Dida Inc. - Proxy Solicitation & Information Statement 2007

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

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

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

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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 TRANSACTION CONSTRUCTION OF NEW VLOCS AND CONNECTED TRANSACTION CONSTRUCTION OF NEW TANKERS AND MAJOR TRANSACTION CONSTRUCTION OF NEW TANKERS

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

A letter from the Board is set out on pages 6 to 16 of this circular.

A letter from the Independent Board Committee is set out on page 17 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 18 to 22 of this circular.

A notice convening the EGM of the Company to be convened and held at 2:00 p.m. on Monday, 30 April 2007 at 700 Dong Da Ming Road, Shanghai, the People’s Republic of China is set out on pages N-1 to N-4 of this circular. Whether or not you are able to attend the above meeting, please complete and return the enclosed proxy form in accordance with the instructions printed thereon as soon as practicable and in any event by not less than 24 hours before the time appointed for the holding of the meetings. Completion and return on the proxy form will not preclude you from attending and voting in person at the meetings or at any adjourned meetings should you so wish.

14 March 2007

	Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Expected Timetable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
Letter from the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	6
Letter from the Independent Board Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	17
Letter from the Independent Financial Advisor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	18
Appendix I Financial Information of the Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	I-1
Appendix II General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	II-1
Notice of Extraordinary General Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	N-1

— i —

DEFINITIONS

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|||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|“A|Shares”|PRC-listed|Domestic|Shares|in|the|share|capital|of|the|
|Company,|with|a|par|value|of|RMB1.00|each,|which|are|
|subscribed|for|and|traded|in|RMB|and|listed|on|the|Shanghai|
|Stock|Exchange|
|“associate(s)”|has|the|meaning|ascribed|thereto|in|the|Hong|Kong|Listing|
|Rules|
|“Board”|the|board|of|Directors|
|“Company”|China|Shipping|Development|Company|Limited|
|(|),|a|joint|stock|limited|company|
|incorporated|in|the|PRC|with|limited|liability,|whose|H|
|Shares|have|been|listed|on|the|Main|Board|since|1994|and|
|whose|A|Shares|have|been|listed|on|the|Shanghai|Stock|
|Exchange|since|2002|
|“China|Shipping”|(China|Shipping|(Group)|Company),|a|
|PRC|state-owned|enterprise|and|the|controlling|shareholder|
|of|the|Company,|currently|holding|47.46%|of|the|registered|
|capital|of|the|Company|
|“China|Shipping|Group”|China|Shipping|and|its|subsidiaries|(excluding|the|Group)|
|“CS|Development|Hong|Kong”|China|Shipping|Development|(Hong|Kong)|Marine|Co.,|
|Limited|(|),|a|wholly-owned|subsidiary|
|of|the|Company|
|”CSITC”|(China|Shipbuilding|International|
|Trading|Company|Limited)|,|a|Chinese|company|engaging|in|
|the|trading,|import,|export|and|agency|of|ships|and|shipping|
|related|technology|and|services|
|“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)|
|“CS|Tanker|Agreements”|two|agreements|all|dated|16|February,|2007,|each|of|which|is|
|entered|into|between|the|CS|Vendors|and|CS|Development|
|Hong|Kong|for|the|construction|of|one|Tanker|(for|a|total|of|
|two|Tankers)|for|the|transportation|of|oil|
|“CS|Tanker|Construction”|the|construction|of|two|Tankers|pursuant|to|the|CS|Tanker|
|Agreements|

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— 1 —

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|||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|DEFINITIONS|
|“CS|Vendors”|(China|Shipping|Industrial|Co.,|Ltd.)|and|
|(China|Shipping|Industrial|(Jiangsu)|
|Co.,|Ltd.)|
|“Dalian|Shipbuilding”|(Dalian|Shipbuilding|Industry|
|Company|Limited),|a|Chinese|Shipbuilder|
|“Dalian|Tanker|Agreements”|six|agreements|all|dated|2|March|2007,|each|of|which|is|
|entered|into|between|the|Company|and|the|Dalian|Vendors|for|
|the|construction|of|one|Tanker|(for|a|total|of|six|Tankers)|for|
|the|transportation|of|oil|and|oil|products|
|“Dalian|Tanker|Construction”|the|construction|of|six|tankers|pursuant|to|the|Dalian|Tanker|
|Agreements|
|“Dalian|Vendors”|CSITC|and|Dalian|Shipbuilding|
|“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|
|“EGM”|extraordinary|general|meeting|of|the|Shareholders|to|be|
|convened|by|the|Company|to|consider|and,|if|thought|fit,|to|
|approve|the|VLOC|Agreements,|the|CS|Tanker|Agreements|
|and|the|Dalian|Tanker|Agreements|
|“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)|
|“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)|

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— 2 —

DEFINITIONS

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

the lawful currency of Hong Kong dollars

“Hong Kong” or “HK”

the Hong Kong Special Administrative Region of the PRC

“Hong Kong Listing Rules”
Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited, as amended from time to time
“Independent Board Committee” Messrs. Ma Xun, Xie Rong, Hu Honggao and Zhou Zhanqun, all being independent non-executive Directors, have been appointed as members of the independent board committee of the Company to advise the Independent Shareholders on, inter alia, how to vote on the resolutions relating to the CS Tanker Construction
“Independent Financial Adviser”
Evolution Watterson Securities Limited, a corporation licensed to carry on type 1 (dealing in securities) and type 6 (advising on corporate finance) regulated activities under the Securities and Futures Ordinance, the independent financial adviser appointed to make the relevant recommendation to the Independent Board Committee and the Independent Shareholders in relation to the CS Tanker Construction
“Independent Shareholder(s)”
the Shareholders other than China Shipping and its associates (as defined in the Listing Rules)
“Latest Practicable Date”
13 March 2007, being the latest practicable date prior to the printing of this circular for ascertaining certain information contained herein
“PRC” People’s Republic of China
“RMB” Renminbi Yuan, the lawful currency of the PRC
“Shareholder(s)” shareholder(s) of the Company
“Stock Exchange” The Stock Exchange of Hong Kong Limited
“Tanker(s)” the Tanker(s) to be constructed pursuant to the CS Tanker Agreements or the Dalian Tanker Agreements, as the case may be
“US$” the lawful currency of the United States of America
“VLCC(s)” Very Large Crude Oil Carrier(s)

— 3 —

DEFINITIONS

“VLOC Agreements”	four agreements all dated	2 February 2007, each of which is
	entered into between	Guangzhou Longxue and CS
	Development Hong Kong	for the construction of one VLOC
	(for a total of four VLOCs) for the transportation of iron ore
“VLOC Construction”	the construction of four	VLOCs pursuant to the VLOC
	Agreements
“VLOC(s)”	Very Large Iron Ore Carrier(s) to be constructed pursuant to
	the VLOC Agreements
“%”	percentage or per centum

* For identification purpose only

For the purpose of this circular, unless otherwise specified, the conversion of US$ into HK$ is based on the exchange rate of US$1.00 = HK$7.75, and the conversion of RMB into HK$ is based on the exchange rate of RMB1.00 = HK$1.003.

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

— 4 —

EXPECTED TIMETABLE

Date of despatch of this circular . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Wednesday, 14 March 2007 Last date for returning the reply slip for the EGM . . . . . . . . . . . . . . . . . . .Tuesday, 10 April 2007 Latest time for lodging proxy forms for the EGM . . . . . . . . . . . .2:00 p.m., Sunday, 29 April 2007 Time and date of EGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2:00 p.m., Monday, 30 April 2007

— 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) Lin Jianqing 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:

Ma Xun Xie Rong Hu Honggao Zhou Zhanqun

14 March 2007

To the Shareholders

Dear Sir/Madam,

MAJOR TRANSACTION CONSTRUCTION OF NEW VLOCS AND CONNECTED TRANSACTION CONSTRUCTION OF NEW TANKERS AND MAJOR TRANSACTION CONSTRUCTION OF NEW TANKERS

1. INTRODUCTION

By an announcement dated 2 February 2007, the Board announced that CS Development Hong Kong entered into the VLOC Agreements with Guangzhou Longxue for the construction of four VLOCs each of 230,000 dwt for the transportation of iron ore for a consideration of approximately US$323,200,000 (equivalent to approximately HK$2,504,800,000).

— 6 —

LETTER FROM THE BOARD

By an announcement dated 16 February 2007, the Board announced that CS Development Hong Kong entered into the CS Tanker Agreements with the CS Vendors for the construction of two Tankers each of 46,000 dwt for the transportation of oil for a consideration of approximately US$87,000,000 (equivalent to approximately HK$674,250,000).

The purpose of this circular is to provide the Shareholders with further information on the terms of the VLOC Construction, the CS Tanker Construction and the Dalian Tanker Construction and to convene the EGM to seek the approval of the Shareholders with respect to the VLOC Construction and the Dalian Tanker Construction and the approval of the Independent Shareholders with respect to the CS Tanker Construction.

2. THE VLOC CONSTRUCTION

Background Information

By an announcement dated 2 February 2007, the Board announced that CS Development Hong Kong entered into the VLOC Agreements with Guangzhou Longxue on 2 February 2007 for the construction of four VLOCs each of 230,000 dwt for the transportation of iron ore. The total consideration for the construction of the VLOCs is approximately US$323,200,000 (equivalent to approximately HK$2,504,800,000). The consideration is determined by reference to the market price for the past six months of VLOCs of tonnage between 200,000 to 300,000 dwt and with similar specifications.

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

Date: 2 February 2007 Parties Purchaser: CS Development Hong Kong Seller: Guangzhou Longxue. 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 owners not connected with the Company and its connected persons (as defined in the Listing Rules).

— 7 —

LETTER FROM THE BOARD

Price:

The prices of the VLOCs will be payable in Renminbi. Relevant payments under each of the VLOC 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 3 business days after the VLOC Agreements become effective;
(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 Guangzhou Longxue; 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 VLOC by Guangzhou Longxue.

Delay adjustment in price:

Each of the four VLOC Agreements provides that there will be no adjustment in the price of the relevant VLOC if the delivery is delayed for a period not exceeding 30 days respectively. If the delay exceeds such period of time but does not exceed 210 days respectively, there will be a reduction in the price of the relevant VLOC determined on the basis of the extent of the delay.

The reduction in the price will be calculated based on a daily reduction rate ranging from US$11,300 per day to US$18,400 per day (depending on the extent of the delay), subject to a total maximum reduction of US$2,970,000. Under the four VLOC Agreements, delay will be permitted on account of force majeure events.

If the delay exceeds 210 days respectively, unless the parties agree otherwise, CS Development Hong Kong has the right to accept delivery of the relevant VLOC with a reduction in price of US$2,970,000 or refuse to accept delivery of the relevant VLOC in which case all payments paid under the relevant VLOC Agreement together with interests will be refunded to CS Development Hong Kong.

Expected Delay Date:

Condition:

The expected delivery date for each of the VLOCs is on or before 31 December 2009, 30 April 2010, 31 July 2010 and 31 December 2010 respectively.

The VLOC Agreements are conditional upon the approval of the Shareholders at the EGM.

— 8 —

LETTER FROM THE BOARD

On 31 March 2006, the Company entered into agreements 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. On 28 October 2006, the Company entered into agreements with Guangzhou Longxue for the construction of four tankers of 308,000 dwt each, details of which were contained in the Company’s major transaction announcement dated 30 October 2006. In the 12 months prior to the date of the VLOC Agreements there were no other transactions between the Company and CSSC and its associates which require aggregation under Rule 14.22 of the Listing Rules. On 22 May 2006 Shanghai Times Shipping Company, a jointly-controlled entity of the Company, entered into four construction agreements with CSSC and Chengxi Shipyard for the construction of four cargo vessels of each of 53,000 dwt, details of which were contained in the Company’s announcement dated 23 May 2006. As the results of Shanghai Times Shipping Company are not consolidated as a subsidiary into the results of the Company, the transactions under those construction agreements do not require aggregation.

To the best of the Directors’ knowledge, information and belief having made all reasonable enquiries, CSSC is a state-owned Chinese shipbuilder, 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 VLOC Agreements. Accordingly, the entering into of the VLOC Agreements constitutes a major transaction of the Company under Chapter 14 of the Listing Rules.

Reasons for, and benefits of the VLOC Construction

The Directors are optimistic of the demand in the iron ore transportation market and its persistent growth in the coming years. In addition, the Company entered into long-term contracts of affreightment for shipping of imported iron ore with China Shougang International Trade & Engineering Corp. and Bao Steel Company Limited respectively, details of which were contained in the Company’s announcements dated 27 October 2006 and 26 January 2007 respectively. The Directors are of the view that the construction and ownership of the VLOCs 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 VLOCs will be funded by the Company as to approximately 80% of the price by bank borrowings and approximately 20% of the price by internal resources.

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

— 9 —

LETTER FROM THE BOARD

3. THE CS TANKER CONSTRUCTION

Background information

On 16 February, 2007, CS Development Hong Kong entered into the CS Tanker Agreements with the CS Vendors for the construction of two Tankers each of 46,000 dwt for the transportation of oil. The total consideration for the construction of the Tankers is approximately US$87,000,000 (equivalent to approximately HK$674,250,000). The consideration is determined by reference to the market price for the past six months of tankers of tonnage between 40,000 to 50,000 dwt and with similar specifications.

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

Date: 16 February 2007 Parties Purchaser: CS Development Hong Kong Vendors: The CS Vendors. To the best of the Directors’ knowledge, information and belief having made all reasonable enquiries, each of the CS Vendors is a wholly-owned subsidiary of China Shipping. Since China Shipping is the controlling shareholder of the Company, the transactions contemplated under the CS Tanker Agreements are connected transactions for the Company under the Listing Rules and are subject to the approval of the Independent Shareholders at the EGM.

Price: The price of the Tankers will be payable in United States dollars. Relevant payments under each of the CS Tanker Agreements will be payable in 2 instalments at various stages of the construction of the relevant tanker:

(i) for the first instalment, to pay 80% of the price within 5 business days upon receipt of the CS Vendors’ invoice after the CS Tanker Agreements become effective; and
(ii) for the final instalment, to pay 20% of the price within 30 days of the date on which all documentation in relation to the delivery of the relevant Tanker is signed.

— 10 —

LETTER FROM THE BOARD

Delay adjustment in price:

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

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

Expected Delivery Date: The expected delivery date for each of the Tankers is on or before 31 December 2007 and 31 March 2008 respectively.

Condition: The CS Tanker Agreements are conditional upon the approval of the Independent Shareholders at the EGM.

Reasons for, and benefits of the CS Tanker Construction

The Directors are optimistic of the demand in the oil transportation market and its persistent growth in the coming years. The Directors are of the view that the construction and ownership of the relevant Tankers will enable the Group to take advantage of the business opportunities in the shipping market, enjoy economies of scale, optimize its overall route arrangements and improve its operating efficiency and profitability. The construction of the relevant Tankers will be funded by the Company as to approximately 80% of the price by bank borrowings and approximately 20% of the price by cash.

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

— 11 —

LETTER FROM THE BOARD

4. THE DALIAN TANKER CONSTRUCTION

By an announcement dated 2 March 2007, the Board announced that the Company entered into the Dalian Tanker Agreements with the Dalian Vendors for the construction of six Tankers each of 76,000 dwt for the transportation of oil and oil products. The total consideration for the construction of the Tankers is approximately US$307,560,000 (equivalent to approximately HK$2,383,590,000). The consideration is determined by reference to the market price for the past six months of tankers of tonnage between 70,000 to 80,000 dwt and with similar specifications.

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

Date: 2 March 2007

Parties Purchaser: The Company Seller: The Dalian Vendors. To the best of the Directors’ knowledge, information and belief having made all reasonable enquiries, the Dalian Vendors and their ultimate beneficial owners are independent third parties not connected with the Company and its connected persons (as defined in the Listing Rules).

Price: The price of the Tankers will be payable in Renminbi. Relevant payments under each of the Dalian Tanker 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 3 business days after the Dalian Tanker Agreements become effective;
(ii) for the second, third and fourth instalment, to pay 20% of the price within 5 business days of the receipt of the relevant invoice issued by the Dalian Vendors; and
(iii) for the final instalment, to pay 20% of the price within 5 business days of the receipt of all documentation in relation to completion of the relevant Tankers by the Dalian Vendors.

— 12 —

LETTER FROM THE BOARD

Delay adjustment in price:

Each of the six Dalian Tanker Agreements provides that there will be no adjustment in the price of the relevant Tankers if the delivery is delayed for a period not exceeding 35 days respectively. If the delay exceeds such period of time but does not exceed 215 days respectively, there will be a reduction in the price of the relevant Tanker determined on the basis of the extent of the delay. The reduction in the price will be calculated based on a daily reduction rate ranging from US$5,000 per day to US$8,600 per day (depending on the extent of the delay), up to a total maximum reduction of US$1,224,000. Under the six Dalian Tanker Agreements, delay will be permitted on account of force majeure events.

If the delay exceeds 215 days, unless the parties agree otherwise, the Company has the right to reject delivery of the relevant Tanker in which case all payments paid under the relevant agreement together with interests will be refunded to the Company. If the Company does not exercise this right after the expiry of the said period, the Dalian Vendors can propose new delivery dates and new price for the relevant Tanker in which case the Company has to elect between accepting such new terms or reject the relevant Tanker.

There will be other adjustments in price of the relevant Tanker if its performance (such as speed, fuel consumption and tonnage) fails below certain agreed criteria but are within an acceptable range. If the performance falls below the acceptable range, the Company has the right to refuse to accept delivery of the relevant Tanker or accept the relevant Tanker based on a new price to be negotiated and agreed.

Expected Delivery Date:

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

Condition:

The Dalian Tanker Agreements are conditional upon the approval of the Shareholders at the EGM.

On 31 March 2006, the Company entered into agreements with Dalian Shipbuilding for the construction of four VLCCs of 298,000 dwt each, details of which were contained in the Company’s discloseable transaction announcement dated 31 March 2006. For the purpose of the Listing Rules, these transactions will be aggregated with the transactions contemplated by the Dalian Tanker Agreements. Accordingly, the entering into of the Dalian Tanker Agreements constitutes a major transaction of the Company under Chapter 14 of the Listing Rules. There are no other transactions with the Dalian Vendors in the past 12 months prior to the transaction which require aggregation under the Listing Rules.

— 13 —

LETTER FROM THE BOARD

Reasons for and benefits of the Dalian Tanker Construction

The Directors are optimistic of the demand in the oil transportation market and its persistent growth in the coming years. The Directors are of the view that the construction and ownership of the relevant Tankers will enable the Group to take advantage of the business opportunities in the shipping market, enjoy economies of scale, optimize its overall route arrangements and improve its operating efficiency and profitability. The construction of the Tankers will be funded by the Company as to approximately 80% of the price by bank borrowings and approximately 20% of the price by internal resources.

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

5. MAJOR TRANSACTIONS AND CONNECTED TRANSACTION

Under the Listing Rules, the entering into of the VLOC Agreements (which, for the purpose of the Listing Rules, will be aggregated with the agreements for the construction of four tankers of 42,000 dwt each between the Company and Guangzhou Shipyard and the agreements for the construction of four tankers of 308,000 dwt each between the Company and Guangzhou Longxue, details of which were contained in the Company’s announcements dated and 31 March 2006 and 30 October 2006 respectively) constitutes a major transaction of the Company. China Shipping, the controlling Shareholder of the Company, does not have and, as far as the Directors are aware, no other Shareholder has a material interest in the transaction. As such, no Shareholder will be required under the Listing Rules to abstain from voting on the VLOC Agreements at the EGM.

Further, the entering into of the Dalian Tanker Agreements (which, for the purpose of the Listing Rules, will be aggregated with the agreements for the construction of four VLCCs of 298,000 dead weight tons each between the Company and Dalian Shipbuilding, details of which were contained in the Company’s announcement dated 31st March 2006) constitutes a major transaction of the Company. China Shipping, the controlling Shareholder of the Company, does not have and, as far as the Directors are aware having made all reasonable enquiries, no other Shareholder has a material interest in the transaction. As such, no Shareholder will be required under the Listing Rules to abstain from voting on the Dalian Tanker Agreements at the EGM.

China Shipping currently hold 47.46% of the registered capital of the Company. Therefore, China Shipping is a controlling shareholder of the Company and has a material interest in the CS Tanker Agreements. As such, the CS Tanker Construction is a connected transaction for the Company and is subject to Independent Shareholders’ approval at the EGM. China Shipping and its associates will abstain from voting on the CS Tanker Agreements at the EGM.

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

— 14 —

LETTER FROM THE BOARD

6. EGM

It is proposed that the EGM be convened on Monday, 30 April 2007 to consider and if through fit, approve the VLOC Construction, the CS Tanker Construction and the Dalian Tanker Construction.

A notice of the EGM to be held at 2:00 p.m. on Monday, 30 April 2007 at 700 Da Ming Road, Shanghai, the People’s Republic of China at which relevant resolutions will be proposed to approve, among other things, the VLOC Construction, the CS Tanker Construction and the Dalian Tanker Construction is set out on pages N-1 to N-4 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.

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.

7. INFORMATION ABOUT THE COMPANY

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.

— 15 —

LETTER FROM THE BOARD

As of 31 December 2006, the Company owned and/or had agreed to acquire 215 vessels aggregating approximately 8.14 million dwt. The Company is expected to increase its shipping capacity to 227 vessels aggregating approximately 9.61 million dwt following delivery of the vessels to be constructed under the VLOC Agreements, CS Tanker Agreements and Dalian Tanker Agreements.

8. RECOMMENDATION

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

9. ADDITIONAL INFORMATION

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

Yours faithfully,

China Shipping Development Company Limited Li Shaode Chairman

— 16 —

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

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

CHINA SHIPPING DEVELOPMENT COMPANY LIMITED

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

(Stock Code: 1138)

14 March 2007

To the Independent Shareholders

Dear Sir or Madam,

CONNECTED TRANSACTION CONSTRUCTION OF NEW TANKERS

We have been appointed as the Independent Board Committee to advise you in connection with the CS Tanker Construction, details of which are set out in the Letter from the Board contained in the circular to the Shareholders dated 14 March 2007 (the “Circular”), of which this letter forms part. Terms defined in the Circular shall have the same meanings when used herein unless the context otherwise requires.

Having considered the CS Tanker Agreements and the advice and opinion of the Independent Financial Adviser in relation thereto as set out on pages 18 to 22 of the Circular, we are of the opinion that the terms of the CS Tanker Agreements are fair and reasonable so far as the Independent Shareholders are concerned and the CS Tanker Construction is 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 CS Tanker Agreements.

Yours faithfully,

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

— 17 —

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.

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

14 March 2007

The Independent Board Committee

and the Independent Shareholders

China Shipping Development Company Limited 168 Yuanshen Road Shanghai The PRC

Dear Sirs,

CONNECTED TRANSACTION CONSTRUCTION OF NEW TANKERS

INTRODUCTION

We refer to our appointment as independent financial adviser to the Independent Board Committee in relation to the CS Tanker Agreements entered into between CS Development Hong Kong, a wholly-owned subsidiary of the Company and the CS Vendors on 16 February 2007 in relation to the construction of two Tankers of 46,000 dwt each. Details of the CS Tanker Agreements are set out in the circular dated 14 March 2007 (the “Circular”) to the Shareholders, of which this letter forms part. Capitalized terms in this letter have the same meanings as those defined in the Circular unless the context otherwise requires.

China Shipping is the controlling shareholder of the Company holding 47.46% shareholding interests in the total issued share capital of the Company. Each of the CS Vendors is a wholly-owned subsidiary of China Shipping. Therefore, each of the CS Vendors is a connected person of the Company and, consequently, the transactions contemplated under the CS Tanker Agreements are connected transactions for the Company under the Listing Rules and are subject to the approval of the Independent Shareholders at the EGM.

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 CS Tanker Agreements 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.

— 18 —

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

In formulating our recommendation, we have considered, amongst other things, (i) the CS Tanker Agreements; (ii) the Company’s 2005 annual report and 2006 interim report; and (iii) the financial information as set out in the Appendix I to the Circular. We have also discussed with the management of the Group their plans and prospects for the Group.

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

PRINCIPAL FACTORS AND REASONS

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

1. CS Tanker Agreements

Date : 16 February 2007 Parties : ● CS Development Hong Kong ● the CS Vendors Subject matter : the CS Vendors has agreed to construct two Tankers of 46,000 dwt each for CS Development Hong Kong Consideration : US$87,000,000 (approximately HK$674.25 million) Payment terms : The consideration will be payable in two installments:

— 19 —

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

for the first installment, to pay 80% of the price within 5 business days upon receipt of the CS Vendors’ invoice after the CS Tanker Agreements become effective; and
for the final installment, to pay 20% of the price within 30 days of the date on which all documentation in relation to the delivery of the relevant Tanker is signed
Expected Delivery : The expected delivery date for each of the Tankers is on or before Date 31 December 2007 and 31 March 2008 respectively.

2. Basis of the Consideration

As disclosed in the “Letter from the Board” of the Circular, the aggregate consideration of US$ 87 million for two Tankers is determined on the arm’s length basis. We have identified a number of new oil tankers of similar dwt currently being constructed, according to the information published by China Shipping Technology Research & Economy Development Institute ( ), an independent research institution in the PRC specialized in the shipping and shipbuilding industry, our findings suggest that oil tankers with a dwt between 37,000 to 51,000 are of prices ranged between US$ 43 million to US$ 49 million. As such, we are of the view that the consideration of the Tankers (US$ 43.5 million for each oil tanker) is in line with the prevailing market price of oil tankers of the similar dwt.

According to the general practice of the shipbuilding industry, payments for the price of ships are normally made in five installments based on the five major milestones of the construction progress and stage of completion, with the first 20% installment payable upon signing of agreement; second 20% installment payable upon commencement of construction, third 20% installment payable when the construction is in the keel laying stage; fourth 20% installment payable when the construction is in the launching stage and the final 20% installment payable when ship is delivered. As confirmed by the Company, at the time when the CS Tanker Agreements were entered into, the construction progress of the Tankers has already in the launching stage; therefore, the Company agrees to make the first payment up to 80% of the price of the consideration upon receipt of the CS Vendors’ invoice when the CS Tanker Agreements becoming effective, which in our view is in line with the general market practice and therefore fair and reasonable so far as the Company and the Shareholders are concerned.

3. Financial Effects

As disclosed in the “Letter from the Board” in the Circular, the construction of the Tankers will be funded by the Company as to approximately 80% by bank borrowings and approximately 20% by cash. Accordingly, following the delivery of the Tankers, the Group’s fixed assets will increase by approximately US$ 87 million (approximately HK$ 674.25 million), whilst current assets will decrease by US$ 17.4 million (approximately HK$ 134.85 million) and bank borrowings will increase by US$ 69.6 million (approximately HK$ 539.4 million).

— 20 —

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Based on the unaudited interim results of the Company for the six months ended 30 June 2006 which was prepared under accounting principles generally accepted in Hong Kong, the Group’s total non-current liabilities and the equity attributable to equity holders of the parent amounted to approximately RMB 1,390.4 million and RMB 11,121.7 million, representing a long term gearing ratio (non-current liabilities / shareholders’ equity) of about 12.5%, which is significantly lower than that of a number of shipping companies listed on the Stock Exchange, whose average gearing ratio exceeds 50%.

As advised by the Company, the Group currently operates a fleet of 10 oil tankers of 42,000 dwt each, which in aggregate generated an unaudited turnover and gross profit of about RMB470 million (approximately HK$ 471.4 million) and RMB233 million (approximately HK$ 233.7 million) respectively for the first half of 2006 with gross profit margin of about 49.5%, according to the Company’s analysis and its unaudited financial statements for the six months ended 30 June 2006. As further advised by the Company, the estimated financial cost for the bank borrowing of US$ 69.6 million would amount to about US$ 4,024,830 (approximately HK$ 30.19 million) per annum calculated based on the prevailing Libor plus 45 basis points, representing about 32% of the average annualized gross profit of two oil tankers of about HK$ 93.48 million.

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

4. Reasons for and benefit of the CS Tanker Agreements

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

Oil transportation has been one of the core businesses of the Group. For each of the two years ended 31 December 2005 and for the six months ended 30 June 2006, revenue derived from the oil shipment amounted to approximately RMB 3,673.8 million, RMB 4,604.5 million and RMB 2,569.1 million respectively, which accounted for about 56.9%, 54.1% and 55.9% of the Group’s total revenue respectively. For the same period, turnover attributable to the oil transportation recorded an annualized growth rate of about 18.3% on a year-on-year basis.

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

— 21 —

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

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

RECOMMENDATION

Having considered the above principal factors and reasons, we are of the opinion that the terms of the CS Tanker Agreements 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 CS Tanker Agreements at the upcoming EGM.

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

— 22 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

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

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 —

— I-1 —

APPENDIX I FINANCIAL INFORMATION ON THE GROUP

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

— I-2 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

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

— I-3 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

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

— I-4 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

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

— I-5 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

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

— I-6 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

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

— I-7 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

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

— I-8 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

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

— I-9 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

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
HKAS	16	Property, Plant and Equipment

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

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.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

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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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

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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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

The results of subsidiaries are included in the Company’s income statement to the extent of dividends received and receivable. The Company’s 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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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

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

Property, plant and equipment and depreciation

Property, plant and equipment, other than construction in progress, are stated at cost or valuation less accumulated depreciation and any impairment losses. The cost of an item of property, plant and equipment comprises its purchase price, costs transferred from construction in progress, any directly attributable costs of bringing the asset to its 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.

— I-15 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

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.

— I-16 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

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.

— I-17 —

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

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.

— I-18 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

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.

— I-19 —

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

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 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.

— I-20 —

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

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.

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.

— I-21 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

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.

— I-22 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

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.

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 2,435,195 266,186 212,944 (253,295) (237,654) (90,699) (150,182) (135,593) (106,012) 3,146,517 2,154,291 (452,639) (308,674) 2,693,878 1,845,617	Consolidated 2005 2004 Rmb’000 Rmb’000 (Restated) 8,515,191 6,452,479 3,359,918 2,435,195 266,186 212,944 (253,295) (237,654) (90,699) (150,182) (135,593) (106,012) 3,146,517 2,154,291 (452,639) (308,674) 2,693,878 1,845,617
1,726,895	1,350,747	1,138,117	676,191	494,906	408,257	3,359,918 266,186 (253,295) (90,699) (135,593)	2,435,195 212,944 (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.

— I-23 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Geographical segments

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

— I-24 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

5. REVENUE, OTHER INCOME AND GAINS

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

— I-25 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

6. PROFIT BEFORE TAX

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

Cost of shipping services rendered: Bunker oil inventories consumed and port fees Others Depreciation Operating lease rentals: Land and buildings Vessels Auditors’ remuneration Staff costs (including directors’ remuneration (note 8)): Wages, salaries and hiring of sea crew Pension scheme contributions Provision/(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

— I-26 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

7. FINANCE COSTS

Interest on bank loans and other borrowings wholly repayable within five years Interest on finance leases Total interest Less: Interest capitalised	Group 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).

— I-27 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

(b) Executive directors and supervisors

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.

— I-28 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

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.


	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

— I-29 —

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

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.

— I-30 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

14. PROPERTY, PLANT AND EQUIPMENT

Group

31 December 2005

	Vessels Machinery and equipment Rmb’000 Rmb’000 14,951,793 44,211 2,970,020 1,457 101,688 6,896 (172,719) (4,154)	Vessels Machinery and equipment Rmb’000 Rmb’000 14,951,793 44,211 2,970,020 1,457 101,688 6,896 (172,719) (4,154)	Motor vehicles Rmb’000 13,388 — 1,287 (431)	Buildings Construction in progress Rmb’000 Rmb’000 17,923 1,293,408 — (2,985,146) 1,104 2,567,061 (651) (8,545)	Buildings Construction in progress Rmb’000 Rmb’000 17,923 1,293,408 — (2,985,146) 1,104 2,567,061 (651) (8,545)	Buildings Construction in progress Rmb’000 Rmb’000 17,923 1,293,408 — (2,985,146) 1,104 2,567,061 (651) (8,545)
50,264 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
		14,649

— I-31 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

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

— I-32 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Company

31 December 2005

	Vessels Machinery and equipment Rmb’000 Rmb’000 12,680,025 43,018 2,740,774 1,457 703 6,148 (172,719) (4,154)	Vessels Machinery and equipment Rmb’000 Rmb’000 12,680,025 43,018 2,740,774 1,457 703 6,148 (172,719) (4,154)	Motor vehicles Rmb’000 11,061 — 1,287 (302)	Buildings Construction in progress Rmb’000 Rmb’000 7,046 1,247,276 — (2,755,900) — 2,219,882 (651) (7,413)	Buildings Construction in progress Rmb’000 Rmb’000 7,046 1,247,276 — (2,755,900) — 2,219,882 (651) (7,413)	Buildings Construction in progress Rmb’000 Rmb’000 7,046 1,247,276 — (2,755,900) — 2,219,882 (651) (7,413)
50,264 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

— I-33 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

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).

— I-34 —

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

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

			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

— I-35 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

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


				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.

— I-36 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

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	Company
			2005	2004
			Rmb’000	Rmb’000
Unlisted	equity	investment	4,000	4,000

— I-37 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

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

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

— I-38 —

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

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

— I-39 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

21. PREPAYMENTS, DEPOSITS AND OTHER RECEIVABLES

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

— I-40 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

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.

— I-41 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

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

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

— I-42 —

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

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.

— I-43 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

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:

Group

	Group	Group
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	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 —
	181,767 (25,690) 156,077 (62,416)	126,433 (6,384) 120,049 (43,654)	156,077	120,049

	93,661	76,395

— I-44 —

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

Company

Minimum lease payments 2005 2004 Rmb’000 Rmb’000 38,941 47,201 28,451 45,782 — 33,450 67,392 126,433 (2,413) (6,384) 64,979 120,049 (37,131) (43,654)	Minimum lease payments 2005 2004 Rmb’000 Rmb’000 38,941 47,201 28,451 45,782 — 33,450 67,392 126,433 (2,413) (6,384) 64,979 120,049 (37,131) (43,654)	Minimum lease payments 2005 2004 Rmb’000 Rmb’000 38,941 47,201 28,451 45,782 — 33,450 67,392 126,433 (2,413) (6,384) 64,979 120,049 (37,131) (43,654)	Present value of minimum lease payments 2005 2004 Rmb’000 Rmb’000 37,131 43,654 27,848 43,654 — 32,741 64,979 120,049
			120,049
	) )	(6,384) 120,049 (43,654)
64,979 (37,131
27,848		76,395

29. DEFERRED TAX

Deferred tax assets

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

— I-45 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

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.

— I-46 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

	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

— I-47 —

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

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).

— I-48 —

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

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.

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

— I-49 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

(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).

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.

— I-50 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

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:

			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

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

— I-51 —

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

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

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

— I-52 —

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

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 subsidiaries and jointly-controlled entities) will provide to the Group the necessary supporting shipping materials

— I-53 —

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

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.

— I-54 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

(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 THE GROUP

APPENDIX I

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.

— I-56 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

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.

— I-57 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

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.

— I-58 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

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.

INTERIM CONDENSED CONSOLIDATED INCOME STATEMENT

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

— I-59 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

			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
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)		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)

— I-60 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

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

— I-61 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

			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

— I-62 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

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

— I-63 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

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.

— I-64 —

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

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

— I-65 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

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

— I-66 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

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

— I-67 —

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

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.)

— I-68 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

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	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.

— I-69 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

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

— I-70 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

(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

— I-71 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

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

— I-72 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

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 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

— I-73 —

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

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.

— I-74 —

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

(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.

— I-75 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

(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.

(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.

— I-76 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

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

E. INDEBTEDNESS

Borrowings

At the close of business on 31 January 2007, being the latest practicable date for the purpose of this indebtedness statement prior to the printing of this circular, the Group had outstanding borrowings and finance lease payables of approximately RMB3,624 million, comprising bank borrowings of approximately RMB2,070 million secured by mortgages, bank borrowings of approximately RMB211 million guaranteed by China Shipping (Group) Co., Ltd., other bank borrowings of approximately RMB1,248 million and finance lease payables of approximately RMB95 million. The bank borrowings were repayable within 1 to 10 years. The secured bank borrowings of RMB2,070 million were secured by mortgage of 12 vessels with an aggregate carrying value of approximately RMB2,737 million.

Other liabilities

The Group had amounts due to China Shipping (Group) Co., Ltd. and its subsidiaries of RMB1,729 million as at 31 January 2007 for the acquisition of 42 cargo vessels.

Disclaimer

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

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.

— I-77 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

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.

Effect of the VLOC Construction, the CS Tanker Construction and the Dalian Tanker Construction

The prices for the vessels to be constructed under the VLOC Agreements, the CS Tanker Agreements and the Dalian Tanker Agreements are approximately US$323,200,000, US$87,000,000 and US$307,560,000 respectively. The construction of each of the vessels under the VLOC Agreements, CS Tanker Agreements and the Dalian Tanker Agreements will be funded as to approximately 80% of the price by bank borrowings and approximately 20% of the price by internal resources. The financing by way of bank borrowings is expected to increase the Company’s level of borrowings. Taking into account the Company’s capital and shareholders’ base, the Company considers that bank borrowing is the best means of financing for the construction of the relevant Tankers. The Directors and the Independent non-executive Directors believe that in light of the Company’s fleet expansion plan, it is fair and reasonable and in the interest of the Company and the Shareholders as a whole to finance the transaction with such bank borrowings. Money will be drawn down from the bank borrowings as and when required for each instalment payment. As such, the VLOC Construction, the CS Tanker Construction and the Dalian Tanker 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 VLOC Construction, the CS Tanker Construction and the Dalian Tanker Construction are not expected to have a material adverse impact on the net assets of the Group. They are not expected to have any effect on the earnings of the Company, since a relevant vessel will only contribute to the turnover of the Group after it has been delivered.

— I-78 —

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

As at 30 June 2006, the Group had a gearing ratio (being the difference of interest-bearing liabilities and bank loans divided by the net assets) of 20.2%.

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.

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 2007, the global bulk shipping market is expected to remain stable, and due to high demand for iron ore, steel and cement, the average freight rate for bulk cargoes is expected to be higher than 2006. In terms of coastal coal transportation, the Group will further strengthen communications with its major clients and expand fleet appropriately so as to raise its market share. On 1 March 2007, the Company announced a strategic cooperation with Shenhua Group Corporation, Limited (“Shenhua Group”) involving a joint controlled company of the Company becoming the main supplier of coasted coal transportation services to power plants within the Shenhua Group. 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.

— I-79 —

GENERAL INFORMATION

APPENDIX II

1. RESPONSIBILITY STATEMENT

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

2. DISCLOSURE OF INTERESTS

Directors’ Interests and Short Positions

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

Directors’ Interest in Any Asset Acquired, Disposed or Leased

None of the Directors or supervisors has had any material interest, direct or indirect, in any asset which, since 31 December 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, they are not entitled to any remuneration nor bonus payments as Directors.

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

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

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GENERAL INFORMATION

APPENDIX II

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

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

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

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

Directors’ Interest in Contracts

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

Substantial Shareholders

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

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

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

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GENERAL INFORMATION

APPENDIX II

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

3. LITIGATION

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

4. MATERIAL CONTRACT

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

5. CONSENT AND EXPERT

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

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

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

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

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GENERAL INFORMATION

APPENDIX II

6. MISCELLANEOUS

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

7. DOCUMENTS FOR INSPECTION

Copies of the following documents will be available for inspection at the office of Richards Butler at 20th Floor, Alexandra House, 16-20 Chater Road, Central, Hong Kong during normal business hours on any weekday (except public holidays) from the date of this circular up to and including Friday, 27 April 2007:

(a) The letter from the Independent Board Committee, the text of which is set out on page 17 of this circular;
(b) The letter issued by the Independent Financial Adviser, the text of which is set out on pages 18 to 22 of the circular;

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GENERAL INFORMATION

APPENDIX II

(c) the annual reports of the Company for the years ended 31 December 2004 and 31 December 2005 and the interim report of the Company for the period ended 30 June 2006;
(d) the VLOC Agreements;
(e) the CS Tanker Agreements;
(f) The Dalian Tanker Agreements;
(g) the consent letter from Evolution Watterson Securities Limited referred to in the paragraph headed “Consent and Expert” in this Appendix;
(h) the memorandum and articles of association of the Company;
(i) a copy of the circular dated 15 May 2006 for a discloseable transaction relating to the purchase of a vessel;
(j) a copy of the circular dated 21 April 2006 for a discloseable transaction relating to the construction of new vessels; and
(k) a copy of the circular dated 13 November 2006 for a major and connected transaction relating of acquisition of vessels, proposed issue of convertible bonds, a continuing connected transaction relating to a new services agreement and a major transaction relating to construction of new vessels.

— II-5 —

NOTICE OF EXTRAORDINARY GENERAL MEETING

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

CHINA SHIPPING DEVELOPMENT COMPANY LIMITED

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

(Stock Code: 1138)

NOTICE OF THE EXTRAORDINARY GENERAL MEETING

Notice is hereby given that the extraordinary general meeting (the “ EGM ”) of China Shipping Development Company Limited (the “ Company ”) will be held at 2:00 p.m. on Monday, 30 April 2007 at 700 Dong Da Ming Road, Shanghai, the People’s Republic of China to consider and, if thought fit, pass the following resolutions as ordinary resolutions:

Ordinary Resolutions

“THAT the existing scope of operation of the Company be amended by deleting “international passenger transportation” with the other scope of operation remaining unchanged; and the directors of the Company be and are hereby authorised to do all acts and things and execute all documents which in their opinion may be necessary or desirable to implement the amendment.
“THAT the adoption of the Company’s Rules for Meetings of Holders of Bonds (the “Rules”), which stipulate the rights of bond holders, procedures of meetings of bond holders and the conditions under which the Rules will become effective, be and are hereby approved, ratified and confirmed; and the directors of the Company be and are hereby authorised to do all acts and things and execute all documents which in their opinion may be necessary or desirable to implement the adoption of the Rules.”
“THAT the four construction agreements all dated 2 February 2007 between China Shipping Development (Hong Kong) Marine Co., Limited (“CS Development Hong Kong”) and CSSC Guangzhou Longxue Shipbuilding Co., Ltd, each for the construction of one Very Large Iron Ore Carrier (for a total of four Very Large Iron Ore Carriers), details of which are set out in the circular of the Company dated 14 March 2007 (the “Circular”), 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.”
“THAT the two construction agreements all dated 16 February 2007, between CS Development Hong Kong, China Shipping Industrial Co., Ltd. and China Shipping Industrial (Jiangsu) Co., Ltd., each for the construction of one Tanker (for a total of two Tankers), details of which are set out in the Circular, 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.”

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NOTICE OF EXTRAORDINARY GENERAL MEETING

“THAT the six construction agreements all dated 2 March 2007 between the Company, Dalian Shipbuilding Industry Company Limited and China Shipbuilding International Trading Company Limited, each for the construction of one Tanker (for a total of six Tankers), details of which are set out in the Circular, 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.”
“THAT the appointment of Mr. Ma Zehua as an executive director of the Company by and is hereby approved.”

Details of Proposed Director for election at the EGM

Mr. Ma Zehua (“Mr. Ma”)

Mr. Ma, born in January 1953 and age 54, is a senior economist. He was formerly the deputy chief and the section chief of the shipping department of COSCO (Group) Company (“COSCO”), the general manager of COSCO (UK) Company, the general manager of the development department and the section chief of the foreign business department of COSCO, the vice-president and the section chief of the development department of COSCO, the president of COSCO (US) Company, the deputy general manager of Guangzhou COSCO, the general manager of Qingdao COSCO and vice-president of COSCO. He joined China Shipping from November 2006 and is the secretary of the committee and the vice-president.

In accordance with the articles of association of the Company, Mr. Ma’s appointment will be with effect from 30 April 2007 until 25 May 2009 subject to shareholders’ approval. Mr. Ma will enter into a service contract with the Company. Save as disclosed above, 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. During the proposed term of employment, Mr. Ma will not be entitled to any remuneration nor bonus payments as a Director. 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.

By Order of the Board

China Shipping Development Company Limited Yao Qiaohong Company Secretary

14 March 2007 Shanghai The People’s Republic of China

(A) The H share register of the Company will be closed from Friday, 30 March 2007 to Monday, 30 April 2007 (both days inclusive), during which no transfer of H shares will be effected. Any

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NOTICE OF EXTRAORDINARY GENERAL MEETING

holders of H shares of the Company, whose names appear on the Company’s register of members at the close of business on Thursday, 29 March 2007, are entitled to attend and vote at the EGM after completing the registration procedures for attending the meeting. In order to be entitled to attend and vote at the EGM, share transfer documents should be lodged with the Company’s H share registrar not later than 4:00 p.m. on Thursday, 29 March 2007.

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

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

(B) Holders of H Shares and A Shares, who intend to attend the EGM, 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, i.e. no later than Tuesday, 10 April 2007.

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

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

(C) Each holder of H Shares who has the right to attend and vote at the EGM is entitled to appoint in writing one or more proxies, whether a shareholder or not, to attend and vote on his behalf at the EGM. A proxy of a shareholder who has appointed more than one proxy may only vote on a poll.
(D) The instrument appointing a proxy must be in writing under the hand of the appointor or his attorney duly authorised in writing. If that instrument is signed by an attorney of the appointor, the power of attorney authorising that attorney to sign, or other documents of authorisation, must be notarially certified.
(E) To be valid, the form of proxy, and if the form of proxy is signed by a person under a power of attorney or other authority on behalf of the appointor, a notarially certified copy of that power of attorney or other authority, must be delivered to the Company’s H Shares share registrar, Hong Kong Registrars Limited, at Room 1712-1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Hong Kong, not less than 24 hours before the time for holding the EGM or any adjournment thereof in order for such documents to be valid.

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NOTICE OF EXTRAORDINARY GENERAL MEETING

(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. 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 or any adjournment, thereof in order for such documents to be valid.
(G) If a proxy attends the EGM on behalf of a shareholder, he should produce his 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, 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, 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 is expected to last an hour. Shareholders attending the EGM are responsible for their own transportation and accommodation expenses.

— N-4 —

AI assistant

Dida Inc. — Proxy Solicitation & Information Statement 2007

50671_rns_2007-03-14_025be08e-cc3f-4980-99da-064108c905c6.pdf

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

MAJOR TRANSACTION CONSTRUCTION OF NEW VLOCS AND CONNECTED TRANSACTION CONSTRUCTION OF NEW TANKERS AND MAJOR TRANSACTION CONSTRUCTION OF NEW TANKERS

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

EXPECTED TIMETABLE

CHINA SHIPPING DEVELOPMENT COMPANY LIMITED

Principal place of

To the Shareholders

MAJOR TRANSACTION CONSTRUCTION OF NEW VLOCS AND CONNECTED TRANSACTION CONSTRUCTION OF NEW TANKERS AND MAJOR TRANSACTION CONSTRUCTION OF NEW TANKERS

1. INTRODUCTION

LETTER FROM THE BOARD

2. THE VLOC CONSTRUCTION

Background Information

LETTER FROM THE BOARD

LETTER FROM THE BOARD

Reasons for, and benefits of the VLOC Construction

3. THE CS TANKER CONSTRUCTION

Background information

LETTER FROM THE BOARD

Reasons for, and benefits of the CS Tanker Construction

4. THE DALIAN TANKER CONSTRUCTION

LETTER FROM THE BOARD

Reasons for and benefits of the Dalian Tanker Construction

5. MAJOR TRANSACTIONS AND CONNECTED TRANSACTION

6. EGM

7. INFORMATION ABOUT THE COMPANY

LETTER FROM THE BOARD

8. RECOMMENDATION

9. ADDITIONAL INFORMATION

CHINA SHIPPING DEVELOPMENT COMPANY LIMITED

CONNECTED TRANSACTION CONSTRUCTION OF NEW TANKERS

CONNECTED TRANSACTION CONSTRUCTION OF NEW TANKERS

INTRODUCTION

PRINCIPAL FACTORS AND REASONS

1. CS Tanker Agreements

2. Basis of the Consideration

3. Financial Effects

4. Reasons for and benefit of the CS Tanker Agreements

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

RECOMMENDATION

Results

Assets, liabilities and minority interests

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

CONSOLIDATED INCOME STATEMENT

CONSOLIDATED BALANCE SHEET

CONSOLIDATED SUMMARY STATEMENT OF CHANGES IN EQUITY

CONSOLIDATED CASH FLOW STATEMENT

BALANCE SHEET

NOTES TO FINANCIAL STATEMENTS

1. CORPORATE INFORMATION

2.1 BASIS OF PREPARATION

Basis of consolidation

2.2 IMPACT OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS

APPENDIX I

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

(c) HKAS 31 — Interests in Joint Ventures

(d) HKAS 16 — Property, Plant and Equipment

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

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Subsidiaries

Joint ventures

Jointly-controlled entities

Related parties

Property, plant and equipment and depreciation

Impairment of assets

Leases

Deferred staff expenditure

Investments and other financial assets

Loans and receivables

Available-for-sale financial assets

Fair value

Impairment of financial assets

Assets carried at amortised cost

APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

Dida Inc. Proxy Solicitation & Information Statement 2007