ELL Environmental Holdings Limited - Proxy Solicitation & Information Statement 2017

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

If you have sold or transferred all your shares in Sinotrans Limited, you should at once hand this circular to the purchaser or transferee or to the bank, stockbroker or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee.

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

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(A joint stock limited company incorporated in the People’s Republic of China with limited liability) (Stock Code: 0598)

(I) PROPOSED APPOINTMENT OF AN INDEPENDENT NON-EXECUTIVE DIRECTOR AND RE-APPOINTMENT OF A SUPERVISOR; (II) PROPOSED AMENDMENT OF THE ARTICLES OF ASSOCIATION OF THE COMPANY; AND (III) CONTINUING CONNECTED TRANSACTIONS

Independent Financial Adviser to the Independent Board Committee the Independent Shareholders

A notice convening the EGM to be held in 1st Meeting Room, 11th Floor, Building 10/Sinotrans Tower B, No. 5 Anding Road, Chaoyang District, Beijing 100029, the People’s Republic of China on 28 December 2017 at 9:30 a.m. and a form of proxy for use at the EGM are available on the website of Sinotrans Limited and the website of The Stock Exchange of Hong Kong Limited.

If you do not intend to attend the EGM, you are requested to complete the form of proxy in accordance with the instructions printed thereon and return it to Hong Kong registered office of the Company at Units F&G, 20/F., MG Tower, 133 Hoi Bun Road, Kwun Tong, Kowloon, Hong Kong as soon as possible and in any event no later than twenty-four (24) hours before the time appointed for holding the EGM or any adjournment thereof. Completion and return of the form of proxy will not preclude you from attending and voting in person at the EGM or any adjournment of it, if you so wish.

30 November 2017

	Page
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
LETTER FROM THE BOARD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	6
LETTER FROM THE INDEPENDENT BOARD COMMITTEE . . . . . . . . . . . . . . . . . . . .	29
LETTER FROM THE INDEPENDENT FINANCIAL ADVISER . . . . . . . . . . . . . . . . . . . .	31
APPENDIX I – AMENDMENTS OF THE ARTICLES OF ASSOCIATION OF THE
COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	62
APPENDIX II – GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	65

DEFINITIONS

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

“Articles of Association”

the articles of association of the Company, as amended, modified or otherwise supplemented from time to time

“associates” the meaning ascribed to it under the Listing Rules
“Board” the board of Directors of the Company
“China Merchants”
招商局集團有限公司 (China Merchants Group Limited*), a state wholly-owned enterprise established under the laws of the PRC under direct control of the SASAC and which owns, directly and indirectly, 66.31% of issued share capital of the Company as at the Latest Practicable Date
“China Merchants Group” China Merchants and its subsidiaries
“China Merchants Logistics”
招商局物流集團有限公司 (China Merchants Logistics Holdings Company Limited*), a wholly-owned subsidiary of the Company
“China Merchants Logistics Group” China Merchants Logistics and its subsidiaries
“Company”
中國外運股份有限公司 (Sinotrans Limited), a joint stock company incorporated in the PRC with limited liability, the H shares of which are listed on The Stock Exchange of Hong Kong Limited
“Connected Non Wholly-Owned Subsidiaries”
Sinotrans Shandong Hongzhi, Qingdao Jinyun Air and Shanghai Waihong Yishida, each being a non wholly-owned subsidiary of the Company and a connected person of the Company
“controlling shareholder”
the meaning ascribed to it under the Listing Rules
“Director(s)” the director(s) of the Company
“Disposable Cash” in respect of a company is the cash and cash equivalents (including term deposits and excluding restricted cash) held by that company and its subsidiaries;

“Domestic Share(s)” domestic invested share(s) of RMB1.00 each in the share capital of the Company

DEFINITIONS

“EGM”
the extraordinary general meeting of the Company to be convened pursuant to the notice of EGM dated 10 November 2017 to approve proposed appointment of an independent non-executive director and re-appointment of a supervisor, proposed amendment of the Articles of Association and the Non-exempt Continuing Connected Transactions and New Caps

“Finance Company” 招商局集團財務有限公司 (China Merchants Group Finance Co. Ltd.), formerly known as 中外運長航財務有限公司(SINOTRANS & CSC Finance Co., Ltd.), a company owned as to 51% by China Merchants and 49% by SINOTRANS & CSC

“Financial Services Agreement” the financial services agreement entered into between the Company and the Finance Company on 10 November 2017
“Former Financial Services the financial services agreements dated 14 November 2012, 25 Agreements” March 2014 and 16 April 2015 entered into between the Company and the Finance Company in relation to the provision of various financial services by the Finance Company to the Group
“Former Master Services the master services agreement dated 6 November 2014 entered into Agreement” between the Company and SINOTRANS & CSC in relation to the provision and receipt of transportation and logistics services between the Group and SINOTRANS & CSC and its associates
“Group”
at any time, the Company and its subsidiaries at that time
“H Share(s)” overseas listed foreign invested share(s) of RMB1.00 each in the share capital of the Company
“Independent Board Committee” a board committee comprising all the independent non-executive Directors of the Company constituted to advise the Independent Shareholders in respect of the Non-exempt Continuing Connected Transactions subject to the New Caps
“Independent Board Committee”
“Independent Financial Adviser” or “Altus Capital”

Altus Capital Limited, a corporation licensed under the SFO to carry out Type 4 (Advising on Securities), Type 6 (Advising on Corporate Finance) and Type 9 (Asset Management) regulated activities, the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders in respect of the Non-exemption Continuing Connected Transactions subject to the New Caps

“Independent Shareholders”

Shareholders other than China Merchants, the Finance Company, the Connected Non Wolly-Owned Subsidiaries and their respective associates (including SINOTRANS & CSC)

DEFINITIONS

“Latest Practicable Date”

27 November 2017, being the latest practicable date prior to the printing of this circular for ascertaining certain information contained in this circular

“Listing Rules” the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited

“Master Services Agreement (China the master services agreement dated 10 November 2017 entered Merchants)” into between the Company and China Merchants in relation to the provision and receipt of transportation and logistics services between the Group and China Merchants and its associates
“Master Services Agreement (Qingdao Jinyun Air)”

the master services agreement dated 10 November 2017 entered into between the Company and Qingdao Jinyun Air in relation to the provision and receipt of transportation and logistics services between the Group and Qingdao Jinyun Air and its associates

“Master Services Agreement (Shanghai Waihong Yishida)”

the master services agreement dated 10 November 2017 entered into between the Company and Shanghai Waihong Yishida in relation to the provision and receipt of transportation and logistics services between the Group and Shanghai Waihong Yishida and its associates

“Master Services Agreement (Sinotrans Shandong Hongzhi)”

the master services agreement dated 10 November 2017 entered into between the Company and Sinotrans Shandong Hongzhi in relation to the provision and receipt of transportation and logistics services between the Group and Sinotrans Shandong Hongzhi and its associates

“Master Services Agreements”
collectively, the Master Services Agreement (China Merchants), the Master Services Agreement (Sinotrans Shandong Hongzhi), the Master Services Agreement (Qingdao Jinyun Air) and the Master Services Agreement (Shanghai Waihong Yishida)
“New Cap(s)”

the maximum value of the relevant Non-exempt Continuing Connected Transactions for each of the three years ending 31 December 2020 as set out in this circular

“Non-exempt Continuing Connected Transactions”
the continuing connected transactions contemplated under the Master Services Agreements and the deposit services contemplated under the Financial Services Agreement

“PBOC”

the People’s Bank of China

“percentage ratio(s)”

the meaning ascribed to it in Chapter 14 of the Listing Rules

DEFINITIONS

“PRC” the People’s Republic of China “Qingdao Jinyun Air” 青島金運航空貨運代理有限公司 (Qingdao Jinyun Air Cargo Freight Forwarding Co. Ltd.*), which is held as to 75% by Sinotrans Shandong Company Limited (a wholly-owned subsidiary of the Company) and 25% by LAILON Enterprises Limited (a non wholly-owned subsidiary of SINOTRANS & CSC)
“Qingdao Liantong Customs” 青島聯通報關有限公司 (Qingdao Liantong Customs Co. Ltd.*), which is held as to 75% by Sinotrans Shandong Company Limited (a wholly-owned subsidiary of the Company) and 25% by LAILON Enterprises Limited (a non wholly-owned subsidiary of SINOTRANS & CSC)
“RMB” Renminbi, the lawful currency of the PRC “SASAC” the State-owned Assets Supervision and Administration Commission of the State Council of the PRC

“SFO” the Securities and Futures Ordinance (Cap. 571 of the laws of Hong Kong)

“Shanghai Waihong Yishida” 上海外紅伊勢達國際物流有限公司 (Shanghai Waihong Yishida International Logistics Co. Ltd.), which is held as to 60% by 中國外運華東有限公司 (Sinotrans Eastern Company Limited) (a wholly-owned subsidiary of the Company), 15% by 中外運上海
（集團）有限公司 (Sinotrans Shanghai (Group) Co., Ltd.) (a wholly-owned subsidiary of SINOTRANS & CSC), 15% by 上港集團物流有限公司 (SIPG Logistics co., Ltd) and 10% by 上海外高橋保稅區聯合發展有限公司 (Shanghai Waigaoqiao Free Trade Zone United Development Co.,Ltd.*)
“Shareholder(s)” holder(s) of shares of the Company

“Sinoair”

Sinotrans Air Transportation Development Corporation Limited, a subsidiary of the Company owned as to approximately 60.95% by the Company as at the Latest Practicable Date and the A shares of which are listed on The Stock Exchange of Shanghai Limited
“Sinoair Financial Services Agreement”
the financial services agreement to be entered into between the Finance Company and Sinoair in relation to the provision of financial services by the Finance Company to Sinoair Group after approval is obtained from the independent shareholders of Sinoair
“Sinoair Group”

Sinoair and its subsidiaries

DEFINITIONS

“SINOTRANS & CSC”

“SINOTRANS & CSC Group”
“Sinotrans Shandong Hongzhi”

“Strategic Reorganisation”

“Stock Exchange”
“subsidiary(ies)”

SINOTRANS & CSC Holding Corporation Limited, the direct controlling shareholder of the Company which holds, directly and indirectly, approximately 42.47% of the issued share capital of the Company as at the Latest Practicable Date

SINOTRANS & CSC and its subsidiaries

山東中外運弘志物流有限公司 (Sinotrans Shandong Hongzhi Logistics Co. Ltd*), which is held as to 75% by Sinotrans Shandong Company Limited (a wholly-owned subsidiary of the Company) and 25% by LAILON Enterprises Limited (a non wholly-owned subsidiary of SINOTRANS & CSC)

the strategic reorganisation approved by the SASAC on 29 December 2015 whereby SINOTRANS & CSC has been administratively allocated (for no consideration) into, and become a wholly-owned subsidiary of, China Merchants, and the Company has become a listed subsidiary of China Merchants

The Stock Exchange of Hong Kong Limited

has the meaning ascribed to it under the Listing Rules

* For the purpose of identification only

LETTER FROM THE BOARD

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(A joint stock limited company incorporated in the People’s Republic of China with limited liability) (Stock Code: 0598)

Chairman:	Registered Office:
Zhao Huxiang	Sinotrans Plaza A
	A43, Xizhimen Beidajie
Executive Directors:	Haidian District
Song Dexing	Beijing, 100082
Li Guanpeng	People’s Republic of China
Wang Lin
Yu Jianmin	Headquarters:
Wu Xueming	Building 10/Sinotrans Tower B,
	No. 5 Anding Road
Non-executive Directors:	Chaoyang District
Jerry Hsu	Beijing, 100029
	People’s Republic of China
Independent non-executive Directors:
Guo Minjie	Principal Place of Business in Hong Kong:
Lu Zhengfei	Units F & G, 20/F., MG Tower,
Liu Junhai	133 Hoi Bun Road,
	Kwun Tong, Kowloon,
	Hong Kong
	30 November 2017

To the Shareholders

Dear Sir and Madam,

(I) PROPOSED APPOINTMENT OF AN INDEPENDENT NON-EXECUTIVE DIRECTOR AND RE-APPOINTMENT OF A SUPERVISOR;

(II) PROPOSED AMENDMENT OF THE ARTICLES OF ASSOCIATION OF THE COMPANY; AND (III) CONTINUING CONNECTED TRANSACTIONS

LETTER FROM THE BOARD

INTRODUCTION

The purpose of this circular is to provide you with information in respect of (i) proposed appointment of an independent non-executive director and re-appointment of a supervisor; (ii) proposed amendment of the articles of association of the Company; and (iii) the Non-exempt Continuing Connected Transactions to enable you to make a decision on whether to vote for or against the relevant resolutions at the forthcoming EGM.

A. PROPOSED APPOINTMENT OF AN INDEPENDENT NON-EXECUTIVE DIRECTOR AND RE-APPOINTMENT OF A SUPERVISOR

The Board is pleased to announce that the proposed appointment of Mr. Wang Taiwen (“ Mr. Wang ”) as an independent non-executive Director has been approved by the Board on 7 November 2017. Mr. Wang has also been appointed as a member of the audit committee, remuneration committee and nomination committee of the Company. In addition, the Supervisory Committee of the Company has on the same day approved the re-appointment of Mr. Zhou Fangsheng (“ Mr. Zhou ”) as the Supervisor of the Company. The proposed service term of each of Mr. Wang and Mr. Zhou is three years with effect from 28 December 2017.

The proposed appointment of Mr. Wang and re-appointment of Mr. Zhou is subject to the approval of the shareholders of the Company at the EGM in accordance with the requirements of PRC laws.

Biographical details of each of Mr. Wang and Mr. Zhou are set out below:

Wang Taiwen , aged 71, is the Independent Non-executive Director of China Automation Group Limited (a company listed in Hong Kong with stock code 00569) and the Independent Director of Guangdong Huatie Tongda High-speed Railway Equipment Corporation (a company listed in Shen Zhen with stock code 000976). Mr. Wang started his career in Ziyang Internal Combustion Locomotive Co. Ltd. of China Ministry of Railway and worked successively as an engineer, Branch Factory Manager, General Manger and the Secretary of Communist Party Committee. Then he acted as President, Chairman and Secretary of Communist Party Committee of China Railway Locomotive and Rolling Stock Industry Corporation, and later as Chairman and Secretary of Communist Party Committee of China Southern Locomotive and Rolling Stock Industry (Group) Corporation. He also acted as an Independent Nonexecutive Director in China Railway Group Limited. From October 2006 to December 2012, Mr. Wang served successively as an External Director of China National Foreign Trade Transportation (Group) Corporation and an External Director of SINOTRANS & CSC. Mr. Wang graduated from Dalian Railway Institute in 1962.

Zhou Fangsheng , age 68, is the independent Supervisor of the Company. Mr. Zhou obtained rich enterprise practice during his long-term service in enterprises. From 1991 to 1997, Mr. Zhou served as Deputy Division Director and Division Director in the State-owned Assets Administration Bureau, and Deputy Director in the Stated-owned Assets Administration Research Institute. From 1997 to 2001, Mr. Zhou worked as Deputy Director in difficulty relief working office for stated-owned enterprises of the State Economic and Trade Commission. From 2001 to 2003, Mr. Zhou served as Director in Stated-owned Assets Administration Research Section of Research Institute for Fiscal Science of Ministry of Finance. From 2003 to 2009, Mr. Zhou worked as Vice Counsel in the Enterprise Reform Bureau of the State-owned Assets

LETTER FROM THE BOARD

Supervision and Administration Commission of the State Council. Mr. Zhou is now retired. Mr. Zhou currently serves as an independent non-executive director of Hengan International Group Company Limited (a company listed in Hong Kong with stock code 01044), an independent non-executive director of China National Building Material Company Limited (a company listed in Hong Kong with stock code 03323) and an independent director of Chenguang Biotech Group Co., Ltd. (a company listed in Shenzhen with stock code 300138). Mr. Zhou graduated from Hunan University majoring in engineering management in 1985 and completed post graduate course from the Renmin University of China in Enterprise Management of Industrial Economics Department in 1996. Mr. Zhou was appointed as the independent Supervisor of the Company in December 2011.

Each of Mr. Wang and Mr. Zhou has confirmed that, save as disclosed above, as at the Latest Practicable Date (i) he is not related to any director, senior management or substantial or controlling shareholders of the Company; (ii) he was not interested in any share of the Company within the meaning of Part XV of the Securities and Futures Ordinance; (iii) he has not in the past three years held any directorship in any other public companies the securities of which are listed on any securities market in Hong Kong or overseas. The Company will not enter into any service contract with Mr. Wang and Mr. Zhou, and they will be entitled to receive emoluments annually during their tenure of office, the amount of which will be determined by the Board in around November 2018 and from time to time thereafter based on their scope of work and performance and such amount will be disclosed in the annual report of the Company during their term of office.

Save as disclosed above, there is no other information relating to the appointment of Mr. Wang and the re-appointment of Mr. Zhou that is required to be disclosed pursuant to Rule 13.51(2)(h) to (v) of the Listing Rules and there are no other matters that need to be brought to the attention of the shareholders of the Company.

B. PROPOSED AMENDMENT OF THE ARTICLES OF ASSOCIATION OF THE COMPANY

The Board proposes to seek the approval of Shareholders of amendments to the Articles of Association to effect the following changes:

(i) to bring up to date the unified social credit code of the Company as stated in the Articles of Association;
(ii) to bring up to date the number of ordinary shares of the Company in issue and make other changes consequential upon the issue and allotment of 1,442,683,444 Domestic Shares to China Merchants on 3 November 2017 as consideration shares for the acquisition of China Merchants Logistics by the Company which is the subject of the announcements of the Company dated 22 August 2017, 16 October 2017 and 3 November 2017 and the circulars dated 6 September 2017 and 26 September 2017;
(iii) to change the Chinese title of the president and vice-president of the Company as stated in the Articles of Association; and
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LETTER FROM THE BOARD

(iv) to add a new Chapter and new articles relating to the construction work of the Communist Party of China within the Company in line with the requirements of the Central Committee of the Communist Party of China and adapted for the actual circumstances of the Company. Under such requirement, a new Article 97 will be added to provide that the Board is to seek the opinions of the Party Committee within the Company before making decisions on material issues of the Company. Notwithstanding the foregoing, the decision making power with respect to such issues remains vested in the Board.

Details of the amendments are set out in Appendix I to this circular.

C. CONTINUING CONNECTED TRANSACTIONS

I. Background

The Group is a leading integrated logistics service provider in China whose principal businesses include freight forwarding, logistics, storage and terminal services, and other services including trucking, shipping and express services. The direct controlling shareholder of the Company, namely SINOTRANS & CSC, is mainly engaged in logistics, shipping and shipbuilding services through its subsidiaries. Since the listing of the Company’s H Shares on the Stock Exchange, the Group has provided to and received from its controlling shareholder and/or its associates from time to time transportation and logistics services and has also entered into property leasing arrangements all of which constitute continuing connected transactions of the Company under Chapter 14A of the Listing Rules.

Following completion of the Strategic Reorganisation by which SINOTRANS & CSC was administratively allocated to and became a wholly-owned subsidiary of China Merchants, the Company also became a listed subsidiary of China Merchants. China Merchants Group is a large PRC state-owned conglomerate. Its principal businesses focus on three main areas, namely transportation (ports and related services, toll roads, shipping, logistics, offshore engineering and trade), finance (banking, securities, funds, insurance) and property development.

Given that the China Merchants Group and its associates (in addition to SINOTRANS & CSC and its associates) may also from time to time provide or purchase logistics services and/or enter into property leasing arrangements with the Group and in order to ensure compliance with the Listing Rules, the Company and China Merchants entered into the Master Services Agreement (China Merchants) on 10 November 2017 that govern the provision or receipt of logistics services and the leasing arrangements between the Group and China Merchants and its associates to replace the Former Master Services Agreement, the three year term for which is due to expire. Apart from the annual caps described below and the contracting party being China Merchants instead of SINOTRANS & CSC, the terms of the Master Services Agreement (China Merchants) are substantially the same as those of the Former Master Services Agreement. Similarly, the Company has entered into other Master Services Agreements with various Connected Non Wholly-Owned Subsidiaries engaged in the provision of logistics services in anticipation of the expiry of corresponding former agreement which is currently in force as of the Latest Practicable Date.

LETTER FROM THE BOARD

In addition, the Company also proposes to enter into the Financial Services Agreement in relation to the provision of deposit services and other financial services to the Group by the Finance Company to replace the Former Financial Services Agreements on largely the same terms (the main changes being those relating to the annual caps and interest rates determination described below). The Finance Company is held as to 51% by China Merchants and 49% by SINOTRANS & CSC. Its principal business activities include the provision of (i) financial consultancy, credit appraisal and other relevant and agency advice; (ii) cash/payment settlement services; (iii) guarantees, bills acceptances and discount services; (iv) loans and finance lease services; (v) deposit services and (vi) corporate bond underwriting services for members of the China Merchants Group.

As the continuing connected transactions up to the annual caps contemplated under the Master Services Agreements and the utilisation of deposit services of the Finance Company up to the annual caps contemplated under the Financial Services Agreement constitute non-exempt continuing connected transactions, the Company will seek Independent Shareholders’ approval at the EGM to enter into transactions under each of those agreements up to the relevant New Caps. Further information regarding the Master Services Agreements and the Financial Services Agreement is set out below in “II. Non-exempt Continuing Connected Transactions which require reporting, annual review, announcement and Independent Shareholders’ approval”.

II. Non-exempt Continuing Connected Transactions which require reporting, annual review, announcement and Independent Shareholders’ approval

The Non-exempt Continuing Connected Transactions which require Independent Shareholders’ approval are those contemplated under the Master Services Agreements and the Financial Services Agreement.

(a) Transactions with China Merchants and its associates under the Master Services Agreement (China Merchants)

Principal terms of the Master Services Agreement (China Merchants)

On 10 November 2017, the Company and China Merchants entered into the Master Services Agreement (China Merchants) in respect of the provision and receipt of the transportation and logistics services (including the following categories of services, namely freight forwarding services, shipping agency, storage and terminal services, trucking transportation, express services, shipping transportation and leasing of containers and other facilities) between members of the Group and China Merchants Group and associates of China Merchants. As described in “I. Background” above, the Master Services Agreement (China Merchants) is the continuation of the services provided under the Former Master Services Agreement.

The Master Services Agreement (China Merchants) requires that logistics services be provided at the market prices and on normal commercial terms. “Market prices” means the price at which the same or comparable type of services are provided by or to (as appropriate) independent third parties in the same area on normal commercial terms in the ordinary course of business. The mechanism by which the

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LETTER FROM THE BOARD

Group ensures that the services provided under the Master Services Agreements are charged at market prices and the internal control procedures for monitoring such connected transaction to ensure compliance with the Listing Rules are described in the sub section headed “IV. Basis of pricing of the transactions contemplated under the Master Services Agreements, and the Financial Services Agreement and internal control procedures for monitoring connected transactions”.

The provision of services under the Master Services Agreement (China Merchants) is conditional upon the Company’s compliance with the relevant connected transaction requirements under the Listing Rules (which include, among other things, the approval of the Independent Shareholders at the EGM). Subject to the approval of Independent Shareholders being obtained, the term of the Master Services Agreement (China Merchants) commences on 1 January 2018 for a period of three years, ending on 31 December 2020.

Historical transaction value

During the financial years ended 31 December 2015 and 2016 and the nine months ended 30 September 2017, the turnover/expenses of the Group attributable to each of the transactions to SINOTRANS & CSC and its associates under the Former Master Services Agreement were as follows:

		Amount (RMB)
	2015	2016	2017
	(’000)	(’000)	(’000)
Actual amount with respect
to the provision of
transportation and logistics
services1	1,100,385	1,121,074	814,8582
Relevant annual cap under
the Former Master Services
Agreement	2,350,000	3,020,000	3,889,000
Historical utilization rate	46.8%	37.1%	21.0%2
Actual amount with respect
to the receipt of
transportation and logistics
services1	1,257,669	1,527,647	1,322,2132
Relevant annual cap under
the Former Master Services
Agreement	3,510,000	4,563,000	5,932,000
Historical utilization rate	35.8%	33.5%	22.3%2

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LETTER FROM THE BOARD

Notes:

The following table illustrates the historical transaction levels between (a) the Group and China Merchants Logistics Group and (b) China Merchants and its associates (other than the Group and China Merchants Logistics Group) based on data collated from 2016, following the Company’s first announcement regarding the Strategic Reorganisation dated 15 November 2015, for the year ended 31 December 2016 and for the nine months ended 30 September 2017:

	Amount	(RMB)
	2016	2017
	(’000)	(’000)
Estimated amount with respect to the provision
of transportation and logistics services	1,409,015	854,997
Estimated amount with respect to the receipt of
transportation and logistics services	1,552,411	1,415,333

In determining the annual caps under the Master Services Agreement (China Merchants), the Company has taken into account such historical transactions as reference for the possible effect of the consolidation of China Merchants Logistics Group (see note 2(iv)(b) below) and potential increase in collaboration with China Merchants Group (see note 2(v) below).

These figures represent the transaction amount for the nine months ended 30 September 2017 and the utilization rates are calculated by measuring those transaction amounts against the relevant annual caps.

Annual caps under the Master Services Agreement (China Merchants)

The Company proposes that the aggregate transaction amount for each of the following types of transactions (in respect of which Independent Shareholders’ approval is proposed to be sought at the EGM) for 2018, 2019 and 2020 pursuant to the Master Services Agreement (China Merchants) be capped as follows:

		Amount (RMB)
	2018 Cap1	2019 Cap1	2020 Cap1
	(’000)	(’000)	(’000)
Provision of
transportation
and logistics
services 2&3	2,500,000	3,250,000	4,225,000
Receipt of
transportation
and logistics
services 2&3	3,500,000	4,550,000	5,915,000

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LETTER FROM THE BOARD

Notes:

These figures represent the maximum value of the relevant type of transactions which the Group may undertake during the relevant financial years. The actual amount of transaction may be different. Taking into account the basis for the determination of the caps as detailed below, the Board (including the independent non-executive Directors) considers that the New Caps set out above are fair and reasonable.
In determining the relevant caps for transactions under the Master Services Agreement (China Merchants), the Company took into account the following factors:
(i) in determining the annual cap for the year ending 31 December 2018, the Company has provided for approximately 50% increment over the highest annual total value of transactions over the three years ending 31 December 2017 which primarily takes into account the potential growth in the Group’s revenue and operating size as described further in paragraph (iv) below;
(ii) in determining the annual caps for the two years ending 31 December 2020, the Company assume a 30% increment year on year over the previous annual cap, to give allowance for:–
- (a) the volatility of volume of business due to general industry or economic conditions as described in paragraph (iii) below; and
- (b) the potential growth in overall business of the Group and collaboration with China Merchants and its associates, as described further in paragraph (iv) and (v) below;
(iii) business volumes and the market rates generally in the transportation and logistics services industry are inherently volatile (and are affected by the volatility in oil price, labour costs, the general economic environment in the PRC and overseas as well as particular sectors of such economies). For example, the Company has allowed, for the purposes of determining the annual caps, for an average annual increase in the China Containerised Freight Index (CCFI) at 10% per annum given that the CCFI has rebounded in 2017 after reaching a 10-year historical low in 2016. To the extent that logistic services provided or received entails shipping containers, the relevant costs are generally embedded in the service charge in line with industry norms;
(iv) the potential growth in the Group’s revenue and operating size:
- (a) as the Group continues to pursue its positioning as an “integrator of comprehensive logistics services” and its stated strategy of “production service, network operation, platform management, internationalization and capitalisation” in logistic services and expanding “One Belt One Road” related services, noting that the unaudited revenue of the Group for the six months ended 30 June 2017 represented a revenue growth of approximately 27.4% over the unaudited revenue of the Group for the six months ended 30 June 2016;
- (b) as the Group consolidates the business of China Merchants Logistics Group following completion of its acquisition in the second half of 2017 (China Merchants Logistics having reported revenue of over
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LETTER FROM THE BOARD

RMB13,100 million for the year ended 31 December 2016, and approximately 16.6% revenue growth in the six months ended 30 June 2017 compared to the six months ended 30 June 2016);

  - (c) by reference to the China target gross domestic product (GDP) growth rate of approximately 6.5% in view of the strong correlation between growth in business activities and demand for services in the logistics sector;

(v) the potential increase in opportunities for collaboration between the Group and the China Merchants Group (including SINOTRANS & CSC Group) and their associates as integration of the Group as a member of the China Merchants Group continues given the investment and operations of China Merchants Group in the transportation segment to facilitate the implementation of the Group’s business strategies as mentioned above;
Payment for the provision and receipt of the above transportation and logistics services are generally settled by cash payments in accordance with the standard terms of sale or provision of services of the provider from time to time.

The Directors (including the independent non-executive Directors) are of the view that, taking into account of (i) the potential growth in the Group’s revenue and operating size; (ii) the potential increase in opportunities for collaboration between the Group and China Merchants Group and their associates; and (iii) the volatility of volume of business due to general industry or economic conditions, all of which are described above, the relevant New Caps contemplated under the Master Services Agreement (China Merchants) are fair and reasonable and the terms of the Master Services Agreement (China Merchants) are fair and reasonable and on normal commercial terms, and the Master Services Agreement (China Merchants) is entered into in the ordinary and usual course of business of the Group and in the interests of the Company and the Shareholders as a whole.

(b) Transactions with Connected Non Wholly-Owned Subsidiaries

The Group has also received and provided transportation and logistics services with four Connected Non Wholly-Owned Subsidiaries engaged in the provision of logistics business, namely (i) Sinotrans Shandong Hongzhi, Qingdao Liantong Customs and Qingdao Jinyun Air each owned as to 75% by Sinotrans Shandong Company Limited (a wholly-owned subsidiary of the Company) and 25% by LAILON Enterprises Limited (a non wholly-owned subsidiary of SINOTRANS & CSC), (ii) Shanghai Waihong Yishida, which is owned as to 60% by 中國外運華東有限公司 (Sinotrans Eastern Company Limited), a wholly-owned subsidiary of the Company, and as to the remaining 15% by 中外運上海（集團）有限公司 (Sinotrans Shanghai (Group) Co., Ltd.), a wholly-owned subsidiary of SINOTRANS & CSC, 15% by 上港集團物流有限公司 (SIPG Logistics Co., Ltd) and 10% by 上海外高橋保稅區聯合發展有限公司 (Shanghai Waigaoqiao Free Trade Zone United Development Co., Ltd.). To the best of the Directors’ knowledge, information and belief having made all reasonable enquiries, the other two minority shareholders of Shanghai Waihong Yishida and their respective ultimate beneficial owners are third parties independent of the Company and its connected persons.

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More specifically, Sinotrans Shandong Hongzhi is mainly engaged in international container road-transportation business, international transportation agency business of sea, road, air freight forwarding for import and export cargo, import and export cargo transportation of the non-vessel operating common carrier (NVOCC) business and international express services; Qingdao Jinyun Air mainly operates international transportation agency business of air freight forwarding for import and export cargo and consulting services for international trade; Qingdao Liantong Customs is mainly engaged in customs declaration services for import and export cargo, transportation vehicles and goods, storage and transportation services, computer pre-recorded and other related services; and Shanghai Waihong Yishida is mainly engaged in international transportation agency business by air, by road and by sea, customs declaration and inspection agency services, insurance agency services, storage, regional simple commercial processing work and non-vessel operating carrier services (international). As the business of Qingdao Liantong Customs has been shrinking in recent years and there was no transaction between the Group and Qingdao Liantong Customs in the nine months ended 30 September 2017, the Group may consider closing the company in 2017. Therefore, no renewal agreement will be entered into by the Company and Qingdao Liantong Customs.

As a subsidiary of SINOTRANS & CSC (the direct controlling shareholder of the Company) holds at least 10% or more equity interest in each of the Connected Non WhollyOwned Subsidiaries, such Connected Non Wholly-Owned Subsidiaries are connected persons of the Company pursuant to Rule 14A.16 of the Listing Rules.

In order to facilitate the continuation of the provision and receipt of logistic services to and from the Connected Non Wholly-Owned Subsidiaries in compliance with the requirements of the Listing Rules, on 10 November 2017, the Company entered into the Master Services Agreement (Sinotrans Shandong Hongzhi), the Master Services Agreement (Qingdao Jinyun Air) and the Master Services Agreement (Shanghai Waihong Yishida) with the relevant Connected Non Wholly-Owned Subsidiary for the provision and receipt of the transportation and logistics services (including the following categories of services, namely freight forwarding services, shipping agency, storage and terminal services, trucking transportation, express services, shipping transportation and leasing of containers and other facilities) between members of the Group and the Connected Non Wholly-Owned Subsidiaries and their respective subsidiaries and associates. The term of each of the Master Services Agreement (Sinotrans Shandong Hongzhi), the Master Services Agreement (Qingdao Jinyun Air) and the Master Services Agreement (Shanghai Waihong Yishida) is for a period of three years commencing on 1 January 2018 and ending on 31 December 2020, subject to the approval of Independent Shareholders being obtained. Services provided under these agreements will be at the market price charged by independent third parties and on normal commercial terms. Procedures and mechanism for determining market price will as same as those described in the section headed “(a) Transactions with China Merchants and its associates under the Master Services Agreement (China Merchants)” above.

The table below sets out the historical transaction amount of the Group attributable to transactions with each of the Connected Non Wholly-Owned Subsidiaries and their respective subsidiaries and associates during the financial years ended 31 December 2015 and 2016 and for the nine months ended 30 September 2017 and the proposed annual caps for the value of

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transportation and logistics services to be provided and received by the Group (in respect of which Independent Shareholders’ approval is proposed to be sought at the EGM), with each of the Connected Non Wholly-Owned Subsidiaries and their associates for 2018, 2019 and 2020 respectively:

				Amount	Amount	(RMB)
		2015	2016	2017		2018	Cap 3	2019 Cap 3	2020 Cap 3
Sinotrans Shandong	Provision of transportation
Hongzhi	and logistics services 1	77,556,956	119,581,681	83,924,577	2	200,000,000		260,000,000	338,000,000
	Historical annual cap	135,000,000	202,500,000	303,750,000			–	–	–
	Historical utilisation rate	57.4%	59.1%	27.6% 2			–	–	–
	Receipt of transportation
	and logistics services 1	22,857,685	27,665,525	28,733,219	2	60,000,000		78,000,000	101,400,000
	Historical annual cap	150,000,000	225,000,000	337,500,000			–	–	–
	Historical utilisation rate	15.2%	12.3%	8.5% 2			–	–	–
Qingdao Jinyun Air	Provision of transportation
	and logistics services 1	1,183,461	1,329,940	1,750,647	2	5,000,000		7,500,000	11,250,000
	Historical annual cap	30,000,000	45,000,000	67,500,000			–	–	–
	Historical utilisation rate	3.9%	3.0%	2.6% 2			–	–	–
	Receipt of transportation
	and logistics services 1	3,721,120	8,141,714	1,446,255	2	7,500,000		11,250,000	16,870,000
	Historical annual cap	7,500,000	11,250,000	16,875,000			–	–	–
	Historical utilisation rate	49.6%	72.4%	8.6% 2			–	–	–
Shanghai Waihong	Provision of transportation
Yishida	and logistics services 1	–	0	0 2		1,000,000		1,000,000	1,000,000
	Receipt of transportation
	and logistics services 1	–	124,100	532,200	2	2,250,000		2,250,000	2,250,000

Notes:

Based on data collated from 2016, following the Company’s first announcement regarding the Strategic Reorganisation dated 15 November 2015, there had not been material transactions between China Merchants Logistics and the relevant Connected Non Wholly-Owned Subsidiary and its associates for the year ended 31 December 2016 and for the nine months ended 30 September 2017.
These figures represent the transaction amount for the nine months ended 30 September 2017 and the relevant utilization rates are calculated by measuring those transaction amounts against the annual cap.
These figures represent the maximum aggregate annual transaction value in respect of the transactions of the relevant type which the Group will undertake under the relevant agreement during the financial year specified. The actual transaction amount may be different. In determining the relevant caps for transactions under each relevant Master Services Agreements, the Company took into account the following:
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(i) in respect of the annual caps under the Master Services Agreement (Sinotrans Shandong Hongzhi), the Company (a) took into account the value of the Group’s transactions with Sinotrans Shandong Hongzhi for the two years ended 31 December 2016 and nine months ended 30 September 2017 and adjusted the cap for the provision of transportation and logistics services for the year ending 31 December 2018 to a number which represents a two-thirds increase by reference to the highest utilisation year given the smaller monetary value involved (the largest annual cap of RMB338,000,000 representing approximately 0.72% of the revenue of the Group for the year ended 31 December 2016) and the setting of the cap for the receipt of transportation and logistics services for the year ending 31 December 2018 at 30% of the caps for the provisions of services having regard to historical trend and allowing some room for deviations; (b) assumed a 30% increment year on year in respect of the annual caps for the two years ending 31 December 2020 (see para (iv) below);
(ii) in respect of the annual caps under the Master Services Agreement (Qingdao Jinyun Air) for provision of services, the Company proposes to reduce the annual cap for the year ending 31 December 2018 to approximately 7.4% of the annual cap for the year 2017, having considered (a) the low utilisation in the past three years; (b) the historical values of the logistics services provided by the Group to Qingdao Jinyan Air have been and is expected to fall below RMB2,000,000 and such transaction has materially been affected by developments in the Korean peninsula over the last year that created uncertainty and have affected trading activities and possible future growth as circumstances remain unclear. In respect of the annual caps for the receipt of services, the Company proposes to adopt substantially the same set of caps for the next three years as those for the three years ending 31 December 2017 to allow for the potential increase in the transactions between the Group and Qingdao Jinyun Air in the future as the Company expects one of its wholly-owned subsidiaries, namely Sinotrans Shandong Company Limited, to continue to work towards expanding its professional logistics services sector in Shandong Province and therefore it may be in need of the services of Qingdao Jinyun Air in the future. The annual caps with respect to the provision and receipt of services for the two years ending 31 December 2020 assumed a year on year increment of 50% (instead of the 30% adopted for the annual cap under the Master Services Agreement (China Merchants)), mainly because of the smaller monetary value involved (the largest annual cap of RMB16,870,000 representing less than 0.04% of the revenue of the Group for the year ended 31 December 2016), but otherwise the same approach was adopted when determining annual caps for those two agreements;
(iii) Shanghai Waihong Yishida became a subsidiary of the Company in June 2016 when the Group acquired 60% of its equity interest. Therefore, the historical figures represent the transaction amount for the six months ended 31 December 2016 and the nine months ended 30 September 2017. The flat annual caps for the provision and receipt of services for the three years ending 31 December 2020 under the Master Services Agreement (Shanghai Waihong Yishida) have been set at a de minimis level (the largest annual cap of RMB2,250,000 representing less than 0.005% of the revenue of the Group for the year ended 31 December 2016) after taking into account the potential increase in business cooperation between Shanghai Waihong Yishida and companies within the Group after it became a member of the Group. In addition, given the expected increasing demand for logistics services in the Eastern China region where the company is located, it is expected that the business of Shanghai Waihong Yishida can benefit from the favourable market conditions in the future;
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(iv) allowance has been included in the annual caps in each case (except for Shanghai Waihong Yishida) that assumes year on year increment over the two years ending 31 December 2020 adopted for determination of annual caps under the Master Services Agreement (China Merchants) as described in the sub section headed “(a) Transactions with China Merchants and its associates under the Master Services Agreement (China Merchants) – Annual caps under the Master Services Agreement (China Merchants)” above;

The Directors (including the independent non-executive Directors) are of the view that the terms (including the relevant annual caps contemplated thereunder) of each of the Master Services Agreement (Sinotrans Shandong Hongzhi), the Master Services Agreement (Qingdao Jinyun Air) and the Master Services Agreement (Shanghai Waihong Yishida) are fair and reasonable, on normal commercial terms, and are entered into in the ordinary and usual course of business of the Group and in the interest of the Company and the Shareholders as a whole.

(c) Transactions with the Finance Company

Principal terms of the Financial Services Agreement

On 10 November 2017, the Company and the Finance Company entered into the Financial Services Agreement under which the Finance Company agreed to provide a series of financial services which include: (1) deposit services; (2) loan services (including entrusted loan services); (3) other financial services (including the following categories of services, namely settlement services, notes services, foreign exchange services, financial consultancy services, credit appraisal and other relevant advice and agency services, and other financial services within its business scope), as set out in more details below, to the Group within the caps agreed thereunder for the three years commencing on 1 January 2018 and ending on 31 December 2020:

(i) Deposit services: the interest rates of the deposit services offered by the Finance Company (a) are to be 15% to 50% higher than the general interest rates set by the PBOC for the same type of deposit for the same term; and (b) are not to be lower than the interest rates offered by major commercial banks in the PRC to the Group for the same type of deposit for the same term in the same period.

Services ancillary to the deposit services, including but not limited to account management services and provision of deposit certificate, are to be provided by the Finance Company free of charge.

(ii) Loan services: the interest rates of loan services (including entrusted loan) charged by the Finance Company will not be higher than the interest rates provided by other financial institutions in the PRC to the Group for the same level of loan in the same period. Loans provided by the Finance Company will in principle be by way of unsecured credit loans.
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(iii) Other financial services:
(a) Settlement services: The Finance Company will provide domestic settlement services free of charge and the rate of cross border and overseas settlement services will not be higher than that of the same services provided by other local or domestic financial institutions. In addition, the Finance Company can facilitate management by the Company of its offshore cash through the SWIFT channel which can be accessed through the Finance Company.
(b) Notes services: including but not limited to bank acceptance bill, commercial acceptance bill and related business. The charges for such services will not be higher than that charged by other PRC financial institutions which provide comparable products in the same period.
(c) Foreign exchange services: The Finance Company may on application of the Company provide the Group with settlement and sale of foreign exchange services. The exchange rates to be offered by the Finance Company will not be less favorable than that offered by other domestic financial institutions for similar services.
(d) Other services including but not limited to financial consultancy services, credit appraisal and other relevant advice and agency services. The charge for provision of such services by the Finance Company will not be higher than those charged by other major domestic financial institutions for similar services.

As the making of deposits by the Group to the Finance Company constitutes “financial assistance” by the Group to the Finance Company for the purposes of the Listing Rules and, in view of the size of the annual caps for deposits being below, the use of the deposit services by the Group up to the annual caps under the Financial Services Agreement is conditional upon the approval by the Independent Shareholders at the EGM.

Internal control and risk management measures under the Financial Services Agreement

The Financial Services Agreement contains the following internal control and risk management measures:

1) The Group utilises the services of the Finance Company on a voluntary, nonexclusive basis and is not obliged to engage the Finance Company for any services. The Finance Company is merely one of the financial institutions which provide services to the Group.
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2) In accordance with the compliance and disclosure requirements to which the Group is subject, the Finance Company will provide all legal documents, agreements, government approvals, financial data and other information as required by the Group.
3) The Finance Company has obligation to keep confidential the Group’s unpublished information that it has obtained in the course of its provision of financial services to the Group under the Financial Services Agreement, except as otherwise required by applicable laws and regulations.
4) The Finance Company will strictly comply with the relevant laws and regulations and requirements imposed by the regulatory authority and ensure the security of funds of the Group, including compliance with the requirements of the China Banking Regulatory Commission and other regulatory authorities.
5) The Finance Company is required to provide the Group with quarterly reports, setting out daily status of the Group’s deposits with the Finance Company; the quarterly balance sheet, income statement and cash flow statement of the Finance Company; significant organization change, equity transaction or operational risks that may impact the deposits of the Group in the future, and to timely inform the Group the occurrence of any significant security risk towards the Group’s deposits and take necessary measures to avoid any losses.

Furthermore, the Company noted that China Merchants, the holding company of the Finance Company, has made an undertaking to the China Banking Regulatory Commission on 25 July 2016 that, in the event the Finance Company is unable to meet its payment obligations, China Merchants will inject capital into the Finance Company to pay for the actual shortfall. Identical undertaking is also set out in the articles of association of the Finance Company.

Historical transaction value in relation to the deposit services

During the financial years ended 31 December 2015 and 2016 and the nine months ended 30 September 2017, the amounts incurred by the Group attributable to deposit services with the Finance Company under the Former Financial Services Agreements were as follows:

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		Amount (RMB)
	2015	2016	2017
	(’000)	(’000)	(’000)
Actual maximum daily
outstanding balance of
deposits placed by the
Group with the Finance
Company (excluding loan
proceeds advanced by the
Finance Company)1	869,229	863,004	838,1602
Relevant annual cap under
the Former Financial
Services Agreement	900,000	900,000	900,000
Historical utilization rate	96.6%	95.9%	93.1%2

Notes:

The following table illustrates the historical transaction levels between (a) the Group and China Merchants Logistics Group and (b) the Finance Company based on data collated from 2016, following the Company’s first announcement regarding the Strategic Reorganisation dated 15 November 2015, for the year ended 31 December 2016 and the nine months ended 30 September 2017:

	Amount	(RMB)
	2016	2017
	(’000)	(’000)
Estimated maximum daily outstanding balance of
deposits placed by the Group and China
Merchants Logistics Group with the Finance
Company (excluding loan proceeds advanced
by the Finance Company)	863,004	1,269,139

In determining the annual caps under the Financial Services Agreement, the Company has taken into account such historical transactions as reference for the possible effect of the consolidation of China Merchants Logistics Group (see notes 2(iv)(b) under the sub section headed “(a) Transactions with China Merchants and its associates under the Master Services Agreement (China Merchants) – Annual caps under the Master Services Agreement (China Merchants)” above) and potential increase in collaboration with China Merchants Group (see note 2(v) under the same sub section as mentioned above).

These figures represent the transaction amount for the nine months ended 30 September 2017 and the utilization rates are calculated by measuring those transaction amounts against the relevant annual caps.

For example, during the period from 14 August 2017 to 2 November 2017, the Finance Company offered interest on 6-month and 12-month fixed deposits and 7-day notice deposits (being a type of fixed deposit that may be withdrawn after prior notice

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of a specified period) of 1.75%, 2.0% and 1.755% per annum, respectively, while the interest rates for the corresponding deposits published by the major commercial banks in the PRC were 1.55%, 1.75% and 1.10% per annum, respectively.

Annual cap for deposit services

The Company proposes that the maximum amount for the deposit services (in respect of which Independent Shareholders’ approval is proposed to be sought at the EGM) for 2018, 2019 and 2020 pursuant to the Financial Services Agreement be capped as follows:

Amount (RMB) 2018 Cap[1] 2019 Cap[1] 2020 Cap[1] (’000) (’000) (’000) Maximum daily outstanding balance of deposits placed by the Group with the Finance Company (excluding loan proceeds advanced by the Finance 4,000,000 or 5,000,000 or 5,000,000 or Company) 2,000,000[2&3] 2,500,000[2&3] 2,500,000[2&3]

Notes:

These figures represent the maximum value of transactions of the relevant type which the Group may undertake during the relevant financial years. The actual amount of transaction may be different. Taking into account the basis for the determination of the caps as detailed below, the Board (including the independent non-executive Directors) considers that the New Caps set out above are fair and reasonable.
In setting the New Cap for the year ending 31 December 2018, the Company has taken into account the following:
(i) the maximum daily outstanding deposits balance of RMB2,000,000,000 (excluding loan proceeds advanced by the Finance Company) that can be placed by Sinoair and its subsidiaries with the Finance Company pursuant to the Sinoair Financial Services Agreement subject to it taking effect. Sinoair is a major subsidiary of the Company listed on the Shanghai Stock Exchange. As at 31 December 2015, 31 December 2016 and 30 September 2017, the balance of the Disposable Cash of the Sinoair Group accounted for around 40% to 50% of that of the Group, respectively.

The Sinoair Financial Services Agreement contains substantially the same terms, other than those in relation to annual caps and regulatory compliance requirements, as the Financial Services Agreement, in order to comply with the Rules Governing the Listing of Stocks on Shanghai Stock Exchange. It is to take effect upon the approval by Sinoair’s independent shareholders. The Financial Services Agreement provides that if the Sinoair Financial Services Agreement does not become effective, the maximum daily outstanding deposits

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balance of the Group under the Financial Services Agreement for the three years ending 31 December 2020 will be reduced to RMB2,000,000,000, RMB2,500,000,000 and RMB2,500,000,000, respectively (i.e. by excluding the amount attributable to Sinoair Group).

(ii) there has been nearly full utilisation of annual caps for daily deposits under the Former Financial Services Agreements for the two years ended 31 December 2016 and in the current financial year mainly because the interest rates being offered by the Finance Company (and accepted by members of the Group in accordance with the procedures described in the sub section headed “IV. Basis of pricing of the transactions contemplated under the Master Services Agreements and the Financial Services Agreement and internal control procedures for monitoring connected transactions – Basis of pricing” below) have been more favourable than those available from third party financial institutions.
the New Caps (which refers to the daily maximum deposit amount) makes allowance for:–
(i) the fact that the New Cap for the year ending 31 December 2018 represents less than 50% of the Disposable Cash of the Group as at 30 September 2017;
(ii) the potential increase in Disposable Cash of the Group over the next three years with the expansion of the Group’s business and operations in line with its growth strategies as described in greater detail in notes 2(iv) and 2(v) under the sub section headed “(a) Transactions with China Merchants and its associates under the Master Services Agreement (China Merchants) – Annual caps under the Master Services Agreement (China Merchants)” above taking into account the fact that (i) the Disposable Cash of the Group as at 30 September 2017 represented approximately 37% increase over its Disposable Cash as at 31 December 2014 and (ii) the Disposable Cash of the Group will increase on consolidation (following completion of the acquisition) of China Merchants Logistics Group, which had Disposable Cash of approximately RMB1,434.8 million as at 30 September 2017), thereby rendering the increase of the New Cap for each of the two years ending 31 December 2020 by 25% over the New Cap for the year ending 31 December 2018 to be reasonable;
(iii) increased deposits to facilitate settlement of transactions between the Group and other members of the China Merchants Group, or as amongst members of the Group, to take advantage of lower transaction costs given that the Finance Company does not charge for domestic settlement services under the terms of the Financial Services Agreement as a result of increased collaboration on the provision of logistics services between them as explained in greater detail in note 2(v) under the sub section headed “(a) Transactions with China Merchants and its associates under the Master Services Agreement (China Merchants) – Annual caps under the Master Services Agreement (China Merchants)”; and
(iv) since the vast majority of logistic services provided by the Group are driven by the requirements of independent third party customer (so that logistics services being provided by the Group to China Merchants or its associates, or vice versa, may relate to one part of the overall services to such customer), amounts requiring settlement can fluctuate significantly from day to day.
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Annual cap for loan services and other financial services

The provision of loan services by the Finance Company to the Group on normal commercial terms on an unsecured basis under the Financial Services Agreement constitute financial assistance by a connected person for the benefit of the Group which is exempt under the Rule 14A.90 of the Listing Rules from reporting, annual review, announcement and Independent Shareholders’ approval requirements. During the two financial years ended 31 December 2016 and for the nine months ended 30 September 2017, (i) the maximum daily outstanding balance of loans granted by the Finance Company to the Group (including accrued interests and handling charges) was approximately RMB195,000,000, RMB1,059,000,000 and RMB2,559,000,000, respectively; and (ii) the total expenses incurred by the Group with respect to other financial services are less than RMB1,000,000 for each of the two financial years ended 31 December 2016 and for the nine months ended 30 September 2017, respectively. Based on historical transactions and an assessment of the business needs of the Group, the Group’s requirements for other financial services are expected to be within the de minimum thresholds under Chapter 14A of the Listing Rules. Accordingly, no caps have been specified in the Financial Services Agreement in respect of the loan services and other financial services.

The Directors (including the independent non-executive Directors) are of the view that the terms (including the relevant annual caps contemplated thereunder) of the Financial Services Agreement are fair and reasonable and on normal commercial terms and the Financial Services Agreement is entered into in the ordinary and usual course of business of the Group and in the interests of the Company and the Shareholders as a whole.

III. Listing Rules compliance in respect of the Non-exempt Continuing Connected Transactions

The transactions contemplated under the Master Services Agreement (China Merchants), the Master Services Agreement (Sinotrans Shandong Hongzhi), the Master Services Agreement (Qingdao Jinyun Air) and the Master Services Agreement (Shanghai Waihong Yishida) are for the purposes of calculating the applicable percentage ratios in accordance with the Listing Rules aggregated pursuant to Rule 14A.82 of the Listing Rules.

As the largest applicable percentage ratio of the proposed annual caps in respect of the transactions contemplated under the Master Services Agreements in aggregate exceeds 5% and the largest applicable percentage ratio of the proposed annual cap (assuming the largest annual cap is to be RMB5 billion) in respect of the deposit services contemplated under the Financial Services Agreement exceeds 5%, the Non-exempt Continuing Connected Transactions and the relevant New Caps are subject to the reporting, annual review, announcement and Independent Shareholders’ approval requirements under Chapter 14A of the Listing Rules.

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IV. Basis of pricing of the transactions contemplated under the Master Services Agreements and the Financial Services Agreement and internal control procedures for monitoring connected transactions

Basis of pricing

(i) the Master Services Agreements

Separate contracts in relation to each transaction will be entered into by the relevant parties. As the Group is a key market player in the transportation and logistics services in the PRC, during its ordinary course of business it will have gathered information on the market rates of various services offered by its competitors from time to time. For some standard services, various service providers may issue price lists from time to time. When entering into any particular transaction with a connected person, the relevant member of the Group would consider a number of factors including, among other things, the combination of services provided, the geographical coverage of services provided and the terms offered by the local competitors, with a view to ensuring that the terms offered to the Group those terms are at market prices as defined above. If a transaction involves customized combination of services for which the terms offered by service providers could substantially differ, the relevant member of the Group will in accordance with the Group’s internal control manual requirements obtain quotes and terms of services from at least two independent third parties (to the extent such alternative service providers are available) and the connected person. The Company has established a business contracts review system in which the supervisory departments and offices of the Group will review the terms of services (including the price of services) and compare the same against those offered by independent third parties, to ensure that those terms are at market prices as defined above. In the event that there are less than two alternative independent third parties service providers in the relevant market for a particular type of services, such departments and offices will review the terms of such services (including the price) with reference to the terms of similar services provided or received by the Group previously and consider whether the terms being offered are commercially beneficial to the Group having regard to such comparables. The Directors consider that the procedures described above can ensure that the transactions will be conducted on normal commercial terms and not prejudicial to the interests of the Company and its minority Shareholders.

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(ii) Deposit services under the Financial Services Agreement

The Company first engaged the Finance Company for the provision of the deposit services to the Group, on normal commercial terms, pursuant to an agreement entered into between them in 2012. The existing deposit services used by the Group mainly involve placing/withdrawing current deposits in the Finance Company to facilitate the Group’s daily operations such as receiving sales proceeds from customers or making payments for expenses to suppliers or government authorities and payrolls. As maximizing interest income is not the Group’s only goal for using the deposit services, the Group also considers other selection criteria, in addition to the interest rates, such as fund security, preferences of customers, suppliers and the government authorities, location of bank branches, quality of services and convenience on fund transfers, in selection of deposit services providers. Given that the Group is satisfied with the quality of services provided by the Finance Company, the Group intends to continue the deposit services with the Finance Company after expiration of the term of the Former Financial Services Agreements.

In order to ensure the terms of the deposit services, in particular the interest rates, offered by its deposit services providers for both savings deposits and term deposits are on normal commercial terms, the Group compares the current interest rates offered by its deposit services providers with the relevant standard deposit rates published by the PBOC from time to time and the rates offered by other major commercial banks in the PRC. The Group would apply the same principles in selection of deposit services providers and in determination of the terms of the deposit services to be provided by the Finance Company.

Internal control procedures

To ensure the relevant terms provided by connected parties under the Master Services Agreements and the Financial Services Agreement are no less favorable than those available from independent third parties and the annual caps of the transactions under the above agreements are not exceeded, the Company’s internal control system includes procedures specifically for monitoring continuing connected transactions which include the following steps:

(i) the entering into and monitoring of continuing connected transactions are to be conducted in accordance with the Company’s internal control manual;
(ii) the audit department of the Company will periodically review and inspect the continuing connected transactions under the Master Services Agreements and the Financial Services Agreement;
(iii) the finance department of the Company will collect statistics of the continuing connected transactions under the Master Services Agreements and the Financial Services Agreement to ensure the annual caps approved by the Independent Shareholders are not exceeded;
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(iv) the auditors of the Company reviews the statistics of the continuing connected transactions on an annual basis in compliance with the annual reporting and review requirements under the Listing Rules.

By implementing the above procedures, the Directors consider that the Company has established sufficient internal control measures to ensure the transactions under the Master Services Agreements and the Financial Services Agreement are fair and reasonable, on normal commercial terms and in the interests of the Company and the Shareholders as a whole.

V. Reasons and benefits for the Non-exempt Continuing Connected Transactions

The Master Services Agreements provide flexibility to the Group in working with China Merchants and its associates and the Connected Non Wholly-Owned Subsidiaries to provide end-toend logistics services to independent customers, including covering locations in which the Group does not have operations and sourcing specific type of services at competitive prices when necessary. For instance, the Group’s transportation and logistics resources do not cover areas such as Xinjiang, Ningxia and Gansu of the PRC, while China Merchants Group is able to provide relevant services for the Group in these areas. In addition, the Connected Non Wholly-Owned Subsidiaries may from time to time be able to provide specific types of services (such as container transportation services, air freight forwarding services or warehousing services) to the Group at competitive prices. Furthermore, those parts of China Merchants Group and its associates, who are not in the same line of business of the Group can become potential customers for services of the Group. Accordingly, the Directors (including the independent non-executive Directors) consider that it is in the interest of and beneficial to the Company and its shareholders as a whole to allow continuing connected transactions on normal commercial terms as contemplated under the Master Services Agreements.

The Financial Services Agreement having entrenched terms that ensure deposit rates at a premium to published PBOC rates and not less than those offered by major commercial banks in the PRC to the Group, offers flexibility to the Group to choose to use deposit taking services of the Finance Company to increase deposit interest returns on its disposable cash that is generated primarily from its operations and reduce costs and increase efficiency of settlement of transactions within the China Merchants Group, in circumstances where the services being offered by the Finance Company are able to satisfy the Group’s rigorous internal control procedures with respect to pricing etc. In terms of risk management, the Company notes that not only does the Finance Company (that is regulated by the PBOC and the China Banking Regulatory Commission) have paid up capital of RMB3 billion and be subject to the rules as to capital adequacy, debt-to-asset and other types of liquidity related ratios and corporate governance published by the China Banking Regulatory Commission, the Finance Company also has the benefit of the undertaking from China Merchants to provide funds to the Finance Company to make up any funding shortfall (as described in the subsection headed “(c) Transactions with the Finance Company – Internal control and risk management measures under the Financial Services Agreement” above). Accordingly, the Directors consider that it is in the interest of and is beneficial to the Group for the Group to have greater latitude to deposit Disposable Cash with the Finance Company.

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LETTER FROM THE BOARD

D. EXTRAORDINARY GENERAL MEETING

The notice convening the EGM has been despatched to the Shareholders on 13 November 2017. As each of China Merchants, the Finance Company, Sinotrans Shandong Hongzhi, Qingdao Jinyun Air and Shanghai Waihong Yishida is a party to the Master Services Agreement (China Merchants), the Financial Services Agreement, the Master Services Agreement (Sinotrans Shandong Hongzhi), the Master Services Agreement (Qingdao Jinyun Air) and the Master Services Agreement (Shanghai Waihong Yishida), respectively, they, together with their respective associates (including SINOTRANS & CSC), are required under the Listing Rules to abstain from voting on the resolutions to be proposed to approve all of the Nonexempt Continuing Connected Transactions at the EGM. As at the Latest Practicable Date, the abovementioned entities and their respective associates (including SINOTRANS & CSC) are interested in an aggregate of 3,904,279,644 Domestic Shares and 107,183,000 H Shares, representing a total of approximately 66.31% of the total issued Shares. Save as disclosed above, as at the Latest Practicable Date, no other Shareholders had any material interest in the Non-exempt Connected Transactions that are required to abstain from voting at the EGM.

None of the Directors had any material interest in the resolutions to be proposed at the EGM and therefore they are not required under the Listing Rules to abstain from voting on the board resolutions approving these matters. Nonetheless, as Mr. Zhao Huxiang is the Vice Chairman of China Merchants and Mr. Song Dexing is the director of Integrated Logistics Department of China Merchants, they have abstained from voting at the board meeting of the Company in respect of the proposed resolutions to approve the Master Services Agreements and the Finance Services Agreement in accordance with the relevant PRC laws and regulations.

E. DIRECTORS’ RECOMMENDATION

Your attention is drawn to the letter from the Independent Board Committee as set out on pages 29 and 30 which contains its recommendation to the Independent Shareholders in respect of the ordinary resolutions set out in the notice of EGM to approve the Non-exempt Continuing Connected Transactions subject to the New Caps.

The advice of Altus Capital to the Independent Board Committee and the Independent Shareholders as to whether each of the Non-exempt Continuing Connected Transactions and the New Caps thereunder are on normal commercial terms, in the ordinary and usual course of business of the Group, fair and reasonable and in the interests of the Company and the Shareholders as a whole is set out on pages 31 to 61 of this circular.

F. GENERAL INFORMATION

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

Yours faithfully, By order of the Board of Sinotrans Limited

Li Shichu

Joint Company Secretary

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

The following is the text of a letter from the Independent Board Committee, which has been prepared for the purpose of incorporation into this circular, setting out its recommendation to the Independent Shareholders in respect of the terms of the Master Services Agreement, the Financial Services Agreement and the transaction contemplated thereunder as set out in the Circular.

==> picture [233 x 108] intentionally omitted <==

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

(Stock Code: 0598)

To the Independent Shareholders

Dear Sir and Madam,

CONTINUING CONNECTED TRANSACTIONS

We have been appointed as members of the Independent Board Committee to advise the Independent Shareholders of Sinotrans Limited (the “ Company ”) in respect of the resolutions to approve the Non-exempt Continuing Connected Transactions subject to the New Caps, details of which are set out in the “Letter from the Board” contained in the circular of the Company (the “ Circular ”) of which this letter forms part. Unless the context otherwise requires, terms defined in the Circular shall have the same meanings when used in this letter.

Your attention is drawn to the “Letter from the Board”, the advice of Altus Capital in its capacity as the independent financial adviser to the Independent Board Committee and the Independent Shareholders in respect of whether each of the Non-exempt Continuing Connected Transactions and the New Caps thereunder are on normal commercial terms, in the ordinary and usual course of business of the Group, fair and reasonable and in the interests of the Company and the Shareholders as a whole, as set out in the “Letter from the Independent Financial Adviser” as well as other additional information set out in other parts of the Circular.

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

Having taken into account the advice of, and the principal factors and reasons considered by Altus Capital in relation thereto as stated in its letter, we consider the terms of the Non-exempt Continuing Connected Transactions and the New Caps to be fair and reasonable and on normal commercial terms and transactions contemplated thereunder are in the ordinary and usual course of business of the Group and in the interests of the Company and the Shareholders as a whole. Accordingly, we recommend the Independent Shareholders to vote in favour of the ordinary resolutions to be proposed at the EGM in respect of the Nonexempt Continuing Connected Transactions.

Yours faithfully, The Independent Board Committee

Guo Minjie Lu Zhengfei Liu Junhai Independent non-executive Independent non-executive Independent non-executive Director Director Director

Beijing, 30 November 2017

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The following is the text of a letter of advice from Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders in respect of the Non-exempt Continuing Connected Transactions subject to the New Caps, which has been prepared for the purpose of incorporation in this circular.

==> picture [95 x 40] intentionally omitted <==

Altus Capital Limited 21 Wing Wo Street Central, Hong Kong

30 November 2017

To the Independent Board Committee and the Independent Shareholders

Sinotrans Limited Units F & G, 20/F., MG Tower 133 Hoi Bun Road Kwun Tong, Kowloon Hong Kong

Dear Sir or Madam,

CONTINUING CONNECTED TRANSACTIONS

INTRODUCTION

We refer to our appointment as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in respect of (i) the Non-exempt Continuing Connected Transactions contemplated under the Master Services Agreements and the Deposit Services (as defined below) under Financial Services Agreement; and (ii) the respective New Caps. Details of the Master Services Agreements (including the respective New Caps) and the Financial Services Agreement (including the respective New Caps) are set out in the “Letter from the Board” contained in the circular of the Company dated 30 November 2017 (the “ Circular ”), of which this letter forms part. Terms used in this letter shall have the same meanings as those defined in the Circular unless the context requires otherwise.

Master Services Agreements

On 10 November 2017, the Company and China Merchants entered into the Master Services Agreement (China Merchants) with a term of three years ending on 31 December 2020, which governs the provision and receipt of transportation and logistics services between members of the Group and China Merchants Group and associates of China Merchants, to replace the Former Master Services Agreement on substantially the same terms (apart from the identity of the counterparty and the annual caps therein). As at the Latest Practicable Date, the Company was a subsidiary of China Merchants and therefore transactions contemplated under the Master Services Agreement (China Merchants) constitute continuing connected transactions of the Company under Chapter 14A of the Listing Rules.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

On the same date, the Company also entered into (i) the Master Services Agreement (Sinotrans Shandong Hongzhi) to replace the former master services agreement with Sinotrans Shandong Hongzhi on substantially the same terms (apart from the annual caps therein); (ii) the Master Services Agreement (Qingdao Jinyun Air) to replace the former master services agreement with Qingdao Jinyun Air on substantially the same terms (apart from the annual caps therein); and (iii) the Master Services Agreement (Shanghai Waihong Yishida) with Shanghai Waihong Yishida on substantially the same terms as those under other master services agreements mentioned above (apart from the identity of the counterparty and the annual caps therein), which govern the provision and receipt of transportation and logistics services between the Group and the aforesaid counterparties and their respective associates with a term of three years ending 31 December 2020. As described in the “Letter from the Board” of the Circular, each of Sinotrans Shandong Hongzhi, Qingdao Jinyun Air and Shanghai Waihong Yishida is a connected non wholly-owned subsidiary and hence a connected person of the Company pursuant to Rule 14A.16 of the Listing Rules. Therefore, transactions contemplated under the above agreements with the Connected Non Wholly-Owned Subsidiaries constitute continuing connected transactions of the Company.

As at the Latest Practicable Date, considering that the Company is a subsidiary of China Merchants, China Merchants and the Connected Non Wholly-Owned Subsidiaries are also connected with each other.

Pursuant to Rule 14A.82 of the Listing Rules, transactions contemplated under the Master Services Agreements are aggregated for the purposes of calculating the applicable percentage ratios under the Listing Rules. As the largest applicable percentage ratio of the New Caps in respect of the transactions contemplated under the Master Services Agreements in aggregate exceeds 5%, the Master Services Agreements and the relevant New Caps constitute non-exempt continuing connected transactions and are subject to the reporting, annual review, announcement and Independent Shareholders’ approval requirements under Chapter 14A of the Listing Rules.

Financial Services Agreement

On 10 November 2017, the Company entered into the Financial Services Agreement with the Finance Company, pursuant to which the Finance Company agreed to provide a series of financial services, including the deposit services (“ Deposit Services ”) and other financial services, to the Group to replace the Former Financial Services Agreements on substantially the same terms (apart from the annual caps therein and the interest rates determination), the latest one of which is due to expire at the end of 2017. As at the Latest Practicable Date, the Finance Company was held as to 51% by China Merchants and 49% by SINOTRANS & CSC respectively. Therefore, the Finance Company is a connected person of the Company according to Chapter 14A of the Listing Rules and the transactions contemplated under the Financial Services Agreements are continuing connected transactions. As the largest applicable percentage ratio under the Listing Rules with regards to the New Caps of the Deposit Services (assuming the largest annual cap is to be RMB5 billion) exceeds 5%, the Deposit Services and the relevant New Caps constitute non-exempt continuing connected transactions and are subject to the reporting, annual review, announcement and Independent Shareholders’ approval requirements under Chapter 14A of the Listing Rules.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Parties to abstain from voting at the EGM

As each of China Merchants, the Finance Company, Sinotrans Shandong Hongzhi, Qingdao Jinyun Air and Shanghai Waihong Yishida is a party to the Master Services Agreement (China Merchants), the Financial Services Agreement, the Master Services Agreement (Sinotrans Shandong Hongzhi), the Master Services Agreement (Qingdao Jinyun Air) and the Master Services Agreement (Shanghai Waihong Yishida), respectively, they, together with their respective associates (including Sinotrans & CSC), are required under the Listing Rules to abstain from voting on the resolutions to be proposed to approve all of the Non-exempt Continuing Connected Transactions at the EGM. As at the Latest Practicable Date, the abovementioned entities and their respective associates (including SINOTRANS & CSC) are interested in an aggregate of 3,904,279,644 Domestic Shares and 107,183,000 H Shares, representing a total of approximately 66.31% of the total issued Shares. Save as disclosed above, as at the Latest Practicable Date, no other Shareholders had any material interest in the Non-exempt Connected Transactions that are required to abstain from voting at the EGM.

THE INDEPENDENT BOARD COMMITTEE

The Independent Board Committee, comprising all the independent non-executive Directors, namely Mr. Guo Minjie, Mr. Lu Zhengfei, and Mr. Liu Junhai, has been established to consider the Non-exempt Continuing Connected Transactions and the New Caps, and to give advice and recommendation to the Independent Shareholders as to (i) whether the entering into of each of the Master Services Agreements and the Financial Services Agreement with regards to the Deposit Services is in the ordinary and usual course of business of the Group, and in the interests of the Company and the Shareholders as a whole; (ii) whether the terms of the Master Services Agreements are on normal commercial terms, and are fair and reasonable as far as the Independent Shareholders are concerned; (iii) whether the terms of the Financial Services Agreement with regards to the Deposit Services are on normal commercial terms, and are fair and reasonable as far as the Independent Shareholders are concerned; (iv) whether the New Caps are fair and reasonable; and (v) how the Independent Shareholders should vote in respect of the resolution(s) to be proposed at the EGM to approve the Non-exempt Continuing Connected Transactions contemplated under the Master Services Agreements and the Financial Services Agreement with regards to the Deposit Services as well as the New Caps.

THE INDEPENDENT FINANCIAL ADVISER

As the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders, our role is to give an independent opinion to the Independent Board Committee and the Independent Shareholders as to (i) whether the entering into of each of the Master Services Agreements and the Financial Services Agreement with regards to the Deposit Services is in the ordinary and usual course of

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

business of the Group, and in the interests of the Company and the Shareholders as a whole; (ii) whether the terms of the Master Services Agreements are on normal commercial terms, and are fair and reasonable as far as the Independent Shareholders are concerned; (iii) whether the terms of the Financial Services Agreement with regards to the Deposit Services are on normal commercial terms, and are fair and reasonable as far as the Independent Shareholders are concerned; (iv) whether the New Caps are fair and reasonable; and (v) how the Independent Shareholders should vote in respect of the resolution(s) to be proposed at the EGM to approve the Non-exempt Continuing Connected Transactions contemplated under the Master Services Agreements and the Financial Services Agreement with regards to the Deposit Services as well as the New Caps.

During the last two years prior to the date of the Circular, we have previously acted as an independent financial adviser to China Merchants Land Limited with regards to (i) discloseable and connected transactions and (ii) a continuing connected transaction. China Merchants Land Limited is a subsidiary of China Merchants, with approximately 74.35% of its equity interest held by China Merchants as at 30 June 2017. Details of the aforesaid transactions of China Merchants Land Limited are set out in its circular dated 15 September 2016 and its announcement dated 7 April 2017 respectively. Save for the above, we have not acted as an independent financial adviser in relation to any transactions of the Company or its related parties in the last two years prior to the date of the Circular. Pursuant to Rule 13.84 of the Listing Rules, and given that remuneration for our engagement to opine on the Non-exempt Continuing Connected Transactions including the New Caps is at market level and not conditional upon successful passing of the resolution(s) to be proposed at the EGM, and that our engagement is on normal commercial terms, we are independent of the Company.

BASIS OF OUR ADVICE

In formulating our opinion, we have reviewed, among others, (i) the Master Services Agreements; (ii) the Financial Services Agreement with attachments in relation to the internal control and risk management policies of the Finance Company; (iii) the annual report of the Company for the year ended 31 December 2016 (“ 2016 Annual Report ”) and the interim report of the Company for the six months ended 30 June 2017 (“ 2017 Interim Report ”); and (iv) other information as set out in the Circular.

We have relied on the statements, information, opinions, and representations contained or referred to in the Circular and/or provided to us by the Company, the Directors and the management of the Company (the “ Management ”). We have assumed that all statements, information, opinions, and representations contained or referred to in the Circular and/or provided to us were true, accurate, and complete at the time they were made and continued to be so as at the date of the Circular. The Directors will collectively and individually accept full responsibility, including particulars given in compliance with the Listing Rules for the purpose of giving information with regards to the Company. The Directors, having made all reasonable enquires, confirm that to the best of their knowledge and belief, information contained in the Circular are accurate and complete in all material respects and not misleading or deceptive, and there are no other facts the omission of which would make any statement in the Circular misleading.

We have no reason to believe that any statements, information, opinions or representations relied on by us in forming our opinion is untrue, inaccurate or misleading, nor are we aware of any material facts the omission of which would render the statements, information, opinions or representations provided to us untrue, inaccurate or misleading. We have assumed that all the statements, information, opinions and

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

representations for matters relating to the Company contained or referred to in the Circular and/or provided to us by the Management have been reasonably made after due and careful enquiries. We have relied on such statements, information, opinions and representations and have not conducted any independent investigation into the business, financial conditions and affairs or the future prospects of the Company.

PRINCIPAL FACTORS AND REASONS CONSIDERED

In arriving at our recommendations, we have taken into account the principal factors and reasons set out below:

1. Background information of the Group

The Group is a leading integrated logistics services provider in the PRC whose principal businesses include freight forwarding, logistics, storage and terminal services, and other services including trucking, shipping and express services. The direct controlling shareholder of the Company, namely SINOTRANS & CSC, is mainly engaged in logistics, shipping and shipbuilding services through its subsidiaries. Following completion of the Strategic Reorganisation by which SINOTRANS & CSC was administratively allocated to and became a wholly-owned subsidiary of China Merchants, the Company also became a listed subsidiary of China Merchants. China Merchants Group is a large PRC state-owned conglomerate with principal business focuses in three main areas, namely transportation (ports and related services, toll roads, shipping, logistics, offshore engineering and trade), finance (banking, securities, funds, insurance) and property development.

As described in the 2016 Annual Report, the Group was engaged in the provision of all-rounded integrated logistics services to its customers and became its customers’ professional collaborative partner in logistics, maintaining its leading position amidst market competition. In 2016, the Group achieved satisfactory operating results through propelling external expansion and internal exploration and improved the quality of their business operations as a whole. Most of the Group’s major operations also achieved sustained growth in business volume in the same year. In particular, the Group’s headquarters and business units made joint efforts to proactively explore the markets through adopting measures such as strengthening the strategic “headquarters to headquarters” cooperation to achieve growth in the results. To accelerate its strategic transformation, cultivate new competitive advantages and business growth, the Group would also promote the strategy of “production service, network operation, platform management, internationalisation and capitalisation” in logistics service and further expand “One Belt, One Road” related projects.

As further mentioned in the 2017 Interim Report, as part of the Group’s key business strategies, it would make efforts in resources integration and work towards transitioning into an integrator of comprehensive logistics services with an aim to create value for their customers through innovative and cross-boundary integration.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

2. Master Services Agreements

2.1 Background of China Merchants and the Connected Non Wholly-Owned Subsidiaries

(i) China Merchants Group

China Merchants Group is a large PRC state-owned conglomerate. As described in the paragraph headed “1. Background information of the Group”, the principal businesses of China Merchants Group focus on transportation, finance and property development.

(ii) Sinotrans Shandong Hongzhi

Sinotrans Shandong Hongzhi is mainly engaged in international container roadtransportation business, international transportation agency business of sea, road, air freight forwarding for import and export cargo, import and export cargo transportation of the nonvessel operating common carrier business and international express services.

(iii) Qingdao Jinyun Air

Qingdao Jinyun Air mainly operates international transportation agency business of air freight forwarding for import and export cargo and consulting services for international trade.

(iv) Shanghai Waihong Yishida

Shanghai Waihong Yishida is mainly engaged in international transportation agency business by air, by road and by sea, customs declaration and inspection agency services, insurance agency services, storage, regional simple commercial processing work and nonvessel operating carrier services (international).

2.2 Principal terms of the Master Services Agreements

2.2.1 Duration, scope of services and basis of pricing

Pursuant to the Master Services Agreements, the Group will provide and receive transportation and logistics services to/from China Merchants Group and associates of China Merchants, Sinotrans Shandong Hongzhi, Qingdao Jinyun Air and Shanghai Waihong Yishida respectively. The principal terms of the Master Services Agreements are substantially the same as each other (apart from the identity of the counterparties and the respective New Caps), which are set out below:

Date: 10 November 2017

Duration: Commencing on 1 January 2018 for a period of three years ending on 31 December 2020

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Scope of services:

Provision and receipt of transportation and logistics services, including the following categories of services, namely freight forwarding services, shipping agency, storage and terminal services, trucking transportation, express services, shipping transportation and leasing of container and other facilities between the Group and China Merchants, the Connected Non Wholly-Owned Subsidiaries and their respective associates.

Basis of pricing:

Services provided under the Master Services Agreements are required to be at market prices. “Market prices” mean the prices at which the same or comparable type of services are provided by or to (as appropriate) independent third parties in the same area on normal commercial terms and in the ordinary course of business.

2.2.2 Pricing mechanism

As mentioned above, services provided under the Master Services Agreements will be at the market prices charged by independent third parties in the same area on normal commercial terms and in the ordinary course of business. In order to ensure that services provided under the Master Services Agreements are charged at market prices, the business divisions in relation to the transportation and logistics services under the relevant member companies in the Group (which conduct transactions under the Master Services Agreements, the “ Operating Members ”) collect information on the market rates of various services offered by its competitors from time to time for comparison. Also according to the Management, the Group has developed a business contracts review system, whereby generally the operation management department, the finance department, the legal department and the general offices under the Operating Members will review the terms of services (including the prices of services) and compare the same against those offered by independent third parties, to ensure that those terms are at market prices as defined in the paragraph headed “2.2.1 Duration, scope of services and basis of pricing” above. Further, based on the business contracts review system, contracts in relation to transactions contemplated under the Master Services Agreements will be subject to the final approval by the general managers of the Operating Members, who on average have been with the Group over 20 years and have more than 15 years of experience in the transportation and logistics industry according to the Management.

For some standard services, various service providers may issue price lists from time to time and the Group will obtain such price lists from time to time for comparison purpose. For customised services, since relevant terms offered by service providers could substantially differ, the Group will consider the pricing of such services with reference to, among other things, the combination of services provided, the geographical coverage of services provided and the terms offered to independent third parties (for provision of services) or offered by competitors (for receipt of services) for similar services. In addition, the Group is required by its internal control manual to obtain quotations and terms of services from at least two independent third parties (to the extent such alternative service providers are available) for comparison purpose. In the event that there are less than two alternative independent third parties service providers in the relevant market for a particular type of services, relevant

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departments of the Company mentioned in the preceding paragraph will review the terms of such services (including the prices) with reference to the terms of similar services provided or received by the Group previously and consider whether the terms being offered are commercially beneficial to the Group having regard to such comparables.

We have reviewed (i) 18 sample transaction records for transactions under the Former Master Services Agreement and former master services agreements with Sinotrans Shandong Hongzhi and Qingdao Jinyun Air during the period from 2015 to 2017; (ii) nine sample transaction records for transactions between the Group and independent third parties for provision or receipt of similar transportation and logistics services during the period from 2015 to 2017; (iii) nine sample records of quotations and terms of services of independent services providers; and (iv) nine sample records of contracts review conducted by the Group for transactions under the Former Master Services Agreement and former master services agreements with Sinotrans Shandong Hongzhi and Qingdao Jinyun Air during the period from 2015 to 2017. Based on our review of the abovementioned documents, we noted that (i) the historical transaction samples fall within the scope of services specified in the Master Services Agreements; (ii) the pricing of the historical transaction samples were determined in accordance with the pricing mechanism as described above.

In addition, since (i) there was no precedent master services agreement entered into between the Company and China Merchants; and (ii) the Master Services Agreement (China Merchants) was entered into to replace the Former Master Services Agreement after the Strategic Reorganisation, we, when assessing the terms under the Master Services Agreement (China Merchants), compared such terms with those under the Former Master Services Agreement and also made reference to the sample records in relation to the Former Master Services Agreement as mentioned in the preceding paragraph. Besides, taking into account (i) there was no precedent master services agreement between the Company and Shanghai Waihong Yishida; (ii) same as Sinotrans Shandong Hongzhi and Qingdao Jinyun Air, Shanghai Waihong Yishida is also one of the Connected Non Wholly-Owned Subsidiaries; and (iii) the major business of Shanghai Waihong Yishida is similar to those of Sinotrans Shandong Hongzhi and Qingdao Jinyun Air, being international transportation and logistics services, we, when assessing the terms under the Master Services Agreement (Shanghai Waihong Yishida), compared such terms with those under the Master Services Agreement (Sinotrans Shandong Hongzhi) and Master Services Agreement (Qingdao Jinyun Air) and also made reference to the sample records in relation to the former master services agreements with Sinotrans Shandong Hongzhi and Qingdao Jinyun Air as mentioned in the preceding paragraph.

2.2.3 Payment terms

The payment terms of the transportation and logistics services provided and received vary depending on the content of the services required and would typically be settled in full by cash after completion of the delivery services, and may entail payment of deposits of a size determined by the nature of services that are required to be provided. According to the Management, such payment terms are standard terms of the relevant logistics services providers when they provide similar services to independent third parties.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Based on our review of the abovementioned sample records, we noted that the payment terms for the historical transaction samples were in accordance with those set out in the preceding paragraph.

2.2.4 Section summary

Having taken into account the above, we consider that the Master Services Agreements are entered into in the ordinary course of business and are in the interests of the Company and the Shareholders, and the terms therein are on normal commercial terms and are fair and reasonable.

2.3 Reasons for and benefits of entering into the Master Services Agreements

Certain continuing connected transactions between (i) the Group and the SINOTRANS & CSC Group and its associates; and (ii) the Group and the Connected Non Wholly-Owned Subsidiaries have been taking place since the Company’s H Shares became listed on the Stock Exchange in 2003 and contributed to the business growth of the Group.

As mentioned in the paragraph headed “1. Background information of the Group” above, the Company has become a subsidiary of China Merchants following the completion of the Strategic Reorganisation. Given that China Merchants is a large PRC state-owned conglomerate with one of its principal business being transportation services (ports and related services, toll roads, shipping, logistics, offshore engineering and trade) as mentioned in the paragraph headed “2.1 Background of China Merchants and the Connected Non Wholly-Owned Subsidiaries” above, the Strategic Reorganisation is expected to provide the Group with more business opportunities and growth potential in view of the expansion of the scale of operation.

Given that the Group’s strategy is to work towards transitioning into an integrator of comprehensive logistics services as mentioned in the paragraph headed “1. Background information of the Group” above, the Master Services Agreements are expected to provide flexibility to the Group in working with China Merchants Group and the Connected Non Wholly-Owned Subsidiaries and their respective associates to provide end-to-end logistics services to independent customers, including covering locations in which the Group does not have operations and sourcing specific type of services at competitive prices when necessary. For instance, the Group’s transportation and logistics resources do not cover areas such as Xinjiang, Ningxia and Gansu of the PRC, while China Merchants Group is able to provide relevant services for the Group in these areas. In addition, the Connected Non Wholly-Owned Subsidiaries may from time to time be able to provide specific types of services (such as container transportation services, air freight forwarding services or warehousing services) for the Group at competitive prices. Accordingly, the Directors consider and we concur that the transactions contemplated under the Master Services Agreements are in line with the Group’s strategy.

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Taking into account (i) the operational scale and market coverage of China Merchants Group; (ii) the potential business opportunities brought by China Merchants to the Group; and (iii) the adherence to the Group’s strategy of developing into an integrator of comprehensive logistics services, we are of the view that the entering into of the Master Services Agreements is in the interests of and beneficial to the Company and the Shareholders as a whole.

2.4 Basis of the New Caps under the Master Services Agreements

2.4.1 Master Services Agreement (China Merchants)

Set out below are the details of (i) the historical annual caps and the related growth rates for each of the three years ended/ending 31 December 2015, 2016 and 2017 in respect of the Former Master Services Agreement; (ii) historical transaction amounts and related utilisation rates for each of the two years ended 31 December 2015 and 2016 and the nine months ended 30 September 2017; and (iii) the annual caps and relevant growth rates for each of the three years ending 31 December 2018, 2019 and 2020 in respect of the Master Services Agreement (China Merchants):

				Master	Services Agreement	Services Agreement
	Former Master Services Agreement			(China Merchants)
		For the year ended/ending 31 December
	2015	2016	2017	2018	2019	2020
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
Provision of
transportation and
logistics services
Historical caps/New	2,350,000	3,020,000	3,889,000	2,500,000	3,250,000	4,225,000
Caps
Growth rate	-18.3%	28.5%	28.8%	-35.7%	30.0%	30.0%
Actual transaction	1,100,385	1,121,074	814,858
amount (Note 1)			(Note 2)
Historical utilisation	46.8%	37.1%	21.0%
rate			(Note 2)
Receipt of
transportation and
logistics services
Historical annual cap/	3,510,000	4,563,000	5,932,000	3,500,000	4,550,000	5,915,000
New Cap
Growth rate	-9.2%	30.00%	30.00%	-41.00%	30.00%	30.00%
Actual transaction	1,257,669	1,527,647	1,322,213
amount (Note 1)			(Note 2)
Historical utilisation	35.8%	33.5%	22.3%
rate			(Note 2)

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Notes:

The following table illustrates the historical transaction levels between (a) the Group and China Merchants Logistics Group and (b) China Merchants and its associates (other than the Group and China Merchants Logistics Group) based on data collated from 2016, following the Company’s first announcement regarding the Strategic Reorganisation in November 2015, for the year ended 31 December 2016 and for the nine months ended 30 September 2017:

	2016	2017
	RMB’000	RMB’000
Estimated amount with respect to the provision of
transportation and logistics services	1,409,015	854,997
Estimated amount with respect to the receipt of
transportation and logistics services	1,552,411	1,415,333

In determining the annual caps under the Master Services Agreement (China Merchants), the Company has taken into account such historical transactions as reference for the possible effect of the consolidation of China Merchants Logistics Group and potential increase in collaboration with China Merchants Group.

These figures represent the transaction amount for the nine months ended 30 September 2017 and the utilisation rates are calculated by measuring those transaction amounts against the relevant annual caps.

The basis of determining the New Caps under the Master Services Agreement (China Merchants) for each of the three years ending 31 December 2018, 2019 and 2020 are summarised below, details of which are set out in the “Letter from the Board” of the Circular.

(i) the historical values of the transactions between the Group and SINOTRANS & CSC and its subsidiaries and associates for the two years ended 31 December 2015 and 2016 and the nine months ended 30 September 2017;
(ii) giving allowance for the inherent volatility of business volume and market rates in the transportation and logistics services industry and the potential growth in overall business of the Group and collaboration with China Merchants Group and associates of China Merchants; and
(iii) the potential growth in the Group’s revenue and operating size.

To assess whether the New Caps under the Master Services Agreement (China Merchants) for each of the three years ending 31 December 2018, 2019 and 2020 are fairly and reasonably determined, we have considered the following factors:

(i) Historical transaction amounts and utilisation rates

As set out in the table above, the utilisation rates on the historical annual caps in respect of the provision and receipt of transportation and logistics services between the Group and SINOTRANS & CSC for each of the two years ended 31 December 2015

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and 2016 and for the nine months ended 30 September 2017 were maintained at a level below 50%. As advised by the Management, the historical annual caps for the three years ended/ending 31 December 2015, 2016 and 2017 were determined after taking into consideration the historical growth of the Group’s revenue for the year ended 31 December 2012 over the year ended 31 December 2011 and for the year ended 31 December 2013 over the year ended 31 December 2012, the expected increase in its revenue by 20% annually in the three years ending 31 December 2017, including about 10% growth in business volume and a further 10% growth due to increase in freight rates having regard to the economic prospects of the PRC and the overall condition of the transportation and logistics services industry. Given that the transportation and logistics services market has always been competitive and independent providers of similar services may sometimes offer prices and/or terms better than those offered or received by the Group and therefore, in compliance with the internal control procedures and in accordance with the business contracts review system as described in the paragraph headed “2.2.2 Pricing mechanism” above, there was no assurance that the Group would select SINOTRANS & CSC and its associates as a transportation and logistics services provider or vice versa. Hence, the Management believe and we concur that the relatively low utilisation rates in the past have no bearing on the fairness and reasonableness of the basis to determine the then historical annual caps.

(ii) Historical growth in the Group’s revenue and freight rates

According to the 2016 Annual Report, revenue of the Company was approximately RMB46,784.2 million for the year ended 31 December 2016, representing an increase of approximately 2.8% from RMB45,528.1 million for the year ended 31 December 2015. According to the 2017 Interim Report, revenue of the Company was approximately RMB27,615.1 million for the six months ended 30 June 2017, representing an increase of approximately 27.4% as compared to RMB21,677.7 million for the corresponding period in 2016. The increase in revenue were mainly attributable to (i) the growth of the PRC economy as well as the import and export trade; and (ii) the increase in freight rates in 2017 as compared to 2016, which was illustrated by the China (Export) Containerized Freight Index (“ CCFI ”) obtained from www.eworldship.com (Note: the CCFI on 1 July 2017 was 866, representing an increase by approximately 28.1% from 676 on 1 July 2016).

According to the China Statistical Yearbook 2017, being the latest available official statistics published by the National Bureau of Statistics of China, we noted that (i) the gross domestic products of the PRC had increased from approximately RMB 41,303.0 billion in 2010 to approximately RMB 68,550.6 billion in 2015, representing a compound annual growth rate of approximately 10.7%; and (ii) the total import and export trade of the PRC had increased from approximately RMB20,172.2 billion in 2010 to approximately RMB26,271.4 billion in 2015, representing a compound annual growth rate of approximately 5.4%. Based on the above figures, we also noted that over the past few years as mentioned above, there exists a correlation between the rate of growth of the import and export trade value and the rate of growth of the gross domestic products of the PRC.

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(iii) Potential growth in the Group’s revenue and operating size

As the Group continues to pursue its positioning as an “integrator of comprehensive logistics services” and its stated strategy of “production service, network operation, platform management, internationalisation and capitalisation” in logistic services, it is natural to expect the Group will utilise its expertise to explore and expand “One Belt One Road” related services.

Also following the completion of the acquisition of China Merchants Logistics Group in the second half of 2017, the Group consolidated the business of China Merchants Logistics Group (a company having reported revenue of over RMB13,100 million for the year ended 31 December 2016 and recorded an increase in revenue of over 16% for the six months ended 30 June 2017 as compared to the corresponding period in the previous year).

Taking into account the above, the Management believe and we concur that the operations of the Group will be able to scale up as a result of the acquisition of China Merchants Logistics Group and to capture the growth potential through the “One Belt One Road” initiatives.

(iv) Collaboration between the Group and other members of the China Merchants Group

Following the completion of the Strategic Reorganisation, the cooperation between the Group and other members of the China Merchants Group is expected to be strengthened, which will therefore enhance the business flow with the China Merchants Group.

The Management anticipate an increase in business volume in 2018 as compared to that in 2017. In particular, the expansion of business will mainly focus on the port and shipping businesses of China Merchants Group. For instance, the Group’s sea transportation and river terminal services will cooperate with the port services provided by China Merchants Group. Further, the Group will be able to engage in more agency and station businesses for vessels of China Merchants Group and the Group also intends to procure more shipping as well as other resources from China Merchants Group for the freight forwarding business. In this regard, the Directors believe and we concur that the transactions between the Company and China Merchants Group are expected to be augmented by the abovementioned business collaboration.

(v) Volatility of the transportation and logistics market industry

The Management further advised that generally, the business volumes and the market rates in the transportation and logistics services industry are inherently volatile and will be affected by, among other things, the volatility of oil price, labour costs, the general economic environment in the PRC and overseas as well as particular sectors of such economies. As such, the New Caps under the Master Services Agreement (China

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Merchants) have taken into account a buffer for the potential fluctuation of the transportation and logistics services industry due to its volatile nature. Such buffer refers to, namely, that the Company has allowed, for the purposes of determining the annual caps, for an average annual increase in the freight rate at 10% per annum given that the CCFI has rebounded in 2017 after reaching a 10-year historical low in 2016.

Section summary for the New Caps under the Master Services Agreement (China Merchants)

According to the Management, the New Caps for the three years ending 31 December 2018, 2019 and 2020 are determined after taking into consideration:

for the year ending 31 December 2018, the Company has provided for approximately 50% increment over the highest annual total value of transactions over the three years ending 31 December 2017; and
for the two years ending 31 December 2020, the Company has assumed a 30% increment year-on-year over the previous caps, to give allowance for the volatility of volume of business due to general industry or economic conditions and the potential growth in overall business of the Group and collaborations with China Merchants and its associates.

Having taken into account the above, in particular, (i) the historical annual highest transaction amount for the provision/receipt of transportation and logistics services during the two years ended 31 December 2016 and for the nine months ended 30 September 2017; (ii) the entering into the Master Services Agreement (China Merchants) will provide the Group with the framework and flexibility to secure additional services provider at reasonable cost as and when required; (iii) the Group’s rate of growth in revenue of over 20% for the six months ended 30 June 2017 compared to the corresponding period in 2016; (iv) the percentage increase in CCFI of over 20% from 1 July 2016 to 1 July 2017; (v) the potential growth in operations of the Group as a result of the acquisition of China Merchants Logistics Group in the second half of 2017 and the business opportunities arisen through the “One Belt One Road” initiatives; (vi) the gross domestic products of the PRC had recorded a compound annual growth rate of approximately 10.7% from 2010 to 2015; and (vii) the total import and export trade of the PRC had recorded a compound annual growth rate of approximately 5.4% from 2010 to 2015, we are of the view that the New Caps under the Master Services Agreement (China Merchants) for each of the three years ending 31 December 2018, 2019 and 2020 are fair and reasonable.

2.4.2 Master Services Agreement (Sinotrans Shandong Hongzhi), Master Services Agreement (Qingdao Jinyun Air) and Master Service Agreement (Shanghai Waihong Yishida)

Set out below are the details of (i) the historical annual caps and related growth rates for each of the three years ended/ending 31 December 2015, 2016 and 2017; (ii) historical transaction amounts and related utilisation rates for each of the two years ended 31 December 2015 and 2016 and the nine months ended 30 September 2017; and (iii) the annual caps and related growth rates for each of the three years ending 31 December 2018, 2019 and 2020 in

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respect of the Master Services Agreement (Sinotrans Shandong Hongzhi), Master Services Agreement (Qingdao Jinyun Air) and Master Services Agreement (Shanghai Waihong Yishida).

Master Services Agreement (Sinotrans Shandong Hongzhi)

		For the	year ended/ending 31 December	year ended/ending 31 December	year ended/ending 31 December
	2015	2016	2017	2018	2019	2020
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
Provision of
transportation and
logistics services
Historical caps/New	135,000	202,500	303,750	200,000	260,000	338,000
Caps
Growth rate	-75.0%	50.0%	50.0%	-34.2%	30.0%	30.0%
Actual transaction	77,557	119,582	83,925	–	–	–
amount (Note 1)			(Note 2)
Historical utilisation	57.4%	59.1%	27.6%	–	–	–
rate			(Note 2)
Receipt of
transportation and
logistics services
Historical caps/New	150,000	225,000	337,500	60,000	78,000	101,400
Caps
Growth rate	270.4%	50.0%	50.0%	-82.2%	30.0%	30.0%
Actual transaction	22,858	27,666	28,733	–	–	–
amount (Note 1)			(Note 2)
Historical utilisation	15.2%	12.3%	8.5%	–	–	–
rate			(Note 2)

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Master Services Agreement (Qingdao Jinyun Air)

		For the	year ended/ending 31 December	year ended/ending 31 December	year ended/ending 31 December
	2015	2016	2017	2018	2019	2020
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
Provision of
transportation and
logistics services
Historical caps/New	30,000	45,000	67,500	5,000	7,500	11,250
Caps
Growth rate	-40.7%	50.0%	50.0%	-92.6%	50.0%	50.0%
Actual transaction	1,183	1,330	1,751	–	–	–
amount (Note 1)			(Note 2)
Historical utilisation	3.9%	3.0%	2.6%	–	–	–
rate			(Note 2)
Receipt of
transportation and
logistics services
Historical caps/New	7,500	11,250	16,875	7,500	11,250	16,870
Caps
Growth rate	-25.9%	50.0%	50.0%	-55.6%	50.0%	50.0%
Actual transaction	3,721	8,142	1,446	–	–	–
amount (Note 1)			(Note 2)
Historical utilisation	49.6%	72.4%	8.6%	–	–	–
rate			(Note 2)

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Master Services Agreement (Shanghai Waihong Yishida)

		For the	year ended/ending 31 December	year ended/ending 31 December	year ended/ending 31 December
	2015	2016	2017	2018	2019	2020
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
Provision of
transportation and
logistics services
Historical caps/New	–	–	–	1,000	1,000	1,000
Caps
Actual transaction	–	0	0	–	–	–
amount			(Note 2)
Receipt of
transportation and
logistics services
Historical caps/New	–	–	–	2,250	2,250	2,250
Caps
Actual transaction	–	124	532	–	–	–
amount (Note 1)			(Note 2)

Notes:

Based on data collated from 2016, following the Company’s first announcement regarding the Strategic Reorganisation in November 2015, there had not been material transactions between China Merchants Logistics and the relevant Connected Non Wholly-owned Subsidiary and its associates for the year ended 31 December 2016 and for the nine months ended 30 September 2017.
These figures represent the transaction amount for the nine months ended 30 September 2017 and the relevant utilisation rates are calculated by measuring those transaction amounts against the annual cap.

The basis of determining the New Caps under the Master Services Agreement (Sinotrans Shandong Hongzhi), Master Services Agreement (Qingdao Jinyun Air) and Master Services Agreement (Shanghai Waihong Yishida) for each of the three years ending 31 December 2018, 2019 and 2020 are summarised below, details of which are set out in the “Letter from the Board” of the Circular.

(i) The historical values of the transactions between the Group and (i) Sinotrans Shandong Hongzhi; and (ii) Qingdao Jinyun Air as well as their respective subsidiaries and associates for the two years ended 31 December 2015 and 2016 and the nine months ended 30 September 2017;
(ii) the potential increase in business cooperation between Shanghai Waihong Yishida and companies within the Group and the market condition;
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(iii) the Group’s business strategy with respect to Sinotrans Shandong Hongzhi and Qingdao Jinyun Air; and
(iv) giving allowance for the inherent volatility of business volume and market rates in the transportation and logistics services industry.

To assess whether the New Caps under the Master Services Agreement (Sinotrans Shandong Hongzhi), Master Services Agreement (Qingdao Jinyun Air) and Master Services Agreement (Shanghai Waihong Yishida) for each of the three years ending 31 December 2018, 2019 and 2020 are fairly and reasonably determined, we have considered (i) similar factors as detailed under the sub-paragraphs headed “(ii) Historical growth in the Group’s revenue and freight rates”, “(iii) Potential growth in the Group’s revenue and operating size”, “(iv) Collaboration between the Group and other members of the China Merchants Group” and “(v) volatility of the transportation and logistics market industry” in paragraph “2.4.1 Master Services Agreement (China Merchants)” above; (ii) the historical transaction amounts and utilisation rates; and (iii) the Group’s business strategy with respect to Sinotrans Shandong Hongzhi, Qingdao Jinyun Air and Shanghai Waihong Yishida.

2.4.2.1 Master Services Agreement (Sinotrans Shandong Hongzhi)
(i) Historical transaction amounts and utilisation rates

As set out in the tables above, the utilisation rates on the historical annual caps for the provision of transportation and logistics services to Sinotrans Shandong Hongzhi for the two years ended 31 December 2015 and 2016 were approximately 57.4% and 59.1% respectively, while the utilisation rate for the nine months ended 30 September 2017 was approximately 27.6%.

As advised by the Management, the historical annual caps for the three years ended/ending 31 December 2015, 2016 and 2017 were determined after taking into consideration (i) the historical values of the transactions with Sinotrans Shandong Hongzhi and their subsidiaries and associates for the years ended 31 December 2012 and 2013 and the eight months ended 31 August 2014; (ii) the historical growth of the Group’s revenue and the plans and requirements of the Group, after allowing an approximately 5% to 10% buffer for the inherent volatility of business and market rates in the transportation and logistics services industry; (iii) perceived increase in demand for the Group’s services generally with the continued economic growth of the PRC; (iv) the implementation of the Group’s strategy to expand its domestic operations and overseas network; and (v) the expected expansion and growth of the business of Sinotrans Shandong Hongzhi.

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with the business contracts review system as described in the paragraph headed “2.2.2 Pricing mechanism” above, there was no assurance that the Group would select Sinotrans Shandong Hongzhi or its associates as a transportation and logistics services provider or vice versa. Hence, the Management believe and we concur that relatively low utilisation rates in the past have no bearing on the fairness and reasonableness of the basis to determine the then historical annual caps.

(ii) The New Caps under the Master Services Agreement (Sinotrans Shandong Hongzhi)

Considering the historical annual caps were not fully utilised, the new annual caps for the provision of transportation and logistics services under the Master Services Agreement (Sinotrans Shandong Hongzhi) for the year ending 31 December 2018, 2019 and 2020 have been adjusted downward. According to the Company, it took into account the values of the Group’s transactions with Sinotrans Shandong Hongzhi for the two years ended 31 December 2016 and nine months ended 30 September 2017 and (i) adjusted the cap for the provision of transportation and logistics services for the year ending 31 December 2018 to a number which represents a two-thirds increase by reference to the highest utilisation year given the smaller monetary value involved (the largest annual cap of RMB338,000,000 representing approximately 0.72% of the revenue of the Group for the year ended 31 December 2016) and the setting of the cap for the receipt of transportation and logistics services for the year ending 31 December 2018 at 30% of the caps for the provisions of services having regard to historical trend and allowing some room for deviations; and (ii) assumed a 30% increment year on year in respect of the annual caps for the two years ending 31 December 2020.

Having taken into account the above, in particular, (i) Sinotrans Shandong Hongzhi has actually recorded the highest annual transaction amount of approximately RMB119.6 million for the provision of transportation and logistics services for the year ended 31 December 2016 during the past two years and nine months ended 30 September 2017; (ii) the actual transaction amount for the receipt of transportation and logistics services for each year ended 31 December 2015 and 2016 and for the nine months ended 30 September 2017 represents approximately 30% of the corresponding actual transaction amount for the provision of transportation and logistics services during the same period; (iii) the entering into the Master Services Agreement (Sinotrans Shandong Hongzhi) will provide the Group with the framework and flexibility to secure additional services provider at reasonable cost as and when required; (iv) the Group’s rate of growth in revenue of over 20% for the six months ended 30 June 2017 compared to the corresponding period in 2016; (v) the percentage increase in CCFI of over 20% from 1 July 2016 to 1 July 2017; (vi) the gross domestic products of the PRC had recorded a compound annual growth rate of approximately 10.7% from 2010 to 2015; and (vii) the total import and export

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trade of the PRC had recorded a compound annual growth rate of approximately 5.4% from 2010 to 2015, we are of the view that the New Caps under the Master Services Agreement (Sinotrans Shandong Hongzhi) for each of the three years ending 31 December 2018, 2019 and 2020 are fair and reasonable.

2.4.2.2 Master Services Agreement (Qingdao Jinyun Air)

(i) Historical transaction amounts and utilisation rates

The utilisation rates of historical annual caps for the provision and receipt of transportation and logistics services by the Group to/from Qingdao Jinyun Air for the two years ended 31 December 2016 and the nine months for the year ended 30 September 2017 were mostly maintained at a relatively low level (below 10%), save for the utilisation rates under the receipt of services from Qingdao Jinyun Air for the two years ended 31 December 2016, being 49.6% and 72.4% respectively, which had subsequently dropped to 8.6% for the nine months ended 30 September 2017.

As advised by the Management, the historical annual caps for the three years ended/ending 31 December 2015, 2016 and 2017 were determined after taking into consideration (i) the historical values of the transactions with Qingdao Jinyun Air and their subsidiaries and associates for the years ended 31 December 2012 and 2013 and the eight months ended 31 August 2014; (ii) the historical growth of the Group’s revenue and the plans and requirements of the Group, after allowing an approximately 5% to 10% buffer for the inherent volatility of business and market rates in the transportation and logistics services industry; (iii) perceived increase in demand for the Group’s services generally with the continued economic growth of the PRC; (iv) the implementation of the Group’s strategy to expand its domestic operations and overseas network; and (v) the expected development and expansion of the business of Qingdao Jinyun Air due to increase in cooperation and transactions with other subsidiaries of the Company.

Given that the transportation and logistics services market has always been competitive and independent providers of similar services may sometimes offer prices and/or terms better than those offered or received by the Group and therefore, in compliance with the internal control procedures and in accordance with the business contracts review system as described in the paragraph headed “2.2.2 Pricing mechanism” above, there was no assurance that the Group would select Qingdao Jinyun Air or its associates as a transportation and logistics services provider or vice versa. Hence, the Management believe and we concur that relatively low utilisation rates in the past have no bearing on the fairness and reasonableness of the basis to determine the then historical annual caps.

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(ii) The New Caps under the Master Services Agreement (Qingdao Jinyun Air)

In respect of the annual caps under the Master Services Agreement (Qingdao Jinyun Air) for provision of services, the Company proposes to reduce the annual cap for the year ending 31 December 2018 to approximately 7.4% of the annual cap for the year 2017, having considered (a) the low utilisation in the past three years; (b) the historical values of the logistics services provided by the Group to Qingdao Jinyan Air have been and is expected to fall below RMB2,000,000 and such transaction has materially been affected by developments in the Korean peninsula over the last year that created uncertainty and have affected trading activities and possible future growth as circumstances remain unclear.

In respect of the annual caps for the receipt of services, the Company proposes to adopt substantially the same set of caps for the next three years as those for the three years ending 31 December 2017 to allow for the potential increase in the transactions between the Group and Qingdao Jinyun Air in the future as the Company expects one of its wholly-owned subsidiaries, namely Sinotrans Shandong Company Limited to continue to work towards expanding its professional logistics services sector in Shandong Province and therefore it may be in need of the services of Qingdao Jinyun Air in the future. The annual caps with respect to the provision and receipt of services for the two years ending 31 December 2020 assumed a year on year increment of 50% (instead of the 30% adopted for the annual cap under the Master Services Agreement (China Merchants)), mainly because of the smaller monetary value involved (the largest annual cap of RMB16,870,000 representing less than 0.04% of the revenue of the Group for the year ended 31 December 2016), but otherwise the same approach was adopted when determining annual caps for those two agreements.

Having taken into account the above, in particular, (i) the political uncertainty in the Korean peninsula remains unchanged (if not worsen) and continues to affect the trading activities and possible future growth of Qingdao Jinyan Air; (ii) the historical values of the logistics services provided by the Group to Qingdao Jinyan Air for each of the year ended 31 December 2015 and 2016 and for the nine months ended 30 September 2017 had remained below RMB2,000,000; (iii) the highest historical transaction amount of the logistics services received by the Group from Qingdao Jinyan Air during the past two years and nine month was approximately RMB8.1 million for the year ended 31 December 2016; (iv) the entering into the Master Services Agreement (Qingdao Jinyun Air) will provide the Group with the framework and flexibility to secure additional services provider at reasonable cost as and when required; (v) the percentage increase in freight rate of over 20% between 2016 to 2017 and (vi) the expected cooperation between Qingdao Jinyun Air and Sinotrans Shandong

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Company Limited, we are of the view that the New Caps under the Master Services Agreement (Qingdao Jinyun Air) for each of the three years ending 31 December 2018, 2019 and 2020 are fair and reasonable.

2.4.2.3 Master Services Agreement (Shanghai Waihong Yishida)

(i) Historical transaction amounts and utilisation rates

Shanghai Waihong Yishida became a subsidiary of the Company in June 2016 when the Group acquired 60% of its equity interest. Therefore, the historical figures represent the transaction amount for the six months ended 31 December 2016 and the nine months ended 30 September 2017. There was either no historical transaction amounts or very minimal amount for the provision or receipt of transportation and logistics services between the Group and Shanghai Waihong Yishida during the abovementioned period as the business relationship with Shanghai Waihong Yishida was just established in 2016.

(ii) The New Caps under the Master Services Agreement (Shanghai Waihong Yishida)

The flat annual caps for the provision and receipt of services for the three years ending 31 December 2020 under the Master Services Agreement (Shanghai Waihong Yishida) have been set at a de minimis level (the largest annual cap of RMB2,250,000 representing less than 0.005% of the revenue of the Group for the year ended 31 December 2016) after taking into account the potential increase in business cooperation between Shanghai Waihong Yishida and companies within the Group after it became a member of the Group. In addition, according to the China Statistical Yearbook 2017, the volume of freight traffic in the Southeast China region had increased from approximately 11.4 billion tonnes in 2010 to approximately 15.7 billion tonnes in 2015, representing a compound annual growth rate of approximately 5.5%. (Note: as the China Statistical Yearbook 2017 includes data by province/city instead of region, the volume of freight traffic in the Southeast China region is composed by adding up the volumes of freight traffic in the provinces and cities generally considered to constitute the Southeast China region, being Guangdong, Guangxi, Fujian, Zhejiang, Jiangxi, Anhui, Jiangsu and Shanghai.) In this regard, the Management expect an increasing demand for logistics services in the Southeast China region where Shanghai Waihong Yishida is located and the business of Shanghai Waihong Yishida can benefit from the favourable market conditions in the future.

Having taken into account the above, in particular, (i) the potential increase in business cooperation between Shanghai Waihong Yishida and companies within the Group considering the strong logistics market in Southeast China region where Shanghai Waihong Yishida is located; (ii) the entering into the Master Services Agreement (Shanghai Waihong Yishida) will provide the Group with the framework and flexibility to secure additional

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services provider at reasonable cost as and when required; (iii) the percentage increase in CCFI of over 20% from 1 July 2016 to 1 July 2017; and (iv) the volume of freight traffic in the Southeast China region had recorded a compound annual growth rate of approximately 5.5% from 2010 to 2015, we are of the view that the New Caps under the Master Services Agreement (Shanghai Waihong Yishida) for each of the three years ending 31 December 2018, 2019 and 2020 are fair and reasonable.

Section summary for the New Caps under the Master Services Agreement (Sinotrans Shandong Hongzhi), Master Services Agreement (Qingdao Jinyun Air) and Master Services Agreement (Shanghai Waihong Yishida)

Having considered the above factors, the Directors consider, and we concur, that the New Caps under the Master Services Agreement (Sinotrans Shandong Hongzhi), Master Services Agreement (Qingdao Jinyun Air) and Master Services Agreement (Shanghai Waihong Yishida) for each of the three years ending 31 December 2018, 2019 and 2020 are fair and reasonable.

Overall summary for the New Caps under the Master Services Agreements

Having considered the above, we concur with the Directors’ view that the annual caps for the continuing connected transactions contemplated under the Master Services Agreements for each of the three years ending 31 December 2018, 2019 and 2020 are fair and reasonable. In addition, we consider that the New Caps in relation to each of the Master Services Agreements were made by the Directors after due and careful consideration.

3. Financial Services Agreement

3.1 Background information of the Finance Company

The Finance Company is a non-bank financial institution approved and regulated by PBOC and the China Banking Regulatory Commission (“ CBRC ”) and is held as to 51% by China Merchants and as to 49% by SINOTRANS & CSC. The principal objective of the Finance Company is to enhance centralised management of funds among members of the China Merchants Group and improve the fund utilisation efficiency of the China Merchants Group as a whole. The Finance Company is principally engaged in the provision of financial consultancy, credit appraisal and other relevant and agency advice; cash/payment settlement services; guarantees, bills acceptances and discount services; loans and finance lease services; deposit taking services; and corporate bond underwriting services for members of the China Merchants Group.

3.2 Principal terms of the Financial Services Agreement

The principal terms of the Financial Services Agreement are set out below:

Date: 10 November 2017

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Duration:

Commencing on 1 January 2018 for a period of three years ending on 31 December 2020

Scope of financial services:

Deposit Services, loan services (including entrusted loan services) and other financial services including the following categories of services, namely settlement services, notes services, foreign exchange services, financial consultancy services, credit appraisal and other relevant advice and agency services, and other financial services within its business scope.

Terms of Deposit Services:

The interest rate payable by the Finance Company to the Company and its subsidiaries for any deposit services shall not be lower than any of the following: (i) the benchmark interest rate of 15% to 50% for the same type of deposits for the same period as published by the PBOC; and (ii) the interest rate applicable to the same type of deposits obtained by the Company from other major domestic commercial banks in the PRC for the same period.

According to the Management, prior to utilising the services provided by the Finance Company, the Group has the right to affirm that the terms of the services provided by the Finance Company are no worse than those offered by independent third parties through understanding of the market conditions. In the event that the terms of services provided by the Finance Company are no better than those provided by independent third parties, the Group has the right to choose not to use or cease to use the services provided by the Finance Company without the liability for any loss sustained by the Finance Company thereof. Moreover, apart from deposits with specified period, the Group may withdraw funds deposited with the Finance Company at any time, without liability for any loss sustained by the Finance Company thereof. In short, the Group will utilise the services of the Finance Company on a voluntary, non-exclusive basis and is not obliged to engage the Finance Company for any services. Hence, the Finance Company is merely one of the financial institutions which provide services to the Group.

With regards to the Deposit Services, the Management advised that deposit activities of the member companies within the Group, whether to be conducted with the Finance Company or other financial institutions, are subject to the approval by their respective finance departments. In particular for the Company, any proposed deposit activity of an amount more than RMB50 million is subject to the review and authorisation by the General Manager of the Accounting & Financial Department under the Company (the “ GM ”), while any proposed deposit of less than RMB50 million is subject to the review and authorisation by the Deputy General Manager of the Accounting & Financial Department under the Company (the “ Deputy GM ”). According to the 2016 Annual Report, the GM, also being the Chief Financial Officer of the Company, has been with the SINOTRANS & CSC Group since 1986 with over 30 years of experience in finance and accounting. As advised by the Management, the Deputy GM is a Certified Public Accountant, a member of the Association of Chartered Certified Accountants and a Senior Accountant in the PRC, with more than 15 years of experience in finance and accounting as well as over 10 years management experience. According to the Management, when assessing and approving the deposit amount to be placed with the Finance

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Company, the Group will take into account the Group’s plan for use of fund as well as the Disposable Cash position of the Group at the prevailing time, which is also one of the factors determining the New Caps of the Deposit Services as detailed in the paragraph headed “3.4 Basis of the New Caps of the Deposit Services” below.

3.3 Reasons for and benefits of Deposit Services

According to the Management, given that the Group is satisfied with the quality of services provided by the Finance Company, the Group intends to continue the deposit services with the Finance Company after expiration of the term of the Former Financial Services Agreements.

Considering that (i) the Group shall use the Deposit Services on a non-exclusive basis; (ii) the deposit rates offered by the Finance Company is at a premium to published PBOC rates and not less than those offered by major commercial banks in the PRC to the Group, the Deposit Services offer flexibility to the Group to increase deposit interest returns on the Group’s Disposable Cash that is generated primarily from its operations and reduce costs and increase efficiency of settlement of transactions within the China Merchants Group, in circumstances where the services being offered by the Finance Company are able to satisfy the Group’s rigorous internal control procedures with respect to the pricing. Regarding the interest rates for the Deposit Services offered by the Finance Company to the Group, we have reviewed (i) sample deposit records between the Group and the Finance Company; and (ii) sample deposit records between the Group and other major and reputable domestic banks, and noted that the latest interest rate offered by the Finance Company to the Group for Deposit Services is at a premium to published PBOC rates and are comparable to those offered by major commercial banks in the PRC to the Group.

In terms of risk management, the Company notes that not only does the Finance Company (that is regulated by the PBOC and the CBRC) have paid up capital of RMB3 billion and be subject to the rules as to capital adequacy, debt-to-asset and other types of liquidity related ratios and corporate governance published by the CBRC, the Finance Company also has the benefit of the undertaking by China Merchants to CBRC to provide funds to the Finance Company to make up any funding shortfall in the event that the Finance Company is unable to meet its payment obligations. As such, the utilisation of the Deposit Services provided by the Finance Company will not expose the Group to additional financial risk as compared to the Group utilising comparable services provided by similar financial institutions that are governed by the same rules and operational requirements of the PBOC and the CBRC.

We have obtained from the Company the submission forms prepared by the Finance Company in reporting their liquidity ratios as at 31 December 2015, 31 December 2016 and 30 June 2017 to the CBRC and noted that the Finance Company has maintained its liquidity ratio over 37% as at 31 December 2015, 31 December 2016 and 30 June 2017, which was above the regulatory requirement of 25%.

Having considered the above, we concur with the Management that there are sufficient mitigating factors which reduce financial risks of utilising the Deposit Services provided by the Finance Company to an acceptable level to the Group.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

In summary, considering that (i) the Deposit Services will provide the Group with the right and flexibility to manage its cash as and when required; (ii) utilising the Deposit Services may allow the Group to earn interest at a rate better than those offered by major commercial banks in the PRC to the Group; and (iii) there are sufficient mitigating factors which reduce financial risks of utilising the Deposit Services to an acceptable level to the Group, we concur with the Management that the Deposit Services is conducted in the ordinary and usual course of business of the Group, is fair and reasonable and is in the interests of the Company and the Shareholders as a whole.

3.4 Basis of the New Caps of the Deposit Services

Set out below are the details of (i) the historical annual caps for the deposit services under the Former Financial Services Agreements for the three years ended/ending 31 December 2015, 2016 and 2017; (ii) the maximum daily deposit amounts and related utilisation rate for each of the two years ended 31 December 2015 and 2016 and the nine months ended 30 September 2017; and (iii) the New Caps of the Deposit Services for the three years ending 31 December 2018, 2019 and 2020.

			For the	year ended/ending 31 December	year ended/ending 31 December	year ended/ending 31 December
		2015	2016	2017	2018	2019	2020
		RMB’million	RMB’million	RMB’million	RMB’million	RMB’million	RMB’million
Historical	caps/New Caps	900	900	900	4,000 or	5,000 or	5,000 or
		(Note 1)			2,000	2,500	2,500
					(Note 4)	(Note 4)	(Note 4)
Maximum	daily deposit	869	863	838	–	–	–
amount	(Note 2)			(Note 3)
Historical	utilisation rate	96.6%	95.9%	93.1%	–	–	–
				(Note 3)

Notes:

The annual cap for the deposit services in 2015 was increased from RMB500 million to RMB900 million, details of which are set out in the Company’s announcement dated 16 April 2015.
The following table illustrates the historical transaction levels between (a) the Group and China Merchants Logistics Group and (b) the Finance Company based on data collated from 2016, following the Company’s first announcement regarding the Strategic Reorganisation dated 15 November 2015, for the year ended 31 December 2016 and the nine months ended 30 September 2017:

	2016	2017
	RMB’000	RMB’000
Estimated maximum daily outstanding balance of deposits
placed by the Group and China Merchants Logistics Group
with the Finance Company (excluding loan proceeds
advanced by the Finance Company)	863,004	1,269,139

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

These figures represent the transaction amount for the nine months ended 30 September 2017 and the utilisation rates are calculated by measuring those transaction amounts against the relevant annual caps.
The smaller amounts refer to the annual caps of the Deposit Services in the event that the Sinoair Financial Services Agreement has not been approved by the independent shareholders of Sinoair and does not become effective.

The basis of determining the New Caps of the Deposit Services for each of the three years ending 31 December 2018, 2019 and 2020 are summarised below, details of which are set out in the “Letter from the Board” of the Circular:

(i) The maximum daily outstanding deposits balance of RMB2 billion, RMB2.5 billion and RMB2.5 billion that can be placed by Sinoair Group for the three years ending 31 December 2018, 2019 and 2020 respectively;
(ii) there has been nearly full utilisation of annual caps for daily deposits under the Former Financial Services Agreements; and
(iii) allowance for the potential increase in Disposable Cash of the Group over the next three years with the expansion of the Group’s business and operations as well as the increased deposits to facilitate settlement of transactions between the Group and other member companies of the China Merchants Group.

To assess whether the New Caps of the Deposit Services for each of the three years ending 31 December 2018, 2019 and 2020 are fairly and reasonably determined, we have considered the following factors:

(i) Historical utilisation rates

As indicated in the table above, the utilisation rates of the historical annual caps for the two years ended 31 December 2016 and the nine months ended 30 September 2017 were all nearly full (i.e. above 90%). As advised by the Management, the historical usages of deposit services by the Group were mainly because the relevant interest rates offered by the Finance Company have generally been more favourable as compared to those available from third party financial institutions.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(ii) Disposable Cash position and cash flow of the Group

According to the 2016 Annual Report and 2017 Interim Report, we set out below the Disposable Cash positions of the Group as at 31 December 2015, 31 December 2016 and 30 June 2017.

Cash and cash equivalents Term deposits with initial terms of over three months Disposable Cash (Note)	As at 31 December 2015 2016 RMB’million RMB’million 6,133 7,119 903 1,330 7,036 8,449	As at 30 June 2017 RMB’million 6,347 1,444
		7,791

Note: As defined in the Circular, Disposable Cash refers to the cash and cash equivalents, including term deposits and excluding restricted cash, of a company. Therefore, each amount of the Disposable Cash of the Group as at 31 December 2015, 31 December 2016 and 30 June 2017 is calculated by adding up the respective cash and cash equivalents and the term deposits as disclosed in the 2016 Annual Report and 2017 Interim Report.

As shown in the above table, the year-end Disposable Cash positions of the Group had increased over the two years ended 31 December 2016, while as at 30 June 2017 the Disposable Cash position of the Group remained at a relatively high level. Further, the Management advised that following the acquisition of China Merchants Logistics in November 2017, the Group’s Disposable Cash position was augmented after consolidating China Merchants Logistics Group into the Group. According to the Management, China Merchants Logistics Group had Disposable Cash of approximately RMB1,434.8 million as at 30 September 2017. Taking into account the above, the Management expect the Disposable Cash position of the Group going forward will further increase and remain at a relatively high level over the next three years, which renders the increase of the New Cap for each of the two years ending 31 December 2020 by 25% over the New Cap for the year ending 31 December 2018.

In addition, as mentioned in the paragraphs headed “2. Master Services Agreements” above, the Group recorded a revenue of approximately RMB46,784.2 million in year 2016, representing an increase of approximately 2.8% from RMB45,528.1 million in year 2015, while revenue for the six months ended 30 June 2017 was approximately RMB27,615.1 million, representing an increase of approximately 27.4% as compared to RMB21,677.7 million for the corresponding period in 2016. Besides, the Company also anticipates growth in its business operations due to more business opportunities for the Group with the China Merchants Group following the Strategic Reorganisation, which in turn may give rise to more intra-group business activities as well as the increasing need for the Deposit Services.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(iii) Increasing usage of settlement services provided by the Finance Company

The Management are also of the view that the growing business and revenue scale of the Group will lead to an increasing usage of the settlement services provided by the Finance Company due to a series of incentive policies offered, which will in turn facilitate the usage of the Deposit Services. Such incentive policies include (i) exemption of service fees charged for domestic settlement; and (ii) the rate of cross border and overseas settlement services will not be higher than that of the same services provided by other local or domestic financial institutions.

(iv) New Caps in the event that Sinoair Financial Services Agreement does not take effect

When determining the New Caps for the Deposit Services, the Company has taken into account the respective maximum daily outstanding deposits balance of RMB2,000 million, RMB2,500 million and RMB2,500 million (excluding loan proceeds advanced by the Finance Company) for the three years ending 31 December 2020 that can be placed by Sinoair and its subsidiaries with the Finance Company pursuant to the Sinoair Financial Services Agreement subject to it taking effect. Sinoair is a major subsidiary of the Company listed on the Shanghai Stock Exchange. As at 31 December 2015, 31 December 2016 and 30 September 2017, the balances of its Disposable Cash accounted for approximately 40% to 50% of those of the Group, respectively.

The Sinoair Financial Services Agreement contains substantially the same terms, other than those in relation to the annual caps and regulatory compliance requirements, as the Financial Services Agreement. In order to comply with the relevant rules and regulations of the authorities in the PRC, it is to take effect upon the approval by Sinoair’s independent shareholders. The Financial Services Agreement provides that if the Sinoair Financial Services Agreement does not become effective, the maximum daily outstanding deposits balance of the Group under the Financial Services Agreement will be reduced to RMB2,000 million, RMB2,500 million and RMB2,500 million for the three years ending 31 December 2020 respectively (i.e. by excluding the amount attributable to the Sinoair Group).

Having considered the above factors, the Directors consider, and we concur, that the New Caps for the Deposit Services under the Financial Services Agreement for each of the three years ending 31 December 2018, 2019 and 2020 are fair and reasonable.

4. Internal control of the Group

The Group has adopted internal control measures and policies in respect of the Non-exempt Continuing Connected Transactions to provide an effective framework for corporate governance and risk management; and monitoring all such transactions among the Group and China Merchants Group and associates of China Merchants.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Internal control measures for the transactions contemplated under the Master Services Agreements are set out in the sub-paragraph headed “2.2.2 Pricing mechanism” of the paragraph headed “2.2 Master Services Agreement (China Merchants)” above and for the Deposit Services are set out in the paragraph headed “3.3 Reasons for and benefits of Deposit Services” above.

Pursuant to Rule 14A.37 of the Listing Rules, the independent non-executive Directors are required to review the Group’s continuing connected transactions annually and confirm in the Company’s annual report that they have been (i) in the ordinary and usual course of business of the Group; (ii) on normal commercial terms; and (iii) in accordance with the relevant agreement governing them on terms that are fair and reasonable and in the interests of the Company and the Shareholders as a whole. In compliance with the Listing Rules, the Company will engage auditors to report on the Group’s continuing connected transactions for each of the years ending 31 December 2018, 2019 and 2020.

To assess whether the above internal control measures are in place and sufficient for monitoring the Non-exempt Continuing Connected Transactions, we have reviewed (i) the internal control manual, the guidance on continuing connected transactions and the regulations on business contracts management maintained by the Group; (ii) sample records of the business contracts review conducted by the Group as mentioned in the paragraph headed “2.2.2 Pricing mechanism” above; and (iii) disclosures in relation to the review of continuing connected transactions by the independent non-executive Directors and auditors engaged by the Company in the annual reports of the Group for the three years ended 31 December 2016, and have interviewed (i) the Deputy General Manager of Internal Audit Department under the Company which is responsible for the internal control on the continuing connected transactions of the Group; (ii) the General Manager of the Legal and Securities Department under the Company which is responsible for the compliance matters of the continuing connected transactions of the Group and (iii) the Deputy General Manager of the Accounting & Financial Department under the Company which is responsible for the accounts management of the Group. With reference to the aforementioned work done, we noted that the internal control processes of the Group have been carried out in accordance with the internal control measures and policy described above under this section and the Management believe, and we concur that, the internal control systems of the Group are in place and are sufficient for the purpose of monitoring continuing connected transactions.

Given the above, we consider that there exist appropriate procedures and arrangements to ensure that the transactions contemplated under the Master Services Agreements and the Deposit Services will be conducted on terms that are fair and reasonable and are in the interests of the Company and the Shareholders as a whole; and are on normal commercial terms and in the ordinary and usual course of business of the Group.

RECOMMENDATIONS

In view of the above principal factors and reasons for the Non-exempt Continuing Connected Transactions, we are of the view that (i) the entering into of each of the Master Services Agreements and the Financial Services Agreement with regards to the Deposit Services is in the ordinary and usual course of business of the Group, and in the interests of the Company and the Shareholders as a whole; (ii) the terms of the Master Services Agreements are on normal commercial terms, and are fair and reasonable as far as the Independent Shareholders are concerned; (iii) the terms of the Financial Services Agreement with regards to

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

the Deposit Services are on normal commercial terms or better, and are fair and reasonable as far as the Independent Shareholders are concerned; and (iv) the New Caps are fair and reasonable so far as the Independent Shareholders are concerned.

Accordingly, we recommend the Independent Shareholders, as well as the Independent Board Committee to advise the Independent Shareholders, to vote in favor of the resolutions to be proposed at the EGM to approve the Non-exempt Continuing Connected Transactions contemplated under the Master Services Agreements and the Financial Services Agreement with regards to the Deposit Services as well as the New Caps.

Yours faithfully, For and on behalf of Altus Capital Limited Jeanny Leung Executive Director

Ms. Jeanny Leung (“ Ms. Leung ”) is a Responsible Officer of Altus Capital Limited licensed to carry on Type 6 (advising on corporate finance) regulated activity under the SFO and permitted to undertake work as a sponsor. She is also a Responsible Officer of Altus Investments Limited licensed to carry on Type 1 (dealing in securities) regulated activity under the SFO. Ms. Leung has about 30 years of experience in corporate finance advisory and commercial field in Greater China, in particular, she has participated in sponsorship work for initial public offerings and acted as financial adviser or independent financial adviser in various corporate finance transactions.

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APPENDIX I AMENDMENTS OF THE ARTICLES OF ASSOCIATION OF THE COMPANY

Proposed amendments to the Articles of Association are underlined for ease of reference:

(i) Article 1 is proposed to be amended as:

“Article 1 Sinotrans Limited (the “ Company ”) is a joint stock limited company established in accordance with the PRC Company Law (the “ Company Law ”), the Special Regulations of the State Council on the Overseas Offering and Listing of Shares by Joint Stock Limited Companies by Shares (“ Special Regulations ”) and other applicable laws and administrative regulations of the State.

The Company was approved by the State Economic and Trade Commission on 20 November 2002 to be established by way of promotion and was registered with the State Administration for Industry and Commerce of the PRC and a business licence was obtained, the ~~number being 100000000037375~~ the unified social credit code of the Company being 911100007109305601. The reference number of the approval is Guo Jing Mao Qi Gai [2002] No. 863.

The promoter of the Company is SINOTRANS & CSC Holdings Co., Ltd.”

(ii) Article 20 is proposed to be amended as:

“Article ~~20 2~~ 1 Upon the approval of the examination and approval department authorized by the State Council, the Company may issue a total of ~~4,606,483,200 ordinary shares, and 2,624,087,200 shares are to be issued to the promoter upon its establishment. All those 2,624,087,200 shares shall be domestic shares~~ 6,049,166,644 ordinary shares, of which 3,904,279,644 domestic shares, representing approximately 64.54% of the total share capital of the Company, and 2,144,887,000 overseas-listed foreign shares (H shares), representing approximately 35.46% of the total share capital of the Company.”

(iii) Article 21 is proposed to be amended as:

“Article ~~21~~ 22 Upon its establishment, the Company issued 2,624,087,200 Shares (all being domestic shares). After its establishment, the Company ~~shall issue~~ issued 1,624,915,500 ordinary shares (including a not more than 15% over-allotment option). All those shares shall be foreign shares (H Shares). With the approval of China Securities Regulatory Commission in July 2014, the Company issued a total of 357,481,000 new ordinary shares, all of which are foreign shares (H Shares). Upon the approval of the examination and approval department authorized by the State Council in October 2017, the Company issued 1,442,683,444 new ordinary shares, all of which are domestic shares.

The share capital structure of the Company after the above share issue shall be ~~: not more than 4,606,483,200~~ 6,049,166,644 ordinary shares, of which 1,442,683,444 domestic shares will be directly held by China Merchants Group Limited, representing approximately 23.85% of the total share capital of the Company and 2,461,596,200 domestic shares will be directly held by SINOTRANS & CSC, representing approximately ~~53.44%~~ 40.69% of the total share capital of the Company, and 2,144,887,000 shares will be held by the holders of the overseas-listed foreign shares (H shares), representing approximately ~~46.56%~~ 35.46% of the total share capital of the Company.”

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AMENDMENTS OF THE ARTICLES OF ASSOCIATION OF THE COMPANY

APPENDIX I

(iv) Article 24 is proposed to be amended as:

“Article ~~24~~ 25 The registered capital of the Company shall be RMB ~~4,606,483,200~~ 6,049,166,644. Upon the new issue, the registered capital of the Company will be adjusted correspondingly according to the actual number of shares in issue and the figure shall be filed at such corporate examination and approval authority and securities regulatory authority as authorized by the State Council.”

(v) All references to the Chinese title “總裁” in the Articles of Association, namely Article 9, Article 51, Article 57, Article 62, Article 95, Article 98, Article 106, Chapter 12, Article 109, Article 110, Article 111, Article 112, Article 113, Article 116, Article 118, Chapter 14, Article 122, Article 123, Article 124, Article 125, Article 126, Article 127, Article 128, Article 129, Article 130, Article 131, Article 132, Article 133, Article 135, Article 137, Article 161 and Article 185 be changed to “總經理”.
(vi) All references to the Chinese title “副總裁” in the Articles of Association, namely Article 95, Article 109, Article 110, Article 112, Article 113 and Article 116 be changed to “副總經理”.
(vii) The following new Article 7 is proposed to be added to the existing Article of Association immediately after the existing Article 6:

“Article 7 In accordance with the relevant provisions under the Constitution of the Communist Party of China, the Company established the organization of the Communist Party of China. The Party Committee shall perform the core leading and political functions, provide directions, manage the situation and ensure the implementation. Meanwhile, the Company shall set up a working unit for the Party, allocate sufficient personnel to handle Party affairs and guarantee working funds for the Party Committee.”

(viii) The following new Article 97 is proposed to be added to the existing Article of Association immediately after the existing Article 95:

“Article 97 Prior to making decisions on material issues of the Company, the Board shall first seek opinions of the Party Committee.”

(ix) The following new Chapter 12 and new articles 111 and 112 be added to the existing Articles of Association immediately after the existing Article 108:

“Chapter 12 Party Committee

Article 111 The Company shall set up the Party Committee, which shall consist of one secretary, and several members of the Party Committee. The Chairman (President) and the party secretary shall be held by the same person in principle. Eligible members in the Party Committee are allowed to serve as members of the Board, board of supervisors and management through legal procedures. Eligible Party members in the Board, board of supervisors and management are allowed to join the Party Committee in accordance with relevant provisions and procedures. At the same time, the Company shall establish the Discipline Committee according to the provisions.

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AMENDMENTS OF THE ARTICLES OF ASSOCIATION OF THE COMPANY

APPENDIX I

Article 112 The Party Committee shall discharge its duties in accordance with the provisions under the Constitution of the Communist Party of China.

(i) To guarantee and supervise the implementation of policies and guidelines of the Party and the PRC in the Company, implement material strategic decisions of the Central Committee of the Party and the State Council and make deployment for the relevant material works of the Party Committee of State-owned Assets Supervision and Administration Commission of the State Council and superior Party organisation.
(ii) To insist on the combination of the principles of management of cadres by the Party and the selection of operation managers by the Board according to laws and execution of the right of employment by the operation managers. The Party Committee shall consider and propose opinions and suggestions on the candidates as nominated by the Board or president, or nominate candidates to the Board or president, and, together with the Board, conduct investigation on the candidates to be appointed and conduct collective research to raise opinions and suggestions.
(iii) To study and discuss reform, development and stability, material operation and management issues and other material issues of the Company involving staff’s vital interests, and propose opinions and suggestions thereon.
(iv) To shoulder the main responsibility for the overall strictness in administering the Party, lead the Company in terms of ideological and political work, united front work, spiritual civilization construction, enterprise cultural construction and the work of labour union, the Communist Youth League and other groups, and lead the construction of the Party conduct and of an honest and clean government and support the Discipline Committee in its performance of supervision responsibility.”
(x) The numberings of the Articles and Chapters that follow the above new Chapter and new Articles in the existing Articles of Association will be adjusted accordingly.
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GENERAL INFORMATION

APPENDIX II

I. RESPONSIBILITY STATEMENT

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

II. DISCLOSURE OF INTERESTS

I. Interests of Directors

As at the Latest Practicable Date, so far as the Directors, chief executive or supervisor of the Company are aware, none of the Directors, chief executive or supervisors of the Company has interests and short positions in the Shares, underlying Shares or debentures of the Company and its associated corporations (within the meaning of Part XV of the SFO which were required (a) to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests or short positions which they are taken or deemed to have under such provisions of the SFO); or (b) pursuant to section 352 of the SFO, to be entered in the register referred to therein; or (c) pursuant to the Model Code for Securities Transactions by Directors of Listed Companies to be notified to the Company and the Stock Exchange.

Saved as disclosed in the sections headed “II. Interests of Shareholders discloseable pursuant to the SFO” and “III. Directors’ Interests in competing business” below, as at the Latest Practicable Date, none of the Directors, proposed Directors, supervisors or proposed supervisors is a director or employee of a company which has an interest or short position in the Shares and 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.

II. Interests of Shareholders discloseable pursuant to the SFO

As at the Latest Practicable Date, so far as is known to the Directors, chief executive or supervisors of the Company and based on the Company’s register required to be maintained pursuant to section 336 of the SFO, the following persons (other than a Director, chief executive or supervisor of the Company) had an interest or short position in the Shares and underlying Shares which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO or who were, directly or indirectly, interested in 10 per cent 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 members of the Group are as follows:

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GENERAL INFORMATION

APPENDIX II

(a) Interests in the Shares

			Percentage of	Percentage of
			the Company’s	the Company’s
	Corporate	Class of	Total issued	issued H Share
Name	Interests	Shares	Share Capital	Capital
China Merchants (Note 1)	3,904,279,644 (L)	Domestic	64.54%	–
		Shares
	107,183,000 (L)	H Shares	1.77%	4.997%
SINOTRANS & CSC	2,461,596,200 (L)	Domestic	40.69%	–
(Note 2)		Shares
	107,183,000 (L)	H Shares	1.77%	4.997%
FIL Limited (Note 3)	193,175,000 (L)	H Shares	3.19%	9.01%
Citigroup, Inc. (Note 4)	130,976,983 (L)	H Shares	2.95%	6.10%
	314,000 (S)	H Shares	0.00%	0.01%
	126,457,716 (P)	H Shares	2.88%	5.89%
BlackRock, Inc. (Note 5)	151,059,352 (L)	H Shares	2.50%	7.04%
FIDELITY FUNDS	110,089,000 (L)	H Shares	1.82%	5.13%
(Note 6)

Notes: (L) Long Position, (S) Short Position, (P) Lending Pool

Notes:

China Merchants directly holds 1,442,683,444 Domestic Shares (representing approximately 36.95% of the Domestic Shares in issue as of the Latest Practicable Date) and, being the direct holding company of SINOTRANS & CSC, is deemed to be interested in 2,461,596,200 Domestic Shares and 107,183,000 H Shares owned by SINOTRANS & CSC and its whollyowned subsidiaries.
SINOTRANS & CSC is the controlling shareholder of the Company and a wholly-owned subsidiary of China Merchants. The Company’s Chairman Mr. Zhao Huxiang and Executive Director Mr. Song Dexing also serve in SINOTRANS & CSC. The 2,461,596,200 Domestic Shares, being 63.05% of the Domestic Shares in issue as of the Latest Practicable Date, were directly owned by SINOTRANS & CSC and the 107,183,000 H Shares were indirectly held by SINOTRANS & CSC through its wholly owned subsidiaries, among which Sinotrans (Hong Kong) Holdings Ltd. was interested in 106,683,000 H Shares and Sinotrans Shipping Inc. was interested in 500,000 H Shares as at the Latest Practicable Date.
According to the disclosure of interests form filed by FIL Limited available on the Stock Exchange’s website, FIL Limited held these interests in the H Shares through companies wholly-owned by it.
According to the disclosure of interests form filed by Citigroup Inc. available on the Stock Exchange’s website, these shares/underlying shares are held by various subsidiaries of Citigroup Inc., in respect of which 4,084,267 H Shares (L) and 314,000 H Shares (S) were interest of controlled corporations and 126,457,716 H Shares (L/P) were held in the capacity of
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GENERAL INFORMATION

APPENDIX II

approved lending agent and 435,000 H Shares (L) were held in the capacity of person having a security interest in shares. 314,000 H Shares (S) have also been reported as cash settled unlisted derivatives.

According to the disclosure of interests form filed by BlackRock, Inc. available on the Stock Exchange’s website, these shares/underlying shares are held by various subsidiaries of BlackRock, Inc., in respect of which 3,340,000 H Shares (L) have been reported as cash settled unlisted derivatives.
According to the disclosure of interest form filed by FIDELITY FUNDS available on the Stock Exchange’s website, FIDELITY FUNDS held these H Shares directly.

(b) Substantial Shareholders of other members of the Group

As at the Latest Practicable Date, save as disclosed below and so far as is known to the Directors or supervisor of the Company, no person (not being a Director or supervisor of the Company) was 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 the other members of the Group.

	Interest in
Name of entitles holding 10% or more	relevant
interest in a member of the Group	company	Name of subsidiary of the Company
Transhold (Pvt) Ltd.	40%	中國外運(巴基斯坦)物流有限公司
		(Sinotrans Logistics (Pakistan) (Pvt.) Ltd*)
蘇州物流中心有限公司	49%	中國外運蘇州物流中心有限公司
Suzhou Logistics Center Co., Ltd*		(Sinotrans Suzhou Logistics Center
		Co., Ltd*)
香港金發船務有限公司	33%	上海華發國際貨運有限公司
(Golden Shipping Co., Ltd*)		(Shanghai Huafa International
		Transportation Co., Ltd.*)
上海化學工業區奉賢分區發展有限公司	12.8%	中外運化工國際物流有限公司
(Shanghai Chemical Industrial Park		(Sinotrans Chemical International Logistics
Fengxian Sub-zone Development		Co., Ltd.*)
Co., Ltd*)
上海颯諾權商務諮詢合夥企業	20%	中外運化工國際物流有限公司
(有限合夥)		(Sinotrans Chemical International
		Logistics Co., Ltd.*)
日本通運株式會社	49%	上海通運國際物流有限公司
(Nippon Express Co., Ltd.*)		(Shanghai Express International Co., Ltd.*)

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GENERAL INFORMATION

APPENDIX II

Interest in

Name of entitles holding 10% or more interest in a member of the Group

勝獅堆場企業有限公司

(Singamas Depot Co., Ltd.*)

新加坡太平船務有限公司

(Pacific International Lines (Pte) Ltd.*)

relevant

Name of subsidiary of the Company

company

40% 上海華星國際集裝箱貨運有限公司 (Shanghai Huasing International Container Freight Transportation Co., Ltd.*)

45% 寧波太平國際貿易聯運有限公司 (Ningbo Taiping International Trade Transportation Company Limited*)

27% 寧波保稅區太平倉儲有限公司 (Ningbo Free Trade Zone Taiping Warehouse Co., Ltd.*)

蘇州高新技術產業股份有限公司

(Suzhou New District New & Hi-Tech Industrial Co., Ltd.*)

蘇州高新區經濟發展集團總公司

(Suzhou New District Economy Development (Group) Corporation*)

以星航運中國有限公司

(Zim Integrated Shipping Services Ltd.*)

阿聯船務代理(香港)有限公司

(Alian Shipping Agency (Hong Kong) Company Limited*)

寧波泛洋國際貨運代理有限公司

職工持股會 (Ningbo Transocean International Forwarding Agency Ningbo Co. Ltd.*)

寧波船務代理有限公司職工持股會

(China Marine Shipping Agency Ningbo Co. Ltd. Employee Shareholding Society*)

40% 中外運高新物流(蘇州)有限公司 (Sinotrans Gaoxin Logistics (Suzhou) Ltd.*)

25% 蘇州新區報關有限公司

(Suzhou New District Customs Broker Co., Ltd.*)

49% 上海運星國際船務代理有限公司

(Shanghai Yunsheng International Shipping Agency Company Limited*)

49% 寧波中外運阿聯船舶代理有限公司 (Sinotrans Ningbo Alian Shipping Agency Company Limited*)

40% 寧波泛洋國際貨運代理有限公司

(Ningbo Transocean International Forwarding Agency Company Limited*)

40% 寧波船務代理有限公司

(China Marine Shipping Agency Ningbo Co., Ltd.*)

68 -

GENERAL INFORMATION

APPENDIX II

Interest in

Name of entitles holding 10% or more interest in a member of the Group

寧波外運國際貨運代理有限公司

職工持股會 (Sinotrans Ningbo International Freight Forward Agency Co., Ltd. Employee Shareholding Society*)

寧波外運國際集裝箱貨運有限公司

職工持股會 (Sinotrans Ningbo International Container Transportation Company Limited Employee Shareholding Society*)

南通市經濟技術開發區總公司

(Nantong Economic & Technological Development Area Controlling Corporation*)

廣東省食品進出口集團公司

(Guangdong Foodstuffs Imp & Exp (Group) Corporation*)

廣東省南海食品進出口有限公司

(Guangdong Nanhai Foodstuffs Company Limited*)

中山市岐江工業發展有限公司

(Zhongshan Qijiang Industry Development Co., Ltd.*)

梧州市木材公司

(Wuzhou Lumber Company*)

東莞市石龍鎮工業總公司

(Dongguan Shilong Town Industry Co., Ltd.*)

遠升有限公司

(Lailon Enterprises Ltd.*)

relevant

Name of subsidiary of the Company

company

40% 寧波外運國際貨運代理有限公司 (Sinotrans Ningbo International Freight Forwarding Agency Co., Ltd.*)

40% 寧波外運國際集裝箱貨運有限公司

(Sinotrans Ningbo International Container Transportation Company Limited*)

10% 南通中外運化工物流有限公司

(Sinotrans Nantong Chemical Logistics Co., Ltd.*)

20% 佛山中外運倉碼有限公司

(Sinotrans Foshan Warehousing & Terminal Company Limited*)

25% 佛山中外運倉碼有限公司 (Sinotrans Foshan Warehousing & Terminal Company Limited*)

40.546% 中山中外運倉碼有限公司

(Sinotrans Zhongshan Warehousing & Terminal Corp., Ltd.*)

17.67% 廣西梧州中外運倉碼有限公司

(Sinotrans Wuzhou Warehousing & Terminal Corp., Ltd.*)

20% 東莞中外運物流有限公司

(Sinotrans Dongguan Logistics Co., Ltd.)

25% 青島聯通報關有限公司

(Qingdao Liantong Customs Broker Co., Ltd.*)

69 -

GENERAL INFORMATION

APPENDIX II

Interest in

Name of entitles holding 10% or more relevant interest in a member of the Group company

company Name of subsidiary of the Company

25% 山東中外運弘志物流有限公司 (Sinotrans Shandong Hongzhi Logistics Co. Ltd.*)

25% 青島金運航空貨運代理有限公司 (Qingdao Jinyun Air Cargo Freight Forwarding Co. Ltd.*)

好明國際物流(上海)有限公司 49% 天津中外運好好冷鏈物流有限公司 (Hao Ming International Logistics (Sinotrans Tianjin Good Cold Chain (Shanghai) Co., Ltd.) Logistics Co., Ltd.) 福州開發區國有資產營運有限公司 30% 福州中外運大裕保稅倉儲有限公司 (Fuzhou Development Zone State(Fuzhou Davu Bonded Storage Company owned Assets Management Company) Limited) SIMME TRANSIT INTERNATIONAL 25% 吉布提運輸有限公司 Djibouti Transit & Transport SARL MAMBUK TRADING AND 24% 吉布提運輸有限公司 LOGISTICS PRIVATE LIMITED CO. Djibouti Transit & Transport SARL 韓進海運株式會社 49% 上海星瀚船務代理有限公司 (Hanjin Shipping Company Limited) (Shanghai Shenhan Shipping Agency Company Limited) 成都高新投資集團有限公司 45.71% 成都保稅物流投資有限公司 (Chengdu New District Investment (Chengdu Bonded Logistics Investment Group Corporation) Company Limited) 武漢東湖綜合保稅區建設投資有限公司 40% 武漢東湖綜保區保稅物流有限公司 Wuhan Eastlake Free Trade Zone Wuhan Dast Lake Comprehensive Bonded Construction Investment Co. Ltd Area Bonded Logistics Co. Ltd 瀘州市興瀘投資集團有限公司 40% 中外運瀘州港保稅物流有限公司 LUZHOU XINGLU INVESTMENT SINOTRANS LUZHOU PORT BONDED GROUP CO. LTD LOGISTICS CO. LTD. 上海外高橋物流中心有限公司 20% 中外運外高橋上海(國際)物流有限公司 Shanghai Waigaoqiao Logistics Center Sinotrans Waigaoqiao Shanghai Co., Ltd. (International) Logistics Co., Ltd.

70 -

GENERAL INFORMATION

APPENDIX II

Interest in

Name of entitles holding 10% or more relevant interest in a member of the Group company Name of subsidiary of the Company

江門高新技術工業園有限公司 35% 江門高新港務發展有限公司 Jiangmen High Tech Industrial Park Jiangmen High Tech Port Development Co., Ltd. Co., Ltd. 東莞港務集團有限公司 30% 廣東中俄貿易產業園投資有限公司 Dongguan Port Group Co., Ltd Guangdong Sino-Russian Trade Industrial Park Investment Co., Ltd 青島港國際股份有限公司 49% 青島港董家口中外運物流有限公司 Qingdao Port International Co., Ltd Qingdao Port Dongjiakou Sinotrans Logistics Co., Ltd 威球船務代理私人有限公司 49% 威潤馬航物流(天津)有限公司 Weiqiu Shipping Agency Private Weirun Mahang Logistics (Tianjin) Co., Co., Ltd Ltd PT.TRANSLINDO NUSAPACIFIC 51% 中國外運長航印度尼西亞有限公司 (PT Sinotrans & CSC Indonesia) Maritime and Commerce Agency India 40% 中國外運印度有限公司 LLP (Sinotrans India Private Limited) 合肥市供銷商業總公司 40% 中國外運物流發展合肥有限公司 Hefei Supply and Marketing Sinotrans Logistics Development Hefei Commercial General Company Co., Ltd 中外運上海(集團)有限公司 30% 上海華展倉儲貿易有限公司 Sinotrans Shanghai (Group) Co., Ltd Shanghai Huazhan Warehousing Trade Co., Ltd 15% 上海外紅伊勢達國際物流有限公司 Shanghai Waihong Yishida International Logistics Co., Ltd*

上港集團物流有限公司 Shanggang Group Logistics Co., Ltd*

15% 上海外紅伊勢達國際物流有限公司 Shanghai Waihong Yishida International Logistics Co., Ltd*

上海外高橋保稅區聯合發展有限公司 Shanghai Waigaoqiao Tax-protected Zone Union Development Co.,Ltd.*

10% 上海外紅伊勢達國際物流有限公司 Shanghai Waihong Yishida International Logistics Co., Ltd*

71 -

GENERAL INFORMATION

APPENDIX II

	Interest in
Name of entitles holding 10% or more	relevant
interest in a member of the Group	company	Name of subsidiary of the Company
Sabrina Musharraf Mohammed	51%	中國外運迪拜有限公司
		Sinotrans Gulf Shipping L.L.c*
廣西北港物流有限公司	41%	渝桂新（重慶）多式聯運有限公司
(Guangxi North Logistics Co. Ltd. *)		(Yu Gui Xin (Chongqing) Multimodal
		Transport Co., Ltd.*)
重慶鐵路口岸物流開發有限責任公司	39%	渝桂新（重慶）多式聯運有限公司
(Chongqing Railway Port Logistics		(Yu Gui Xin (Chongqing) Multimodal
Development Co., Ltd.*)		Transport Co., Ltd.*)
民生輪船股份有限公司	10%	渝桂新（重慶）多式聯運有限公司
(MINSHENG SHIPPING CO., LTD)		(Yu Gui Xin (Chongqing) Multimodal
		Transport Co., Ltd.*)
大連恒正瑞集裝箱運輸有限公司	55%	遼寧外運恒久運輸服務有限公司
(Dalian Heng Rui Container		(Liaoning Foreign Transport Everlasting
Transportation Co., Ltd.*)		Transport Service Co., Ltd*)

Save as disclosed above, the Directors are not aware that there is any person (other than a Director, chief executive or supervisor of the Company) who, as at the Latest Practicable Date, had an interest or short position in the Shares and underlying Shares of the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO, or who is, directly or indirectly, interested in 10 per cent. or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at a general meeting of any other member of the Group.

III. Directors’ interests in competing business

Mr. Jerry Hsu (a non-executive Director) is considered to have interests in other business apart from the Group’s business, which competes or is likely to compete, either directly or indirectly with the Group’s business as at the Latest Practicable Date, within the meaning of the Listing Rules. He is a representative nominated by DHL Worldwide Express BV, the strategic investor of the Company (the “ Strategic Investor ”).

DHL Worldwide Express BV is a member of the Deutsche Post World Net Group whose business operations are global mail, express delivery, logistics and financial services serving both in Europe and around the world. While, for the purposes of the Listing Rules, Jerry Hsu is considered to have interests (by way of minority equity interests or stock options or directorships) in competing businesses (i.e. those of the Strategic Investor, being a major international company in the

72 -

GENERAL INFORMATION

APPENDIX II

transportation and logistics industry), the Company has been and continues to carry on its business, management and operation independently of and at arms length from, those businesses and through its joint venture and cooperation arrangements with the Strategic Investor.

The Chairman of the Board of the Company, namely Mr. Zhao Huxiang, is the Vice Chairman of China Merchants, and the Executive Director of the Company, namely Mr. Song Dexing, is the director of Integrated Logistics Department of China Merchants. China Merchants is the ultimate controlling shareholder of the Company. Certain subsidiaries of China Merchants engage in the Group’s “core businesses” (namely freight forwarding and shipping agency operations) in certain “core strategic regions” of the Group in the PRC which have only nominal operations which are the same as or similar to the “core businesses” of the Group.

Save as disclosed above, as at the Latest Practicable Date, so far as is known to the Directors or supervisor of the Company, no other Directors or any of their respective close associates had any interests in a business, which competes or may compete with the business of the Group.

III. DIRECTORS’ SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors, proposed Directors, supervisors or proposed supervisors had entered into or proposed to enter into any service contract with any member of the Group (excluding contracts expiring or determinable by the Group within one year without payment of compensation (other than statutory compensation)).

IV. MATERIAL ADVERSE CHANGE

As at the Latest Practicable Date, the Directors were not aware of any material adverse change in the financial or trading position of the Group since 31 December 2016, being the date to which the latest published audited consolidated financial statements of the Group were made up.

V. DIRECTORS’ INTERESTS IN CONTRACT OR ARRANGEMENT AND ASSETS OF THE GROUP

As at the Latest Practicable Date, none of the Directors or supervisors was materially interested, directly or indirectly, in any contract or arrangement subsisting at the Latest Practicable Date and which is significant in relation to the business of the Group.

As at the Latest Practicable Date, none of the Directors, proposed Directors, supervisors or proposed supervisors had any direct or indirect interest in any assets which had been acquired, disposed of by or leased to, or which had been proposed to be acquired, disposed of by or leased to, any member of the Group since 31 December 2016 (the date to which the latest published audited consolidated financial statements of the Group were made up).

73 -

GENERAL INFORMATION

APPENDIX II

VI. EXPERTS

The following is the qualification of the experts which has given its opinion or advice which is contained in this circular:

Name

Qualification

Altus Capital Limited (Independent Altus Capital Limited, a corporation licensed under the SFO Financial Adviser) to carry out Type 4 (Advising on Securities), Type 6 (Advising on Corporate Finance) and Type 9 (Asset Management) regulated activities under the SFO

As at the Latest Practicable Date, the Independent Financial Adviser did not have:

(a) any direct or indirect interest in any assets which have been 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 since 31 December 2016, being the date to which the latest published audited consolidated financial statements of the Group were made up; and
(b) any shareholding in any member of the Group or the right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group.

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 reference to its name in the form and context in which they respectively appear.

VII. MISCELLANEOUS

(a) The joint secretaries of the Company are Mr. Li Shichu and Ms. Hui Wai Man, Shirley. Mr. Li Shichu is also the General Manager of the Developing & Planning Department of the Company. Mr. Li obtained his bachelor degree in economics from University of International Business and Economics, and graduated with an EMBA degree from Cheung Kong Graduate School of Business. Ms. Hui Wai Man, Shirley is a fellow member of Hong Kong Institute of Certified Public Accountants, The Association of Chartered Certified Accountants. The Institute of Chartered Secretaries and Administrators and The Hong Kong Institute of Chartered Secretaries, and a member of the Society of Chinese Accountants and Auditors and the Hong Kong Securities Institute.
(b) The registered address of the Company is situated at Sinotrans Plaza A A43, Xizhimen Beidajie, Haidian District, Beijing 100082, the People’s Republic of China. The headquarter of the Company is situated at Building 10/Sinotrans Tower B, No.5 Anding Road, Chaoyang District, Beijing 100029, People’s Republic of China. The principal place of business of the Company in Hong Kong is situated at Room F & G, 20/F., MG Tower, 133 Hoi Bun Road, Kwun Tong, Kowloon, Hong Kong.
74 -

GENERAL INFORMATION

APPENDIX II

(c) The share registrars of the Company is Computershare Hong Kong Investor Services Limited at 17th Floor, Hopewell Centre, 183 Queen’s Road East, Hong Kong.

In any event of inconsistency, the English language text of this circular shall prevail over the Chinese language text.

VIII. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection during normal business hours on any weekday (except public holidays) at the office of Reed Smith Richards Butler at 20th Floor, Alexandra House, 18 Chater Road, Central, Hong Kong from the date of this circular, for a period of 14 days:–

(a) each of the Master Services Agreements; and
(b) the Financial Services Agreement.
75 -

AI assistant

ELL Environmental Holdings Limited — Proxy Solicitation & Information Statement 2017

49895_rns_2017-11-30_857ff83f-46f3-4640-8910-80515887454a.pdf

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

(I) PROPOSED APPOINTMENT OF AN INDEPENDENT NON-EXECUTIVE DIRECTOR AND RE-APPOINTMENT OF A SUPERVISOR; (II) PROPOSED AMENDMENT OF THE ARTICLES OF ASSOCIATION OF THE COMPANY; AND (III) CONTINUING CONNECTED TRANSACTIONS

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

“PBOC”

DEFINITIONS

DEFINITIONS

SINOTRANS & CSC and its subsidiaries

LETTER FROM THE BOARD

(I) PROPOSED APPOINTMENT OF AN INDEPENDENT NON-EXECUTIVE DIRECTOR AND RE-APPOINTMENT OF A SUPERVISOR;

(II) PROPOSED AMENDMENT OF THE ARTICLES OF ASSOCIATION OF THE COMPANY; AND (III) CONTINUING CONNECTED TRANSACTIONS

INTRODUCTION

A. PROPOSED APPOINTMENT OF AN INDEPENDENT NON-EXECUTIVE DIRECTOR AND RE-APPOINTMENT OF A SUPERVISOR

LETTER FROM THE BOARD

B. PROPOSED AMENDMENT OF THE ARTICLES OF ASSOCIATION OF THE COMPANY

LETTER FROM THE BOARD

C. CONTINUING CONNECTED TRANSACTIONS

I. Background

LETTER FROM THE BOARD

II. Non-exempt Continuing Connected Transactions which require reporting, annual review, announcement and Independent Shareholders’ approval

(a) Transactions with China Merchants and its associates under the Master Services Agreement (China Merchants)

LETTER FROM THE BOARD

Historical transaction value

Annual caps under the Master Services Agreement (China Merchants)

LETTER FROM THE BOARD

LETTER FROM THE BOARD

(b) Transactions with Connected Non Wholly-Owned Subsidiaries

LETTER FROM THE BOARD

LETTER FROM THE BOARD

LETTER FROM THE BOARD

LETTER FROM THE BOARD

(c) Transactions with the Finance Company

Principal terms of the Financial Services Agreement

LETTER FROM THE BOARD

Internal control and risk management measures under the Financial Services Agreement

LETTER FROM THE BOARD

Historical transaction value in relation to the deposit services

LETTER FROM THE BOARD

Annual cap for deposit services

LETTER FROM THE BOARD

LETTER FROM THE BOARD

Annual cap for loan services and other financial services

III. Listing Rules compliance in respect of the Non-exempt Continuing Connected Transactions

LETTER FROM THE BOARD

IV. Basis of pricing of the transactions contemplated under the Master Services Agreements and the Financial Services Agreement and internal control procedures for monitoring connected transactions

Basis of pricing

(i) the Master Services Agreements

LETTER FROM THE BOARD

(ii) Deposit services under the Financial Services Agreement

Internal control procedures

V. Reasons and benefits for the Non-exempt Continuing Connected Transactions

LETTER FROM THE BOARD

D. EXTRAORDINARY GENERAL MEETING

E. DIRECTORS’ RECOMMENDATION

F. GENERAL INFORMATION

(Stock Code: 0598)

CONTINUING CONNECTED TRANSACTIONS

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

Yours faithfully, The Independent Board Committee

CONTINUING CONNECTED TRANSACTIONS

INTRODUCTION

Master Services Agreements

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Financial Services Agreement

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Parties to abstain from voting at the EGM

THE INDEPENDENT BOARD COMMITTEE

THE INDEPENDENT FINANCIAL ADVISER

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

BASIS OF OUR ADVICE

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

PRINCIPAL FACTORS AND REASONS CONSIDERED

1. Background information of the Group

2. Master Services Agreements

2.1 Background of China Merchants and the Connected Non Wholly-Owned Subsidiaries

ELL Environmental Holdings Limited Proxy Solicitation & Information Statement 2017