats;

• whitewashing and water treatment for vessels;

• installation, repairs and maintenance of telecommunication and navigational services;

• dry-docking, repairs and improvements;

• hiring of sea crew;

• accommodation, lodging and transportation for employees;

• medical services (for existing employees);

• miscellaneous management services; and

• agency commissions; and

• service fees on sale and purchase of vessels, accessories and other equipment.

Term:

• Three years, starting from 1 January 2007 and ending on 31 December 2009

3. Pricing policies

As disclosed in the “Letter from the Board” in the Circular, the fee of the Agreed Supplies will be determined by reference to:

• (i) the State Price;

• (ii) if a State Price is not available, reference will be made to the relevant market price; and

• (iii) where there is no comparable market price, a price based on the actual book cost incurred by China Shipping Group for providing the Agreed Supplies will be referred to.

We are of the view that the above pricing principle is fair and reasonable so far as the Independent Shareholders are concerned as (i) fees of the Agreed Supplies will be set at either State Prices, market prices or on cost basis, with the former always prevail unless deemed not applicable; and (ii) the above pricing policies will be the same as those stipulated under the existing Service Agreement which was approved by the Independent Shareholders in March 2004.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

4. Annual caps and basis of determination

A summary of the connected transaction under the existing Service Agreement and the historical annual caps the three years to 2006 and the estimated annual caps for each of the three years ending 31 December 2009 are set out in the table below:

Fees for the Agreed Supplies	Historical annual caps	Historical annual caps	Historical annual caps	Estimated annual caps	Estimated annual caps	Estimated annual caps	Estimated annual caps	Estimated annual caps	Estimated annual caps
		rical annual caps		Assuming that the Acquisition is not completed			Assuming that the Acquisition is completed by 31 December 2006
	2004	2005	1H2006	2007	2008	2009	2007	2008	2009
	2,184.7	2,879.8	1,552.4	(RMB million) 3,237.9 4,048.9 4,576.9			4,090.0	4,942.0	5,589.0

The provision of the Agreed Supplies mainly include the provision of fuel, shipping equipments, repair and maintenances, communications and navigation services, crew hiring, and shipping agency service provided by China Shipping Group to the Company and the Enlarged Group. In our view, the annual caps of these ship transportation related materials and services are closely related to the shipping volume of the Group in the next three years, which in turn, to a certain extent, are determined by the general market demand for the shipping transportation in the PRC, as well as the Group’s performance in the generally believed rising shipping market. To form our general view on the Group’s future business development for the three years ahead to 2009, we have considered the following factors:

(a) A rising market

In the past few years, similar to other large shipping companies in the PRC, the Group has enjoyed a strong growth rate mainly due to a rising demand and tight supply of vessels in the PRC shipping market. According to the information published by the National Bureau of Statistics of China, the CAGR of aggregated shipping volume in the PRC was approximately 22% p.a. from 2002 to 2004. As stated in subsection 5 above, by the end of the 2004, China has replaced Japan as the world’s third largest exporting country, in terms of the total export volume which amounted to about US$593 billion in 2004. It is generally expected that the PRC shipping industry will continue to benefit from the economic growth in the PRC in the future.

(b) Strong demand for shipping transportation of energy raw materials

According to the information published by the National Bureau of Statistics of China, China is the world’s second largest crude oil importing country and the world’s largest iron ore importing country in 2004 and 2005. The aggregate shipping volume of coal and mining raw materials up 25% and 41% in 2004 respectively from the prior year. As disclosed in the “Letter from the Board” of the Circular, the Group is the largest coastal coal transportation provider in

— 38 —

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

PRC with coal shipping accounted for nearly 75% of its dry bulk shipping transportation in 2005. On this basis, the Directors believe, and we agree with them, that market demand for the Group’s oil shipping and dry bulk shipping transportation is expected to continue to be robust in the next few years ahead.

• (c) Expanded fleet capacity as a result of the Acquisition.

As stated in the section I headed “Acquisition Agreement” above, the Group’s fleet will be expanded from a fleet of 79 dry bulk cargo carriers with about 3.15 million dwt to 121 dry bulk cargo carriers with about 4.55 million dwt, representing an increase of about 53% and 44% respectively. In addition, the Company plans to further expand its fleets in the next three years, shipping capacities is estimated to reach about 8.99 million dwt, 10.11 million dwt and 13.26 million dwt respectively for the three years ending 31 December 2009, as stated in the “Letter from the Board”, which is expected to create more demand by the Group for the Agreed Suppliers.

In addition to the abovementioned general factors, we have also considered the following aspects:

• (i) For each of the three years ended 31 December 2005 and for the six months ended 30 June 2006, the actual amount spent on the Agreed Supplies were about RMB1,236 million, RMB1,514 million, RMB2,208.8 million and RMB1,103.2 million respectively, which represents a CAGR of about 34% from 2003 to 2005;

• (ii) Assuming the Acquisition did not complete, the estimated annual caps for the next three years up to 2009 would represent a CAGR of about 20% from 2005, which would be lower than the CAGR of 34% for the actual amount for the three-year period from 2003 to 2005 as stated in point (i) above; and

• (iii) Assuming the Acquisition is completed by 31 December 2006, the estimated annual caps for the next three years up to 2009 represents a CAGR of about 26% from 2005, which is also lower than the CAGR of 34% for the actual amount for the three-year period from 2003 to 2005 as stated in point (i) above.

On the above basis, we are of the view that the estimated annual caps for the Agreed Supplies for the next three years to 2009 assuming the Acquisition was not completed and the estimated annual caps for the Agreed Supplies for the next three years to 2009 assuming the Acquisition is completed by 31 December 2006 are fair and reasonable.

— 39 —

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

5. Reasons for and benefits of the New Service Agreement

The Group has been purchasing the Agreed Suppliers from China Shipping Group for many years. As a result of the Group’s long term business relationship with the China Shipping, China Shipping Group is familiar with Group’s business operation and has been able to provide prompt services to meet the Group’s requirements. The New Services Agreement is essential to the operation of the shipping businesses of the Group as it will provide the necessary supporting services and shipping supplies to all the vessels owned by the Group.

RECOMMENDATION

Having considered the above principal factors and reasons, we are of the opinion that the terms of the Acquisition Agreement are fair and reasonable so far as the Independent Shareholders are concerned and are in the Interest of the Company and the Shareholders as a whole.

In respect of the New Services Agreement, we are of the view that (i) in the event that the Acquisition was not completed, the proposed annual caps for the Agreed Supplies for the next three years up to 2009 are fair and reasonable so far as the Independent Shareholders are concerned and are in the interest of the Company and the Shareholders as a whole; and (ii) in the event that the Acquisition is completed by 31 December 2006, the proposed annual caps for the next three years up to 2009 are fair and reasonable so far as the Independent Shareholders are concerned; and are in the interest of the Company and the Shareholders as a whole.

Accordingly, we would recommend the Independent Board Committee to advise the Independent Shareholders to vote in favor of the resolutions to approve the Acquisition Agreement and the New Services Agreement at the upcoming SGM. We would also recommend the Independent Shareholders to vote in favor of the resolutions to approve the Acquisition Agreement and the New Services Agreement at the upcoming SGM.

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

— 40 —

DETAILS OF THE VESSELS

APPENDIX I

The tables below set out the vessel name, dwt and year of construction of the dry bulk cargo carriers forming the Acquisition:

1. 32 PRC-registered dry bulk cargo carriers

==> picture [432 x 496] intentionally omitted <==

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

|||||||||
|---|---|---|---|---|---|---|---|
|Name|of|Vessel|Dwt|(Tonnes)|Year|of|construction|
|(1)|Da|Luo|Shan|(|)|63,980|1976|
|(2)|Wan|Shou|Shan|(|)|39,837|1989|
|(3)|Dong|Ping|Shan|(|)|39,837|1990|
|(4)|Bi|Hua|Shan|(|)|39,837|1989|
|(5)|Yi|Meng|Shan|(|)|39,837|1990|
|(6)|Hua|Rong|Shan|(|)|39,837|1989|
|(7)|Da|Ming|Shan|(|)|39,840|1989|
|(8)|Fei|Feng|Shan|(|)|40,015|1997|
|(9)|Zi|Yun|Shan|(|)|33,663|1978|
|(10)|Ba|Da|Ling|(|)|20,333|1985|
|(11)|Yu|Long|Shan|(|)|64,446|1980|
|(12)|Kun|Lun|Shan|(|)|56,233|1976|
|(13)|Dan|Xia|Shan|(|)|31,354|1976|
|(14)|Fei|Xia|Shan|(|)|30,801|1975|
|(15)|Xue|Feng|Ling|(|)|29,566|1977|
|(16)|Mo|Xing|Ling|(|)|20,333|1985|
|(17)|Jin|Pan|Ling|(|)|18,886|1978|
|(18)|Hong|Qi|120|(|120)|18,886|1979|
|(19)|Hong|Qi|123|(|123)|18,886|1978|
|(20)|Hong|Qi|124|(|124)|18,886|1979|
|(21)|Hong|Qi|200|(|200)|18,886|1980|
|(22)|Hong|Qi|201|(|201)|19,131|1981|
|(23)|Hong|Qi|202|(|202)|18,886|1980|
|(24)|Hong|Qi|203|(|203)|18,886|1980|
|(25)|Hong|Qi|204|(|204)|19,131|1981|
|(26)|Ding|Hu|Shan|(|)|39,000|1985|
|(27)|Da|Yu|Shan|(|)|38,513|1977|
|(28)|Bao|Wang|(|)|20,410|1992|
|(29)|Bei|Ji|Xing|(|)|27,526|1986|
|(30)|Jin|Hui|(|)|15,563|1994|
|(31)|Jin|Cang|(|)|15,563|1995|
|(32)|Jin|Xi|(|)|15,563|1993|

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

— I-1 —

DETAILS OF THE VESSELS

APPENDIX I

2. 10 foreign-registered dry bulk cargo carriers

	**Name of Vessel **	**Name of Vessel **	(Flag)	(Flag)		Dwt (Tonnes)	Year of construction
(1)	Glory Mountain		(		)	39,840	1991
(2)	Silver Yang (			)		63,800	1983
(3)	Peach Mountain		(		)	40,015	1996
(4)	Silver Shing					40,181	1996
(5)	Silver Zhang					39,840	1990
(6)	Silver Ying					40,181	1996
(7)	Silver Mei					68,676	1989
(8)	Bao Xing (	)				20,309	1990
(9)	Silver Bin (		)			39,000	1986
(10)	Silver Sen (		)			41,454	1982

— I-2 —

FINANCIAL INFORMATION ON CHINA SHIPPING DEVELOPMENT COMPANY LIMITED

APPENDIX II

• A. SUMMARY OF THE AUDITED CONSOLIDATED FINANCIAL INFORMATION FOR THE THREE YEARS ENDED 31 DECEMBER 2005 AND THE UNAUDITED CONSOLIDATED FINANCIAL INFORMATION FOR THE SIX MONTHS ENDED 30 JUNE 2005 AND 2006, RESPECTIVELY

The following financial information has been extracted from the published audited financial statements of China Shipping Development Company Limited (the “Company”) and its subsidiaries (the “Group”) for the three years ended 31 December 2005 and the unaudited condensed financial statements of the Group for the six months ended 30 June 2006.

Results

Revenue Operating costs Gross profit Other income and gains Administrative expenses Other expenses Finance costs PROFIT BEFORE TAX Tax PROFIT FOR THE YEAR/PERIOD Attributable to: Equity holders of the parent Minority interests Earnings per share Dividends	Year 2003 Rmb’000 5,119,214 (3,622,106)	ended 31 December 2004 2005 Rmb’000 Rmb’000 6,452,479 8,515,191 (4,017,284) (5,155,273)	ended 31 December 2004 2005 Rmb’000 Rmb’000 6,452,479 8,515,191 (4,017,284) (5,155,273)	Six months ended 30 June 2005 2006 Rmb’000 Rmb’000 (unaudited) (unaudited) 4,200,778 4,592,642 (2,281,654) (3,002,144) 1,919,124 1,590,498 195,499 151,671 (114,436) (110,022) (64,713) (71,106) (65,789) (52,051) 1,869,685 1,508,990 (263,232) (213,575) 1,606,453 1,295,415 1,604,549 1,293,741 1,904 1,674 1,606,453 1,295,415 48.24 cents 38.90 cents — —	Six months ended 30 June 2005 2006 Rmb’000 Rmb’000 (unaudited) (unaudited) 4,200,778 4,592,642 (2,281,654) (3,002,144) 1,919,124 1,590,498 195,499 151,671 (114,436) (110,022) (64,713) (71,106) (65,789) (52,051) 1,869,685 1,508,990 (263,232) (213,575) 1,606,453 1,295,415 1,604,549 1,293,741 1,904 1,674 1,606,453 1,295,415 48.24 cents 38.90 cents — —
	1,497,108 165,662 (241,219) (143,974) (98,745)	2,435,195 212,944 (237,654) (150,182) (106,012)	3,359,918 266,186 (253,295) (90,699) (135,593)	1,919,124 195,499 (114,436) (64,713) (65,789)	1,590,498 151,671 (110,022 (71,106 (52,051
	1,178,832	2,154,291	3,146,517	1,869,685
	(154,529) 1,024,303 1,023,640 663	(308,674) 1,845,617 1,844,527 1,090	(452,639) 2,693,878 2,691,200 2,678	(263,232) 1,606,453 1,604,549 1,904	(213,575
					1,295,415 1,293,741 1,674
	1,024,303 30.78 cents 498,900	1,845,617 55.46 cents 498,900	2,693,878 80.91 cents 997,800	1,606,453 48.24 cents —

— II-1 —

FINANCIAL INFORMATION ON CHINA SHIPPING DEVELOPMENT COMPANY LIMITED

APPENDIX II

Assets, liabilities and minority interests

Non-current assets Current assets Total assets Current liabilities Non-current liabilities Total liabilities Minority interests	As at 31 December 2003 2004 2005 Rmb’ 000 Rmb’ 000 Rmb’ 000 8,032,674 9,832,423 11,551,033 1,811,579 1,886,181 1,836,324 9,844,253 11,718,604 13,387,357 817,544 1,122,971 1,073,261 1,706,913 1,924,262 1,440,406 2,524,457 3,047,233 2,513,667 6,201 12,291 24,969 7,313,595 8,659,080 10,848,721	As at 2005 Rmb’ 000 (unaudited) 11,139,561 1,889,675 13,029,236 1,311,278 1,937,448 3,248,726 14,195 9,766,315	30 June 2006 Rmb’ 000 (unaudited) 13,380,210 1,361,962 14,742,172 2,203,348 1,390,432 3,593,780 26,643 11,121,749

— II-2 —

FINANCIAL INFORMATION ON CHINA SHIPPING DEVELOPMENT COMPANY LIMITED

APPENDIX II

B. AUDITED FINANCIAL STATEMENTS OF THE COMPANY AND THE GROUP FOR THE YEAR ENDED 31 DECEMBER 2005

Set out below are the published audited financial statements of the Company and the Group for the year ended 31 December 2005 (the date of which the latest audited financial statements were made up). Capitalized terms used in this sub-section have the same meanings as defined in the published audited financial statements of the Company and the Group for the year ended 31 December 2005. The reference to page numbers in this sub-section refers to page numbers of the published audited financial statements of the Company and the Group for the year ended 31 December 2005.

CONSOLIDATED INCOME STATEMENT

	Notes	2005	2004
		Rmb’000	Rmb’000
			(Restated)
Revenue	5	8,515,191	6,452,479
Operating costs		(5,155,273)	(4,017,284)
Gross profit		3,359,918	2,435,195
Other income and gains	5	266,186	212,944
Administrative expenses		(253,295)	(237,654)
Other expenses		(90,699)	(150,182)
Finance costs	7	(135,593)	(106,012)
PROFIT BEFORE TAX	6	3,146,517	2,154,291
Tax	10	(452,639)	(308,674)
PROFIT FOR THE YEAR/PERIOD		2,693,878	1,845,617
Attributable to:
Equity holders of the parent	11	2,691,200	1,844,527
Minority interests		2,678	1,090
		2,693,878	1,845,617
DIVIDEND
Proposed final	12	997,800	498,900
EARNINGS PER SHARE ATTRIBUTABLE
TO ORDINARY EQUITY HOLDERS OF
THE PARENT	13	80.91 cents	55.46 cents

— II-3 —

FINANCIAL INFORMATION ON CHINA SHIPPING DEVELOPMENT COMPANY LIMITED

APPENDIX II

CONSOLIDATED BALANCE SHEET

Notes NON-CURRENT ASSETS Property, plant and equipment 14 Available-for-sale equity investment/long term investment 17 Deferred staff expenditure 18 Deferred tax assets 29 Negative goodwill 19 Total non-current assets CURRENT ASSETS Bunker oil inventories Trade and bills receivables 20 Prepayments, deposits and other receivables 21 Cash and cash equivalents 22 Total current assets CURRENT LIABILITIES Trade payables 23 Tax payable Other payables and accruals 24 Current portion of interest-bearing bank and other borrowings, and finance lease payables 25 Total current liabilities NET CURRENT ASSETS TOTAL ASSETS LESS CURRENT LIABILITIES NON-CURRENT LIABILITIES Interest-bearing bank and other borrowings, and finance lease payables 26 Total non-current liabilities Net assets	2005 Rmb’000 11,468,121 4,000 58,117 20,795 —	2004 Rmb’000 (Restated) 9,738,048 4,000 70,901 20,860 (1,386) 9,832,423 146,252 157,205 270,078 1,312,646 1,886,181 165,008 44,449 503,405 410,109 1,122,971 763,210 10,595,633 1,924,262 1,924,262 8,671,371
	11,551,033 266,701 227,913 163,783 1,177,927 1,836,324 216,888 41,417 519,315 295,641 1,073,261 763,063 12,314,096 1,440,406 1,440,406	9,832,423
		146,252 157,205 270,078 1,312,646
		1,886,181
		165,008 44,449 503,405 410,109
		1,122,971
		763,210
		10,595,633 1,924,262
		1,924,262
	10,873,690

— II-4 —

FINANCIAL INFORMATION ON CHINA SHIPPING DEVELOPMENT COMPANY LIMITED

APPENDIX II

Notes 2005 Rmb’000 EQUITY Equity attributable to equity holders of the parent Issued capital 30 3,326,000 Reserves 31 6,524,921 Proposed final dividend 12 997,800 10,848,721 Minority interests 24,969 Total equity 10,873,690 Li Shaode Director Wang Daxiong Director	2004 Rmb’000 (Restated) 3,326,000 4,834,180 498,900
	8,659,080 12,291
	8,671,371

— II-5 —

FINANCIAL INFORMATION ON CHINA SHIPPING DEVELOPMENT COMPANY LIMITED

APPENDIX II

CONSOLIDATED SUMMARY STATEMENT OF CHANGES IN EQUITY

Note TOTAL EQUITY At beginning of year As previously reported Adoption of a new accounting policy 2.2(b) As restated Net profit for the year Change in the exchange fluctuation reserve and net gains and losses not recognised in the income statement 31 Dividend paid on ordinary shares Equity attributable to equity holders of the parent Minority interests Total equity	2005 Rmb’000 8,659,080 1,386 8,660,466 2,691,200 (4,045) (498,900) 10,848,721 24,969 10,873,690	2004 Rmb’000 7,313,595 — 7,313,595 1,844,527 (142) (498,900) 8,659,080 12,291 8,761,371

— II-6 —

FINANCIAL INFORMATION ON CHINA SHIPPING DEVELOPMENT COMPANY LIMITED

APPENDIX II

CONSOLIDATED CASH FLOW STATEMENT

Note Net cash inflow from operating activities 32(a) CASH FLOWS FROM INVESTING ACTIVITIES Interest received Payments for construction in progress Purchases of property, plant and equipment Proceeds from disposal of property, plant and equipment Net cash outflow from investing activities CASH FLOWS FROM FINANCING ACTIVITIES Interest paid Dividend paid New bank loans Repayment of bank loans Capital element of finance lease rental payments Minority share of increase in capital of a subsidiary Net cash outflow from financing activities NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS Cash and cash equivalents at beginning of year Effect of foreign exchange rate changes, net CASH AND CASH EQUIVALENTS AT END OF YEAR ANALYSIS OF BALANCES OF CASH AND CASH EQUIVALENTS Cash and bank balances Time deposits with original maturity of less than three months when acquired	2005 Rmb’000 3,677,542 24,508 (2,616,029) (19,923) 134,831	2004 Rmb’000 (Restated) 2,851,188 9,603 (2,371,023) (126,161) 97,346 (2,390,235) (120,265) (498,900) 976,875 (647,530) (30,033) 5,000 (314,853) 146,100 1,166,688 (142) 1,312,646 732,101 580,545 1,312,646
	(2,476,613) (143,394) (498,900) 1,070,250 (1,704,602) (64,957) 10,000 (1,331,603) (130,674) 1,312,646 (4,045)	(2,390,235
		(120,265 (498,900 976,875 (647,530 (30,033 5,000
		(314,853
		146,100 1,166,688 (142
	1,177,927
	865,715 312,212	732,101 580,545
	1,177,927

— II-7 —

FINANCIAL INFORMATION ON CHINA SHIPPING DEVELOPMENT COMPANY LIMITED

APPENDIX II

BALANCE SHEET

Notes NON-CURRENT ASSETS Property, plant and equipment 14 Interests in subsidiaries 15 Investments in jointly-controlled entities 16 Available-for-sale equity investment/long term investment 17 Deferred staff expenditure 18 Deferred tax assets 29 Total non-current assets CURRENT ASSETS Bunker oil inventories Trade and bills receivables 20 Prepayments, deposits and other receivables 21 Cash and cash equivalents 22 Total current assets CURRENT LIABILITIES Trade payables 23 Tax payable Other payables and accruals 24 Current portion of interest-bearing bank and other borrowings, and finance lease payables 25 Total current liabilities NET CURRENT ASSETS TOTAL ASSETS LESS CURRENT LIABILITIES NON-CURRENT LIABILITIES Interest-bearing bank and other borrowings, and finance lease payables 26 Total non-current liabilities Net assets	2005 Rmb’000 9,746,029 1,580,909 100,000 4,000 58,117 15,565	2004 Rmb’000 8,345,998 1,715,637 70,000 4,000 70,901 14,319
	11,504,620 257,506 210,827 141,208 602,710 1,212,251 203,898 39,688 360,634 265,356 869,576 342,675 11,847,295 1,364,593 1,364,593	10,220,855
		141,210 142,704 249,537 669,695
		1,203,146
		152,253 43,380 481,657 338,109
		1,015,399
		187,747
		10,408,602 1,904,262
		1,904,262
	10,482,702	8,504,340

— II-8 —

FINANCIAL INFORMATION ON CHINA SHIPPING DEVELOPMENT COMPANY LIMITED

APPENDIX II

Notes 2005 Rmb’000 EQUITY Issued capital 30 3,326,000 Reserves 31 6,158,902 Proposed final dividend 12 997,800 Total equity 10,482,702 Li Shaode Director Wang Daxiong Director	2004 Rmb’000 3,326,000 4,679,440 498,900
	8,504,340

— II-9 —

FINANCIAL INFORMATION ON CHINA SHIPPING DEVELOPMENT COMPANY LIMITED

APPENDIX II

NOTES TO FINANCIAL STATEMENTS

1. CORPORATE INFORMATION

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

• (a) investment holding; and

• (b) oil and cargo shipment along the PRC coast and international shipment.

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

2.1 BASIS OF PREPARATION

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

Basis of consolidation

The consolidated financial statements include the financial statements of the Company and its subsidiaries for the year ended 31 December 2005. The results of subsidiaries are consolidated from the date of acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date that such control ceases. All significant intercompany transactions and balances within the Group are eliminated on consolidation.

Minority interests represent the interests of outside shareholders in the results and net assets of the Company’s subsidiaries.

2.2 IMPACT OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS

The following new and revised HKFRSs affect the Group and are adopted for the first time for the current year’s financial statements:

HKAS	1	Presentation of Financial Statements
HKAS	2	Inventories
HKAS	7	Cash Flow Statements
HKAS	8	Accounting Policies, Changes in Accounting Estimates and Errors
HKAS	10	Events after the Balance Sheet Date
HKAS	11	Construction Contracts
HKAS	12	Income Taxes
HKAS	14	Segment Reporting

— II-10 —

FINANCIAL INFORMATION ON CHINA SHIPPING DEVELOPMENT COMPANY LIMITED

APPENDIX II

HKAS 16	Property, Plant and Equipment
HKAS 17	Leases
HKAS 18	Revenue
HKAS 19	Employee Benefits
HKAS 20	Accounting for Government Grants and Disclosure of Government Assistance
HKAS 21	The Effects of Changes in Foreign Exchange Rates
HKAS 23	Borrowing Costs
HKAS 24	Related Party Disclosures
HKAS 27	Consolidated and Separate Financial Statements
HKAS 28	Investments in Associates
HKAS 31	Interests in Joint Ventures
HKAS 32	Financial Instruments: Disclosure and Presentation
HKAS 33	Earnings per Share
HKAS 36	Impairment of Assets
HKAS 37	Provisions, Contingent Liabilities and Contingent Assets
HKAS 38	Intangible Assets
HKAS 39	Financial Instruments: Recognition and Measurement
HKAS 39	Transition and Initial Recognition of Financial Assets and
Amendment	Financial Liabilities
HKAS 40	Investment Property
HKFRS 2	Share-based Payment
HKFRS 3	Business Combinations
HKFRS 5	Non-current Assets Held for Sale and Discontinued Operations
HK(SIC)-Int 21	Income Taxes — Recovery of Revalued Non-depreciable Assets
HK-Int 4	Leases — Determination of the Length of Lease Term in respect of
	Hong Kong Land Leases

The adoption of HKASs 2, 7, 8, 10, 11, 12, 14, 17, 18, 19, 20, 21, 23, 24, 27, 28, 33, 37, 38, 40, HKFRS 2, 5, HK(SIC)-Int 21 and HK-Int 4 has had no material impact on the accounting policies of the Group and the Company and the methods of computation in the Group’s and the Company’s financial statements.

HKAS 1 has affected the presentation of minority interests on the face of the consolidated balance sheet, consolidated income statement, consolidated statement of changes in equity and other disclosures. In addition, in prior periods, the Group’s share of tax attributable to jointly-controlled entities was presented as a component of the Group’s total tax charge in the consolidated income statement. Upon the adoption of HKAS 1, the Group’s share of the post-acquisition results of jointly-controlled entities is presented net of the Group’s share of tax attributable to jointly-controlled entities.

The impact of adopting the other HKFRSs is summarised as follows:

(a) HKAS 32 and HKAS 39 — Financial Instruments

Equity securities

In prior years, the Group classified its investments in equity securities as long term investments, which were held for non-trading purposes and were stated at their fair values on an individual basis with gains and losses recognised as movements in the investment revaluation reserve. Upon the adoption of HKAS 39, these securities held by the Group at 1 January 2005 in the amount of Rmb4,000,000 are designated as available-for-sale investments under the transitional provisions of HKAS 39 and accordingly are stated at fair value with gains or losses being recognised as a separate component of equity until subsequent derecognition or impairment.

— II-11 —

FINANCIAL INFORMATION ON CHINA SHIPPING DEVELOPMENT COMPANY LIMITED

APPENDIX II

The adoption of HKAS 39 has not resulted in any change in the measurement of these equity securities.

(b) HKFRS 3 — Business Combinations and HKAS 36 — Impairment of Assets

In prior years, goodwill arising on acquisitions was capitalised and amortised on the straight-line basis over its estimated useful life and was subject to impairment testing when there was any indication of impairment. Negative goodwill was carried in the balance sheet and was recognised in the consolidated income statement on a systematic basis over the remaining average useful life of the acquired depreciable/amortisable assets, except to the extent it related to expectations of future losses and expenses that were identified in the acquisition plan and that could be measured reliably, in which case, it was recognised as income in the consolidated income statement when the future losses and expenses were recognised.

The adoption of HKFRS 3 and HKAS 36 has resulted in the Group ceasing annual goodwill amortisation and commencing testing for impairment at the cash-generating unit level annually (or more frequently if events or changes in circumstances indicate that the carrying value may be impaired).

Any excess of the Group’s interest in the net fair value of the acquirees’ identifiable assets, liabilities and contingent liabilities over the cost of acquisition of subsidiaries (previously referred to as negative goodwill), after reassessment, is recognised immediately in the income statement.

The transitional provisions of HKFRS 3 have required the Group to derecognise at 1 January 2005 the carrying amounts of negative goodwill against retained profits.

The effects of the above changes are reflected in the consolidated summary statement of changes in equity. In accordance with the transitional provisions of HKFRS 3, comparative amounts have not been restated.

(c) HKAS 31 — Interests in Joint Ventures

Upon the adoption of HKAS 31, the Group is allowed to adopt the proportionate consolidation method for investments in jointly-controlled entities. The Group has determined to change the accounting policy for investments in jointly-controlled entities from the equity method to proportionate consolidation. Such change in accounting policy was accounted for retrospectively and involved recognising a proportionate share of the jointly-controlled entities’ assets, liabilities, income and expenses into similar items in the consolidated financial statements on a line-by-line basis. However, such treatment had no impact on the Group’s net profit for the year ended 31 December 2005 and the net assets as of 31 December 2005.

(d) HKAS 16 — Property, Plant and Equipment

In prior years, the cost of a major inspection or overhaul of an item of property, plant and equipment occurring at regular intervals over the useful life of an asset and made to allow the continued use of the asset are recognised as expenses in the period in which they are incurred except when the enterprise has identified as a separate component of the asset an amount representing a major inspection or overhaul and has already depreciated that component to reflect the consumption of benefits which are replaced or restored by the subsequent major inspection or overhaul (whether the asset is carried at historical cost or revalued).

The adoption of HKAS 16 has resulted in a change in accounting treatment relating to the allocation of major inspection costs of the Group to the income statement. Costs incurred for a major inspection are capitalised as a replacement of parts of the item of property, plant and equipment (regardless of whether parts of the item are physically identified and replaced) and depreciated over the period to the next estimated major inspection date. Any remaining carrying amount of the costs of the previous inspection (as distinct from physical parts) is derecognised. This occurs regardless of whether the costs of the previous inspection were identified in the

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transaction in which the item was acquired or constructed. When a major inspection takes place prior to the expiry of the depreciation period of the previous inspection costs, the remaining costs of the previous inspection are written off immediately. There is no material impact of the change in accounting treatment on the Group’s equity as at 31 December 2005 and the Group’s net profit for the year then ended.

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

The Group has not applied the following new and revised HKFRSs, that have been issued but are not yet effective, in these financial statements. Unless otherwise stated, these HKFRSs are effective for annual periods beginning on or after 1 January 2006:

HKAS 1 Amendment	Capital Disclosures
HKAS 19 Amendment	Actuarial Gains and Losses, Group Plans and Disclosures
HKAS 39 Amendment	Cash Flow Hedge Accounting of Forecast Intragroup Transactions
HKAS 39 Amendment	The Fair Value Option
HKAS 39 & HKFRS 4	Financial Guarantee Contracts
Amendments
HKFRSs 1 & 6 Amendments	First-time Adoption of Hong Kong Financial Reporting Standards		and
	Exploration for and Evaluation of Mineral Resources
HKFRS 6	Exploration for and Evaluation of Mineral Resources
HKFRS 7	Financial Instruments: Disclosures
HK(IFRIC)-Int 4	Determining whether an Arrangement contains a Lease
HK(IFRIC)-Int 5	Rights to Interests arising from Decommissioning,	Restoration	and
	Environmental Rehabilitation Funds
HK(IFRIC)-Int 6	Liabilities arising from Participating in a Specific Market — Waste Electrical
	and Electronic Equipment
HK(IFRIC)-Int 7	Applying the Restatement Approach under HKAS 29 Financial Reporting in
	Hyperinflationary Economies

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

HKFRS 7 will replace HKAS 32 and has modified the disclosure requirements of HKAS 32 relating to financial instruments. This HKFRS shall be applied for annual periods beginning on or after 1 January 2007.

Except as stated above, the Group expects that the adoption of the pronouncements listed above will not have any significant impact on the Group’s financial statements in the period of initial application.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Subsidiaries

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

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

Joint ventures

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

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

A joint venture is treated as:

• (a) a subsidiary, if the Group, directly or indirectly, controls more than half of its voting power or issued share capital or controls the composition of its board of directors;

• (b) a jointly-controlled entity, if the Group does not have unilateral control, but has joint control, directly or indirectly, over the joint venture;

• (c) an associate, if the Group does not have unilateral or joint control, but holds, directly or indirectly, generally not less than 20% of the joint venture’s registered capital and is in a position to exercise significant influence over the joint venture; or

• (d) an equity investment accounted for in accordance with HKAS 39, if the Group holds, directly or indirectly, less than 20% of the joint venture’s registered capital and has neither joint control of, nor is in a position to exercise significant influence over, the joint venture.

Jointly-controlled entities

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

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

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

Related parties

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

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

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• (b) the party is an associate;

• (c) the party is a jointly-controlled entity;

• (d) the party is a member of the key management personnel of the Group or its parent;

• (e) the party is a close member of the family of any individual referred to in (a) or (d); or

• (f) the party is an entity that is controlled, jointly controlled or significantly influenced by or for which significant voting power in such entity resides with, directly or indirectly, any individual referred to in (d) or (e).

Property, plant and equipment and depreciation

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

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

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

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

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

date.

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

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

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Impairment of assets

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

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

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

Leases

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

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

Deferred staff expenditure

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

Investments and other financial assets

Financial assets in the scope of HKAS 39 are classified as either financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments, and available-for-sale financial assets, as appropriate. When financial assets are recognised initially, they are measured at fair value, plus, in the case of investments not at fair value through profit or loss, directly attributable transaction costs. The Group determines the classification of its financial assets after initial recognition and, where allowed and appropriate, re-evaluates this designation at the balance sheet date.

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APPENDIX II

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

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are carried at amortised cost using the effective interest method. Gains and losses are recognised in the income statement when the loans and receivables are derecognised or impaired, as well as through the amortisation process.

Available-for-sale financial assets

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

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

Fair value

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

Impairment of financial assets

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

Assets carried at amortised cost

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

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

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

Assets carried at cost

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

Available-for-sale financial assets

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

Derecognition of financial assets

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

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

• the Group retains the rights to receive cash flows from the asset, but has assumed an obligation to pay in full without material delay to a third party under a “pass-through” arrangement; or

• the Group has transferred its rights to receive cash flows from the asset and either (a) has transferred substantially all the risks and rewards of the asset, or (b) has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

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

Interest-bearing loans and borrowings

All loans and borrowings are initially recognised at the fair value of the consideration received less directly attributable transaction costs.

After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest method.

Gains and losses are recognised in net profit or loss when the liabilities are derecognised as well as through the amortisation process.

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Derecognition of financial liabilities

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

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

Revenue recognition

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

• (a) from shipping operations, when a voyage is completed;

• (b) from vessel chartering, on a straight-line basis over the lease terms;

• (c) from vessel management, in the period in which the vessels are managed in accordance with the respective agreements;

• (d) from the sale of goods, when the significant risks and rewards of ownership have been transferred to the buyer, provided that the Group maintains neither managerial involvement to the degree usually associated with ownership, nor effective control over the goods sold;

• (e) interest income, on an accrual basis using the effective interest method by applying the rate that discounts the estimated future cash receipts through the expected life of the financial instrument to the net carrying amount of the financial asset; and

• (f) dividend income, when the shareholders’ right to receive payment has been established.

Bunker oil inventories and ship stores and spare parts

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

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

Capitalisation of borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, i.e., assets that necessarily take a substantial period of time to get ready for their intended use are capitalised until the construction or production of the relevant assets are completed, and are included in the carrying value of the assets. Capitalisation of such borrowing costs ceases when the assets are substantially ready for their intended use.

Income tax

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

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APPENDIX II

FINANCIAL INFORMATION ON CHINA SHIPPING DEVELOPMENT COMPANY LIMITED

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

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

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

• where the deferred tax liability arises from goodwill or the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and

• in respect of taxable temporary differences associated with investments in subsidiaries and interests in jointly-controlled entities, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

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

• where the deferred tax asset relating to the deductible temporary differences arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and

• in respect of deductible temporary differences associated with investments in subsidiaries and interests in jointly-controlled entities, deferred tax assets are only recognised to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised.

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

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

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

Foreign currencies

These financial statements are presented in Renminbi, which is the Company’s functional and presentation currency. Each entity in the Group determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency. Foreign currency transactions are initially recorded using the functional currency rates ruling at the date of the transactions. Monetary assets and liabilities denominated in foreign currencies are retranslated

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APPENDIX II

at the functional currency rates of exchange ruling at the balance sheet date. All differences are taken to profit or loss. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined.

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

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

Dividends

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

Cash and cash equivalents

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

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

Provisions

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

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

Estimation uncertainty

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

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Depreciation of vessels

The Group determines the depreciation amount of vessels based on the estimated useful lives and residual values, which are reviewed at each balance sheet date. The principal assumptions for the Group’s estimation of the useful lives and residual values include those related to the mode of operations, government regulations and scrap value of vessels in future. The carrying amount of the Group’s vessels as at 31 December 2005 was Rmb10,525,549,000.

Provision for losses incurred in accidents

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

4. SEGMENT INFORMATION

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

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

• (a) oil shipment;

• (b) coal shipment; and

• (c) other dry bulk shipment.

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

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Business segments

The following table presents revenue and results information for the Group’s business segments for the years ended 31 December 2005 and 2004.

Segment revenue: Revenue Segment results Unallocated revenue: Other revenue and gains Unallocated operating expenses: Administrative expenses Other expenses Finance costs Profit before tax Tax Profit for the year	Oil shipment 2005 2004 Rmb’000 Rmb’000 (Restated) 4,604,473 3,673,786 1,726,895 1,350,747	Oil shipment 2005 2004 Rmb’000 Rmb’000 (Restated) 4,604,473 3,673,786 1,726,895 1,350,747	Coal shipment 2005 2004 Rmb’000 Rmb’000 (Restated) 2,992,241 2,036,748 1,138,117 676,191	Coal shipment 2005 2004 Rmb’000 Rmb’000 (Restated) 2,992,241 2,036,748 1,138,117 676,191	Other dry bulk shipment 2005 2004 Rmb’000 Rmb’000 (Restated) 918,477 741,945 494,906 408,257	Other dry bulk shipment 2005 2004 Rmb’000 Rmb’000 (Restated) 918,477 741,945 494,906 408,257	Consolidated 2005 2004 Rmb’000 Rmb’000 (Restated) 8,515,191 6,452,479 3,359,918 2,435,195	Consolidated 2005 2004 Rmb’000 Rmb’000 (Restated) 8,515,191 6,452,479 3,359,918 2,435,195
	1,726,895	1,350,747	1,138,117	676,191		408,257	3,359,918	2,435,195
							266,186 (253,295) (90,699) (135,593)	212,944 (237,654) (150,182) (106,012)
							3,146,517 (452,639)	2,154,291 (308,674)
							2,693,878	1,845,617

The net book values of oil vessels and cargo vessels at 31 December 2005 amounted to Rmb6,424,833,000 (2004: Rmb5,119,933,000) and Rmb4,100,716,000 (2004: Rmb3,264,648,000), respectively. Since the Group’s assets and liabilities (other than the vessels) are not directly employed according to its business segments, nor could they be allocated to these segments on a reasonable basis, business segment information relating to segment assets and liabilities is not presented.

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APPENDIX II

Geographical segments

The following table presents revenue and segment results from operating activities by geographical area of operations for the years ended 31 December 2005 and 2004.

Year ended 31 December 2005

Domestic International Other revenue and gains Administrative expenses Other expenses Finance costs Profit before tax Year ended 31 December 2004 Domestic International Other revenue and gains Administrative expenses Other expenses Finance costs Profit before tax	Revenue Contribution Rmb’000 Rmb’000 5,127,511 1,845,935 3,387,680 1,513,983 8,515,191 3,359,918 266,186 (253,295) (90,699) (135,593) 3,146,517 Revenue Contribution Rmb’000 Rmb’000 (Restated) (Restated) 4,049,844 1,453,497 2,402,635 981,698 6,452,479 2,435,195 212,944 (237,654) (150,182) (106,012) 2,154,291	Revenue Contribution Rmb’000 Rmb’000 5,127,511 1,845,935 3,387,680 1,513,983 8,515,191 3,359,918 266,186 (253,295) (90,699) (135,593) 3,146,517 Revenue Contribution Rmb’000 Rmb’000 (Restated) (Restated) 4,049,844 1,453,497 2,402,635 981,698 6,452,479 2,435,195 212,944 (237,654) (150,182) (106,012) 2,154,291
		212,944 (237,654 (150,182 (106,012

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

— II-24 —

FINANCIAL INFORMATION ON CHINA SHIPPING DEVELOPMENT COMPANY LIMITED

APPENDIX II

5. REVENUE, OTHER INCOME AND GAINS

Revenue represents gross revenue arising from shipping operations, net of business taxes. Pursuant to various tax rules and regulations in the PRC, revenues derived from sea freighting attributable to voyages departing from ports in the PRC and from vessel chartering services are both subject to business tax at a rate of 3%. Business taxes charged to the income statement for the year amounted to Rmb184,962,000 (2004: Rmb147,778,000).

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

Revenue Oil shipments Coal shipments Other dry bulk shipments Other income Interest income Rental income from bare-boat chartering Service income from vessel management Income from coal sales Others Gains Gain on disposal of items of property, plant and equipment, net Exchange losses, net Amortisation of negative goodwill Others Other revenue and gains	Group 2005 Rmb’000 4,604,473 2,992,241 918,477 8,515,191	2004 Rmb’000 (Restated) 3,673,786 2,036,748 741,945 6,452,479 9,603 64,728 13,302 90,406 4,172 182,211 35,315 (9,996) 198 5,216 30,733 212,944
	24,508 77,891 13,302 37,009 5,327 158,037 107,529 (7,609) — 8,229 108,149	9,603 64,728 13,302 90,406 4,172
		182,211
		35,315 (9,996 198 5,216
		30,733
	266,186

— II-25 —

FINANCIAL INFORMATION ON CHINA SHIPPING DEVELOPMENT COMPANY LIMITED

APPENDIX II

6. PROFIT BEFORE TAX

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

Cost of shipping services rendered: Bunker oil inventories consumed and port fees Others Depreciation Operating lease rentals: Land and buildings Vessels Auditors’ remuneration Staff costs (including directors’ remuneration (note 8)): Wages, salaries and hiring of sea crew Pension scheme contributions Provision/(write-back of provision) for bad and doubtful debts Write-off of construction in progress Amortisation of deferred staff expenditure Dry-docking and repairs	Group 2005 Rmb’000 2,423,751 2,731,522 922,049 23,255 218,590 241,845	2004 Rmb’000 (Restated) 1,768,963 2,248,321 778,523 22,939 211,625 234,564 2,985 580,493 67,035 647,528 (2,032) 10,200 12,785 350,135
	3,174 666,931 80,414	2,985 580,493 67,035
	747,345 1,075 8,545 12,784 436,582

— II-26 —

FINANCIAL INFORMATION ON CHINA SHIPPING DEVELOPMENT COMPANY LIMITED

APPENDIX II

7. FINANCE COSTS

Interest on bank loans and other borrowings wholly repayable within five years Interest on finance leases Total interest Less: Interest capitalised	Group 2005 Rmb’000 138,563 3,422	2004 Rmb’000 (Restated) 115,327 4,973
	141,985 (6,392)	120,300 (14,288
	135,593	106,012

8. DIRECTORS’ AND SUPERVISORS’ REMUNERATION

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

Fees Other emoluments: Salaries, allowances and benefits in kind Pension scheme costs Total	Directors 2005 2004 Rmb’000 Rmb’000 180 150 1,388 3,577 32 86 1,600 3,813	Supervisors 2005 2004 Rmb’000 Rmb’000 — — 1,262 899 32 28 1,294 927	Supervisors 2005 2004 Rmb’000 Rmb’000 — — 1,262 899 32 28 1,294 927
			927

(a) Independent non-executive directors

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

Mr. Zhou Zhanqun Mr. Hu Honggao Mr. Xie Rong	2005 Rmb’000 60 60 60 180	2004 Rmb’000 50 50 50
		150

There were no other emoluments payable to the independent non-executive directors during the year (2004: Nil).

— II-27 —

FINANCIAL INFORMATION ON CHINA SHIPPING DEVELOPMENT COMPANY LIMITED

APPENDIX II

(b) Executive directors and supervisors

2005 Executive directors: Mr. Li Shaode Mr. Wang Daxiong Mr. Sun Zhitang Mr. Yao Zuozhi Mr. Mao Shijia Mr. Wang Kunhe Supervisors: Mr. Kou Laiqi Mr.Yan Mingyi Mr. Zhang Rongbiao 2004 Executive directors: Mr. Li Kelin Mr. Li Shaode Mr. Wang Daxiong Mr. Xu Zuyuan Mr. Sun Zhitang Mr. Yan Mingyi Mr. Wang Kunhe Mr. Yao Zuozhi Supervisors: Mr. Kou Laiqi Mr. Zhang Rongbiao Mr. Wang Xiangyun	Fees Salaries, allowances and benefits in kind Pension scheme contributions Total remuneration Rmb’000 Rmb’000 Rmb’000 Rmb’000 — — — — — — — — — — — — — — — — — 621 16 637 — 767 16 783 — 1,388 32 1,420	Fees Salaries, allowances and benefits in kind Pension scheme contributions Total remuneration Rmb’000 Rmb’000 Rmb’000 Rmb’000 — — — — — — — — — — — — — — — — — 621 16 637 — 767 16 783 — 1,388 32 1,420	Fees Salaries, allowances and benefits in kind Pension scheme contributions Total remuneration Rmb’000 Rmb’000 Rmb’000 Rmb’000 — — — — — — — — — — — — — — — — — 621 16 637 — 767 16 783 — 1,388 32 1,420	Fees Salaries, allowances and benefits in kind Pension scheme contributions Total remuneration Rmb’000 Rmb’000 Rmb’000 Rmb’000 — — — — — — — — — — — — — — — — — 621 16 637 — 767 16 783 — 1,388 32 1,420
				1,420
	— — —	— 550 712	— 16 16	— 566 728
	—	1,262	32	1,294
	— — — — — — — —	139 577 469 270 198 504 710 710	3 13 13 7 7 15 14 14	142 590 482 277 205 519 724 724
	—	3,577	86	3,663
	— — —	470 429 —	13 15 —	483 444 —
	—	899	28	927

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

— II-28 —

FINANCIAL INFORMATION ON CHINA SHIPPING DEVELOPMENT COMPANY LIMITED

APPENDIX II

9. FIVE HIGHEST PAID EMPLOYEES

The five highest paid employees during the year included four (2004: five) directors or supervisors, details of whose remuneration are set out in note 8 above. Details of the remuneration of the remaining one (2004: Nil) non-director and non-supervisor, highest paid employee for the year are as follows:

Salaries, allowances and benefits in kind Pension scheme contributions	Group 2005 Rmb’000 627 16 643	2004 Rmb’000 — —
		—

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

			**Number **	**of **	employees
			2005		2004
Nil	to	Rmb1,000,000	1		—

10. TAX

Pursuant to a directive 1998 (250) jointly issued by the Shanghai State Tax Bureau and the Shanghai Bureau of Finance on 8 October 1998, the Company is entitled to a preferential income tax rate of 15% effective from 1 January 1998. Accordingly, PRC income tax of the Company has been provided at the rate of 15% (2004: 15%) on the estimated assessable profits for the year.

No Hong Kong profits tax has been provided as no assessable profits were earned in or derived from Hong Kong during the year (2004: Nil). Taxes on profits assessable elsewhere, if applicable, have been calculated at the rates of tax prevailing in the countries in which the Group operates, based on existing legislation, interpretations and practices in respect thereof.

		Group
	2005		2004
	Rmb’000		Rmb’000
			(Restated)
Group:
Current — Hong Kong	—		—
Current — PRC
Charge for the year	455,370		314,670
Overprovision in prior years	(2,796)		(2,587)
Deferred (note 29)	65		(3,409)
Total tax charge for the year	452,639		308,674

— II-29 —

FINANCIAL INFORMATION ON CHINA SHIPPING DEVELOPMENT COMPANY LIMITED

APPENDIX II

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

Profit before tax Tax at the statutory tax rate Adjustment in respect of current tax of previous periods Expenses not deductible for tax Income not subject to tax Tax charge at the Group’s effective rate	2005 Rmb’000 % 3,146,517	2005 Rmb’000 % 3,146,517	2004 Rmb’000 % (Restated) 2,154,291	2004 Rmb’000 % (Restated) 2,154,291
	471,978 (2,796) 4,967 (21,510)	15.0 (0.1) 0.2 (0.7)	323,144 (2,587) 3,483 (15,366)	15.0 (0.1) 0.1 (0.7)
	452,639	14.4	308,674	14.3

11. NET PROFIT FROM ORDINARY ACTIVITIES ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT

The net profit from ordinary activities attributable to equity holders of the parent for the year ended 31 December 2005 dealt with in the financial statements of the Company was Rmb2,477,262,000 (2004: Rmb1,718,442,000) (note 31).

12. DIVIDEND

									2005	2004
									Rmb’000	Rmb’000
Proposed	final	—	Rmb0.30	(2004:	Rmb0.15)	per	ordinary	share	997,800	498,900

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

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

The calculation of basic earnings per share is based on the net profit for the year attributable to ordinary equity holders of the parent of Rmb2,691,200,000 (2004: Rmb1,844,527,000) and 3,326,000,000 (2004: 3,326,000,000) shares in issue during the year.

Diluted earnings per share for the years ended 31 December 2004 and 2005 have not been disclosed as no diluting events existed during these years.

— II-30 —

FINANCIAL INFORMATION ON CHINA SHIPPING DEVELOPMENT COMPANY LIMITED

APPENDIX II

14. PROPERTY, PLANT AND EQUIPMENT

Group

31 December 2005

Leasehold improvements Rmb’000 Cost or valuation At beginning of year — Restated 26,662 Transfers 13,669 Additions 9,933 Disposals — At 31 December 2005 50,264 Accumulated depreciation At beginning of year — Restated 5,110 Provided during the year 5,918 Disposals — At 31 December 2005 11,028 Impairment loss At 31 December 2005 — At 31 December 2004 — Accumulated depreciation and Impairment loss At 31 December 2005 11,028 At 31 December 2004 — Restated 5,110 Net book value At 31 December 2005 39,236 At 31 December 2004 — Restated 21,552	Leasehold improvements Rmb’000 Cost or valuation At beginning of year — Restated 26,662 Transfers 13,669 Additions 9,933 Disposals — At 31 December 2005 50,264 Accumulated depreciation At beginning of year — Restated 5,110 Provided during the year 5,918 Disposals — At 31 December 2005 11,028 Impairment loss At 31 December 2005 — At 31 December 2004 — Accumulated depreciation and Impairment loss At 31 December 2005 11,028 At 31 December 2004 — Restated 5,110 Net book value At 31 December 2005 39,236 At 31 December 2004 — Restated 21,552	Vessels Machinery and equipment Rmb’000 Rmb’000 14,951,793 44,211 2,970,020 1,457 101,688 6,896 (172,719) (4,154)	Vessels Machinery and equipment Rmb’000 Rmb’000 14,951,793 44,211 2,970,020 1,457 101,688 6,896 (172,719) (4,154)	Motor vehicles Rmb’000 13,388 — 1,287 (431)	Buildings Construction in progress Rmb’000 Rmb’000 17,923 1,293,408 — (2,985,146) 1,104 2,567,061 (651) (8,545)	Buildings Construction in progress Rmb’000 Rmb’000 17,923 1,293,408 — (2,985,146) 1,104 2,567,061 (651) (8,545)	Total Rmb’000 16,347,385 — 2,687,969 (186,500) 18,848,854 6,608,401 922,049 (150,653) 7,379,797 936 936 7,380,733 6,609,337 11,468,121 9,738,048
	50,264 5,110 5,918 — 11,028 — — 11,028 5,110	17,850,782 6,567,212 904,436 (146,415) 7,325,233 — — 7,325,233 6,567,212	48,410	14,244 7,196 1,186 (355) 8,027 936 936 8,963 8,132	18,376 1,611 261 (124) 1,748 — — 1,748 1,611	866,778 — — — — — — — —	18,848,854
			27,272 10,248 (3,759)				6,608,401 922,049 (150,653
			33,761				7,379,797
			—				936
			—				936
			33,761				7,380,733
			27,272				6,609,337
	39,236 21,552	10,525,549 8,384,581	14,649	5,281 5,256	16,628 16,312	866,778 1,293,408
			16,939

— II-31 —

FINANCIAL INFORMATION ON CHINA SHIPPING DEVELOPMENT COMPANY LIMITED

APPENDIX II

Group

31 December 2004 (Restated)

	Vessels Machinery and equipment Rmb’000 Rmb’000 12,969,785 37,585 1,997,915 6,177 119,573 1,262 (135,480) (813)	Vessels Machinery and equipment Rmb’000 Rmb’000 12,969,785 37,585 1,997,915 6,177 119,573 1,262 (135,480) (813)	Motor vehicles Rmb’000 11,325 — 2,194 (131)	Buildings Construction in progress Rmb’000 Rmb’000 14,791 774,180 — (2,004,092) 3,132 2,533,520 — (10,200)	Buildings Construction in progress Rmb’000 Rmb’000 14,791 774,180 — (2,004,092) 3,132 2,533,520 — (10,200)	Buildings Construction in progress Rmb’000 Rmb’000 14,791 774,180 — (2,004,092) 3,132 2,533,520 — (10,200)
26,662 2,444 2,666 — 5,110 — — 5,110 2,444	14,951,793 5,874,480 766,428 (73,696) 6,567,212 — — 6,567,212 5,874,480	44,211	13,388 5,000 2,267 (71) 7,196 936 936 8,132 5,936	17,923 1,101 510 — 1,611 — — 1,611 1,101	1,293,408 — — — — — — — —	16,347,385
		21,246 6,652 (626)				5,904,271 778,523 (74,393
		27,272				6,608,401
		—				936
		—				936
		27,272				6,609,337
		21,246				5,905,207
		16,939

— II-32 —

FINANCIAL INFORMATION ON CHINA SHIPPING DEVELOPMENT COMPANY LIMITED

APPENDIX II

Company

31 December 2005

	Vessels Machinery and equipment Rmb’000 Rmb’000 12,680,025 43,018 2,740,774 1,457 703 6,148 (172,719) (4,154)	Vessels Machinery and equipment Rmb’000 Rmb’000 12,680,025 43,018 2,740,774 1,457 703 6,148 (172,719) (4,154)	Motor vehicles Rmb’000 11,061 — 1,287 (302)	Buildings Construction in progress Rmb’000 Rmb’000 7,046 1,247,276 — (2,755,900) — 2,219,882 (651) (7,413)	Buildings Construction in progress Rmb’000 Rmb’000 7,046 1,247,276 — (2,755,900) — 2,219,882 (651) (7,413)	Buildings Construction in progress Rmb’000 Rmb’000 7,046 1,247,276 — (2,755,900) — 2,219,882 (651) (7,413)
50,264 5,110 5,918 — 11,028 — — 11,028 5,110	15,248,783 5,628,688 786,604 (146,415) 6,268,877 — — 6,268,877 5,628,688	46,469	12,046 6,394 796 (290) 6,900 936 936 7,836 7,330	6,395 1,077 171 (124) 1,124 — — 1,124 1,077	703,845 — — — — — — — —	16,067,802
		26,885 9,782 (3,759)				5,668,154 803,271 (150,588
		32,908				6,320,837
		—				936
		—				936
		32,908				6,321,773
		26,885				5,669,090
		13,561

— II-33 —

FINANCIAL INFORMATION ON CHINA SHIPPING DEVELOPMENT COMPANY LIMITED

APPENDIX II

Company

31 December 2004

	Vessels Machinery and equipment Rmb’000 Rmb’000 10,919,980 36,396 1,997,915 6,177 — 1,084 (237,870) (639)	Vessels Machinery and equipment Rmb’000 Rmb’000 10,919,980 36,396 1,997,915 6,177 — 1,084 (237,870) (639)	Motor vehicles Rmb’000 9,809 — 1,252 —	Buildings Construction in progress Rmb’000 Rmb’000 6,725 774,180 — (2,004,092) 321 2,487,388 — (10,200)	Buildings Construction in progress Rmb’000 Rmb’000 6,725 774,180 — (2,004,092) 321 2,487,388 — (10,200)	Buildings Construction in progress Rmb’000 Rmb’000 6,725 774,180 — (2,004,092) 321 2,487,388 — (10,200)
26,662 2,444 2,666 — 5,110 — — 5,110 2,444	12,680,025 5,088,243 666,550 (126,105) 5,628,688 — — 5,628,688 5,088,243	43,018	11,061 4,626 1,768 — 6,394 936 936 7,330 5,562	7,046 780 297 — 1,077 — — 1,077 780	1,247,276 — — — — — — — —	14,015,088
		20,992 6,437 (544)				5,117,085 677,718 (126,649
		26,885				5,668,154
		—				936
		—				936
		26,885				5,669,090
		20,992				5,118,021
		16,133

The net book value of the Group’s vessels held under finance leases included in the total amount of property, plant and equipment at 31 December 2005 amounted to Rmb364,639,000 (2004: Rmb285,970,000). The depreciation charge for the year in respect of such assets amounted to Rmb22,316,000 (2004: Rmb20,950,000).

— II-34 —

FINANCIAL INFORMATION ON CHINA SHIPPING DEVELOPMENT COMPANY LIMITED

APPENDIX II

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

		Group		Company	Company
	2005		2004	2005	2004
	Rmb’000		Rmb’000	Rmb’000	Rmb’000
			(Restated)
Vessels
Cost at 31 December	989,187		1,008,987	512,216	532,016
Accumulated depreciation at 31 December	543,362		524,473	303,494	303,571

Further summary details of the operating leases are included in note 36(a) to the financial statements.

Certain of the Group’s vessels existing as at 31 August 1994 were revalued at that date by Colliers Jardine Appraisals Limited, independent professionally qualified valuers, on an open market existing use basis. The Group has adopted the transitional provisions in paragraph 80A of HKAS 16 “Property, Plant and Equipment” issued by the Hong Kong Institute of Certified Public Accountants as to the requirement to make revaluations on a regular basis of the vessels and accordingly, no further revaluation of these vessels has been carried out since then. Had the vessels of the Group been carried at historical cost less accumulated depreciation, (i.e., the effect of this revaluation was excluded), the total historical carrying values of the revalued vessels would have been approximately Rmb899,962,000 (2004: Rmb1,039,117,000).

Prior to its transfer to vessels during the year, the carrying amount of construction in progress included capitalised interest of Rmb9,612,000 (2004: Rmb15,618,000). The amounts of interest capitalised were calculated with reference to the respective interest rates of bank borrowings at a rate of 5.184% or 5.508% per annum.

At 31 December 2005, certain of the Group’s vessels with a net book value of approximately Rmb 2,249,791,000 (2004: Rmb2,763,931,000) were pledged to secure general banking facilities granted to the Group (note 26).

15. INTERESTS IN SUBSIDIARIES

Note Unlisted shares, at cost Due from subsidiaries 27	Company 2005 2004 Rmb’000 Rmb’000 386,009 196,009 1,194,900 1,519,628 1,580,909 1,715,637	Company 2005 2004 Rmb’000 Rmb’000 386,009 196,009 1,194,900 1,519,628 1,580,909 1,715,637
		1,715,637

— II-35 —

APPENDIX II

FINANCIAL INFORMATION ON CHINA SHIPPING DEVELOPMENT COMPANY LIMITED

Particulars of the Group’s principal subsidiaries as at 31 December 2005 were as follows:

	Place of	Nominal value
	incorporation/	of issued/	Class of	Percentage of equity
	registration and	Registered	shares in	attributable to		Principal
Name	operations	Capital	issue	the Company		activities
				Direct	Indirect
China Shipping Development	Hong Kong	US$500,000	Ordinary	100%	—	Investment
(Hong Kong)						holding
Marine Co., Limited
Hainan Haixiang Investment	PRC/Mainland	Rmb401,000,000	Ordinary	95%	—	Investment
Co., Ltd.*	China					holding

• Hainan Haixiang Investment Co., Ltd. is not audited by Ernst & Young Hong Kong or other Ernst & Young International member firms.

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

16. INVESTMENTS IN JOINTLY-CONTROLLED ENTITIES

					Company
				2005		2004
				Rmb’000		Rmb’000
Unlisted	shares,	at	cost	100,000		70,000

Particulars of the jointly-controlled entities as at 31 December 2005 were as follows:

			Percentage
			of ownership
			interest, voting
			power and
		Place of incorporation/	profit sharing
	Business	registration and	attributable	Principal
Name	structure	operations	to the Company	Activities
Directly held by the Company:
Shanghai Friendship	Corporate	PRC/Mainland China	50%	Provision of
Marine Co., Ltd.				shipping services
Zhuhai New Century	Corporate	PRC/Mainland China	50%	Provision of
Marine Co., Ltd.				shipping services
Indirectly held by the Company:
Shanghai Times	Corporate	PRC/Mainland China	47.5%	Provision of
Shipping Co., Ltd.				shipping services

The above jointly-controlled entities are not audited by Ernst & Young Hong Kong or other Ernst & Young International member firms.

— II-36 —

FINANCIAL INFORMATION ON CHINA SHIPPING DEVELOPMENT COMPANY LIMITED

APPENDIX II

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

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

Share of the jointly-controlled entities’ assets and liabilities: Current assets Non-current assets Current liabilities Non-current liabilities Net assets Share of the jointly-controlled entities’ results: Revenue Other income Total revenue Total expenses Tax Profit after tax	2005 Rmb’000 125,881 449,306 (28,230) (119,586) 427,371	2004 Rmb’000 72,841 284,783 (95,678) (20,000)
		241,946
	400,858 49,856 450,714 (378,284) (11,505)	327,165 98,740
		425,905 (375,750) (7,731)
	60,925	42,424

17. AVAILABLE-FOR-SALE EQUITY INVESTMENT/LONG TERM INVESTMENT

			**Group **	**and **	Company
			2005		2004
			Rmb’000		Rmb’000
Unlisted	equity	investment	4,000		4,000

— II-37 —

FINANCIAL INFORMATION ON CHINA SHIPPING DEVELOPMENT COMPANY LIMITED

APPENDIX II

18. DEFERRED STAFF EXPENDITURE

Group and Cost At beginning of year and 31 December 2005 Accumulated amortisation At beginning of year Amortisation provided during the year At 31 December 2005 Net book value At 31 December 2005 At 31 December 2004	Company Rmb’000 127,845 56,944 12,784
	69,728
	58,117
	70,901

19. NEGATIVE GOODWILL

The transitional provisions of HKFRS 3 have required the Group to derecognise at 1 January 2005 the carrying amounts of negative goodwill against retained profits.

20. TRADE AND BILLS RECEIVABLES

		Group	Group	Company	Company
		2005	2004	2005	2004
	Note	Rmb’000	Rmb’000	Rmb’000	Rmb’000
			(Restated)
Trade and bills receivables		248,033	183,150	230,488	168,553
Due from a fellow subsidiary	27	—	2,465	—	2,465
Provision for doubtful debts		(20,120)	(28,410)	(19,661)	(28,314)
Trade and bills receivables, net		227,913	157,205	210,827	142,704

— II-38 —

FINANCIAL INFORMATION ON CHINA SHIPPING DEVELOPMENT COMPANY LIMITED

APPENDIX II

An aged analysis of the trade and bills receivables of the Group and the Company as at the balance sheet date are as follows:

Within one year One to two years Beyond two years Provision for doubtful debts Trade and bills receivables, net Within one year One to two years Beyond two years Provision for doubtful debts Trade and bills receivables, net	Group 2005 2004 Balance Percentage Balance Percentage Rmb’000 % Rmb’000 % (Restated) (Restated) 231,038 93 159,150 86 — — — — 16,995 7 26,465 14 248,033 100 185,615 100 (20,120) (28,410) 227,913 157,205 Company 2005 2004 Balance Percentage Balance Percentage Rmb’000 % Rmb’000 % 213,493 93 144,553 85 — — — — 16,995 7 26,465 15 230,488 100 171,018 100 (19,661) (28,314) 210,827 142,704	Group 2005 2004 Balance Percentage Balance Percentage Rmb’000 % Rmb’000 % (Restated) (Restated) 231,038 93 159,150 86 — — — — 16,995 7 26,465 14 248,033 100 185,615 100 (20,120) (28,410) 227,913 157,205 Company 2005 2004 Balance Percentage Balance Percentage Rmb’000 % Rmb’000 % 213,493 93 144,553 85 — — — — 16,995 7 26,465 15 230,488 100 171,018 100 (19,661) (28,314) 210,827 142,704	Group 2005 2004 Balance Percentage Balance Percentage Rmb’000 % Rmb’000 % (Restated) (Restated) 231,038 93 159,150 86 — — — — 16,995 7 26,465 14 248,033 100 185,615 100 (20,120) (28,410) 227,913 157,205 Company 2005 2004 Balance Percentage Balance Percentage Rmb’000 % Rmb’000 % 213,493 93 144,553 85 — — — — 16,995 7 26,465 15 230,488 100 171,018 100 (19,661) (28,314) 210,827 142,704	Group 2005 2004 Balance Percentage Balance Percentage Rmb’000 % Rmb’000 % (Restated) (Restated) 231,038 93 159,150 86 — — — — 16,995 7 26,465 14 248,033 100 185,615 100 (20,120) (28,410) 227,913 157,205 Company 2005 2004 Balance Percentage Balance Percentage Rmb’000 % Rmb’000 % 213,493 93 144,553 85 — — — — 16,995 7 26,465 15 230,488 100 171,018 100 (19,661) (28,314) 210,827 142,704	Group 2005 2004 Balance Percentage Balance Percentage Rmb’000 % Rmb’000 % (Restated) (Restated) 231,038 93 159,150 86 — — — — 16,995 7 26,465 14 248,033 100 185,615 100 (20,120) (28,410) 227,913 157,205 Company 2005 2004 Balance Percentage Balance Percentage Rmb’000 % Rmb’000 % 213,493 93 144,553 85 — — — — 16,995 7 26,465 15 230,488 100 171,018 100 (19,661) (28,314) 210,827 142,704
		)		(28,314)
	210,827			142,704

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

— II-39 —

FINANCIAL INFORMATION ON CHINA SHIPPING DEVELOPMENT COMPANY LIMITED

APPENDIX II

21. PREPAYMENTS, DEPOSITS AND OTHER RECEIVABLES

			Group	Company	Company
		2005	2004	2005	2004
	Note	Rmb’000	Rmb’000	Rmb’000	Rmb’000
			(Restated)
Prepayments		9,872	11,193	—	—
Deposits and other debtors		38,933	37,871	26,317	29,607
Due from fellow subsidiaries	27	115,322	221,510	115,202	220,347
Provision for doubtful debts		(344)	(496)	(311)	(417)
		163,783	270,078	141,208	249,537

22. CASH AND CASH EQUIVALENTS

Cash and bank balances Time deposits Cash and cash equivalents	Group 2005 2004 Rmb’000 Rmb’000 (Restated) 865,715 732,101 312,212 580,545 1,177,927 1,312,646	Company 2005 2004 Rmb’000 Rmb’000 554,289 578,653 48,421 91,042 602,710 669,695	Company 2005 2004 Rmb’000 Rmb’000 554,289 578,653 48,421 91,042 602,710 669,695
			669,695

Cash at banks earns interest at floating rates based on daily bank deposit rates. Short term time deposits are made for varying periods of between one day and three months depending on the immediate cash requirements of the Group, and earn interest at the respective short term time deposit rates. The carrying amounts of the cash and cash equivalents approximate to their fair values.

23. TRADE PAYABLES

Note Trade payables Due to fellow subsidiaries 27	Group 2005 2004 Rmb’000 Rmb’000 (Restated) 209,261 159,087 7,627 5,921 216,888 165,008	Company 2005 2004 Rmb’000 Rmb’000 197,903 146,918 5,995 5,335 203,898 152,253	Company 2005 2004 Rmb’000 Rmb’000 197,903 146,918 5,995 5,335 203,898 152,253
			152,253

— II-40 —

FINANCIAL INFORMATION ON CHINA SHIPPING DEVELOPMENT COMPANY LIMITED

APPENDIX II

An aged analysis of the trade payables as at the balance sheet date is as follows:

			Group
		2005			2004
	Balance	Percentage		Balance	Percentage
	Rmb’000	%	Rmb’000		%
			(Restated)
Within one year	214,449	99		156,747	95
One to two years	302	—		359	—
Beyond two years	2,137	1		7,902	5
	216,888	100		165,008	100
			Company
		2005			2004
	Balance	Percentage		Balance	Percentage
	Rmb’000	%	Rmb’000		%
Within one year	201,482	99		144,042	95
One to two years	279	—		332	—
Beyond two years	2,137	1		7,879	5
	203,898	100		152,253	100

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

24. OTHER PAYABLES AND ACCRUALS

			Group		Company
		2005	2004	2005	2004
	Note	Rmb’000	Rmb’000	Rmb’000	Rmb’000
			(Restated)
Accruals		204,710	174,028	200,269	170,575
Other liabilities		298,016	329,377	151,800	311,082
Due to fellow subsidiaries	27	16,589	—	8,565	—
		519,315	503,405	360,634	481,657

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

— II-41 —

FINANCIAL INFORMATION ON CHINA SHIPPING DEVELOPMENT COMPANY LIMITED

APPENDIX II

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

Notes Current portion of bank and other borrowings 26 Current portion of finance lease payables 28	Group 2005 2004 Rmb’000 Rmb’000 (Restated) 233,225 366,455 62,416 43,654 295,641 410,109	Company 2005 2004 Rmb’000 Rmb’000 228,225 294,455 37,131 43,654 265,356 338,109	Company 2005 2004 Rmb’000 Rmb’000 228,225 294,455 37,131 43,654 265,356 338,109
			338,109

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

Effective Company interest rate Maturity (%) Current Finance lease payables (note 28) 3.25 - 6.12 2006 Bank loans — secured 5.184 - 6.12 2006 Bank loans — unsecured 5.184 - 5.508 2006 Non-current Finance lease payables (note 28) 3.25 - 6.12 2007-2013 Bank loans — secured 5.184 - 6.12 2007-2014 Bank loans — unsecured 5.184 - 6.12 2007-2015	2005 Rmb’000 62,416 233,225 —	Group 2004 Rmb’000 (Restated) 43,654 317,455 49,000	2005 Rmb’000 37,131 228,225 —	2004 Rmb’000 43,654 245,455 49,000
	295,641 93,661 1,346,745 — 1,440,406	410,109 76,395 1,482,967 364,900 1,924,262	265,356 27,848 1,336,745 — 1,364,593	338,109
				76,395 1,462,967 364,900
				1,904,262
	1,736,047	2,334,371	1,629,949	2,242,371

— II-42 —

APPENDIX II

FINANCIAL INFORMATION ON CHINA SHIPPING DEVELOPMENT COMPANY LIMITED

Analysed into: Bank loans: Within one year or on demand In the second year In the third to fifth years, inclusive Beyond five years Finance lease payables: Within one year In the second year In the third to fifth years, inclusive Beyond five years	Group 2005 2004 Rmb’000 Rmb’000 (Restated) 233,225 366,455 233,225 393,095 619,675 935,722 493,845 519,050	Group 2005 2004 Rmb’000 Rmb’000 (Restated) 233,225 366,455 233,225 393,095 619,675 935,722 493,845 519,050	Company 2005 2004 Rmb’000 Rmb’000 228,225 294,455 228,225 388,095 614,675 920,722 493,845 519,050	Company 2005 2004 Rmb’000 Rmb’000 228,225 294,455 228,225 388,095 614,675 920,722 493,845 519,050
	1,579,970 62,416 39,556 26,690 27,415 156,077	2,214,322 43,654 43,654 32,741 — 120,049	1,564,970 37,131 27,848 — — 64,979	2,122,322
				43,654 43,654 32,741 —
				120,049
	1,736,047	2,334,371	1,629,949	2,242,371

The Group’s bank loans are secured by pledges on the Group’s 19 vessels (2004: 39 vessels) with an aggregate net book value at 31 December 2005 of Rmb2,249,791,000 (2004: Rmb2,763,931,000).

Bank loans of Rmb627,495,000 were guaranteed by China Shipping as at 31 December 2004. Such guarantee was released during the year ended 31 December 2005.

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

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

The balances are unsecured, interest-free and have no fixed terms of repayments. The carrying amounts of these balance approximate to their fair values.

— II-43 —

FINANCIAL INFORMATION ON CHINA SHIPPING DEVELOPMENT COMPANY LIMITED

APPENDIX II

28. FINANCE LEASE PAYABLES

As at 31 December 2005, the Group had non-cancellable finance leases for the purchase of vessels. The terms of such leases are for 11 years while one of the Group’s jointly-control entities had non-cancellable finance leases for 7 years and 7 months. All these terms commence from the respective dates of delivery of the vessels. The Group has the option to purchase the leased vessels at the end of the lease terms. At 31 December 2005, the total future minimum lease payments under finance leases and their present values were as follows:

Amounts payable Within one year In the second year In the third to fifth years, inclusive After five years Total minimum finance lease payments Future finance charges Total net finance lease payables Portion classified as current liabilities — note 25 Long term portion — note 26	Group Minimum lease payments 2005 2004 Rmb’000 Rmb’000 67,369 47,201 43,300 45,782 36,116 33,450 34,982 —	Group Minimum lease payments 2005 2004 Rmb’000 Rmb’000 67,369 47,201 43,300 45,782 36,116 33,450 34,982 —	Present value of minimum lease payments 2005 2004 Rmb’000 Rmb’000 62,416 43,654 39,555 43,654 26,690 32,741 27,416 —	Present value of minimum lease payments 2005 2004 Rmb’000 Rmb’000 62,416 43,654 39,555 43,654 26,690 32,741 27,416 —
	181,767 (25,690) 156,077 (62,416)	126,433 (6,384) 120,049 (43,654)	156,077	120,049
	93,661	76,395

— II-44 —

FINANCIAL INFORMATION ON CHINA SHIPPING DEVELOPMENT COMPANY LIMITED

APPENDIX II

Amounts payable Within one year In the second year In the third to fifth years, inclusive Total minimum finance lease payments Future finance charges Total net finance lease payables Portion classified as current liabilities — note 25 Long term portion — note 26	Company Minimum lease payments Present value of minimum lease payments 2005 2004 2005 2004 Rmb’000 Rmb’000 Rmb’000 Rmb’000 38,941 47,201 37,131 43,654 28,451 45,782 27,848 43,654 — 33,450 — 32,741 67,392 126,433 64,979 120,049 (2,413) (6,384) 64,979 120,049 (37,131) (43,654)	Company Minimum lease payments Present value of minimum lease payments 2005 2004 2005 2004 Rmb’000 Rmb’000 Rmb’000 Rmb’000 38,941 47,201 37,131 43,654 28,451 45,782 27,848 43,654 — 33,450 — 32,741 67,392 126,433 64,979 120,049 (2,413) (6,384) 64,979 120,049 (37,131) (43,654)	Company Minimum lease payments Present value of minimum lease payments 2005 2004 2005 2004 Rmb’000 Rmb’000 Rmb’000 Rmb’000 38,941 47,201 37,131 43,654 28,451 45,782 27,848 43,654 — 33,450 — 32,741 67,392 126,433 64,979 120,049 (2,413) (6,384) 64,979 120,049 (37,131) (43,654)	Company Minimum lease payments Present value of minimum lease payments 2005 2004 2005 2004 Rmb’000 Rmb’000 Rmb’000 Rmb’000 38,941 47,201 37,131 43,654 28,451 45,782 27,848 43,654 — 33,450 — 32,741 67,392 126,433 64,979 120,049 (2,413) (6,384) 64,979 120,049 (37,131) (43,654)	Company Minimum lease payments Present value of minimum lease payments 2005 2004 2005 2004 Rmb’000 Rmb’000 Rmb’000 Rmb’000 38,941 47,201 37,131 43,654 28,451 45,782 27,848 43,654 — 33,450 — 32,741 67,392 126,433 64,979 120,049 (2,413) (6,384) 64,979 120,049 (37,131) (43,654)
					120,049
		) )	(6,384) 120,049 (43,654)
	64,979 (37,131
	27,848		76,395

29. DEFERRED TAX

Deferred tax assets

At 1 January Deferred tax credited/(charged) to the income statement during the year (note 23) Gross deferred tax assets at 31 December	Group Deductible tax depreciation 2005 2004 Rmb’000 Rmb’000 (Restated) 20,860 17,451 (65) 3,409 20,795 20,860	Company Deductible tax depreciation 2005 2004 Rmb’000 Rmb’000 14,319 15,773 1,246 (1,454) 15,565 14,319	Company Deductible tax depreciation 2005 2004 Rmb’000 Rmb’000 14,319 15,773 1,246 (1,454) 15,565 14,319
			14,319

At 31 December 2005, there was no significant unrecognised deferred tax liability (2004: Nil) for taxes that would be payable on the unremitted earnings of certain of the Group’s subsidiaries and jointly-controlled entities as the Group has no liability to additional tax should such amounts be remitted.

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

— II-45 —

FINANCIAL INFORMATION ON CHINA SHIPPING DEVELOPMENT COMPANY LIMITED

APPENDIX II

30. ISSUED CAPITAL

		**Group **	and Company
	2005	2005	2004	2004
	Number of	Rmb’000	Number of	Rmb’000
	shares		shares
Registered, issued and fully paid
State-owned legal person shares/A shares of
Rmb1.00 each
	1,578,500,000	1,578,500	1,680,000,000	1,680,000
H shares of Rmb1.00 each	1,296,000,000	1,296,000	1,296,000,000	1,296,000
Listed A shares of Rmb1.00 each	451,500,000	451,500	350,000,000	350,000
	3,326,000,000	3,326,000	3,326,000,000	3,326,000

During 2005, the PRC government launched its Revised State Share Reform which aims to convert the state-owned shares of the listed A share companies to A shares. On 23 December 2005, the Company received approval from the Ministry of Commerce for its Revised State Share Reform proposal. According to the approval, a total of 101,500,000 state-owned shares were converted into listed A shares, which were then allotted to the existing A share holders on a 2.9 per 10 basis as consideration for agreeing to make all the state-owned shares marketable.

China Shipping made the following commitments in respect of the state-owned A shares:

• i) they should not be listed or sold within a period of 12 months from 30 December 2005;

• ii) they should not be sold on the stock exchange within a period of 36 months from 30 December 2005; and

• iii) the selling price should not be lower than Rmb9.38 per share within a period of 24 months from the end of 2008.

— II-46 —

APPENDIX II

FINANCIAL INFORMATION ON CHINA SHIPPING DEVELOPMENT COMPANY LIMITED

	Total equity				Rmb’000	3,494,896	1,845,617	—	(142)			—		(498,900)			5,000			4,846,471		1,386	4,847,857	2,693,878	—	(4,045)			—		(997,800)			10,000	6,549,890
Minority	interests				Rmb’000	6,201	1,090	—	—			—		—			5,000			12,291		—	12,291	2,678	—	—			—		—			10,000	24,969
				Total	Rmb’000	3,488,695	1,844,527	—	(142)			—		(498,900)			—			4,834,180		1,386	4,835,566	2,691,200	—	(4,045)			—		(997,800)			—	6,524,921
			Retained	profits	Rmb’000	693,197	1,844,527	(388,826)	—			4,024		(498,900)			—			1,654,022		1,386	1,655,408	2,691,200	(556,835)	—			3,117		(997,800)			—	2,795,090
Group	Attributable to equity holders of the parent	Statutory Statutory General Exchange	surplus public welfare surplus fluctuation	reserve fund reserve reserve	Rmb’000 Rmb’000 Rmb’000 Rmb’000	287,795 192,490 93,158 51	— — — —	195,846 192,980 — —	— — — (142)			— — — —		— — — —			— — — —			483,641 385,470 93,158 (91)		— — — —	483,641 385,470 93,158 (91)	— — — —	281,135 275,700 — —	— — — (4,045)			— — — —		— — — —			— — — —	764,776 661,170 93,158 (4,136)
			Revaluation	reserve	Rmb’000	184,120	—	—	—			(4,024)		—			—			180,096		—	180,096	—	—	—			(3,117)		—			—	176,979
			Share premium	account	Rmb’000	2,037,884	—	—	—			—		—			—			2,037,884		—	2,037,884	—	—	—			—		—			—	2,037,884
						At 1 January 2004	Net profit for the year	Transfers from/(to) reserves	Exchange realignment	Release on disposal of	items of property, plant	and equipment	Proposed final 2004	dividend — note 12	Capital injection by	minority Interests for the	year	At 31 December 2004 and	beginning of year	As previously reported	Adoption of a new	accounting policy	As restated	Net profit for the year	Transfers from/(to) reserves	Exchange realignment	Release on disposal of	items of property, plant	and equipment	Proposed final 2005	dividend — note 12	Capital injection by	minority interests for the	year	At 31 December 2005

— II-47 —

FINANCIAL INFORMATION ON CHINA SHIPPING DEVELOPMENT COMPANY LIMITED

APPENDIX II

Share premium account Revaluation reserve Rmb’000 Rmb’000 2,037,884 180,956 — — — — — (4,024) — —	Share premium account Revaluation reserve Rmb’000 Rmb’000 2,037,884 180,956 — — — — — (4,024) — —	Company Statutory surplus reserve Statutory public welfare fund Rmb’000 Rmb’000 283,229 190,071 — — 189,638 189,638 — — — —	Company Statutory surplus reserve Statutory public welfare fund Rmb’000 Rmb’000 283,229 190,071 — — 189,638 189,638 — — — —	General surplus reserve Rmb’000 93,158 — — — —	Retained profits Rmb’000 674,600 1,718,442 (379,276) 4,024 (498,900)	Retained profits Rmb’000 674,600 1,718,442 (379,276) 4,024 (498,900)
2,037,884 — — — —	176,932 — — (3,117) —	472,867 — 269,109 — —	379,709 — 269,109 — —	93,158 — — — —	1,518,890 2,477,262 (538,218) 3,117 (997,800)	4,679,440 2,477,262 — — (997,800

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

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

When the PWF is utilised, an amount equal to the lower of either the cost of the assets and the balance of the PWF is transferred from the PWF to the general surplus reserve. This reserve is non-distributable other than in liquidation. The original transfers from the PWF are reversed upon disposal of the relevant assets and satisfying other relevant requirements. During the year, there was no transfer from the PWF to the general surplus reserve (2004: Nil).

— II-48 —

FINANCIAL INFORMATION ON CHINA SHIPPING DEVELOPMENT COMPANY LIMITED

APPENDIX II

The directors have proposed to transfer Rmb269,109,000 (2004: Rmb189,638,000) to each of the SSR and the PWF, respectively. Each transfer represents 10% (2004: 10%) of the Company’s profit after tax of Rmb2,691,090,000 (2004: Rmb1,896,378,000), determined in accordance with PRC GAAP. The transfers to the SSR and the PWF are subject to shareholders’ approval at the forthcoming annual general meeting.

According to the relevant regulations in the PRC, the reserves available for distribution is the lower of the amount determined under PRC GAAP and the amount determined under HK GAAP. On this basis, as at 31 December 2005, before the proposed final dividend, the Company had a reserve of Rmb3,461,051,000 (2004: Rmb2,017,790,000) available for distribution as dividends.

In addition, in accordance with the Company Law of the PRC, an amount of approximately Rmb2,037,884,000 (2004: Rmb2,037,884,000) standing to the credit of the Company’s share premium account was available for distribution by way of future capitalisation issues.

— II-49 —

FINANCIAL INFORMATION ON CHINA SHIPPING DEVELOPMENT COMPANY LIMITED

APPENDIX II

32. NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT

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

Profit before tax Adjustments for: Interest income Depreciation Amortisation of deferred staff expenditure Amortisation of negative goodwill Provision/(write-back of provision) for bad debts Gain on disposal of property, plant and equipment, net Write-off of construction in progress Operating profit before working capital changes (Increase)/decrease in trade and bills receivables Increase in bunker oil inventories Decrease in prepayments Increase in deposits and other debtors Decrease in amounts due from fellow subsidiaries Decrease in amounts due from jointly-controlled entities Increase in trade payables Increase in accruals Increase in other liabilities Increase/(decrease) in amounts due to fellow subsidiaries Cash generated from operations Interest paid Income tax paid Net cash inflow from operating activities	2005 Rmb’000 3,146,517 (24,508) 922,049 12,784 — 1,075 (107,529) 8,545	2004 Rmb’000 (Restated) 2,154,291 (9,603) 778,523 12,785 (198) (2,032) (35,315) 10,200 2,908,651 79,288 (26,133) 60 (16,859) 35,206 1,825 37,465 24,349 16,615 (27,972) 3,032,495 106,012 (287,319) 2,851,188
	3,958,933 (74,400) (120,449) 1,321 (1,062) 108,653 — 50,174 32,091 23,999 18,295 3,997,555 135,593 (455,606)	2,908,651 79,288 (26,133 60 (16,859 35,206 1,825 37,465 24,349 16,615 (27,972
		3,032,495 106,012 (287,319
	3,677,542

(b) Major non-cash transactions

The Group incurred payables of Rmb134,611,000 (2004: Rmb189,971,000) to shipyards for vessels under construction as at 31 December 2005.

During the year, the Group entered into finance lease arrangements in respect of property, plant and equipment with a total capital value at the inception of the leases of Rmb100,985,000 (2004: Nil).

— II-50 —

FINANCIAL INFORMATION ON CHINA SHIPPING DEVELOPMENT COMPANY LIMITED

APPENDIX II

33. PENSION SCHEME

The Group is required to contribute to a pension scheme (the “Scheme”) for the eligible employees. Under the Scheme, the Group’s retirement benefit obligations to its existing and future retiring employees is limited to its annual contributions equivalent to 22.5% (2004: 22.5%) of the basic salaries of the Group’s employees, after certain adjustments on individual employees’ salaries in accordance with applicable regulations. Contributions by the Group to the Scheme for the year ended 31 December 2005 amounted to Rmb78,612,000 (2004: Rmb64,935,000).

34. PLEDGE OF ASSETS

Details of the Group’s bank loans secured by the assets of the Group are included in note 26 to the financial statements.

35. CONTINGENT LIABILITIES

• (i) In September 2004, the Company was sued by three Korean banks, claiming WON11,974,643,000 (equivalent to Rmb81,689,000) in compensation for their losses arising from the letters of credit issued in connection with a shipment of crude oil by the Company from the PRC to Korea. The Company has made provision as at 31 December 2005 for the estimated loss from this claim taking into consideration the proceeds of WON5,150,000,000 (equivalent to Rmb40,000,000) from the disposal of the relevant oil of in March 2005, be used to offset part of the loss.

• (ii) In March 2005, one of the Company’s cargo vessels “Hualing” collided with a vessel of a German company. In June 2005, the Company was sued by the German company, claiming US$10 million (equivalent to approximately Rmb83 million) in compensation for the losses arising from the accident. The Company has made provision as at 31 December 2005 for the estimated loss from the claim taking into consideration the amount that could be compensated by the insurance company.

36. OPERATING LEASE ARRANGEMENTS

(a) As lessor

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

As at 31 December 2005, the Group had total future minimum lease rental receivables under non-cancelable operating leases falling due as follows:

		Group		Company	Company
	2005		2004	2005	2004
	Rmb’000		Rmb’000	Rmb’000	Rmb’000
Within one year	75,283		71,856	43,647	39,412
In the second to fifth years, inclusive	78,875		145,538	47,239	80,649
After five years	—		1,890	—	1,890
	154,158		219,284	90,886	121,951

— II-51 —

APPENDIX II

FINANCIAL INFORMATION ON CHINA SHIPPING DEVELOPMENT COMPANY LIMITED

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

			2005	2004
			Rmb’000	Rmb’000
Within	one	year	—	810

(b) As lessee

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

As at 31 December 2005, the Group and the Company had total future minimum lease payments under non-cancellable operating leases falling due as follows:

Within one year In the second to fifth years, inclusive	Group 2005 2004 Rmb’000 Rmb’000 221,680 139,269 120,909 185,981 342,589 325,250	Company 2005 2004 Rmb’000 Rmb’000 188,999 205,665 89,273 185,981 278,272 391,646	Company 2005 2004 Rmb’000 Rmb’000 188,999 205,665 89,273 185,981 278,272 391,646
			391,646

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

Within one year In the second to fifth years, inclusive Total	2005 Rmb’000 56,165 23,754 79,919	2004 Rmb’000 55,759 78,647
		134,406

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FINANCIAL INFORMATION ON CHINA SHIPPING DEVELOPMENT COMPANY LIMITED

APPENDIX II

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

As lessor: Within one year In the second to fifth years, inclusive As lessee: Within one year	2005 Rmb’000 5,000 4,875 9,875 —	2004 Rmb’000 453 —
		453
		4,240

37. COMMITMENTS

In addition to the operating lease commitments detailed in note 36(b) above, the Group and the Company had the following capital commitments at the balance sheet date:

Contracted, but not provided for: Construction of vessels Renovation of vessels Authorised, but not contracted for: Renovation of vessels Capital contributions payable to jointly-controlled entities	Group 2005 2004 Rmb’000 Rmb’000 1,881,664 4,306,768 — 37,454	Group 2005 2004 Rmb’000 Rmb’000 1,881,664 4,306,768 — 37,454	Company 2005 2004 Rmb’000 Rmb’000 1,724,618 3,892,370 — 37,454	Company 2005 2004 Rmb’000 Rmb’000 1,724,618 3,892,370 — 37,454
	1,881,664 31,200 70,000	4,344,222 37,000 —	1,724,618 31,200 70,000	3,929,824 37,000 —
	1,982,864	4,381,222	1,825,818	3,966,824

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APPENDIX II

FINANCIAL INFORMATION ON CHINA SHIPPING DEVELOPMENT COMPANY LIMITED

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

Contracted, but not provided for: Construction of vessels Purchase of vessels Renovation of vessels Total	2005 Rmb’000 189,246 67,991 15,365 272,602	2004 Rmb’000 — — —
		—

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

The Group has prepared a separate set of financial statements for the year ended 31 December 2005 in accordance with accounting principles generally accepted in the PRC (“PRC GAAP”). The major differences between the financial statements prepared under PRC GAAP and those under HK GAAP are as follows:

Net profit for the year attributable to equity holders of the parent under HK GAAP Adjustments for depreciation, gain on disposal of vessels and deferred staff expenditure, etc. Net profit for the year attributable to equity holders of the parent under PRC GAAP Equity attributable to equity holders of the parent under HK GAAP Adjustments for revaluation surplus, depreciation, gain on disposal of vessels and deferred staff expenditure, etc. Equity attributable to equity holders of the parent under PRC GAAP	2005 Rmb’000 2,691,200 23,023 2,714,223	2004 Rmb’000 1,844,527 47,547
		1,892,074
	10,848,721 (137,497)	8,659,080 (134,783)
	10,711,224	8,524,297

39. RELATED PARTY TRANSACTIONS

In addition to the transactions and balances detailed elsewhere in these financial statements, business transactions between the Group and its holding company, fellow subsidiaries and jointly-controlled entities of the Group as well as related parties for the year ended 31 December 2005, which are also considered by the directors as connected transactions, are set out below:

• (1) A Services Agreement dated 3 April 2001 between the Company and China Shipping became effective subsequent to an approval by the independent shareholders at an extraordinary general meeting held on 22 May 2001. Pursuant to the Services Agreement and a supplementary agreement entered into on 8 January 2004, China Shipping (or its

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FINANCIAL INFORMATION ON CHINA SHIPPING DEVELOPMENT COMPANY LIMITED

APPENDIX II

subsidiaries and jointly-controlled entities) will provide to the Group the necessary supporting shipping materials and services for the ongoing operations of the Group, including the provision of dry-docking and repairs services, lubricating oil, fresh water supplies, raw materials and bunker oil, as well as other services. The Services Agreement is effective for a period of 10 years. The service fees under the Services Agreement should be determined (after arm’s length negotiations) with reference to, depending on applicability and availability, State-fixed price, market price or cost.

Further details of the principal amounts paid by the Group to China Shipping, its subsidiaries or jointly-controlled entities in respect of the Services Agreement for the year ended 31 December 2005 are set out below:

		2005	2004
	Pricing basis	Total value	Total value
		Rmb’000	Rmb’000
Dry-docking and repairs	State-fixed prices	343,325	340,560
	or market prices
Supply of lubricating oil, fresh water supplies,	Market prices	1,332,408	907,948
raw materials, bunker oil, mechanical and
electrical engineering, ship stores and repairs
and maintenance services for lifeboats
Whitewashing and water treatment for vessels	State-fixed prices	11,436	10,748
	or market prices
Installation, repairs and maintenance of	State-fixed prices	23,740	15,251
telecommunication and navigational services
Hiring of sea crews	Market prices	200,132	161,859
Accommodation, lodging and transportation	Market prices	5,949	6,275
for employees
Medical services (for existing employees)	State-fixed prices	1,596	2,593
Miscellaneous management services	Market prices	41,789	38,960
Agency commissions	Market prices	64,866	28,878
Service fees on the sale and purchase of vessels,	Market prices
accessories and other equipment		3,530	927

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

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FINANCIAL INFORMATION ON CHINA SHIPPING DEVELOPMENT COMPANY LIMITED

APPENDIX II

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

		2005	2004
	Notes	Rmb’000	Rmb’000
			(Restated)
Vessel chartering charges paid	(a)	97,041	86,804
Agency commissions paid		880	910
Vessel chartering income received	(b)	(96,609)	(71,488)
Sale of vessels	(c)	(123,463)	(88,847)
Vessel management fees	(d)	(11,282)	(11,282)

Notes:

(a) The Company has entered into the following agreements:

• a time charter party agreement on 22 December 2004 with one of its fellow subsidiaries, namely China Shipping (Hong Kong) Holdings Co., Ltd., whereby the Company has agreed to lease from this fellow subsidiary a vessel for a term of three years commencing 1 January 2005. The charter payment for this vessel for the year ended 31 December 2005 was Rmb56,927,000.

• a time charter party agreement on 22 December 2004 with one of its fellow subsidiaries, namely Shanghai Shipping Industrial Co., Ltd., whereby the Company has agreed to lease from this fellow subsidiary a vessel for a term of three years commencing 1 January 2005. The charter payment for this vessel for the year ended 31 December 2005 was Rmb28,464,000.

• a bare-boat charter party agreement with one of its jointly-controlled entities, namely Zhuhai New Century Marine Co., Ltd. (“New Century”), whereby the Company has agreed to lease from this company a vessel for a term of one year commencing 1 January 2005. The charter payment for this vessel for the year ended 31 December 2005 was Rmb3,650,000.*

• a time charter party agreement with one of its fellow subsidiaries, namely Zhuhai Shipping Enterprise Co., Ltd., in the prior year, whereby the Company has agreed to lease from this fellow subsidiary a vessel for a term commencing 1 January 2002 and ending on the scrap date of the vessel. The charter payment for this vessel for the year ended 31 December 2005 was Rmb8,000,000.

• (b) The Company has entered into the following agreements:

• together with one of its subsidiaries, namely China Shipping Development (Hong Kong) Marine Co., Limited (“China Shipping Hong Kong”), various bare-boat charter party agreements on 22 December 2004 with one of their fellow subsidiaries, namely China Shipping Container Lines Co., Ltd. (“CSC”), whereby the Company and China Shipping Hong Kong have agreed to lease to this fellow subsidiary four and five vessels for a term of three years commencing 1 January 2005. The chartering income for these vessels for the year ended 31 December 2005 was Rmb65,689,000.

• various bare-boat charter party agreements in 1998 with one of its fellow subsidiaries, namely CSC, whereby the Company has agreed to lease to this fellow subsidiary three vessels for a term of 12 years commencing 4 September 1998, 18 September 1998 and 23 September 1998, respectively, for a total consideration of Rmb2,520,000 for the year ended 31 December 2005.

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FINANCIAL INFORMATION ON CHINA SHIPPING DEVELOPMENT COMPANY LIMITED

APPENDIX II

• a time charter party agreement with one of its jointly-controlled entities, namely Shanghai Times Shipping Co., Ltd. (“Times Shipping”), whereby Times Shipping has agreed to lease from the Company a vessel for a term of one year commencing 1 January 2005. Times Shipping has agreed to engage the Company’s voyage charter service in the year. The charter income for this vessel for the year ended 31 December 2005 was Rmb15,316,000.*

• two bare-boat charter party agreements with one of its jointly-controlled entities, namely Shanghai Friendship Marine Co., Ltd. (“Friendship”), whereby Friendship has agreed to lease from the Company two vessels for a term of two months and two years commencing 1 January 2005 and 21 December 2005, respectively. The charter income for these vessels for the year ended 31 December 2005 was Rmb620,000.*

• one bare-boat charter party agreement in year 2002 with one of its fellow subsidiaries, namely Shanghai Puhai Marine Co., Ltd., whereby the Company has agreed to lease to this fellow subsidiary one vessel for a term commencing 1 January 2002 and ending on the scrap date of the vessel. The chartering income for this vessel for the year ended 31 December 2005 was Rmb1,200,000.

• some voyage charter party agreements with New Century, whereby New Century has agreed to engage the Company voyage charter services in year 2005. The charter income for these voyage charter services for the year ended 31 December 2005 was Rmb11,264,000.*

• (c) The Company and one of its fellow subsidiaries, namely Yuzhou Ship Dismantling Company Limited, entered into two sale and purchase agreements on 27 June 2005 and on 29 July 2005, respectively, whereby the Company has agreed to sell and the fellow subsidiary has agreed to purchase two oil tankers, and thereafter to dismantle them for scrap metal. The consideration for the sale of these vessels was Rmb29,285,000 as determined based on the market price of scrap metal.

In addition, the Company and one of its fellow subsidiaries, namely China Shipping Industry Company Limited (“CS Industry”), entered into two sale and purchase agreements on 22 December 2004, whereby the Company has agreed to sell and CS Industry has agreed to purchase two oil tankers, and thereafter to dismantle them for scrap metal. The consideration for the sale of these vessels was Rmb81,971,000 as determined based on the market price of scrap metal. The vessels were delivered in January 2005.

Furthermore, the Company and one of its fellow subsidiaries, namely Digang Dili Material Recovery Company (“Dili Recovery Company), entered into a sale and purchase agreement on 9 September 2005, whereby the Company has agreed to sell and Dili Recovery Company has agreed to purchase an oil tanker, and thereafter to dismantle it for scrap metal. The consideration for the sale of this vessel was Rmb12,207,000 as determined based on the market price of scrap metal.

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

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FINANCIAL INFORMATION ON CHINA SHIPPING DEVELOPMENT COMPANY LIMITED

APPENDIX II

On 22 June 2005, the Company entered into two supplementary agreements with Guangzhou Maritime and Dalian Shipping, respectively. According to these agreements, Guangzhou Maritime should pay the Company Rmb9,199,000 (2004: Rmb9,199,000) for the management of its cargo vessels during the year ended 31 December 2005, while Dalian Shipping should pay Rmb2,083,000 (2004: Rmb2,083,000) for similar services in the same year.

• (e) Pursuant to two bare-boat charter party agreements both dated 20 October 1994, Shanghai Shipping (Group) Company (“Shanghai Shipping”, formally the Company’s holding company and now a fellow subsidiary) agreed to charter two vessels to the Company from their respective dates of delivery to the Company until full repayment of the principal and interest of the related loans borrowed by Shanghai Shipping to purchase the vessels and under which, on due completion of the charters, the vessels will become the Company’s property. The vessels were delivered to the Company on 1 January 1996. The principal amounts to be paid each year until 2007 total approximately DM7.6 million. With the currency reform in Europe starting from 1 January 2002, the principal amounts re-denominated to Euro amount to approximately EURO3.9 million.

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

• (3) Outstanding balances with related parties:

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

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

Fees Other emoluments: Salaries, allowances and benefits in kind Pension scheme contributions	2005 Rmb’000 180 3,570 96 3,846	2004 Rmb’000 150 5,443 144
		5,737

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

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

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FINANCIAL INFORMATION ON CHINA SHIPPING DEVELOPMENT COMPANY LIMITED

APPENDIX II

40. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

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

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

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

Cash flow interest rate risk

Since the Group’s bank loans and finance leases all bear fixed interest rates, the Group’s exposure to the risk of changes in market interest rate is considered low.

Foreign currency risk

The Group has transactional currency exposures. Such exposures arise from sales or purchases by operating units in currencies other than the units’ functional currency. Approximately 39.7% (2004: 37.2%) of the Group’s revenue is denominated in currencies other than the functional currency of the operating units earning the revenue, whilst almost 77.9% (2004: 81.2%) of costs are denominated in the unit’s functional currency.

Credit risk

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

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

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

Liquidity risk

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

41. COMPARATIVE AMOUNTS

As further explained in note 2.2 to the financial statements, due to the adoption of new and revised HKFRSs during the current year, the accounting treatment and presentation of certain items and balances in the financial statements have been revised to comply with the new requirements. Accordingly, certain prior year and opening balance adjustments have been made and certain comparative amounts have been reclassified and restated to conform with the current year’s presentation and accounting treatment.

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FINANCIAL INFORMATION ON CHINA SHIPPING DEVELOPMENT COMPANY LIMITED

APPENDIX II

C. UNAUDITED CONDENSED FINANCIAL STATEMENTS OF THE GROUP FOR THE SIX MONTHS ENDED 30 JUNE 2006

The following information has been extracted from the published unaudited condensed financial statements of the Group for the six months ended 30 June 2006. Capitalized terms used in this sub-section have the same meanings as defined in the published unaudited condensed financial statements of the Group for the six months ended 30 June 2006. The reference to page numbers in this sub-section refers to page numbers of the published unaudited condensed financial statements of the Group for the six months ended 30 June 2006.

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FINANCIAL INFORMATION ON CHINA SHIPPING DEVELOPMENT COMPANY LIMITED

APPENDIX II

INTERIM CONDENSED CONSOLIDATED INCOME STATEMENT

		**For the six **	months
	Notes	**ended 30 **	June
		2006	2005
		(Unaudited)	(Unaudited)
		Rmb’000	Rmb’000
Revenue	2	4,592,642	4,200,778
Operating costs		(3,002,144)	(2,281,654)
Gross profit		1,590,498	1,919,124
Other income and gains	3	151,671	195,499
Administrative expenses		(110,022)	(114,436)
Other expenses		(71,106)	(64,713)
Finance costs	5	(52,051)	(65,789)
PROFIT BEFORE TAX	4	1,508,990	1,869,685
Tax	6	(213,575)	(263,232)
PROFIT FOR THE PERIOD		1,295,415	1,606,453
Attributable to:
Equity holders of the parent		1,293,741	1,604,549
Minority interests		1,674	1,904
PROFIT FOR THE PERIOD		1,295,415	1,606,453
EARNINGS PER SHARE	7	38.90 cents	48.24 cents
DIVIDEND PER SHARE	8	—	—

— II-61 —

APPENDIX II

FINANCIAL INFORMATION ON CHINA SHIPPING DEVELOPMENT COMPANY LIMITED

		Minority Total	interests equity	Rmb’000 Rmb’000				12,291 8,671,371	— 1,386	12,291 8,672,757	1,904 1,606,453		— 200	— (498,900)	14,195 9,780,510				Minority Total	interests equity	Rmb’000 Rmb’000		24,969 10,873,690	1,674 1,295,415	— (20,237)	— (2,676)		— —	— —	— (997,800)	26,643 11,148,392
	Proposed	final	dividend Total	Rmb’000 Rmb’000				498,900 8,659,080	— 1,386	498,900 8,660,466	— 1,604,549		— 200	(498,900) (498,900)	— 9,766,315			Proposed	final	dividend Total	Rmb’000 Rmb’000		997,800 10,848,721	— 1,293,741	— (20,237)	— (2,676)		— —	— —	(997,800) (997,800)	— 11,121,749
Statutory	Statutory public General Exchange	surplus welfare surplus Hedging fluctuation Retained	reserve fund reserve reserve reserve profits	Rmb’000 Rmb’000 Rmb’000 Rmb’000 Rmb’000 Rmb’000	(note 11)			483,641 385,470 93,158 — (91) 1,654,022	— — — — — 1,386	483,641 385,470 93,158 — (91) 1,655,408	— — — — — 1,604,549		— — — — 200 —	— — — — — —	483,641 385,470 93,158 — 109 3,259,957	Attributable to equity holders of the parent	Statutory	Statutory public General Exchange	surplus welfare surplus Hedging fluctuation Retained	reserve fund reserve reserve reserve profits	Rmb’000 Rmb’000 Rmb’000 Rmb’000 Rmb’000 Rmb’000	(note 11)	764,776 661,170 93,158 — (4,136) 2,795,090	— — — — — 1,293,741	— — — (20,237) — —	— — — — (2,676) —		— — — — — 1,950	661,170 (661,170) — — — —	— — — — — —	1,425,946 — 93,158 (20,237) (6,812) 4,090,781
		Revaluation	reserve	Rmb’000				180,096	—	180,096	—		—	—	180,096				Revaluation	reserve	Rmb’000		176,979	—	—	—		(1,950)	—	—	175,029
	Share	premium	account	Rmb’000				2,037,884	—	2,037,884	—		—	—	2,037,884			Share	premium	account	Rmb’000		2,037,884	—	—	—		—	—	—	2,037,884
	Issued	share	capital	Rmb’000				3,326,000	—	3,326,000	—		—	—	3,326,000			Issued	share	capital	Rmb’000		3,326,000	—	—	—		—	—	—	3,326,000
						Balance at 1 January 2005 as		previously reported	Adoption of new accounting policy	As restated	Net profit for the period		Exchange realignment	Payment of final dividend	Balance at 30 June 2005 (unaudited)								Balance at 1 January 2006	Net profit for the period	Net loss on cash flow hedges	Exchange realignment	Release on disposal of items of	property, plant and equipment	Adoption of new accounting policy	Payment of final dividend	Balance at 30 June 2006 (unaudited)

— II-62 —

FINANCIAL INFORMATION ON CHINA SHIPPING DEVELOPMENT COMPANY LIMITED

APPENDIX II

INTERIM CONDENSED CONSOLIDATED BALANCE SHEET

Notes 30 June 2006 31 December 2005 (Unaudited) (Audited) Rmb’000 Rmb’000 NON-CURRENT ASSETS Property, plant and equipment 9 13,303,531 11,468,121 Available-for-sale equity investment /long term investment 4,000 4,000 Deferred staff expenditure 51,725 58,117 Deferred tax assets 20,954 20,795 13,380,210 11,551,033 CURRENT ASSETS Bunker oil inventories 306,123 266,701 Trade and bills receivables 10 350,299 227,913 Prepayments, deposits and other receivables 260,466 163,783 Cash and cash equivalents 445,074 1,177,927 1,361,962 1,836,324 CURRENT LIABILITIES Trade payables 12 341,035 216,888 Tax payable 38,215 41,417 Other payables and accruals 507,246 519,315 Derivative financial instruments 11 20,237 — Current portion of interest-bearing bank and other borrowings, and finance lease payables 1,296,615 295,641 2,203,348 1,073,261 NET CURRENT ASSETS / (LIABILITIES) (841,386) 763,063 TOTAL ASSETS LESS CURRENT LIABILITIES 12,538,824 12,314,096 NON-CURRENT LIABILITIES Interest-bearing bank and other borrowings, and finance lease payables 1,390,432 1,440,406 11,148,392 10,873,690	Notes 30 June 2006 31 December 2005 (Unaudited) (Audited) Rmb’000 Rmb’000 NON-CURRENT ASSETS Property, plant and equipment 9 13,303,531 11,468,121 Available-for-sale equity investment /long term investment 4,000 4,000 Deferred staff expenditure 51,725 58,117 Deferred tax assets 20,954 20,795 13,380,210 11,551,033 CURRENT ASSETS Bunker oil inventories 306,123 266,701 Trade and bills receivables 10 350,299 227,913 Prepayments, deposits and other receivables 260,466 163,783 Cash and cash equivalents 445,074 1,177,927 1,361,962 1,836,324 CURRENT LIABILITIES Trade payables 12 341,035 216,888 Tax payable 38,215 41,417 Other payables and accruals 507,246 519,315 Derivative financial instruments 11 20,237 — Current portion of interest-bearing bank and other borrowings, and finance lease payables 1,296,615 295,641 2,203,348 1,073,261 NET CURRENT ASSETS / (LIABILITIES) (841,386) 763,063 TOTAL ASSETS LESS CURRENT LIABILITIES 12,538,824 12,314,096 NON-CURRENT LIABILITIES Interest-bearing bank and other borrowings, and finance lease payables 1,390,432 1,440,406 11,148,392 10,873,690	Notes 30 June 2006 31 December 2005 (Unaudited) (Audited) Rmb’000 Rmb’000 NON-CURRENT ASSETS Property, plant and equipment 9 13,303,531 11,468,121 Available-for-sale equity investment /long term investment 4,000 4,000 Deferred staff expenditure 51,725 58,117 Deferred tax assets 20,954 20,795 13,380,210 11,551,033 CURRENT ASSETS Bunker oil inventories 306,123 266,701 Trade and bills receivables 10 350,299 227,913 Prepayments, deposits and other receivables 260,466 163,783 Cash and cash equivalents 445,074 1,177,927 1,361,962 1,836,324 CURRENT LIABILITIES Trade payables 12 341,035 216,888 Tax payable 38,215 41,417 Other payables and accruals 507,246 519,315 Derivative financial instruments 11 20,237 — Current portion of interest-bearing bank and other borrowings, and finance lease payables 1,296,615 295,641 2,203,348 1,073,261 NET CURRENT ASSETS / (LIABILITIES) (841,386) 763,063 TOTAL ASSETS LESS CURRENT LIABILITIES 12,538,824 12,314,096 NON-CURRENT LIABILITIES Interest-bearing bank and other borrowings, and finance lease payables 1,390,432 1,440,406 11,148,392 10,873,690
	13,380,210 306,123 350,299 260,466 445,074 1,361,962 341,035 38,215 507,246 20,237 1,296,615 2,203,348 (841,386) 12,538,824 1,390,432	11,551,033
		266,701 227,913 163,783 1,177,927
		1,836,324
		216,888 41,417 519,315 — 295,641
		1,073,261
		763,063
		12,314,096
		1,440,406
	11,148,392	10,873,690

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FINANCIAL INFORMATION ON CHINA SHIPPING DEVELOPMENT COMPANY LIMITED

APPENDIX II

			30 June	31 December
		Notes	2006	2005
			(Unaudited)	(Audited)
			Rmb’000	Rmb’000
EQUITY
Equity attributable to equity holders of the parent
Issued capital			3,326,000	3,326,000
Reserves			7,795,749	6,524,921
Proposed final	dividend		—	997,800
			11,121,749	10,848,721
Minority interests			26,643	24,969
			11,148,392	10,873,690
	Li Shaode		Mao Shijia
	Director		Director

— II-64 —

FINANCIAL INFORMATION ON CHINA SHIPPING DEVELOPMENT COMPANY LIMITED

APPENDIX II

INTERIM CONDENSED CONSOLIDATED CASH FLOW STATEMENT

	**For the **	six months
	**ended **	30 June
	2006	2005
	(Unaudited)	(Unaudited)
	Rmb’000	Rmb’000
NET CASH INFLOW FROM OPERATING ACTIVITIES	1,681,588	1,938,973
NET CASH OUTFLOW FROM INVESTING ACTIVITIES	(2,325,236)	(1,784,676)
NET CASH OUTFLOW FROM FINANCING ACTIVITIES	(91,881)	(407,095)
NET DECREASE IN CASH AND CASH EQUIVALENTS	(735,529)	(252,798)
Cash and cash equivalents at beginning of the period	1,177,927	1,312,646
Effect of foreign exchange rate changes, net	2,676	200
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD	445,074	1,060,048
ANALYSIS OF BALANCES OF CASH AND
CASH EQUIVALENTS
Cash and bank balances	416,254	681,979
Time deposits with original maturity of less than three months
when acquired	28,820	378,069
	445,074	1,060,048

— II-65 —

FINANCIAL INFORMATION ON CHINA SHIPPING DEVELOPMENT COMPANY LIMITED

APPENDIX II

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PREPARATION AND ACCOUNTING POLICIES

The interim condensed consolidated financial statements are prepared in accordance with Hong Kong Accounting Standard (“HKAS”) 34 “Interim Financial Reporting”. The accounting policies and basis of preparation adopted in the preparation of the interim condensed consolidated financial statements are the same as those used in the annual financial statements for the year ended 31 December 2005, except in relation to the new and revised Hong Kong Financial Reporting Standards (“HKFRSs”, which also include HKASs and Interpretations, that affect the Group and are adopted for the first time for the current period’s financial statements:

HKAS 19 Amendment Actuarial Gains and Losses, Group Plans and Disclosures HKAS 21 Amendment Net Investment in a Foreign Operation HKAS 39 Amendment Cash Flow Hedge Accounting of Forecast Intragroup Transactions HKAS 39 Amendment The Fair Value Option HKAS 39 & HKFRS 4 Financial Instruments: Recognition and Measurement and Insurance Amendments Contracts — Financial Guarantee Contracts HKFRSs 1 & 6 Amendments First-time Adoption of Hong Kong Financial Reporting Standards and Exploration for and Evaluation of Mineral Resources HKFRS 6 Exploration for and Evaluation of Mineral Resources HK(IFRIC) — INT 4 Determining whether an Arrangement contains a Lease HK(IFRIC) — INT 5 Rights to Interests arising from Decommissioning, Restoration and Environmental Rehabilitation Funds HK(IFRIC) — INT 6 Liabilities arising from Participating in a Specific Market — Waste Electrical and Electronic Equipment

The adoption of these new and revised HKFRSs, HKASs and Interpretations has had no material impact on the Group’s results of operations or financial position.

2. REVENUE

During the Period, the Group was involved in the following principal activities:

• (a) investment holding; and

• (b) oil and cargo shipment along the PRC coast and international shipment.

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FINANCIAL INFORMATION ON CHINA SHIPPING DEVELOPMENT COMPANY LIMITED

APPENDIX II

There is no major seasonality for the Group’s turnover. An analysis of the Group’s turnover and contribution to profit from operating activities by principal activity and geographical area of operations for the Period is as follows:

By activity: Oil shipment Coal shipment Other dry bulk shipment Other income and gains Administrative expenses Other expenses Finance costs Profit before tax By geographical area: Domestic International Other income and gains Administrative expenses Other expenses Finance costs Profit before tax

For the six months ended 30 June 2006 (Unaudited) 2005 (Unaudited) Revenue Contribution Revenue Contribution Rmb’000 Rmb’000 Rmb’000 Rmb’000 2,569,063 902,952 2,204,690 938,765 1,577,451 506,636 1,534,276 699,772 446,128 180,910 461,812 280,587 4,592,642 1,590,498 4,200,778 1,919,124 151,671 195,499 (110,022) (114,436) (71,106) (64,713) (52,051) (65,789) 1,508,990 1,869,685 For the six months ended 30 June 2006 (Unaudited) 2005 (Unaudited) Revenue Contribution Revenue Contribution Rmb’000 Rmb’000 Rmb’000 Rmb’000 2,677,770 782,061 2,581,320 1,072,498 1,914,872 808,437 1,619,458 846,626 4,592,642 1,590,498 4,200,778 1,919,124 151,671 195,499 (110,022) (114,436) (71,106) (64,713) (52,051) (65,789) 1,508,990 1,869,685

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FINANCIAL INFORMATION ON CHINA SHIPPING DEVELOPMENT COMPANY LIMITED

APPENDIX II

3. OTHER INCOME AND GAINS

	**For the six months **	ended 30 June
	2006	2005
	(Unaudited)	(Unaudited)
	Rmb’000	Rmb’000
Gain on disposal of property, plant and equipment	54,046	80,500
Interest income	12,906	10,097
Rental income from leased vessels	37,517	39,045
Service income from vessel management	7,860	7,661
Sales of coal	26,876	37,009
Others	12,466	21,187
Total	151,671	195,499

4. PROFIT BEFORE TAX

The Group’s profit before tax is arrived at after charging:

For the six months ended 30 June 2006 2005 (Unaudited) (Unaudited) Rmb’000 Rmb’000 Cost of shipping services rendered: Bunker oil inventories consumed and port fees 1,544,092 1,040,109 Depreciation 505,283 433,761 Operating lease rentals: Land and buildings 11,147 11,248 Vessels 161,038 97,341 172,185 108,589 Staff costs 361,840 304,816	For the six months ended 30 June 2006 2005 (Unaudited) (Unaudited) Rmb’000 Rmb’000 Cost of shipping services rendered: Bunker oil inventories consumed and port fees 1,544,092 1,040,109 Depreciation 505,283 433,761 Operating lease rentals: Land and buildings 11,147 11,248 Vessels 161,038 97,341 172,185 108,589 Staff costs 361,840 304,816	For the six months ended 30 June 2006 2005 (Unaudited) (Unaudited) Rmb’000 Rmb’000 Cost of shipping services rendered: Bunker oil inventories consumed and port fees 1,544,092 1,040,109 Depreciation 505,283 433,761 Operating lease rentals: Land and buildings 11,147 11,248 Vessels 161,038 97,341 172,185 108,589 Staff costs 361,840 304,816
	172,185	108,589
	361,840	304,816

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FINANCIAL INFORMATION ON CHINA SHIPPING DEVELOPMENT COMPANY LIMITED

APPENDIX II

5. FINANCE COSTS

	**For the six months **	ended 30 June
	2006	2005
	(Unaudited)	(Unaudited)
	Rmb’000	Rmb’000
Total interest	52,051	72,181
Less: Interest capitalised	—	(6,392)
Interest expenses	52,051	65,789

6. TAX

Pursuant to a directive 1998 (250) jointly issued by the Shanghai State Tax Bureau and Shanghai Bureau of Finance on 8 October 1998, the Company is entitled to a preferential income tax rate of 15% effective from 1 January 1998. Accordingly, PRC income has been provided at the rate of 15% (six months ended 30 June 2005: 15%) on the estimated assessable profits for the Period.

No Hong Kong profits tax has been provided as no assessable profit was earned in or derived from Hong Kong during the Period (six months ended 30 June 2005: No assessable profit was earned). Taxes on profits assessable elsewhere, if applicable, have been calculated at the rates of tax prevailing in the countries in which the Group operates, based on existing legislation, interpretations and practices in respect thereof.

	**For the six months **	ended 30 June
	2006	2005
	(Unaudited)	(Unaudited)
	Rmb’000	Rmb’000
Group:
Hong Kong	—	—
PRC	213,575	263,232
Tax charge for the Period	213,575	263,232

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FINANCIAL INFORMATION ON CHINA SHIPPING DEVELOPMENT COMPANY LIMITED

APPENDIX II

A reconciliation of the tax expense applicable to profit before tax using the statutory rates for the countries in which the Company, its subsidiaries and jointly-controlled entities are domiciled to the tax expense at the effective tax rates is as follows:

	**For the six months **	ended 30 June
	2006	2005
	(Unaudited)	(Unaudited)
	Rmb’000	Rmb’000
Accounting profit before tax	1,508,990	1,869,685
Tax at the applicable tax rate of 15% (2005: 15%)	226,349	280,453
Tax effect of net income that is not taxable in determining taxable profit	(12,774)	(17,221)
Tax charge at the Group’s effective rate	213,575	263,232

7. EARNINGS PER SHARE

The calculation of basic earnings per share is based on the profit attributable to equity holders of the parent for the Period of RMB1,293,741,000 (six months ended 30 June 2005: RMB1,604,549,000) and the number of shares of 3,326,000,000 (six months ended 30 June 2005: 3,326,000,000) in issue during the Period.

Diluted earnings per share for the six-month periods ended 30 June 2005 and 2006 have not been presented as no diluting events existed during these periods.

8. DIVIDEND PER SHARE

The directors do not recommend the payment of interim dividend (six months ended 30 June 2005: Nil).

9. PROPERTY, PLANT AND EQUIPMENT

During the Period, three oil tankers at a total cost of RMB691,603,000 (six months ended 30 June 2005: three oil tankers at a total cost of RMB1,088,943,000 and four cargo vessels at a total cost of RMB579,790,000) were constructed and have been put into operation. Meanwhile, a second-hand oil tanker at a cost of RMB859,342,000 and a second-hand cargo vessel at a cost of RMB174,950,000 were purchased from third parties (six months ended 30 June 2005: Nil).

Two oil tankers with net book value of RMB1,353,000 in aggregate and a cargo vessel with net book value of RMB753,000 were disposed of to two third parties, and two oil tankers with net book value of RMB1,450,000 in aggregate were disposed of to two fellow subsidiaries. (A cargo vessel with net book value of RMB7,255,000 was disposed of to a third party, and three oil tankers with net book value of RMB17,063,000 in aggregate were disposed of to two fellow subsidiaries; in addition, a cargo vessel with net book value of nil was scrapped during the six months ended 30 June 2005.)

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FINANCIAL INFORMATION ON CHINA SHIPPING DEVELOPMENT COMPANY LIMITED

APPENDIX II

10. TRADE AND BILLS RECEIVABLES

30 June 2006 Balance (Unaudited) Percentage (Unaudited) Rmb’000 Within one year 353,411 95 One to two years — — Beyond two years 16,995 5 370,406 100 Provision for doubtful debts (20,107) Trade and bills receivables, net 350,299	30 June 2006 Balance (Unaudited) Percentage (Unaudited) Rmb’000 Within one year 353,411 95 One to two years — — Beyond two years 16,995 5 370,406 100 Provision for doubtful debts (20,107) Trade and bills receivables, net 350,299	30 June 2006 Balance (Unaudited) Percentage (Unaudited) Rmb’000 Within one year 353,411 95 One to two years — — Beyond two years 16,995 5 370,406 100 Provision for doubtful debts (20,107) Trade and bills receivables, net 350,299	30 June 2006 Balance (Unaudited) Percentage (Unaudited) Rmb’000 Within one year 353,411 95 One to two years — — Beyond two years 16,995 5 370,406 100 Provision for doubtful debts (20,107) Trade and bills receivables, net 350,299	31 December 2005 Balance (Audited) Percentage (Audited) Rmb’000 231,038 93 — — 16,995 7 248,033 100	31 December 2005 Balance (Audited) Percentage (Audited) Rmb’000 231,038 93 — — 16,995 7 248,033 100
					100
		)		(20,120)
	350,299			227,913

The Group normally allows a credit period of 30 days to its major customers.

11. DERIVATIVE FINANCIAL INSTRUMENTS

				30 June 2006
				Contract/	Fair values
				notional amount	liabilities
				Rmb’000	Rmb’000
Cross	currency	swap	agreements	935,715	20,237

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

Cash flow hedges

As at 30 June 2006, the Group held two cross currency swap agreements designated as hedges in respect of expected future JPY bank loans which the Group has firm commitments.

The terms of the cross currency swap agreements have been negotiated to match the terms of the commitments. The cash flow hedges of the expected future JPY bank loans were assessed to be highly effective.

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FINANCIAL INFORMATION ON CHINA SHIPPING DEVELOPMENT COMPANY LIMITED

APPENDIX II

12. TRADE PAYABLES

30 June 2006 Balance (Unaudited) Percentage (Unaudited) Rmb’000 Within one year 338,620 99 One to two years 278 — Beyond two years 2,137 1 341,035 100	31 December 2005 Balance (Audited) Percentage (Audited) Rmb’000 214,449 99 302 — 2,137 1 216,888 100	31 December 2005 Balance (Audited) Percentage (Audited) Rmb’000 214,449 99 302 — 2,137 1 216,888 100
		100

13. CONTINGENT LIABILITIES

• (i) In September 2004, the Company was sued by three Korean banks, claiming WON11,974,643,000 (equivalent to RMB81,689,000) in compensation for their losses arising from the letters of credit issued in connection with a shipment of crude oil by the Company from the PRC to Korea. The Company has made provision for the estimated loss from this claim taking into consideration the proceeds of WON5,150,000,000 (equivalent to RMB40,000,000) from the disposal of the relevant oil in March 2005, which could be used to offset part of the loss.

• (ii) In March 2005, one of the Company’s cargo vessels “Hualing” collided with a vessel of a German company. In June 2005, the Company was sued by the German company, claiming US$10 million (equivalent to approximately RMB80 million) in compensation for the losses arising from the accident. The Company has made provision for the estimated loss from the claim taking into consideration the amount that could be compensated by the insurance company.

14. OPERATING LEASE ARRANGEMENTS

• (a) As lessor

The Group leases its vessels under operating lease arrangements, with leases negotiated for terms ranging from one to twelve years.

As at 30 June 2006, the Group had total future minimum lease rental receivables under non-cancellable operating leases falling due as follows:

	30 June	31 December
	2006	2005
	(Unaudited)	(Audited)
	Rmb’000	Rmb’000
Within one year	69,037	75,283
In the second to fifth years, inclusive	40,466	78,875
After five years	—	—
	109,503	154,158

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FINANCIAL INFORMATION ON CHINA SHIPPING DEVELOPMENT COMPANY LIMITED

APPENDIX II

(b) As lessee

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

As at 30 June 2006, the Group had total future minimum lease rental payables under non-cancellable operating leases falling due as follows:

30 June 2006 31 (Unaudited) Rmb’000 Within one year 126,449 In the second to fifth years, inclusive 42,277 168,726	December 2005 (Audited) Rmb’000 221,680 120,909
	342,589

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

30 June 2006 31 (Unaudited) RMB’000 Within one year 62,987 In the second to fifth years, inclusive 30,758 Total 93,745	December 2005 (Audited) RMB’000 56,165 23,754
	79,919

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FINANCIAL INFORMATION ON CHINA SHIPPING DEVELOPMENT COMPANY LIMITED

APPENDIX II

15. COMMITMENTS

In addition to the operating lease commitments detailed in note 15(b) above, the Group had the following capital commitments at the balance sheet date:

30 June 2006 31 (Unaudited) Rmb’000 Contracted, but not provided for: Construction of vessels 5,040,330 Renovation of vessels 9,500 5,049,830 Authorized, but not contracted for: Renovation of vessels — Capital contributions payable to jointly-controlled entities — 5,049,830	30 June 2006 31 (Unaudited) Rmb’000 Contracted, but not provided for: Construction of vessels 5,040,330 Renovation of vessels 9,500 5,049,830 Authorized, but not contracted for: Renovation of vessels — Capital contributions payable to jointly-controlled entities — 5,049,830	December 2005 (Audited) Rmb’000 1,881,664 —
		1,881,664
	— —	31,200 70,000
	5,049,830	1,982,864

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

30 June 2006 31 (Unaudited) Rmb’000 Contracted, but not provided for: Construction of vessels 1,170,556 Purchase of vessels — Renovation of vessels — Total 1,170,556	December 2005 (Audited) Rmb’000 189,246 67,991 15,365
	272,602

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FINANCIAL INFORMATION ON CHINA SHIPPING DEVELOPMENT COMPANY LIMITED

APPENDIX II

16. DIFFERENCES IN FINANCIAL STATEMENTS PREPARED UNDER GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN HONG KONG (“HK GAAP”) AND PRC ACCOUNTING STANDARDS

The Group has prepared a separate set of financial statements for the Period in accordance with PRC accounting standards. The major differences between the financial statements prepared under PRC accounting standards and HK GAAP are set out as follows:

	For the six months	For the six months
	ended 30 June
	2006	2005
	(Unaudited)	(Unaudited)
	Rmb’000	Rmb’000
Net profit attributable to equity holders of the parent prepared under HK
GAAP	1,293,741	1,604,549
Adjustments for depreciation, gain on disposal of vessels and deferred staff
expenditures, etc.	4,876	3,008
Net profit attributable to equity holders of the parent prepared under PRC
accounting standards	1,298,617	1,607,557
	30 June	31 December
	2006	2005
	(Unaudited)	(Audited)
	Rmb’000	Rmb’000
Equity attributable to equity holder of the parent prepared under HK GAAP	11,121,749	10,848,721
Adjustments for revaluation surplus, depreciation, gain on disposal of vessels
and deferred staff expenditure, etc.	(112,269)	(137,497)
Equity attributable to equity holder of the parent prepared under PRC
accounting standards	11,009,480	10,711,224

17. THE ULTIMATE HOLDING COMPANY

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

18. RELATED PARTY TRANSACTIONS

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

• (1) A Services Agreement dated 3 April 2001 between the Company and China Shipping (Group) became effective subsequent to an approval by the independent shareholders at an extraordinary general meeting held on 22 May 2001. Pursuant to the Services Agreement and a supplementary agreement entered into on 8 January 2004, China

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FINANCIAL INFORMATION ON CHINA SHIPPING DEVELOPMENT COMPANY LIMITED

APPENDIX II

Shipping (or its subsidiaries and jointly-controlled entities) will provide to the Group the necessary supporting shipping materials and services for the ongoing operations of the Group, including the provision of dry-docking and repairs services, lubricating oil, fresh water supplies, raw materials and bunker oil, as well as other services. The Services Agreement is effective for a period of ten years. The service fees under the Services Agreement should be determined (after arm’s length negotiations) with reference to, depending on applicability and availability, either State-fixed price, market price or cost.

Further details of the principal amounts paid by the Group to China Shipping, its subsidiaries or jointly-controlled entities in respect of the Services Agreement for the Period are set out as below:

		For the six months	For the six months
		ended 30 June
		2006	2005
	Pricing basis	Total value	Total value
		(Unaudited)	(Unaudited)
		Rmb’000	Rmb’000
Dry-docking and repairs	State-fixed prices	131,064	175,848
	or market prices
Supply of lubricating oil, fresh water supplies, raw
materials, bunker oil, mechanical and electrical
engineering, ship stores and repairs and
maintenance services for life boats	Market prices	803,127	556,601
White washing and oily water treatment for vessels	State-fixed prices	5,122	4,247
	or market prices
Installation, repairs and maintenance of	State-fixed prices	11,565	11,764
telecommunication and navigational services
Hiring of sea crew	Market prices	97,245	88,953
Accommodation, lodging and transportation for	Market prices	414	2,966
employees
Medical services (for existing employees)	State-fixed prices	651	595
Miscellaneous management services	Market prices	20,828	18,136
Agency commissions	Market prices	31,500	30,224
Service fees on sale and purchase of vessels,
accessories and other equipment	Market prices	1,640	2,763

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

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FINANCIAL INFORMATION ON CHINA SHIPPING DEVELOPMENT COMPANY LIMITED

APPENDIX II

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

		For the six months	For the six months
		ended 30 June
		2006	2005
	Notes	(Unaudited)	(Unaudited)
		Rmb’000	Rmb’000
Vessel chartering charges paid	(a)	45,674	50,432
Agency commissions paid		431	405
Sale of vessels	(b)	(25,633)	(97,896)
Vessel chartering income received	(c)	(54,102)	(50,394)
Vessel management fees	(d)	(5,641)	(5,641)

Notes:

• (a) The Group has entered into the following agreements:

• a time charter party agreement on 22 December 2004 with one of its fellow subsidiaries, namely China Shipping (Hong Kong) Holdings Co., Ltd., whereby the Company has agreed to lease from this fellow subsidiary a vessel for a term of three years commencing 1 January 2005. The charter payment for this vessel for the Period was RMB27,753,000.

• a time charter party agreement on 22 December 2004 with one of its fellow subsidiaries, namely Shanghai Shipping Industrial Co., Ltd., whereby the Company has agreed to lease from this fellow subsidiary a vessel for a term of three years commencing 1 January 2005. The charter payment for this vessel for the Period was RMB13,921,000.

• a time charter party agreement with one of its fellow subsidiaries, namely Zhuhai Shipping Enterprise Co., Ltd., in prior year, whereby the Company has agreed to lease from this fellow subsidiary a vessel for a term commencing 1 January 2002 and ending on the scrap date of the vessel. The charter payment for this vessel for the Period was RMB4,000,000.

• (b) The Company and one of its fellow subsidiaries, namely Yuzhou Ship Dismantling Company Limited, entered into a sale and purchase agreement on 21 April 2006, whereby the Company has agreed to sell and the fellow subsidiary has agreed to purchase an oil tanker, and thereafter to dismantle it for scrap metal. The consideration for the sale of this vessel was RMB10,245,000 as determined based on the market price of scrap metal.

In addition, the Company and one of its fellow subsidiaries, namely Digang Dili Material Recovery Company (“Dili Recovery Company”), entered into a sale and purchase agreement on 22 December 2005, whereby the Company has agreed to sell and Dili Recovery Company has agreed to purchase an oil tanker, and thereafter to dismantle it for scrap metal. The consideration for the sale of the vessel was RMB15,388,000 as determined based on the market price of scrap metal.

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FINANCIAL INFORMATION ON CHINA SHIPPING DEVELOPMENT COMPANY LIMITED

APPENDIX II

• (c) The Company has entered into the following agreements:

• together with one of its subsidiaries, namely China Shipping Development (Hong Kong) Marine Co., Limited (“China Shipping Hong Kong”), various bare-boat charter party agreements on 22 December 2004 with one of their fellow subsidiaries, namely China Shipping Container Liners Co., Ltd. (“CSC”), whereby the Company and China Shipping Hong Kong have agreed to lease to this fellow subsidiary four and five vessels for a term of three years commencing 1 January 2005, respectively. The chartering income for these vessels for the Period was RMB31,970,000.

• various bare-boat charter party agreements in year 1998 with one of its fellow subsidiaries, namely CSC, whereby the Company has agreed to lease to this fellow subsidiary three vessels for a term of 12 years commencing 4 September 1998, 18 September 1998 and 23 September 1998, respectively, with a total consideration of RMB1,260,000.

• a time charter party agreement with one of its jointly-controlled entities, namely Shanghai Times Shipping Co., Ltd. (“Times Shipping”), whereby Times Shipping has agreed to lease from the Company a vessel for a term of one year commencing 1 January 2006. The charter payment for this vessel for the Period was RMB15,774,000.

• a bare-boat charter party agreement with one of its jointly-controlled entities, namely Shanghai Friendship Marine Co., Ltd. (“Friendship”), whereby Friendship has agreed to lease from the Company a vessel for a term of two years commencing 21 December 2005. The charter payment for this vessel for the Period was RMB2,500,000.

• a bare-boat charter party agreement in year 2005 with one of its fellow subsidiaries, namely Shanghai Puhai Marine Co., Ltd., whereby the Company has agreed to lease to this fellow subsidiary a vessel for a term of one year. The chartering income for this vessel for the Period was RMB600,000.

• certain voyage charter party agreements with New Century, whereby New Century has agreed to engage the Company voyage charter services in the Period. The chartering income for these voyage charter services for the Period was RMB1,998,000.

• (d) Management of cargo vessels

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

On 22 June 2005, the Company entered into two supplementary agreements with Guangzhou Maritime and Dalian Shipping, respectively. According to these agreements, Guangzhou Maritime should pay the Company RMB4,600,000 for the management of its cargo vessels during the Period, while Dalian Shipping should pay RMB1,041,000 for similar service in the same period.

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FINANCIAL INFORMATION ON CHINA SHIPPING DEVELOPMENT COMPANY LIMITED

APPENDIX II

• (e) Pursuant to two bare-boat charter-party agreements both dated 20 October 1994, Shanghai Shipping (Group) Company (“Shanghai Shipping”, the former holding company and now a fellow subsidiary) agreed to charter two vessels to the Company from their respective dates of delivery to the Company, until full repayment of the principal and interest of the related loans borrowed by Shanghai Shipping to purchase the vessels, and under which, on due completion of the charters, the vessels will become the Company’s property. The vessels were delivered to the Company on 1 January 1996. The principal amounts to be paid each year until 2007 amount to approximately DM7.6 million. With the currency reform in Europe starting from 1 January 2002, the principal amounts re-denominated to EURO are approximately EURO 3.9 million.

• (f) Pursuant to the share transfer agreement entered into between the Company and China Shipping on 9 September 2002, the Company transferred its 25% equity interests in CSC to China Shipping at a consideration of RMB1. The Company is entitled to an option to buy back from China Shipping all or part of the disposed interests in CSC at terms and consideration to be agreed between the two parties (“the Option”). It was resolved in a board meeting of the Company on 8 January 2004 that the Company will not exercise the Option within three years from the date when CSC was converted into a joint stock limited company, which was on 3 March 2004.

D. WORKING CAPITAL

Taking into account the proposed issuance of convertible bonds (the “Convertible Bonds”) amounting to Rmb2 billion (the “Bond Issue”) and financial resources available to the Group, including internally generated funds and the available banking facilities, the Directors of the Company are of the opinion that the Enlarged Group has sufficient working capital for its present requirement for at least 12 months from the date of this circular.

The net proceeds from the Bond Issue will be applied towards the financing of the Acquisition. In the event that the Convertible Bonds are not issued or such net proceeds are insufficient to fund the Acquisition, the Company will finance the Acquisition through bank loans and/or general working capital.

Even if the Bond Issue is not proceeded with and taking into account the financial resources available to the Group, including internally generated funds and available banking facilities, the Directors of the Company are of the opinion that the Enlarged Group has sufficient working capital for its present requirement for at least 12 months from the date of this circular.

E. INDEBTEDNESS

Borrowings

At the close of business on 30 September 2006, being the latest practicable date for the purpose of this indebtedness statement prior to the printing of this circular, the Enlarged Group had outstanding borrowings and finance lease payables of approximately Rmb2,562 million, comprising secured bank borrowings of approximately Rmb1,957 million secured by mortgages, secured bank borrowings of approximately Rmb219 million guaranteed by China Shipping (Group) Co., Ltd., unsecured bank borrowings of approximately Rmb273 million and finance lease payables of approximately Rmb113 million. The bank borrowings were repayable within 1 to 10 years. The secured bank borrowings were secured by mortgages of 16 vessels with an aggregate carrying value of approximately Rmb2,698 million.

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FINANCIAL INFORMATION ON CHINA SHIPPING DEVELOPMENT COMPANY LIMITED

APPENDIX II

Disclaimer

Save as aforesaid and apart from intra-group liabilities and normal trade payables, the Group did not have any loan capital issued or agreed to be issued, bank overdrafts, loans, debt securities issued and outstanding, and authorized or otherwise created but unissued and term loans or other borrowings, indebtedness in the nature of borrowings, liabilities under acceptance (other than normal trade bills) or acceptance credits, debentures, mortgages, charges, finance lease or hire purchase commitments, which are either guaranteed, unguaranteed, secured or unsecured, guarantees or other material contingent liabilities outstanding at the close of business on 30 September 2006.

F. MATERIAL ADVERSE CHANGE

As at the Latest Practicable Date, the Directors are not aware of any material adverse changes in the financial or trading position of the Group since 31 December 2005, the date to which the latest published audited consolidated accounts of the Group were made up.

G. MANAGEMENT DISCUSSION AND ANALYSIS ON FINANCIAL POSITION

Segmental information

Oil Transportation

Oil transportation has been one of the Group’s core businesses and will be the focus for further development. During the first half of 2006, facing changes in the domestic and foreign trading oil transportation market, the Group proactively made adjustments to its transportation strategies, so as to sustain a steady improvement in its operating efficiency.

For shipping oil products in the PRC, under the influence of Ningbo-Shanghai-Nanjing crude oil pipeline, the shipping volume of transshipped crude oil declined slightly, but the Group made great effort to explore the market of offshore oil shipment and strengthen the management of domestic product oil shipment, so as to sustain its leading position in the domestic oil shipping market.

Dry Bulk Cargo Transportation

The dry bulk cargoes shipped by the Group mainly consists of coal, as well as ores, fertilizers, grain and other large volume bulk cargoes. During the first half of 2006, the overall demand in domestic coal transportation remained at the same level due to the impact of the macro control of the PRC and the increase in the supply of hydro power consumption. The Group has made active adjustment to the allocation of its shipping capacity according to the cargo supply, and achieved favorable economic efficiency by improving the bunker surcharge mechanism.

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FINANCIAL INFORMATION ON CHINA SHIPPING DEVELOPMENT COMPANY LIMITED

APPENDIX II

Effect of the Transactions and the Funding Policies

Pursuant to the Acquisition Agreement, the relevant risks and benefits associated with the Vessels will be transferred to the Group from the date of the delivery of the Vessels. As referred to in Appendix III of this Circular, the Vessels recorded profits before tax of RMB359 million, RMB717 million, RMB872 million and RMB323 million for the three years ended 31 December 2005 and the six months ended 30 June 2006 respectively upon review by the reporting accountants, Ernst and Young. The consideration paid by the Group for the Acquisition was RMB2.47 billion. Depreciation of such Vessel will be made by reference to the depreciation policy of the Group, which is based on the month and year of the completion of construction of the Vessels and the forecast useful life, or determined through the assessment of its remaining useful life.

The first installment of RMB741 million (being 30% of the total consideration) under the Acquisition Agreement will be due and payable within five business days after the Effective Date. The remaining amount of RMB1.729 billion (being 70% of the total consideration) will be due and payable within one year after the Effective Date. The Group is expected to fund the payment for the Acquisition through the Bond Issue. The amount in excess of the funds raised through the Bond Issue will be settled by internal cash resources and short-term borrowings. If the Bond Issue has not been completed at the time when the Company is required to settle the payment for the Acquisition, the Company will first settle the payment by way of short-term bank borrowings and will repay the bank borrowings when funds raised through the Bond Issue are available for use. As the relevant liabilities match with the asset value of the Vessel, it is expected that these financing arrangements will not have a significant adverse impact on the net assets of the Group. As at 30 June 2006, the Group had a gearing ratio (being the difference of interest-bearing liabilities and bank deposit divided by the net assets) of only 20.2%. Even if there might be difficulties associated with the issuance of $2 billion convertible bonds, the Group may obtain support from relevant banks through other credit arrangements. Therefore, it is not anticipated that the transactions will have a significant adverse impact on the financial position and the cash flow position of the Group.

Effect of the Construction

The price for the VLCCs to be constructed under the Construction Agreements is approximately US$457,040,000. The construction of the VLCCs will be funded as to approximately 80% of the price by bank borrowings and approximately 20% of the price by internal resources. Money will be drawn down from the bank borrowings as and when required for each instalment payment. As such, the Construction will result in increase in both assets and liabilities of the Company, but liability will be matched by the corresponding asset. Since 80% of the price will be funded by bank borrowings, the Construction is not expected to have a material adverse impact on the net assets of the Group. The Construction is not expected to have any effect on the earnings of the Company.

Risk on Foreign Currency

As at 30 June 2006, the Group’s (excluding jointly-controlled entities’) foreign exchange liabilities mainly comprised of bank loans payable in US Dollars equivalent to approximately Rmb1,099,169,000 and finance lease rental payable in EURO dollars equivalent to approximately Rmb49,086,000. In addition, the Company would pay dividend of H shares in Hong Kong dollars.

— II-81 —

FINANCIAL INFORMATION ON CHINA SHIPPING DEVELOPMENT COMPANY LIMITED

APPENDIX II

In order to avoid the risk of Renminbi appreciation, the Group actively made adjustments to its debt structure, and the ratio in US dollar indebtedness increased from almost zero at the beginning of the year to about 34%. Majority of US dollar income was used for overseas payments, and during the the first half of 2006, foreign exchange income and expenses were basically equal.

Given the increasing significance of the Group’s international shipping business, changes in exchange rate would have certain impacts on the Group’s profitability. Therefore, in respect of the changes in exchange rate, the Group will study the impact of exchange rate mechanism on shipping enterprises. It will also implement effective measures proactively to minimize exchange risks.

Employees

As at the Latest Practicable Date, the Company had approximately 5,200 employees. Adjustment of employee remuneration are calculated in accordance with the Company’s turnover and profitability and is determined by assessing the correlation between the total salary paid and the economic efficiency of the enterprise. Under this mechanism, management of employees remuneration will be more efficient while employees will be motivated to work hard to bring encouraging results of the Company. Save for the remuneration disclosed above, the Company does not maintain any share option scheme for its employees and the employees do not enjoy any bonus. The Company regularly provides for its administrative personnel training on various subjects, including operation management, foreign languages, computer skills, industry knowhow and policies and laws. These training may be in different forms, such as seminars, site visits and study tours.

Business prospects

In 2006, the global bulk shipping market is expected to remain stable, and due to high demand for steel and cement, the average freight rate for bulk cargoes in the second half of this year is expected to be higher than the first half. In terms of coastal coal transportation, the Group will further strengthen communications with major clients and expand fleet appropriately so as to raise its market share. On the other hand, the Group will improve the management for international bulk shipping market at the same time, so as to prepare for expanding fleet in such market. These plans may be funded by the Group’s working capital as well as bank loans where necessary.

— II-82 —

APPENDIX III FINANCIAL INFORMATION ON THE ACQUIRED VESSELS

The following is the text of a report, prepared for the sole purpose of inclusion in this circular, received from the independent reporting accountants, Ernst & Young, Certified Public Accountants, Hong Kong.

18th Floor Two International Finance Centre 8 Finance Street Central Hong Kong

13 November 2006

The Board of Directors

China Shipping Development Company Limited

Dear Sirs,

We set out below our report on the financial information (the “Financial Information”) regarding the Acquired Vessels (as defined herein) for each of the three years ended 31 December 2003, 2004 and 2005 and the six months ended 30 June 2005 and 2006 (the “Relevant Periods”) prepared on the basis set out in Section 1 below, for inclusion in the circular of China Shipping Development Company Limited (the “Company”) dated 13 November 2006 (the “Circular”) in relation to the acquisition of 42 dry bulk cargo vessels (the “Acquired Vessels”) of certain wholly-owned subsidiaries (the “Subsidiaries”) of China Shipping (Group) Company (“CSC”), being the major shareholder holding a 47.46% equity interest in the Company, pursuant to an agreement (the “Acquisition Agreement”) entered into between CSC and the Company on 31 October 2006 (the “Acquisition”). Particulars of the Acquired Vessels are set out in Section 3 below.

The Financial Information of the Acquired Vessels has been prepared based on the management accounts of the Subsidiaries, which have adopted 31 December as their financial year end date. The Subsidiaries maintained their books and records in accordance with either the relevant accounting principles and financial regulations applicable to the PRC enterprises (“PRC GAAP”) or HK GAAP (as defined in Section 2 below).

For the purpose of the Acquisition, the directors of CSC have prepared the Financial Information of the Acquired Vessels in accordance with accounting policies which are in compliance with HK GAAP for the Relevant Periods. The accounting policies adopted in the preparation of the Financial Information of the Acquired Vessels are the same as those used in the consolidated financial statements of the Company and its subsidiaries, where applicable.

For the purpose of this report, we have reviewed the Financial Information in accordance with the relevant requirements of Hong Kong Standard on Review Engagements 2400“ Engagements to Review Financial Statements” issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”). This standard requires that we plan and perform the review to obtain moderate assurance

— III-1 —

APPENDIX III FINANCIAL INFORMATION ON THE ACQUIRED VESSELS

as to whether the Financial Information is free of material misstatement. A review is limited primarily to inquiries of company personnel and analytical procedures applied to financial data and thus provides less assurance than an audit. We have not performed an audit and, accordingly, we do not express an audit opinion.

The Directors of the Company are responsible for the preparation of the Financial Information. It is our responsibility to review the Financial Information and to report our review conclusion to you.

Based on our review, nothing has come to our attention that causes us to believe that the Financial Information is not properly prepared, in all material respects, in accordance with the basis of presentation as set out in Section 1.

— III-2 —

APPENDIX III FINANCIAL INFORMATION ON THE ACQUIRED VESSELS

1. BASIS OF PRESENTATION

Pursuant to the Acquisition Agreement, the Acquired Vessels comprise of 42 dry bulk cargo vessels. The Acquired Vessels are currently owned by the Subsidiaries.

The Financial Information of the Acquired Vessels is prepared based on the management accounts of the Subsidiaries on a continuing basis as if the Acquired Vessels have been under the same ownership with effect from 1 January 2003.

For the purpose of inclusion in the Financial Information, the financial information on the operating results of the Acquired Vessels has been extracted from the management accounts of the Subsidiaries. The Financial Information only includes income and expenses which are directly attributable to the operation of the Acquired Vessels, such as freight income, chartering rentals, operating costs and finance costs for the vessels. Indirect income and expenses such as general and administrative expenses, finance costs for working capital and non-operating income and expenses, have not been included. Income tax has not been included as it is calculated and levied on an entity level. The Financial Information of the Acquired Vessels has been adjusted to comply with the accounting policies as disclosed in Section 2 which are in compliance with HK GAAP.

The Financial Information does not necessarily reflect the results of operations of the Acquired Vessels that would have been recorded had they been operated under a stand-alone entity during the Relevant Periods because they have historically been operated by the Subsidiaries and indirect income and expenses and income tax have not been considered.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of preparation

The Financial Information of the Acquired Vessels has been prepared in accordance with accounting policies which are in compliance with Hong Kong Financial Reporting Standards (“HKFRSs”) (which also include Hong Kong Accounting Standards (“HKASs”) and Interpretations) issued by the HKICPA and accounting principles generally accepted in Hong Kong (collectively referred to as “HKGAAP”). The Financial Information has been prepared under the historical cost convention.

All material transactions among the Subsidiaries in relation to the Acquired Vessels have been eliminated in preparation of the Financial Information of the Acquired Vessels.

Vessels and depreciation

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

Depreciation of vessels is calculated to write off their cost less directors’ estimate of their residual values (4% of cost) on a straight-line basis over their estimated useful lives. The principal annual rates used for this purpose are as follows:

Vessels - before 1 January 2003 5% to 12.5% - from 1 January 2003 onwards 4.36% to 19.2%

— III-3 —

APPENDIX III FINANCIAL INFORMATION ON THE ACQUIRED VESSELS

Before 1 January 2003, depreciation of vessels was calculated to write off their cost on a straight-line basis over their estimated useful lives as follows:

Cargo vessels 20 years Second-hand vessels 8 years

With effect from 1 January 2003, depreciation of vessels is calculated to write off their cost less directors’ estimate of

their residual value (4% of cost) on a straight-line basis over their estimated useful lives as set out below:

Cargo vessels 22 years Second-hand vessels Remaining estimated useful lives upon acquisition, 5 years at least

Impairment of assets

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

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

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

Leased assets

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

Leases where substantially all the rewards and risks of ownership of assets remain with the lessor are accounted for as operating leases. Where any of the Acquired Vessels are leased out under operating leases, rentals receivable under the operating leases are credited to the income statement on the straight-line basis over the lease terms.

— III-4 —

APPENDIX III FINANCIAL INFORMATION ON THE ACQUIRED VESSELS

Revenue recognition

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

• (a) from shipping operations, when a voyage is completed; and

• (b) from vessel chartering, on a straight-line basis over the lease terms.

Bunker oil inventories and ship stores and spare parts

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

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

Capitalisation of borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, i.e., assets that necessarily take a substantial period of time to get ready for their intended use are capitalised until the construction or production of the relevant assets is completed, and are included in the carrying value of the assets. Capitalisation of such borrowing costs ceases when the assets are substantially ready for their intended use.

Foreign currencies

The Financial Information of the Acquired Vessels is stated in Renminbi (“Rmb”).

Foreign currency transactions are recorded at the applicable exchange rates ruling at the transaction dates.

On combination, the income statements of those Acquired Vessels which are denominated in foreign currencies are translated into Renminbi, at the weighted average rates for the year, for inclusion in the Financial Information.

Provisions

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

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

Estimation uncertainty

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

— III-5 —

APPENDIX III FINANCIAL INFORMATION ON THE ACQUIRED VESSELS

Depreciation of vessels

The depreciation amount of vessels is determined based on the estimated useful lives and residual values, which are reviewed at each balance sheet date. The principal assumptions for the estimation of the useful lives and residual values include those related to the mode of operations, government regulations and scrap value of vessels in future. The carrying amount of the Acquired Vessels as at 30 June 2006 was Rmb709,493,000.

Provision for losses incurred in accidents

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

3. PARTICULARS OF THE ACQUIRED VESSELS

Particulars of the Acquired Vessels are as follows:

No.	Vessel Name
1	DA LUO SHAN
2	WAN SHOU SHAN
3	DONG PING SHAN
4	BI HUA SHAN
5	YI MENG SHAN
6	HUA RONG SHAN
7	DA MING SHAN
8	FEI FENG SHAN
9	ZI YUN SHAN
10	BA DA LING
11	YU LONG SHAN
12	KUN LUN SHAN
13	DAN XIA SHAN
14	FEI XIA SHAN
15	XUE FENG LING
16	MO XING LING
17	JIN PAN LING
18	HONG QI 120
19	HONG QI 123
20	HONG QI 124
21	HONG QI 200
22	HONG QI 201
23	HONG QI 202
24	HONG QI 203
25	HONG QI 204
26	DING HU SHAN
27	DA YU SHAN
28	BAO WANG
29	BEI JI XING
30	JIN HUI
31	JIN CANG
32	JIN XI
33	BAO XING
34	SILVER BIN
35	SILVER SEN

— III-6 —

APPENDIX III FINANCIAL INFORMATION ON THE ACQUIRED VESSELS

No. Vessel Name

36 GLORY MOUNTAIN 37 SILVER YANG 38 PEACH MOUNTAIN 39 SILVER SHING 40 SILVER ZHANG 41 SILVER YANG 42 SILVER MEI

4. COMBINED RESULTS

The following is a summary of the combined results of the Acquired Vessels for the Relevant Periods, which have been prepared on the basis set out in Section 1.

Notes REVENUE b Operating costs Gross profit Other income b Other expenses Finance costs c PROFIT BEFORE TAX d	Year 2003 Rmb’000 (Unaudited) 1,099,206 (737,866)	ended 31 December 2004 2005 Rmb’000 Rmb’000 (Unaudited) (Unaudited) 1,518,988 1,788,313 (801,903) (917,474)	ended 31 December 2004 2005 Rmb’000 Rmb’000 (Unaudited) (Unaudited) 1,518,988 1,788,313 (801,903) (917,474)	Six months ended 30 June 2005 2006 Rmb’000 Rmb’000 (Unaudited) (Unaudited) 957,737 855,064 (432,398) (532,537) 525,339 322,527 1,488 — (157) — (1,439) — 525,231 322,527	Six months ended 30 June 2005 2006 Rmb’000 Rmb’000 (Unaudited) (Unaudited) 957,737 855,064 (432,398) (532,537) 525,339 322,527 1,488 — (157) — (1,439) — 525,231 322,527
	361,340 3,000 (165) (5,225)	717,085 3,009 (241) (3,153)	870,839 2,955 (238) (1,439)	525,339 1,488 (157) (1,439)	322,527 — — —
	358,950	716,700	872,117	525,231

a. Segment information

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

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

• (a) coal shipment; and

• (b) other dry bulk shipment

In determining the geographical segments of the Acquired Vessels, revenues and results are attributed to the segments based on domestic shipment (i.e., shipment along the PRC coast) and international shipment.

— III-7 —

FINANCIAL INFORMATION ON THE ACQUIRED VESSELS

APPENDIX III

Coal shipment Other dry bulk shipment Consolidated	Six months ended Six months ended Six months ended	Year ended 31 December 30 June Year ended 31 December 30 June Year ended 31 December 30 June	2003 2004 2005 2005 2006 2003 2004 2005 2005 2006 2003 2004 2005 2005 2006	Rmb’000 Rmb’000 Rmb’000 Rmb’000 Rmb’000 Rmb’000 Rmb’000 Rmb’000 Rmb’000 Rmb’000 Rmb’000 Rmb’000 Rmb’000 Rmb’000 Rmb’000	(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)		617,457 1,086,238 1,351,710 690,722 683,618 481,749 432,750 436,603 267,015 171,446 1,099,206 1,518,988 1,788,313 957,737 855,064	185,758 502,978 640,376 360,480 270,844 175,582 214,107 230,463 164,859 51,683 361,340 717,085 870,839 525,339 322,527		3,000 3,009 2,955 1,488 —		(165) (241) (238) (157) —	(5,225) (3,153) (1,439) (1,439) —	358,950 716,700 872,117 525,231 322,527
						Segment revenue:	Turnover	Segment results	Unallocated revenue:	Other income	Unallocated expenses:	Other expenses	Finance costs	Profit before tax

— III-8 —

APPENDIX III FINANCIAL INFORMATION ON THE ACQUIRED VESSELS

Geographical segments

The following table presents revenue and segment results from operating activities by geographical area of operations.

Year ended 31 December 2003

	Revenue	Contribution
	Rmb’000	Rmb’000
	(Unaudited)	(Unaudited)
Domestic	599,367	184,156
International	499,839	177,184
	1,099,206	361,340
Other income		3,000
Other expenses		(165)
Finance costs		(5,225)
Profit before tax		358,950
Year ended 31 December 2004
	Revenue	Contribution
	Rmb’000	Rmb’000
	(Unaudited)	(Unaudited)
Domestic	816,425	304,737
International	702,563	412,348
	1,518,988	717,085
Other income		3,009
Other expenses		(241)
Finance costs		(3,153)
Profit before tax		716,700

— III-9 —

APPENDIX III FINANCIAL INFORMATION ON THE ACQUIRED VESSELS

Year ended 31 December 2005

	Revenue	Contribution
	Rmb’000	Rmb’000
	(Unaudited)	(Unaudited)
Domestic	1,105,903	456,351
International	682,410	414,488
	1,788,313	870,839
Other income		2,955
Other expenses		(238)
Finance costs		(1,439)
Profit before tax		872,117
Six months ended 30 June 2005
	Revenue	Contribution
	Rmb’000	Rmb’000
	(Unaudited)	(Unaudited)
Domestic	533,588	242,026
International	424,149	283,313
	957,737	525,339
Other income		1,488
Other expenses		(157)
Finance costs		(1,439)
Profit before tax		525,231

— III-10 —

APPENDIX III FINANCIAL INFORMATION ON THE ACQUIRED VESSELS

Six months ended 30 June 2006

Revenue Contribution Rmb’000 Rmb’000 (Unaudited) (Unaudited) Domestic 587,219 207,323 International 267,845 115,204 855,064 322,527 Other income — Other expenses — Finance costs — Profit before tax 322,527	Revenue Contribution Rmb’000 Rmb’000 (Unaudited) (Unaudited) Domestic 587,219 207,323 International 267,845 115,204 855,064 322,527 Other income — Other expenses — Finance costs — Profit before tax 322,527	Revenue Contribution Rmb’000 Rmb’000 (Unaudited) (Unaudited) Domestic 587,219 207,323 International 267,845 115,204 855,064 322,527 Other income — Other expenses — Finance costs — Profit before tax 322,527
		322,527
		— — —
		322,527

b. Revenue and other income

Revenue represents gross revenue arising from shipping operations, net of business taxes. Pursuant to various tax rules and regulations in the PRC, revenues derived from sea freighting attributable to voyages departing from ports in the PRC and from vessel chartering services are both subject to business tax at a rate of 3%. Business taxes charged to the income statement for the three years ended 31 December 2003, 2004, 2005 and six months ended 30 June 2005 and 2006 amounted to Rmb24,133,000, Rmb32,474,000, Rmb40,114,000, Rmb19,603,000 and Rmb21,347,000, respectively.

An analysis of revenue and other income is as follows:

Revenue Coal shipment Other dry bulk shipment Other income Rental income from bare-boat chartering	Year 2003 Rmb’000 (Unaudited) 617,457 481,749 1,099,206 3,000	ended 31 December 2004 2005 Rmb’000 Rmb’000 (Unaudited) (Unaudited) 1,086,238 1,351,710 432,750 436,603 1,518,988 1,788,313 3,009 2,955	Six months ended 30 June 2005 2006 Rmb’000 Rmb’000 (Unaudited) (Unaudited) 690,722 683,618 267,015 171,446 957,737 855,064 1,488 —	Six months ended 30 June 2005 2006 Rmb’000 Rmb’000 (Unaudited) (Unaudited) 690,722 683,618 267,015 171,446 957,737 855,064 1,488 —
				855,064
				—

— III-11 —

FINANCIAL INFORMATION ON THE ACQUIRED VESSELS

APPENDIX III

c. Finance costs

							Six months ended	Six months ended
				**Year **	ended 31 December		**30 **	June
				2003	2004	2005	2005	2006
				Rmb’000	Rmb’000	Rmb’000	Rmb’000	Rmb’000
				(Unaudited)	(Unaudited)	(Unaudited)	(Unaudited)	(Unaudited)
Interest	on	finance	leases	5,225	3,153	1,439	1,439	—

d. Profit before tax

The Acquired Vessels’ profit before tax is arrived at after charging:

				Six months ended	Six months ended
	**Year **	ended 31 December		**30 **	June
	2003	2004	2005	2005	2006
	Rmb’000	Rmb’000	Rmb’000	Rmb’000	Rmb’000
	(Unaudited)	(Unaudited)	(Unaudited)	(Unaudited)	(Unaudited)
Cost of shipping services rendered:
Bunker oil inventories consumed and
port fees	332,366	365,958	454,805	205,199	293,100
Others	405,500	435,945	462,669	227,199	239,437
Depreciation	76,409	76,447	76,076	38,218	37,788
Staff costs
Wages, salaries and hiring of sea crew	116,098	119,341	136,754	62,455	67,675
Pension scheme contributions	9,615	11,108	12,182	5,000	8,055
	125,713	130,449	148,936	67,455	75,730

— III-12 —

UNAUDITED PRO FORMA FINANCIAL INFORMATION ON THE ENLARGED GROUP

APPENDIX IV

A. UNAUDITED PRO FORMA COMBINED BALANCE SHEET OF THE ENLARGED GROUP UPON COMPLETION OF THE ACQUISITION

The following unaudited pro forma combined balance sheet of the Enlarged Group (being the Group, as defined in Appendix II to this circular, together with the Acquired Vessels, as defined in Appendix III to this circular) has been prepared in accordance with, and to comply with, the requirements of Rule 4.29 of the Listing Rules and:

• (1) based on the unaudited balance sheet of the Group as at 30 June 2006, as set out in Appendix II to this circular; and

• (2) on the basis as if the Acquisition (as defined in Appendix III to this circular) had been completed as at 30 June 2006.

As the pro forma combined balance sheet is prepared for illustration purpose only and because of its nature, it may not be indicative of the financial position of the Enlarged Group as at the date to which it is made up to or at any future date.

As at 30 June 2006

The Group: unaudited Combined adjustment: pro forma Rmb ’000 Rmb’000 (Note 1) NON-CURRENT ASSETS Property, plant and equipment 13,303,531 2,470,000 Available-for-sale equity investment 4,000 Deferred staff expenditure 51,725 Deferred tax assets 20,954 13,380,210 CURRENT ASSETS Bunker oil inventories 306,123 Trade and bills receivables 350,299 Prepayments, deposits and other receivables 260,466 Cash and cash equivalents 445,074 1,361,962	The Group: unaudited Combined adjustment: pro forma Rmb ’000 Rmb’000 (Note 1) NON-CURRENT ASSETS Property, plant and equipment 13,303,531 2,470,000 Available-for-sale equity investment 4,000 Deferred staff expenditure 51,725 Deferred tax assets 20,954 13,380,210 CURRENT ASSETS Bunker oil inventories 306,123 Trade and bills receivables 350,299 Prepayments, deposits and other receivables 260,466 Cash and cash equivalents 445,074 1,361,962	Enlarged Group: unaudited pro forma Rmb’000 15,773,531 4,000 51,725 20,954
	13,380,210 306,123 350,299 260,466 445,074 1,361,962	15,850,210
		306,123 350,299 260,466 445,074
		1,361,962

— IV-1 —

UNAUDITED PRO FORMA FINANCIAL INFORMATION ON THE ENLARGED GROUP

APPENDIX IV

The Group: unaudited Combined adjustment: pro forma Rmb ’000 Rmb’000 (Note 1) CURRENT LIABILITIES Trade payables 341,035 Tax payable 38,215 Other payables and accruals 507,246 2,470,000 Derivative financial instruments 20,237 Current portion of interest-bearing bank and other borrowings, and finance lease payables 1,296,615 Total current liabilities 2,203,348 NET CURRENT LIABILITIES (841,386) TOTAL ASSETS LESS CURRENT LIABILITIES 12,538,824 NON-CURRENT LIABILITIES Interest-bearing bank and other borrowings, and finance lease payables 1,390,432 Net assets 11,148,392 EQUITY Equity attributable to equity holders of the parent Issued capital 3,326,000 Reserves 7,795,749 11,121,749 Minority interests 26,643 Total equity 11,148,392	The Group: unaudited Combined adjustment: pro forma Rmb ’000 Rmb’000 (Note 1) CURRENT LIABILITIES Trade payables 341,035 Tax payable 38,215 Other payables and accruals 507,246 2,470,000 Derivative financial instruments 20,237 Current portion of interest-bearing bank and other borrowings, and finance lease payables 1,296,615 Total current liabilities 2,203,348 NET CURRENT LIABILITIES (841,386) TOTAL ASSETS LESS CURRENT LIABILITIES 12,538,824 NON-CURRENT LIABILITIES Interest-bearing bank and other borrowings, and finance lease payables 1,390,432 Net assets 11,148,392 EQUITY Equity attributable to equity holders of the parent Issued capital 3,326,000 Reserves 7,795,749 11,121,749 Minority interests 26,643 Total equity 11,148,392	Enlarged Group: unaudited pro forma Rmb’000 341,035 38,215 2,977,246 20,237 1,296,615 4,673,348 (3,311,386) 12,538,824 1,390,432 11,148,392 3,326,000 7,795,749 11,121,749 26,643 11,148,392
	2,203,348 (841,386) 12,538,824 1,390,432	4,673,348
		(3,311,386
		12,538,824 1,390,432
	11,148,392
	3,326,000 7,795,749 11,121,749 26,643	3,326,000 7,795,749
		11,121,749 26,643
	11,148,392

— IV-2 —

UNAUDITED PRO FORMA FINANCIAL INFORMATION ON THE ENLARGED GROUP

APPENDIX IV

Note:

1. According to the Acquisition Agreement, the purchase price of the Acquired Vessels has been agreed at Rmb2,470,000,000, as compared with their carrying value of Rmb709,493,000 as disclosed in the Financial Information in Appendix III to this circular. The purchase price has been determined by reference to the appraised value of the Acquired Vessels as revalued by DeveChina International Appraisal Co. Therefore, a pro forma adjustment was raised to debit the fixed assets account by Rmb2,470,000,000 and credit the other payables account by the same amount.

— IV-3 —

APPENDIX IV UNAUDITED PRO FORMA FINANCIAL INFORMATION ON THE ENLARGED GROUP

B. LETTER FROM THE REPORTING ACCOUNTANTS

The following is the text of a report, prepared for the sole purpose of inclusion in this circular, received from the independent reporting accountants, Ernst & Young, Certified Public Accountants, Hong Kong.

18th Floor Two International Finance Centre 8 Finance Street Central Hong Kong

13 November 2006

The Board of Directors

China Shipping Development Company Limited

Dear Sirs,

We report on the unaudited pro forma financial information (“Unaudited Pro Forma Financial Information”) of the Enlarged Group (being the Group (as defined herein) together with the Acquired Vessels, as defined in Appendix III to this circular) set out on pages 1 to 3 in Appendix IV to this circular dated 13 November 2006 of China Shipping Development Company Limited (the “Company”, and together with its subsidiaries referred to as the “Group”), solely for illustration purpose, to provide information about how the Acquisition (as defined in Appendix III of this circular) might have affected the historical financial information in respect of the Group. The basis of preparation of the Unaudited Pro Forma Financial Information is set out on page 1 of Appendix IV to this circular.

Responsibilities

It is the responsibility solely of the directors of the Company to prepare the Unaudited Pro Forma Financial Information in accordance with paragraph 29 of Chapter 4 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”) and with reference to AG7 Preparation of Pro Forma Financial Information for Inclusion in Investment Circulars issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”).

It is our responsibility to form an opinion, as required by the Listing Rules, on the Unaudited Pro Forma Financial Information and to report our opinion solely to you. We do not accept any responsibility for any reports previously given by us on any financial information used in the compilation of the Unaudited Pro Forma Financial Information beyond that owed to those to whom those reports were addressed by us at the dates of their issue.

Basis of opinion

We conducted our work in accordance with Hong Kong Standard on Investment Circular Reporting Engagements (HKSIR) 300 “Accountants’ Reports on Pro Forma Financial Information in

— IV-4 —

UNAUDITED PRO FORMA FINANCIAL INFORMATION ON THE ENLARGED GROUP

APPENDIX IV

Investment Circulars” issued by the HKICPA. Our work, which involved no independent examination of any of the underlying financial information, consisted primarily of comparing the unadjusted financial information with the source documents, considering the evidence supporting the adjustments and discussing the Unaudited Pro Forma Financial Information with the directors of the Company.

We planned and performed our work so as to obtain the information and explanations we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the Unaudited Pro Forma Financial Information has been properly compiled by the directors of the Company on the basis stated, that such basis is consistent with the accounting policies of the Group and that the adjustments are appropriate for the purposes of the Unaudited Pro Forma Financial Information as disclosed pursuant to paragraph 29(1) of Chapter 4 of the Listing Rules.

Our work did not constitute an audit or review made in accordance with Statements of Auditing Standards issued by the HKICPA, and accordingly, we do not provide any such audit or review assurance on the Unaudited Pro Forma Financial Information.

The Unaudited Pro Forma Financial Information is for illustration purpose only and prepared based on the judgments and assumptions made by the Directors of the Company and, because of its hypothetical nature, it does not provide any assurance or indication that any event will take place in the future and may not be indicative of the financial position of:

• the Enlarged Group had the transaction actually occurred as at the dates indicated therein; or

• the Enlarged Group at any future dates or for any future periods.

Opinion

In our opinion:

• (a) the accompanying Unaudited Pro Forma Financial Information has been properly compiled by the Directors of the Company on the basis stated;

• (b) such basis is consistent with the accounting policies of the Group; and

• (c) the adjustments are appropriate for the purposes of the Unaudited Pro Forma Financial Information as disclosed pursuant to paragraph 29(1) of Chapter 4 of the Listing Rules.

Yours faithfully,

Ernst & Young

Certified Public Accountants Hong Kong

— IV-5 —

GENERAL INFORMATION

APPENDIX V

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 has had any material interest, direct or indirect, in any asset which, since 31 December 2005, being the date to which the latest audited consolidated financial statements of the Group have been made up, had been acquired or disposed of by or leased to any member of the Group or was proposed to be acquired or disposed of by or leased to any member of the Group.

Directors’ Service Contracts

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

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

— V-1 —

GENERAL INFORMATION

APPENDIX V

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

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

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

Directors’ Interest in Contracts

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

Substantial Shareholders

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

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

Note: Mr Li Shaode is the president and party secretary of China Shipping Group. Mr. Wang Daxiong is the vice president of China Shipping Group. Mr. Zhang Guofa is the vice president of China Shipping Group. Mr. Yao Zuozhi is the Secretary of the Party Committee of Guangzhou BOMTA, which is a wholly owned subsidiary of the China Shipping Group.

— V-2 —

GENERAL INFORMATION

APPENDIX V

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

3. LITIGATION

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

4. CONSENTS AND EXPERTS

The following table lists the qualifications of the professional advisers who have given opinion or advice, which is contained in this circular:

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

The Certified Public Accountants and the Independent Financial Adviser have given and have not withdrawn their respective written consents to the issue of this circular with the inclusion of their letters, reports and/or opinions and/or the references to their names in the form and context in which they respectively appear.

As at the Latest Practicable Date, (i) the Certified Public Accountants and 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 Certified Public Accountants and 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.

— V-3 —

GENERAL INFORMATION

APPENDIX V

5. MISCELLANEOUS

• (i) The legal address of the Company is at 168 Yuanshen Road, Shanghai, The People’s Republic of China.

• (ii) The principal place of business of the Company in Hong Kong is 20th Floor, Alexandra House, 16-20 Chater Road, Central, Hong Kong.

• (iii) The Company’s branch share registrar and transfer office in Hong Kong is at Hong Kong Registrars Limited at Rooms 1712-1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong.

• (iv) The secretary of the Company is Ms. Yao Qiaohong. Ms. Yao obtained a company secretary training certificate from the Shanghai Stock Exchange.

• (v) Mr. Wang Kangtian, being a PRC qualified accountant, is the qualified accountant of the Company appointed under Rules 3.24 of the Listing Rules. Mr. Wang Kangtian is able to meet the requirement as set out in Rule 3.24 of the Listing Rules except that he is not a fellow or associate of the Hong Kong Institute of Certified Public Accountants (“HKICPA”) or a similar body of accountants recognized by HKICPA for the purpose of granting exemptions form the examination requirement for membership of HKICPA. The Stock Exchange has agreed to grant a three-year conditional waiver to the Company from strict compliance with Rule 3.24 of the Listing Rules commencing from 28th December, 2004. From 28th December, 2004 to 19th September, 2006, Mr. Wang was assisted by Mr. Li Chung Kwong, Andrew, a fellow member of the HKICPA. From 20th September, 2006 to 27th December, 2007, the Company has appointed Mr. Yip Sai On, David, a fellow member of the HKICPA, to assist Mr. Wang.

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

— V-4 —

GENERAL INFORMATION

APPENDIX V

6. DOCUMENTS FOR INSPECTION

Copies of the following documents will be available for inspection at the office of Richards Butler at 20th Floor, Alexandra House, 16-20 Chater Road, Central, Hong Kong during normal business hours on any weekday (except public holidays) from the date of this circular up to and including Wednesday, 27 December 2006:

• (a) the letter of recommendation from the Independent Board Committee, the text of which is set out on page 26 of this circular;

• (b) the letter issued by the Independent Financial Adviser, the text of which is set out on pages 27 to 40 of the circular;

• (c) the accountants’ reports, the text of which is set out in Appendices III and IV (B) to this circular;

• (d) the consent letters from Ernst & Young and Evolution Watterson Securities Limited referred to in the paragraph headed “Consents and Experts” in this Appendix;

• (e) the Vessel Management Agreements;

• (f) the Acquisition Agreement;

• (g) the Services Agreement;

• (h) the New Services Agreement;

• (i) the Construction Agreements;

• (j) the memorandum and articles of association of the Company;

• (k) existing service contracts of the Directors with the Company;

• (l) a copy of the circular dated 15 May 2006 for a discloseable transaction relating to the purchase of a vessel; and

• (m) a copy of the circular dated 21 April 2006 for a discloseable transaction relating to the construction of new vessels.

— V-5 —

NOTICE OF EXTRAORDINARY GENERAL MEETING AND THE CLASS MEETING FOR HOLDERS OF H SHARES

==> 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 AND THE CLASS MEETING FOR HOLDERS OF H SHARES

Notice is hereby given that the following meetings of China Shipping Development Company Limited (the “ Company ”) will be held at 700 Dong Da Ming Road, Shanghai, the People’s Republic of China on Thursday, 28 December 2006:

• (1) the extraordinary general meeting (the “ EGM ”) will be held at 2:00 p.m.; and

• (2) the class meeting for holders of H Shares will be held immediately as soon as the conclusion of the EGM or the adjourned meeting thereof.

These meetings are to be held for the following purposes:

EGM

To consider and, if thought fit, pass the following resolutions as ordinary resolutions and special resolutions (as the case may be):

Ordinary Resolution

1. “THAT the acquisition agreement dated 31 October 2006 (the “ Acquisition Agreement ”) entered into between the Company and China Shipping (Group) Company (“ China Shipping ”) for the acquisition of the assets in the vessels, details of which are as set out in the circular of the Company dated 13 November 2006, 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 Acquisition Agreement.”

— N-1 —

NOTICE OF EXTRAORDINARY GENERAL MEETING AND THE CLASS MEETING FOR HOLDERS OF H SHARES

Special Resolutions

1. “ THAT , conditional upon the passing of the first ordinary resolution above approving the Acquisition Agreement and the relevant approvals or consents being granted by the relevant PRC regulatory authorities, the issue by the Company of convertible bonds (“ Convertible Bonds ”), details of which are set out in the circular of the Company dated 13 November 2006, be and is hereby approved”

2. “ THAT , conditional upon the passing of the first ordinary resolution above approving the Acquisition Agreement and the relevant approvals or consents being granted by the relevant PRC regulatory authorities, the terms of the Convertible Bonds, concerning:

3. type of debt instruments to be issued;

4. total issuing amount;

5. face value;

6. issue price;

7. bond maturity;

8. coupon rate;

9. payment of interest;

10. conversion period;

11. determination of conversion price and adjustment method;

12. downward adjustment of conversion price;

13. mechanism for rounding off fractions into nearest figures;

14. redemption at the option of the Company;

15. redemption at the option of the bond holder;

16. vesting of dividends for the conversion year;

17. issuing method and targets for the issue;

18. placing arrangement for existing shareholders; and

— N-2 —

NOTICE OF EXTRAORDINARY GENERAL MEETING AND THE CLASS MEETING FOR HOLDERS OF H SHARES

1. use of the funds raised from this convertible bonds issue to acquire dry bulk cargo vessels,

details of which are set out in the circular of the Company dated 13 November 2006 and each of which be and is hereby approved.”

1. “ THAT , conditional upon the passing of the first ordinary resolution above approving the Acquisition Agreement and the relevant approvals or consents being granted by the relevant PRC regulatory authorities, the feasibility of the proposed use of the proceeds from the issue of the Convertible Bonds to fund the transactions under the Acquisition Agreement be and is hereby approved.”

2. “ THAT , conditional upon the passing of the first ordinary resolution above approving the Acquisition Agreement and the relevant approvals or consents being granted by the relevant PRC regulatory authorities, that the approval and/or authority to issue the Convertible Bonds within 1 year from the date of this resolution be and is hereby approved.”

3. “ THAT , conditional upon the passing of the first ordinary resolution above approving the Acquisition Agreement and the relevant approvals or consents being granted by the relevant PRC regulatory authorities, that the Company’s report on the issue of 350,000,000 new A shares on 23 May 2002 and the use of such proceeds arising therefrom be and is hereby approved.”

4. “ THAT , conditional upon the passing of the first ordinary resolution above approving the Acquisition Agreement and the relevant approvals or consents being granted by the relevant PRC regulatory authorities, that the board of Directors be and 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 issue of the Convertible Bonds.”

Ordinary Resolutions

1. “ THAT the new services agreement dated 31 October 2006 (the “ New Services Agreement ”) entered into between the Company and China Shipping for the provision to the Company and its subsidiaries (the “Group”) certain Agreed Supplies for the ongoing operations for all vessels owned by the Group and which, upon completion of the Acquisition, would include the vessels which are the subject of the Acquisition Agreement, for a term of three years commencing from 1 January 2007, the continuing connected transactions contemplated thereunder and the proposed annual caps 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 New Services Agreement.”

2. “ THAT the establishment of the nomination committee of the Company be and is hereby approved.”

3. “ THAT the adoption of the implementation rules for the nomination committee of the Company be and is hereby approved.”

— N-3 —

NOTICE OF EXTRAORDINARY GENERAL MEETING AND THE CLASS MEETING FOR HOLDERS OF H SHARES

1. “THAT the four construction agreements all dated 28 October 2006 between the Company, China State Shipbuilding Corporation and Guangzhou Longxue Shipbuilding Co., Ltd, each for the construction of one new Very Large Crude Carrier (for a total of four new Very Large Crude Carriers, details of which are set out in the circular of the Company dated 13 November 2006, 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 agreements.”

Special Resolution

1. “THAT the amendments to Company’s articles of association to increase the number of Directors to 9 to 15 (comprising one Chairman, a number of Vice-Chairman(s) and one-third of the Board being independent non-executive Directors) be and are hereby approved.”

Ordinary Resolutions

1. “THAT the appointment of Mr. Lin Jianqing as an executive director of the Company by and is hereby approved.”

2. “THAT the appointment of Mr. Ma Xun as an independent non-executive Director of the Company be and is hereby approved.

Details of Proposed Directors for election at the EGM

Mr. Lin Jianqing (“Mr. Lin”)

Mr. Lin, born in February 1954, is currently the vice-president of China Shipping (Group) Company and a member of the party committee. He was formerly a captain, a section chief of the engineering section, assistant general Manager and deputy general manager of Guangzhou Maritime Transport (Group) Co., Ltd. He joined China Shipping (Group) Company in July 1997 and held the position of Vice-president. Mr. Lin graduated from East China Normal University and was a student seating for doctoral degree. He has been engaged in the shipping business for many years, and possesses extensive experience in navigation and shipping enterprise management.

In accordance with the articles of association of the Company, Mr. Lin’s appointment will be with effect from 28 December 2006 until 25 May 2009 subject to shareholders’ approval. Mr. Lin will enter into a service contract with the Company. Save as disclosed above, Mr. Lin did not hold any directorship in listed public companies in the last three years, and he is not related to any director, senior management or substantial or controlling Shareholder of the Company. He is not interested in any shares of the Company within the meaning of Part XV of the SFO. During the proposed term of employment, Mr. Lin will not be entitled to any remuneration nor bonus payments as a Director. There is no other information relating to the appointment of Mr. Lin that is required to be disclosed pursuant to Rule 13.51(2)(h) to (v) of the Hong Kong Listing Rules. Save as disclosed herein, there are no other matters that need to be brought to the attention of the Shareholders.

Mr. Ma Xun (“Mr. Ma”)

Mr. Ma, born in November 1952, is currently the principal of Shanghai Shipping Transportation Science Institute. He was formerly an assistant engineer, engineer, senior engineer and then vice-principal of the same institute.

— N-4 —

NOTICE OF EXTRAORDINARY GENERAL MEETING AND THE CLASS MEETING FOR HOLDERS OF H SHARES

In accordance with the articles of association of the Company, Mr. Ma’s appointment will be from 28 December 2006 until 25 May 2009 subject to shareholders’ approval. Mr. Ma did not hold any directorship in listed public companies in the last three years, and he is not related to any director, senior management or substantial or controlling Shareholder of the Company. He is not interested in any shares of the Company within the meaning of Part XV of the SFO. Mr. Ma will enter into a service contract with the Company. During the proposed term of employment he will be entitled to a directors’ fee of RMB60,000 per year as provided in the service contract. This annual remuneration is determined by the mutual agreement of the parties and the Company considers it to be a reasonable amount. There is no other information relating to the appointment of Mr. Ma that is required to be disclosed pursuant to Rule 13.51(2)(h) to (v) of the Hong Kong Listing Rules. Save as disclosed herein, there are no other matters that need to be brought to the attention of the Shareholders.

Class Meeting for holders of H Shares

To consider and, if thought fit, pass the following resolutions as special resolutions:

Special Resolutions

1. “ THAT , conditional upon the passing of the first ordinary resolution above approving the Acquisition Agreement and the relevant approvals or consents being granted by the relevant PRC regulatory authorities, the issue by the Company of convertible bonds (“ Convertible Bonds ”), details of which are set out in the circular of the Company and 13 November 2006, be and is hereby approved.”

2. “ THAT , conditional upon the passing of the first ordinary resolution above approving the Acquisition Agreement and the relevant approvals or consents being granted by the relevant PRC regulatory authorities, the terms of the Convertible Bonds, concerning:

3. type of debt instruments to be issued;

4. total issuing amount;

5. face value;

6. issue price;

7. bond maturity;

8. coupon rate;

9. payment of interest;

10. conversion period;

11. determination of conversion price and adjustment method;

12. downward adjustment of conversion price;

13. mechanism for rounding off fractions into nearest figures;

14. redemption at the option of the Company;

15. redemption at the option of the bond holder;

16. vesting of dividends for the conversion year;

— N-5 —

NOTICE OF EXTRAORDINARY GENERAL MEETING AND THE CLASS MEETING FOR HOLDERS OF H SHARES

1. issuing method and targets for the issue;

2. placing arrangement for existing shareholders; and

3. use of the funds raised from the Convertible Bonds issue to acquire dry bulk cargo vessels;

details of which are set out in the circular of the Company dated 13 November 2006 and each of which be and is hereby approved.”

1. “ THAT , conditional upon the passing of the first ordinary resolution above approving the Acquisition Agreement and the relevant approvals or consents being granted by the relevant PRC regulatory authorities, the feasibility of the proposed use of the proceeds from the issue of the Convertible Bonds to fund the transactions under the Acquisition Agreement be and is hereby approved.”

2. “ THAT , conditional upon the passing of the first ordinary resolution above approving the Acquisition Agreement and the relevant approvals or consents being granted by the relevant PRC regulatory authorities, the approval and/or authority to issue the Convertible Bonds within 1 year from the date of this resolution be and is hereby approved.”

3. “THAT the Company’s report on the issue of 350,000,000 new A shares on 23 May 2002 and the use of such proceeds arising therefrom be and is hereby approved.”

4. “THAT the board of Directors be and 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 issue of the Convertible Bonds.”

By Order of the Board

China Shipping Development Company Limited Yao Qiaohong Company Secretary

13 November 2006 Shanghai The People’s Republic of China

• (A) The H share register of the Company will be closed from Wednesday, 29 November 2006 to Thursday, 28 December 2006 (both days inclusive), during which no transfer of H shares will be effected. Any holders of H shares of the Company, whose names appear on the Company’s register of members at the close of business on Tuesday, 28 November 2006, are entitled to attend and vote at the EGM and the relevant class meeting after completing the registration procedures for attending the meeting. In order to be entitled to attend and vote at the EGM and the relevant class meetings, share transfer documents should be lodged with the Company’s H share registrar not later than 4:00 p.m. on Tuesday, 28 November 2006.

— N-6 —

NOTICE OF EXTRAORDINARY GENERAL MEETING AND THE CLASS MEETING FOR HOLDERS OF H SHARES

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

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

• (B) Holders of H Shares and A Shares, who intend to attend the EGM and the relevant class meetings, must complete the reply slips for attending such meetings and return them to the Office of the Secretary to the Board of Directors of the Company not later than 20 days before the date of the EGM and the relevant class meetings, i.e. no later than Friday, 8 December 2006.

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 and the relevant class meeting 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 and the relevant class meeting. 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, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Hong Kong, not less than 24 hours before the time for holding the EGM and the relevant class meetings or any adjournment thereof in order for such documents to be valid.

— N-7 —

NOTICE OF EXTRAORDINARY GENERAL MEETING AND THE CLASS MEETING FOR HOLDERS OF H SHARES

• (F) Each holder of A Shares is entitled to appoint in writing one or more proxies, whether a shareholder or not, to attend and vote on its behalf at the EGM and the relevant class meetings. Notes (C) to (D) also apply to holders of A Shares, except that the proxy form or other documents of authority must be delivered to the Office of the Secretary to the Board of Directors, the address of which is set out in Note (B) above, not less than 24 hours before the time for holding the EGM and the relevant class meetings or any adjournment, thereof in order for such documents to be valid.

• (G) If a proxy attends the EGM and the relevant class meetings on behalf of a shareholder, he should produce his identity card and the instrument signed by the proxy or his legal representative, which specifies the date of its issuance. If the legal representative of a legal person share shareholder attends the EGM and the relevant class meetings, such legal representative should produce his identity card and valid documents evidencing his capacity as such legal representative. If a legal person share shareholder appoints a representative of a company other than its legal representative to attend the EGM and the relevant class meetings, such representative should produce his identity card and an authorization instrument affixed with the seal of the legal person share shareholder and duly signed by its legal representative.

• (H) Set out below is the procedure by which shareholders and the chairman of any shareholders’ meeting may demand a poll pursuant to article 74 of articles of association of the Company:

“At any general meeting of shareholders, a resolution shall be decided on a show of hands unless a poll is demanded before or after any vote by show of hands by:

• (1) the chairman of the meeting;

• (2) at least two shareholders, who possess the right to vote, present in person or by proxy; or

• (3) any shareholder or shareholders present in person or by proxy and representing in the aggregate not less than one-tenth of the total voting rights of all shareholders having the right to attend and vote at the meeting.

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

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

• (I) The EGM and the relevant class meetings are expected to last for half a day. Shareholders attending the EGM and the relevant class meetings are responsible for their own transportation and accommodation expenses.

— N-8 —