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.

This circular appears for information purposes only and does not constitute an invitation or offer to acquire, purchase or subscribe for the securities in the Company.

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

(Stock Code: 0598)

(I) MAJOR TRANSACTION AND POSSIBLE CONNECTED TRANSACTION – PROPOSED LISTING OF A SHARES AND THE MERGER OF SINOAIR;
(II) PROPOSED AMENDMENTS OF THE ARTICLES OF ASSOCIATION AND ADOPTION OF CERTAIN INTERNAL POLICIES BY THE COMPANY

Transaction Adviser and Chief Coordinator

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Financial Advisers

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

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A letter from the Board is set out on pages 7 to 34 of this circular. A letter from the Independent Financial Adviser containing its advice to the Independent Board Committee and the Independent Shareholders is set out on 37 to 80 of this circular. A notice convening the EGM to be held at 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 31 May 2018 at 10:00 a.m. , or immediately after the conclusion of the annual general meeting of the Company or any adjournment thereof to be held at 9:30 a.m. on the same day and a form of proxy for use at the EGM have been published on the website of Sinotrans Limited and the website of The Stock Exchange of Hong Kong Limited.

A notice convening the H Shares Class Meeting to be held at 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 31 May 2018 at 10:30 a.m. , or immediately after the conclusion of the EGM or any adjournment thereof and a form of proxy for use at the H Shares Class Meeting have been published on the website of Sinotrans Limited and the website of The Stock Exchange of Hong Kong Limited.

Shareholder who intend to attend the EGM or the H Shares Class Meeting shall complete and return the reply slip in accordance with the instruction printed thereon on or before 4:30 p.m. on 11 May 2018. If you do not intend to attend the EGM or the H Shares Class Meeting, 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 or Computershare Hong Kong Investor Services Limited, the Company’s Share Registrar in Hong Kong, at 17M Floor, Hopewell Centre, 183 Queen’s Road East, Wan Chai, 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 the H Shares Class Meeting 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 the H Shares Class Meeting or any adjournment of it, if you so wish.

18 April 2018

			Page
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .			1
EXPECTED TIMETABLE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .			6
LETTER FROM THE BOARD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .			7
LETTER FROM THE INDEPENDENT BOARD COMMITTEE . . . . . . . . . . . . . . . . . . . .			35
LETTER FROM THE INDEPENDENT FINANCIAL ADVISER . . . . . . . . . . . . . . . . . . . .			37
APPENDIX I	–	FINANCIAL INFORMATION OF THE GROUP . . . . . . . . . . . . . . . .	I-1
APPENDIX II	–	ACCOUNTANTS’ REPORT ON THE SINOAIR GROUP . . . . . . . . . .	II-1
APPENDIX III	–	UNAUDITED PRO FORMA FINANCIAL INFORMATION OF
		THE POST-MERGER GROUP . . . . . . . . . . . . . . . . . . . . . . . . . . .	III-1
APPENDIX IV	–	MANAGEMENT DISCUSSION AND ANALYSIS ON
		THE SINOAIR GROUP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	IV-1
APPENDIX V	–	GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	V-1
APPENDIX VI	–	PROPOSED NEW ARTICLES OF ASSOCIATION
		OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	VI-1
APPENDIX VII	–	INTERNAL POLICIES TO BE ADOPTED
		BY THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	VII-1

DEFINITIONS

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

“A Shares” the ordinary shares of the Company denominated in RMB which are proposed to be listed on the Shanghai Stock Exchange, including the Consideration Shares and those to be converted into A Shares from the Domestic Shares
“Articles of Association” the articles of association of the Company, as amended, modified or otherwise supplemented from time to time
“associates” the meaning ascribed thereto in the Listing Rules
“Board” the board of Directors of the Company
“Cash Alternative” the consideration of RMB17.28 (equivalent to approximately HK$21.41) per Sinoair Share in cash, subject to adjustment, to be paid by the Cash Alternative Provider to the Qualifying Dissenting Sinoair Shareholders to purchase the Target Shares held by such Qualifying Dissenting Sinoair Shareholders in accordance with the arrangements set out in the Merger Agreement
“Cash Alternative Provider” provider of the Cash Alternative, namely Shenzhen China Merchants Shekou Assets Management Co., Ltd., a wholly-owned subsidiary of China Merchants
“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
“Company”
中國外運股份有限公司(Sinotrans Limited), a joint stock limited company incorporated in the People’s Republic of China with limited liability, whose H shares are listed on the Hong Kong Stock Exchange
“Completion” the completion of the transactions contemplated under the Merger Agreement
“Consideration Shares” an aggregate of 1,371,191,329 A Shares (subject to adjustment) to be issued by the Company in exchange for the Target Shares at the initial Exchange Ratio under the Merger Agreement
“CSRC”
The China Securities Regulatory Commission
“Director(s)”

director(s) of the Company

DEFINITIONS

“Domestic Share(s)” domestic invested share(s) of RMB1.00 each in the share capital of the Company
“EGM” an extraordinary general meeting of the Company to be held at 10:00 a.m. on Thursday, 31 May 2018, or immediately after the conclusion of the annual general meeting of the Company or any adjournment thereof to be held at 9:30 a.m. on the same day, at 1st Meeting Room, 11th Floor, Building 10/Sinotrans Tower B, No. 5 Anding Road, Chaoyang District, Beijing 100029, the PRC for the purpose of considering, and if thought fit, approving, among other things, the transactions contemplated under the Merger Agreement
“Entitlement Date” being the date by reference to which the entitlement of Target Shareholders to participate in the Share Exchange is to be determined, which date is expected to be set after the relevant approval from the government authorities has been obtained
“Exchange Date” the effective date of the Share Exchange to be determined and announced by the Company and Sinoair
“Exchange Price” being RMB20.63 (equivalent to approximately HK$25.56) per Target Share, subject to adjustment, as set out in the Merger Agreement
“Exchange Ratio” the ratio at which a number of Consideration Shares would be issued and exchanged for one Sinoair Share under the Merger Agreement, being the ratio of 3.8778 Consideration Shares for every Target Share (subject to adjustment)
“Group” the Company, its subsidiaries and its jointly controlled entities
“HK$” Hong Kong dollars, the lawful currency of Hong Kong Special Administrative Region of the PRC
“Hong Kong Stock Exchange” The Stock Exchange of Hong Kong Limited
“H Share(s)” overseas listed foreign invested share(s) of RMB1.00 each in the share capital of the Company
“H Shares Class Meeting” the general meeting of holders of H Shares to be held at 10:30 a.m. on Thursday, 31 May 2018, or immediately after the conclusion of the EGM or any adjournment thereof, at 1st Meeting Room, 11th Floor, Building 10/Sinotrans Tower B, No. 5 Anding Road, Chaoyang District, Beijing 100029, the PRC for the purpose of considering, and if thought fit, approving, among other things, the transactions contemplated under the Merger Agreement
2 -

DEFINITIONS

“Independent Board Committee”
the independent board committee constituted by Guo Minjie, Lu Zhengfei, Liu Junhai and Wang Taiwen being all independent nonexecutive Directors for the purpose of considering the Merger Agreement and the transactions contemplated thereunder (in particular, to the extent there is any Qualifying Dissenting Sinoair Shareholder(s) who has validly elected for the Cash Alternative)
“Independent Financial Adviser”
Altus Capital Limited, a licensed corporation which is licensed to carry out Type 4 (Advising on Securities), Type 6 (Advising on Corporate Finance) and Type 9 (Asset Management) regulated activities under the SFO
“Independent Shareholders” Shareholders other than China Merchants and its associates
“Independent Sinoair Shareholders” shareholders of Sinoair other than the Company and who do not have any material interest in the transactions contemplated under the Merger Agreement pursuant to the relevant requirements of the rules of the Shanghai Stock Exchange and the laws of the PRC
“Issue Price” RMB5.32 per Consideration Share (equivalent to approximately HK$6.59), subject to adjustment as described in more details in the Letter from the Board of this circular
“Last Trading Day” 27 February 2018, being the last full trading day on which the H Shares were traded on the Hong Kong Stock Exchange prior to the date of the Merger Agreement
“Latest Practicable Date” 16 April 2018, being the latest practicable date prior to the printing of this circular for ascertaining certain information contained in this circular
“Listing Rules” Rules Governing the Listing of Securities on the Hong Kong Stock Exchange
“Merger Agreement” a merger agreement dated 28 February 2018 entered into between the Company and Sinoair in relation to, among other things, the Proposed Merger
“Participating Shareholder(s)” the Target Shareholder(s) who elect to receive the Consideration Shares in exchange for the Sinoair Shares held by it(them) in accordance with the arrangements set out in the Merger Agreement
“Post-merger Group” the Group immediately after the Completion pursuant to the Merger Agreement
3 -

DEFINITIONS

“PRC”
the People’s Republic of China (for the purpose of this circular, excluding Hong Kong Special Administrative Region, Macau Special Administrative Region and Taiwan)
“Proposed Merger”
the proposed merger by the Company of Sinoair as contemplated under the Merger Agreement, which involves, among other things, the issue of not more than 1,371,191,329 A Shares of the Company as Consideration Shares to be listed on the Shanghai Stock Exchange in exchange for the Target Shares held by the Target Shareholders (which may include the Cash Alternative Provider if any Qualifying Dissenting Sinoair Shareholder validly elects for the Cash Alternative) and the conversion of all Domestic Shares into A Shares
“Qualifying Dissenting Shareholder(s) who has(ve) voted against all the resolutions in Shareholder(s)” relation to the Merger Agreement at the EGM and the H Shares Class Meeting in which such Shareholder(s) is(are) entitled to attend and vote at such meeting and (i) whose rights attached to the Shares are not subject to any restrictions or encumbrances; and/or (ii) who is not otherwise prohibited under applicable laws and regulations to demand for the purchase of their Shares by the Company or the assenting Shareholders
“Qualifying Dissenting Sinoair Shareholder(s)”
Target Shareholder(s) who has(ve) voted against the resolution in relation to the Merger Agreement at the relevant general meeting of Sinoair and (i) whose holding of the Sinoair Shares which are the subject to the Cash Alternative remain unchanged from the record date for determination of entitlement to attend the relevant general meeting of Sinoair up to the date of completion of the purchase of such Sinoair Shares by the Cash Alternative Provider; (ii) whose rights attached to Sinoair Shares are not subject to any restrictions or encumbrances imposed by applicable laws and regulations or otherwise; and/or (iii) who has not undertaken to waive its rights to receive the Cash Alternative in respect of its Sinoair Shares
“Reference Date” 28 February 2018, being the date of the Merger Agreement
“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 (Chapter 571 of the Laws of Hong Kong)
“Shanghai Stock Exchange”

The Shanghai Stock Exchange Limited

DEFINITIONS

“Share(s)”	H Share(s) and Domestic Share(s)
“Share Exchange”	the exchange of Target Shares for the Consideration Shares at the
	Exchange Ratio as contemplated under the Merger Agreement
“Shareholder(s)”	holder(s) of the Shares
“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 Shanghai Stock Exchange (stock code:
	600270)
“Sinoair Group”	Sinoair and its subsidiaries
“Sinoair Last Trading Day”	29 December 2017, being the last full day on which Sinoair Shares
	were traded on the Shanghai Stock Exchange prior to the date of
	the Merger Agreement
“Sinoair Shares”	ordinary shares in the capital of Sinoair with a nominal value of
	RMB1.00 per share each of which is listed on the Shanghai Stock
	Exchange
“SINOTRANS & CSC”	Sinotrans & CSC Holdings Co., Ltd., the controlling shareholder of
	the Company which holds approximately 42.46% of the issued
	Share capital of the Company
“Target Shares”	353,600,322 Sinoair Shares, being all Sinoair Shares in issue
	excluding those held by the Company
“Target Shareholders”	the shareholders of Sinoair other than the Company whose names
	appear on the register of members of Sinoair on the Entitlement
	Date
“VWAP”	volume weighted average price

In this circular, RMB are translated to HK$ for illustration purpose only at the rate of HK$1 = RMB0.80714.

For the purpose of identification only
5 -

EXPECTED TIMETABLE

The expected timetable and the associated trading arrangement set out below is indicative only.

Latest time for lodging transfers of the H Shares 4:30 p.m. on Friday, 27 April 2018 and the Domestic Shares in order to be entitled to attend and vote at the EGM

Latest time for lodging transfers of the H Shares in 4:30 p.m. on Friday, 27 April 2018 order to be entitled to attend and vote at the H Shares Class Meeting

Closure of registers for transfers of Shares for determination of Shareholders’ entitlement to attend and vote at the EGM and the H Shares Class Meeting

Monday, 30 April 2018 to Thursday, 31 May 2018

Record date for the Shareholders to attend the EGM and for the holders of H Shares to attend the H Shares Class Meeting

Wednesday, 30 May 2018

EGM

10:00 a.m. on Thursday, 31 May 2018, or immediately after the conclusion of the annual general meeting of the Company or any adjournment thereof to be held at 9:30 a.m. on the same day

H Shares Class Meeting

10:30 a.m. on Thursday, 31 May 2018, or immediately following the conclusion of the EGM or any adjournment thereof

Re-open of the registers for transfers of Shares

9:00 a.m. on Friday, 1 June 2018

Issue of notice and announcement to creditors of the Company pursuant to PRC Company Law

Within 10 days (for the notice to creditors), and 30 days (for the announcement), following the EGM and the H Shares Class Meeting approving the Proposed Merger

End of the period during which early repayment of indebtedness or additional guarantee as requested by the relevant creditors of the Company is to be handled and completed

For creditors who have received notice from the Company, within 30 days after the receipt by the creditor of such notice

For creditors who have not received notice from the Company, within 45 days after the date of announcement by the Company as referred to above

Completion

The Exchange Date, the date of issue of the Consideration Shares and the date of listing of the A Share are to be announced by the Company following the fulfillment of the conditions precedent under the Merger Agreement, including obtaining the relevant PRC regulatory approvals

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 Director: 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, Wang Taiwen Kwun Tong, Kowloon, Hong Kong 18 April 2018

To the Shareholders

Dear Sir and Madam,

(I) MAJOR TRANSACTION AND POSSIBLE CONNECTED TRANSACTION – PROPOSED LISTING OF A SHARES AND THE MERGER OF SINOAIR;
(II) PROPOSED AMENDMENTS OF THE ARTICLES OF ASSOCIATION AND ADOPTION OF CERTAIN INTERNAL POLICIES BY THE COMPANY

I. PROPOSED LISTING OF A SHARES AND THE PROPOSED MERGER

Introduction

On 28 February 2018, the Board resolved, among other things, that the Company will apply to the relevant regulatory authorities in the PRC for the issue and listing of A Shares on the Shanghai Stock Exchange subject to the completion of the merger proposal described below. All existing Domestic Shares will be converted into A Shares and be listed on the Shanghai Stock Exchange.

LETTER FROM THE BOARD

On the same day, the Company entered into the Merger Agreement with Sinoair, a 60.95% owned subsidiary of the Company whose shares are listed on the Shanghai Stock Exchange. Under the Merger Agreement, the Company and Sinoair agreed to implement a merger proposal which, subject to fulfilment of condition precedents described under “The Merger Proposal – Conditions precedent” below, involves:–

(i) the Share Exchange, being the issue of 1,371,191,329 A Shares as Consideration Shares by the Company at the initial Issue Price of RMB5.32 per Consideration Share in exchange at the initial Exchange Ratio for Target Shares, being in aggregate 353,600,322 Sinoair Shares as at the Latest Practicable Date (a) held by Participating Shareholders whose names appear on the register of members of Sinoair on the Entitlement Date; and (b) in the case of Qualifying Dissenting Sinoair Shareholders who have validly elected for the Cash Alternative, held by the Cash Alternative Provider;
(ii) the listing of the Consideration Shares on the Shanghai Stock Exchange and the conversion of all existing Domestic Shares into A Shares and listing of the same on the Shanghai Stock Exchange. The Consideration Shares and Domestic Shares will, upon listing, rank pari passu in all respects with each other, subject to applicable lock-up requirements; and
(iii) the de-listing of the Sinoair Shares from the Shanghai Stock Exchange and the deregistration of Sinoair. The assets, liabilities, businesses, contracts, qualifications, staff and all other rights and obligations of Sinoair are to be transferred to/assumed by the Group.

To comply with the relevant requirements of the Shanghai Stock Exchange on the provision of cash alternative to shareholders of a listed company which is the subject of a merger proposal by way of share swap, the Merger Agreement provides that a Cash Alternative be offered to Qualifying Dissenting Sinoair Shareholders in the amount of initially RMB17.28 (equivalent to approximately HK$21.41 and representing the VWAP per Sinoair Share for the 20 consecutive trading days up to and including the Sinoair Last Trading Day of RMB16.91 as quoted on the Shanghai Stock Exchange plus a premium of 2.19%) per Sinoair Share, subject to adjustment. To facilitate this, the Cash Alternative Provider has undertaken to purchase Sinoair Shares from Qualifying Dissenting Sinoair Shareholders and to participate in the Share Exchange as described above.

The purpose of this circular is to provide you with, among other things, (i) details of the transactions contemplated under the Merger Agreement; (ii) financial information of the Sinoair Group; (iii) financial information of the Group; (iv) the unaudited pro forma financial information of the Post-merger Group; and (v) other information as required under the Listing Rules.

Sinoair has also published on 17 April 2018 particulars of the Proposed Merger and information to its shareholders, which announcement has been uploaded by the Company as an overseas regulatory announcement.

LETTER FROM THE BOARD

Proposed Listing of A Shares

In connection with the Proposed Merger, the Board has resolved that the Company will apply for the listing of the Consideration Shares on the Shanghai Stock Exchange as A Shares, subject to the satisfaction of certain conditions precedent as set out below. All existing Domestic Shares will then be converted into A Shares and listed on the Shanghai Stock Exchange. The principal terms of such proposed listing are as follows:

Type of securities to be listed A Shares Nominal value RMB1.00 each Place of listing Shanghai Stock Exchange Initial total number of A Shares 5,275,470,973 A Shares, comprising (i) the to be listed 1,371,191,329 Consideration Shares, based on the initial Exchange Ratio, and subject to the adjustments described below, to be issued under the Merger Agreement and (ii) the 3,904,279,644 Domestic Shares in issue as of the Latest Practicable Date (assuming there is no change in the number of Domestic Shares until the listing date). Initial Issue Price RMB5.32 per A Share, subject to the adjustments described below. Conditions precedent of the A The listing of A Shares is conditional upon the Share listing completion of the Share Exchange pursuant to the Merger Agreement (the conditions precedent in relation to which are summarised under “The Merger Proposal – Conditions precedent” below, including approval by the Independent Shareholders and the Independent Sinoair Shareholders at the general meetings/class meeting of the Company and Sinoair respectively) and the approval by the relevant regulatory authorities including the Shanghai Stock Exchange, SASAC and CSRC.

Use of proceeds

The Company will not receive any cash proceeds from the issue of A Shares.

LETTER FROM THE BOARD

Lock-up requirements

Each of China Merchants and SINOTRANS & CSC is subject to a lock-up period of 36 months from the day of listing of the A Shares, during which period they shall not transfer those Shares held by them directly or indirectly which were issued by the Company before Completion (excluding H Shares) to any other person (including the Company), or entrust the management of such Shares to any other person. Such lock-up period will be extended for another 6 months if (i) the closing price of A Shares is below the Issue Price for 20 consecutive trading days during the first 6 months after listing or (ii) the closing price of A Shares on the last trading day of such first 6 months is below the Issue Price.

The above lock-up may, upon application by China Merchants and/or SINOTRANS & CSC (as the case may be), be lifted by the Shanghai Stock Exchange after the first year of listing in the circumstances as the Shanghai Stock Exchange thinks fit, including where the transferor and the transferee belong to the same group.

The specific mandate to issue Consideration Shares and the shareholders approval for the proposed listing of A Shares that may be granted upon the passing of special resolution numbered 1 in the EGM notice and special resolution numbered 2 in the notice of H Shares Class Meeting will be valid for a period of 12 months from the date of the passing of the resolution.

The Merger Proposal

Key terms of the Merger Agreement are set out below.

Date

28 February 2018

Parties

The Company
Sinoair
10 -

LETTER FROM THE BOARD

The Proposed Merger

The Company and Sinoair agreed, subject to the fulfilment of the conditions precedent described under “Conditions Precedent” below, to implement a merger proposal through which the Company is to merge Sinoair by the Share Exchange, the A Shares (including the Consideration Shares and those A Shares converted from the existing Domestic Shares) are to be listed on the Shanghai Stock Exchange, and Sinoair is to be de-listed and de-registered.

The Share Exchange involves the issue of 1,371,191,329 Consideration Shares, subject to adjustment, in return for Target Shares at the initial Exchange Ratio for each Target Share (a) held by Participating Shareholders whose names appear on the register of members of Sinoair on the Entitlement Date; and (b) in the case of Qualifying Dissenting Sinoair Shareholders who have validly elect for the Cash Alternative, held by the Cash Alternative Provider, subject to adjustments as described below.

The 551,881,398 Sinoair Shares held by the Company will not participate in the Share Exchange and will be cancelled upon completion of the Proposed Merger.

The following diagrams show the shareholding structure of the Company and Sinoair as of the Latest Practicable Date and immediately after completion of the Proposed Merger, assuming no change in issued share capital and shareholding structure of both companies from the Latest Practicable Date up to the date of Completion other than the issue of the Consideration Shares under the Share Exchange:

As of the Latest Practicable Date

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

China Merchants
100%
Other H Shareholders SINOTRANS & CSC
33.69% (note 1) 42.46% (note 2)
Target Shareholders The Company 23.85% (note 3)
39.05% 60.95%
Sinoair
----- End of picture text -----*

The shareholding of Sinotrans & CSC has been rounded down to the nearest two decimal places.
11 -

LETTER FROM THE BOARD

Immediately after completion of the Proposed Merger (Note 4)

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

China Merchants
100%
Target Shareholders
Other H Shareholders SINOTRANS & CSC (Notes 4 and 5)
27.46% (note 1)
34.62% (note 2)
18.48%
The Company
19.44% (note 3)
100%
Assets and liabilities
of Sinoair
----- End of picture text -----

Notes:

This comprises of 2,037,704,000 H Shares held by the other H Shareholders.
This comprises of 2,461,596,200 Domestic Shares and 107,183,000 H Shares held by SINOTRANS & CSC and its wholly-owners subsidiaries, respectively.
This comprises of 1,442,683,444 Domestic Shares held by China Merchants directly, excluding interest held through SINOTRANS & CSC.
This assumes that:
(a) 1,371,191,329 Consideration Shares are to be issued at the initial Exchange Ratio and there is no adjustment to the initial Issue Price and the initial Exchange Price; and
(b) there is no Qualifying Dissenting Shareholder.
Based on the assumption in note 4 above, the Target Shareholders will in aggregate hold 1,371,191,329 Consideration Shares to be issued by the Company. The Target Shares held by the Qualifying Dissenting Sinoair Shareholders who validly elect to receive the Cash Alternative will be purchased by the Cash Alternative Provider, who will then exchange such Target Shares for the Consideration Shares at the initial Exchange Ratio.

The consideration for Target Shares

The initial Exchange Ratio of 3.8778:1 has been determined on the basis of (i) an initial Issue Price of RMB5.32 (equivalent to approximately HK$6.59) per Consideration Share and (ii) an initial Exchange Price of RMB20.63 (equivalent to approximately HK$25.56) per Sinoair Share, each subject to adjustment, rounded to the nearest four decimal places.

12 -

LETTER FROM THE BOARD

The total consideration payable by the Company (and to be satisfied by the issue of 1,371,191,329 Consideration Shares at the initial Issue Price of RMB5.32 per Consideration Share) is approximately RMB7,294,737,870 (equivalent to approximately HK$9,037,760,327).

Only Qualifying Dissenting Sinoair Shareholders (which by definition excludes any Target Shareholder who votes as a shareholder of Sinoair in favour of the resolution relating to the merger proposal) are entitled to elect the Cash Alternative, being initially RMB17.28 (equivalent to approximately HK$21.41) per Sinoair Share, subject to adjustments, to be paid by the Cash Alternative Provider for each Sinoair Share held. The Cash Alternative Provider has undertaken to purchase Sinoair Shares from Qualifying Dissenting Sinoair Shareholders that validly make such election at the initial Cash Alternative and thereafter exchange those Sinoair Shares for Consideration Shares at the Exchange Ratio.

All Target Shares held by Target Shareholders (other than Qualifying Dissenting Sinoair Shareholders who have validly elected to receive the Cash Alternative) and the Cash Alternative Provider will automatically be exchanged into Consideration Shares at the Exchange Ratio on the Exchange Date. The Consideration Shares issued in exchange for those Target Shares that are subject to encumbrances or restrictions (including any lock-up restrictions) will be subject to the same encumbrances and restrictions as those imposed on the Target Shares.

In other words, a Target Shareholder who wishes to receive the Cash Alternative must be a Qualifying Dissenting Sinoair Shareholder and must make a valid election to receive the Cash Alternative. Target Shareholders that do not fulfil such requirements, including those who vote in favour of the resolution relating to the Proposed Merger at the relevant Sinoair shareholders meeting, will receive Consideration Shares in exchange for their Sinoair Shares pursuant to the merger proposal.

The initial Issue Price, the initial Exchange Price and the initial Cash Alternative will be adjusted for cash dividends, scrip dividend or bonus shares, share issues by capitalisation of reserves and equity issues/other distributions by way of rights to shareholders made by the Company and/or Sinoair respectively. If after the Reference Date and up to the Exchange Date (both dates inclusive), the Company makes any distributions or capitalisation issues, or any equity issues as mentioned above, the initial Issue Price will be reduced (i) in the case of cash distribution, by the amount of all cash dividends paid divided by the total issued share capital at the time; (ii) in the case of any scrip dividend, bonus share issue or capitalisation issues, by an amount equal to the aggregate Issue Price (before the issue) divided by the enlarged share capital (post issue); and (iii) in the case of any equity issues to shareholders by way of rights, effective price per share calculated by comparing the Issue Price against the average of the Issue Price (before the issue) and the aggregate issue price under the issue divided by the enlarged share capital (post issue). The initial Exchange Price and the initial Cash Alternative will be adjusted on the same basis by any such distributions or capitalisation issue by Sinoair after the Reference Date and up to the Exchange Date (both dates inclusive) (in the case of the Exchange Price) or the date of completion of the purchase of Sinoair Shares by the Cash Alternative Provider from the Qualifying Dissenting Sinoair Shareholders (in the case of the Cash Alternative). In each case where there is an adjustment to the initial Issue Price and/or the initial Exchange Price, the Exchange Ratio and the number of Consideration Shares to be issued will be adjusted accordingly. Further announcement will be made in respect of any adjustment to the initial Issue Price, Exchange Price, Cash Alternative and/or the Exchange Ratio.

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The Company announced in its final results announcement dated 26 March 2018 that the Board recommended a final dividend of RMB0.08 per Share for the financial year ended 31 December 2017. Sinoair also announced on the same day that the board of directors of Sinoair recommends a final dividend of RMB0.60 per Sinoair Share for the same financial year. Assuming approval from shareholders of the Company and Sinoair of the respective dividend proposal is obtained at the forthcoming general meetings of the Company and Sinoair, the initial Issue Price, Exchange Price and Cash Alternative will therefore be adjusted as described above to exclude the amount of dividend per Share/Sinoair Share to the following:

Adjusted Issue Price = RMB5.24 (being the initial Issue Price of RMB5.32 minus RMB0.08) Adjusted Exchange Price = RMB20.03 (being the initial Exchange Price of RMB20.63 minus RMB0.60) Adjusted Cash Alternative = RMB16.68 (being the initial Cash Alternative of RMB17.28 minus RMB0.60) Adjusted Exchange Ratio = 3.8225 Consideration Shares for one Target Share (note)

Note: As mentioned in the sub-section headed “Consideration Shares” below, no fraction of any Consideration Shares will be issued in respect of a Target Shareholder’s entitlement.

Accordingly, assuming that the shareholders of the Company and Sinoair approve the dividend proposals as mentioned above, the number of Consideration Shares to be issued by the Company under the Merger Agreement will be 1,351,637,231.

Basis of determination of the initial Issue Price, the initial Exchange Price and the initial Cash Alternative

In agreeing the initial Issue Price and Exchange Price (and therefore the initial Exchange Ratio) and the initial Cash Alternative, the Board has taken into account the following factors:–

(1) the historical trading prices of the Sinoair Shares and (only as a reference to pricing floor, based on market practice) net asset value per Sinoair Share:
(a) the initial Exchange Price of RMB20.63 per Target Share is determined based on the VWAP per Sinoair Share for the 20 consecutive trading days up to and including the Sinoair Last Trading Day of RMB16.91 as quoted on the Shanghai Stock Exchange plus a premium of 22%. The 20 trading day VWAP is a benchmark specifically acceptable under relevant PRC regulations. That market price benchmark and the 22% premium was determined by reference to the pricing benchmarks used, and level of premium implied, in similar share swap transactions carried out by companies listed on the Hong Kong Stock Exchange over the past 12 years. By “similar share swap transactions", the Company referred to all six transactions announced since 2006 each involving an issuer
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incorporated in the PRC whose shares are listed on the Hong Kong Stock Exchange and which have sought to merge a PRC stock exchange listed company in which it holds shares through the issue of new shares to be listed on a stock exchange in the PRC as follows:

		Implied premium
		that the exchange
		price represented
		over the 20 day
	Similar share swap transactions	VWAP (Note)
1.	The merger by 濰柴動力股份有限司Weichai Power Co., Ltd. (“Weichai Power”) of	18.85%
	湘火炬汽車集團股份有限公司Torch Automobile Group Co. Ltd. as disclosed in Weichai
	Power’s circular dated 12 November 2006.
2a.	The merger by 中國鋁業股份有限公司Aluminium Corporation of China Limited (“Chalco”) of	27.88%
	蘭州鋁業股份有限公司Lanzhou Aluminium Co. Ltd. and Shandong Aluminium Industry Co.,
	Limited as disclosed in Chalco’s circular dated 17 January 2007
2b.	The merger by Chalco of 山東鋁業股份有限公司Shandong Aluminum Industry Co as disclosed	30.63%
	in Chalco’s circular dated 17 January 2007
3.	The merger by上海電氣集團股份有限公司Shanghai Electric Group Company Limited (“Shanghai	31.33%
	Electric”) of 上海輸配電股份有限公司Shanghai Power Transmission and Distribution Company
	Limited as disclosed in Shanghai Electric’s circular dated 2 October 2007
4.	The merger by北京金隅股份有限公司BBMG Corporation (“BBMG”) of 河北太行水泥股份有限公	7.04%
	司Hebei Taihang Cement Co., Ltd as disclosed in BBMG’s circular dated 26 August 2010
5.	The merger by中國交通建設股份有限公司China Communications Construction Company Limited	23.03%
	(“China Communications Construction”) of 路橋集團國際建設股份有限公司Road & Bridge
	International Co., Ltd. as disclosed in China Communications Construction’s circular dated 10
	March 2011
6.	The merger by 廣州汽車集團股份有限公司Guangzhou Automobile Group Co., Ltd. (“Guangzhou	15.02%
	Auto”) of 廣汽長豐汽車股份有限公司GAC Changfeng Motor Co., Ltd. As disclosed in
	Guangzhou Auto’s circular dated 11 June 2011
Average	implied premium	21.97%

Note: The “20 day VWAP” is the VWAP per target share for the 20 days period up to and including the date of the merger agreement or if earlier, the last trading day before that.

The initial Exchange Price of RMB20.63 per Target Share and the adjusted Exchange Price of RMB20.03 per Target Share represent:

(i) a premium of approximately 19.39% and 15.91% respectively over the closing price per Sinoair Share of RMB17.28 as quoted on the Shanghai Stock Exchange on the Sinoair Last Trading Day;
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LETTER FROM THE BOARD

  - (ii) a premium of approximately 20.86% and 17.34% respectively over the VWAP of the Sinoair Shares for the five consecutive trading days up to and including the Sinoair Last Trading Day of approximately RMB17.07 per Sinoair Share as quoted on the Shanghai Stock Exchange;

  - (iii) a premium of approximately 20.57% and 17.07% respectively over the VWAP of the Sinoair Shares for the 30 consecutive trading days up to and including the Sinoair Last Trading Day of approximately RMB17.11 per Sinoair Share as quoted on the Shanghai Stock Exchange;

  - (iv) a premium of approximately 128.46% and 121.82% respectively over the audited consolidated net asset value per Sinoair Share of approximately RMB9.03 as at 31 December 2017;

(b) the initial Cash Alternative of RMB17.28 per Sinoair Share is determined based on the VWAP per Sinoair Share for the 20 consecutive trading days up to and including the Sinoair Last Trading Day of RMB16.91 as quoted on the Shanghai Stock Exchange plus a slight premium of 2.19% which is comparable to the lower end of the range of premium implied for cash alternatives in similar share swap transactions (as defined above). The Company considers the initial Cash Alternative is fair and reasonable, given that it is also equal to the closing price per Sinoair Share as quoted on the Shanghai Stock Exchange on the Sinoair Last Trading Day and therefore the most current market price benchmark prior to the date of the Merger Agreement. The adjusted Cash Alternative of RMB16.68 per Sinoair Share represents a discount of approximately 1.36% over the VWAP per Sinoair Share for the 20 consecutive trading days up to and including the Sinoair Last Trading Day of RMB16.91 as quoted on the Shanghai Stock Exchange;
(2) the historical trading prices of the H Shares and (only as a reference to pricing floor in line with market practice) the net asset value per H Share. The initial Issue Price of RMB5.32 (equivalent to approximately HK$6.59) per Consideration Share and the adjusted Issue Price of RMB5.24 (equivalent to approximately HK$6.49) per Consideration Share represent:
(a) a premium of approximately 51.49% and 49.20% respectively over the closing price of the H Shares of HK$4.35 per H Share as quoted on the Hong Kong Stock Exchange on the Last Trading Day;
(b) a premium of approximately 50.80% and 48.51% respectively over the average closing price of the H Shares for the five consecutive trading days up to and including the Last Trading Day of approximately HK$4.37 per H Share as quoted on the Hong Kong Stock Exchange;
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LETTER FROM THE BOARD

(c) a premium of approximately 48.42% and 46.17% respectively over the average closing price of the H Shares for the 20 consecutive trading days up to and including Last Trading Day of approximately HK$4.44 per H Share as quoted on the Hong Kong Stock Exchange;
(d) a premium of approximately 47.76% and 45.52% respectively over the average closing price of the H Shares for the 30 consecutive trading days up to and including Last Trading Day of approximately HK$4.46 per H Share as quoted on the Hong Kong Stock Exchange;
(e) a premium of approximately 52.00% and 49.71% respectively to the audited consolidated net asset value per Share of approximately RMB3.50 as at 31 December 2017;
(3) the perceived benefits of the merger proposal contemplated under the Merger Agreement as described in “Reasons For and Benefits of the Proposed Merger under the Merger Agreement”;
(4) the historical premium of the A-share trading price over the H-share trading price of the 13 dual listed transportation companies, namely Sichuan Expressway Company Limited, Jiangsu Expressway Company Limited, Guangshen Railway Company Limited, Shenzhen Expressway Company Limited, China Eastern Airlines Corporation Limited, Air China Ltd., Anhui Expressway Company Limited, China Southern Airlines Company Limited, COSCO SHIPPING Energy Transportation Co., Ltd., COSCO SHIPPING Holdings Co., Ltd., COSCO SHIPPING Development Co., Ltd., Dalian Port (PDA) Company Limited and Qinhuangdao Port Co., Ltd.. The shares of these companies are traded on both the Main Board of Hong Kong Stock Exchange and domestic stock exchanges in the PRC. The Company noted that the minimum, maximum and median trading premium for the A shares of these companies over their H shares based on their closing prices on the Last Trading Date was approximately 1.7%, 185.4% and 60.6%, respectively.

Given that (a) the initial Issue Price is determined principally by reference to the bases described in paragraphs (1) and (2) above, (b) there is no established open market for the A Shares prior to their listing, and (c) that the range of trading premium for A shares of the relevant dual listed transportation companies (which provide a different range of transportation services, instead of logistics services provided by the Group) is very big, the median trading premium serves only as a reference for what may be considered as acceptable premium to Shareholders and shareholders of Sinoair in terms of market expectation. As the initial Issue Price implies approximately 50% premium over the closing price of H Shares for the periods set out in paragraph (2) above, the implied premium is considered reasonable given that it would place Company’s A Shares close to the median in terms of A share trading premium amongst all identified dual listed transportation companies.

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LETTER FROM THE BOARD

The Board has also taken into account that the issue of Consideration Shares will not create substantial pressure on cashflow of the Group. If the Company were to purchase all the Target Shares with cash at the closing price per Sinoair Share on the Sinoair Last Trading Day (i.e. RMB17.28 per Sinoair Share), the maximum consideration payable by the Company for the Target Shares would amount to approximately RMB6.11 billion, representing approximately 96.27% or 62.93% of the Group’s cash and cash equivalents as at 30 June 2017 or 31 December 2017 respectively. Given the size of the consideration, it would not be commercially practicable for the Company to settle this by its own cash resources or by loans or issuance of debt securities without having a material impact on its liquidity and gearing positions.

As illustrated in the section “Effect of the Proposed Issue of Consideration Shares on Shareholding, Net Asset per Share and Earnings per Share of the Company” below, apart from the impact of transaction costs of the Proposed Merger, the issue of A Shares is expected not to have material impact on earnings per Share in view of the elimination of the minority interests in Sinoair upon completion of the Proposed Merger, while there may be a larger reduction in net asset value per Share. Considering that the trading price per H Share is above the net asset value per Share, the Board does not consider that the immediate dilution (in terms of shareholding percentage) of the existing shareholders of the Company after the issue of A Shares and the reduction in net asset value per Share as a result of the Proposed Merger to be detrimental to the interests of the shareholders of the Company (including H Shareholders).

Having taken into account the above factors, the Board (including the independent nonexecutive Directors whose views are set out in the Letter from the Independent Board Committee of this circular) considers the initial and the adjusted Issue Price, the Exchange Price, the Exchange Ratio, the Cash Alternative and the proposed issue of Consideration Shares are in the interests of the Company and the Shareholders as a whole.

Conditions Precedent

Completion of the Proposed Merger is conditional upon:

(1) the issue and listing of A Shares, Proposed Merger and the other transactions contemplated under the Merger Agreement having been approved by the Board and the Independent Shareholders at the EGM and the H Shares Class Meeting; and
(2) the issue and listing of A Shares, Proposed Merger and the other transactions contemplated under the Merger Agreement having been approved by the board of directors of Sinoair and the Independent Sinoair Shareholders at the general meeting of Sinoair;
(3) the issue and listing of A Shares, Proposed Merger and the other transactions contemplated under the Merger Agreement, including the de-listing of the Sinoair Shares from the Shanghai Stock Exchange and the listing of the A Shares on the Shanghai Stock Exchange, having been approved by the relevant regulatory authorities, including the Shanghai Stock Exchange, SASAC and CSRC; and
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LETTER FROM THE BOARD

(4) at the time when all of the above conditions are satisfied, there being no laws, regulations, any prohibition or orders from any government authorities or judgements, orders or decisions by any courts which restrict, prohibit or cancel the Proposed Merger and transactions contemplated under the Merger Agreement.

If any of the conditions precedent has not been fulfilled within 24 months after the date of the Merger Agreement, either the Company or Sinoair may terminate the Merger Agreement after such period.

As at the Latest Practicable Date, the Proposed Merger and transactions contemplated under the Merger Agreement have been approved by the board of directors of the Company and Sinoair, respectively. Therefore, part of conditions (1) and (2) above has been fulfilled.

Completion

Subject to the fulfillment of the conditions precedent under the Merger Agreement, Completion shall take place on the later of the date of (i) the Company has completed the business registration with the relevant government authorities in relation to the transactions contemplated under the Merger Agreement, and (ii) Sinoair has been de-registered with the relevant government authorities.

Termination

The Merger Agreement may be terminated under the following circumstances:–

(1) by the Company and Sinoair agreeing in writing to the termination of the Merger Agreement;
(2) by either the Company or Sinoair if the conditions precedent as described under “Conditions Precedents” above are not satisfied or fulfilled within 24 months after the date of the Merger Agreement;
(3) by the non-defaulting party if there is a material breach of the Merger Agreement or applicable laws by the defaulting party which renders it impossible to complete the transactions under the Merger Agreement.

Consideration Shares

As at the Latest Practicable Date, the Company had in issue 3,904,279,644 Domestic Shares and 2,144,887,000 H Shares. As at the date of the Merger Agreement and the Latest Practicable Date, a total of 353,600,322 Sinoair Shares are eligible to participate in the Share Exchange. Neither the Company nor Sinoair has any convertible securities or options/warrants exercisable as at the Latest Practicable Date.

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LETTER FROM THE BOARD

Assuming the number of such Sinoair Shares remains unchanged from the Latest Practicable Date to the date of completion of the Share Exchange and:

(1) there is no adjustment to the initial Exchange Price and the initial Issue Price, an aggregate of 1,371,191,329 Consideration Shares are to be issued by the Company to the Participating Shareholders and/or the Cash Alternative Provider at the initial Exchange Ratio of 3.8778:1 on the Exchange Date, which number of Consideration Shares represents:
(a) approximately 35.12% and 22.67% of the total number of Domestic Shares in issue and the total Shares in issue, respectively, as at the Latest Practicable Date; and
(b) approximately 25.99% and 18.48% of the total number of A Shares then in issue and the total Shares then in issue, respectively, as enlarged by the issue of the Consideration Shares.
(2) the price adjustments mentioned above under “The consideration for Target Shares” will take place, an aggregate of 1,351,637,231 Consideration Shares are to be issued by the Company at the adjusted Exchange Ratio of 3.8225:1 on the Exchange Date, which number of Consideration Shares represents:
(a) approximately 34.62% and 22.34% of the total number of Domestic Shares in issue and the total Shares in issue, respectively, as at the Latest Practicable Date; and
(b) approximately 25.72% and 18.26% of the total number of A Shares then in issue and the total number of Shares then in issue, respectively, as enlarged by the issue of the Consideration Shares.

The Consideration Shares, when issued, will be credited as fully paid and will rank pari passu in all respects among themselves, and with the Domestic Shares then in issue on the day of the issuance of the Consideration Shares, and be entitled to all dividends and other rights attached to the Domestic Shares from the date of issue.

No fraction of any Consideration Share will be issued pursuant to the Share Exchange. Every Participating Shareholder or the Cash Alternative Provider who is entitled to a fraction of a Consideration Share based on the Exchange Ratio, may be allotted one Consideration Share for that fractional entitlement only on the following basis: (i) such Consideration Shares will be allocated to such Participating Shareholders and/or the Cash Alternative Provider based on (in descending order) the size of their fractional entitlement; and (ii) in respect of fractional entitlements of identical size, the available Consideration Shares will be allocated to the relevant Participating Shareholders and/or the Cash Alternative Provider randomly by computer, until the total number of Consideration Shares issued under the Share Exchange at Completion reaches 1,371,191,329 or 1,351,637,231 Consideration Shares (subject to adjustment as the case may be). The mechanism described above simply facilitates the rounding up of fractional entitlements to Consideration Shares, with a balloting

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LETTER FROM THE BOARD

mechanism for equal sized fractional entitlements which could not all be rounded up in view of the maximum number of Consideration Shares that may be issued, in accordance with the rules of China Securities Registration and Clearing Company Limited, Shanghai branch (“CSRCCL”). CSRCCL, which provides primarily registration, custody and clearing services to listed issuers and other market participants, will handle the allocation process without the involvement or any exercise of discretion by either the Company or Sinoair. In view of the above, the Company considers such basis of allocation to be fair and reasonable.

Exit rights of Qualifying Dissenting Shareholders of the Company

Pursuant to Article 171 of the Articles of Association, Qualifying Dissenting Shareholders are entitled to demand that their Shares be acquired by the Company or the assenting Shareholders at a fair price to be determined by the parties. The exercise of such exit rights will be subject to the Proposed Merger becoming unconditional.

A Qualifying Dissenting Shareholder may make a written request at the EGM to request the Company or any assenting Shareholder to acquire the Shares held by such Qualifying Dissenting Shareholder at a fair price. The content of such written request must be clear, unambiguous and must be properly and effectively signed by such Qualifying Dissenting Shareholder.

If any Qualifying Dissenting Shareholder requests that the Company acquires their Shares, the Company will be entitled to designate any third party to acquire such Shares at a price to be determined by the parties. Other terms of such acquisition (including payment method and completion time and deliverables) will be governed by the definitive agreement to be entered into between the Qualifying Dissenting Shareholder and Company (or its designated party) or assenting Shareholder that wishes to acquire the Shares.

Other terms under the Merger Agreement

Apart from the final dividend (if any) that may be declared by the Company or Sinoair in respect of any financial year, both the Company and Sinoair do not intend to declare/make any cash dividend, scrip dividend or bonus shares, share issues by capitalisation of reserves and equity issues/ other distributions by way of rights to shareholders before the completion of the Merger Agreement. Save for the issue of Consideration Shares by the Company contemplated under the Merger Agreement and such activities that may be carried out in the ordinary and usual course of business of the parties with prior notice given to the other party, the Company and Sinoair also agreed in the Merger Agreement not to, and will procure their respective material subsidiaries not to, issue, sell, charge or otherwise disposal of any of their respective shares, equity, debt securities with voting rights or securities convertible into (or that may otherwise acquire) any of the above during the period from the date of Merger Agreement to Completion.

Given that Sinoair will eventually be de-listed and de-registered as a legal entity, the assets, liabilities, businesses, contracts, qualifications, staff and all other rights and obligations of Sinoair are to be transferred to/assumed by the Group. As part of this process, the Company and Sinoair will give notice to their respective creditors of the proposed assumption of the relevant debts by the Group. Under the applicable laws and regulations in the PRC, such creditors will be entitled to require early

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repayment of the relevant debts or seek additional guarantees or security to be provided by the Company, Sinoair or any of their respective designated parties. Accordingly, the Company and Sinoair have engaged with their respective key creditors with a view to agreeing appropriate arrangements in the interests of the Group as a whole.

As at the Latest Practicable Date, holders of domestic bonds of the Company in the aggregate principal amount of RMB3,500 million as at 30 March 2018, being the date on which meetings of bondholders were held, resolved to give their consent to the Merger Proposal. As a result, the Company will not be required to make early redemption of or provide additional guarantees/securities for those bonds. In addition, the Company has also obtained written confirmation from all of its financial creditors (to whom an aggregate principal amount of RMB2,124 million was owed as at 31 December 2017) that they consent to the Merger Proposal and will not require acceleration. On this basis and taking into account the fact that the remaining creditors of the Company and/or Sinoair are generally trade creditors, creditors of subsidiaries of the Company (other than Sinoair) are not entitled solely as a result of the Merger Proposal to require early repayment or additional guarantees or security, the amount of cash and cash equivalents and net assets of the Group as at 31 December 2017, the Board is confident that the Group would not have any material difficulty in discharging any early repayment obligations to creditors if and to the extent required.

Upon Completion, the employment of all employees of Sinoair will be taken up by and continue with the Group on then existing terms.

Certain Undertakings Given by the Company

In connection with the Proposed Merger and A Shares listing, the Company is required to give certain undertakings described below:

Undertaking in relation to preservation of shareholders value pursuant to the Measures for the Administration of the Material Asset Restructurings of Listed Companies 《上市公司重大資產重組管 ( 理辦法》 ) and the Guiding Opinions on Matters Relating to the Dilution of Immediate Returns As a Result of Initial Public Offering, Refinancing and Major Asset Restructuring 《關於首發及再融資、 ( 重大資產重組攤薄即期回報有關事項的指導意見》 ) (both published by CSRC) etc.

The Company has undertaken, subject to the Completion taking place, that it will work towards improving its profitability by enhancing its business operations, internal control, corporate governance and costs control, and formulate a profit distribution policy (as set out in more detail below) that can strengthen returns for Shareholders.

In connection with this undertaking, the Company will seek the approval of its Shareholders at the EGM of the “Measures to Remedy the Dilution Effect To the Immediate Return of Shareholders That May Be Caused by the Proposed Merger of Sinotrans Air Transportation Development Co., Ltd. by Absorption Through Share Swap”, as set out in resolution numbered 3(e) of the EGM notice, which measures will become effective upon listing of A Shares. The full text of these measures are set out in section E of Appendix VII.

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Undertaking in relation to profit distribution pursuant to the Notice of the China Securities Regulatory Commission on Further Implementing Matters Relevant to the Cash Dividend Distribution by Listed Companies 《中國證券監督管理委員會關於進一步落實上市公司現金分紅有關事項的通 ( 知》 ) (Zheng Jian Fa [2012] No. 37), the Guideline No. 3 on the Supervision and Administration of Listed Companies – Distribution of Cash Dividends of Listed Companies 《上市公司監管指引第 ( 3 號－上市公司現金分紅》 ) and the Guideline on the Distribution of Cash Dividends of Listed Companies on Shanghai Stock Exchange 《上海證券交易所上市公司現金分紅指引》 ( ) (all published by CSRC) etc.

The Company has undertaken to implement, subject to the Completion taking place, a distribution policy as set out in the “Plan of Sinotrans Limited on Shareholder Return for the Next Three Years (2018-2020)” (section D of Appendix VII) in respect of the financial year ending 31 December 2018, 2019 and 2020 and Article 216 of the new Article of Association that aims to achieve (subject to the conditions specified in paragraph 3 of the dividend plan in Appendix VII) a dividend rate of not less than 10% of its distributable profits for the relevant financial year as dividend and the proportion of the distribution to be paid as cash dividend after taking into account factors, such as the availability of unqualified audited financial statements, operation conditions and cash requirements for operations and capital expenditures and investments.

In connection with this undertaking, the Company will seek the approval of its Shareholders at the EGM of the “Plan of Sinotrans Limited on Shareholder Return for the Next Three Years (20182020)” as set out in resolution numbered 3(d) of the EGM notice. The full text of the plan is set out in section D of Appendix VII.

Effect of the Proposed Issue of Consideration Shares on Shareholding, Net Asset Value per Share and Earnings per Share of the Company

The issue of the Consideration Shares will not result in a change of control of the Company. Assuming (i) there is no other change in the issued share capital and shareholding structure of the Company from the Latest Practicable Date and up to the date of the issuance of the Consideration Shares; (ii) there are no Qualifying Dissenting Sinoair Shareholders who have validly elected for the Cash Alternative and no Qualifying Dissenting Shareholders; and (iii) there are no changes to the number of Shares held directly and indirectly by China Merchants, the shareholding structure of the Company as at the Latest Practicable Date and immediately after issuance of the 1,371,191,329 Consideration Shares at the initial Exchange Ratio of 3.8778:1 or the 1,351,637,231 Consideration Shares at the adjusted Exchange Ratio of 3.8225:1 will be as follows:

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Substantial Shareholders Sinotrans & CSC_(Note 2) China Merchants(Notes 3, 5) Target Shareholders (Notes 4, 5)_ Other Public Shareholders Total	As at the Latest Practicable Date No. of Domestic Shares (approximate % of total Domestic Shares) No. of H Shares (approximate % of total H Shares) Approximate % of total issued Shares 2,461,596,200 (63.05%) 107,183,000 (4.997%) 42.46% 1,442,683,444 (36.95%) – 23.85% – – – – 2,037,704,000 (95.003%) 33.69% 3,904,279,644 (100%) 2,144,887,000 (100%) 100.00%	Immediately after the issuance of Consideration Shares at the initial Exchange Ratio of 3.8778:1 No. of A Shares (approximate % of total A Shares) (Note 1) No. of H Shares (approximate % of total H Shares) Approximate % of total issued Shares 2,461,596,200 (46.66%) 107,183,000 (4.997%) 34.62% 1,442,683,444 (27.35%) – 19.44% 1,371,191,329 (25.99%) – 18.48% – 2,037,704,000 (95.003%) 27.46% 5,275,470,973 (100%) 2,144,887,000 (100%) 100.00%	Immediately after the issuance of Consideration Shares at the adjusted Exchange Ratio of 3.8225:1
			No. of A Shares (approximate % of total A Shares) (Note 1) No. of H Shares (approximate % of total H Shares) Approximate % of total issued Shares 2,461,596,200 (46.83%) 107,183,000 (4.997%) 34.72% 1,442,683,444 (27.45%) – 19.49% 1,351,637,231 (25.72%) – 18.26% – 2,037,704,000 (95.003%) 27.53% 5,255,916,875 (100%) 2,144,887,000 (100%) 100.00%

Notes:–

Upon completion of the Share Exchange and listing of the A Shares (including the Consideration Shares to be issued), all Domestic Shares currently held by China Merchants and SINOTRNAS & CSC will be converted into A Shares and listed on the Shanghai Stock Exchange.
SINOTRANS & CSC held the H Shares through its wholly-owned subsidiaries.
Excluding interest held through SINOTRANS & CSC.
Assuming none of the Target Shareholders (i) hold or will hold any H Shares; (ii) will hold 10% or more of the total issued Shares on the Exchange Date; and (iii) will at any time on or before the Exchange Date otherwise be a connected person of the Company.
In order for the Proposed Merger to proceed, special resolutions which requires at least a two-thirds majority of the votes of Sinoair shareholders who attend the general meeting must be passed at the general meeting of Sinoair to approve the Proposed Merger. Therefore, assuming that all holders of Target Shares attend the general meeting of Sinoair and none of them abstain from voting, then no more than 117,866,773 Target Shares may be voted against the resolution by Qualifying Dissenting Sinoair Shareholders. Assuming that the maximum number of Target Shares are voted against that special resolution and their holders validly elect for the Cash Alternative in respect of those Target Shares and there are no changes to the number of Sinoair Shares and Shares in issue and those held directly and
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indirectly by China Merchants, then immediately after the issue of Consideration Shares at the initial Exchange Ratio of 3.8778:1 and the adjusted Exchange Ratio of 3.8225:1 on the Exchange Date, the shareholding structure of the Company would be as follows:

Substantial Shareholders Sinotrans & CSC (Note 2) China Merchants (Notes 3, 6) Target Shareholders (Notes 4, 5) Other Public Shareholders Total	Immediately after the issuance of Consideration Shares at the initial Exchange Ratio of 3.8778:1 No. of A Shares (approximate % of total A Shares) (Note 1) No. of H Shares (approximate % of total H Shares) Approximate % of total issued Shares 2,461,596,200 (46.66%) 107,183,000 (4.997%) 34.62% 1,899,747,216 (36.01%) – 25.60% 914,127,556 (17.33%) – 12.32% – 2,037,704,000 (95.003%) 27.46% 5,275,470,973 (100%) 2,144,887,000 (100%) 100.00%	Immediately after the issuance of Consideration Shares at the adjusted Exchange Ratio of 3.8225:1
		No. of A Shares (approximate % of total A Shares) (Note 1) No. of H Shares (approximate % of total H Shares) Approximate % of total issued Shares 2,461,596,200 (46.83%) 107,183,000 (4.997%) 34.72% 1,893,229,184 (36.02%) – 25.58% 901,091,491 (17.14%) – 12.18% – 2,037,704,000 (95.003%) 27.53% 5,255,916,875 (100%) 2,144,887,000 (100%) 100.00%

Including interest held through the Cash Alternative Provider of 457,063,772 A Shares or 450,545,739 A Shares at the initial Exchange Ratio of 3.8778:1 and the adjusted Exchange Ratio of 3.8225:1, respectively.

The following table illustrates the net asset and earnings per Share as at 31 December 2017 based on the audited consolidated financial statements of the Company for the year ended 31 December 2017, the unaudited pro forma financial information of the Post-Merger Group set out in Appendix III, the total number of Shares in issue as at 31 December 2017 as enlarged by the maximum number of Consideration Shares that fall to be issued at the initial Exchange Ratio of 3.8778:1:

		Pro forma as at
		31 December 2017
		after the issue of
		the Consideration
		Shares at the
	As at	initial Exchange
	31 December 2017	Ratio of 3.8778:1
	(Note 1)	(Note 2)
	(RMB)	(RMB)
Earnings per Share	0.38	0.38
Net asset value per Share	3.50	3.27

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Notes:-

The earnings per Share is the “Earnings per share, basic” extracted from the audited financial statements of the Company for the year ended 31 December 2017. The net asset value per Share is calculated by dividing the audited consolidated net asset value attributable to owners of the Company as at 31 December 2017 by the number of ordinary shares in issue as set out in note 13 of the audited financial statements of the Company for the year ended 31 December 2017.
The earnings per Share and net asset value per Share is calculated by dividing the profit attributable to owners of the Company and net asset value attributable to owners of the Company of the Post-merger Group as at 31 December 2017 of approximately RMB2,790,563,000 and RMB24,266,115,000, respectively, as shown in Appendix III by the maximum number of 7,420,357,973 Shares that would be in issue immediately after the issuance of the Consideration Shares as shown in the preceding shareholding table at the initial Exchange Ratio.

Information on the Sinoair Group

Sinoair is a major subsidiary of the Company, owned as to approximately 60.95% by the Company as of the Latest Practicable Date. Its principal businesses are provision of air freight forwarding services, e-commerce logistics services and other professional logistics services.

As at the Latest Practicable Date, Sinoair had fully paid registered capital of RMB905,481,720.

Financial information of Sinoair Group

Set out below is the summary of the consolidated revenue and consolidated profit before and after taxation and extraordinary items of the Sinoair Group for the three years ended 31 December 2017 as extracted from the accountants’ report on the Sinoair Group prepared in accordance with the International Financial Reporting Standards set out in Appendix II to this circular:

	For the year	For the year	For the year
	ended 31	ended 31	ended 31
	December 2015	December 2016	December 2017
	RMB’000	RMB’000	RMB’000
	(Audited)	(Audited)	(Audited)
Revenue	4,284,027	4,846,786	6,174,789
Profit before taxation and
extraordinary items	1,010,392	1,024,217	1,481,313
Profit after taxation and
extraordinary items	1,009,896	994,547	1,353,006

As at 31 December 2017, based on the accountants’ report on the Sinoair Group mentioned above, the audited consolidated net assets of the Sinoair Group was approximately RMB8,180,794,000.

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Financial Effect of the Proposed Merger

Upon Completion, Sinoair will be de-registered and will cease to be a subsidiary of the Company. All of its assets (including but not limited to fixed assets, current assets and other properties) is to be merged into the Group and all its liabilities and other obligations are to be assumed by the Group. The pro forma financial information of the Post-merger Group is set out in Appendix III to this circular.

Assets and liabilities

Based on the pro forma financial information of the Post-merger Group set out in Appendix III to this circular, (i) the pro forma consolidated total assets of the Group as at 31 December 2017 would decrease by approximately RMB102.0 million from approximately RMB62,101.9 million to approximately RMB61,999.9 million as a result of the deduction of the estimated transaction costs in connection with the Proposed Merger (which may be subject to change); and (ii) the pro forma consolidated total liabilities of the Group as at 31 December 2017 would remain unchanged.

Earnings

According to the accountants’ report on the Sinoair Group set out in Appendix II to this circular, the audited consolidated revenue and the consolidated profit after taxation of the Sinoair Group for the year ended 31 December 2017 were approximately RMB6,174.8 million and approximately RMB1,353.0 million, respectively. The Proposed Merger is not expected to significantly change the revenue and earnings base for the Post-merger Group in the immediate future.

Reasons for and Benefits of the Proposed Merger Under the Merger Agreement

The Group is a leading integrated logistics service provider in China whose principal businesses include freight forwarding, logistics, storage and terminal services, logistics equipment leasing and other services including trucking, shipping and express services.

Structurally, the Proposed Merger will result in the elimination of Sinoair as a separate legal entity (and minority shareholders in Sinoair which will either become holders of A Shares or have received the Cash Alternative) so that (i) the assets (including cash and cash equivalents) and liabilities of Sinoair will become those of the Company; and (ii) instead of having a Shanghai Stock Exchange listed subsidiary, the Company will have two classes of listed Shares in its share capital - the A Shares that are to be listed on the Shanghai Stock Exchange and H Shares that are listed on the Hong Kong Stock Exchange.

The Board considers that the Proposed Merger is in the interest and is for the benefit of the Company and its shareholders as a whole for the following reasons:

(1) the Proposed Merger can enhance the Group’s position as a leading integrated logistics service provider by combining the Company’s strengths in contract logistics, sea freight forwarding, supply chain management with that of Sinoair in the field of air
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freight forwarding, e-commerce logistics and professional logistics. The full consolidation of both parties’ client base, logistics network and resources allows the streamlining of the Group’s business model and, promote collaboration and operational efficiency among existing operating entities and business lines. Accordingly, the Proposed Merger can help the Group adapt to the fast-paced modern logistics industry and offer end-to-end, fully integrated and seamless logistics services to better meet clients’ evolving needs nowadays;

(2) being the flagship logistics platform of China Merchants Group and the largest logistics company in China, the Group is well positioned to capture market share in the fast growing logistics industry in China. The implementation of the Proposed Merger also allows the Company to have direct access to the cash and cash equivalents of Sinoair. In addition, the listing of the A Shares including all Consideration Shares and Domestic Shares confer on the Group a broader range of financing options, e.g. through access to the China equity capital market as well as greater investor outreach by including domestic PRC based investors that are not able to invest in H Shares. Both can therefore help fuel future growth of the Group;
(3) the Proposed Merger which includes the de-registration of Sinoair will eliminate potential business competition in terms of the types of logistic services that each offer, between the Company and Sinoair which may inevitably emerge in the future as the development of third-party logistics has demonstrated a converging trend, and the traditional delineation of logistics (e.g. Sinoair’s current focus on air freight forwarding while the rest of the Group provides freight forwarding services through other modes of transportation in order to eliminate competition between the two listed groups), may constrain the Group’s ability to provide the best logistics solution to our clients.

Having taken into account the above factors namely (i) the operational benefits arising from the merger of Sinoair into the Company in terms of greater flexibility and efficiency in the deployment of assets and business resources to facilitate growth of the Group in line with its strategy; (ii) the improved access by the Company to financing options through its access to investors and the capital markets both in the Mainland and Hong Kong by having listed A Shares and H Shares in the two markets; (iii) the terms of the Proposed Merger (including the Exchange Ratio that in turn determines the maximum number of Consideration Shares issuable) having taken into due consideration the market values of the A Shares and H Shares, market practice for comparable transactions over the last 12 years and PRC regulatory requirements (e.g. in relation to the Cash Alternative requirement) and reduced cash outlay and impact on liquidity and/or gearing of the Group by issuing Consideration Shares, all set out in the section headed “The Merger Proposal – Basis of determination of the initial Issue Price, the initial Exchange Price and the initial Cash Alternative” above, the Directors (including the independent non-executive Directors) are of the view that the terms of the Merger Agreement are fair and reasonable and the transactions contemplated thereunder (including the issue and listing of A Shares, the Issue Price, the Exchange Price, the Exchange Ratio and the Cash Alternative) are in the interest of the Company and its Shareholders as a whole.

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Listing Rules Implications

As the applicable percentage ratios (as defined under the Listing Rules) in respect of the Proposed Merger are more than 25% but less than 100%, the Proposed Merger constitutes a major transaction for the Company under Chapter 14 of the Listing Rules. Therefore, the Merger Agreement and transactions contemplated thereunder (including the issue and listing of A Shares, the Issue Price, the Exchange Price, the Exchange Ratio and the Cash Alternative) are subject to Shareholders’ approval by way of poll. In addition, pursuant to the Articles of Association, the issue of Consideration Shares requires special resolutions by the Shareholders at a general meeting and separate class meetings. So far as the Directors are aware, apart from the China Merchants’ potential interest through the Cash Alternative Provider described below, none of the holders of H Shares has any material interest in the Merger Agreement and the transactions contemplated thereunder and accordingly, none of such holders are required to abstain from voting at the EGM and the H Share Class Meeting.

As the Cash Alternative Provider is a wholly-owned subsidiary of China Merchants, being the indirect controlling shareholder of the Company holding in aggregate approximately 66.31% of the issued Shares, and will exchange the Sinoair Shares (purchased by it from the Qualifying Dissenting Sinoair Shareholders who validly elected to receive the Cash Alternative) for A Shares to be issued by the Company, the transactions contemplated under the Merger Agreement will, to the extent Consideration Shares are issued to the Cash Alternative Provider, constitute connected transactions for the Company under Chapter 14A of the Listing Rules. As such, China Merchants and its associates (including SINOTRANS & CSC) holding in aggregate 3,904,279,644 Domestic Shares and 107,183,000 H Shares as of the Latest Practicable Date will abstain from voting on the relevant resolution approving transactions relating to the Merger Agreement to be proposed at the EGM and the H Shares Class Meeting.

China Merchants, together with its subsidiaries, is a large PRC state-owned conglomerate. Its principal businesses focus on three main areas, transportation (ports and related services, toll roads, shipping, logistics, offshore engineering and trade), finance (banking, securities, funds, insurance) and property development. Its ultimate beneficial owner is SASAC. Given that the Cash Alternative is priced according to market practice as described in “The Merger Proposal – Basis of determination of the initial Issue Price, the initial Exchange Price and the initial Cash Alternative”, the need to keep discussions on the Proposed Merger to as small a group of professional parties as possible prior to announcement, the Company considered it appropriate to approach its PRC financial advisers (including China Merchants) who are also sponsors of the Company’s A Shares listing for the provision of the Cash Alternative. Taking into account that the appointment of the Cash Alternative Provider can further demonstrate the confidence of China Merchants (as the Company’s controlling shareholder) in the prospects of the Group and that the terms of the Cash Alternative Provider is not less favourable to the Company than that offered by the other PRC financial adviser, the Directors consider it fair and reasonable to have the Cash Alternative Provider to offer the Cash Alternative.

China Merchants and SINOTRANS & CSC informed the Company that they have given an “in-principle” agreement to the Proposed Merger and undertaken not to (i) sell the Shares directly held by them and (ii) procure the Company to sell the Sinoair Shares held by the Company during the period from 26 March 2018, being the date of resumption of trading in Sinoair Shares, up to completion of the Merger Agreement.

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None of the Directors has any material interest in the transactions contemplated under the Merger Agreement, therefore they are not required under the Listing Rules to abstain from voting on the Board resolutions approving the Merger Agreement. Nonetheless, as Zhao Huxiang and Song Dexing are concurrently holding positions in China Merchants, they have abstained from voting at the board meeting of the Company in respect of the proposed resolution(s) to approve the Merger Agreement and transactions contemplated thereunder in accordance with the relevant PRC laws and regulations.

Altus Capital Limited has been appointed as the independent financial adviser to the Independent Board Committee and the Independent Shareholders in respect of the transactions contemplated under the Merger Agreement.

Shareholders of, and potential investors in, the Company should be aware that the Proposed Merger is subject to the conditions set out above under the sub section headed “The Merger Proposal – Conditions Precedent” and there is no assurance that the Proposed Merger and the listing of A Shares on the Shanghai Stock Exchange will proceed to completion. Accordingly, shareholders of, and potential investors in, the Company should exercise caution when dealing in the Shares of the Company.

II. PROPOSED AMENDMENTS OF THE ARTICLES OF ASSOCIATION AND ADOPTION OF CERTAIN INTERNAL POLICIES BY THE COMPANY

Following Completion, the Company will become dual listed on both the Hong Kong Stock Exchange and the Shanghai Stock Exchange and will be subject to the regulatory requirements of both exchanges. As a pre-requisite to obtaining approvals to implement the Proposal Merger (including the listing of the A Shares) from the relevant PRC regulatory authorities (including the Shanghai Stock Exchange and the CSRC) and to comply with the applicable laws, regulations and rules of the PRC with respect to the constitutional document and internal policies of companies listed in the PRC, the Board will put forward for the approval of Shareholders at the EGM the proposals described below.

(1) The Board will put forward for the approval of the Shareholders by way of special resolution (as resolution numbered 2 set out in the notice convening the EGM) a proposal to adopt a new set of the Articles of Association (in the form and with the changes set out in Appendix VI to this circular) to replace the current version. The key areas of changes effected upon the adoption of the new Articles of Association include the following:
(a) the creation of A Shares as an additional class of Shares and corresponding increase in the registered capital of the Company;
(b) the addition of the types of matters that require shareholders approval (as detailed in the new Articles of Association) to include the following (which would not otherwise attract shareholders approval requirements under the Listing Rules):
- shareholders holding at least 3% of the voting Shares (jointly or severally) may require additional proposals to be considered at a general meeting;
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change in use of proceeds from issue of securities;
the giving by the Company of any guarantee or security of obligations of any third party (including its subsidiary) in respect of any amount that exceeds 10% of the most recent audited consolidated net asset value of the Company or if aggregated with any such guarantee and/or security then subsisting would amount to or exceed 30% of the most recent audited consolidated total assets of the Company or where the third party’s debt-to-asset ratio exceeds 70% or where such third party is a Shareholder or China Merchants or its connected person;
the giving by any member of the Group of any guarantee or security of obligations of any third party (including a subsidiary of the Company) in respect of any amount that, if aggregate with any such guarantee and/or security then subsisting, would amount to or exceed 50% of the most recent audited consolidated net asset value of the Company;
changes to entrench the Company’s undertaking as to dividend policy described in “Certain Undertakings Given by the Company” above, the various meeting procedures referred to below and to clarify procedural requirements for the reduction of share capital.
the requirement that the Board comprises eleven directors of which not less than one third are independent directors (as defined in the new Articles of Association) and not more than half of the directors are also other senior officers (as defined in the new Articles of Association).
(c) the introduction of new requirements on holders of Shares as follows:
(i) the Directors, supervisors and senior management of the Company and Shareholders holding 5% or more voting Shares (except for those acquired in the capacity as an underwriter of a share issue) shall account to the Company any profit derived from the acquisition and/or disposal of Shares made by them if such transaction was completed within six months of their last disposal/ acquisition (as detailed in amendments to Article 32 set out in Appendix VI to this circular);
(ii) Shareholders holding 5% or more voting Shares shall report to the Company in writing any pledge created by them over their Shares on the day of creation of such pledge;
(iii) for so long as the Company has a controlling shareholder that holds 30% or more voting rights in the Company where in relation to the election of Directors to fill two or more vacancies in such office, each shareholder may vote some or all of its aggregate voting rights in respect of the vacancies being filled in such combination as that shareholder thinks fit as amongst the relevant candidates. For example, if three persons are being proposed for election as three vacancies for
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directorship, a shareholder that holds 2,000 Shares will have a total of 6,000 votes and may choose to vote, 4,000, 2,000 and zero votes for each of the three persons. The amended Articles of Association will also permit the application of such cumulative voting principles to the election of supervisors of the Company.

(d) the entrenchment as appendices to the Articles of Association, the “Procedural Rules for General Meetings of the Company”; “Procedural Rules for Meetings of the Board of Directors of the Company”; and “Procedural Rules for Meetings of the Board of Supervisors of the Company”.
(2) the Board will put forward for the approval of the Shareholders by way of ordinary resolution (as part of resolution numbered 3 set out in the notice convening the EGM) a proposal to adopt as internal policies of the Company for so long as the A Shares are listed on the Shanghai Stock Exchange, the “Working Manual for the Independent Directors of the Company”, “Policy for the Management of Connected Transactions of the Company” for the purposes of complying with the connected transaction rules of the Shanghai Stock Exchange and “Policy for the Management of External Guarantees To Be Provided by the Company”, “Measures to Remedy the Dilution Effect To the Immediate Return of Shareholders That May Be Caused by the Proposed Merger of Sinotrans Air Transportation Development Co., Ltd. by Absorption Through Share Swap” and “Plan of the Company on Shareholder Return for the Next Three Years (2018 to 2020)”. The full text of these internal policies are set out in Appendix VII to this circular.

Apart from changes that are administrative insofar as it reflects the changes in share capital structure as a result of the Proposed Merger and listing of A Shares, the main effect of the proposed amendments of the Articles of Association is to expand shareholders’ approval powers over a wider range of matters (as summarised above, including dividend policy and certain governance/ internal control procedures) that were in the sole domain of the Board, subject to compliance with the Listing Rules, lowering the shareholding required to requisition shareholders meeting from 5% to 3% of the voting shares of the Company and (in the case of proposed changes described in paragraph (1)(c) above) discourage speculative trading, enhance disclosure of interests in Shares and confer greater voting flexibility to minority shareholders in the choice of Directors and supervisors of the Company as required by applicable rules, laws and regulations.

The Company understands that the approval of all of the above by the Shareholders is a pre-requisite for obtaining relevant PRC regulatory approvals for the implementation of the Proposed Merger and the A Shares Listing. The new Articles of Association and internal policies set out in Appendices VI and VII to this circular will only become effective upon listing of A Shares on the Shanghai Stock Exchange. If there is any inconsistency between the Chinese and English versions of the Articles of Association and the internal policies, the Chinese version will prevail.

III. EGM

The register of members of the Company will be closed from 30 April 2018 to 31 May 2018 (both days inclusive), during which no transfer of Shares will be effected.

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Any holders of Shares (except for China Merchants and its associates (including SINOTRANS & CSC) with respect to resolution numbered 1 in relation to the Proposed Merger set out in the EGM notice only), whose names appear on the Company’s register of members on 30 May 2018, are entitled to attend and vote at the EGM of the Company after completing the registration procedures for attending the meeting. In order to be entitled to attend and vote at the EGM, persons holding any Shares shall lodge share transfer documents and the relevant share certificates with the Company’s Branch Share Registrar in Hong Kong, Computershare Hong Kong Investor Services Limited of Rooms 1712-1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong, no later than 4:30 p.m. on 27 April 2018.

The EGM will be convened and held at 10:00 a.m. on 31 May 2018, or immediately after the conclusion of the annual general meeting of the Company or any adjournment thereof to be held at 9:30 a.m. on the same day at the 1st Meeting Room, 11th Floor, Building 10/Sinotrans Tower B, No.5 Anding Road, Chaoyang District, Beijing 100029, the PRC to consider and, if thought fit, approve the transactions contemplated under the Merger Agreement (including the issue and listing of A Shares). Notice of the EGM, together with the reply slip and proxy form, will be despatched to Shareholders on or about 20 April 2018.

IV. CLASS MEETINGS

H Shares Class Meeting

Any holders of H Shares (except for China Merchants and its associates (including SINOTRANS & CSC) with respect to resolution numbered 2 in relation to the Proposed Merger set out in the notice for the H Shares Class Meeting only), whose names appear on the Company’s register of members on 30 May 2018, are entitled to attend and vote at the H Shares Class Meeting of the Company after completing the registration procedures for attending the meeting. The H Shares Class Meeting will be convened at 10:30 a.m. on 31 May 2018, or immediately after the conclusion of the EGM or any adjournment thereof, at the 1st Meeting Room, 11th Floor, Building 10/Sinotrans Tower B, No.5 Anding Road, Chaoyang District, Beijing 100029, the PRC. Notice of the H Shares Class Meeting, together with the reply slip and proxy form, will be despatched to Shareholders on or about 20 April 2018. Holders of the H Shares who intend to attend the H Shares Class Meeting are requested to deliver the reply slip on or before 4:30 p.m. on 11 May 2018. The proxy form should be completed and, together with the notarially certified power of attorney or other documents of authorization, returned to the relevant addresses listed on the proxy form in accordance with the instructions printed thereon. Completion and return of the proxy form will not preclude you from attending and voting in person at the H Shares Class Meeting should you so wish.

Domestic Shares Class Meeting

China Merchants and SINOTRANS & CSC are the only holders of Domestic Shares. Given that both China Merchants and SINOTRANS & CSC are required to abstain from voting at the class meeting of the holders of Domestic Shares (if convened) on the resolution in relation to the Proposed Merger, the Board will not convene a class meeting of the holders of Domestic Shares to consider and approve the Proposed Merger. The Company was advised by its PRC counsel that given that China Merchants and SINOTRANS & CSC are required to abstain from voting and that each of them has given and may not withdraw at will

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their “in principle” agreement to the Proposed Merger, the dispensation of the Domestic Shares class meeting to approve the Proposed Merger will not be regarded as a breach of the Articles of Association or the relevant PRC laws and regulations.

V. DIRECTORS’ RECOMMENDATION

As noted above, at the EGM, resolutions will be proposed to approve the Proposed Merger (which include for the purposes of the Listing Rules, the major acquisition arising from the Company’s acquisition of the Target Shares, the specific mandate for the issue of the Consideration Shares including to the Cash Alternative Provider (a connected person which is an associate of China Merchants)) and the necessary amendment to the Articles of Association and adoption of internal policies as required under applicable PRC laws and regulations. The Company also intends to have its independent non-executive Directors who have been in office for six years or more replaced with new independent non-executive Directors, in order to comply with the relevant listing rules, laws and regulations in the PRC as a pre-requisite of the listing of the A Shares and will make further announcement(s) in this regard as the Company is still in the process of identifying suitable candidates.

In addition, at the H Shares Class Meeting, a resolution will be proposed to approve the Proposed Merger. Unless all of the resolutions proposed at the EGM and the H Shares Class Meeting with respect to the Proposed Merger are passed, the Proposed Merger will not proceed.

In order to pass an ordinary resolution and a special resolution of the Company at its general meeting and relevant class meeting, there requires at least a simple majority and a two-thirds majority, respectively, of the votes held by Shareholders attending the relevant general meeting or class meeting in person or by proxy (and entitled to vote) being voted in favour of the relevant resolution.

The Board (including the independent non-executive Directors) considers that the Proposed Merger and transactions contemplated thereunder (including the issue and listing of A Shares) are fair and reasonable and in the interests of the Company and the Shareholders as a whole. Accordingly, the Board recommends the Independent Shareholders to vote in favour of the resolutions as set out in the notices of EGM and the H Shares Class Meeting at the relevant general meeting.

The advice of the Independent Financial Adviser as to whether the terms of the Merger Agreement are fair and reasonable and whether the transactions contemplated thereunder are in the in the interests of the Company and the Shareholders as a whole is set out on pages 37 to 80 of this circular.

VI. 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 transactions contemplated under the Merger Agreement including the issue of the Consideration Shares.

==> 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)

18 April 2018

To the Independent Shareholders

Dear Sir and Madam,

MAJOR TRANSACTION AND POSSIBLE CONNECTED TRANSACTION – PROPOSED LISTING OF A SHARES AND THE MERGER OF SINOAIR

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 resolution to approve the transactions contemplated under the Merger Agreement, 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 the Independent Financial Adviser in its capacity as the independent financial adviser to the Independent Board Committee and the Independent Shareholders in respect of whether the transactions contemplated under the Merger Agreement (including the issue and listing of the A Shares, the Issue Price, the Exchange Price, the Exchange Ratio and the Cash Alternative) 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 Independent Financial Adviser” as well as other additional information set out in other parts of the Circular.

Having taken into account the advice of, and the principal factors and reasons considered by the Independent Financial Adviser in relation thereto as stated in its letter, we consider that although the transactions under the Merger Agreement are not conducted in the ordinary and usual course of business of the Group, the terms of the Merger Agreement and transactions contemplated thereunder (including the issue

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and listing of the A Shares, the Issue Price, the Exchange Price, the Exchange Ratio and the Cash Alternative) are fair and reasonable, on normal commercial terms and are in the interests of the Company and the Shareholders as a whole.

Accordingly, we recommend the Independent Shareholders to vote in favour of the resolutions to be proposed at the EGM and H Shares Class Meeting in respect of the transactions contemplated under the Merger Agreement (including the issue and listing of the A Shares, the Issue Price, the Exchange Price, the Exchange Ratio and the Cash Alternative).

Yours faithfully,

The Independent Board Committee

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

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The following is the text of a letter of advice from the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders in relation to the proposed listing of A Shares and the Proposed Merger and 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

18 April 2018

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,

MAJOR TRANSACTION AND POSSIBLE CONNECTED TRANSACTION IN RELATION TO THE PROPOSED LISTING OF A SHARES AND THE PROPOSED MERGER OF SINOAIR

1. INTRODUCTION

We refer to our appointment as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in relation to the proposed listing of A Shares and the Proposed Merger. Details of the proposed listing of A Shares and the Proposed Merger are set out in the “Letter from the Board” contained in the circular of the Company dated 18 April 2018 (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.

On 28 February 2018, the Board resolved, among other things, that the Company will apply to the relevant regulatory authorities in the PRC for the issue and listing of A Shares on the Shanghai Stock Exchange subject to the completion of the merger proposal. All existing Domestic Shares will be converted into A Shares and listed on the Shanghai Stock Exchange.

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(i) the Share Exchange, being the issue of 1,371,191,329 A Shares as Consideration Shares by the Company at the initial Issue Price of RMB5.32 per Consideration Share in exchange at the initial Exchange Ratio for Target Shares, being in aggregate 353,600,322 Sinoair Shares as at the Latest Practicable Date (a) held by Participating Shareholders whose names appear on the register of members of Sinoair on the Entitlement Date and (b) in the case of Qualifying Dissenting Sinoair Shareholders who have validly elected for the Cash Alternative, held by the Cash Alternative Provider;
(ii) the listing of the Consideration Shares on the Shanghai Stock Exchange and the conversion of all existing Domestic Shares into A Shares and listing of the same on the Shanghai Stock Exchange. The Consideration Shares and Domestic Shares will, upon listing, rank pari passu in all respects with each other, subject to applicable lock-up requirements; and
(iii) the de-listing of the Sinoair Shares from the Shanghai Stock Exchange and the deregistration of Sinoair. The assets, liabilities, businesses, contracts, qualifications, staff and all other rights and obligations of Sinoair are to be transferred to/assumed by the Group.

2. LISTING RULES IMPLICATION

2.1 Major transaction – acquisition

As the applicable percentage ratios (as defined under the Listing Rules) in respect of the Proposed Merger are more than 25% but less than 100%, the Proposed Merger constitutes a major transaction for the Company under Chapter 14 of the Listing Rules. Therefore, the Merger Agreement and transactions contemplated thereunder (including the issue and listing of A Shares, the Issue Price, the Exchange Ratio and the Cash Alternative) are subject to Shareholders’ approval by way of poll. In addition, pursuant to the Articles of Association, the issue of Consideration Shares requires special resolutions by the Shareholders at a general meeting and separate class meetings. So far as the Directors are aware, apart from China Merchants’ potential interest through the Cash Alternative Provider described below, none of the holders of H Shares has any material interest in the Merger Agreement and the transactions contemplated thereunder and accordingly, none of such holders are required to abstain from voting at the EGM and the H Share Class Meeting.

2.2 Connected transaction

As at the Latest Practicable Date, China Merchants was the indirect controlling shareholder of the Company holding in aggregate approximately 66.31% of the issued Shares. As the Cash Alternative Provider is a wholly-owned subsidiary of China Merchants and will exchange the Sinoair Shares (purchased by it from the Qualifying Dissenting Sinoair Shareholders who validly elected to receive the Cash Alternative) for A Shares to be issued by the Company, the transactions contemplated under the Merger Agreement will, to the extent Consideration Shares are issued to the

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Cash Alternative Provider, constitute connected transactions for the Company under Chapter 14A of the Listing Rules. As such, China Merchants and its associates (including SINOTRANS & CSC) holding in aggregate 3,904,279,644 Domestic Shares and 107,183,000 H Shares as of the Latest Practicable Date will abstain from voting on the relevant resolution approving transactions relating to the Merger Agreement to be proposed at the EGM and the H Shares Class Meeting.

2.3 Other matters

None of the Directors has any material interest in the transactions contemplated under the Merger Agreement, therefore they are not required under the Listing Rules to abstain from voting on the Board resolutions approving the Merger Agreement. Nonetheless, as Mr. Zhao Huxiang and Mr. Song Dexing are concurrently holding positions in China Merchants, they have abstained from voting at the board meeting of the Company in respect of the proposed resolution(s) to approve the Merger Agreement and transactions contemplated thereunder in accordance with the relevant PRC laws and regulations.

3. THE INDEPENDENT BOARD COMMITTEE

The Independent Board Committee (comprising all the independent non-executive Directors, namely, Mr. Guo Minjie, Mr. Lu Zhengfei, Mr. Liu Junhai and Mr. Wang Taiwen) has been established to consider the Merger Agreement and the transactions contemplated thereunder (in particular, to the extent there is any Qualifying Dissenting Sinoair Shareholder who has validly elected for the Cash Alternative, constitute connected transactions for the Company under Chapter 14A of the Listing Rules), and to give advice and recommendation to the Independent Shareholders as to (i) whether the entering into the Merger Agreement is in the interests of the Company and the Shareholders as a whole; (ii) whether the terms of the Merger Agreement are on normal commercial terms, and are fair and reasonable as far as the Independent Shareholders are concerned; and (iii) how the Independent Shareholders should vote in respect of the resolution(s) to be proposed at the EGM and the H Shares Class Meeting to approve on the transactions contemplated under the Merger Agreement.

4. 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 the Merger Agreement is in the interests of the Company and the Shareholders as a whole; (ii) whether the terms of the Merger Agreement, are on normal commercial terms, and are fair and reasonable as far as the Independent Shareholders are concerned; and (iii) how the Independent Shareholders should vote in respect of the resolution(s) to be proposed at the EGM and the H Shares Class Meeting to approve on the transactions contemplated under the Merger Agreement.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

We have previously acted as an independent financial adviser to the Company with regards to the continuing connected transactions. Details of the continuing connected transactions are set out in a circular of the Company dated 30 November 2017. The Company is a subsidiary of China Merchants, with approximately 66.31% of its equity interest held by China Merchants as at the Latest Practicable Date. Save for the aforesaid transactions, 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 proposed listing of A Shares and the Proposed Merger 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.

5. BASIS OF OUR ADVICE

In formulating our opinion, we have reviewed, among others, (i) the Merger Agreement; (ii) the annual report of the Company for the year ended 31 December 2016 (“ 2016 Annual Report ”), the interim report of the Company for the six months ended 30 June 2017 (“ 2017 Interim Report ”) and the annual report of the Company for the year ended 31 December 2017 (“ 2017 Annual Report ”); (iii) the accountant’s report of Sinoair Group for the three years ended 31 December 2017 prepared in accordance with IFRS set out in Appendix II to the Circular; and (iv) other information as set out in the Circular. We have also 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 “ Sinotrans Management ”). We have assumed that all statements, information, opinions, and representations contained or referred to in the Circular and/or provided to us were reasonably made after due and careful enquiry and true, accurate, and complete at the time they were made and continued to be so as at the date of the Circular. The Shareholders will be informed when there are any material changes to the information contained or referred to herein or our opinion as soon as possible.

We have no reason to believe that any of the statements, information, opinions or representations on which we relied in forming our opinion are 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 to be untrue, inaccurate or misleading. We consider that we have been provided with, and have reviewed, sufficient information to reach an informed view and to provide a reasonable basis for our opinion. We have not, however, conducted any independent investigation into the business, financial conditions and affairs or the future prospects of the Group.

The Directors will collectively and individually accept full responsibility for such statements, information, opinions and representations, 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, opinions expressed in the Circular have been arrived at after due and careful consideration, and there are no other facts the omission of which would make any statement in the Circular misleading.

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6. PRINCIPAL FACTORS AND REASONS CONSIDERED

In arriving at our opinion and recommendations, we have taken into account the following principal factors and reasons.

6.1 Background of the Group

6.1.1 Principal businesses of the Group

The Group is a leading integrated logistics service provider in the PRC whose principal businesses include freight forwarding, logistics, storage and terminal, logistics equipment leasing and other services including trucking, shipping and express services.

For the freight forwarding segment, it primarily involves, at the instruction of its customers, arranging transportation of goods to designated consignees at other locations within specified time limits, including the shipping agency services to shipping companies related to the freight forwarding services.

For the logistics segment, it primarily involves providing customised and professional integrated logistics services to its customers.

For storage and terminal, it primarily involves providing services of warehousing, container yards, container freight stations and terminals.

For logistics equipment leasing, it primarily involves providing services of logistics equipment leasing.

For other services, it mainly involves providing services of trucking, shipping and express services.

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6.1.2 Historical financial information of the Group

Set out below is a summary of the Group’s historical financial information as extracted from its consolidated financial statements for the years ended 31 December 2015 and 2016, for the six months ended 30 June 2017 and for the years ended 31 December 2016 (restated) and 2017 as set out in the 2016 Annual Report, 2017 Interim Report and 2017 Annual Report.

		For the	year ended		For the six	months ended
		31 December			30	June
	2015	2016	2016	2017	2016	2017
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
	(audited)	(audited)	(restated)	(audited)	(unaudited)	(unaudited)
Total revenue	45,528,074	46,784,192	59,765,965	72,567,178	21,677,686	27,616,056
– Freight forwarding	34,603,898	34,665,848	37,548,748	45,718,723	15,906,491	20,529,933
– Logistics	6,921,020	7,803,124	15,705,561	18,669,238	3,825,732	4,458,296
– Storage and terminal	1,935,635	2,015,183	1,948,864	2,276,298	929,498	1,121,029
– Logistics equipment
leasing	–	–	1,288,656	1,456,055	–	–
– Others	2,067,521	2,300,037	3,274,136	4,446,864	1,015,965	1,505,798
Profit attributable to
owners of the Company	1,493,264	1,629,472	2,253,738	2,301,191	967,097	987,608
					As at	As at 31
		As	at 31 December		30 June	December
		2015	2016	2016	2017	2017
		RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
		(audited)	(audited)	(restated)	(unaudited)	(audited)
Total assets		35,084,861	37,366,945	57,614,355	39,661,642	62,101,901
Total liabilities		16,625,058	17,737,067	34,386,419	19,214,330	36,524,903
Net assets		18,459,303	19,629,378	23,227,936	20,337,212	25,576,998
Cash and cash equivalents		6,133,308	7,118,590	9,323,955	6,347,039	9,709,382

Source: 2016 Annual Report, 2017 Interim Report and 2017 Annual Report

For the year ended 31 December 2017

As described in note 2A of the notes to the consolidated financial statements of the Group for the year ended 31 December 2017 set out in the 2017 Annual Report, on 22 August 2017, the Company entered into an acquisition agreement with China Merchants (the “ Acquisition Agreement ”) under which the Company conditionally agreed to acquire the entire issued share capital of the China Merchants Logistics Holdings Company Limited (“ China Merchants Logistics ”) from China Merchants at an aggregate consideration of RMB5,450,000,000, which is to be satisfied by the issuance and allotment of up to 1,442,683,444 domestic state-owned ordinary shares (“ Domestic Shares ”) at the initial Issue Price of HK$4.43 per Domestic Share (the “ Acquisition ”).

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

On 3 November 2017, business registration in relation to the transfer of the entire issued share capital of China Merchants Logistics under the Acquisition Agreement had been effected and 1,442,683,444 Domestic Shares had been issued and allotted to China Merchants. Therefore, China Merchants Logistics became a wholly-owned subsidiary of the Company.

Both the Company and China Merchants Logistics are controlled by China Merchants before and after the Acquisition, therefore the Acquisition is accounted for as business combinations involving entities under common control. The principles of merger accounting have therefore been applied, pursuant to which, the consolidated financial statements of the Group are restated as if the Group and China Merchants Logistics had been combined from the date when the combining entities first came under the control of China Merchants, which is 1 January 2016. Upon completion of the Acquisition, the Group’s principal activities expanded to include logistics equipment leasing.

Shareholders should note that the discussion below refers to the financial performance for the year ended 31 December 2017 and compare with the restated financial result for the year ended 31 December 2016.

For the year ended 31 December 2017, the Group’s revenue amounted to RMB72,567.2 million, representing an increase of 21.4% from RMB59,766.0 million in the previous year. Such increase was attributable to the growth of in both business volume and freight rates.

For the Group’s freight forwarding services, segment revenue increased by 21.8% to RMB45,718.7 million during 2017, compared to RMB37,548.7 million in 2016 due to the positive growth in the Group’s business volume and freight rates. Similarly, attributable to the growth of business volume of logistics service, revenue generated from this segment in 2017 amounted to RMB18,669.2 million, representing an increase of 18.9% from RMB15,705.6 million in 2016. With regard to the Group’s storage and terminal, it recorded a segment revenue amounted to RMB2,276.3 million in 2017, representing an increase of 16.8% from RMB1,948.9 million in 2016. For the Group’s logistics equipment leasing, segment revenue increased by 13.0% to RMB1,456.1 million during 2017, compared to RMB1,288.7 million in 2016 due to the growth in the Group’s business volume. As to the revenue generated from other services (mainly from trucking, shipping, express services and so on), it also recorded an amount of RMB4,446.9 million in 2017, representing an increase of 35.8% from RMB3,274.1 million in the previous year, which was mainly attributable to the fast increase of e- commerce logistics business.

Profit attributable to owners of the Company for the year ended 31 December 2017 amounted to RMB2,301.2 million, representing an increase of 2.2% from RMB2,253.7 million in 2016.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As at 31 December 2017, the debt-to-asset ratio of the Group was 58.8% (2016 restated: 59.7%), which was calculated by dividing total liabilities by total assets of the Group as at 31 December 2017.

For the year ended 31 December 2016

Shareholders should note that the discussion below refers to the financial performance for the year ended 31 December 2016 that has not been restated and compare with the financial result for the year ended 31 December 2015.

For the year ended 31 December 2016, the Group’s revenue amounted to RMB46,784.2 million, representing an increase of 2.8% from RMB45,528.1 million in the previous year. Such increase was attributable to the growth of various segments.

For the Group’s freight forwarding services, segment revenue increased slightly by 0.2% to RMB34,665.8 million during 2016, compared to RMB34,603.9 million in 2015 due to the positive growth in the Group’s business volume which has overcame the impact of the decline of freight rates. Similarly, attributable to the growth of business volume of logistics service, revenue generated from this segment in 2016 amounted to RMB7,803.1 million, representing an increase of 12.8% from RMB6,921.0 million in 2015. With regard to the Group’s storage and terminal, it recorded a segment revenue amounted to RMB2,015.2 million in 2016, representing an increase of 4.1% from RMB1,935.6 million in 2015. As to the revenue generated from other services (mainly from trucking, shipping, express services and so on), it also recorded an amount of RMB2,300.0 million in 2016, representing an increase of 11.3% from RMB2,067.5 million in the previous year, which was mainly attributable to the volume growth in shipping agency and express service.

Profit attributable to owners of the Company for the year ended 31 December 2016 amounted to RMB1,629.5 million, representing an increase of 9.1% from RMB1,493.3 million in 2015.

As at 31 December 2016, the debt-to-asset ratio of the Group was 47.5% (2015: 47.4%), which was calculated by dividing total liabilities by total assets of the Group as at 31 December 2016.

For the six months ended 30 June 2017

For the six months ended 30 June 2017, the Group’s revenue amounted to RMB27,615.1 million, representing an increase of 27.4% from RMB21,677.7 million in the corresponding period of the previous year. The increase was mainly attributable to the fast increase of business volume across major business sectors and the growth of freight rates of container shipping.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

For the Group’s freight forwarding services, segment revenue increased slightly by 29.1% to RMB20,529.9 million during the six months ended 30 June 2017, compared to RMB15,906.5 million in the previous period due to the positive growth in the Group’s business volume and the growth of freight rates of container shipping. Similarly, attributable to the growth of business volume of logistics service, revenue generated from this segment in the six months ended 30 June 2017 amounted to RMB4,458.3 million, representing an increase of 16.5% from RMB3,825.7 million in the six months ended 30 June 2016 With regard to the Group’s storage and terminal, it recorded a segment revenue amounted to RMB1,121.0 million in the six months ended 30 June 2017, representing an increase of 20.6% from RMB929.5 million in the previous year. As to the revenue generated from other services (mainly from trucking, shipping, express services and so on), it also recorded an amount of RMB1,505.8 million in the six months ended 30 June 2017, representing an increase of 48.2% from RMB1,016.0 million in the previous year, which was mainly attributable to the volume growth in shipping agency and express service.

Profit attributable to owners of the Company for the six months ended 30 June 2017 amounted to RMB987.6 million, representing an increase of 2.1% from RMB967.1 million for the corresponding period in 2016.

As at 30 June 2017, the debt-to-asset ratio of the Group was 48.6% (31 December 2016: 47.5%), which was calculated by dividing total liabilities by total assets of the Group as at 30 June 2017.

Outlook for business development

According to the Sinotrans Management, the year of 2018 is expected to witness the new era of the Company and to fulfill the goals of “13th Five-Year” Plan. The Group will focus on “13th Five-Year” Plan and adhere to the principles of “Quality, Transformation, Integration, Innovation, Reform and Empowerment” in order to implement the strategies, accelerate mode reconstruction, improve capability, quality and efficiency, cultivate new growth points, and strive to build a world class enterprise with the intelligent logistics platform.

It is expected that the Chinese government will continue to deepen the supplyside structural reform, and foreign trade import and export is expected to continue to stabilize and maintain positive growth with foreign trade structure continuing to optimize. However, in the logistics industry, cross border competition continues to intensify, whereby industry restructuring and consolidation are becoming a common trend. Meanwhile, customers also put forward stringent demand for logistics enterprises in terms of customised services.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Going forward, the Group will continue to focus on the construction of a supply chain logistics eco-system. In respect of strategy, the Group will work on optimizing the sources of revenue and reducing operational costs, as well as to make efforts in the implementation of strategy to transform the business model, through innovative and cross-boundary integration.

6.2. Background of Sinoair Group

6.2.1 Principal businesses of Sinoair Group

Sinoair is a principal subsidiary of the Company owned as to approximately 60.95% by the Company as of the Latest Practicable Date. Its principal businesses are provision of airfreight forwarding, e-commerce logistics and professional logistics.

For the air freight forwarding segment, it primarily involves in the provision of international air freight forwarding business (including imports and exports air freight forwarding) and domestic freight and logistics.

For the e-commerce logistics segment, it primarily involves the international express services and logistics cross border e-commerce companies (including imports and exports e- commerce logistics).

For professional logistics business, it primarily involves in the provision of tailoredmade comprehensive logistics services by the Sinorair Group to relatively high-end customers with special needs. Such customers are found to be engaged primarily in flat panel display, semiconductor, aerospace, communications and electronics industries.

As at the Latest Practicable Date, Sinoair has fully paid registered capital of RMB905,481,720.

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6.2.2 Historical financial information of Sinoair Group

Set out below is the summary of the Sinoair Group’s historical financial information as extracted from its consolidated financial statements for the three years ended 31 December 2017 based on the financial statements prepared under the IFRS and set out in Appendix II to the Circular.

	For the year ended 31	For the year ended 31	December
	2015	2016	2017
	RMB’000	RMB’000	RMB’000
Total revenue	4,284,027	4,846,786	6,174,789
– Air freight forwarding	3,250,563	3,403,285	3,330,803
– E-commerce logistics	438,627	718,671	1,589,064
– Professional logistics business	594,837	724,830	1,254,922
Profit attributable to owners
of Sinoair	1,010,291	995,252	1,352,969
	As at 31 December
	2015	2016	2017
	RMB’000	RMB’000	RMB’000
Total assets	8,421,783	8,845,415	10,069,988
Total liabilities	1,135,705	1,415,518	1,889,194
Net assets	7,286,078	7,429,897	8,180,794
Cash and cash equivalents	1,833,988	2,119,712	2,738,864

Source: Appendix II to the Circular

For the year ended 31 December 2017

For the year ended 31 December 2017, the Sinoair Group’s revenue amounted to approximately RMB6,174.8 million, representing an increase of approximately 27.4% from approximately RMB4,846.8 million in the previous year. Such increase was attributable to the growth of e-commerce logistics and professional logistics segments.

For the Sinoair Group’s air freight forwarding, segment revenue decreased by approximately 2.1% to approximately RMB3,330.8 million during 2017, compared to approximately RMB3,403.3 million in 2016 due to the impact of the decline of freight rates. Due to the growth of business volume of e-commerce logistics, revenue generated from this segment in 2017 amounted to approximately RMB1,589.1 million, representing an increase of approximately 121.1% from approximately RMB718.7 million in 2016. With regard to the Sinoair Group’s professional logistics business, it recorded a segment revenue amounted to approximately RMB1,254.9 million in 2017, representing an increase of approximately 73.1% from approximately RMB724.8 million in 2016. Such increase was primarily due to the increase in business volume.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Profit attributable to owners of Sinoair for the year ended 31 December 2017 amounted to approximately RMB1,353.0 million, representing an increase of approximately 35.9% from approximately RMB995.3 million in 2016.

As at 31 December 2017, the debt-to-asset ratio of the Sinoair Group was approximately 11.8% (2016: approximately 16.0%), which was calculated by dividing total liabilities by total assets of the Sinoair Group as at 31 December 2017.

For the year ended 31 December 2016

For the year ended 31 December 2016, the Sinoair Group’s revenue amounted to approximately RMB4,846.8 million, representing an increase of approximately 13.1% from approximately RMB4,284.0 million in the previous year. Such increase was attributable to the overall growth of the air freight forwarding and e-commerce logistics.

For the Sinoair Group’s air freight forwarding, segment revenue increased by approximately 4.7% to approximately RMB3,403.3 million during 2016, compared to approximately RMB3,250.6 million in 2015 due to the positive growth in the Sinoair Group’s business volume. Similarly, attributable to the growth of business volume of e- commerce logistics service, revenue generated from this segment in 2016 amounted to approximately RMB718.7 million, representing an increase of approximately 65.2% from approximately RMB438.6 million in 2015. With regard to the Sinoair Group’s professional logistics business, it recorded a segment revenue amounted to RMB724.8 million in 2016, representing an increase of approximately 21.9% from approximately RMB594.8 million in 2015, attributable to the increase in business volume.

Profit attributable to owners of Sinoair for the year ended 31 December 2016 amounted to approximately RMB995.3 million, representing a slight decrease of approximately 1.5% from approximately RMB1,010.3 million in 2015.

As at 31 December 2016, the debt-to-asset ratio of the Group was approximately 16.0% (2015: approximately 13.5%), which was calculated by dividing total liabilities by total assets of the Group as at 31 December 2016.

6.3 The Proposed Listing of A Shares

In connection with the Proposed Merger, the Board has resolved that the Company will apply for the listing of the Consideration Shares on the Shanghai Stock Exchange as A Shares, subject to the satisfaction of certain conditions precedent as set out below. All existing Domestic Shares will be converted into A Shares and listed on the Shanghai Stock Exchange. Details of the principal terms of the proposed listing are set out in the paragraph headed “Proposed Listing of A Shares” of the “Letter from the Board” of the Circular.

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6.4 The Merger Proposal

6.4.1 The Merger Agreement

Pursuant to the terms of the Merger Agreement, the Company and Sinoair agreed, subject to the fulfilment of the conditions precedent, to implement a merger proposal through which the Company is to merge Sinoair by the Share Exchange, the A Shares (including the Consideration Shares and those A Shares converted from the existing Domestic Shares) are to be listed on the Shanghai Stock Exchange, and Sinoair is to be delisted and deregistered.

The Share Exchange involves the issue of 1,371,191,329 Consideration Shares, subject to adjustment, in return for Target Shares at the initial Exchange Ratio for each Target Share (a) held by Participating Shareholders whose names appear on the register of members of Sinoair on the Entitlement Date; and (b) in the case of Qualifying Dissenting Sinoair Shareholders who have validly elected for the Cash Alternative, held by the Cash Alternative Provider.

The 551,881,398 Sinoair Shares held by the Company will not participate in the Share Exchange and will be cancelled upon completion of the Proposed Merger.

A diagram showing the shareholding structure of the Company and Sinoair as at the Latest Practicable Date and immediately after the Completion is set out in the paragraph headed “The Proposed Merger” of the “Letter from the Board” of the Circular. Other H Shareholders (i.e. excluding SINOTRANS & CSC and China Merchants holding 107,183,000 H Shares) should note that, as at the Latest Practicable Date, their aggregate interest in the Company was approximately 33.69% and immediately after completion of the Proposed Merger (i) at the initial Exchange Ratio of 3.8778:1 will become approximately 27.46% (assuming that there is no Qualifying Dissenting Shareholder); and (ii) at the adjusted Exchange Ratio of 3.8225:1 will become approximately 27.53% (assuming that there is no Qualifying Dissenting Shareholders).

6.4.2 The consideration for Target Shares

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The initial Issue Price, the initial Exchange Price and the initial Cash Alternative will be adjusted for cash dividend, scrip dividend or bonus shares, share issues by capitalisation of reserves and equity issues/other distributions by way of rights to shareholders made by the Company and/or Sinoair respectively. Details are set out in paragraph headed “The consideration for Target Shares” of the “Letter from the Board” of the Circular.

The Company announced in its final results announcement dated 26 March 2018 that the Board recommended a final dividend of RMB0.08 per Share for the financial year ended 31 December 2017. Sinoair also announced on the same day that the board of directors of Sinoair recommend a final dividend of RMB0.60 per Sinoair Share for the same financial year. Assuming approval from shareholders of the Company and Sinoair of the respective dividend proposal will be obtained at the forthcoming general meetings of the Company and Sinoair, the initial Issue Price, Exchange Price and Cash Alternative will therefore be adjusted as described above to exclude the amount of dividend per Share/Sinoair Share to the following:

Adjusted Issue Price = RMB5.24 (being the initial Issue Price of RMB5.32 minus RMB0.08)

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Adjusted Exchange Price = RMB20.03 (being the initial Exchange Price of RMB20.63 minus RMB0.60) Adjusted Cash Alternative = RMB16.68 (being the initial Cash Alternative of RMB17.28 minus RMB0.60) Adjusted Exchange Ratio = 3.8225:1 Consideration Shares for each Target Share (Note)

Note: As mentioned in the paragraph headed “Consideration Shares” in the “Letter from the Board” of the Circular, no fraction of any Consideration Shares will be issued in respect of a Target Shareholder's entitlement.

Assuming that the shareholders of the Company and Sinoair approve the dividend proposals as mentioned above, the number of Consideration Shares to be issued by the Company under the Merger Agreement will be 1,351,637,231.

Assuming the number of such Sinoair Shares remains unchanged from the Latest Practicable Date to the date of completion of the Share Exchange and:

(a) there is no adjustment to the initial Exchange Price and the initial Issue Price, an aggregate of 1,371,191,329 Consideration Shares are to be issued by the Company to the Participating Shareholders and/or the Cash Alternative Provider at the initial Exchange Ratio of 3.8778:1 Consideration Shares for each Target Share on the Exchange Date, which number of Consideration Shares represents:
(i) approximately 35.12% and 22.67% of the total Domestic Shares in issue and the total Shares in issue, respectively, as at the Latest Practicable Date; and
(ii) approximately 25.99% and 18.48% of the total A Shares then in issue and the total Shares in issue, respectively, as enlarged by the issue of the Consideration Shares.
(b) the price adjustments mentioned above will take place, an aggregate of 1,351,637,231 Consideration Shares are to be issued by the Company at the adjusted Exchange Ratio of 3.8225:1 Consideration Shares for each Target Share on the Exchange Date, which number of Consideration Shares represents:
(a) approximately 34.62% and 22.34% of the total Domestic Shares in issue and the total Shares in issue, respectively, as at the Latest Practicable Date; and
(b) approximately 25.72% and 18.26% of the total A Shares then in issue and the total Shares in issue, respectively, as enlarged by the issue of the Consideration Shares.
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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

6.4.3 Precedent cases analysis

With regard to the above proposal, we have conducted an analysis through identifying H share companies listed on the Main Board of the Stock Exchange that had executed a proposal relating to the listing of A shares on the Shanghai Stock Exchange or the Shenzhen Stock Exchange and a merger of a target company by “similar share swap transactions” up to and including the Last Trading Day. We have identified all 6 companies which have announced since 2006 and have sought to merge companies in which it holds shares and are listed on a stock exchange in the PRC through the issue of new shares to be listed on a stock exchange in the PRC (the “ Precedent Cases ”), which we consider an exhaustive list of relevant companies based on the abovementioned criteria.

Given that there are only 6 precedent cases over the past 12 years, we believe that it is reasonable and relevant to identify all available cases for the information of the Shareholders.

Table 1 – Set out below are the details of the Precedent Cases:

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

									Percentage premium	of the A share issue	price to the net asset	value per share of the	company												%	181.6%			85.7%				85.7%				217.2%				133.0%			33.1%					118.2%			46.7%	(Note 2)
											Net asset value	per share	(Note 1)												RMB	7.27			3.55				3.55				1.51				3.86			4.06					4.17			3.63	(Note 2)
Percentage premium	of the new issue price	per A share of	the target company to	the average closing	price of the H shares	for the 20 consecutive	trading days up to	and including the last	trading day or a date	immediately prior to	the date of the	agreement relating to	the merger												%	8.8%			11.7%				11.7%				32.4%				33.5%			-15.9%					-15.4%			48.4%
				Average closing price	of the H shares for	the 20 consecutive	trading days up to	and including the last	trading day or a date	immediately prior to	the date of the	agreement relating to	the merger												RMB	18.82			5.91				5.91				3.61				6.74			6.42					10.75			4.44
					Percentage premium	of the A share issue	price to the closing	price per H share on	the last trading day or	a date immediately	prior to the date of	the agreement relating	to the merger												%	4.9%			4.8%				4.8%				40.1%				28.4%			-12.9%					-14.9%			51.5%
												The new issue price	per A share												RMB	20.47			6.60				6.60				4.78				9.00			5.40					9.09			5.32
								Closing price per H	share on the last	trading day prior to	the date of the	agreement relating to	the merger												HK$	19.08			6.25				6.25				3.51				7.97			7.08					10.30			4.35
												Name of the	Date of circular Name of the issuer company Stock code target company Key features of the merger proposal	Condition precedent	include, among others,	the approval by the	board and the holders	of the shares of the	company at their	Issue of consideration respective	Seeking a listing of shares by the issuer extraordinary general	the A shares to be company in exchange meeting and the class	issued by the issuer for the shares of the Delist and deregister meeting of the H	company target company Offer cash alternative the target company shares		1 12 November 2006 濰柴動力股份有限公司Weichai 2338 湘火炬汽車集團股份有限公 ü ü ü ü ü	Power Co., Ltd. (“Weichai* 司Torch Automobile Group	Power”) Co., Ltd. (“Torch Auto*”)	2a 17 January 2007 中國鋁業股份有限 2600 蘭州鋁業股份有限公司 ü ü ü ü ü	公司Aluminum Corporation of Lanzhou Aluminum Co.,	China Limited (“Chalco”) Limited (“Lanzhou	Aluminium”)	2b 山東鋁業股份有限公司 ü ü ü ü ü	Shandong Aluminum Industry	Co., Limited (“Shangdong*	Aluminium”)	3 2 October 2007 上海電氣集團股份有限公司, 2727 上海輸配電股份有限公司 ü ü ü ü ü	Shanghai Electric Group Shanghai Power Transmission	Company Limited (“Shanghai* and Distribution Company	Electric”) Limited (“Shanghai Power*”)	4 26 August 2010 北京金隅股份有限 2009 河北太行水泥股份有限公司 ü ü ü ü ü	公司BBMG Corporation* Hebei Taihang Cement Co.,	(“BBMG”) Ltd (“Hebei Taihang*”)	5 10 March 2011 中國交通建設股份 1800 路橋集團國際建設股份有限 ü ü ü ü ü	有限公司China Communications 公司Road & Bridge	Construction Company Limited International Co., Ltd.	(“China Communication (“Road & Bridge	Construction”) International”)	6 11 June 2011 廣州汽車集團股份有限公司 2238 廣汽長豐汽車股份有限公司 ü ü ü ü ü	Guangzhou Automobile Group GAC Changfeng Motor Co.,	Co., Ltd. (“Guangzhou Auto”) Ltd. (“GAC Motor”)	The Company 598 Sinoair ü ü ü ü ü		Source: HKEx website/published circulars and/or financial statements of the companies named above	* For the purpose of identification only

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Notes:

This is referring to the latest available and published net asset value attributable to owners of the company per share prior to the last trading day or a date immediately prior to the date of the agreement relating to the merger.
Following the announcement of the proposed listing of A Shares and the Proposed Merger by the Company on 28 February 2018, the Company announced its results for the year ended 31 December 2017 on 26 March 2018. Based on the audited consolidated net asset value attributable to owners of the Company per Share of approximately RMB3.50 as at 31 December 2017, the initial Issue Price of RMB5.32 and the adjusted Issue Price of RMB5.24 will represent a premium of approximately 52.00% and 49.71% respectively to the audited consolidated net asset value attributable to owners of the Company of approximately RMB3.50 per Share as at 31 December 2017.

As shown in Table 1 above, we noted that the key features of the Proposed Merger are the same with the Precedent Cases.

Shareholders should note that all H share companies identified in the Precedent Cases may have different principal activities and financial position as compared with those of the Company. The analysis is meant to be used as a general reference to similar types of transactions.

6.4.4 Analyses of the initial Issue Price, the initial Exchange Price and the initial Cash Alternative

Apart from the key features of the merger proposal, we have considered the initial Issue Price, the initial Exchange Price and the initial Cash Alternative to assess the fairness and reasonableness of the Proposed Merger under the Merger Agreement.

6.4.4.1 The initial Issue Price

To assess the fairness and reasonableness of the initial Issue Price, we have taken into account the following:

(a) The initial Issue Price of RMB5.32 (equivalent to approximately HK$6.59) per Consideration Share and the adjusted Issue Price of RMB5.24 (equivalent to approximately HK$6.49) per Consideration Share represent, among others:
a premium of approximately 51.49% and 49.20% respectively over the closing price of the H Shares of HK$4.35 per H Share as quoted on the Hong Kong Stock Exchange on the Last Trading Day;
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a premium of approximately 48.42% and 46.17% respectively over the average closing price of the H Shares for the 20 consecutive trading days up to and including Last Trading Day of approximately HK$4.44 per H Share as quoted on the Hong Kong Stock Exchange; and
a premium of approximately 52.00% and 49.71% respectively to the audited consolidated net asset value attributable to owners of the Company of approximately RMB 3.50 per Share as at 31 December 2017
(b) The historical H Shares price performance

We have reviewed the closing price of H Shares from 28 February 2017 (being the 12 months period prior to the entering of the Merger Agreement on 28 February 2018) up to and including the Last Trading Day (the “ Review Period ”). The chart below illustrates the daily closing price per H Share for the Review Period.

Chart 1

==> picture [355 x 258] intentionally omitted <==

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

H Shares
HK$ Historical Price Performance and Trading Volume of the Company Traded
6 160000000
1 40000000
5
1 20000000
4
1 00000000
3 8 0000000
6 0000000
2
4 0000000
1
20000000
0 0
Volume Close
The Last Trading Day
28/2/2017 9/3/2017 21/3/2017 31/3/2017 13/4/2017 27/4/2017 11/5/2017 23/5/2017 5/6/2017 15/6/2017 27/6/2017 7/7/2017 19/7/2017 31/7/2017 10/8/2017 22/8/2017 1/9/2017 13/9/2017 25/9/2017 9/10/2017 19/10/2017 31/10/2017 10/11/2017 22/11/2017 4/12/2017 14/12/2017 28/12/2017 10/1/2018 22/1/2018 1/2/2018 13/2/2018 27/2/2018
----- End of picture text -----

Source: HKEx Website

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

During the Review Period, the H Shares have been traded in a steadily rising trend between HK$3.41 (the lowest closing pice per share recorded on 4 May 2017) and HK$4.75 (the highest closing price per share recorded on 31 January 2018). During the same period under review, the average trading volume was approximately 15,502,945 H Shares, with May 2017 was particularly higher than the average monthly trading volume when there were a total of 143,908,936 H Shares traded on 31 May 2017, representing approximately 6.7% of the total number of H Shares in issue. We have reviewed the announcements and/or circulars issued by the Company during May and June 2017 as well as discussed with the Sinotrans Management, the Sinotrans Management was not aware of any reasons for the sudden increase in trading volume on that particular day.

(c) Precedent Cases analysis

Among the 6 Precedent Cases mentioned above, we have also conducted an analysis of the percentage premium of the A share issue price to (i) the closing price per H share on the last trading day or a date prior to the date of the agreement relating to the merger; (ii) the average closing price per H share for the 20 consecutive days up to and including the last trading day or a date prior to the date of the agreement relating to the merger, and (iii) the latest available (but up to the last trading day or a date prior to the date of the agreement relating to the merger) and published net asset value of the H share company.

As shown in Table 1 above, among the Precedent Cases, the A shares issue price represented (i) a discount to/premium over the H shares traded on the last trading day in the range of approximately -14.9% to 40.1%; (ii) a discount to/premium over the H shares traded on the 20 consecutive days up to and including the last trading day in the range of approximately -15.4% to 33.5%; and (iii) a premium to the latest available (but up to the last trading day or a date prior to the date of the agreement relating to the merger) and published net asset value of the H share company in the range of approximately 33.3% to 217.2% respectively.

In the case of the Proposed Merger, we noted that the initial Issue Price and the adjusted Issue Price represent:

(i) a premium over the H Shares traded on the Last Trading Day of approximately 51.5% and 49.2% respectively; and
(ii) a premium over the average closing price of the H Shares traded for the 20 consecutive days up to and including the Last Trading Day of approximately 48.4% and 46.2% respectively;
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which are above the high-end of the range of the Precedent Cases, and

(iii) a premium to the latest available (but up to the Last Trading Day) and published net asset value of the Company of approximately 46.7% which falls within the range of the Precedent Cases.

Following the issue of the results announcement of the Company for the year ended 31 December 2017 on 26 March 2018, the initial Issue Price and the adjusted Issue Price represent a premium of approximately 52.0% and 49.7% respectively to the net asset value attributable to the owners of the Company as at 31 December 2017 of approximately RMB3.50 per Share and also fall within the range of the Precedent Cases.

Taking into account the above, we are of the view the initial Issue Price and the adjusted Issue Price are fair and reasonable.

(d) A shares are trading at a premium to the H shares

As mentioned above, the initial Issue Price represents a premium to the historical share price performance of the H Shares. When considering whether the initial Issue Price is fair and reasonable, we have tried to identify dual listed companies engaged principally in the logistics services whose shares are traded on both the Main Board of Hong Kong Stock Exchange and domestic exchanges in the PRC, but no comparable has been identified. Hence, we consider using the transportation industry, which is a wider segment and the logistic service providers may use their services, as the reasonable and appropriate segment for comparison purpose. We, therefore, have conducted a comparable analysis through identifying the historical premium of the A share trading price over the H share trading price of 13 dual listed transportation companies whose shares are traded on both the Main Board of Hong Kong Stock Exchange and domestic exchanges in the PRC (“ Trading Price Market Comparables ”), which we consider an exhaustive list of relevant companies based on the abovementioned criteria.

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Table 2 – Set out below are the Trading Price Market Comparables:

									Percentage
									premium of the
									average closing
						Average closing	Average closing		price per A
					Percentage	price per H	price per A		share over the
					premium of the	share for the	share for the		H share for the
					closing price	20 consecutive	20 consecutive		20 consecutive
					per A share	trading days	trading days		trading days
	H shares		Closing price	Closing price	over the	up to and		up to and	up to and
	stock code		per H share	per A share	H share on	including		including	including
	(A shares		on the Last	on the Last	the Last	the Last		the Last	the Last
	stock code)	Company name	Trading Day	Trading Day	Trading Day	Trading Day	Trading Day		Trading Day
			HK$(RMB)*	RMB	%	HK$(RMB)*		RMB	%
1.	107 (601107)	Sichuan Expressway Company	2.82 (2.28)	4.07	78.8%	2.87 (2.31)		4.15	79.3%
		Limited
2.	177 (600377)	Jiangsu Expressway Company Limited	12.12 (9.78)	9.95	1.7%	11.86 (9.57)		9.93	3.8%
3.	525 (601333)	Guangshen Railway Company Limited	5.14 (4.15)	4.75	14.5%	5.00 (4.03)		4.84	20.0%
4.	548 (600548)	Shenzhen Expressway Company	7.80(6.30)	8.70	38.2%	7.92 (6.39)		8.85	38.4%
		Limited
5.	670 (600115)	China Eastern Airlines Corporation	6.62 (5.34)	7.99	49.5%	6.53 (5.27)		8.09	53.6%
		Limited
6.	753 (601111)	Air China Ltd.	12.16 (9.81)	14.00	42.6%	11.30 (9.12)		13.17	44.4%
7.	995 (600012)	Anhui Expressway Company Limited	6.20 (5.00)	10.79	115.6%	6.31 (5.09)		10.94	114.8%
8.	1055 (600029)	China Southern Airlines Company	10.38(8.38)	12.08	44.2%	9.79 (7.90)		11.71	48.2%
		Limited
9.	1138 (600026)	COSCO SHIPPING Energy	4.29 (3.46)	5.56	60.6%	4.30 (3.47)		5.91	70.3%
		Transportation Co., Ltd.
10.	1919 (601919)	COSCO SHIPPING Holdings	4.14 (3.34)	6.09	82.3%	4.23 (3.42)		6.57	92.3%
		Co., Ltd.
11.	2866 (601866)	COSCO SHIPPING Development	1.59 (1.28)	3.17	147.0%	1.62 (1.31)		3.30	152.4%
		Co., Ltd.
12,	2880 (601880)	Dalian Port (PDA) Company Limited	1.38 (1.11)	2.57	130.7%	1.39 (1.12)		2.62	134.2%
13.	3369 (601326)	Qinhuangdao Port Co., Ltd.	2.37 (1.91)	5.46	185.4%	2.38 (1.92)		5.63	192.7%
				Maximum	185.4%				192.7%
				Minimum	1.7%				3.8%
				Median	60.6%				70.3%
	598	The Company	HK$4.35	Initial Issue	51.5%	HK$4.44	Initial Issue		48.4%
			(RMB3.51)	Price RMB5.32		(RMB3.58)	Price RMB5.32
				Adjusted Issue	49.3%		Adjusted Issue		46.4%
				Price RMB5.24			Price RMB5.24

“*” – HK$1 = RMB0.80714

Source: HKEx Website

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As shown in the table above, during the same review period of the 20 consecutive days up to and including the Last Trading Day, the A shares of the Trading Price Market Comparables were trading at a premium (i) of approximately 1.7% to 185.4% (median at approximately 60.6%) to the H shares traded on the Last Trading Day; and (ii) of approximately 3.8% to 192.7% (median at approximately 70.3%) to the H shares traded on the 20 consecutive days up to and including the Last Trading Day, which tends to be common for dual listed transportation companies whose shares are traded on both the Main Board of Hong Kong Stock Exchange and domestic exchanges in the PRC.

In the case of the Proposed Merger, the initial Issue Price and the adjusted Issue Price represents a premium of (i) approximately 51.5% and 49.3% respectively to the H Shares traded on the Last Trading Day; and (ii) approximately 48.4% and 46.4% respectively to the H Shares traded on the 20 consecutive days up to and including the Last Trading Day, which all fall within the above range. Taking into account the above, we believe that it is normal and reasonable for the Sinotrans Management to determine the initial Issue Price at a premium to the current trading prices of the H Shares. Notwithstanding that the percentage premium of the initial Issue Price to the closing prices of the H Shares is lower than the median of the percentage premium of the closing prices of the Trading Price Market Comparables, the median serves as a reference for the Company which has no listed A shares on what may regard as acceptable premium to Shareholders and shareholders of Sinoair. Given that (i) there is no direct comparable as mentioned above; (ii) the Trading Price Market Comparables covered a wider segment which carries a wider range of historical premium of the A share trading prices over the H share trading prices, and in turn, a high median in this respect; (iii) the Company is principally engaged in the logistic services, which is a sub-set of the transportation industry, it is reasonable to expect the A Share trading premium may not be as high as the median of the Trading Price Market Comparables; and (iv) the initial Issue Price represents approximately 50% premium over the closing price of the H Shares for the periods set out in Table 2 above would put the Company’s A Shares close to the median in terms of A share trading premium amongst all identified dual listed transportation companies, we are of the view the initial Issue Price and the adjusted Issue Price are fair and reasonable.

(e) A share market comparables

When considering whether the initial Issue Price is fair and reasonable, we have also conducted a comparable analysis through identifying listed transportation companies whose A shares are traded on the domestic exchanges in the PRC, with a market capitalisation as at the Last Trading Day above RMB8.0 billion, the latest audited net profit attributable to owners of the comparable companies during the financial year immediately before the Last Trading Day above RMB200 million and and the latest audited net asset value attributable to owners of the A share comparable companies during the financial

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year immediately before the Last Trading Day above RMB2 billion, we have identified 4 companies for comparison (“ A Share Market Comparables ”), which we considered an exhaustive list of relevant companies based on the abovementioned criteria. The abovementioned selection criteria were determined by reference to the (i) market capitalisation of Sinoair as at the Last Trading Day of approximately RMB16.4 billion; (ii) the latest audited net profit attributable to owners of Sinoair for the year ended 31 December 2016 (which is prior to the Last Trading Day) in the amount of approximately RMB995.3 million; and (iii) the latest audited net asset value attributable to owners of Sinoair as at 31 December 2016 (which is prior to the Last Trading Day) in the amount of approximately RMB7.4 billion.

The following table (“ Table 3 ”) summarises the price to earnings ratio (“ PER ”) and price to net asset value (“ PB ”) of the A Share Market Comparables:

		Stock code on the
	Name of company	PRC stock exchanges	Description of principal business	PER	PB
1	廈門象嶼股份有限公司	600057.SH	Provision of integrated logistics services	22.7x	1.5x
	Xiamen Xiangyu Co.,		including international purchase and
	Ltd.*		distribution, international multimodel transport,
			domestic logistics and financial logistics. It
			also develops and operates logistics platform,
			namely to develop and operate logistics park,
			port terminals, a distribution centre, an
			international shipping centre and a business
			logistics centre.
2	安通控股股份有限公司	600179.SH	Provision of integrated logistics services, focus	61.5x	10.0x
	Antong Holdings Co.,		mainly on shippnig and container logistics
	Ltd. *		services
3	中儲發展股份有限公司	600787.SH	Provision of integrated freight forwarding and	27.8x	2.3x
	CMST Development		logistics services. It also develops and operates
	Co. Ltd.		an information system for businesses, such as
			warehouse and storage, trade and distribution
			and transportation.
4	港中旅華貿國際物流股	603128.SH	Provision of cross-border comprehensive logistics	36.4x	2.3x
	份有限公司CTS		and supply chain trade services. Also provide
	International Logistics		bonded warehouse services, develop supply
	Corporation Limited*		chain integration solutions and satellite
	(“CTS International		navigation and position operation services.
	Logistics”)

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

		Stock code on the
	Name of company	PRC stock exchanges	Description of principal business	PER	PB
			Max	61.5x	10.0x
			Min	22.7x	1.5x
			Median	32.1x	2.3x
5	中外運空運發展股份有	600270.SH	Provision of air freight forwarding. e-commerce
	限公司Sinotrans Air		logistics and professional logistics
	Transportation
	Development		At the closing price of RMB17.28 per Sinoair	15.7x	2.1x
	Corporation Limited*		Last Trading Day and by reference to the
			profit attributable to the shareholders of
			Sinoair for the year ended 31 December 2016,
			the net asset value attributable to owners of
			Sinoair as at 31 December 2016 and the
			numbers of shares of Sinoair then in issue
			At the initial Exchange Price of RMB20.63 per	18.8x	2.5x
			Sinoair Share and by reference to the profit
			attributable to the shareholders of Sinoair for
			the year ended 31 December 2016, the net
			asset value attributable to owners of Sinoair as
			at 31 December 2016 and the numbers of
			shares of Sinoair then in issue
			At the initial Exchange Price of RMB20.63 per	13.8x	2.3x
			Sinoair Share and by reference to the profit
			attributable to the shareholders of Sinoair for
			the year ended 31 December 2017, the net
			asset value attributable to owners of Sinoair as
			at 31 December 2017 and the numbers of
			shares of Sinoair then in issue
			At the adjusted Exchange Price of RMB20.03	13.4x	2.2x
			per Sinoair Share and by reference to the
			profit attributable to the shareholders of
			Sinoair for the year ended 31 December 2017,
			the net asset value attributable to owners of
			Sinoair as at 31 December 2017 and the
			numbers of shares of Sinoair then in issue

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		Stock code on the
	Name of company	PRC stock exchanges	Description of principal business	PER	PB
6	The Company	598.HK	At the closing price of RMB3.51 per H Share on	9.9X	1.0x
			the Last Trading Date and by reference to the
			profit attributable to the Shareholders for the
			year ended 31 December 2016, the net asset
			value attributable to owners of the Company
			as at 30 June 2017 and the numbers of shares
			of the Company then in issue
			At the initial Issue Price of RMB5.32 per A	24.2x	2.5x
			Share and by reference to the profit
			attributable to the Shareholders for the year
			ended 31 December 2016, the net asset value
			attributable to owners of the Company as at
			30 June 2017 and the enlarged numbers of
			issued shares of the Company upon completion
			of the Proposed Merger
			At the initial Issue Price of RMB5.32 per A	17.2x	1.9x
			Share and by reference to the profit
			attributable to the Shareholders for the year
			ended 31 December 2017, the net asset value
			attributable to owners of the Company as at
			31 December 2017 and the enlarged numbers
			of issued shares of the Company upon
			completion of the Proposed Merger
			At the adjusted Issue Price of RMB5.24 per A	16.9x	1.8x
			Share and by reference to the profit
			attributable to the Shareholders for the year
			ended 31 December 2017, the net asset value
			attributable to owners of the Company as at
			31 December 2017 and the enlarged numbers
			of issued shares of the Company upon
			completion of the Proposed Merger

Source: Shanghai Stock Exchange website/ website of various companies and their financial reports

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Notes:

1) Price refers to the closing price of the relevant companies as quoted on the Last Trading Day and the total number of shares in issue according to the companies’ latest published annual or interim report as the case may be. Earnings refer to the net profit as per the latest published audited annual report of the relevant companies available on the Last Trading Day.
2) Net asset value refers to net assets as per the respective companies’ latest published annual or interim report as the case may be.
3) According to the Sinotrans Management, net asset value per H Share and net asset value per Sinoair Share are included as a reference to pricing floor and in line with the market practice.

As shown in the table above, the PER of the A Share Market Comparables range from approximately 22.7 times to approximately 61.5 times, with a median of approximately 32.1 times, and the PB of the A Share Market Comparables range from approximately 1.5 times to approximately 10.0 times, with a median of approximately 2.3 times.

Based on the 2016 Annual Report and the 2017 Interim Report (which were the then latest published financial results of the Group prior to the Last Trading Day), profit attributable to owners of the Company for the year ended 31 December 2016 of approximately RMB1,629.5 million, the net asset value attributable to owners of the Company as at 30 June 2017 of approximately RMB16,072.3 million, the enlarged number of issued shares of the Company upon completion of the Proposed Merger and the initial Issue Price of RMB5.32 per A Share, the implied PER and PB of the Company would be approximately 24.2 times and 2.5 times respectively, which fall within the range of PER and PB of the A Share Market Comparables, and the implied PER of the Company are higher than the implied PER of Sinoair and the implied PB of the Company are about the same as the implied PB of Sinoair, which we consider the initial Issue Price as fair and reasonable.

On 26 March 2018, the Company announced its financial results for the year ended 31 December 2017. As described in note 2A of the notes to the consolidated financial statements of the Group for the year ended 31 December 2017 set out in the 2017 Annual Report, both the Company and China Merchants Logistics are controlled by China Merchants before and after the Acquisition, therefore the consolidated financial statements of the Group for the year ended 31 December 2016 are restated as if the Group and China Merchants Logistics had been combined from the date when the combining entities first came under the control of China Merchants, which is 1 January 2016.

For illustration purpose, based on the 2017 Annual Report (which was published after the Last Trading Day), profit attributable to the owners of the Company for the year ended 31 December 2017 of approximately RMB2,301.2

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million, the net asset value attributable to owners of the Company as at 31 December 2017 of approximately RMB21,167.9 million, the enlarged number of issued shares of the Company upon completion of the Proposed Merger and the initial Issue Price of RMB5.32 per A Share and the adjusted Issue Price of RMB5.24 per A Share, the implied PER and PB of the Company would be approximately 17.2 times and 16.9 times respectively and 1.9 times and 1.8 times respectively, which is lower than the lower end of the range of PER of the A Share Market Comparables and fall within the range of the PB of the A Share Market Comparables. Notwithstanding that the implied PER of the Company based on the financial results ended 31 December 2017 is lower than the lower end of the range of PER of the A Share Market Comparables, we have taken into account that the implied PER and PB of the Company upon completion of the Proposed Merger are higher than the current PER and PB of the Company, the implied PER of the Company upon completion of the Proposed Merger is slightly higher than the current PER of Sinoair, the implied PB of the Company upon completion of the Proposed Merger falls within the range of PB of the A Share Market Comparbles and is about the PB of Sinoair, we consider the initial Issue Price and the adjusted Issue Price as fair and reasonable.

(f) Section conclusion

Taking into account that:

(i) the percentage premium of the initial Issue Price or the adjusted Issue Price to the closing prices of the H Shares are above the highend of the range of the Precedent Cases (as set out in paragraph 6.4.4.1 (c));
(ii) the percentage premium of the initial Issue Price or the adjusted Issue Price to the net asset value of the Company fall within the range of the Precedent Cases (as set out in paragraph 6.4.4.1 (c));
(iii) it is normal and reasonable to determine the initial Issue Price at a premium to the trading prices of the H shares (as set out in paragraph 6.4.4.1 (d));
(iv) the premium of the initial Issue Price and the adjusted Issue Price to the closing prices of the H Shares fall within the range of the Trading Price Market Comparables (as set out in paragraph 6.4.4.1 (d));
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(v) the implied PER and PB of the Company calculated by reference to the financial results set out in the 2016 Annual Report and the 2017 Interim Report (both were the then latest available and published financial results of the Group prior to the Last Trading Day) and upon completion fo the Proposed Merger fall within the range of the PER and PB of the A Share Market Comparables, and the implied PER of the Company are higher than the implied PER of Sinoair and the implied PB of the Company are about the same as the implied PB of Sinoair (as set out in paragraph 6.4.4.1 (e)); and
(vi) notwithstanding that the implied PER of the Company, based on the financial results set out in the 2017 Annual Report is lower than the lower end of the range of PER of the A Share Market Comparables, the implied PER and PB of the Company upon completion of the Proposed Merger are higher than the current PER and PB of the Company, the implied PER of the Company upon completion of the Proposed Merger is slightly higher than the current PER of Sinoair, the implied PB of the Company upon completion of the Proposed Merger falls within the range of PB of the A Share Market Comparbles and is about the PB of Sinoair (as set out in paragraph 6.4.4.1 (e)),

we consider the initial Issue Price and the adjusted Issue Price as fair and reasonable.

6.4.4.2 The initial Exchange Price

To assess the fairness and reasonableness of the initial Exchange Price, we have taken into account the following:

The initial Exchange Price of RMB20.63 per Target Share is determined based on the VWAP per Sinoair Share for the 20 consecutive trading days up to and including the Sinoair Last Trading Day of RMB16.91 as quoted on the Shanghai Stock Exchange plus a premium of 22% which premium was determined by reference to the level of premium implied in similar share swap transactions carried out by companies listed on the Hong Kong Stock Exchange over the past decade.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(a) The historical Sinoair Shares trading volume

Set out in the table (“ Table 4 ”) below are the monthly trading volumes of the Sinoair Shares and the percentages of such monthly trading volumes to the issued share capital of Sinoair during the Review Period as mentioned above.

		Percentage of the
		monthly trading
		volume of the
		Sinoair Shares to
		the registered,
	Total monthly	issued and fully	% of the
	trading volume	paid Sinoair	public
	of the Sinoair	Shares	float
Month	Shares	(Note 1)	(Note2)
2017
28 February	102,486,934	11.3%	29.0%
March	160,440,337	17.7%	45.4%
April	206,379,614	22.8%	58.4%
May	77,308,736	8.5%	21.9%
June	153,576,634	17.0%	43.4%
July	174,292,079	19.2%	49.3%
August	242,795,845	26.8%	68.7%
September	147,321,188	16.3%	41.7%
October	200,303,905	22.1%	56.6%
November	190,165,952	21.0%	53.8%
December (up to	68,388,450	7.6%	19.3%
the Sinoair Last
Trading Day)
2018
January	Trading
	suspended
February (up to the	Trading
Last Trading Day)	suspended
Maximum	242,795,845	26.8%	68.7%
Minimum	68,388,450	7.6%	19.3%
Average	156,678,152	17.3%	44.3%

Source: Shanghai Stock Exchange website

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Notes:

(1) The calculation is based on the monthly trading volume of the Sinoair Shares divided by 905,481,720 Sinoair Shares, being the total number of registered, issued and fully paid Sinoair Shares, as at the relevant month.
(2) The calculation is based on the monthly trading volume of the Sinoair Shares divided by 353,600,322 Sinoair Shares, being the total number of registered, issued and fully paid Sinoair Shares held by the shareholders of Sinoair other than the Company (i.e. the public shareholders of Sinoair) at the relevant month.

During the Review Period, the monthly trading volume of the Sinoair Shares ranged between approximately 68,388,450 Sinoair Shares and 242,795,845 Sinoair Shares, with an average of approximately 156,678,152 Sinoair Shares. The percentage of public Sinoair Shares traded during the Review Period ranged from approximately 7.6% to approximately 26.8%, with an average of approximately 17.3%. Notwithstanding that trading in Sinoair Shares was suspended in January and February 2018 (up to the Last Trading Day) and the trading volume of Sinoair Shares for December 2017 was the lowest during the Review Period, the above Table 4 illustrates that trading in the Sinoair Shares was active during the Review Period. In view of the above, we consider the historical Sinoair Share prices to be a fair and reasonable reference for the Issue Price, the Exchange Price and the Cash Alternative.

(b) The historical Sinoair Shares prices

The closing price performance of the Sinoair Shares was further analysed by the comparison with the stock market trend during the Review Period. Sinoair is one of the constituents of the Shanghai Stock Exchange Composite Index (“ SSE Composite Index ”). We consider the SSE Composite Index to be an appropriate benchmark for the performance of share prices of Sinoair since SSE Composite Index is a market capitalisation weighted index of companies that are listed on the Shanghai Stock Exchange and incorporated in the PRC, as is Sinoair.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The following chart illustracts the closing price performances of Sinoair Shares against SSE Composite Index during the Review Period:

==> picture [408 x 279] intentionally omitted <==

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

SSE Composite
RMB Comparison between Sinoair and SSE Composite Index Performance Index
Trading Suspension 3700
commenced 3600
25
3500
3400
20
3300
3200
15
3100
3000
10 2900
2800
5 2700
Sinoair Cash Alternative
Exchange Price Shanghai Stock Exchange composite index
28/2/2017 8/3/2017 17/3/2017 28/3/2017 10/4/2017 19/4/2017 28/4/2017 10/5/2017 19/5/2017 1/6/2017 12/6/2017 21/6/2017 30/6/2017 11/7/2017 20/7/2017 31/7/2017 9/8/2017 18/8/2017 29/8/2017 7/9/2017 18/9/2017 27/9/2017 13/10/2017 24/10/2017 2/11/2017 13/11/2017 22/11/2017 1/12/2017 12/12/2017 21/12/2017 2/1/2018 11/1/2018 22/1/2018 31/1/2018 9/2/2018 27/2/2018
----- End of picture text -----

Source: Shanghai Stock Exchange website

Though the price performance of the Sinoair Shares has underperformed the SSE Composite Index since mid-August 2017, we noted that the price movement of the Sinoair Shares during the past six months prior to the Sinoair Last Trading Day closely resembled the movement of the SSE Composite Index.

During the period under Review, the Sinoair Shares have been traded within the range of RMB16.48 (the lowest closing price per Sinoair Share recorded on 11 May 2017) and RMB20.28 (the highest closing price per Sinoair Share recorded on 23 August 2017) and had not been traded at or above the initial Exchange Price. We have discussed with the Sinotrans Management and they are not aware of any reasons for the volatility in the share price of Sinoair during the Review Period. In view of the above, we are of the view that historical Sinoair Share prices to be a fair and reasonable reference for the initial Issue Price, the initial Exchange Price and the initial Cash Alternative.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The initial Exchange Price and the adjusted Exchange Price represent:

a premium of approximately 19.39% and 15.91% respectively over the closing price per Sinoair Share of RMB17.28 as quoted on the Shanghai Stock Exchange on the Sinoair Last Trading Day;
a premium of approximately 20.86% and 17.34% respectively over the VWAP of the Sinoair Shares for the five consecutive trading days up to and including the Sinoair Last Trading Day of approximately RMB17.07 per Sinoair Share as quoted on the Shanghai Stock Exchange;
a premium of approximately 20.57% and 17.07% respectively over the VWAP of the Sinoair Shares for the 30 consecutive trading days up to and including the Sinoair Last Trading Day of approximately RMB17.11 per Sinoair Share as quoted on the Shanghai Stock Exchange; and
a premium of approximately 128.5% and 121.82% respectively over the audited consolidated net asset value attributable to owners of Sinoair per Sinoair Share of approximately RMB9.03 as at 31 December 2017.

According to the Sinotrans Management, the 20 trading day VWAP is a benchmark specifically acceptable under relevant PRC regulations. That market price benchmark and the 22.0% premium was determined by reference to the pricing benchmarks used and level of premium implied in similar share swap transactions carried out by companies listed on the Hong Kong Stock Exchange over the past 12 years. By “similar share swap transactions”, the Company referred to all six transactions announced since 2006 by issuers incorporated in the PRC whose shares are listed on the Stock Exchange and which have sought to merge companies in which it holds shares and are listed on a stock exchange in the PRC through the issue of new shares to be listed on a stock exchange in the PRC. Further information regarding the Precedent Cases are set out in Tables 3 and 6 of this letter.

As shown in the Table 6 below, we noted that the initial Exchange Price of RMB20.63 per Sinoair Share, which represents a premium of approximately 22.0% to VWAP of the Sinoair Share on the 20 consecutive days up to and including the Last Trading Day, falls within the range of 7.0% to 31.3% of the Precedent Cases. Taking into account that the 20 trading day VWAP is a benchmark specifically acceptable under relevant PRC regulations and falls within the range of the Precedent Cases, we consider the initial Exchange Price of RMB20.63 as fair and reasonable.

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(d) A Share Market Comparables analysis

As shown in Table 3 relating to the A Share Market Comparable above, the PER of the A Share Market Comparables range from approximately 22.7 times to approximately 61.5 times, with a median of approximately 32.1 times, and the PB of the A Share Market Comparables range from approximately 1.5 times to approximately 10.0 times, with a median of approximately 2.3 times.

Based on the profit attributable to the shareholders of Sinoair for the year ended 31 December 2016, the net asset value attributable to owners of Sinoair as at 31 December 2016, the total number of issued shares of Sinoair and the initial Exchange Price of RMB20.63 per Sinoair Share, the implied PER of Sinoair would be approximately 18.8 times which is below the range of PER of the A Share Market Comparables and the implied PB of Sinoair would be 2.5 times which falls within the range of the PB of the A Share Market Comparables. We also noted from paragraph “(e) A share market comparables” of paragraph “6.4.4.1 The initial Issue Price” above, at the initial Issue Price, the implied PER and PB of the Company would be approximately 24.2 times and 2.5 times respectively, which is above the abovementioned implied PER of Sinoair and about the same as the abovementioned implied PB of Sinoair. On this basis, we are of the view the initial Exchange Price as fair and reasonable, which in turn, derive the initial Exchange Ratio of 3.8778:1 Consideration Shares for 1 Sinoair Share as fair and reasonable so far as the Shareholders are concerned.

Based on the profit attributable to the shareholders of Sinoair for the year ended 31 December 2017, the net asset value attributable to owners of Sinoair as at 31 December 2017, the total number of issued shares of Sinoair and the initial Exchange Price of RMB20.63 per Sinoair Share and the adjusted Exchange Price of RMB20.03 per Sinoair Share, the implied PER of Sinoair would be approximately 13.8 times and 13.4 times respectively which fall below the range of PER of the A Share Market Comparables and the implied PB of Sinoair would be 2.3 times and 2.2 times respectively which fall within the range of the PB of the A Share Market Comparables We also noted from paragraph “(e) A share market comparables” of paragraph “6.4.4.1 The initial Issue Price” above, at the initial Issue Price, the implied PER and PB of the Company would be approximately 17.2 times and 16.9 times respectively and 1.9 times and 1.8 times respectively, which are above the abovementioned implied PER of Sinoair, but slightly lower than the abovementioned implied PB of Sinoair. On this basis, we are of the view the initial Exchange Price and the adjusted Exchange Price are fair and reasonable, which in turn, derive the initial Exchange Ratio of 3.8778:1 Consideration Shares for 1 Sinoair Share and the adjusted Exchange Ratio of 3.8225:1 are fair and reasonable so far as the Shareholders are concerned.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(e) Recent merger and acquisition activities relating to logistics companies on the A share market

Set out in the table below are the merger and acquisition activities relating to logistics companies on the A share market in the PRC occurred in 2015 till the Last Trading Day. We have identified 4 companies (the “ Recent M&A Transactions ”), which we consider an exhaustive list of relevant companies based on the abovementioned criteria.

Set out below is the summary (“ Table 5 ”) of the acquisition PERs of the Recent M&A Transactions:

						Implied
						acquisition	Implied
		Name of the purchaser which				PER under	acquisition
		is a company listed on the				the	PB under the
		Shanghai/Shenzhen			Consideration	consideration	consideration
	Date of circular	Stock Exchange	Stock code	Name of the target company	paid	paid	paid
					RMB million
1	11 December 2015	中遠海運能源運輸股份有限公司	600026.SH And	大連遠洋運輸有限公司Dalian	6,628.5	8.2x	1.1x
	(A shares circular) and	COSCO SHIPPING Energy	1138.HK	Ocean Shipping Co., Ltd.
	22 April 2016 (H shares	Transportation Co., Ltd.
	circular)
2	5 May 2015	黑龙江黑化股份有限公司	600179.SH	泉州安通物流有限公司	3,650.0	14.6x	3.3x
		Heilongjiang Heihua
		Co., Ltd*.
3	25 September 2015	CTS International Logistics	603128.SH	中特物流有限公司	1,200.0	13.3x	4.2x
4	24 October 2015	四川富臨運業集團股份有限公司002357.SZ		成都富臨長運集團	962.0	6.8x	2.6x
				有限公司
					Max	14.6x	4.2x
					Min	6.8x	1.1x
					Median	10.8x	2.9x
	28 February 2018	The Company	598.HK	Sinoair	18,680.6	13.8x	2.3x
					(At the initial
					Exchange Price)
					18,136.8	13.4x	2.2x
					(At the adjusted
					Exchange Price)

Source: Shanghai/Shenzhen Stock Exchange website/website of the various companies and their respective circulars

For identification purpose only

As shown in the table above, we noted that the offers were made at the acquisition PER in the range of approximately 6.8 times to 14.6 times. Based on the profit attributable to the owners of Sinoair for the year ended 31 December 2017, the net asset value of the Sinoair Group as at 31 December 2017, the total

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number of issued shares of Sinoair and the initial Exchange Price of RMB20.63 per A Share and the adjusted Exchange Price of RMB20.03 per A Share, the implied acquisition PER and PB of Sinoair would be approximately 13.8 times and 13.4 times repectively and approximately 2.3 times and 2.2 times respectively which fall within the range of PER and PB of the Recent M&A Transactions. On this basis, we are of the view that the initial Exchange Price and the adjusted Exchange Price are fair and reasonable.

(f) Section conclusion

We have taken into account that (i) the historical Sinoair Share prices to be a fair and reasonable reference for the initial Issue Price, the initial Exchange Price and the Cash Alternative (as set out in paragraph 6.4.4.2 (a)); (ii) the percentage premium of the initial Exchange Price and the adjusted Exchange Price to the closing prices of the Sinoair Shares fall within the range of the Precedent Cases (as set out in paragraph 6.4.4.2 (c)); (iii) based on the initial Exchange Price and by reference to the financial results of Sinoair for the year ended 31 December 2016 (being the latest available financial results of Sinoair prior to the Sinoair Last Trading Day), the implied PER of Sinoair would be below the range of PER of the A Share Market Comparables and the implied PB of Sinoair would fall within the range of PER of the A Share Market Comparables (as set out in paragraph 6.4.4.2 (d)); (iv) based on the initial Exchange Price and the adjusted Exchange Price and by reference to the financial results of Sinoair for the year ended 31 December 2017, the implied PER of Sinoair would fall below the range of the PER of the A Share Market Comparables and the implied PB of Sinoair would fall within the range of the PB of the A Share Market Comparables (as set out in paragraph 6.4.4.2 (d)); and (v) based on the initial Exchange Price and the adjusted Exchange Price and by reference to the financial results of Sinoair for the year ended 31 December 2017, the implied acquisition PER and PB of Sinoair would fall within the range of the PER and PB of the Recent M&A Transactions (as set out in paragraph 6.4.4.2 (e)), we are of the view that the initial and adjusted Issue Price and Exchange Price and hence the resulting Exchange Ratio are fair and reasonable.

6.4.4.3 The initial Cash Alternative

To comply with the relevant requirements of the Shanghai Stock Exchange on the provision of cash alternative to shareholders of a listed company which is the subject of a merger proposal by way of share swap, the Merger Agreement offers Cash Alternative in the amount of initially RMB17.28 (equivalent to approximately HK$21.41 and representing the VWAP per Sinoair Share for the 20 consecutive trading days up to and including the Sinoair Last Trading Day of RMB16.91 as quoted on the Shanghai Stock Exchange plus a premium of 2.19%) per Sinoair Share, subject to adjustment, to Qualifying Dissenting Sinoair Shareholders.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Those Qualifying Dissenting Sinoair Shareholders who have validly elected for the Cash Alternative may sell the Sinoair Shares held by them to the Cash Alternative Provider who will thereafter exchange those Sinoair Shares so purchased for Consideration Shares at the Exchange Ratio. To facilitate this, the Cash Alternative Provider has undertaken to purchase Sinoair Shares from Qualifying Dissenting Sinoair Shareholders and to participate in the Share Exchange as described above.

The initial Cash Alternative of RMB17.28 per Sinoair Share is determined based on the VWAP per Sinoair Share for the 20 consecutive trading days up to and including the Sinoair Last Trading Day of RMB16.91 as quoted on the Shanghai Stock Exchange plus a premium of 2.19% which is comparable to the lower range of premium implied for cash alternatives of the Precedent Cases.

The adjusted Cash Alternative of RMB16.68 per Sinoair Share represents a discount of approximately 1.36% to the VWAP of the Sinoair Shares traded for the 20 consecutive trading days up to and including the Sinoair Last Trading Day of RMB16.91 as quoted on the Shanghai Stock Exchange. This is only a mathematical discount. Shareholders should note that the share prices of Sinoair would have to be adjusted as a result of the dividend when approved by the shareholders of Sinoair. Hence, by adjusting the dividend, being the VWAP of the Sinoair Shares traded for the 20 consecutive trading days up to and including the Sinoair Last Trading Day of RMB16.91 minus RMB0.60, the adjusted price would be RMB16.31; and the adjusted Cash Alternative of RMB16.68 per Sinoair Share would represent about the same premium of 2.2% before the adjustment and comparable to the lower range of premium implied for cash alternatives of the Precedent Cases.

With reference to the 6 Precedent Cases set out in Table 1 above, we have conducted further analysis of the percentage premium of the cash alternative to the VWAP of the A shares traded for the 20 consecutive days up to and including the last trading day.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Set out below (“ Table 6 ”) are the details of the Precedent Cases:

											Percentage
									Percentage		premium of the
									premium of the		cash alternative
									exchange price to		to the VWAP of
							Percentage	VWAP of the A	the VWAP of the		the A shares for
							premium of the	shares for the 20	A shares for the		the 20
							exchange price to	consecutive	20 consecutive		consecutive
						The closing price	the closing price	trading days up	trading days up		trading days up
						per A share on	per A share on	to and including	to and including		to and including
						the last trading	the last trading	the last trading	the last trading		the last trading
						day or a date	day or a date	day or a date	day or a date		day or a date
						immediately prior	immediately prior	immediately prior	immediately prior		immediately prior
						to the date of the	to the date of the	to the date of the	to the date of the		to the date of the
						agreement	agreement	agreement	agreement		agreement
		Name of the		Name of the	The exchange	relating to	relating to	relating to	relating to	The cash	relating to
	Date of circular	issuer company	Stock code	target company	price	the merger	the merger	the merger	the merger	alternative	the merger
					RMB	RMB	%	RMB	%	RMB	%
1	12 November 2006	Weichai Power	2338	Torch Auto	5.80	5.05	14.9%	4.88	18.9%	5.05	3.5%
2a	17 January 2007	Chalco	2600	Lanzhou Aluminum	11.88	9.50	25.1%	9.29	27.9%	9.50	2.3%
2b				Shandong Aluminum	20.81	16.65	25.0%	15.93	30.6%	16.65	4.5%
3	2 October 2007	Shanghai Electric	2727	Shanghai Power	35.00	28.05	24.8%	26.65	31.3%	28.05	5.3%
		Group
4	26 August 2010	BBMG Corporation*	2009	Hebei Taihang	10.80	10.60	1.9%	10.09	7.0%	10.65	5.6%
5	10 March 2011	China Communications	1800	Road & Bridge	14.53	11.94	21.7%	11.81	23.0%	12.31	4.2%
		Construction		International
6	11 June 2011	Guangzhou Auto	2238	GAC Motor	14.55	14.07	3.4%	12.65	15.0%	12.65	0.00%
		The Company	598	Sinoair	20.63	17.28	19.4%	16.91	22.0%	17.28	2.2%

Source: Website of various companies and their respective circulars

As shown in the Table 6 above, we noted that the initial Cash Alternative, which represents a premium of approximately 2.2% over the average closing price per A share for the 20 consecutive days up to and including the Last Trading Day, falls within the range of 0% to 5.6% of the Precedent Cases which is comparable to the lower range of premium implied for cash alternatives of the Precedent Cases. On this basis, we consider the initial Cash Alternative to be fair and reasonable.

6.4.4.4 Section conclusion

Having taken into account the above factors, the Directors consider and we concur that the initial and adjusted Issue Price, Exchange Price, Exchange Ratio and Cash Alternative are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

6.4.5 Conditions Precedent

Completion of the Proposed Merger is conditional upon:

(a) the issue and listing of A Shares, Proposed Merger and the other transactions contemplated under the Merger Agreement having been approved by the Board and the Independent Shareholders at the EGM and the H Shares Class Meeting;
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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(b) the issue and listing of A Shares, Proposed Merger and the other transactions contemplated under the Merger Agreement having been approved by the board of directors of Sinoair and the Independent Sinoair Shareholders at the general meeting of Sinoair;
(c) the issue and listing of A Shares, Proposed Merger and the other transactions contemplated under the Merger Agreement, including the delisting of the Sinoair Shares from the Shanghai Stock Exchange and the listing of the A Shares on the Shanghai Stock Exchange, having been approved by the relevant regulatory authorities, including the Shanghai Stock Exchange, SASAC and CSRC; and
(d) at the time when all of the above conditions are satisfied, there being no laws, regulations, any prohibition or orders from any government authorities or judgements, orders or decisions by any courts which restrict, prohibit or cancel the Proposed Merger and transactions contemplated under the Merger Agreement.

If any of the conditions precedent has not been fulfilled within 24 months after the date of the Merger Agreement, either the Company or Sinoair may terminate the Merger Agreement after such period.

6.4.6 Consideration Shares

As at the Latest Practicable Date, the Company had in issue 3,904,279,644 Domestic Shares and 2,144,887,000 H Shares. As at the Latest Practicable Date, a total of 353,600,322 Sinoair Shares are eligible to participate in the Share Exchange. Assuming the number of such Sinoair Shares remains unchanged from the Latest Practicable Date to the date of completion of the Share Exchange and there is no adjustment to the initial Exchange Price and the initial Issue Price, an aggregate of 1,371,191,329 Consideration Shares is to be issued by the Company to the Participating Shareholders and/or the Cash Alternative Provider on completion of the Share Exchange, which number of Consideration Shares represents:

(a) approximately 35.12% and 22.67% of the total Domestic Shares in issue and the total Shares in issue, respectively, as at the Latest Practicable Date; and
(b) approximately 25.99% and 18.48% of the total A Shares then in issue and the total Shares then in issue, respectively, as enlarged by the issue of the Consideration Shares.
6.4.6.1 Effect of the proposed issue of Consideration Shares on shareholding of the Company

The issue of the Consideration Shares will not result in a change of control of the Company. Details of the shareholding of the Company immediately after issuance of the 1,371,191,329 Consideration Shares at the initial Exchange Ratio or of the 1,351,637,231 Consideration Shares at the adjusted Exchange Ratio are set out in the “Letter from the Board” of the Circular.

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As illustrated in the shareholding structure set out in the “Letter from the Board” of the Circular, assuming (i) there is no other change in the issued share capital and shareholding structure of the Company from the Latest Practicable Date and up to the date of the issuance of the Consideration Shares; and (ii) there are no Qualifying Dissenting Sinoair Shareholders who have validly elected for the Cash Alternative and no Qualifying Dissenting Shareholders, the aggregate shareholding of the existing Shareholders will then be diluted from approximately 100.00% as of the Latest Practicable Date to approximately 81.52% upon the issue and allotment of the Consideration Shares at the initial Exchange Ratio or to approximately 81.74% at the adjusted Exchange Ratio.

Taking into consideration (i) the shareholdings of all Shareholders (i.e. not just the existing public Shareholders) will be diluted proportionally to their respective shareholding upon completion of the Merger Proposal and the listing of A Shares (assuming (aa) there is no other change in the issued share capital and shareholding structure of the Company from the Latest Practicable Date and up to the date of the issuance of the Consideration Shares; and (bb) there are no Qualifying Dissenting Sinoair Shareholders who have validly elected for the Cash Alternative and no Qualifying Dissenting Shareholders); (ii) the proposed issue of Consideration Shares is a mean to facilitate the merger proposal, which is the same approach as the Precedent Cases mentioned above; and (iii) the reasons for and benefits of the merger proposal as described below in this letter, we consider that the issue of the Consideration Shares at the initial Exchange Ratio or at the adjusted Exchange Ratio as fair and reasonable and in the interests of the Company and the Independent Shareholders as a whole. In addition, with the synergistic potential arising from the merger proposal under one single platform outweigh the dilution effect to the existing public Shareholders, we are therefore of the view that the level of dilution is acceptable.

6.5 Reasons for and benefits of the Merger Proposal

As described in the paragraph headed “Reasons for and benefits of the Proposed Merger under the Merger Agreement” of the “Letter from the Board” of the Circular, structurally, the Proposed Merger will result in the elimination of Sinoair as a separate legal entity (and minority shareholders in Sinoair which will either become holders of A Shares or have received the Cash Alternative) so that (i) the assets (including cash and cash equivalents) and liabilities of Sinoair will become those of the Company; and (ii) instead of having a Shanghai Stock Exchange listed subsidiary, the Company will then have two classes of listed Shares in its share capital – the A Shares that are to be listed on the Shanghai Stock Exchange and H Shares that are listed on the Hong Kong Stock Exchange.

It is noted that the Board has considered the following reasons for and benefits of the Merger Proposal:

(1) the Proposed Merger will enhance the Group’s position as a global leading integrated logistics service provider to better meet their clients’ demand;

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(2) being the flagship logistics platform of China Merchants Group and the largest logistics company in China, the Group is well positioned to maintain and capture more market share in the fast growing logistics industry in China, through elimination of potential business competition; and
(3) through the implementation of the Merger Proposal and the listing of the A Shares, the Group may expose to a broader range of financing options as well as greater investor outreach that can help fuel future growth of the Group.

In addition, we noted that the Board has also taken into account that the issue of Consideration Shares will not create substantial pressure on cashflow of the Group. The Sinotrans Management believes that if the Company were to purchase all the Target Shares with cash at the closing price per Sinoair Share on the Sinoair Last Trading Day (i.e. RMB17.28 per Sinoair Share), the maximum consideration payable by the Company for the Target Shares would amount to approximately RMB6.11 billion, representing approximately 96.27% of the Group’s cash and cash equivalents as at 30 June 2017 or approximately 62.93% of the Group’s cash and cash equivalents as at 31 December 2017. Given the size of the consideration, the Sinotrans Management believes and we concur that it would not be commercially practicable for the Company to settle this by its own cash resources or by loans or issuance of debt securities without having a material impact on its liquidity and gearing positions.

Taking into account the above, we are of the view that the implementation of the Proposed Merger and the listing of the A Shares adheres to the Group’s stated business strategy as mentioned in the sub-paragraph headed “Outlook for business development” under the paragraph headed “6.1.2 Historical financial performance of the Group” of this letter above and is in the interests of the Company and the Shareholders as a whole.

6.6 Potential financial effects on the Company

6.6.1 Total assets and total liabilities

Upon the Proposed Merger becoming effective, Sinoair will be delisted and deregistered. Since Sinoair Group is a consolidated subsidiary of the Group prior to the Proposed Merger, the Group accounted for the Proposed Merger, which is to be settled by the issuance of Consideration Shares, as transactions between owners of the Group. Accordingly, no adjustment is expected to be made in respect of the issue of the Consideration Shares; and in turn, the assets and liabilities of the Group are remained at their existing book values.

Based on the pro forma financial information of the Post-merger Group set out in Appendix III to the Circular, (i) the pro forma consolidated total assets of the Group as at 31 December 2017 would decrease by approximately RMB102.0 million (representing approximately 0.02%) from approximately RMB62,101.9 million to approximately RMB61,999.9 million as a result of the deduction of the estimated transaction costs in connection with the Proposed Merger (which may be subject to change); and (ii) the pro forma consolidated total liabilities of the Group as at 31 December 2017 would remain unchanged.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

6.6.2 Cash position

As at 31 December 2017, the Group cash and cash equivalent amounted to approximately RMB9,709.4 million.

As the Proposed Merger will be settled by the issuance of Consideration Shares, the cash position of the Group is not expected to be materially and adversely affected due to the settlement of the costs related to the Proposed Merger, including the legal and professional fees and transaction costs paid and to be paid by the Group in the amount of approximately RMB102.0 million.

6.6.3 Net asset value

As at 31 December 2017, the Group’s the net asset value amounted to approximately RMB21,167.9 million. Based on the pro forma financial information of the Post-merger Group set out in Appendix III to the Circular, the pro forma consolidated net asset value of the Postmerger Group amounted to approximately RMB24,266.1 million.

Shareholders should note that any difference between the face value of the Consideration Shares issued and the non-controlling interest is adjusted in equity attributable to owners of the Company.

Shareholders should also note that the net asset value per Share of the Group after completion of the Proposed Merger will be further diluted as a result of the issuance of the Consideration Shares as shown in the “Letter from the Board” on page 25 of the Circular. Notwithstanding this negative impact, taking into account the reasons for and benefits of the Proposed Merger as well as the business and growth potential of the Group going forward, we consider the immediate negative impact to the Shareholders on a net asset value per Share basis as justifiable and acceptable.

6.6.4 Gearing

As at 31 December 2017, the Group had total assets of approximately RMB62,101.9 million and total liabilities of approximately RMB36,524.9 million. The gearing ratio of the Group, being the total liabilities divided by total assets, was approximately 58.8%.

As the Proposed Merger will be settled by the issuance of Consideration Shares, the gearing of the Group will not be affected.

6.6.5 Working capital

As stated in the paragraph headed “Working capital sufficiency” in Appendix I to the Circular, it is noted that after due and careful consideration, the Directors are of the opinion that, after taking into account the financial resources presently available to the Post-merger

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Group, including the internally generated funds, presently available banking facilities granted to the Post-merger Group, the Post-merger Group has sufficient working capital to satisfy its requirements for at least 12 months from the date of the Circular.

6.6.6 Earnings

Since the Sinoair Group is a consolidated subsidiary of the Group prior to the Proposed Merger, the implementation of the Proposed Merger will not have any material impact to the earnings of the Group.

6.7 Other terms under the Merger Agreement

As described in the paragraph headed “Other terms under the Merger Agreement” of the “Letter from the Board” of the Circular, it is noted that Sinoair will eventually be delisted and deregistered as a legal entity, the assets, liabilities, businesses, contracts, qualifications, staff and all other rights and obligations of Sinoair are to be transferred to/assumed by the Group. As part of this process, the Company and Sinoair will give notice to their respective creditors of the proposed assumption of the relevant debts by the Group. Under the applicable laws and regulations in the PRC, such creditors will be entitled to require early repayment of the relevant debts or seek additional guarantees or security to be provided by the Company, Sinoair or any of their respective designated parties. Accordingly, the Company and Sinoair have engaged with their respective key creditors with a view to agreeing appropriate arrangements in the interests of the Group as a whole.

Given that (i) the holders of domestic bonds and all financial creditors of the Company gave consent to the merger proposal; (ii) the remaining creditors of the Company and/or Sinoair are generally trade creditors and creditors of subsidiaries of the Company (other than Sinoair) who are not entitled to require early repayment or additional guarantees or security; and (iii) the cash and cash equivalents available to the Group as at 31 December 2017, the Board is confident that the Group would not have any material difficulty in discharging any payment obligations to creditors if and to the extent required.

7. RECOMMENDATION

Having considered the above factors, we are of the view that the Merger Agreement was entered on normal commercial terms albeit not in the ordinary and usual course of business; and that the Merger Agreement is fair and reasonable and in the interests of the Company and the Shareholders as a whole. Accordingly, we would recommend the Independent Shareholders, as well as the Independent Board

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Committee to advise the Independent Shareholders, to vote in favour of the relevant resolution(s) to be proposed at the EGM and the H Shareholders class meeting to approve the Merger Agreement and the transactions contemplated thereunder.

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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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

1. FINANCIAL INFORMATION OF THE GROUP

Details of the financial information of the Group for each of the three years ended 31 December 2015, 2016 and 2017 are disclosed in the annual reports of the Company for the years ended 31 December 2015, 2016 and 2017, respectively, which have been published and available on the website of the Hong Kong Stock Exchange (www.hkex.com.hk) and the website of the Company (www.sinotrans.com):

The 2015 annual report of the Company for the year ended 31 December 2015 which is published on 13 April 2016 (available on: http://www.hkexnews.hk/listedco/listconews/SEHK/ 2016/0413/LTN20160413346.pdf), please refer to pages 59 to 160 in particular.
The 2016 annual report of the Company for the year ended 31 December 2016 which is published on 5 April 2017 (available on: http://www.hkexnews.hk/listedco/listconews/SEHK/ 2017/0405/LTN201704051189.pdf), please refer to pages 89 to 188 in particular.
The 2017 annual report of the Company for the year ended 31 December 2017 which is published on 12 April 2018 (available on: http://www.hkexnews.hk/listedco/listconews/SEHK/ 2018/0412/LTN20180412623.pdf), please refer to pages 73 to 184 in particular.

The said financial statements are hereby incorporated by reference in, and form an integral part of, this circular.

2. INDEBTEDNESS

The Group

At the close of business on 28 February 2018, being the latest practicable date for the purpose of ascertaining the indebtedness of the Group prior to the printing of this circular. The Group had outstanding indebtedness as followings:

Bank borrowings:

(a) Bank borrowings of RMB1,936,307,241, which were guaranteed by the Group or related parties of the Group and secured.
(b) Bank borrowings of RMB2,971,391,575, which were guaranteed by the Group or related parties of the Group and unsecured.
(c) Bank borrowing of RMB32,036,465, which were secured by property and land use rights owned by the Group and unguaranteed.
(d) Bank borrowings of RMB2,115,056,451, which were unsecured and unguaranteed.
I-1 -

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Borrowings from related parties:

Borrowings of RMB4,677,983,212 from related parties, which were unsecured and unguaranteed.

Corporate bonds:

Corporate bonds of RMB3,500,000,000, which were unsecured and unguaranteed.

Finance Lease Obligation:

Financial leasing obligation of RMB60,690, which were secured by the leased assets and unguaranteed.

Contingent liabilities:

As at the close of business on 28 February 2018, being the latest practicable date for the purpose of this indebtedness statement, the Group had:

(a) The Group had corporate guarantees of RMB35,490,681, outstanding provided to a bank and a shareholder of a joint venture in respect of bank loan obligations of joint ventures of the Group.
(b) The Group had outstanding bank borrowings of RMB50,438,179, outstanding provided to two third parties in respect of finance lease obligation of a joint venture of the Company.
(c) The Group has been named in a number of lawsuits arising from the ordinary course of business. Where the management cannot reasonably estimate the outcome of the lawsuits or believe the probability of loss is remote, no provision has been made. The maximum exposure of such lawsuits of the Group amounted to approximately RMB46,900,125.

Save as disclosed above and apart from intra-group liabilities, the Group did not have any loan capital issued and outstanding or authorised or otherwise created but unissued, bank overdrafts or other similar indebtedness, liabilities under acceptances (other than normal trade bills), acceptance credits, debentures, mortgages, charges, hire purchase commitments, and other material contingent liabilities at the close of business on 28 February 2018.

3. WORKING CAPITAL

After due and careful consideration, the Directors are of the opinion that, after taking into account the financial resources presently available to the Post-merger Group, including the internally generated funds, presently available banking facilities granted to the Post-merger Group, the Post-merger Group has sufficient working capital to satisfy its requirements for at least 12 months from the date of publication of this circular.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

4. FINANCIAL AND TRADING PROSPECT OF THE POST-MERGER GROUP

The international monetary fund has announced upwards adjustments of its forecasts for growth in the world economy in 2018 and 2019, taking into account China’s steady growth as its main driver and the United States continued growth for that period. These growth prospects are nevertheless subject to risks arising from changes in trade policies, any sudden deterioration in financial markets or geopolitical developments. Nevertheless, the general improvement in macro economic conditions can create a favourable environment for the Group to plan for managing such risks.

Following the Proposed Merger, the Group will continue to work on its transition into an integrator of comprehensive logistics services towards becoming a leading intelligent logistics platform enterprise in the world. It aims towards delivering material improvement in its operational performance, while managing costs and expenses, efficiency and risks, by making special effort on development, creativity, reform and client experience. In particular, the Post-merger Group will focus on developing areas of synergies and integration across its three major business sectors, namely, freight-forwarding and related business, e- commerce logistics business and logistics services business. Not only will the Post-merger Group seek to create more value to its customers by enhancing the quality and efficiencies of its services and operations, it will also continue to refine its capabilities in offering differentiated logistics services to meet the needs of its customers. In addition, the Post-merger Group will continue to look for appropriate opportunities in the domestic and overseas logistics industry to expand its business operation and broaden its service network by mergers and acquisitions, which can ultimately enhance value for its Shareholders as a whole.

Internally, the Post-merger Group will also work on appropriate reorganisation and integration to achieve more comprehensive geographical coverage of its services network, optimize its organisational and management structure and capabilities, promote digitalization, innovation and commercialization, to achieve the overall strengthening of its human resources, operational management, risk and safety management capabilities.

I-3 -

APPENDIX II

ACCOUNTANTS’ REPORT ON THE SINOAIR GROUP

The following is the text of the independent reporting accountants’ accountants’ report received from Deloitte Touche Tohmatsu, Certified Public Accountants, Hong Kong, the reporting accountants of the Company, in respect of the Sinoair Group prepared for the purpose of incorporation in this circular.

ACCOUNTANTS’ REPORT ON HISTORICAL FINANCIAL INFORMATION OF SINOTRANS AIR TRANSPORTATION DEVELOPMENT CO., LTD AND ITS SUBSIDIARIES TO THE DIRECTORS OF SINOTRANS LIMITED

Introduction

We report on the historical financial information of Sinotrans Air Transportation Development Co., Ltd. (the “ Target Company ”) and its subsidiaries (together, the “ Target Group ”) set out on pages II-3 to II-79, which comprises the consolidated statements of financial position of the Target Group as at 31 December 2015, 31 December 2016 and 31 December 2017 and the consolidated statements of profit or loss, the consolidated statements of profit or loss and other comprehensive income, the consolidated statements of changes in equity and the consolidated statements of cash flows of the Target Group for each of the three years ended 31 December 2017 (the “ Relevant Periods ”) and a summary of significant accounting policies and other explanatory information (together, the “Historical Financial Information”). The Historical Financial Information set out on pages II-3 to II-79 forms an integral part of this report, which has been prepared for inclusion in the circular of Sinotrans Limited (the “ Company ”) dated 18 April 2018 (the “ Circular ”) in connection with the proposed merger of the Company and the Target Company.

Directors’ responsibility for the Historical Financial Information

The directors of the Target Company are responsible for the preparation of Historical Financial Information that gives a true and fair view in accordance with the basis of preparation set out in Note 2 to the Historical Financial Information, and for such internal control as the directors of the Target Company determine is necessary to enable the preparation of Historical Financial Information that is free from material misstatement, whether due to fraud or error.

The directors of the Company are responsible for the contents of this Circular in which the Historical Financial Information of the Target Group is included, and such information is prepared based on accounting policies materially consistent with those of the Company.

Reporting accountants’ responsibility

Our responsibility is to express an opinion on the Historical Financial Information and to report our opinion to you. We conducted our work in accordance with Hong Kong Standard on Investment Circular Reporting Engagements 200 “Accountants’ Reports on Historical Financial Information in Investment Circulars” issued by the Hong Kong Institute of Certified Public Accountants (“ HKICPA ”). This standard requires that we comply with ethical standards and plan and perform our work to obtain reasonable assurance about whether the Historical Financial Information is free from material misstatement.

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ACCOUNTANTS’ REPORT ON THE SINOAIR GROUP

APPENDIX II

Our work involved performing procedures to obtain evidence about the amounts and disclosures in the Historical Financial Information. The procedures selected depend on the reporting accountants’ judgement, including the assessment of risks of material misstatement of the Historical Financial Information, whether due to fraud or error. In making those risk assessments, the reporting accountants consider internal control relevant to the entity’s preparation of Historical Financial Information that gives a true and fair view in accordance with the basis of preparation set out in Note 2 to the Historical Financial Information in order to design procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Our work also included evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors of the Target Company, as well as evaluating the overall presentation of the Historical Financial Information.

We believe that the evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Opinion

In our opinion the Historical Financial Information gives, for the purposes of the accountants’ report, a true and fair view of the Target Group’s financial position as at 31 December 2015, 31 December 2016 and 31 December 2017 and of the Target Group’s financial performance and cash flows for the Relevant Periods in accordance with the basis of preparation set out in Note 2 to the Historical Financial Information.

Report on matters under the Rules Governing the Listing of Securities on the Stock Exchange and the Companies (Winding Up and Miscellaneous Provisions) Ordinance

Adjustments

The Historical Financial Information is stated after making such adjustments to the Historical Financial Statements as defined on page II-3 as were considered necessary.

Dividends

We refer to note 13 to the Historical Financial Information which contains information about the dividends paid by the Target Company in respect of the Relevant Periods.

Deloitte Touche Tohmatsu

Certified Public Accountants Hong Kong 18 April 2018

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ACCOUNTANTS’ REPORT ON THE SINOAIR GROUP

APPENDIX II

HISTORICAL FINANCIAL INFORMATION OF THE TARGET GROUP

Preparation of Historical Financial Information

Set out below is the Historical Financial Information which forms an integral part of this accountants’ report.

The Historical Financial Information in this report was prepared based on previously issued financial statements of the Target Group for the Relevant Periods. The previously issued financial statements have been prepared in accordance with the accounting policies which conform with China Accounting Standards for Business Enterprises issued by the Ministry of Finance in the People’s Republic of China and were audited by Deloitte Touche Tohmatsu Certified Public Accountants LLP in accordance with China Standards on Auditing (“ CSA ”) issued by The Chinese Institute of Certified Public Accountants (“ Historical Financial Statements ”).

Historical Financial Information is presented in Renminbi and all values are rounded to the nearest thousand (RMB’000) except when otherwise indicated.

II-3 -

ACCOUNTANTS’ REPORT ON THE SINOAIR GROUP

APPENDIX II

CONSOLIDATED STATEMENTS OF PROFIT OR LOSS

Notes Revenue 6 Other income Tax and other surcharges Transportation and related charges Staff costs 8 Depreciation and amortisation Office and other expenses Other gains and losses, net 9 Other operating expenses Operating profit 10 Interest income 11 Finance costs 11 Share of profit of joint ventures 20 Share of (loss)/profit of associates 21 Profit before income tax Income tax expense 12 Profit for the year Profit attributable to – Owners of the Company – Non-controlling interests Earnings per share, basic (RMB) 14	2015 RMB’000 4,284,027 32,729 (16,892) (3,720,658) (395,145) (55,750) (58,883) 78,625 (63,538) 84,515 44,066 (2,983) 125,598 885,641 (847) 1,010,392 (496) 1,009,896 1,010,291 (395) 1,009,896 1.1157	2016 RMB’000 4,846,786 39,658 (19,016) (4,305,567) (409,956) (62,264) (58,871) 261,495 (79,289) 212,976 45,009 (4,745) 253,240 766,648 4,329 1,024,217 (29,670) 994,547 995,252 (705) 994,547 1.0991	2017 RMB’000 6,174,789 32,998 (22,268) (5,477,129) (461,061) (64,457) (61,236) 508,598 (93,754) 536,480 68,738 (17,690) 587,528 890,138 3,647 1,481,313 (128,307) 1,353,006 1,352,969 37 1,353,006 1.4942

II-4 -

ACCOUNTANTS’ REPORT ON THE SINOAIR GROUP

APPENDIX II

CONSOLIDATED STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

	2015	2016	2017
	RMB’000	RMB’000	RMB’000
Profit for the year	1,009,896	994,547	1,353,006
Other comprehensive income/(expense)
Items that may be reclassified subsequently to profit or
loss:
Fair value gains/(losses) on available-for-sale financial
assets
– Gains/(losses) arising during the year	235,016	(167,947)	422,640
– Reclassification adjustments to profit
or loss during the year upon disposals	(79,878)	(315,880)	(605,458)
Currency translation differences	1,572	7,344	(10,338)
Income tax relating to items that may be reclassified
subsequently	(45,133)	78,496	43,788
Other comprehensive income/(expense) for the year,
net of income tax	111,577	(397,987)	(149,368)
Total comprehensive income for the year	1,121,473	596,560	1,203,638
Total comprehensive income attributable to
– Owners of the Company	1,121,868	597,265	1,203,601
– Non-controlling interests	(395)	(705)	37
	1,121,473	596,560	1,203,638

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ACCOUNTANTS’ REPORT ON THE SINOAIR GROUP

APPENDIX II

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

Notes ASSETS Non-current assets Land use rights 15 Prepayments for acquisitions of land use rights 16 Property, plant and equipment 17 Investment properties 18 Intangible assets 19 Investments in joint ventures 20 Investments in associates 21 Deferred income tax assets 12 Available-for-sale financial assets 22 Other non-current assets Current assets Prepayments and other current assets 23 Inventories Trade and other receivables 24 Restricted cash 25 Term deposits with initial terms of over three months 26 Cash and cash equivalents 27 Total assets EQUITY Equity attributable to owners of the Company Share capital 34 Reserves 35 Non-controlling interests Total equity	2015 RMB’000 418,918 56,304 1,090,666 56,217 8,918 1,382,934 37,312 1,571 1,495,376 23,300 4,571,516 147,557 3,630 997,058 56,494 811,540 1,833,988 3,850,267 8,421,783 905,482 6,374,396 7,279,878 6,200 7,286,078	2016 RMB’000 440,691 41,401 1,203,944 75,109 8,354 1,295,033 46,427 6,000 850,755 26,427 3,994,141 438,609 3,456 1,117,744 14,419 1,157,334 2,119,712 4,851,274 8,845,415 905,482 6,518,920 7,424,402 5,495 7,429,897	2017 RMB’000 455,976 – 1,245,791 175,851 18,075 1,377,868 48,765 12,309 361,195 27,254
			3,723,084
			249,444 11,926 1,177,035 20,108 2,149,527 2,738,864
			6,346,904
			10,069,988
			905,482 7,269,780
			8,175,262 5,532
			8,180,794

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APPENDIX II

ACCOUNTANTS’ REPORT ON THE SINOAIR GROUP

		2015	2016	2017
	Notes	RMB’000	RMB’000	RMB’000
LIABILITIES
Non-current liabilities
Deferred income tax liabilities	12	120,247	66,905	–
Deferred revenue	30	5,000	16,740	32,918
		125,247	83,645	32,918
Current liabilities
Trade payables	31	671,834	843,182	1,169,167
Other payables, accruals and other
current liabilities	32	59,492	58,220	97,389
Receipts in advance from customers	33	112,665	118,483	117,105
Current income tax liabilities		4,695	9,006	69,507
Borrowings	28	43,976	136,242	167,180
Provisions	29	37,304	76,368	130,321
Salary and welfare payables		80,492	90,372	105,607
		1,010,458	1,331,873	1,856,276
Total liabilities		1,135,705	1,415,518	1,889,194
Total equity and liabilities		8,421,783	8,845,415	10,069,988
Net current assets		2,839,809	3,519,401	4,490,628
Total assets less current liabilities		7,411,325	7,513,542	8,213,712

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ACCOUNTANTS’ REPORT ON THE SINOAIR GROUP

APPENDIX II

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

			Attributable	to owners of the Company	to owners of the Company
			Statutory	Investment				Non-
	Share	Capital	surplus	revaluation	Exchange	Retained		controlling	Total
	capital	reserve	reserve	reserve	reserve	earnings	Subtotal	interests	equity
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
			(Note 35)
As at 1 January 2015	905,482	529,428	490,092	578,246	(3,628)	4,022,096	6,521,716	34,863	6,556,579
Profit for the year	–	–	–	–	–	1,010,291	1,010,291	(395)	1,009,896
Other comprehensive income for the
year	–	–	–	110,005	1,572	–	111,577	–	111,577
Total comprehensive income for the
year	–	–	–	110,005	1,572	1,010,291	1,121,868	(395)	1,121,473
Dividends recognised as distribution
(Note 13)	–	–	–	–	–	(362,193)	(362,193)	–	(362,193)
Deemed disposal of subsidiaries	–	–	–	–	–	–	–	(70,368)	(70,368)
Capital injection from non-
controlling interests of subsidiaries	–	–	–	–	–	–	–	42,100	42,100
Acquisition of a subsidiary under
common control	–	15,724	–	–	(13,870)	(3,367)	(1,513)	–	(1,513)
As at 31 December 2015	905,482	545,152	490,092	688,251	(15,926)	4,666,827	7,279,878	6,200	7,286,078

II-8 -

APPENDIX II

ACCOUNTANTS’ REPORT ON THE SINOAIR GROUP

		Attributable to owners of the Company	Attributable to owners of the Company	Attributable to owners of the Company		Total equity RMB’000 7,286,078
Share capital interests RMB’000 905,482 – – – – 905,482	Capital reserve equity RMB’000 545,152 – – – – 545,152	Statutory surplus reserve Investment revaluation reserve Exchange reserve RMB’000 RMB’000 RMB’000 (Note 35) 490,092 688,251 (15,926) – – – – (405,331) 7,344 – (405,331) 7,344 – – – 490,092 282,920 (8,582) Attributable to owners of the Company			Retained earnings RMB’000 4,666,827 995,252 – 995,252 (452,741) 5,209,338
						994,547 (397,987
						596,560
						(452,741
						7,429,897
						Total equity RMB’000 7,429,897
Share capital RMB’000 905,482 – – – – 905,482	Capital reserve RMB’000 545,152 – – – – 545,152	Statutory surplus reserve RMB’000 (Note 35) 490,092 – – – – 490,092	Investment revaluation reserve RMB’000 282,920 – (139,030) (139,030) – 143,890	Exchange reserve RMB’000 (8,582) – (10,338) (10,338) – (18,920)	Retained earnings RMB’000 5,209,338 1,352,969 – 1,352,969 (452,741) 6,109,566
						1,353,006 (149,368
						1,203,638
						(452,741
						8,180,794

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ACCOUNTANTS’ REPORT ON THE SINOAIR GROUP

APPENDIX II

CONSOLIDATED STATEMENTS OF CASH FLOWS

Notes OPERATING ACTIVITIES Cash generated from operations 37 Income tax paid NET CASH FROM/(USED IN) OPERATING ACTIVITIES INVESTING ACTIVITIES Cash paid for capital injection/purchase of joint ventures Cash paid for capital injection/purchase of associates Government grants received for acquisition of non-current assets Net cash outflow from deemed disposal of subsidiaries 36 Proceeds from disposal of a joint venture Proceeds from disposal of available-for-sale financial assets Proceeds from disposal of property, plant and equipment, intangible assets and land use rights Purchase of property, plant and equipment Purchase of intangible assets Purchase of land use rights Purchase of available-for-sale financial assets Purchase of investment properties Purchase of other non-current assets Deposits paid for acquisition of land use rights Deposits paid for acquisition of property, plant and equipment Decrease/(increase) in term deposits with initial terms of over three months Interest income received from term deposits Dividends received from associates Dividends received from joint ventures Dividend income on available-for-sale financial assets Loan guarantee paid for the benefit of a joint venture Loan to a joint venture Refund of deposit paid for acquisition of a subsidiary NET CASH FROM INVESTING ACTIVITIES	2015 RMB’000 66,801 (22,134) 44,667 – (5,990) 7,766 (50,388) – 460,970 2,799 (314,346) (5,709) – (150,000) – (868) (108,563) (10,000) 54,657 42,153 – 798,867 4,741 (19,587) – 30,000 736,502	2016 RMB’000 (34,000) (4,634) (38,634) (8,480) (7,410) 12,145 – – 567,728 2,556 (194,143) (2,161) (14,919) (200,000) – (561) (33,275) (6,710) (345,794) 33,257 2,624 859,009 16,345 – – – 680,211	2017 RMB’000 480,012 (97,232) 382,780 (20,000) (2,000) 16,746 – 2,747 980,356 9,885 (154,524) (12,828) (2,548) – (20,916) (1,569) – – (992,193) 54,758 3,309 811,130 6,880 – (4,800) – 674,433

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APPENDIX II

ACCOUNTANTS’ REPORT ON THE SINOAIR GROUP

	2015	2016	2017
	RMB’000	RMB’000	RMB’000
FINANCING ACTIVITIES
Acquisition of subsidiaries through business
combinations under common control	(7,731)	–	–
New bank borrowings	42,249	85,248	173,156
Repayments of bank borrowings	(38,666)	(45,005)	(81,011)
Advance from Finance Company
(as defined in note 28)	–	51,629	–
Repayments to Finance Company
(as defined in note 28)	–	–	(48,918)
Repayment to a third party	–	(4,544)	–
Interest paid for borrowings	(822)	(1,732)	(2,131)
Dividends paid	(362,193)	(452,741)	(452,741)
Contributions from non-controlling shareholders of
subsidiaries	40,000	–	–
NET CASH USED IN FINANCING ACTIVITIES	(327,163)	(367,145)	(411,645)
Exchange gains on cash and cash equivalents	4,760	11,292	(26,416)
Net increase in cash and cash equivalents	458,766	285,724	619,152
Cash and cash equivalents as at 1 January	1,375,222	1,833,988	2,119,712
CASH AND CASH EQUIVALENTS AT 31
DECEMBER	1,833,988	2,119,712	2,738,864

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ACCOUNTANTS’ REPORT ON THE SINOAIR GROUP

APPENDIX II

NOTES TO THE HISTORICAL FINANCIAL INFORMATION

1. GENERAL INFORMATION OF THE COMPANY

Sinotrans Air Transport Development Co., Ltd. (the “Company”, together with its subsidiaries referred to as the “Group”) is a public limited company incorporated in the People’s Republic of China (“PRC”) and its shares are listed on the Shanghai Stock Exchange. Its parent is Sinotrans Limited and its ultimate parent is China Merchants Group Limited.

The principal activities of the Company and its subsidiaries include freight forwarding, logistics, and other services. The principal place of business and the registered office of the Company is in Area A, Beijing Tian Zhu Economic Development Zone, Shun Yi District, Beijing, the PRC.

The statutory financial statements of the Company for the years ended 31 December 2015, 2016 and 2017 were prepared in accordance with the relevant accounting principles and regulations applicable to enterprises established in the PRC and were audited by Deloitte Touche Tohmatsu Certified Public Accountants LLP, certified public accountants registered in the PRC.

2. BASIS OF PREPARATION OF HISTORICAL FINANCIAL INFORMATION

The Historical Financial Information in this report was prepared in accordance with accounting policies which conform with International Financial Reporting Standards ("IFRSs") issued by the International Accounting Standards Board. In addition, the Historical Financial Information includes applicable disclosures required by the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited and by the Hong Kong Companies Ordinance.

The Historical Financial Information is presented in Renminbi ("RMB") and all values are rounded to the nearest thousand (RMB’000) except when otherwise indicated.

3. APPLICATION OF NEW AND AMENDMENTS TO INTERNATIONAL FINANCIAL REPORTING STANDARDS (“IFRSs”)

For the purpose of preparing and presenting the Historical Financial Information for the Relevant Periods, the Group has consistently applied IFRSs that are effective for the Group's annual accounting period beginning on 1 January 2017 throughout the Relevant Periods.

The Group has not early applied the following new and amendments to IFRSs and interpretations that have been issued but are not yet effective:

IFRS 9 – Financial Instruments[1]
IFRS 15 – Revenue from Contracts with Customers and the related Amendements[1]
IFRS 16 – Leases[2]
IFRS 17 – Insurance Contracts[4]
IFRIC 22 – Foreign Currency Transactions and Advance Consideration[1]
IFRSIC 23 – Uncertainty over Income Tax Treatments[2]
IFRS 2 (Amendments) – Classification and Measurement of Share-based Payment Transactions[1]
IFRS 4 (Amendments) – Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts[1]
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APPENDIX II ACCOUNTANTS’ REPORT ON THE SINOAIR GROUP

IFRS 9 (Amendments) – Prepayment Features with Negative Compensation[2]
IFRS 10 (Amendments), IAS 28 (Amendments) – Sale or Contribution of Assets between an Investor and its Associate or Joint Venture[3]
IAS 19 (Amendments) – Plan Amendment, Curtailment or Settlement[2]
IAS 28 (Amendments) – Long-term Interests in Associates and Joint Ventures[2]
IAS 28 (Amendments) – As part of the Annual Improvements to IFRS Standards 2014-2016 Cycle[1]
IAS 40 (Amendments) – Transfers of Investment Property[1]
Amendments to IFRSs – Annual Improvements to IFRS Standards 2015-2017 Cycle[2]
1 Effective for annual periods beginning on or after 1 January 2018 2 Effective for annual periods beginning on or after 1 January 2019 3 Effective for annual periods beginning on or after a date to be determined
4 Effective for annual periods beginning on or after 1 January 2021

IFRS 9 Financial Instruments

IFRS 9 introduces new requirements for the classification and measurement of financial assets, financial liabilities, general hedge accounting and impairment requirements for financial assets.

Key requirements of IFRS 9 which are relevant to the Group are:

All recognised financial assets that are within the scope of IFRS 9 are required to be subsequently measured at amortised cost or fair value. Specifically, debt investments that are held within a business model whose objective is to collect the contractual cash flows, and that have contractual cash flows that are solely payments of principal and interest on the principal outstanding are generally measured at amortised cost at the end of subsequent accounting periods. Debt instruments that are held within a business model whose objective is achieved both by collecting contractual cash flows and selling financial assets, and that have contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding, are generally measured at fair value through other comprehensive income (“ FVTOCI ”). All other financial assets are measured at their fair values at subsequent accounting periods. In addition, under IFRS 9, entities may make an irrevocable election to present subsequent changes in the fair value of an equity investment (that is not held for trading) in other comprehensive income, with only dividend income generally recognised in profit or loss.
In relation to the impairment of financial assets, IFRS 9 requires an expected credit loss model, as opposed to an incurred credit loss model under IAS 39 Financial Instruments: Recognition and Measurement. The expected credit loss model requires an entity to account for expected credit losses and changes in those expected credit losses at each reporting date to reflect changes in credit risk since initial recognition. In other words, it is no longer necessary for a credit event to have occurred before credit losses are recognised.

Based on the Group’s financial instruments as at 31 December 2017, the directors of the Company (the “Directors”) anticipate the following potential impact on initial application of IFRS 9:

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ACCOUNTANTS’ REPORT ON THE SINOAIR GROUP

APPENDIX II

Classification and measurement

Listed equity securities classified as available-for-sale financial assets carried at fair value as disclosed in note 22: these securities qualified for designation as measured at FVTOCI under IFRS 9, however, the fair value gains or losses accumulated in the investment revaluation reserve as at 1 January 2018 will no longer be subsequently reclassified to profit or loss under IFRS 9, which is different from the current treatment. This will affect the amounts recognised in the Group’s profit or loss and other comprehensive income but will not affect total comprehensive income.

Equity securities classified as available-for-sale financial assets carried at cost less impairment as disclosed in note 22: these securities qualified for designation as measured at FVTOCI under IFRS 9 and the Group will measure these securities at fair value at the end of subsequent reporting periods with fair value gains or losses to be recognised as other comprehensive income and accumulated in the investment revaluation reserve. Upon initial application of IFRS 9, the fair value gain relating to these equity investments would be adjusted to investment revaluation reserve as at 1 January 2018.

All other financial assets and financial liabilities will continue to be measured on the same bases as are currently measured under IAS 39.

Impairment

In general, the Directors anticipate that the application of the expected credit loss model of IFRS 9 will result in earlier provision of credit losses which are not yet incurred in relation to the Group’s financial assets measured at amortised costs and other items that subject to the impairment provisions upon application of IFRS 9 by the Group.

Based on the assessment by the Directors, if the expected credit loss model were to be applied by the Group, the accumulated amount of impairment loss to be recognised by Group as at 1 January 2018 would be slightly increased as compared to the accumulated amount recognised under IAS 39 mainly attributable to expected credit losses provision on trade receivables. Such further impairment recognised under expected credit loss model would reduce the opening retained profits and increase the deferred tax assets at 1 January 2018.

IFRS 15 Revenue from Contracts with Customers

IFRS 15 establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. IFRS 15 will supersede the current revenue recognition guidance including IAS 18 Revenue , IAS 11 Construction Contracts and the related interpretations when it becomes effective.

The core principle of IFRS 15 is that an entity should recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Specifically, the Standard introduces a 5-step approach to revenue recognition:

Step 1: Identify the contract(s) with a customer
Step 2: Identify the performance obligations in the contract
Step 3: Determine the transaction price
Step 4: Allocate the transaction price to the performance obligations in the contract
Step 5: Recognise revenue when (or as) the entity satisfies a performance obligation
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ACCOUNTANTS’ REPORT ON THE SINOAIR GROUP

APPENDIX II

Under IFRS 15, an entity recognises revenue when (or as) a performance obligation is satisfied, i.e. when “control” of the goods or services underlying the particular performance obligation is transferred to the customer. Far more prescriptive guidance has been added in IFRS 15 to deal with specific scenarios. Furthermore, extensive disclosures are required by IFRS 15.

In 2016, the International Accounting Standards Board (“ IASB ”) issued Clarifications to IFRS 15 in relation to the identification of performance obligations, principal versus agent considerations, as well as licensing application guidance.

The Directors has preliminarily assessed the performance obligations in respect of the different types of contracts with customers, in particular, the identification of performance obligations under IFRS 15 for freight forwarding services, and assessment on satisfaction of performance obligation. Currently revenue from freight forwarding service is recognised at a point of time upon rendering of service, while under IFRS 15, revenue from freight forwarding service will be recognised over time. The Directors intends to apply the limited retrospective method with cumulative effect of initial application recognised in opening balance of equity at 1 January 2018, and apply this Standard retrospectively only to contracts that are not completed at 1 January 2018. Based on the current assessment on the existing contracts, the Directors does not anticipate the change resulting from the application of IFRS 15 will have a material impact on the opening balance of equity.

IFRS 16 Leases

IFRS 16 introduces a comprehensive model for the identification of lease arrangements and accounting treatments for both lessors and lessees. IFRS 16 will supersede IAS 17 Leases and the related interpretations when it becomes effective.

IFRS 16 distinguishes lease and service contracts on the basis of whether an identified asset is controlled by a customer. Distinctions of operating leases and finance leases are removed for lessee accounting, and is replaced by a model where a right-of-use asset and a corresponding liability have to be recognised for all leases by lessees, except for short-term leases and leases of low value assets.

The right-of-use asset is initially measured at cost and subsequently measured at cost (subject to certain exceptions) less accumulated depreciation and impairment losses, adjusted for any remeasurement of the lease liability. The lease liability is initially measured at the present value of the lease payments that are not paid at that date. Subsequently, the lease liability is adjusted for interest and lease payments, as well as the impact of lease modifications, amongst others. For the classification of cash flows, the Group currently presents upfront prepaid lease payments as investing cash flows in relation to leasehold lands for owned use while other operating lease payments are presented as operating cash flows. Upon application of IFRS 16, lease payments in relation to lease liability will be allocated into a principal and an interest portion which will be both presented as financing cash flows by the Group.

In contrast to lessee accounting, IFRS 16 substantially carries forward the lessor accounting requirements in IAS 17, and continues to require a lessor to classify a lease either as an operating lease or a finance lease.

Furthermore, extensive disclosures are required by IFRS 16.

As at 31 December 2017, the Group has non-cancellable operating lease commitments of RMB22,531,000 as disclosed in Note 40. A preliminary assessment indicates that these arrangements will meet the definition of a lease. Upon application of IFRS 16, the Group will recognise a right-of-use asset and a corresponding liability in respect to all these leases unless they qualify for low value or short-term lease upon the application of IFRS 16. In addition, the application of new requirements may result changes in measurement, presentation and disclosure as indicated above. However, it is not practicable to provide a reasonable estimate of the financial effect until the Directors complete a detailed review.

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ACCOUNTANTS’ REPORT ON THE SINOAIR GROUP

APPENDIX II

In addition, the Group currently considers refundable rental deposits paid and refundable rental deposits received as rights and obligations under leases to which IAS 17 applies. Based on the definition of lease payments under IFRS 16, such deposits are not payments relating to the right to use the underlying assets, accordingly, the carrying amounts of such deposits may be adjusted to amortised cost and such adjustments are considered as additional lease payments. Adjustments to refundable rental deposits paid would be included in the carrying amount of right-ofuse assets. Adjustments to refundable rental deposits received would be considered as advance lease payments.

Furthermore, the application of new requirements may result in changes in measurement, presentation and disclosure as indicated above.

The Directors anticipate that other new and amendments to IFRSs has no material impact upon application.

4. SIGNIFICANT ACCOUNTING POLICIES

The Historical Financial Information has been prepared in accordance with IFRSs issued by the IASB.

The Historical Financial Information has been prepared under the historical cost basis except for certain financial instruments that are measured at fair value at the end of each reporting period, as explained in the accounting policies set out below.

Historical cost is generally based on the fair value of the consideration given in exchange for goods and services.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or a liability, the Group takes into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date. Fair value for measurement and/or disclosure purposes in Historical Financial Information is determined on such a basis, except for leasing transactions that are within the scope of IAS 17 Leases , and measurements that have some similarities to fair value but are not fair value, such as net realisable value in IAS 2 Inventories or value in use in IAS 36 Impairment of Assets .

In addition, for financial reporting purposes, fair value measurements are categorised into Level 1, 2 or 3 based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are described as follows:

Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date;
Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly; and
Level 3 inputs are unobservable inputs for the asset or liability.

The principal accounting policies are set out below.

Basis of consolidation

The Historical Financial Information incorporates the financial statements of the Company and entities controlled by the company and its subsidiaries. Control is achieved when the Company:

has power over the investee;
is exposed, or has rights, to variable returns from its involvement with the investee; and
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ACCOUNTANTS’ REPORT ON THE SINOAIR GROUP

APPENDIX II

• has the ability to use its power to affect its returns.

The Group reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control listed above.

Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Specifically, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated statement of profit or loss from the date the Group gains control until the date when the Group ceases to control the subsidiary.

Profit or loss and each item of other comprehensive income are attributed to the owners of the Company and to the non-controlling interests. Total comprehensive income of subsidiaries is attributed to the owners of the Company and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance.

Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Group’s accounting policies.

Inter-company transactions, balances and unrealised gains on transactions between group companies are eliminated. Unrealised losses are also eliminated. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.

The Group treats transactions with non-controlling interests that do not result in the Group losing control over the subsidiaries as transactions with equity owners of the Group. For purchases of non-controlling interests, the difference between any consideration paid and the relevant share acquired of the carrying amount of net assets of the subsidiary is recorded in equity. Gains or losses on disposals of non-controlling interests are also recorded in equity.

When the Group ceases to have control, any retained interest in the entity is remeasured to its fair value, with the change in carrying amount recognised in profit or loss. The fair value is the initial carrying amount for the purpose of subsequently accounting for the retained interest as an associate, joint venture or financial asset. When the Group loses control of a subsidiary, a gain or loss is recognised in profit or loss and is calculated as the difference between (i) the aggregate of the fair value of the consideration received and the fair value of any retained interest and (ii) the previous carrying amount of the assets (including goodwill), and liabilities of the subsidiary and any non-controlling interests. In addition, any amounts previously recognised in other comprehensive income in respect of that entity are accounted for as if the Group had directly disposed of the related assets or liabilities. This means that amounts previously recognised in other comprehensive income are reclassified to profit or loss.

Business combinations

The Group uses the acquisition method of accounting to account for business combinations, except for business combination involving entities under common control. The consideration transferred for the acquisition of a subsidiary is the acquisition-date fair values of the assets transferred, the liabilities incurred and the equity interests issued by the Group. The consideration transferred also includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Acquisition-related costs are expensed as incurred.

Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. Non-controlling interests that are present ownership interests and entitle their holders to a proportionate share of the entity’s net assets in the event of liquidation is initially measured at the non-controlling interests’ proportionate share of the recognised amounts of the acquiree’s identifiable net assets.

The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition date fair value of any previous equity interest in the acquiree over the fair value of the identifiable net assets acquired is recorded as goodwill. If this is less than the fair value of the net assets of the subsidiary acquired in the case of a bargain purchase, the difference is recognised directly in profit or loss after re-assessment.

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ACCOUNTANTS’ REPORT ON THE SINOAIR GROUP

APPENDIX II

Business combinations involving entities under common control

The Historical Financial Information incorporates the financial statements items of the combining entities or businesses in which the common control combination occurs as if they had been combined from the date when the combining entities or businesses first came under the control of the controlling party.

The net assets of the combining entities or businesses are consolidated using the existing book values from the controlling party’s perspective. No amount is recognised in respect of goodwill or excess of acquirer’s interest in the net fair value of acquiree’s identifiable assets, liabilities and contingent liabilities over cost at the time of common control combination, to the extent of the continuation of the controlling party’s interest.

The consolidated statements of profit or loss includes the results of each of the combining entities or businesses from the earliest date presented or since the date when the combining entities or businesses first came under the common control, where there is a shorter period, regardless of the date of the common control combination.

Investments in associates and joint ventures

An associate is an entity over which the Group has significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies.

A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the joint arrangement. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require unanimous consent of the parties sharing control.

The results and assets and liabilities of associates and joint ventures are incorporated in Historical Financial Information using the equity method of accounting, except when the investment, or a portion thereof, is classified as held for sale, in which case it is or the portion so classified is accounted for in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations . Any retained portion of an investment in an associate or a joint venture that has not been classified as held for sale is accounted for using the equity method. The financial statements of associates and joint ventures used for equity accounting purposes are prepared using uniform accounting policies as those of the Group for like transactions and events in similar circumstances. Under the equity method, an investment in an associate or a joint venture is initially recognised in the consolidated statements of financial position at cost and adjusted thereafter to recognise the Group’s share of the profit or loss and other comprehensive income of the associate or joint venture. When the Group’s share of losses of an associate or joint venture exceeds the Group’s interest in that associate or joint venture (which includes any long-term interests that, in substance, form part of the Group’s net investment in the associate or joint venture), the Group discontinues recognising its share of further losses. Additional losses are recognised only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the associate or joint venture.

An investment in an associate or a joint venture is accounted for using the equity method from the date on which the investee becomes an associate or a joint venture. On acquisition of the investment in an associate or a joint venture, any excess of the cost of the investment over the Group’s share of the net fair value of the identifiable assets and liabilities of the investee is recognised as goodwill, which is included within the carrying amount of the investment. Any excess of the Group’s share of the net fair value of the identifiable assets and liabilities over the cost of the investment, after reassessment, is recognised immediately in profit or loss in the period in which the investment is acquired.

The requirements of IAS 39 are applied to determine whether the Group’s investment in an associate or a joint venture may be impaired. When necessary, the entire carrying amount of the investment (including goodwill) is tested for impairment in accordance with IAS 36 as a single asset by comparing its recoverable amount (higher of value in use and fair value less costs of disposal) with its carrying amount. Any impairment loss recognised forms part of the carrying amount of the investment. Any reversal of that impairment loss is recognised in accordance with IAS 36 to the extent that the recoverable amount of the investment subsequently increases.

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ACCOUNTANTS’ REPORT ON THE SINOAIR GROUP

APPENDIX II

When the Group ceases to have significant influence over an associate or joint control over a joint venture, it is accounted for as a disposal of the entire interest in the investee with a resulting gain or loss being recognised in profit or loss.

The Group discontinues the use of the equity method from the date when the investment ceases to be an associate or a joint venture, or when the investment (or a portion thereof) is classified as held for sale.

Upon disposal or partial disposal of the Group’s interest in an associate or a joint venture in which the Group lost significant influence or joint control and discontinued the use of equity method, any retained interest that is within the scope of IAS 39 is measured at fair value on that date, the difference between the carrying amount of the associate or joint venture at the date, and the proceeds from disposing of such interest (or partial interest) in the associate or joint venture and the fair value of the retained interest is included in the determination of the gain or loss on disposal of the associate or joint venture. In addition, the Group accounts for all amounts previously recognised in other comprehensive income in relation to that associate or joint venture on the same basis as would be required if that associate or joint venture had directly disposed of the related assets or liabilities. Therefore, if a gain or loss previously recognised in other comprehensive income by that associate or joint venture would be reclassified to profit or loss on the disposal of the related assets or liabilities, the Group reclassifies the gain or loss from equity to profit or loss (as a reclassification adjustment) when the equity method is discontinued.

The Group continues to use the equity method when an investment in an associate becomes an investment in a joint venture or an investment in a joint venture becomes an investment in an associate. There is no remeasurement of the previously held interest or the retained interest to fair value upon such changes in ownership interests.

When the Group reduces its ownership interest in an associate or a joint venture but the Group continues to use the equity method, the Group reclassifies to profit or loss the proportion of the gain or loss that had previously been recognised in other comprehensive income relating to that reduction in ownership interest if that gain or loss would be reclassified to profit or loss on the disposal of the related assets or liabilities.

When a group entity transacts with an associate or a joint venture of the Group, profits and losses resulting from the transactions with the associate or joint venture are recognised in the Historical Financial Information only to the extent of interests in the associate or joint venture that are not related to the Group.

Income

The operating income of the Group mainly includes air freight forwarding income, e-commerce logistics income and professional logistics income.

Generally, revenue from rendering of services is recognised when the transport services have been rendered by the Group completely, income and relevant cost can be measured reliably and it is probable that the associated economic benefits will flow to the Group.

(1) The air freight forwarding income includes income from international air freight forwarding business and income from domestic freight and logistics services. The income from international air freight forwarding business is recognised when the air freight forwarding services are rendered completely. The income which should be recognised by the Group as agent to arrange cargo transport to clients shall include transport costs obtained by the carrier from the Group. The income from domestic freight and logistics business is recognised when the relevant transport services are rendered completely.
(2) The e-commerce logistics income include international express income and e-commerce logistics income. The express income is recognised when the relevant documents or packages arrive at the designated delivery place. The e-commerce logistics income is recognised when the relevant e- commerce cargos arrive at the designated delivery place.
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APPENDIX II

ACCOUNTANTS’ REPORT ON THE SINOAIR GROUP

(3) The professional logistics business is a kind of business that the Group and the client agrees to provide comprehensive project logistics services continuously within a certain period by general contract. The income from professional logistics business is recognised when the total income and cost of project business can be measured reliably, it is probable that the economic benefits relating to services will flow to the Group and the stage of completion of the transaction can be determined reliably. At the end of each reporting period, income from associated services is recognised using the percentage of completion which is recognised according to the proportion of provided services in total services which should be provided.

Land use rights

Land use rights are the rights to use the land on which various warehouses, container storage areas and buildings are situated for periods varying from 10 to 50 years. The payments made for the land use rights are amortised as operating lease charges over the period of the rights in profit or loss on a straight-line basis. Any impairment is expensed in profit or loss.

Property, plant and equipment

Property, plant and equipment (other than assets under construction) is stated at historical cost less accumulated depreciation and impairment losses. Historical cost comprises purchase price and any directly attributable costs of bringing the asset to its working condition and location for its intended use. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably.

Depreciation is calculated on a straight-line basis to write off the cost of assets (other than assets under construction) less accumulated impairment losses to their residual values over their estimated useful lives as follows:

Buildings	30 years
Leasehold improvements	Over the shorter of the remaining term of the leases
	and the estimated useful lives
Plant and machinery	5 years
Motor vehicles and vessels	5 years
Furniture and office equipment	3 years

Assets under construction represent buildings under construction and plant and equipment pending installation, and are stated at cost. Costs include construction and acquisition costs, and interest charges arising from borrowings used to finance the qualifying assets during the period of construction or installation and testing. No provision for depreciation is made on assets under construction until such time as the relevant assets are completed and ready for intended use. When the assets concerned are brought into use, the costs are transferred to appropriate category of property, plant and equipment and depreciated in accordance with the policy as stated above.

The estimated useful lives, residual values and depreciation method are reviewed, and adjusted if appropriate, at each reporting date.

Gains and losses on disposals are determined by comparing proceeds with carrying amount and are recognised in profit or loss.

Investment properties

Investment properties are properties held to earn rentals and/or for capital appreciation.

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ACCOUNTANTS’ REPORT ON THE SINOAIR GROUP

APPENDIX II

Investment properties are initially measured at cost, including any directly attributable expenditure. Subsequent to initial recognition, investment properties are stated at cost less subsequent accumulated depreciation and any accumulated impairment losses. Depreciation is recognised so as to write off the cost of investment properties over their estimated useful lives and after taking into account of their estimated residual value, using the straight-line method.

An investment property is derecognised upon disposal or when the investment property is permanently withdrawn from use and no future economic benefits are expected from its disposals. Any gain or loss arising on derecognition of the property (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the profit or loss in the period in which the property is derecognised.

Intangible assets

Computer software

Costs associated with maintaining computer software programmes are recognised as an expense as incurred. Acquired computer software licences are capitalised on the basis of the costs incurred to acquire.

Amortisation for intangible assets with finite useful lives is recognised on a straight-line basis over their estimated useful lives. The estimated useful life and amortisation method are reviewed at the end of each reporting period, with the effect of any changes in estimate being accounted for on a prospective basis.

An intangible asset is derecognised on disposal, or when no future economic benefits are expected from use or disposal. Gains and losses arising from derecognition of an intangible asset, measured as the difference between the net disposal proceeds and the carrying amount of the asset, are recognised in profit or loss when the asset is derecognised.

Impairment on tangible and intangible assets other than goodwill

At the end of each reporting period, the Group reviews the carrying amounts of its tangible and intangible assets with finite useful lives to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). When it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. When a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units of which a reasonable and consistent allocation basis can be identified.

Recoverable amount is the higher of fair value less costs of disposal and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the assets for which the estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset (or a cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or a cash-generating unit) is reduced to its recoverable amount. In allocating the impairment loss, the impairment loss is allocated first to reduce the carrying amount of any goodwill (if applicable) and then to the other assets on a pro-rata basis based on the carrying amount of each asset in the unit. The carrying amount of an asset is not reduced below the highest of its fair value less costs of disposal (if measurable), its value in use (if determinable) and zero. The amount of the impairment loss that would otherwise have been allocated to the asset is allocated pro rata to the other assets of the unit. An impairment loss is recognised immediately in profit or loss.

Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or a cashgenerating unit) in prior years. A reversal of an impairment loss is recognised immediately in profit or loss.

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ACCOUNTANTS’ REPORT ON THE SINOAIR GROUP

APPENDIX II

Financial assets

The Group classifies its financial assets as loans and receivables and available-for-sale financial assets. The classification depends on the nature of the financial assets and the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition.

Effective interest method

The effective interest method is a method of calculating the amortised cost of a debt instrument and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the debt instrument, or, where appropriate, a shorter period, to the net carrying amount on initial recognition. Interest income is recognised on an effective interest basis.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for those with maturities greater than 12 months after the end of each reporting period, which are classified as non-current assets. Loans and receivables comprise “trade and other receivables”, “restricted cash”, “term deposits with initial terms of over three months” and “cash and cash equivalents” in the consolidated statement of financial position.

Available-for-sale financial assets

Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified as loans and receivables, held-to-maturity investments or financial assets at fair value through profit or loss. They are included in non-current assets unless the investment matures or management intends to dispose of the investment within 12 months from the end of each reporting period.

Initial recognition, measurement and derecognition

Regular purchases and sales of financial assets are recognised on the trade date, the date on which the Group commits to purchase or sell the asset. Financial assets are initially recognised at fair value plus transaction costs. Financial assets are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and the Group has transferred substantially all risks and rewards of ownership.

If the Group neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Group continues to recognise the asset to the extent of its continuing involvement and recognises an associated liability. If the Group retains substantially all the risks and rewards of ownership of a transferred financial asset, the Group continues to recognise the financial asset and also recognises a collateralised borrowing for the proceeds received.

On derecognition of a financial asset in its entirety, the difference between the asset’s carrying amount and the sum of the consideration received and receivable and the cumulative gain or loss that had been recognised in other comprehensive income and accumulated in equity is recognised in profit or loss.

Available-for-sale financial assets are subsequently carried at fair value, except for those available-for-sale equity instruments whose fair value cannot be measured reliably, measured at cost less impairment. Loans and receivables are subsequently carried at amortised cost using the effective interest method.

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APPENDIX II ACCOUNTANTS’ REPORT ON THE SINOAIR GROUP

Changes in the fair value of available-for-sale financial assets are recognised in other comprehensive income. When they are sold or impaired, the accumulated fair value adjustments recognised in other comprehensive income are reclassified to profit or loss as “other gains and losses, net”. Dividends on available-for-sale equity instruments are recognised in the consolidated statement of profit or loss as part of other income when the Group’s right to receive payments is established.

Financial liabilities and equity instruments

Debt and equity instruments issued by a group entity are classified as either financial liabilities or as equity in accordance with substance of the contractual arrangements and the definitions of a financial liability and an equity instrument.

Financial liabilities

Financial liabilities issued by a group entity are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability.

Financial liabilities including borrowings, trade payables and other payables are subsequently measured at amortised cost, using the effective interest method.

Derecognition

The Group derecognises financial liabilities when, and only when, the Group’s obligations are discharged, cancelled or have expired. The difference between the carrying amount of the financial liability derecognised and the consideration paid and payable is recognised in profit or loss.

Effective interest method

The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial liability, or, where appropriate, a shorter period, to the net carrying amount on initial recognition. Interest expense is recognised on an effective interest basis.

Equity instruments

An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities. Equity instruments issued by the Group are recognised at the proceeds received, net of direct issue costs.

Offsetting financial instruments

Financial assets and liabilities are offset and the net amount reported in the consolidated statement of financial position when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously.

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ACCOUNTANTS’ REPORT ON THE SINOAIR GROUP

APPENDIX II

Impairment of financial assets

Assets carried at amortised cost

The Group assesses at the end of each reporting period whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a “ loss event ”) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated.

The criteria that the Group uses to determine that there is objective evidence of an impairment loss include:

Significant financial difficulty of the issuer or obligor;
A breach of contract, such as a default or delinquency in interest or principal payments;
The Group, for economic or legal reasons relating to the borrower’s financial difficulty, granting to the borrower a concession that the lender would not otherwise consider;
It becomes probable that the borrower will enter bankruptcy or other financial reorganisation;
Observable data indicating that there is a measurable decrease in the estimated future cash flows from a portfolio of financial assets since the initial recognition of those assets, although the decrease cannot yet be identified with the individual financial assets in the portfolio, including:
adverse changes in the payment status of borrowers in the portfolio;
national or local economic conditions that correlate with defaults on the assets in the portfolio.

The Group first assesses whether objective evidence of impairment exists.

For loans and receivables category, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate. The carrying amount of the asset is reduced and the amount of the loss is recognised in profit or loss. If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised (such as an improvement in the debtor’s credit rating), the reversal of the previously recognised impairment loss is recognised in profit or loss.

Available-for-sale financial assets

The Group assesses at the end of each reporting period whether there is objective evidence that a financial asset or a group of financial assets is impaired. In the case of equity investments classified as available-for-sale, a significant or prolonged decline in the fair value of the security below its cost is evidence that the asset is impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in profit or loss – is reclassified from equity and recognised in profit or loss. Impairment losses recognised in the consolidated statement of profit or loss on available-for-sale equity instruments are not reversed through profit or loss.

For available-for-sale equity instruments carried at cost, the amount of the impairment loss is measured as the difference between the asset’s carrying amount and the present value of the estimated future cash flows discounted at the current market rate of return for a similar financial asset. The impairment loss cannot be reversed.

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APPENDIX II ACCOUNTANTS’ REPORT ON THE SINOAIR GROUP

If, in a subsequent period, the fair value of a debt instrument classified as available-for-sale increases and the increase can be objectively related to an event occurring after the impairment loss is recognised in profit or loss, the impairment loss is reversed through profit or loss.

Operating leases

Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases.

A group company is the lessee

Payments made under operating leases (net of any incentives received from the lessor), including the cost of acquiring land held under operating leases, are charged to profit or loss on a straight-line basis over the period of the lease.

A group company is the lessor

Rental income (net of any incentives given to lessees) is recognised on a straight-line basis over the lease term. Initial direct costs incurred in negotiation and arranging an operating lease are added to the carrying amount of the leased asset.

Inventories

Supplies, consumables and spare parts are stated at the lower of cost and net realisable value. Cost is determined using the first-in, first-out method. Net realisable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses.

Cash and cash equivalents

Cash and cash equivalents include cash in hand, deposits held at call with banks and other short-term highly liquid investments with original maturities of three months or less.

Borrowing costs

Interest costs on borrowings incurred to finance the construction of any qualifying asset are capitalised during the period of time that is required to complete and prepare the asset for its intended use. All other borrowing costs are expensed as incurred.

Taxation

Income tax expense represents the sum of the tax currently payable and deferred tax.

Current tax

The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit before income tax as reported in the consolidated statement of profit or loss because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the end of each reporting period.

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ACCOUNTANTS’ REPORT ON THE SINOAIR GROUP

APPENDIX II

Deferred tax

Deferred tax is recognised on temporary differences between the carrying amounts of assets and liabilities in the consolidated financial statements and the corresponding tax base used in the computation of taxable profit. Deferred tax liabilities are generally recognised for all taxable temporary differences. Deferred tax assets are generally recognised for all deductible temporary difference to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

Deferred tax liabilities are recognised for taxable temporary differences associated with investments in subsidiaries, joint ventures and associates, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments and interests are only recognised to the extent that it is probable that there will be sufficient taxable profits against which to utilise the benefits of the temporary differences and they are expected to reverse in the foreseeable future.

The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset is realised, based on tax rate (and tax laws) that have been enacted or substantively enacted by the end of each reporting period.

The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the end of each reporting period, to recover or settle the carrying amount of its assets and liabilities.

Current and deferred tax is recognised in profit or loss, except when it relates to items that are recognised in other comprehensive income or directly in equity, in which case the current and deferred tax is also recognised in other comprehensive income or directly in equity respectively.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred tax assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.

Employee benefits

Pension obligations

The full-time employees of the Group are covered by various government-sponsored pension plans under which the employees are entitled to a monthly pension based on certain formulas. The relevant government agencies are responsible for the pension liability to these employees when they retire. The Group contributes on a monthly basis to these pension plans. Under these defined contribution plans, the Group has no obligation for post-retirement benefits beyond the contributions made. Contributions to these plans are recognised as employee benefit expenses when they are due.

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ACCOUNTANTS’ REPORT ON THE SINOAIR GROUP

APPENDIX II

Termination benefits

The Group recognise a liability and expense for termination benefits at the earlier of the following dates: (a) when the entity can no longer withdraw the offer of those benefits (b) and when the entity recognises costs for a restructuring that is within the scope of IAS 37 Provisions, Contingent Liabilities and Contingent Assets , and involves the payment of termination benefits.

Housing benefits

All full-time employees of the Group are entitled to participate in various government-sponsored housing funds. The Group contributes on a monthly basis to these funds based on certain percentages of the salaries of the employees. The Group’s liability in respect of these funds is limited to the contributions payable in each period.

Provisions

Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that the Group will be required to settle that obligation, and a reliable estimate can be made of the amount of the obligation.

The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the end of each reporting period, taking into account the risks and uncertainties surrounding the obligation. When a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows (where the effect of the time value of money is material).

When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, a receivable is recognised as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably.

Foreign currency translation

Exchange differences arising on the settlement of monetary items, and on the retranslation of monetary items are recognised in profit or loss in the period in which they arise.

Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (the “ functional currency ”). The Historical Financial Information is presented in RMB, which is the Company’s functional and the Group’s presentation currency.

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or valuation where items are remeasured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss.

Translation differences on non-monetary financial assets such as equity instruments classified as available-forsale are included in the “investment revaluation reserve” in equity.

The results and financial position of all the group entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows:

assets and liabilities are translated at the closing rate at the date of the end of each reporting period;
income and expenses are translated at average exchange rates (unless exchange rates fluctuate significantly during the period, in which case the exchange rates prevailing at the dates of transactions are used) of each reporting period; and
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ACCOUNTANTS’ REPORT ON THE SINOAIR GROUP

APPENDIX II

all resulting exchange differences are recognised in other comprehensive and accumulated in exchange reserve, a separate component of equity.

Goodwill and fair value adjustments arising on the acquisition of a foreign operation are treated as assets and liabilities of the foreign operation and translated at the rate of exchange prevailing at the end of each reporting period. Exchange differences arising are recognised in other comprehensive income.

Contingent liabilities

A contingent liability is a possible obligation that arises from past events and whose existence will only be confirmed by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Group. It can also be a present obligation arising from past events that is not recognised because it is not probable that outflow of economic resources will be required or the amount of obligation cannot be measured reliably.

A contingent liability is not recognised but is disclosed in the notes to the Historical Financial Information. When a change in the probability of an outflow occurs so that outflow is probable, it will then be recognised as a provision.

Dividend distribution

Dividend distribution to the Company’s shareholders is recognised as a liability in the Historical Financial Information in the period in which the dividend is approved by the Company’s shareholders.

Profit distributions and dividends proposed or declared after the end of each reporting period are disclosed as a subsequent event and are not recognised as a liability at the end of each reporting period.

Segment reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker has been identified as the management, which is chaired by the chief executive officer and consists of senior management of the Company who make strategic decisions.

Financial guarantee contracts

Financial guarantee contract is a contract that requires the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due in accordance with the original or modified terms of a debt instrument.

Financial guarantee contracts issued by the Group are initially measured at their fair value and, if not designated as at fair value through profit or loss, are subsequently measured at the higher of the initial amount, less cumulative amortisation recognised over the guarantee, and the best estimate of the amount of obligation under the guarantee contract determined under IAS 37. Any increase in the liability relating to guarantees is reported in profit or loss.

Government grants

Grants from the government are recognised where there is a reasonable assurance that the grant will be received and the Group will comply with all attached conditions.

Government grants relating to income are deferred and recognised in profit or loss over the period necessary to match them with the costs that they are intended to compensate.

Government grants relating to assets are included in non-current liabilities as deferred government grants and are credited to profit or loss on a straight-line basis over the expected lives of the related assets.

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ACCOUNTANTS’ REPORT ON THE SINOAIR GROUP

APPENDIX II

5. KEY SOURCES OF ESTIMATION UNCERTAINTY

In the application of the Group’s accounting policies, which are described in Note 4, the Directors are required to make judgments, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an on-going basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

The following are the key assumptions concerning the future, and other key sources of estimation uncertainty at the end of each reporting period that may have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year.

Useful lives and residual value of property, plant and equipment

The management determines the residual value, useful lives and related depreciation charges for its property, plant and equipment. This estimate is based on the historical experience of the actual residual value and useful lives of property, plant and equipment with similar nature and functions. It could change significantly as a result of technical innovations and keen competitions from competitors. The Group will increase the depreciation charge where residual value or useful lives are less than previously estimated, or it will write-off or write-down technically obsolete assets.

Estimated impairment of trade receivables

In determining whether there is objective evidence of impairment loss, the Group takes into consideration the credit history of the customers and the current market condition. The amount of the impairment loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the financial asset’s original effective interest rate. Management reassesses the adequacy of impairment on a regular basis. Where the actual cash flows are less than expected, or being revised downward due to changes in facts and circumstances, a material impairment loss/further impairment loss may arise. The movements of the impairment recognised during the year are set out in Note 24.

Impairment for non-current assets

At the end of each reporting period, the Group reviews the carrying amounts of its tangible and intangible assets with finite useful lives to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). The value in use calculation requires the Group to estimate the future cash flows expected to be generated from the assets or cash generating unit (“ CGU ”) and a suitable discount rate in order to calculate the present value. Where the actual cash flows are significantly less than expected, or changes in circumstances which result in downward revision of recoverable amount of the assets or CGU, impairment loss may arise.

Litigation claims

The Group is subject to litigation claims from various customers and vendors in the ordinary cause of the business mainly for damages or losses of goods during transportation or storage process where the Group is acting as a service provider for air freight forwarding, transportation or storage services. In determining the provision for litigation claims, management made an assessment based on its best estimate and judgement of whether it is probable that an outflow of resources will be required to settle the claims, and, if applicable, the final amount of the settlements. Management considers in its assessment information about the nature and status of the claims and other factors, such as the past experience in similar situation, relevant case outcome in recent years, and practice of particular jurisdictions

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ACCOUNTANTS’ REPORT ON THE SINOAIR GROUP

APPENDIX II

where the litigation was brought against the Group and court decision in previous trial. Where the actual amounts to settle the obligation are more or less than expected, a further provision or reversal may arise. The provisions recognised during the year are set out in Note 29.

Other provisions

Except for litigation claims as described above, the Group incurs a number of other obligations arising in its ordinary course of business. Provisions are recognised based on management’s best estimation of the probability and the amount of the outflow of resources necessary to settle the obligations. The provisions recognised during the year are set out in Note 29 (one-off housing subsidies, guarantees and related provisions, and others).

Income taxes

A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the unused tax losses and credits can be utilised. The realisability of the deferred tax asset mainly depends on whether sufficient future profits or taxable temporary differences will be available in the future. In cases where the actual future taxable profits generated are less or more than expected, or changes in facts and circumstances which result in revision of future taxable profits estimation, a material reversal or further recognition of deferred tax assets may arises, which would be recognised in profit or loss for the period in which such a reversal or further recognition takes place.

6. SEGMENT INFORMATION

The Group’s chief operating decision-maker which is the chief executive officer of the Group (the “ CODM ”) reviews the Group’s internal reporting in order to assess performance and allocate resources. The CODM has determined the operating segments based on these reports. No operating segments identified by the CODM have been aggregated in arriving at the reportable segments of the Group.

An analysis of the Group’s reportable and operating segments is set out below:

Air freight forwarding: the international air freight forwarding business and the domestic freight and logistics services.
E-commerce logistics: the international and domestic express and logistic service for e-commerce customers.
Professional logistics business: provision of comprehensive project logistics services continuously within a certain period agreed by contract.
Other businesses: mainly including provision of resales of purchased products, the revenue and cost is included in other gains and losses in the statement of profit or loss.
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APPENDIX II

ACCOUNTANTS’ REPORT ON THE SINOAIR GROUP

Segment revenue and results

For the year ended 31 December 2015 Revenue – external Other income Segment results Corporate expenses Operating profit Finance income Finance costs Share of profit of joint ventures Share of loss of associates Profit before income tax Income tax expense Profit for the year For the year ended 31 December 2016 Revenue – external Other income Segment results Corporate expenses Operating profit Finance income Finance costs Share of profit of joint ventures Share of profit of associates Profit before income tax Income tax expense Profit for the year	Air Freight Forwarding RMB’000 3,250,563 – 96,204 Air Freight Forwarding RMB’000 3,403,285 – 52,681	E-commerce Logistics RMB’000 438,627 – 8,000 E-commerce Logistics RMB’000 718,671 – (9,730)	Professional Logistics Business RMB’000 594,837 – 16,764 Professional Logistics Business RMB’000 724,830 – 27,513	Others RMB’000 – 78,625 78,625 Others RMB’000 – 261,495 261,495	Total RMB’000 4,284,027 78,625
					199,593 (115,078
					84,515 44,066 (2,983 885,641 (847
					1,010,392 (496
					1,009,896
					Total RMB’000 4,846,786 261,495
					331,959 (118,983
					212,976 45,009 (4,745 766,648 4,329
					1,024,217 (29,670
					994,547

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APPENDIX II

ACCOUNTANTS’ REPORT ON THE SINOAIR GROUP

For the year ended 31 December 2017 Revenue – external Other income Segment results Corporate expenses Operating profit Finance income Finance costs Share of profit of joint ventures Share of profit of associates Profit before income tax Income tax expense Profit for the year	Air Freight Forwarding RMB’000 3,330,803 – 146,192	E-commerce Logistics RMB’000 1,589,064 – 10,715	Professional Logistics Business RMB’000 1,254,922 – 30,963	Others RMB’000 – 508,598 508,598	Total RMB’000 6,174,789 508,598
					696,468 (159,988
					536,480 68,738 (17,690 890,138 3,647
					1,481,313 (128,307
					1,353,006

Segment results represent the results of each segment performance derived from the Group’s accounting record prepared under the generally accepted accounting principles in the PRC during the Relevant Periods. Segment profit represents the profit earned by each segment without allocation of central administration costs, directors' emoluments, share of result of associates and joint ventures, finance income and finance costs. This is the measure reported to the CODM for the purposes of resource allocation and performance assessment.

Other segment information

		For the year ended 31 December	For the year ended 31 December	2015
			Professional
	Air Freight	E-commerce	Logistics
	Forwarding	Logistics	Business	Others	Group
	RMB'000	RMB'000	RMB'000	RMB'000	RMB'000
Capital expenditure *	412,261	6,947	9,410	–	428,618
Depreciation	48,835	3,504	1,491	–	53,830
Amortisation	1,704	216	–	–	1,920
Operating lease charges on land use rights	7,061	424	–	–	7,485
Provision for impairment loss of receivables	138	78	–	–	216
Loss on disposal of property, plant and
equipment and land use rights	–	–	–	(405)	(405)

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ACCOUNTANTS’ REPORT ON THE SINOAIR GROUP

APPENDIX II

		For the year ended 31 December	For the year ended 31 December	2016
			Professional
	Air Freight	E-commerce	Logistics
	Forwarding	Logistics	Business	Others	Group
	RMB'000	RMB'000	RMB'000	RMB'000	RMB'000
Capital expenditure*	227,124	23,262	822	–	251,208
Depreciation	53,566	4,124	1,849	–	59,539
Amortisation	2,685	40	–	–	2,725
Operating lease charges on land use rights	12,172	274	–	–	12,446
Provision for impairment loss of receivables	13,969	7,201	510	–	21,680
Gain on disposal of property, plant and
equipment and land use rights	–	–	–	671	671

		For the year ended 31 December	2017
		Professional
	Air Freight	E-commerce Logistics
	Forwarding	Logistics Business	Others	Group
	RMB'000	RMB'000 RMB'000	RMB'000	RMB'000
Capital expenditure*	148,616	1,114 19,565	605	169,900
Depreciation	54,391	3,169 3,794	31	61,385
Amortisation	2,751	187 134	–	3,072
Operating lease charges on land use rights	10,443	551 –	–	10,994
Provision for impairment loss of receivables	32,096	964 351	–	33,411
Gain on disposal of property, plant and
equipment and land use rights	–	– –	72	72

The capital expenditure represents the total cash paid for purchase of property, plant and equipment, intangible assets, land use rights and prepayments for acquisition of land use rights for the Relevant Periods.

The Company is domiciled in the PRC. The Group’s revenue from external customers in the PRC for the three years ended 31 December 2017 is RMB4,189,095,000, RMB4,745,607,000 and RMB6,066,471,000, respectively. The Group’s noncurrent assets (excluding available-for-sale financial assets and deferred income tax assets) are substantially located in the PRC.

No major customers contributed over 10% of the total revenue of the Group during the Relevant Periods.

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ACCOUNTANTS’ REPORT ON THE SINOAIR GROUP

APPENDIX II

7. DIRECTORS’, SUPERVISOR’S, CHIEF EXECUTIVE’S AND SENIOR MANAGEMENT’S EMOLUMENTS

Emoluments of directors, supervisor and chief executive

The aggregate amounts of the emoluments paid and payable to the directors, the supervisor and the chief executive of the Company by the Group during the years are as follows:

	2015	2016	2017
	RMB’000	RMB’000	RMB’000
Directors:
Fees	96	135	193
Other emoluments
– Basic salaries, housing allowances,
and other allowances	1,229	885	1,531
Supervisor:
Other emoluments
– Basic salaries, housing allowances,
and other allowances	356	594	799

The emoluments of the directors, the supervisor and the chief executive for the year ended 31 December 2015 are as follows:

		Basic
		salaries and
	Fees	allowances	Total
	RMB’000	RMB’000	RMB’000
For the year ended December 2015
Directors
Zhang Miao	–	717	717
Yao Jiawu	–	512	512
Ning Yaping	50	–	50
Xu Yang	46	–	46
For the year ended December 2015
Supervisor
Chen Yang	–	356	356

Gao Wei, as the chief executive of the Company has not received emoluments for the year ended 31 December

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ACCOUNTANTS’ REPORT ON THE SINOAIR GROUP

APPENDIX II

The emoluments of the directors, the supervisor and the chief executive for the year ended 31 December 2016 are as follows:

For the year ended 31 December 2016 Directors Zhang Miao Ning Yaping Xu Yang Xu Jiabin For the year 31 December 2016 Supervisor Chen Yang	Fees RMB’000 – 50 50 35 –	Basic salaries and allowances RMB’000 885 – – – 594	Total RMB’000 885 50 50 35 594

Gao Wei, as the chief executive of the Company has not received emoluments for the year ended 31 December 2016.

The emoluments of the directors, the supervisor and the chief executive for the year ended 31 December 2017 are as follows:

		Basic
		salaries and
	Fees	allowances	Total
	RMB’000	RMB’000	RMB’000
For the year ended December 2017
Directors
Gao Wei (1)	–	745	745
Zhang Miao (2)	–	786	786
Yu Yingmin	33	–	33
Xu Yang	80	–	80
Xu Jiabin	80	–	80
For the year ended December 2017
Supervisor
Chen Yang	–	799	799

(1) Gao Wei, director, is also chief executive of the Company.

(2) Zhang Miao resigned as the director of the Company in January 2017.

Compensation of senior management personnel other than directors, supervisor and the chief executive is as

follows:

Salaries and other employee benefits	2015 RMB’000 1,849	2016 RMB’000 3,393	2017 RMB’000 4,502

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ACCOUNTANTS’ REPORT ON THE SINOAIR GROUP

APPENDIX II

The number of senior management personnel other than directors, supervisor and the chief executive whose compensation fell within the following bands is as follows:

	Number of individuals	Number of individuals
	2015	2016	2017
Nil to Hong Kong Dollar (“HK$”)1,000,000	4	5	1
HK$1,000,001 – 1,500,000	–	–	4

Five highest paid individuals

The five individuals whose emoluments were the highest in the Group for the year are as follows:

Directors Supervisor Senior management	Number of individuals 2015 2016 2017 2 1 – – – 1 3 4 4

8. STAFF COSTS

Staff costs which include remuneration to directors, supervisor, chief executive and senior management of the Company are as follows:

	2015	2016	2017
	RMB’000	RMB’000	RMB’000
Wages and salaries	263,643	267,331	294,677
Housing benefits	19,687	20,742	20,740
Contributions to pension plans	36,523	41,503	46,346
Termination benefits	1,493	4,955	3,400
Welfare and other expenses	73,799	75,425	95,898
	395,145	409,956	461,061

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APPENDIX II

ACCOUNTANTS’ REPORT ON THE SINOAIR GROUP

9. OTHER GAINS AND LOSSES, NET

	2015	2016	2017
	RMB’000	RMB’000	RMB’000
Gain on disposal of available-for-sale financial assets	84,408	306,934	573,614
Gain on disposal of a joint venture	–	–	1,416
(Loss)/gain on disposals of property, plant and equipment
and land use rights	(405)	671	72
Impairment loss of investment in joint ventures	–	(4,020)	(14,842)
Gain on deemed disposal of a subsidiary (Note 36)	14,438	–	–
Provision for litigation claims, guarantees and losses on
accident	(14,085)	(43,699)	(55,254)
Others	(5,731)	1,609	3,592
	78,625	261,495	508,598

10. OPERATING PROFIT

Operating profit is stated after charging and crediting the following items:

Charging Auditor’s remuneration – Audit fee – Others Depreciation – Owned property, plant and equipment – Owned property, plant and equipment leased out under operating leases Amortisation of intangible assets Amortisation of land use rights Operating lease charges on – Buildings – Plant and equipment Impairment losses of receivables Impairment losses of inventories Crediting Rental income from – Buildings and land use rights – Plant and machinery Gross rental income from investment properties Less: Depreciation of investment properties Net rental income (expense) from investment properties Dividend income on available-for-sale financial assets Government grants	2015 RMB’000 2,200 934 52,247 1,583 1,920 7,485 30,774 4,167 216 – 10,424 – 156 – 156 4,741 6,421	2016 RMB’000 2,200 644 54,546 1,909 2,725 12,446 37,516 4,196 21,680 444 7,439 4,196 1,241 3,084 (1,843) 16,345 9,113	2017 RMB’000 2,200 529 55,864 2,616 3,072 10,994 28,739 3,253 33,411 1,906
			14,019 153 3,253 2,905
			348 6,880 5,970

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ACCOUNTANTS’ REPORT ON THE SINOAIR GROUP

APPENDIX II

11. FINANCE INCOME AND FINANCE COSTS

Finance income – Bank interest income Finance costs – Interest expenses – Exchange gains, net – Others (a)	2015 RMB’000 44,066 (968) 1,195 (3,210) (2,983)	2016 RMB’000 45,009 (1,586) 1,278 (4,437) (4,745)	2017 RMB’000 68,738 (2,544) (10,350) (4,796) (17,690)

(a) Others mainly consist of bank charges.

12. TAXATION

Income tax expense in the consolidated statement of profit or loss represents:

	2015	2016	2017
	RMB’000	RMB’000	RMB’000
Current income tax
– PRC enterprise income tax	(1,763)	8,418	157,730
– Overseas	15	–	3
– Hong Kong	368	527	–
Deferred income tax	1,876	20,725	(29,426)
	496	29,670	128,307

The Group provides for current income tax on the basis of its profit for financial reporting purposes, adjusted for income and expense items that are not taxable or deductible for income tax purposes.

PRC enterprise income tax expense has been provided on the estimated taxable profit for the year according to the tax laws and regulations applicable to the PRC enterprises. The provision for PRC enterprise income tax is based on the statutory rate of 25% of the taxable income of each of the companies comprising the Group in the PRC during the Relevant Periods as determined in accordance with the relevant PRC income tax rules and regulations, except for certain subsidiaries which are taxed at preferential rates ranging from 10% to 20% during the Relevant Periods based on the relevant PRC tax laws and regulations.

Hong Kong profits tax has been provided at the rate of 16.5% on the estimated assessable profit for the Relevant Periods.

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APPENDIX II

ACCOUNTANTS’ REPORT ON THE SINOAIR GROUP

(a) The tax charge for the year can be reconciled to the profit before income tax per the consolidated statement of profit or loss as follows:

Profit before income tax Less: Share of result of associates Less: Share of profit of joint ventures Tax calculated at the statutory tax rate of 25% Tax effects of – Preferential tax rates on the income of certain subsidiaries – Income not taxable for tax purposes – Expenses not deductible for tax purposes – Reverse guarantee loss – Utilisation of tax losses previously not recognised – Tax effect of tax losses or deductible temporary differences not recognised – Utilisation of deductible temporary differences previously not recognised – Others Income tax expense	2015 RMB’000 1,010,392 847 (885,641) 125,598 31,400 (315) (7,392) 3,645 – (1,061) 8,945 (35,464) 738 496	2016 RMB’000 1,024,217 (4,329) (766,648) 253,240 63,310 (359) (55,438) 7,736 – (839) 23,061 (8,567) 766 29,670	2017 RMB’000 1,481,313 (3,647) (890,138) 587,528 146,882 (136) (12,328) 4,827 (6,925) (6,873) 3,757 – (897) 128,307

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APPENDIX II

ACCOUNTANTS’ REPORT ON THE SINOAIR GROUP

(b) The following are the major deferred tax balances recognised and movements:

Deferred income tax assets

At beginning of year Credited/(charged) to profit or loss At end of year Provided for in respect of – Provision for impairment – Accrued salary – Other temporary differences – Accrued expense – Provision for claims – Tax losses Total deferred income tax assets before offsetting Offsetting amount Total deferred income tax assets after offsetting Temporary differences for which deferred income tax assets were not recognised – Tax losses in certain entities not recognised – Other deductible temporary differences	2015 RMB’000 53,447 (1,876) 51,571 544 4,232 864 126 5,527 40,278 51,571 (50,000) 1,571 2015 RMB’000 141,778 619	2016 RMB’000 51,571 (20,725) 30,846 6,126 11,307 864 1,344 11,205 – 30,846 (24,846) 6,000 2016 RMB’000 140,472 34,821	2017 RMB’000 30,846 29,426 60,272 19,536 7,508 864 1,225 31,139 – 60,272 (47,963) 12,309 2017 RMB’000 118,394 35,091

Deferred income tax assets are recognised for tax loss carried forward to the extent that the realisation of the related tax benefit through the future taxable profits is probable.

As at 31 December 2015, the Group did not recognise deferred income tax assets of RMB35,445,000 in respect of the above stated tax losses amounting to RMB141,778,000 which can be carried forward against future taxable income, and tax losses amounting to RMB21,791,000, RMB12,939,000, RMB15,810,000, RMB17,696,000, and RMB73,542,000 would expire in 2016, 2017, 2018, 2019 and 2020, respectively.

As at 31 December 2016, the Group did not recognise deferred income tax assets of RMB35,118,000 in respect of the above stated tax losses amounting to RMB140,472,000 which can be carried forward against future taxable income, and tax losses amounting to RMB12,484,000, RMB14,731,000, RMB16,438,000, RMB25,725,000 and RMB71,094,000 would expire in 2017, 2018, 2019, 2020 and 2021, respectively.

As at 31 December 2017, the Group did not recognise deferred income tax assets of RMB29,599,000 in respect of the above stated tax losses amounting to RMB118,394,000 which can be carried forward against future taxable income, and tax losses amounting to RMB11,763,000, RMB15,745,000, RMB20,977,000, RMB55,150,000 and RMB14,759,000 would expire in 2018, 2019, 2020, 2021 and 2022, respectively.

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ACCOUNTANTS’ REPORT ON THE SINOAIR GROUP

APPENDIX II

Deferred income tax liabilities

At beginning of the year Charged/(Credited) to other comprehensive income At end of year Provided for in respect of – Change in fair values of available-for-sale financial assets Offsetting amount Total deferred income tax liabilities after offsetting	2015 RMB’000 125,114 45,133 170,247 170,247 (50,000) 120,247	2016 RMB’000 170,247 (78,496) 91,751 91,751 (24,846) 66,905	2017 RMB’000 91,751 (43,788
			47,963
			47,963
			(47,963
			–

There was no unrecognised deferred income tax liabilities in relation to the taxable temporary differences associated with the Group.

For the purpose of presentation in the consolidated statements of financial position, certain deferred tax assets and liabilities have been offset. The following is the analysis of the deferred tax balances for financial reporting purposes:

Deferred income tax assets Deferred income tax liabilities 13. DIVIDENDS Final dividends recognised as distribution during the year:	2015 RMB’000 1,571 120,247 2015 RMB’000 362,193	2016 RMB’000 6,000 66,905 2016 RMB’000 452,741	2017 RMB’000 12,309 –
			2017 RMB’000 452,741

2015: RMB0.4 per ordinary share for the year ended 31 December 2014

2016: RMB0.5 per ordinary share for the year ended 31 December 2015

2017: RMB0.5 per ordinary share for the year ended 31 December 2016

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ACCOUNTANTS’ REPORT ON THE SINOAIR GROUP

APPENDIX II

14. EARNINGS PER SHARE

Basic earnings per share is calculated by dividing the profit attributable to owners of the Company by the number of domestic shares in issue during the year.

Profit attributable to owners of the Company (RMB’000) Number of domestic shares in issue (thousands) Earnings per share, basic (RMB)	2015 1,010,291 905,482 1.12	2016 995,252 905,482 1.10	2017 1,352,969 905,482
			1.49

No diluted earnings per share is presented as the Company has no potential ordinary shares outstanding during the Relevant Periods.

15. LAND USE RIGHTS

At beginning of year Additions Transfer from prepayments for acquisition of land use rights Decrease from amortisation of government grants Transfer to investment property Disposals Deemed disposal of subsidiaries (Note 36) Charged to profit or loss At end of year	2015 RMB’000 307,857 – 143,950 – – – (25,404) (7,485) 418,918	2016 RMB’000 418,918 14,919 19,704 (404) – – – (12,446) 440,691	2017 RMB’000 440,691 2,548 41,401 – (16,136 (1,534 – (10,994
			455,976

All of the Group’s land use rights are located outside Hong Kong and are mainly in the PRC. All of the Group’s land use rights are held under operating leases of 50 years during the Relevant Periods.

16. PREPAYMENTS FOR ACQUISITION OF LAND USE RIGHTS

At beginning of year Additions Transfer to land use rights Withdrawal of land deposit At end of year	2015 RMB’000 110,742 108,563 (143,950) (19,051) 56,304	2016 RMB’000 56,304 33,275 (19,704) (28,474) 41,401	2017 RMB’000 41,401 – (41,401 –
			–

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APPENDIX II

ACCOUNTANTS’ REPORT ON THE SINOAIR GROUP

17. PROPERTY, PLANT AND EQUIPMENT

2015 Cost At 1 January 2015 Additions Acquisition of a subsidiary under common control Disposals Deemed disposal of subsidiaries (note 36) Transfer to investment properties Transfer Others At 31 December 2015 Accumulated depreciation and impairment losses At 1 January 2015 Depreciation charge Acquisition of a subsidiary under common control Disposals Deemed disposal of subsidiaries (note 36) Transfer to investment properties Others At 31 December 2015 Net book value At 31 December 2015 At 1 January 2015	Buildings RMB’000 775,022 4,333 – (1,675) (1,334) (70,125) 138,234 13 844,468 (129,363) (25,526) – 164 462 13,908 (5) (140,360) 704,108 645,659	Leasehold improvements RMB’000 4,760 8,566 – – – – – – 13,326 (880) (1,536) – – – – – (2,416) 10,910 3,880	Plant and machinery RMB’000 61,142 6,927 – (1,052) (15) – 5,511 – 72,513 (44,065) (4,815) – 820 5 – – (48,055) 24,458 17,077	Motor vehicles and vessels RMB’000 142,578 18,399 1,132 (12,438) (4,619) – – 51 145,103 (95,574) (16,711) (1,132) 11,253 3,548 – (54) (98,670) 46,433 47,004	Furniture and office equipment RMB’000 65,029 5,903 3,007 (2,866) (1,278) – 749 240 70,784 (48,849) (5,242) (3,003) 2,546 422 – (204) (54,330) 16,454 16,180	Assets under construction RMB’000 255,726 273,787 – – (96,716) – (144,494) – 288,303 – – – – – – – – 288,303 255,726	Total RMB’000 1,304,257 317,915 4,139 (18,031 (103,962 (70,125 – 304
							1,434,497
							(318,731 (53,830 (4,135 14,783 4,437 13,908 (263
							(343,831
							1,090,666
							985,526

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APPENDIX II

ACCOUNTANTS’ REPORT ON THE SINOAIR GROUP

2016 Cost At 1 January 2016 Additions Disposals Transfer to investment properties Transfer Others At 31 December 2016 Accumulated depreciation and impairment losses At 1 January 2016 Depreciation charge Disposals Transfer to investment properties Others At 31 December 2016 Net book value At 31 December 2016 At 1 January 2016	Buildings RMB’000 844,468 924 (497) (29,802) 39,788 (26,429) 828,452 (140,360) (26,114) 257 7,826 2,650 (155,741) 672,711 704,108	Leasehold improvements RMB’000 13,326 21,338 – – – – 34,664 (2,416) (5,254) – – – (7,670) 26,994 10,910	Plant and machinery RMB’000 72,513 10,446 (1,478) – 1,540 – 83,021 (48,055) (6,094) 1,441 – – (52,708) 30,313 24,458	Motor vehicles and vessels RMB’000 145,103 7,408 (15,057) – – – 137,454 (98,670) (14,396) 13,899 – – (99,167) 38,287 46,433	Furniture and office equipment RMB’000 70,784 5,184 (2,364) – – – 73,604 (54,330) (4,597) 1,914 – – (57,013) 16,591 16,454	Assets under construction RMB’000 288,303 148,294 – – (41,328) 23,779 419,048 – – – – – – 419,048 288,303	Total RMB’000 1,434,497 193,594 (19,396 (29,802 – (2,650
							1,576,243
							(343,831 (56,455 17,511 7,826 2,650
							(372,299
							1,203,944
							1,090,666

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APPENDIX II

ACCOUNTANTS’ REPORT ON THE SINOAIR GROUP

2017 Cost At 1 January 2017 Additions Disposals Transfer to investment properties Transfer At 31 December 2017 Accumulated depreciation and impairment losses At 1 January 2017 Depreciation charge Disposals Transfer to investment properties At 31 December 2017 Net book value At 31 December 2017 At 1 January 2017	Buildings RMB’000 828,452 6,764 (182) (4,539) 246,483 1,076,978 (155,741) (28,628) 71 1,042 (183,256) 893,722 672,711	Leasehold improvements RMB’000 34,664 2,240 – – – 36,904 (7,670) (6,656) – – (14,326) 22,578 26,994	Plant and machinery RMB’000 83,021 11,450 (3,022) – – 91,449 (52,708) (7,442) 1,622 – (58,528) 32,921 30,313	Motor vehicles and vessels RMB’000 137,454 5,221 (15,707) – – 126,968 (99,167) (10,706) 12,806 – (97,067) 29,901 38,287	Furniture and office equipment RMB’000 73,604 12,162 (10,164) – – 75,602 (57,013) (5,048) 6,331 – (55,730) 19,872 16,591	Assets under construction RMB’000 419,048 137,330 – (63,098) (246,483) 246,797 – – – – – 246,797 419,048	Total RMB’000 1,576,243 175,167 (29,075 (67,637 –
							1,654,698
							(372,299 (58,480 20,830 1,042
							(408,907
							1,245,791
							1,203,944

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ACCOUNTANTS’ REPORT ON THE SINOAIR GROUP

APPENDIX II

18. INVESTMENT PROPERTIES

2015
Cost
At 1 January 2015
Transfer from property, plant and equipment
At 31 December 2015
Depreciation and impairment
At 1 January 2015
Transfer from property, plant and equipment
At 31 December 2015
Net book value
At 31 December 2015
At 1 January 2015
2016
Cost
At 1 January 2016
Transfer from property, plant and equipment
At 31 December 2016
Depreciation and impairment
At 1 January 2016
Provided for the year
Transfer from property, plant and equipment
At 31 December 2016
Net book value
At 31 December 2016
At 1 January 2016

RMB’000
–
70,125
70,125
–
(13,908)
(13,908)
56,217
–
RMB’000
70,125
29,802
99,927
(13,908)
(3,084)
(7,826)
(24,818)
75,109
56,217

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ACCOUNTANTS’ REPORT ON THE SINOAIR GROUP

APPENDIX II

2017
Cost
At 1 January 2017
Addition
Transfer from property, plant and equipment
Transfer from land use right
At 31 December 2017
Depreciation and impairment
At 1 January 2017
Provided for the year
Transfer from property, plant and equipment
Transfer from land use right
At 31 December 2017
Net book value
At 31 December 2017
At 1 January 2017
The Group’s investment properties are located in the PRC.
The above investment properties are depreciated on a straight-line basis at the following rates per an
Land portion
Buildings portion

RMB’000
99,927
20,916
67,637
18,848
207,328
(24,818)
(2,905)
(1,042)
(2,712)
(31,477)
175,851
75,109
num:
50 years
30 years

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ACCOUNTANTS’ REPORT ON THE SINOAIR GROUP

APPENDIX II

19. INTANGIBLE ASSETS

2015
Cost
At beginning of year
Additions
Deemed disposal of subsidiaries
At end of year
Accumulated amortisation
At beginning of year
Amortisation
Deemed disposal of subsidiaries
At end of year
Net book value
At end of year
At beginning of year
2016
Cost
At beginning of year
Additions
At end of year
Accumulated amortisation
At beginning of year
Amortisation
At end of year
Net book value
At end of year
At beginning of year

Software
RMB’000
12,426
5,709
(70)
18,065
(7,252)
(1,920)
25
(9,147)
8,918
5,174
Software
RMB’000
18,065
2,161
20,226
(9,147)
(2,725)
(11,872)
8,354
8,918

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ACCOUNTANTS’ REPORT ON THE SINOAIR GROUP

APPENDIX II

2017 Cost At beginning of year Additions Disposals At end of year Accumulated amortisation At beginning of year Amortisation Disposals At end of year Net book value At end of year At beginning of year	Software RMB’000 20,226 12,828 (50) 33,004 (11,872) (3,072) 15 (14,929) 18,075 8,354

20. INVESTMENTS IN JOINT VENTURES

Details of the Group’s investments in joint ventures are as follows:

At beginning of year Additions of joint ventures Disposals Share of profit of joint ventures – profit before income tax – income tax expense Dividends declared Impairment loss At end of year	2015 RMB’000 1,159,935 136,225 – 136,225 1,185,829 (300,188) 885,641 (798,867) – 1,382,934	2016 RMB’000 1,382,934 8,480 – 8,480 1,040,662 (274,014) 766,648 (859,009) (4,020) 1,295,033	2017 RMB’000 1,295,033 20,000 (1,331) 18,669 1,193,186 (303,048) 890,138 (811,130) (14,842) 1,377,868

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ACCOUNTANTS’ REPORT ON THE SINOAIR GROUP

APPENDIX II

The following is a list of the principal joint ventures.

			Proportion of ownership	Proportion of ownership	Proportion of ownership
		Issued share	interest and voting rights		held by
	Country/place of operation &	capital/paid		the Group
Name	incorporation	up capital	2015	2016		2017	Principal activities
		RMB’000
Dalian JD Cargo International Co.,	Dalian, the PRC	9,333	45%	45%		45%	Air Express and
Ltd. (“Dalian JD”)							Freight Freight
							Forwarding
Shanghai Sinotrans Songjiang	Songjiang, the PRC	5,000	50%	50%		50%	Transport and Logistics
Logistics Co., Ltd.
Sinotrans Anmaishi (Shanghai)	Shanghai, the PRC	39,822	50%	50%		50%	Express services
International Aviation Express							Courier
Delivery Co., Ltd.
DHL-Sinotrans International Air	Beijing, the PRC	138,289	50%	50%		50%	Express services
Courier Limited (“DHL”)							Courier
Sinotrans Hongfeng (Shanghai)	Shanghai, the PRC	20,000	50%	50%		50%	Transport and Logistics
International Logistics Co., Ltd.
Sinotrans Luzhou Port Bonded	Luzhou, the PRC	160,000	60%*	60%*	60%*		Transport and Logistics
Logistics Co., Ltd. (“Sinotrans
Luzhou”)
Sinotrans Electronic Commerce Co.,	Beijing, the PRC	100,000	50%	50%		50%	E-commerce Logistics
Ltd. (“Sinotrans E-commerce”)
Rex International Forwarding Co., Ltd.	Beijing, the PRC	13,551	50%	50%		N/A	Transport and Logistics
Chengdu Bonded Logistics Investment	Chengdu, the PRC	174,986	54.29%*	54.29%*	54.29%*		Transport and Logistics
Co., Ltd.
Beijing Sinotrans Huali Logistics Co.,	Beijing, the PRC	6,000	40%	40%		40%	Transport and Logistics
Ltd.
Hefei New Sinotrans Logistics Co.,	Hefei, the PRC	2,000	N/A	49%		49%	Transport and Logistics
Ltd.
Dongguan Sinotrans Kuasheng E-	Dongguan, the PRC	5,000	N/A	50%		50%	E-commerce Logistics
Commerce Co., Ltd.
Sinotrans Senko International Cold	Shanghai, the PRC	40,000	N/A	N/A		50%	Transport and Logistics
Logistics Co., Ltd.

Although the Group owns more than 50% equity interest of these joint ventures, according to the articles of association of these joint ventures, the Group exercise joint control over these joint ventures with the other shareholders.

According to the relevant articles and shareholders’ agreements, the Group together with the other shareholders exercise joint control and none of the shareholders has unilateral control over these companies.

The names of certain joint ventures referred to as above represent management’s translation of the Chinese names of these companies as no English names have been registered.

Summarised financial information of the Group’s material joint ventures is set out below. The summarised financial information below represents amounts shown in the joint venture’s consolidated financial statements prepared in accordance with accounting policies conform with IFRSs.

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ACCOUNTANTS’ REPORT ON THE SINOAIR GROUP

APPENDIX II

DHL

Current assets Non-current assets Current liabilities Non-current liabilities The above amounts of assets and liabilities include the following: Cash and cash equivalents Revenue Profit and total comprehensive income for the year Dividends from joint ventures The above profit for the year includes the following: Depreciation and amortisation Interest expense	2015 RMB’000 3,096,932 884,022 (1,662,668) (66,114) 1,470,050 2015 RMB’000 10,223,874 1,775,243 798,867 (170,682) (596,805)	2016 RMB’000 3,234,561 826,680 (1,846,001) (67,552) 1,603,893 2016 RMB’000 10,618,350 1,609,633 857,058 (165,288) (542,841)	2017 RMB’000 3,577,080 734,655 (1,923,797 (76,200
			1,901,380
			2017 RMB’000 11,926,245 1,786,310 811,130
			(530,774 (599,856

Reconciliation of the above summarised financial information to the carrying amount of the interest in DHL recognised in the Historical Financial Information:

Net assets of DHL Proportion of the Group’s ownership interest in DHL Carrying amount of the Group’s interest in DHL	2015 RMB’000 2,252,172 50% 1,126,086	2016 RMB’000 2,147,688 50% 1,073,844	2017 RMB’000 2,311,738 50%
			1,155,869

Aggregate information of joint ventures that are not individually material is set out below.

The Group’s share of loss Carrying amount of the Group’s interest in joint ventures	2015 RMB’000 (1,981) 256,848	2016 RMB’000 (38,168) 221,189	2017 RMB’000 (3,017
			221,999

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ACCOUNTANTS’ REPORT ON THE SINOAIR GROUP

APPENDIX II

21. INVESTMENTS IN ASSOCIATES

Details of the Group’s investments in its unlisted associates are as follows:

At beginning of year Additions Share of profit of associates – profit before income tax – income tax expense Dividends declared At end of year	2015 RMB’000 32,169 5,990 256 (1,103) (847) – 37,312	2016 RMB’000 37,312 7,410 5,692 (1,363) 4,329 (2,624) 46,427	2017 RMB’000 46,427
			2,000
			5,152 (1,505
			3,647
			(3,309
			48,765

The following is a list of the principal associates:

			Proportion of ownership	Proportion of ownership	Proportion of ownership
		Issued share	interest	and voting rights	held
	Country/place of operation &	capital/paid		by the Group
Name	incorporation/legal status	up capital	2015	2016	2017	Principal activities
		RMB’000
Qingdao Airport Logistics Zone	Qingdao, the PRC limited	100,000	18%*	18%*	18%*	Transport and Logistics
(Huasheng) Company Limited	liability company
(“Qingdao Huasheng”)
E Fashion (Wuhan) Co., Ltd.	Wuhan, the PRC	10,000	49%	49%	49%	E-commerce Logistics
	incorporated
Sinotrans Rex International	Beijing, the PRC limited	10,000	40%	40%	40%	Transport and Logistics
(Beijing) Logistics Co., Ltd.	liability company
Yiwu to World Logistics Co., Ltd.	Yiwu, the PRC	12,500	20%	25%	25%	E-commerce Logistics
	natural investment or holding
AMS Global Transportation	Beijing, the PRC Sino-foreign	26,754	20%	20%	20%	Transport and Logistics
Company Limited	equity joint venture
Beijing Chentong Freighting	Beijing, the PRC foreign invested	12,000	37%	37%	37%	Transport and Logistics
Service Co., Ltd.	enterprise and domestic capital
	joint venture
Beijing Hlink Cloud Co., Ltd.	Beijing, the PRC limited	10,000	N/A	40%	40%	IT Service
	liability company

Although the Group owns less than 20% equity interest in Qingdao Huasheng, the Group appointed directors to the board of Qingdao Huasheng and exercise significant influence over it.

The above table lists all associates of the Group. The names of certain associates referred to as above represent management’s translation of the Chinese names of these companies as no English names have been registered.

Summarised financial information of material associates is set out below. The summarised financial information below represents amounts shown in the associate’s financial statements prepared in accordance with accounting policies conform with IFRSs.

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Qingdao Huasheng

Current assets Non-current assets Current liabilities Non-current liabilities Revenue Profit and total comprehensive income for the year	2015 RMB’000 26,618 117,591 (24,428) (3,200) 48,940 16,091	2016 RMB’000 28,582 111,428 (14,547) (3,000) 53,150 20,577	2017 RMB’000 40,440 104,471 (13,527) (2,800) 59,617 24,638

Reconciliation of the above summarised financial information to the carrying amount of the interest in the associate recognised in the Historical Financial Information:

			2015	2016	2017
			RMB’000	RMB’000	RMB’000
	Net assets of Qingdao Huasheng		116,581	122,463	128,584
	Proportion of the Group’s ownership interest in Qingdao
	Huasheng		18%	18%	18%
	Carrying amount of the Group’s interest in Qingdao
	Huasheng		20,985	22,044	23,145
	Aggregate information of associates that are not individually	material is set out below.
			2015	2016	2017
			RMB’000	RMB’000	RMB’000
	The Group’s share of (loss)/profit		(3,743)	625	(788)
	Carrying amount of the Group’s interest
	in these associates		16,327	24,383	25,620
22.	AVAILABLE-FOR-SALE FINANCIAL ASSETS
			2015	2016	2017
			RMB’000	RMB’000	RMB’000
	Listed equity investments, at fair value (a)		1,436,246	791,625	327,065
	Unlisted equity investments, at cost (b)		59,130	59,130	34,130
			1,495,376	850,755	361,195

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(a) Movements in listed equity investments are analysed as follows:

At beginning of year Change in fair value Disposals At end of year	2015 RMB’000 1,357,669 235,016 (156,439) 1,436,246	2016 RMB’000 1,436,246 (167,947) (476,674) 791,625	2017 RMB’000 791,625 422,640 (887,200
			327,065

(b) Unlisted equity investments comprise equity interests in entities which are engaged in logistics, air freight forwarding operations and other financing activities. There is no open market for these investments and the Directors consider that the marketability of the Group’s shareholdings in these investments is low. In light of the non-controlling shareholdings held by the Group, the probabilities of the range of possible fair values of these investments cannot be reliably assessed. These investments are therefore stated at cost less impairment. The Group makes assessment when there is objective evidence that the available-for-sale financial assets are impaired in accordance with the guidelines in IAS 39. The assessment requires the Directors to make judgments. In making these judgments, the Group has assessed various factors, such as financial operation of the investees, prospect of their operations in short to medium terms, as well as the prospect of the industries the investees operate in, and changes in their operating environment.

23. PREPAYMENTS AND OTHER CURRENT ASSETS

	2015	2016	2017
	RMB’000	RMB’000	RMB’000
Due from related parties
– Amounts due from related parties (a)	2,640	83,043	2,080
Prepayments on behalf of customers	132,507	235,109	215,731
Available-for-sale financial asset (b)	–	100,000	–
Value added tax recoverable	4,870	8,789	21,443
Prepaid expenses	7,006	11,523	8,038
Others	534	145	2,152
	144,917	355,566	247,364
	147,557	438,609	249,444

(a) Amounts due from related parties

The amounts due from related parties are unsecured, non-interest bearing and repayable on demand.

(b) Available-for-sale financial asset

Available-for-sale financial asset is a wealth management product issued by a bank.

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24. TRADE AND OTHER RECEIVABLES

	2015	2016	2017
	RMB’000	RMB’000	RMB’000
Trade receivables (a)	771,093	815,468	840,408
Bills receivables (b)	33,600	52,350	35,849
Other receivables (c)	136,998	192,629	176,776
Amounts due from related parties (d)	55,367	57,297	124,002
	997,058	1,117,744	1,177,035

The carrying amounts of the Group’s trade and other receivables are denominated in the following currencies:

	2015	2016	2017
	RMB’000	RMB’000	RMB’000
RMB	837,734	815,974	834,342
US$	40,497	67,787	88,533
HK$	85,480	167,262	174,119
EUR	8,739	19,100	26,629
Others	24,608	47,621	53,412
	997,058	1,117,744	1,177,035

There is no concentration of credit risk with respect to trade receivables and bills receivables as the Group has a large number of customers, both locally and internationally dispersed.

The Group generally grants credit period between 30 to 90 days which are agreed with each of its trade customers. The extension of credit period to the customers may be granted on a discretionary basis by considering the current creditworthiness of the customer. The invoice dates approximate the respective revenue recognition dates. Aging analysis of the above trade receivables at the end of each reporting period is as follows:

	2015	2016	2017
	RMB’000	RMB’000	RMB’000
Within 6 months	768,554	802,226	827,708
Between 6 and 12 months	1,731	10,130	9,446
Between 1 and 2 years	808	3,112	3,254
	771,093	815,468	840,408

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ACCOUNTANTS’ REPORT ON THE SINOAIR GROUP

As at 31 December 2015, 2016 and 2017, the following trade and other receivables were past due but not impaired, because there has not been a significant change in credit quality and the amount are still considered recoverable. The aging analysis of these receivables is as follows:

	2015	2016	2017
	RMB’000	RMB’000	RMB’000
Within 6 months	26,322	14,112	21,333
Between 6 and 12 months	410	589	5,183
Between 1 and 2 years	503	3,650	505
	27,235	18,351	27,021

Movements on the provision for impairment of trade and other receivables are as follows:

At beginning of year Allowance for impairment Receivables written off as uncollectible Deemed disposal of subsidiaries (note 36) Exchange gains At end of year	2015 RMB’000 4,547 216 (22) (2,262) – 2,479	2016 RMB’000 2,479 21,680 (55) – – 24,104	2017 RMB’000 24,104 33,411 – – 625
			58,140

The maximum exposure to credit risk at the reporting date is the carrying amount of each class of receivables mentioned above. The Group does not hold any collateral as security.

(a) Trade receivables

		2015	2016	2017
		RMB’000	RMB’000	RMB’000
Trade	receivables	773,114	832,637	876,722
Less:	Allowance for impairment of receivables	(2,021)	(17,169)	(36,314)
Trade	receivables, net	771,093	815,468	840,408

(b) The Group has transferred bills receivables amounted RMB13,372,000 as at 31 December 2017 to its suppliers to settle its payables through endorsing the bills to its suppliers. The Group has not derecognised these bills receivables and the payables to suppliers in their entirety, as in the opinion of the Directors, the Group has not transferred substantially all the risks and rewards of ownership of these bills to the suppliers.

The maximum exposure to loss, which is the same as the amount payable by the Group to the suppliers in respect of the endorsed bills, should the issuing banks fail to settle the bills on maturity date amounted to RMB13,372,000 as at 31 December 2017.

All the bills receivables endorsed to suppliers of the Group have a maturity date of less than six months from the end of each reporting period.

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APPENDIX II

	2015	2016	2017
	RMB’000	RMB’000	RMB’000
Deposits receivables	100,823	156,697	124,520
Receivables from payments on behalf of
customers	20,624	19,440	36,600
Compensation receivables	16	12	138
Interest receivables	8,064	14,992	20,336
Others	7,486	7,562	14,846
	137,013	198,703	196,440
Less: Allowance for impairment of other
receivables	(15)	(6,074)	(19,664)
	136,998	192,629	176,776

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ACCOUNTANTS’ REPORT ON THE SINOAIR GROUP

(d) Amounts due from related parties

The amounts due from related parties are analysed as follows:

	2015	2016	2017
	RMB’000	RMB’000	RMB’000
Trade receivables:
Ultimate holding company and fellow subsidiaries	21,385	27,279	15,883
Joint ventures	17,336	20,489	11,487
Associates	156	1,308	398
Others	1,084	459	61
	39,961	49,535	27,829
Less: Allowance for impairment of trade
receivables	(124)	(188)	(62)
	39,837	49,347	27,767
Other receivables:
Ultimate holding company and fellow subsidiaries	3,376	3,171	80,973
Joint ventures	10,192	5,020	14,830
Associates	2,281	432	432
Others	–	–	2,100
	15,849	8,623	98,335
Less: Allowance for impairment of other
receivables	(319)	(673)	(2,100)
	15,530	7,950	96,235
	55,367	57,297	124,002

The aging of trade receivables due from ultimate holding company and fellow subsidiaries, joint ventures and associates, which are trading in nature based on invoice date, is summarised as follows:

	2015	2016	2017
	RMB’000	RMB’000	RMB’000
Within 6 months	39,557	48,908	27,639
Between 6 and 12 months	280	439	128
	39,837	49,347	27,767

The amounts due from related parties are unsecured and repayable on demand.

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25. RESTRICTED CASH

	2015	2016	2017
	RMB’000	RMB’000	RMB’000
Deposits denominated in RMB in banks restricted for
– guaranteed deposit	56,494	14,419	19,822
– other purposes	–	–	286
	56,494	14,419	20,108

The weighted average effective interest rate of the Group on restricted cash was 1.63%, 1.37% and 1.37% per annum as at 31 December 2015, 2016 and 2017, respectively.

26. TERM DEPOSITS WITH INITIAL TERMS OF OVER THREE MONTHS

The Group’s term deposits with initial terms of over three months are deposited in banks in the PRC, which the management of the Group believes are of high credit quality and does not expect high credit risks in this aspect. As at 31 December 2015, 2016 and 2017, the Group’s term deposits with initial terms of over three months are denominated in the following currencies:

	2015	2016	2017
	RMB’000	RMB’000	RMB’000
RMB	691,540	1,157,334	2,149,527
US$	120,000	–	–
	811,540	1,157,334	2,149,527

The weighted average effective interest rate on term deposits with initial terms of over three months of the Group was 2.31%, 2.18% and 1.92% per annum as at 31 December 2015, 2016 and 2017, respectively.

27. CASH AND CASH EQUIVALENTS

	2015	2016	2017
	RMB’000	RMB’000	RMB’000
Cash at bank and in hand	1,273,867	1,876,967	2,201,829
Short-term bank deposits	560,121	242,745	537,035
	1,833,988	2,119,712	2,738,864

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ACCOUNTANTS’ REPORT ON THE SINOAIR GROUP

(a) As at 31 December 2015, 2016 and 2017, the Group’s cash and cash equivalents are denominated in the following currencies:

	2015	2016	2017
	RMB’000	RMB’000	RMB’000
RMB	1,527,958	1,915,097	2,252,739
US$	257,337	169,013	306,502
HK$	25,400	15,950	151,339
EUR	20,474	12,538	25,358
Others	2,819	7,114	2,926
	1,833,988	2,119,712	2,738,864

(b) The weighted average effective interest rate of the Group on short term bank deposits was 1.60%, 1.92% and 2.07% per annum as at 31 December 2015, 2016 and 2017, respectively.

28. BORROWINGS

Borrowings represent bank borrowings and borrowings from China Merchants Group finance Co., Ltd. (“ Finance Company ”), which are analysed as follows:

	2015	2016	2017
	RMB’000	RMB’000	RMB’000
Current
Bank borrowings denominated in
– HK$
Floating interest rate	43,976	84,978	167,180
Borrowings from Finance Company
– US$
Fixed interest rate	–	51,264	–
	43,976	136,242	167,180

The weighted average effective interest rate of the borrowings was 1.89%, 2.17% and 1.94% per annum as at 31 December 2015, 2016 and 2017, respectively.

The bank borrowings were guaranteed by the pledged restricted cash amounting to RMB53,000,000 as at 31 December

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ACCOUNTANTS’ REPORT ON THE SINOAIR GROUP

29. PROVISIONS

			Litigation
	Reserve	Guarantees	claims	Total
	RMB’000	RMB’000	RMB’000	RMB’000
	(a)	(b)	(c)
2015
As at 1 January 2015	2,784	40,544	–	43,328
Addition/(reverse)	691	(8,716)	22,110	14,085
Paid during the year	(522)	(19,587)	–	(20,109)
As at 31 December 2015	2,953	12,241	22,110	37,304
2016
As at 1 January 2016	2,953	12,241	22,110	37,304
Addition/(reverse)	1,623	15,460	26,616	43,699
Paid during the year	(731)	–	(3,904)	(4,635)
As at 31 December 2016	3,845	27,701	44,822	76,368
2017
As at 1 January 2017	3,845	27,701	44,822	76,368
Addition/(reverse)	3,218	(27,701)	79,737	55,254
Paid during the year	(1,301)	–	–	(1,301)
As at 31 December 2017	5,762	–	124,559	130,321

(a) Reserve represents the Group’s provision made prior to the safety production cost.
(b) Loan guarantees amounting RMB74,216,000, RMB52,856,000 and nil, respectively, provided by the Group for the benefit of a joint venture was outstanding as at 31 December 2015, 2016 and 2017, respectively.
(c) Provision for as at the end of each reporting periods relates to certain legal claims brought against the Group by customers and vendors. Included in the addition for the year ended 31 December 2017 a legal case against a subsidiary of the Group initiated by a customer amounting to RMB41,900,000. The provision was recognised based on management’s best estimate after consultation made with the legal counsel on the possible outcome and liability of the Group. In case where the actual future outcomes differ from the estimation, further provision made be required.

30. DEFERRED REVENUE

As at 31 December 2015, 2016 and 2017, deferred revenue consists of deferred income arising from government grants.

Such government grants mainly represent the grants from government for the purchase of land use rights and logistics park construction. There is no unfulfilled condition relating to those grants. Such grants are deferred and released to profit or loss in accordance with the useful lives of the related assets.

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APPENDIX II

31. TRADE PAYABLES

	2015	2016	2017
	RMB’000	RMB’000	RMB’000
Non-related parties trade payables (a)	648,648	800,351	1,134,968
Due to related parties (b)	23,186	42,831	34,199
	671,834	843,182	1,169,167

The carrying amounts of the Group’s trade payables are denominated in the following currencies:

	2015	2016	2017
	RMB’000	RMB’000	RMB’000
RMB	607,715	632,467	883,619
US$	14,520	99,544	145,187
HK$	39,813	94,571	114,116
EUR	3,941	12,256	23,092
Others	5,845	4,344	3,153
	671,834	843,182	1,169,167

(a) Non-related parties trade payables

The normal credit period for trade payables to non-related parties generally ranges from 1 to 6 months. Aging analysis of trade payables based on invoice date at the end of each reporting period is as follows:

	2015	2016	2017
	RMB’000	RMB’000	RMB’000
Within 6 months	568,905	514,765	793,590
Between 6 and 12 months	–	108,119	90,099
Between 1 and 2 years	11,739	112,524	121,217
Between 2 and 3 years	59,434	11,004	74,392
Over 3 years	8,570	53,939	55,670
	648,648	800,351	1,134,968

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APPENDIX II

(b) Due to related parties

The amounts due to related parties, which are trading in nature, are analysed as follows:

	2015	2016	2017
	RMB’000	RMB’000	RMB’000
Ultimate holding company and fellow subsidiaries	16,384	30,554	25,694
Joint ventures	4,904	9,614	5,669
Associates	1,490	1,910	2,645
Others	408	753	191
	23,186	42,831	34,199

The normal credit period for trade payables due to related parties generally ranges from 1 to 6 months. The aging of these amounts due to the ultimate holding company and fellow subsidiaries, joint ventures, associates and others based on invoice date is as follows:

	2015	2016	2017
	RMB’000	RMB’000	RMB’000
Within 6 months	22,688	36,787	27,130
Between 6 and 12 months	93	1,997	4,085
Between 1 and 2 years	47	3,773	294
Between 2 and 3 years	127	21	2,426
Over 3 years	231	253	264
	23,186	42,831	34,199

The amounts due to related parties are described in Note 43(b).

32. OTHER PAYABLES, ACCRUALS AND OTHER CURRENT LIABILITIES

	2015	2016	2017
	RMB’000	RMB’000	RMB’000
Other payables and accruals (a)	57,258	56,774	96,715
Due to related parties (b)	2,234	1,446	674
	59,492	58,220	97,389

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ACCOUNTANTS’ REPORT ON THE SINOAIR GROUP

(a) Other payables and accruals

	2015	2016	2017
	RMB’000	RMB’000	RMB’000
Customers’ deposits	10,853	26,971	26,615
Other tax liabilities	4,666	6,627	18,837
Payables for property, plant and equipment	25,890	14,765	35,324
Accrued expenses	6,942	5,769	6,425
Interest payable	146	–	413
Temporary receipts	243	720	1,950
Others	8,518	1,922	7,151
	57,258	56,774	96,715

(b) Due to related parties

The amounts due to related parties are analysed as follows:

		2015	2016	2017
		RMB’000	RMB’000	RMB’000
	Ultimate holding company
	and fellow subsidiaries*	2,189	1,379	465
	Joint ventures	45	53	209
	Associates	–	14	–
		2,234	1,446	674
33.	RECEIPTS IN ADVANCE FROM CUSTOMERS
		2015	2016	2017
		RMB’000	RMB’000	RMB’000
	Amounts collected on behalf of others	49,981	52,984	18,608
	Receipts in advance from customers	62,684	65,499	98,497
		112,665	118,483	117,105
34.	SHARE CAPITAL
		2015	2016	2017
		RMB’000	RMB’000	RMB’000
	Registered, issued and fully paid
	– 905,482,000 domestic shares outstanding at par value
	of RMB1.00 each	905,482	905,482	905,482

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APPENDIX II

35. RESERVES

In accordance with the relevant PRC regulations and the Articles of Association of the Company, every year the Company is required to transfer 10% of the profit after taxation determined in accordance with the PRC accounting standards to a statutory surplus reserve every year until the balance reaches 50% of the registered share capital.

Because the balance of the statutory surplus reserve has already reached 50% of the registered share capital of the Company, according to the related resolutions in the tenth meeting of the fifth board of directors, the Company has ceased transferring net income to the statutory surplus reserve. So there is no change of the statutory surplus as at 31 December 2015, 2016 and 2017.

36. DEEMED DISPOSAL OF SUBSIDIARIES

On 1 January 2015, the shareholder agreement (the "Shareholder Agreement") between the Group and Dalian Jiujiu Logistics Co., Ltd., the shareholder of 55% equity interest in Dalian JD has expired. According to the Shareholder Agreement, the Group could have control of Dalian JD, even though only had 45% equity interest in Dalian JD. After the termination of the previous agreement the Group lost control over Dalian JD, yet the Group can still exercise joint control over Dalian JD, therefore, the 45% equity investment by the Group is accounted for as investment in joint venture using equity method.

On 19 August 2015, Sinotrans Luzhou amended the articles of association approved by Company. According to the new articles of association, the Group lost control over Sinotrans Luzhou (a 60% then owned subsidiary), yet the Group can still exercise joint control with Luzhou Xinglu Investment Group Co., Ltd. (40% equity interest in Sinotrans Luzhou) over Sinotrans Luzhou, therefore, the 60% equity investment by the Group is accounted for as investment in joint venture using equity method.

On 21 December 2015, The Group entered into a capital injection agreement with Haoyue Holding Co., Ltd (“Haoyue Holding”), for the capital injection by Haoyue Holding which resulted in a dilution of the Group’s 50% equity interest in Sinotrans E-commerce (a 100% then owned subsidiary). After the completion of the transaction the Group lost control over Sinotrans E-commerce, yet the Group can still exercise joint control over Sinotrans E-commerce, therefore, the 50% equity investment retained by the Group is accounted for as investment in joint venture using equity method.

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ACCOUNTANTS’ REPORT ON THE SINOAIR GROUP

Consideration received: Fair value of the remaining investment in joint venture Analysis of assets and liabilities over which control was lost: Non-current assets: Land use rights Property, plant and equipment Intangible assets Others Current assets: Cash and cash equivalents Trade and other receivables Others Current liabilities: Trade payables Other payables, accruals and other current liabilities Salary and welfare payables Others Non-current liabilities: Deferred revenue Net assets disposed of Gain on disposal of a subsidiary: Fair value of the remaining interest in joint venture Less: Net assets disposed of Non-controlling interests Gain on disposal Net cash outflow arising on disposal: Cash consideration Less: bank balances and cash disposed of	Dalian JD RMB’000 5,866 – 1,895 – 204 7,991 28,966 712 15,845 8,118 138 369 – 13,036 5,866 13,036 7,170 – – 7,991 (7,991)	Sinotrans Luzhou RMB’000 94,796 25,404 96,702 – – 40,192 771 42 – 339 1,012 – 3,766 157,994 94,796 157,994 63,198 – – 40,192 (40,192)	Sinotrans E-commerce RMB’000 35,563 – 928 45 67 2,205 19,592 – – 570 745 397 – 21,125 35,563 21,125 – 14,438 – 2,205 (2,205)

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APPENDIX II

37. NOTES TO CONSOLIDATED STATEMENT OF CASH FLOWS

Reconciliation of profit for the year to cash generated from operations:

Profit before income tax Interest income Interest expenses Losses/(gains) on disposal of property, plant and equipment and land use rights Impairment loss of receivables Impairment loss of inventory Impairment loss of investment in a joint venture Depreciation of property, plant and equipment Depreciation of investment properties Amortisation of intangible assets Amortisation of other non-current assets Amortisation of land use rights Share of loss/(profit) of associates, net of tax Share of profit of joint ventures, net of tax Dividend income on available-for-sale financial assets Gain on disposal of joint ventures Gain on deemed disposal of subsidiaries Gain on disposal of available-for-sale financial assets Exchange (gains)/losses Operating profit before working capital changes (Increase)/decrease in prepayments and other current assets (Increase)/decrease in restricted cash Decrease/(increase) in inventories Increase in trade and other receivables Increase in provisions Increase in trade payables Increase in other payables, accruals and other current liabilities Increase/(decrease) in receipts in advance from customers Increase in salary and welfare payables Cash generated from (used in) operations	2015 RMB’000 1,010,392 (39,776) 968 405 216 – – 53,830 – 1,920 145 7,485 847 (885,641) (4,741) – (14,438) (84,408) (1,195) 46,009 (1,193) (9,649) 737 (63,879) 13,563 33,088 32,243 12,419 3,463 66,801	2016 RMB’000 1,024,217 (40,185) 1,586 (671) 21,680 444 4,020 56,455 3,084 2,725 882 12,446 (4,329) (766,648) (16,345) – – (306,934) (3,435) (11,008) (190,538) 42,075 (270) (106,964) 39,064 171,346 6,597 5,818 9,880 (34,000)	2017 RMB’000 1,481,313 (60,102) 2,544 (72) 33,411 1,906 14,842 58,480 2,905 3,072 501 10,994 (3,647) (890,138) (6,880) (1,416) – (573,614) 5,177 79,276 8,864 (6,209) (10,376) (2,883) 53,953 325,985 17,545 (1,378) 15,235 408,012

38. CONTINGENT LIABILITIES

The Group has been named in a number of lawsuits arising from the ordinary course of business. Where the management can reasonably estimate the outcome of the lawsuits taking into account of the legal advices, provisions have been made for the probable losses which are included in Note 29. Where the management cannot reasonably estimate the outcome of the lawsuits or believe it is more likely than not that no present obligation exist as a result of the outcomes of these law suits, no provision has been made. The maximum exposure of such lawsuits of the Group amounted to approximately RMB47,387,000, RMB31,249,000 and RMB95,680,000 as at 31 December 2015, 2016 and 2017 respectively.

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APPENDIX II

39. CAPITAL COMMITMENTS

At the end of each reporting period, the Group has the following contractual capital commitments not provided for in the Historical Financial Information:

					2015	2016	2017
					RMB’000	RMB’000	RMB’000
Contracted	for	but	not	provided	154,811	434,264	105,638

40. OPERATING LEASE COMMITMENTS

(a) The Group as lessee

The Group leases various land and buildings, vessels, containers and other equipment under non-cancellable operating lease agreements. The leases have varying terms, escalation clauses and renewal rights. The lease expenditure charged to the consolidated statements of profit or loss during the Relevant Periods is disclosed in Note 10.

The Group has commitments to make the following future minimum lease payments under non-cancellable operating leases:

	2015	2016	2017
	RMB’000	RMB’000	RMB’000
Land use rights and buildings
– Not later than one year	7,990	16,543	13,451
– Later than one year but not later than five years	5,790	12,592	7,814
Plant and equipment
– Not later than one year	1	273	693
– Later than one year but not later than five years	1	520	573
	13,782	29,928	22,531

(b) The Group as lessor

The Group has contracted with customers for the following future minimum lease receivables under noncancellable operating leases:

	2015	2016	2017
	RMB’000	RMB’000	RMB’000
Land use rights, buildings and
investment property
– Not later than one year	6,514	9,236	14,256
– Later than one year but not later than five years	12,623	18,937	34,241
– Later than five years	1,106	–	609
	20,243	28,173	49,106

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APPENDIX II

41. FINANCIAL INSTRUMENTS

41a. Categories of financial instruments

The classification of the financial instruments of the Group is set out below:

		Available-for-
		sale financial	Available-for-
	Loans and	assets at fair	sale financial
	receivables	value	assets at cost	Total
	RMB’000	RMB’000	RMB’000	RMB’000
Financial assets
As at 31 December 2015
Available-for-sale financial assets	–	1,436,246	59,130	1,495,376
Trade and other receivables	997,058	–	–	997,058
Other current assets	2,640	–	–	2,640
Restricted cash	56,494	–	–	56,494
Term deposits with initial terms
of over three months	811,540	–	–	811,540
Cash and cash equivalents	1,833,988	–	–	1,833,988
Total	3,701,720	1,436,246	59,130	5,197,096
As at 31 December 2016
Available-for-sale financial assets	–	891,625	59,130	950,755
Trade and other receivables	1,117,744	–	–	1,117,744
Other current assets	83,043	–	–	83,043
Restricted cash	14,419	–	–	14,419
Term deposits with initial terms
of over three months	1,157,334	–	–	1,157,334
Cash and cash equivalents	2,119,712	–	–	2,119,712
Total	4,492,252	891,625	59,130	5,443,007
As at 31 December 2017
Available-for-sale financial assets	–	327,065	34,130	361,195
Trade and other receivables	1,177,035	–	–	1,177,035
Other current assets	2,080	–	–	2,080
Restricted cash	20,108	–	–	20,108
Term deposits with initial terms
of over three months	2,149,527	–	–	2,149,527
Cash and cash equivalents	2,738,864	–	–	2,738,864
Total	6,087,614	327,065	34,130	6,448,809

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ACCOUNTANTS’ REPORT ON THE SINOAIR GROUP

Financial liabilities As at 31 December 2015 Trade payables Other payables, accruals and other current liabilities Borrowings Financial guarantees Total As at 31 December 2016 Trade payables Other payables, accruals and other current liabilities Borrowings Financial guarantees Total As at 31 December 2017 Trade payables Other payables, accruals and other current liabilities Borrowings Total	Measured at amortised cost RMB’000 671,834 43,973 43,976 12,241
	772,024
	843,182 24,622 136,242 27,710
	1,031,756
	1,169,167 51,937 167,180
	1,388,284

41b. Financial risk management objectives and policies

The Group’s activities expose to a variety of financial risks: market risk (including currency risk, equity price risk and interest rate risk), credit risk and liquidity risk. The Group’s overall financial risk management programme focuses on the unpredictability of financial markets, optimising the level of financial risks the Group can bear, and minimising any potential adverse effects on the financial performance of the Group.

Financial risk management is carried out by the Group’s finance department, following the overall directions determined by the Directors. The finance department identifies and evaluates financial risks in close co-operation with the Group’s operating units and makes decisions on portfolio of currencies and term of deposits. The Directors provide directions on overall risk management and make key decisions on matters which may give rise to significant financial risks.

There has been no change to the types of the Group’s exposure in respect of financial instruments or the manner in which it manages and measures the risks.

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APPENDIX II

Market risk

Currency risk

The Group has cash and cash equivalents, trade and other receivables, borrowings and trade payables which are denominated in foreign currencies. The carrying amount of the Group’s foreign currency denominated monetary assets and liabilities at the end of each reporting period are as follows:

	2015	2016	2017
	RMB’000	RMB’000	RMB’000
US$
Assets	387,722	204,565	359,304
Liabilities	11,278	94,498	140,176
HK$
Assets	2,966	3,545	3,236
Liabilities	27,967	40,999	71,673
EUR
Assets	18,390	13,752	18,631
Liabilities	309	10,600	18,913

Sensitivity analysis

The Group is mainly exposed to the currency risk of US$, HK$ and EUR.

The following table details the Group’s sensitivity to a 5% increase and decrease in RMB against US$, HK$ and EUR. 5% is the sensitivity rate used when reporting foreign currency risk internally to the management and represents the management’s assessment of the reasonably possible change in foreign exchange rates. The sensitivity analysis includes only outstanding foreign currency denominated monetary items and adjusts the translation at the year end for a 5% change in foreign currency rates. A positive/negative number below indicates an increase/a decrease in profit after tax where RMB strengthens 5% against US$, HK$ and EUR. For a 5% weakening of RMB against US$, HK$ and EUR, there would be an equal and opposite impact on the profit before after tax.

	2015	2016	2017
	RMB’000	RMB’000	RMB’000
US$	(18,822)	(5,503)	(10,956)
HK$	1,250	1,873	3,422
EUR	(904)	(158)	14

Equity price risk

The Group is exposed to equity price risk in respect of equity investments held by the Group classified as available-for-sale financial assets.

Sensitivity analysis

The Group has monitored the performance of the equity securities and reported regularly to the Directors. With all other variables held constant, if the average market price of equity securities goes by 10% higher/lower, the Group’s other comprehensive income after taxation for the years ended 31 December 2015, 2016 and 2017 would have increased/decreased by RMB107,718,000, RMB59,372,000 and RMB24,530,000 respectively. A decrease in market price of equity investments may also lead to indicator of impairment losses.

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APPENDIX II

Interest rate risk

The Group’s exposures to changes in interest rates is mainly attributable to term deposits with initial terms of over three months and borrowings. Borrowings at variable rates expose the Group to cash flow interest rate risks; term deposits with initial terms of over three months at fixed rates expose the Group to fair value interest rate risk.

The Group’s exposures to interest rates on financial liabilities are detailed in the liquidity risk management section of this note. The cash flow interest rate risk of the Group is mainly concentrated on the fluctuation of loan interest published by the People’s Bank of China and LIBOR arising from the Group’s HK dollar and US dollar denominated borrowings.

The Group reviews the portfolio of borrowings subject to variable and fixed interest rates. And if necessary, the Group also regularly analyses its interest rate exposure by considering alternative financing, etc. The Group’s income and operating cash flows are substantially independent of changes in market interest rates. The management of the Group did not consider it necessary to use interest rate swaps to hedge its exposure to interest rate risk.

Sensitivity analysis

With all other variables held constant, if the interest rate had increased/decreased by 50 basis-points, finance costs of the Group for the years ended 31 December 2015, 2016 and 2017 would have increased/decreased by RMB220,000, RMB681,000 and RMB836,000 respectively.

Credit risk

The aggregate carrying amounts of cash and cash equivalents, restricted cash, trade and other receivables, the short term wealth management product and term deposits with initial terms of over three months and financial guarantee represent the Group’s maximum exposure to credit risk in relation to financial assets and other commitments.

Substantially all of the Group’s cash and cash equivalents, term deposits with initial terms of over three months and restricted cash are held in major financial institutions located in the PRC, which the management believes are of high credit quality and expects insignificant credit risks in this aspect.

In general, the Group does not require collaterals from trade debtors, while the Group has policies in place to ensure that services are rendered to customers with appropriate credit history, and the management of the Group monitors the credit risks on an on-going basis by reviewing the debtors’ aging to minimise its exposure to credit risk. Credit terms are normally given to customers according to their credit quality individually. The Group have transactions with a large number of customers. both locally and internationally dispersed, so the Directors consider that the Group do not have a significant concentration of credit risk.

Liquidity risk

Prudent liquidity risk management implies maintaining sufficient cash and cash equivalents. Due to the dynamic nature of its business, the Group ensure that it maintains flexibility by keeping sufficient cash generated from operations to meet the liquidity requirements.

Management monitors rolling forecasts of the Group’s liquidity reserve comprises cash and cash equivalents on the basis of expected cash flows. This is generally carried out at the operating companies’ level in accordance with the practice and budget set by the Group. These budgets vary by location to take into account the liquidity of the market in which the entity operates. In addition, the Group’s liquidity management policy involves projecting cash flows in major currencies and considering the necessary level of liquid assets; monitoring liquidity ratios against internal and external regulatory requirements; and maintaining debt financing plans.

The maturity analysis of borrowings is disclosed in Note 28.

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APPENDIX II ACCOUNTANTS’ REPORT ON THE SINOAIR GROUP

The table below analyses the Group’s financial liabilities based on the remaining period from the end of each reporting period to the contractual maturity date. The spot rate as at the end of each reporting period is used for the cash flow calculation in relation to the amounts settled with foreign currencies. The interest rate as at the end of each reporting period is used for the cash flow calculation in relation to variable rate interest bearing financial liabilities. The amounts disclosed in the table are the contractual undiscounted cash flows. Balances due within 12 months approximate their carrying amounts, as the impact of discounting is not significant.

	Weighted	On demand					Total	Total
	Average	or less than 1	Between 1		Between 3		undiscounted	carrying
	interest rate	year	and 3 years		and 5 years	Over 5 years	cash flows	amount
		RMB’000	RMB’000		RMB’000	RMB’000	RMB’000	RMB’000
As at 31 December 2015
Borrowings	1.89%	44,325		–	–	–	44,325	43,976
Trade payables		671,834		–	–	–	671,834	671,834
Other payables, accruals and
other current liabilities		43,973		–	–	–	43,973	43,973
Financial guarantee contracts*		24,481	49,734		–	–	74,215	12,241
Total		784,613	49,734		–	–	834,347	772,024
As at 31 December 2016
Borrowings	2.17%	137,467		–	–	–	137,467	136,242
Trade payables		843,182		–	–	–	843,182	843,182
Other payables, accruals and
other current liabilities		24,622		–	–	–	24,622	24,622
Financial guarantee contracts*		27,701	27,701		–	–	55,402	27,701
Total		1,032,972	27,701		–	–	1,060,673	1,031,747
As at 31 December 2017
Borrowings	1.94%	168,012		–	–	–	168,012	167,180
Trade payables		1,169,167		–	–	–	1,169,167	1,169,167
Other payables, accruals and
other current liabilities		51,937		–	–	–	51,937	51,937
Total		1,839,116		–	–	–	389,116	1,388,284

The amounts included in the above financial guarantee contracts are the maximum amounts the Group could be required to settle under the arrangement for the full guaranteed amount if that amount is claimed by the counterparty to the guarantee. Based on expectations at the end of each reporting period, the Group considers that except for an amount of RMB12,241,000 and RMB27,701,000 as at 31 December 2015 and 2016 respectively recognised as provision (Note 29), no additional amount will be payable under the arrangement. However, this estimate is subject to change depending on the probability of the counterparty claiming under the guarantee which is a function of the likelihood that the financial receivables held by the counterparty which are guaranteed suffer credit losses.
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ACCOUNTANTS’ REPORT ON THE SINOAIR GROUP

APPENDIX II

Fair value measurements

The following table presents the Group’s assets that are measured at fair value at 31 December 2015, 2016 and 2017.

As at 31 December 2015 Assets Available-for-sale financial assets – Equity securities As at 31 December 2016 Assets Available-for-sale financial assets – Equity securities – Other current asset As at 31 December 2017 Assets* Available-for-sale financial assets – Equity securities	Level 1 RMB’000 1,436,246 791,625 – 791,625 327,065	Level 2 RMB’000 – – 100,000 100,000 –	Total Valuation techniques and key inputs RMB’000 1,436,246 Quoted bid price in an active market. 791,625 Quoted bid price in an active market. 100,000 Discounted cash flow. Future cash flows are estimated based on contractual terms of the wealth management products and discounted at a rate that reflects the credit risk of the counterparties. 891,625 327,065 Quoted bid price in an active market.

Other current asset is wealth management product issued by a bank (Note 23).

At the end of each reporting period, the Directors consider that the carrying amounts of financial assets and financial liabilities recorded at amortised cost in the Historical Financial Information approximate to their fair values.

Capital risk management

The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. The Group’s overall strategy remains unchanged during the Relevant Periods.

The capital structure of the Group consists of net debt, which includes the borrowings disclosed in Note 28, net of cash and cash equivalents and equity attributable to owners of the Company, comprising issued share capital and reserves.

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ACCOUNTANTS’ REPORT ON THE SINOAIR GROUP

APPENDIX II

The Group monitors capital on the basis of maintaining the net cash/debt position. The net cash/debt position is calculated as total cash and cash equivalents as shown in the consolidated statements of financial position less total borrowings.

Cash and cash equivalents Less: Total borrowings Net cash position	2015 RMB’000 1,833,988 (43,976) 1,790,012	2016 RMB’000 2,119,712 (136,242) 1,983,470	2017 RMB’000 2,738,864 (167,180
			2,571,684

42. RECONCILIATION OF LIABILITIES ARISING FROM FINANCING ACTIVITIES

The table below details changes in the Group’s liabilities arising from financing activities, including both cash and noncash changes. Liabilities arising from financing activities are those for which cash flows were, or future cash flows will be, classified in the Group’s consolidated statement of cash flows as cash flows from financing activities.

						31
	1 January	Financing	Interest	Dividend	Exchange	December
	2015	cash flow	accrued	declared	gain/(loss)	2015
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
Bank borrowings (Note 28)	38,656	3,583	–	–	1,737	43,976
Interest payable (Note 32)	–	(822)	968	–	–	146
Dividends payable	–	(362,193)	–	362,193	–	–
						31
	1 January	Financing	Interest	Dividend	Exchange	December
	2016	cash flow	accrued	declared	gain/(loss)	2016
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
Bank borrowings (Note 28)	43,976	40,243	–	–	759	84,978
Borrowings from Finance
Company (Note 28)	–	51,629	–	–	(365)	51,264
Interest payable (Note 32)	146	(1,732)	1,586	–	–	–
Dividends payable	–	(452,741)	–	452,741	–	–
Other payables, accruals
and other current
liabilities	4,544	(4,544)	–	–	–	–
						31
	1 January	Financing	Interest	Dividend	Exchange	December
	2017	cash flow	accrued	declared	gain/(loss)	2017
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
Bank borrowings (Note 28)	84,978	92,145	–	–	(9,943)	167,180
Borrowings from Finance
Company (Note 28)	51,264	(48,918)	–	–	(2,346)	–
Interest payable (Note 32)	–	(2,131)	2,544	–	–	413
Dividends payable	–	(452,741)	–	452,741	–	–

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ACCOUNTANTS’ REPORT ON THE SINOAIR GROUP

APPENDIX II

43. SIGNIFICANT RELATED PARTY TRANSACTIONS

The Company is ultimately controlled by the PRC government and the Group operates in an economic environment currently predominated by entities controlled, jointly controlled or significantly influenced by the PRC government (“ government-related entities ”). In addition, the Group itself is part of a larger group of companies under China Merchants, which is controlled by the PRC government.

Related parties include China Merchants (including its subsidiaries, joint ventures and associates), other governmentrelated entities, other entities and corporations in which the Group is able to control, jointly control, or exercise significant influence and key management personnel of the Group, China Merchants and Sinotrans & CSC as well as their close family members.

For the purpose of the related party transaction disclosures, the Directors believe that meaningful information in respect of related party transactions has been adequately disclosed.

(a) Significant transactions with related parties

	2015	2016	2017
	RMB’000	RMB’000	RMB’000
Transactions with ultimate holding company
including fellow subsidiaries, joint ventures
and associates
Revenue from provision of transportation and
logistics services	138,344	117,511	146,881
Expenses – Service fees	(99,082)	(64,624)	(146,608)
Transactions with associates of the Group
Revenue from provision of transportation and
logistics services	1,035	5,186	2,074
Expenses – Service fees	(10,665)	(13,002)	(24,534)
Transactions with joint ventures of the Group
Revenue from provision of transportation and
logistics services	54,002	55,883	78,024
Expenses – Service fees	(45,541)	(72,181)	(76,254)
Transactions with other government-related
entities
Interest income from bank deposits	40,155	40,221	60,863

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ACCOUNTANTS’ REPORT ON THE SINOAIR GROUP

APPENDIX II

(b) Balances with related parties

	2015	2016	2017
	RMB’000	RMB’000	RMB’000
Balances with the ultimate holding company
including fellow subsidiaries, joint ventures
and associates
Cash and cash equivalents	–	22,767	1,967
Term deposits with initial terms of over three
months	–	–	95,000
Trade and other receivables	25,540	30,754	96,855
Prepayments and other current assets	2,423	82,541	1,627
Trade payables	16,792	31,307	25,885
Other payables, accruals and other current
liabilities	2,189	1,379	465
Receipts in advance from customers	435	676	783
Balances with joint ventures of the Group
Trade and other receivables	27,390	24,803	26,317
Prepayments and other current assets	217	290	376
Trade payables	4,904	9,614	5,669
Other payables, accruals and other current
liabilities	45	53	209
Receipts in advance from customers	1,589	2,027	1,963
Balances with associates of the Group
Trade and other receivables	2,437	1,740	830
Prepayments and other current assets	–	212	77
Trade payables	1,490	1,910	2,645
Other payables, accruals and other current
liabilities	–	14	–
Receipts in advance from customers	10	10	71
Balances with other government-related entities
Restricted cash	3,494	14,419	20,108
Terms deposits with initial terms of over three
months	761,540	817,334	1,754,527
Cash and cash equivalents	1,683,995	2,075,070	2,579,019

(c) Operating lease commitment with related parties

The operating lease commitments with related parties are included in Note 40.

(d) Key management compensation

Key management includes executive directors, senior management and supervisors. The compensation paid or payable to key management for employee services is shown below:

	2015	2016	2017
	RMB’000	RMB’000	RMB’000
Basic salaries, housing allowances and other
allowances	3,434	4,872	6,832

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ACCOUNTANTS’ REPORT ON THE SINOAIR GROUP

APPENDIX II

44. PARTICULARS OF PRINCIPAL SUBSIDIARIES OF THE COMPANY

			Proportion of ownership interest	Proportion of ownership interest	Proportion of ownership interest
			and voting rights held by the
	Country/place of	Issued share		Group
	operation &	capital/paid		at 31 December
Name	incorporation	up capital	2015	2016	2017	Principal activities
		RMB’000
Sinotrans Airport Logistics (Shanghai) Co.,	Shanghai, the PRC	145,000	100%	100%	100%	Transport and Logistics
Ltd.
Foshan Sinotrans Customers Brokerage Co.,	Foshan, the PRC	35,797	100%	100%	100%	Transport and Logistics
Ltd.
Sinotrans Integrated Logistics Co., Ltd.	Beijing, the PRC	149,974	100%	100%	100%	Transport and Logistics
(“Integrated Logistics”)
Sinotrans Air Hong Kong Transportation	Hong Kong, the PRC	HK$143,000	100%	100%	100%	Transport and Logistics
Development Company Limited. (“Sinoair
HK”)
Mianyang Sinotrans Logistics Co., Ltd.	Minayang, the PRC	3,000	100%	100%	100%	Transport and Logistics
Nanjing Xinyun Logistics Co., Ltd.	Nanjing, the PRC	5,000	100%	100%	100%	Transport and Logistics
Sinotrans Airport Logistics (Qingdao) Co.,	Qingdao, the PRC	135,000	100%	100%	100%	Transport and Logistics
Ltd.
Sinotrans Dingzhou Logistics Co., Ltd.	Dingzhou, the PRC	40,000	100%	100%	100%	Transport and Logistics
Tianjin Tianhua Hongyun Logistics Ltd.	Tianjin, the PRC	82,091	100%	100%	100%	Transport and Logistics
Sinotrans Mianyang Export Processing Zone	Mianyang, the PRC	1,000	100%	100%	100%	Transport and Logistics
Logistics Co., Ltd.
Sinotrans Airport Logistics (Chengdu) Co.,	Chengdu, the PRC	126,000	100%	100%	100%	Transport and Logistics
Ltd.
Sinotrans (Changchun) Logistics Co., Ltd.	Changchun, the PRC	259,500	100%	100%	100%	Transport and Logistics
Sinotrans Express Co., Ltd.	Shanghai, the PRC	70,110	100%	100%	100%	Transport and Logistics
Beijing Sinotrans Airport Storage Service	Beijing, the PRC	5,000	100%	100%	100%	Transport and Logistics
Co., Ltd.
Sinotrans Airport Logistics (Zhengzhou) Co.,	Zhengzhou, the PRC	95,000	100%	100%	100%	Transport and Logistics
Ltd
Sinotrans Nanjing Airport Logistics Co., Ltd	Nanjing, the PRC	74,000	100%	100%	100%	Transport and Logistics
Sinotrans (Wuhan) Supply Chain Logistics	Wuhan, the PRC	95,000	100%	100%	100%	Transport and Logistics
Ltd
Sinotrans (Nanchang) Supply Chain Logistics	Nanchang, the PRC	20,000	100%	100%	100%	Transport and Logistics
Ltd.
Beijing Sinotrans Jiahang Logistics Ltd.	Beijing, the PRC	5,000	100%	100%	100%	Transport and Logistics
Sinotrans (Hefei) Airport Logistics Ltd.	Heifei, the PRC	25,000	100%	100%	100%	Transport and Logistics
Shanghai Sinotrans Air Bounded Logistics	Shanghai, the PRC	5,000	100%	100%	100%	Transport and Logistics
Co., Ltd.
China Interocean Transport Inc.	New York, United States	US$2,500	100%	100%	100%	Transport and Logistics

The above table lists all the subsidiaries of the Group. The names of certain subsidiaries referred to as above represent management’s translation of the Chinese names of these companies as no English names have been registered.

The statutory financial statements of Integrated Logistics for the years ended 31 December 2015, 2016 and 2017 were prepared in accordance with the relevant accounting principles and regulations applicable to enterprises established in the PRC and were audited by Deloitte Touche Tohmatsu Certified Public Accountants LLP, certified public accountants registered in the PRC. The statutory financial statements of Sinoair HK for the years ended 31 December 2015, 2016 and 2017 were prepared in

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APPENDIX II ACCOUNTANTS’ REPORT ON THE SINOAIR GROUP

accordance with Hong Kong Financial Reporting Standards issued by the HKICPA and were audited by CYYAN & Partners CPA Limited, certified public accountants registered in Hong Kong. There are no statutory requirements for other subsidiaries to issue statutory audited financial statements.

45. EVENTS AFTER THE REPORTING PERIOD

On 28 February 2018, the Company entered into a merger agreement with Sinotrans Limited (“Sinotrans”, an direct holding company of the Company) (the “Merger Agreement”). According to the Merger Agreement, the Sinotrans is to apply to the relevant regulatory authorities in the PRC for the issue and listing of A Shares on the Shanghai Stock Exchange and merger of Sinoair. The Directors of Sinotrans approved that Sinotrans to issue 1,371,191,329 A Shares subject to adjustments as consideration shares (the “Consideration Shares”) at the initial issue price of RMB5.32 per share in exchange at the initial exchange ratio for 353,600,322 shares of the Company upon approval by the relevant government authorities.

On 23 March 2018, the Directors proposed 2017 dividends of RMB0.60 per share for 905,418,720 ordinary shares outstanding, the total dividends amounts to RMB543,251,000, which is subject to the approval of the annual general meeting.

46. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements have been prepared by the Group, the Company or any of its subsidiaries in respect of any period subsequent to 31 December 2017.

II-79 -

APPENDIX III

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE POST-MERGER GROUP

A. BASIS OF PREPARATION OF THE UNAUDITED PRO FORMA FINANCIAL INFORMATION

The following is the unaudited pro forma financial information of the Group assuming the Proposed Merger (the “Post-merger Group”) had taken place at 31 December 2017 or 1 January 2017 (the “ Unaudited Pro Forma Financial Information ”) including the unaudited pro forma consolidated statement of financial position and the unaudited pro forma consolidated statement of profit or loss of the Post-Merger Group. The Unaudited Pro Forma Financial Information has been prepared in accordance with paragraph 4.29 of the Listing Rules for the purpose of illustrating the effect of the Proposed Merger as if the Proposed Merger had been completed on 31 December 2017 for the purpose of the unaudited pro forma consolidated statement of financial position and as if the Proposed Merger had been completed on 1 January 2017 for the purpose of the unaudited pro forma consolidated statement of profit or loss. The Unaudited Pro Forma Financial Information is prepared for illustrative purposes only, and because of its nature, the Unaudited Pro Forma Financial Information may not give a true picture of the Post-merger Group’s financial position or results upon the completion of the Proposed Merger.

The Unaudited Pro Forma Financial Information of the Group upon completion of the Proposed Merger is based on the audited consolidated financial statements of the Group for the year ended 31 December 2017, which has been extracted from the annual report of the Company for the year ended 31 December 2017, after making pro forma adjustments that are (i) directly attributable to the Proposed Merger and (ii) factually supportable.

All capitalised terms herein have the same meaning as those defined in the Circular, unless otherwise indicated.
III-1 -

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE POST-MERGER GROUP

APPENDIX III

Unaudited Pro Forma Consolidated Statement of Profit or Loss for the year ended 31 December 2017

Revenue Other income Tax and other surcharges Transportation and related charges Staff costs Depreciation and amortisation Office and other expenses Other gains and losses, net Other operating expenses Operating profit Finance income Finance costs Share of profit of joint ventures Share of profit of associates Profit before income tax Income tax expense Profit for the year Profit attributable to – Owners of the Company – Non-controlling interests Profit for the year Earnings per share, basic and diluted (RMB) (Note 2)	The Group RMB’000 Note 1 72,567,178 506,123 (215,197) (62,521,442) (5,618,557) (1,180,528) (580,932) 943,258 (720,381) 3,179,522 207,602 (641,705) 2,745,419 973,884 47,784 3,767,087 (785,699) 2,981,388 2,304,191 677,197 2,981,388 0.38	Pro forma adjustments RMB’000 RMB’000 Note 3 Note 5 (42,000) 528,372 (528,372)	The Post-merger Group RMB’000 72,567,178 506,123 (215,197 (62,521,442 (5,618,557 (1,180,528 (580,932 943,258 (762,381
			3,137,552 207,602 (641,705
			2,703,419 973,884 47,784
			3,725,087 (785,699
			2,939,388
			2,790,563 148,825
			2,939,388
			0.38

III-2 -

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE POST-MERGER GROUP

APPENDIX III

Unaudited Pro Forma Consolidated Statement of Financial Position as at 31 December 2017

ASSETS Non-current assets Land use rights Prepayments for acquisition of land use rights Property, plant and equipment Investment properties Intangible assets Investments in joint ventures Investments in associates Deferred income tax assets Available-for-sale financial assets Other non-current assets Current assets Prepayments and other current assets Inventories Trade and other receivables Restricted cash Term deposits with initial terms of over three months Cash and cash equivalents Financial assets designated as fair value through profit or loss Total assets Equity Equity attributable to owners of the Company Share capital Reserves Non-controlling interests	The Group RMB’000 Note 1 5,027,101 38,513 17,238,004 963,664 2,892,091 3,321,365 1,262,418 328,129 553,257 405,267 32,029,809 4,416,124 314,624 12,807,113 217,754 2,225,183 9,709,382 381,912 30,072,092 62,101,901 6,049,167 15,118,725 21,167,892 4,409,106 25,576,998	Pro forma adjustments RMB’000 RMB’000 Note 3 Note 4 (102,000) (102,000) (102,000) 1,371,191 (102,000) 1,829,032 (102,000) 3,200,223 (3,200,223) (102,000)	The Post-merger Group RMB’000 5,027,101 38,513 17,238,004 963,664 2,892,091 3,321,365 1,262,418 328,129 553,257 405,267
			32,029,809
			4,416,124 314,624 12,807,113 217,754 2,225,183 9,607,382 381,912
			29,970,092
			61,999,901
			7,420,358 16,845,757
			24,266,115 1,208,883
			25,474,998

III-3 -

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE POST-MERGER GROUP

APPENDIX III

LIABILITIES Non-current liabilities Deferred income tax liabilities Borrowings Long-term bonds Other non-current liabilities Long-term salary payables Current liabilities Trade payables Other payables, accruals and other current liabilities Receipts in advance from customers Current income tax liabilities Borrowings Provisions Salary and welfare payables Total liabilities Total equity and liabilities	The Group RMB’000 Note 1 232,563 6,609,292 3,495,827 1,201,182 45,419 11,584,283 9,931,218 9,014,303 2,388,885 339,918 1,499,248 366,324 1,400,724 24,940,620 36,524,903 62,101,901	Pro forma adjustments RMB’000 RMB’000 Note 3 Note 4 (102,000)	The Post-merger Group RMB’000 232,563 6,609,292 3,495,827 1,201,182 45,419
			11,584,283
			9,931,218 9,014,303 2,388,885 339,918 1,499,248 366,324 1,400,724
			24,940,620
			36,524,903
			61,999,901

III-4 -

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE POST-MERGER GROUP

APPENDIX III

Notes to the Unaudited Pro Forma Financial Information

The audited consolidated financial statements of the Group are extracted from the annual report of the Company for the year ended 31 December 2017.
The calculation of basic and diluted earnings per share is based on 6,049,167,000 shares outstanding during the year ended 31 December 2017, adjusted as if the issue of 1,371,191,000 Consideration Shares had taken place at 1 January 2017. For the purpose of the Unaudited Pro Forma Financial Information, the number of Consideration Shares to be issued does not take into account any adjustments to the number of shares to be issued as stipulated in the Merger Agreement.
The adjustment represents estimated transaction costs, including legal and professional fees paid by the Group. Among the total transaction costs of RMB102,000,000, RMB42,000,000 is expensed as incurred and RMB60,000,000 which directly relates to the acquisition of noncontrolling interests of Sinoair is capitalized.
The adjustment represents the effect that as if the Proposed Merger had been completed on 31 December 2017, the non-controlling interest of Sinoair amounting to RMB3,200,223,000 is transferred to equity attributable to owners of the Company. The difference between the face value of 1,371,191,000 Consideration Shares issued and the non-controlling interest is adjusted in equity attributable to owners of the Company.
The adjustment represents the adjustment of profit attributable to non-controlling interests of Sinoair for the year ended 31 December 2017 to profit attributable to owners of the Company as if the Proposed Merger had been completed on 1 January 2017.
No adjustment has been made to reflect any trading results or other transactions entered into by the Group subsequent to 31 December 2017.
III-5 -

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE POST-MERGER GROUP

APPENDIX III

B. ASSURANCE REPORT FROM THE REPORTING ACCOUNTANTS

The following is the text of the independent reporting accountants’ assurance report received from Deloitte Touche Tohmatsu, Certified Public Accountants, Hong Kong, the reporting accountants of the Company, in respect of the Group’s unaudited pro forma financial information prepared for the purpose of incorporation in this circular.

INDEPENDENT REPORTING ACCOUNTANTS’ ASSURANCE REPORT ON THE COMPILATION OF UNAUDITED PRO FORMA FINANCIAL INFORMATION

To the Directors of Sinotrans Limited

We have completed our assurance engagement to report on the compilation of unaudited pro forma financial information of Sinotrans Limited (the “ Company ”) and its subsidiaries (hereinafter collectively referred to as the “Group”) by the directors of the Company (the “ Directors ”) for illustrative purposes only. The unaudited pro forma financial information consists of the unaudited pro forma statement of financial position as at 31 December 2017, the unaudited pro forma statement of profit or loss for the year ended 31 December 2017 and related notes as set out on pages III-1 to III-5 of the circular issued by the Company dated 18 April 2018 (the “Circular”). The applicable criteria on the basis of which the Directors have compiled the unaudited pro forma financial information are described on pages III-1 to III-5 of the Circular.

The unaudited pro forma financial information has been compiled by the Directors to illustrate the impact of the Proposed Merger (as defined in the Circular) on the Group’s financial position as at 31 December 2017 and the Group’s financial performance for the year ended 31 December 2017 as if the Proposed Merger had taken place at 31 December 2017 and 1 January 2017 respectively. As part of this process, information about the Group’s financial position and financial performance has been extracted by the Directors from the Group’s financial statements for the year ended 31 December 2017, on which an auditor’s report has been published.

Directors’ Responsibilities for the Unaudited Pro Forma Financial Information

The Directors are responsible for compiling the unaudited pro forma financial information in accordance with paragraph 4.29 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “ Listing Rules ”) and with reference to Accounting Guideline 7 “Preparation of Pro Forma Financial Information for Inclusion in Investment Circulars” (“ AG 7 ”) issued by the Hong Kong Institute of Certified Public Accountants (the “ HKICPA ”).

Our Independence and Quality Control

We have complied with the independence and other ethical requirements of the “Code of Ethics for Professional Accountants” issued by the HKICPA, which is founded on fundamental principles of integrity, objectivity, professional competence and due care, confidentiality and professional behavior.

III-6 -

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE POST-MERGER GROUP

APPENDIX III

Our firm applies Hong Kong Standard on Quality Control 1 “Quality Control for Firms that Perform Audits and Reviews of Financial Statements, and Other Assurance and Related Services Engagements” issued by the HKICPA and accordingly maintains a comprehensive system of quality control including documented policies and procedures regarding compliance with ethical requirements, professional standards and applicable legal and regulatory requirements.

Reporting Accountants’ Responsibilities

Our responsibility is to express an opinion, as required by paragraph 4.29(7) of the Listing Rules, on the unaudited pro forma financial information and to report our opinion to you. We do not accept any responsibility for any reports previously given by us on any financial information used in the compilation of the unaudited pro forma financial information beyond that owed to those to whom those reports were addressed by us at the dates of their issue.

We conducted our engagement in accordance with Hong Kong Standard on Assurance Engagements 3420 “Assurance Engagements to Report on the Compilation of Pro Forma Financial Information Included in a Prospectus” issued by the HKICPA. This standard requires that the reporting accountants plan and perform procedures to obtain reasonable assurance about whether the Directors have compiled the unaudited pro forma financial information in accordance with paragraph 4.29 of the Listing Rules and with reference to AG 7 issued by the HKICPA.

For purposes of this engagement, we are not responsible for updating or reissuing any reports or opinions on any historical financial information used in compiling the unaudited pro forma financial information, nor have we, in the course of this engagement, performed an audit or review of the financial information used in compiling the unaudited pro forma financial information.

The purpose of unaudited pro forma financial information included in an investment circular is solely to illustrate the impact of a significant event or transaction on unadjusted financial information of the Group as if the event had occurred or the transaction had been undertaken at an earlier date selected for purposes of the illustration. Accordingly, we do not provide any assurance that the actual outcome of the event or transaction at 31 December 2017 or 1 January 2017 would have been as presented.

A reasonable assurance engagement to report on whether the unaudited pro forma financial information has been properly compiled on the basis of the applicable criteria involves performing procedures to assess whether the applicable criteria used by the Directors in the compilation of the unaudited pro forma financial information provide a reasonable basis for presenting the significant effects directly attributable to the event or transaction, and to obtain sufficient appropriate evidence about whether:

the related pro forma adjustments give appropriate effect to those criteria; and
the unaudited pro forma financial information reflects the proper application of those adjustments to the unadjusted financial information.
III-7 -

APPENDIX III

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE POST-MERGER GROUP

The procedures selected depend on the reporting accountants’ judgment, having regard to the reporting accountants’ understanding of the nature of the Group, the event or transaction in respect of which the unaudited pro forma financial information has been compiled, and other relevant engagement circumstances.

The engagement also involves evaluating the overall presentation of the unaudited pro forma financial information.

We believe that the evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Opinion

In our opinion:

(a) the unaudited pro forma financial information has been properly compiled on the basis stated;
(b) such basis is consistent with the accounting policies of the Group; and
(c) the adjustments are appropriate for the purposes of the unaudited pro forma financial information as disclosed pursuant to paragraph 4.29(1) of the Listing Rules.

Deloitte Touche Tohmatsu

Certified Public Accountants Hong Kong, 18 April 2018

III-8 -

MANAGEMENT DISCUSSION AND ANALYSIS ON THE SINOAIR GROUP

APPENDIX IV

BUSINESS AND FINANCIAL OVERVIEW

Revenue

The Sinoair Group’s revenue represents the amounts received and receivable from logistics and related services provided in its normal course of business, after sales and related taxes. Logistics services primarily involve the provision of customised and professional integrated logistics services to customers. The related services mainly involve airfreight forwarding services, e-commerce logistics services and other professional logistics services.

The following table sets forth the information about the Sinoair Group’s revenue, in segments, for the periods indicated:

	Year	ended 31 December
	2015	2016	2017
	RMB’000	RMB’000	RMB’000
Air freight forwarding	3,250,563	3,403,285	3,330,803
E-commerce logistics	438,627	718,671	1,589,064
Professional logistics business	594,837	724,830	1,254,922
Total	4,284,027	4,846,786	6,174,789

The Sinoair Group’s revenue was primarily derived from providing air freight forwarding logistic services, which accounted for approximately 75.9%, 70.2% and 53.9% of its total revenue, respectively, for each of the financial year ended 31 December 2015, 2016 and 2017 while the revenue derived from the e- commence logistics and professional logistics business increased rapidly during this period. The revenue of the Sinoair Group increased by 13.1% from RMB4,284.0 million in 2015 to RMB4,846.8 million in 2016 and subsequently increased by 27.4% from RMB4,846.8 million in 2016 to RMB6,174.8 million in 2017, primarily reflecting its overall business growth in professional logistics business and e-commerce logistic services.

Air freight forwarding segment primarily involves the provision of international air freight forwarding services (including imports and exports air freight forwarding) and domestic air freight forwarding services. Apart from their operations in the PRC, the Sinoair Group also has offices in various countries and regions, including the United States, Europe, Middle East, Japan, Australia and Hong Kong and they will also provide ancillary services such as customs clearance and storage.

E-commerce logistics segment primarily involves international express services and logistics services for cross border e-commerce companies (including imports and exports e-commerce logistics). Its exports e-commerce logistic services cover destinations located in the United States, Europe, Middle East, Japan, Korea and Southeast Asian countries, etc. and imports e-commerce logistic services benefit from its overseas storage based in the United States, Germany, France, The United Arab Emirates, Japan, Korea and Hong Kong etc.

IV-1 -

MANAGEMENT DISCUSSION AND ANALYSIS ON THE SINOAIR GROUP

APPENDIX IV

Professional logistics business primarily involves the provision of tailored-made comprehensive air cargo logistics services by the Sinoair Group to relatively high-end customers with special needs. Such customers are found to be engaged primarily in flat panel display, semiconductor, aerospace, communications and electronics industries.

Profit for the year and net profit margin

The Sinoair Group’s profits for the year were approximately RMB1,009.9 million, RMB994.5 million and 1,353.0 million, respectively, for each of the financial year ended 31 December 2015, 2016 and 2017. The Sinoair Group’s net profit margin, calculated by dividing profit for the year by revenue, was approximately 23.6%, 20.5% and 21.9%, respectively, for the same periods which remained relatively stable.

The profit for the year of the Sinoair Group was more or less the same in 2015 and 2016 with a moderate decrease of 1.5% in 2016, but increased significantly by 36.0% from RMB994.5 million in 2016 to RMB1,353.0 million in 2017, primarily due to the following increases recorded in 2017 compared with the year before: (i) the RMB1,328.0 million or 27.4% increase in the Sinoair Group’s revenue, and (ii) the RMB266.7 million or 86.9% increase in the gain on disposal of available-for-sale financial assets of the Sinoair Group, primarily from the sale of shares of companies listed in the Shanghai Stock Exchange or the Shenzhen Stock Exchange of the PRC.

LIQUIDITY AND FINANCIAL RESOURCES

Capital management policy

The Sinoair Group manages its capital to ensure that entities in the Sinoair Group will be able to continue as a going concern while maximising the return to shareholders through the optimisation of the debt and equity balance. The Sinoair Group’s overall strategy remains unchanged from prior year.

The capital structure of the Sinoair Group consists of cash and cash equivalents and equity attributable to owners of the Sinoair, comprising issued share capital and reserves.

The directors of the Sinoair review the capital structure on a regular basis. As part of this review, the directors of Sinoair consider the cost of capital and the risks associated with each class of capital. Based on recommendations of the directors of Sinoair, the Sinoair Group will balance its overall capital structure through new share issues as well as the issue of new debt as the circumstances may require.

Net current assets

The Sinoair Group recorded net current assets of approximately RMB2,839.8 million, RMB3,519.4 million and RMB4,490.6 million as at 31 December 2015, 2016 and 2017, respectively. Such increase was primarily attributable to the increase in term deposits with initial terms of over three months and cash and cash equivalents of the Sinoair Group over the years, as a result of the increase in revenue and in proceeds from disposal of available-for-sale financial assets of the Sinoair Group, primarily.

IV-2 -

APPENDIX IV

MANAGEMENT DISCUSSION AND ANALYSIS ON THE SINOAIR GROUP

Cash and cash equivalents

The balance of cash and cash equivalents of the Sinoair Group as at 31 December 2015, 2016 and 2017 was approximately RMB1,834.0 million, RMB2,119.7 million and RMB2,738.9 million, respectively, comprising cash at bank and in hand and short-term bank deposits. As at the dates indicated below, the cash and cash equivalents of the Sinoair Group were denominated in the following currencies:

		31 December
	2015	2016	2017
	RMB’000	RMB’000	RMB’000
RMB	1,527,958	1,915,097	2,252,739
US$	257,337	169,013	306,502
HK$	25,400	15,950	151,339
EUR	20,474	12,538	25,358
Others	2,819	7,114	2,926
	1,833,988	2,119,712	2,738,864

Borrowings

Borrowings represent bank borrowings and borrowings from China Merchants Group Finance Co., Ltd. as of the date indicated as follows:

Current Borrowings denominated in – US$ Fixed interest rate – HK$ Floating interest rate Total borrowings	As at 31 December 2015 2016 RMB’000 RMB’000 – 51,264 43,976 84,978 43,976 136,242	2017 RMB’000 – 167,180
		167,180

Notes:

(1) The weighted average effective interest rate of the borrowings of the Sinoair Group was 1.89%, 2.17% and 1.94% per annum as at 31 December 2015, 2016 and 2017, respectively.

IV-3 -

MANAGEMENT DISCUSSION AND ANALYSIS ON THE SINOAIR GROUP

APPENDIX IV

(2) The Sinoair Group’s bank borrowings were secured and guaranteed by:

				December
			2015	2016	2017
			RMB’000	RMB’000	RMB’000
Restricted	cash	pledged	53,000	0	0

The bank and other borrowings of Sinoair Group comprise of current borrowings due on demand and within one year which were primarily incurred to supplement its working capital. The Sinoair Group’s bank and other borrowings due on demand and within one year increased from RMB44.0 million as at 31 December 2015 to RMB136.2 million as at 31 December 2016, and to RMB167.2 million as at 31 December 2017, primarily as a result of additional short-term bank loans taken to finance the business development of the Sinoair Group.

Capital commitments

At the end of the reporting period indicated below, the Sinoair Group had the following contractual capital commitments not provided for in its consolidated financial statements:

Contracted for but not provided	As at 31 December 2015 RMB’000 2016 RMB’000 154,811 434,264 154,811 434,264	2017 RMB’000 105,638
		105,638

The capital commitments described above primarily related to construction commitments. The Sinoair Group intends to fund these commitments with cash generated from its operations.

CHARGES ON ASSETS

Save for the pledge on restricted cash to secure the bank borrowings of Sinoair Group as disclosed above, there were no other charges on the assets of the Sinoair Group as at 31 December 2015, 2016 and 2017.

IV-4 -

MANAGEMENT DISCUSSION AND ANALYSIS ON THE SINOAIR GROUP

APPENDIX IV

GEARING RATIO

The following table sets out a summary of the Sinoair Group’s gearing ratios as at the respective dates specified below:

				As	at	31	December
			2015				2016	2017
Gearing	ratio	(1)	13.5%				16.0%	18.8%

Note: Gearing ratio is calculated by dividing total liabilities by total assets, multiplying the resulting value by 100.0%.

CONTINGENT LIABILITIES

Apart from the note 38 headed “Contingent Liabilities” in Appendix II to this circular, the Sinoair Group did not have any material contingent liability as at 31 December 2017.

SIGNIFICANT INVESTMENTS

Interests in joint ventures

As at 31 December 2015, 2016 and 2017, the carrying amount of interests in joint ventures of Sinoair were approximately RMB1,382.9 million, RMB1,295.0 million and RMB1,377.9 million, respectively, which remained stable during the period.

The principal joint venture of Sinoair is DHL-Sinotrans International Air Courier Limited (“DHL”), a company established in 1986 and primarily engaged in the international air express logistics industry. With decades of development, its business operations are quite mature as demonstrated by its delivery of steady results over the past three years. Being a logistic company, DHL’s performance is nonetheless susceptible to the macro economic conditions, including changes in labour costs and foreign exchange rates. The directors of Sinoair expect DHL to continue to contribute to the revenue of the Sinoair Group in 2018.

Available-for-sale financial assets

As at 31 December 2015, 2016 and 2017, the available-for-sale financial assets of the Sinoair Group were approximately RMB1,495.4 million, RMB850.8 million and RMB361.2 million, representing listed and non-listed equity investments held by the Sinoair Group. The decline in the value as shown above was primarily due to disposal of such assets by the Sinoair Group.

Available-for-sale financial assets with respect to the investments in listed equity are stated at fair value in the financial statements of Sinoair. The fair value of the listed equity has been determined by reference to published price quotations in the stock exchanges in which they were traded. Available-for-sale financial assets with respect to the investments in non-listed equity are stated at cost less impairment. As at 31 December 2015, 2016 and 2017, none of such investments were impaired.

IV-5 -

MANAGEMENT DISCUSSION AND ANALYSIS ON THE SINOAIR GROUP

APPENDIX IV

DEEMED DISPOSAL OF SUBSIDIARIES

During the year ended 31 December 2015, the Sinoair Group was deemed for the purposes of financial reporting under the International Financial Reporting Standards to have disposed of three subsidiaries, namely Dalian JD Cargo International Co., Ltd. (“Dalian JD”), Sinotrans Luzhou Port Bonded Logistics Co., Ltd. (“Sinotrans Luzhou”) and Sinotrans Electronic Commerce Co., Ltd. (“Sinotrans E- commerce”) due to the expiry of shareholders agreement between the Sinoair Group and the other shareholder of Dalian JD, the amendment of articles of association of Sinotrans Luzhou and the capital injection by an independent third party into Sinotrans E-commerce, respectively. None of these companies were material subsidiaries of Sinoair. Following these deemed disposals, the relevant companies are accounted for as investment in joint venture using equity method. Further information regarding the deemed disposals are disclosed in note 36 headed “Deemed Disposal of Subsidiaries” in Appendix II to this circular.

FOREIGN EXCHANGE EXPOSURES

The Sinoair Group has cash and cash equivalents, trade and other receivables, borrowings and trade payables which are denominated in foreign currencies and is mainly exposed to the currency risk of US$, HK$ and EUR.

The Sinoair Group currently does not have a foreign currency hedging policy. The management monitors foreign exchange exposure and may consider hedging significant foreign currency exposure should the need arise.

EMPLOYEES AND REMUNERATION POLICY

As at 31 December 2017, the Sinoair Group employed a total of 3,128 persons. Remuneration for the employees of the Sinoair Group includes salaries and other benefits and contributions to pension plans. For the years ended 2015, 2016 and 2017, the Sinoair Group’s staff costs were approximately RMB395.1 million, RMB410.0 million and RMB461.1 million, respectively. Employees’ remunerations of the Sinoair Group include wages and salaries, housing benefits, termination benefits, contributions to pension plans and performance-based bonuses, which are determined by their work performance, human resource market conditions and economic environment. The Sinoair Group’s remuneration policy is reviewed on a regular basis. Employees of Sinoair Group participate in the pension insurances plans and the unemployment insurance plans organised by the relevant municipal and provincial governments under which the Sinoair Group is required to make monthly defined contributions to these plans.

The Sinoair Group offers internal training to the employees both for personal development and for improvement on skills related to their positions.

IV-6 -

GENERAL INFORMATION

APPENDIX V

1. 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.

2. 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 Hong Kong 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 Hong Kong Stock Exchange.

Saved as disclosed in the sections headed “II. Directors’ Interests in competing business” below, as at the Latest Practicable Date, none of the Directors or 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 Hong Kong Stock Exchange under the provisions of Divisions 2 and 3 of Part XV of the SFO.

II. 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 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.

V-1 -

GENERAL INFORMATION

APPENDIX V

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 Chairman of SINOTRANS & CSC Logistics and Shipping Department of China Merchants and the President of SINOTRANS & CSC. China Merchants is the ultimate controlling shareholder of the Company, and SINOTRANS & CSC is the direct controlling shareholder of the Company. Certain subsidiaries of China Merchants and SINOTRANS & CSC 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.

3. 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 Postmerger Group (excluding contracts expiring or determinable by the Post-merger Group within one year without payment of compensation (other than statutory compensation)).

4. 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 2017, being the date to which the latest published audited consolidated financial statements of the Group were made up.

5. 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 Post-merger Group.

As at the Latest Practicable Date, none of the Directors or proposed Director, 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 Postmerger Group since 31 December 2017 (the date to which the latest published audited consolidated financial statements of the Group were made up).

V-2 -

GENERAL INFORMATION

APPENDIX V

6. 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 a corporation licensed to carry out type 4 (advising on securities) and type 6 (advising on corporate finance) and type 9 (asset management) regulated activities under the SFO

Deloitte Touche Tohmatsu

Certified Public Accountants

As at the Latest Practicable Date, each of Altus Capital Limited and Deloitte Touche Tohmatsu 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 Post-merger Group, or are proposed to be acquired or disposed of by or leased to any member of the Post-merger Group since 31 December 2017, 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 Post-merger 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 Post-merger Group.

Each of Altus Capital Limited and Deloitte Touche Tohmatsu has given and has not withdrawn its 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.

7. LITIGATION

As at the Latest Practicable Date, no member of the Post-merger Group was engaged in any litigation or claim of material importance and no litigation or claim of material importance to the Post-merger Group was known to the Directors to be pending or threatened against any member of the Post-merger Group.

8. MATERIAL CONTRACTS

The following contracts (not being contracts entered into in the ordinary course of business) were entered or to be entered into by any member of the Post-merger Group within the two years immediately preceding the Latest Practicable Date and are or may be material to the Post-merger Group:

V-3 -

APPENDIX V

GENERAL INFORMATION

(a) the Merger Agreement;
(b) the acquisition agreement dated 22 August 2017 entered into between the Company as purchaser and China Merchants as vendor with respect to the acquisition by the Company of the entire equity interest in China Merchants Logistics Holdings Company Limited for an aggregate consideration of RMB5,450,000,000 which was settled by the issue and allotment of 1,442,683,444 Domestic Shares at the issue price of HK$4.43 each;
(c) the supplemental deed dated 20 September 2016 entered into among China Assess Investment Limited, SF Holding Limited, China Merchants Holdings (Hong Kong) Company Limited, SF Enterprise (BVI) Limited, and China Merchants Express Supply Chain Management Company Limited in relation to the de-registration of China Merchants Express Supply Chain Management Company Limited pursuant to which China Assess Investment Limited exercised an option to purchase the entire issued share capital in Gold Carrier Enterprise Limited and certain loans at a consideration of HK$1,280,000,000 from China Merchants Express Supply Chain Management Company Limited.

9. MISCELLANEOUS

(a) The joint secretaries of the Company are Mr. Li Shichu and Ms. Hui Wai Man, Shirley. 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 headquarters 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.
(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 (other than Appendices VI and VII) shall prevail over the Chinese language text, while the Chinese language text of Appendices VI and VII shall prevail over the English language text.

V-4 -

GENERAL INFORMATION

APPENDIX V

10. 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) the Articles of Association of the Company;
(b) the letter from the Independent Financial Adviser, the text of which is set out on pages 37 to 80 of this circular;
(c) the annual reports of the Company for each of the two years ended 31 December 2017;
(d) the accountant’s report on the Sinoair Group prepared by Deloitte Touche Tohmatsu, the text of which is set out in Appendix II to this circular;
(e) the report on the unaudited pro forma financial information of the Post-merger Group issued by Deloitte Touche Tohmatsu, the text of which is set out in Appendix III to this circular;
(f) the consent letters referred to in the paragraph headed “6. Experts” in this Appendix;
(g) the contracts referred to in the paragraph headed “8. Material Contracts” in this Appendix; and
(h) this circular.
V-5 -

PROPOSED NEW ARTICLES OF ASSOCIATION OF THE COMPANY

APPENDIX VI

The proposed new set of the Articles of Association are set out as follows, with amendments underlined:

SINOTRANS LIMITED

ARTICLES OF ASSOCIATION (DRAFT)

Note: In the annotations of these Articles of Association, the “ Mandatory Provisions ” refer to the Mandatory Provisions of the Articles of Association of the Companies Listed Overseas jointly issued by the former Securities Commission of the State Council and the former State Restructuring Committee; the “ Listing Rules ” refer to the Listing Rules issued by the Stock Exchange of Hong Kong Limited; the “ Zheng Jian Hai Han ~~Letter”~~ refers to the Letter from the Overseas Listing Division of China Securities Regulatory Commission and the Economic System Division of the former State Restructuring Committee concerning the Supplemental Amendments to the Articles of Association of the Companies Listed in Hong Kong (reference: Zheng Jian Hai Han [1995] No. 1); the “ Opinions ” refer to the Opinions of the State Economic and Trade Committee and China Securities Regulatory Commission on the “Further Promotion of the Compliance of the Companies Listed Overseas and the Deepening of the Reform”; “Administrative Measures on Secretary of Board” refer to the Administrative Measures on Secretary of Board of Directors of Companies Listed on Shanghai Stock Exchange (Shang Zheng Gong Zi [2015] No. 40); the “ ~~Guide~~ Guidelines on Articles of Association ~~.”~~ refer to the “Guidelines on Articles of Association of Listed Companies” ~~Guide for the Secretaries of the Board of Directors of the Companies Listed Overseas~~ issued by China Securities Regulatory Commission.

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PROPOSED NEW ARTICLES OF ASSOCIATION OF THE COMPANY

APPENDIX VI

SINOTRANS LIMITED ARTICLES OF ASSOCIATION (DRAFT)

Chapter 1 General

Article 1 Article 2	To safeguard the legitimate rights and interests of Sinotrans Limited (the“Company”), its shareholders and creditors, and to regulate the organization and activities of the Company, the Company formulated the Articles of Association in accordance with the Company Law of the People’s Republic of China (the“Company Law”), the Securities Law of the People’s Republic of China (the“Securities Law”), the Special Regulations of the State Council on the Overseas Offer and Listing of Shares by Joint Stock Limited Companies (the“Special Regulations”), the Mandatory Provisions for Articles of Association of Companies to be Listed Overseas (“Mandatory Provisions”), the Guidelines on Articles of Association of Listed Companies (the“Guidelines”) and other relevant requirements under the laws, administrative rules and regulations.~~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.~~ ~~L~~ R The Company is a joint stock limited company incorporated in accordance with the Company Law, the Securities Law, the Special Regulations and other applicable laws and administrative rules of the People’s Republic of China (the“PRC”). 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 licens~~c~~ ~~e~~was obtained.~~,~~ T~~t~~ he unified social credit code of the Company being 911100007109305601. The reference number of the approval is Guo Jing Mao Qi Gai [2002] No. 863.	~~Section 1(a)~~ ~~of Appendix~~ ~~13d to the~~
		~~isting Rules~~ ~~Article 1~~ ~~of the~~ ~~Guidelines~~ Section 1(a) of Appendix 13d to the Listing ules; Article
		1 of the Guidelines Article 1 of the Mandatory Provisions Article 2 and Article 18 of the Guidelines

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

VI-2 -

PROPOSED NEW ARTICLES OF ASSOCIATION OF THE COMPANY

APPENDIX VI

Article3~~2~~ Article~~3~~ ~~4~~ Article5~~4~~ Article6~~5~~	The registered name of the Company: (in Chinese)中國外運股份有限公司 (abbreviation in Chinese)中國外運 (in English) Sinotrans Limited Address of the Company: Sinotrans Plaza A, A43 Xizhimen Beidajie, Haidian District, Beijing, the PRC Postal Code: 100044 Telephone No.: (010) 6229 5984 Fax No.: (010) 6229 5988 The legal representative of the Company shall be the chairman of the Company. The Company is a joint stock limited company existing in perpetuity. The entire capital of the Company is divided into shares of equal value and shareholders shall be liable to the Company to the extent of the shares held by them.~~The shareholders’ claims against and their liabilities~~ ~~to the Company shall be limited to their respective shareholding.~~ The company is liable for its debts to the extent of all its assets. The Company is an independent legal person. Its activities shall be governed and protected by the laws and the administrative regulations of the People’s Republic of China.	Article 2 of the Mandatory Provisions; Article 4 of the Guidelines Article 3 of the Mandatory Provisions; Article 5 of the Guidelines Article 4 of the Mandatory Provisions; Article 8 of the Guidelines Article 5 of the Mandatory Provisions; Article 7 and Article
		9 of the Guidelines

VI-3 -

PROPOSED NEW ARTICLES OF ASSOCIATION OF THE COMPANY

APPENDIX VI

Article7~~6~~ Article~~7~~ ~~8~~ Article~~8~~ ~~9~~	In accordance with the Company Law, the Special Regulations, the Mandatory Provisions~~of the Articles of Association of the Companies~~ ~~Listed Overseas (the “Mandatory Provisions”)~~ and~~the pertinent provisions~~ ~~of~~ ~~o~~ther laws and administrative regulations of the State, the Company convened a shareholders’ general meeting on 20 November 2002. On the meeting, the original Articles of Association (the “Original Articles of Association”) were amended and these Articles of Association (the “Articles of Association”) were formulated. 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~~ playthe~~core~~ leading~~and political~~ functions, provide the directions, manage the situation and ensure the implementation. Meanwhile, the Company shall set up a working agency for the Party, allocate sufficient personnel to handle Party affairs and guarantee working funds for the Party Committee. The Original Articles of Association became effective on the date of establishment of the Company. These Articles of Association shall become effective upon being adopted ~~by~~ at the~~Company’s~~ ~~s~~hareholders’ general meetingof the Company by way of a special resolution and upon being approved bythe relevant authorities of the State~~.such corporate examination and approval authority~~ ~~as authorized by the State Council~~ . After these Articles of Association ~~have~~ ~~c~~ome into effect,the original Articles of Association shall be superseded by these Articles of Association.~~they shall supersede the~~ ~~Original Articles of Association.~~	Article 6 of the Mandatory
		Provisions
	~~Original Articles of Association.~~

From the date on which the Articles of Association come into effect, the Articles of Association constitute the legally binding document regulating the Company’s organisation and activities, and the rights and obligations between the Company and each shareholder and among the shareholders.	Article 6 of the Mandatory
	Provisions;
	Article 10 of the Guidelines

The Articles of Association are binding on the Company and its shareholders, directors, supervisors, president and other senior management; all of whom may, according to the Articles of Association, assert their rights in respect of the affairs of the Company.	Article 7 of the Mandatory
	Provisions;
	Article 10 of the Guidelines

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PROPOSED NEW ARTICLES OF ASSOCIATION OF THE COMPANY

APPENDIX VI

Subject to Chapter 22 of these Articles of Association, a shareholder may take legal action against the Company pursuant to these Articles of Association. The Company may take action against a shareholder, directors, supervisors, president and other senior management of the Company pursuant to these Articles of Association. A shareholder may also take action against another shareholder, and may take action against the directors, supervisors, president and other senior management of the Company pursuant to these Articles of Association.

~~Ail~~	~~9~~ ~~10~~ 10 ~~11~~	~~Upon the taking effect of these Articles of Association, these Articles~~ ~~of Association have become the legally binding document which~~ ~~standardizes the organization and acts of the Company, the rights and~~ ~~obligations between the Company and its shareholders and amongst the~~ ~~shareholders themselves~~ ~~These Articles of Association are legally binding upon the Company~~ ~~and its shareholders, the Directors, Supervisors, President and other~~ ~~senior officers. The aforesaid officers may raise rights and propositions~~ ~~related to the matters of the Company in accordance with these Articles~~ ~~of Association.~~ ~~Without prejudice to Chapter 21 below, shareholders may take legal~~ ~~actions against the Company in accordance with these Articles of~~ ~~Association; the Company may take legal actions against the shareholders~~ ~~in accordance with these Articles of Association; the shareholders~~ ~~may take legal actions against other shareholders in accordance with~~ ~~these Articles of Association; and shareholders may take legal actions~~ ~~against the directors, supervisors, president and other senior officers in~~ ~~accordance with these Articles of Association.~~ The legal actions above-mentioned include the legal proceedings taken in court or applications for arbitration with an arbitration body. “Other senior management”referred to in these Articles of Association mean the Company’s vice presidents, financial controllers, IT directors and board secretary.~~The Company may invest in other limited companies~~ ~~or companies limited by shares, in which case its liability to such~~ ~~companies shall be limited to the amount of capital contributed.~~	~~Article~~ ~~6 of the~~ ~~d~~
~~rtce~~ ~~Ail~~
			~~anatory~~ ~~Provisions~~ ~~Article~~ ~~7 of the~~ ~~d~~
~~rtce~~ Article ~~Atil~~
			~~anatory~~ ~~Provisions~~ Article 11 of the Guidelines ~~Article~~ ~~8 of the~~ ~~d~~
~~rce~~
			~~anatory~~ ~~Provisions~~

VI-5 -

PROPOSED NEW ARTICLES OF ASSOCIATION OF THE COMPANY

APPENDIX VI

Article 11 The Company may invest in other limited liability companies and joint Article stock limited companies and shall be liable to the invested companies 8 of the Mandatory to the extent of the capital invested. ~~These Articles of Association are~~ Provisions ~~legally binding upon the Company and its shareholders, the Directors, Supervisors, President and other senior officers. The aforesaid officers may raise rights and propositions related to the matters of the Company in accordance with these Articles of Association.~~

Article 12 Subject to the laws and the administrative regulations of the PRC, the Company shall have the right to raise finance or make borrowings, including but not limited to the issuance of any debenture. It shall also have the right to create a mortgage or grant a pledge over any of its assets.

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PROPOSED NEW ARTICLES OF ASSOCIATION OF THE COMPANY

APPENDIX VI

Chapter 2 Objectives and Scope of Operation

Article 13 ~~Article 14~~ Article 14	The operation objectives of the Company are: customers oriented, by adopting the market-oriented approach, and in reliance on the network and the information technology, to provide safe, fast, accurate, economic, convenient and satisfactory integrated logistic service and supply chain management service, thereby maximizing the shareholders’ interests. ~~The business scope of the Company shall be subject to such items as~~ ~~approved by the company registry.~~ The scope of business of the Companyshall be its scope of business as approved by the approval authorities and the administration and management authorities for industry and commerce. After being registered in accordance with the law, the Company’s scope of business shall include: non-vessel shipping business; ordinary freight, special freight transportation (container, refrigeration, preservation), large article transportation; international express service (other than the businesses exclusively operated by postal enterprises); domestic waterway shipping & forwarding agents and passenger and freight transportation agent services; internationaltransportation agent services for import and export products transported by sea, land and air,~~freight forwarding services by sea, land~~ ~~and air, in respect of import and export cargo~~ , internationalexhibition items~~exhibition articles~~ ,private items and transit cargo, ~~personal articles~~ ~~and goods in transit, which~~ including~~es cargo canvassing, cargo space~~ booking,warehousing, transit, container assembly and unpacking, freight & charge settlement, customs clearance, declaration, relevant short- distance transportation services and transportation consultation services; international intermodal transport services; ship leasing; IT services and authentication and consultation services; package services; import and export of goods; import and export agent services, organization of cultural and art exchange activities; hosting exhibition and display.~~cargo~~ ~~storage, cargo transshipping, containers assembling and disassembling,~~ ~~freights and miscellaneous costs and expenses calculation and settling,~~ ~~customs declaration, commodity inspection assistance service, insurance~~ ~~assistance service, related short-distance transport service and transport~~ ~~consultancy service; international and articles of mail nature); vessels~~ ~~leasing; general cargo transportation;~~	Article 9 of the Mandatory Provisions; Article 12 of the Guidelines ~~Article~~ ~~8 of the~~ ~~d~~
		~~anatory~~ ~~Provisions~~ Article 10 of the Mandatory
		Provisions;
		Article 13 of the Guidelines

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PROPOSED NEW ARTICLES OF ASSOCIATION OF THE COMPANY

APPENDIX VI

~~multimodal transport service; international courier service (except mail transportation of frozen goods or goods to be kept warm and international containers; logistics service; freight forwarding agency service; storage service; inland water transportation shipping agency services; cargo and passenger transportation shipping agency services; international vessels transportation services; non-vessel operating common carrier; and containers transportation for domestic route; information technology services and attestation consulting services; packaging service; import and export of goods; import and export agency; organization of cultural and arts exchange activities (excluding performances for business); and organization for exhibition.~~

Article 15 The Company may, pursuant to the needs of its business development, establish such branch organizations as subsidiaries, representative offices, etc.

The Company may, pursuant to the needs of its business development, adjust the scope and the method of operation and establish branch organizations (whether wholly-owned or not) and/or offices in Hong Kong SAR, Macao SAR and Taiwan in due course, subject to approvals from the relevant government authorities.

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PROPOSED NEW ARTICLES OF ASSOCIATION OF THE COMPANY

APPENDIX VI

Chapter 3 Shares and Registered Capital

Article 16 Article 17 Article 18	The Company shall at any time~~,~~ issue ordinary shares. The ordinary shares to be issued by the Company shall include domestic shares and foreign shares. The Company may only issue other types of shares where it is required by the Company and approval is obtained from the examination and approval department authorized by the State Council. Article 11 of the Mandatory Provisions; Paragraph 9 of Appendix 3 of the Listing Rules The share of the Company is in the form of stock.The shares issued by the Company are shares with a par value at Renminbi 1.00 per share. Article 12 of the Mandatory Provisions; Article 14 and Article 16 of the Guidelines The aforesaid Renminbi means the legal tender of the PRC. The issuance of shares by the Company shall adhere to the principles of openness, fairness and justice. Each share in the same class shall have the same rights. Article 15~~3~~ of the Guidelines ~~Mandatory~~ ~~Provisions~~ Shares of the same class issued at the same time shall have the same terms of issuance and issue price; any entity or person shall pay the same amount for each of the same class of shares subscribed for.~~Upon~~ ~~the approval by the State Council’s regulatory authority for securities,~~ ~~the Company may issue shares to domestic and overseas investors.~~	The Company shall at any time~~,~~ issue ordinary shares. The ordinary shares to be issued by the Company shall include domestic shares and foreign shares. The Company may only issue other types of shares where it is required by the Company and approval is obtained from the examination and approval department authorized by the State Council. Article 11 of the Mandatory Provisions; Paragraph 9 of Appendix 3 of the Listing Rules The share of the Company is in the form of stock.The shares issued by the Company are shares with a par value at Renminbi 1.00 per share. Article 12 of the Mandatory Provisions; Article 14 and Article 16 of the Guidelines The aforesaid Renminbi means the legal tender of the PRC. The issuance of shares by the Company shall adhere to the principles of openness, fairness and justice. Each share in the same class shall have the same rights. Article 15~~3~~ of the Guidelines ~~Mandatory~~ ~~Provisions~~ Shares of the same class issued at the same time shall have the same terms of issuance and issue price; any entity or person shall pay the same amount for each of the same class of shares subscribed for.~~Upon~~ ~~the approval by the State Council’s regulatory authority for securities,~~ ~~the Company may issue shares to domestic and overseas investors.~~
		16 of the Guidelines Article 15~~3~~ of the Guidelines
		~~Mandatory~~ ~~Provisions~~

Article 19	Subject to the approval of the authority in charge of securities of the State Council, the Company may issue shares to Domestic Investors and Foreign Investors.	Article 13 of the Mandatory
		Provisions

The overseas investors aforementioned refer to investors from the overseas, Hong Kong, Macau and Taiwan who subscribe for the shares issued by the Company; Domestic investors are investors within the territory of the PRC, except for those from the aforementioned regions who subscribe for the shares issued by the Company.

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PROPOSED NEW ARTICLES OF ASSOCIATION OF THE COMPANY

APPENDIX VI

Article 20
~~Article 19~~
Article 21~~0~~
~~Article 21~~
~~Article 22~~

Shares issued by the Company to domestic investorsand other qualified
investorsfor subscription in RMB shall be referred to as “domestic
shares”.Domestic shares listed within the territory of the PRC shall
be referred to as“domestic listed shares”(A shares).Shares issued by
the Company to foreign investors for subscription in foreign currencies
shall be referred to as “foreign shares”. Foreign shares listed overseas
shall be referred to as “overseas listed foreign shares”. The shareholders
of domestic listed shares and overseas listed foreign shares shall be the
shareholders of ordinary shares and they shall have equal rights and
obligations.
Article
14 of the
Mandatory
Provisions;
Paragraph 9
of Appendix
3 of the
Listing Rules
The aforesaid foreign currencies refer to the legal tender of other countries
or territories other than RMB. Such legal tender shall be recognized by
the administration of foreign exchange of the PRC and can be used to
pay the subscription money to the Company.
The foreign shares issued by the Company and listed in Hong Kong shall
be referred to as “H Shares.” H Shares mean the shares the listing of
which are approved by the Stock Exchange of Hong Kong Limited (the
“Stock Exchange”) and which are denominated in RMB and subscribed
for and traded in Hong Kong Dollars.
~~Upon the approval of the examination and approval department authorized~~
~~by the State Council, the Company may issue a total of 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.~~
~~Article~~
~~15 of the~~
~~Mandatory~~
~~Provisions;~~
~~Upon its establishment, the Company issued 2,624,087,200 shares to the~~
~~promoter. After its establishment, the Company issued 1,624,915,500~~
~~ordinary shares (including a not more than 15% overallotment 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.~~
~~Article~~
~~16 of the~~
~~Mandatory~~
~~Provisions;~~
~~A3-9 of the~~
~~Listing Rules~~

VI-10 -

PROPOSED NEW ARTICLES OF ASSOCIATION OF THE COMPANY

APPENDIX VI

Article 22 Article 23	Upon approval by the examination and approval departments authorized by the State Council, the total number of ordinary shares that the Company may issue is [•••] shares, including [•••]domestic listed shares (A shares), accounting for [•••]% of total share capital,and 2,144,887,000 overseas listed foreign shares (H shares)representing ~~The share capital structure of~~ ~~the Company after the above share issue shall be 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~~ ~~40.69% of the total share capital of the Company, 35.46~~ ~~[~~•••]% of total share capital. The Company issued 2,624,087,200 shares (all of which were domestic shares) to the promoters upon incorporation and after incorporation, made an additional issue of 1,624,915,500 ordinary shares (including over-allotment option of no more than 15%), which were all overseas listed foreign shares (H shares). In July 2014, with the approval of China Securities Regulatory Commission (the“CSRC”), the Company made an addition issue of 357,481,000 ordinary shares, all of which were H shares and listed on the Stock Exchange on February 2003. In October 2017, with the approval of the Company Approval Department authorized by State Council, the Company made an additional issue of 1,442,683,444 shares of ordinary shares, all of which were domestic shares. In [•••] 2018, with the approval of CSRC, the Company launched an initial public offering, through which [•••] shares of domestically listed domestic shares (“A shares”) were issued and listed on Shanghai Stock Exchange on [date].~~With regard to the plans for the issuance of overseas~~ ~~listed foreign shares and domestic shares, upon the approval of the State~~ ~~Council department responsible for securities, the board of Directors of~~ ~~the Company may make separate arrangements for implementing the~~ ~~issuance of such shares~~ L	Article 15 of the Mandatory Provisions Article 16 of the Mandatory Provisions; Paragraph 9 of Appendix 3 of the isting Rules;
		Articles 3, 18 and 19~~17~~ of the Guidelines

The share capital structure of the Company after the above share issue shall be [•••] ~~o~~ rdinary 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 [•••] ~~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 [•••] ~~35.46%~~ of the total share capital of the Company.

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PROPOSED NEW ARTICLES OF ASSOCIATION OF THE COMPANY

APPENDIX VI

Article 24 Article 25 Article 26~~4~~ Article 27~~5~~ Article 28~~6~~	All of the domestic listed shares issued by the Company are deposited with China Securities Depository and Clearing Corporation Limited. The Board of the Company may arrange separate implementation plans for the issuance of overseas listed foreign shares and domestic listed shares approved by securities authorities of the State Council. Pursuant to the aforesaid provision, in making separate plans for the issuance of overseas listed foreign shares and domestic shares, the Company may implement such plans within 15 months from the date of approval granted by the~~China Securities Regulatory Commission~~ ~~(the “CSRC”)~~ CSRC. Within the aggregate number of shares specified in the Company’s issuance plan, separate issues of the overseas listed foreign shares and domestic shares shall be subscribed for in full at the same time. In the event of special circumstances where share are not fully subscribed at the same time, issues may be made on several occasions upon approval of the Securities Committee of the State Council. The registered capital of the Company shall be RMB[•••]~~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 theCompany shall complete the registration procedures for the change in registered capital.~~figure shall be filed at such corporate~~ ~~examination and approval authority and securities regulatory authority~~ ~~as authorized by the State Council.~~ According to the needs of its operation and development,The Company may increase its capital by the following means in accordance with laws, regulations and these Articles of Association, subject to resolutions of shareholders’general meetings: ~~the Company may enlarge its capital~~ ~~according to the relevant provisions of these Articles of Association.~~ ~~The Company may enlarge its capital by the following means:~~ (i) public offer of shares;~~offer new shares to non-specific investors;~~ (ii) non-public offer of shares;~~allot new shares to the existing~~ ~~shareholders;~~ (iii) ~~distribute new shares to the existing shareholders;~~ ~~a~~llot new shares to the existing shareholders;	Article 17 of the Guidelines Article 17 of the Mandatory
		Provisions Article 18 of the Mandatory
		Provisions Article 19 of the Mandatory
		Provisions;
		Article 6 of the Guidelines Article 20 of the Mandatory
		Provisions;
		Article 21 of the Guidelines

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PROPOSED NEW ARTICLES OF ASSOCIATION OF THE COMPANY

APPENDIX VI

(iv) distribute new shares to the existing shareholders;

(v) increase in capital by transfers from reserves;

(vi ~~v~~ ) in such other manners as permitted by laws, ~~or~~ administrative regulations and the relevant competent authorities.

Article 29~~7~~ Article 30 Article 31	Upon obtaining an approval in line with the provisions of these Articles of Association, the capital enlargement and the new issue of the Company shall be handled in accordance with relevant laws and administrative regulations of the State. Unless otherwise provided by laws and administrative regulations, shares in the Company may be transferred freely and with no lien attached. The Company does not accept the shares of the Company as the subject matter of any pledge. Any shares held by any promoter of the Company shall not be transferred within one year upon the establishment of the Company. Any shares that have been issued before the Company’s initial public listing shall not be transferred within one year from the date on which the Company’s shares are listed in the stock exchange(s) The directors, supervisors and senior management of the Company shall declare to the Company their holdings in the Company’s shares and inform the same if there are any changes in their holdings subsequently. During their terms of office, shares being transferred every year must not exceed twenty-five percent of their holdings in the Company’s shares in the same class. No transfer of their holdings shall be made within one year after the Company’s ordinary shares were listed. No transfer of their holdings in the Company’s shares shall be made within six months after they cease to hold their respective offices.	Article 21 of the Mandatory Provisions; Paragraph 1(2) of Appendix 3 of the Listing	Article 21 of the Mandatory Provisions; Paragraph 1(2) of Appendix 3 of the Listing
		Rules; Article
			26 of the Guidelines Article 27 of the Guidelines Article 28 of the Guidelines

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PROPOSED NEW ARTICLES OF ASSOCIATION OF THE COMPANY

APPENDIX VI

Article 32

When directors, supervisors or senior management of the Company or shareholders holding more than 5% of the voting shares of the Company sell their ordinary shares within six months from the acquisition of such shares, or purchase shares within six months from the disposal of such shares, the Board of the Company shall repatriate any profits derived from such dealings and the profits derived shall be vested in the Company. However, securities companies holding over five percent of the ordinary shares of the Company as a result of acquiring remaining ordinary shares as an underwriter are not subject to the six-month restriction when selling shares.

Article 29 of the Guidelines

Shareholders who hold the voting shares may require the Board to comply with the requirement set out in the previous clause within thirty days if the Board fails to do so. In the event the Board fails to rectify the situation within the said timeline, shareholders who hold the voting shares may file a lawsuit to the court in their own name for safeguarding the interests of the Company.

If the Board of the Company fails to comply with the first clause, the Directors responsible shall bear joint liability.

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APPENDIX VI

Chapter 4 Reduction of Capital and Repurchase of Shares

Article33~~28~~ Article34~~29~~ Article 35~~0~~	Pursuant to these Articles of Association, the Company may reduce its registered capital.The Company shall comply with the procedures set out in the Company Law and other applicable regulations and the Articles of Association. In reducing its registered capital, the Company shall prepare a balance sheet and an inventory of its assets. The Company shall inform its creditors of the reduction in registered capital within 10 days from the date of the resolution and publish an announcement of the reduction in newspapers~~at least three times~~ within 30 days. Creditors shall within 30 days upon the receipt of the notice or for creditors who have not received the notice shall within~~90~~ 45 days since the date of the first announcement of any reduction in capital, request the Company to repay any debts or to provide any relevant guarantee against any such debts. The amount of registered capital after the reduction in capital shall not be lower than the authorized minimum capital required by law. Subject to the approval of the relevant PRC regulatory authorities, the Company may in accordance with laws, administrative regulations and the procedures set out in these Articles of Association~~and to the~~ ~~provisions of these Articles of Association, the Company may~~ repurchase its issued shares in the following circumstances: (i) cancel its shares in order to reduce its capital; (ii) merge with another company or other companies which holds the shares of the Company; and (iii) granting shares to the staff of the Company as incentives; (iv) repurchasing the shares upon request of its shareholders who vote against resolutions at a general meeting in connection with a merger and division of the Company;	Article 22 of the Mandatory Provisions; Article 22 of the Guidelines Article 23 of the Mandatory Provisions; Article 176 of the
		Guidelines Article 24 of the Mandatory Provisions; Article 23 of the Guidelines

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APPENDIX VI

(v ~~iii)~~ other circumstances as permitted by the laws and administrative regulations and approved by the relevant competent authority where the shares of the Company are listed. ~~under any other circumstances permitted by laws and administrative regulations.~~

Save for the abovementioned circumstances, the Company may not engage in trading of its own shares.

Article 36 ~~1~~ Upon the approval of the relevant PRC regulatory authorities, the Article Company may repurchase its own shares by one of the following methods: 25 of the Mandatory ~~In repurchasing its issued shares, the Company shall handle the matters~~ Provisions; ~~in relation thereto pursuant to Articles 30 to 33 below.~~ Article 24 of the Guidelines;

(i) making a buyback offer to its shareholders for the repurchase of shares on a pro rata basis; ~~by way of general offer to all of its existing shareholders to repurchase shares on a pro rata basis, that is in proportion with their respective shareholdings;~~
(ii) by way of public trading at the appropriate securities exchange; or
(iii) by entering into independent agreements for the repurchase of the Paragraph Company’s shares outside the appropriate securities exchange; 8(2) of Appendix 3
of the Listing Rules
(iv) other ways allowed by the laws and administrative regulations, the relevant competent authority where the shares of the Company are listed.

Article 37 ~~2~~

Where the Company repurchases its own shares by way of agreements outside the appropriate securities exchange, it must first obtain the prior approval of the shareholders’ in general meeting in accordance with these Articles of Association. The Company may rescind or vary such agreements, or waive its rights under any such agreements executed entered into if the prior approval of the shareholders in general meeting is obtained.

Article 26 of the Mandatory Provisions

The agreement to repurchase shares referred to in the preceding clause includes, but is not limited to, an agreement to assume an obligation to repurchase shares of the Company or an agreement to acquire the rights to repurchase shares of the Company.

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APPENDIX VI

The Company shall not assign or transfer the agreement to repurchase its shares or any rights prescribed therein.

For the redeemable shares which can be repurchased by the Company, if they are not repurchased in the market or by tender, the repurchase price shall be limited to the highest price. If the shares are repurchased by tender, all shareholders shall be invited to tender on the same terms.

Article 38 ~~3~~ In the event that the Company purchases its shares due to the reasons stated in (i) to (iii) of Article 35 hereof, a resolution thereon shall be made at a shareholders’ general meeting. In the event that the Company purchases its ordinary shares in accordance with Article 35 of the Articles of Association due to the reason stated in (i), the shares shall be cancelled within ten days from the date of purchase; in the event that it is due to the reason stated in (ii) or (iv), the shares shall be transferred or cancelled within six months.

Article 27 of the Mandatory Provisions; Article 25 of the Guidelines

The ordinary shares of the Company purchased by the Company in accordance with Article 35(iii) shall not exceed five percent of the total issued shares of the Company; the funds used for the purchase shall be - paid out of the after tax profits of the Company; the shares so purchased shall be transferred to the employees within one year.

In the event of share cancellation, the Company shall apply to the relevant authority for registration of the change in its registered capital. ~~After repurchasing its own shares in accordance with the law, such portion of shares shall be cancelled by the Company within the time limit prescribed by laws and administrative regulations, and the Company shall apply to the original company registry for registration of the change in registered capital of the Company.~~

The registered capital of the Company shall be reduced by the amount of the aggregate par value of the cancelled shares.

Article 39 ~~4~~ Unless the Company is in liquidation, it shall repurchase its issued Article outstanding shares in accordance with the following provisions: 28 of the Mandatory Provisions

(i) where the Company repurchases its shares at par value, payment shall be made out of the available balance of its distributable profits and/or out of the proceeds from any issuance of new shares made for the purpose of repurchasing these shares;

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PROPOSED NEW ARTICLES OF ASSOCIATION OF THE COMPANY

APPENDIX VI

(ii) where the Company repurchases its shares at a premium, payment up to the par value of those shares may be made out of the available balance of the distributable profits of the Company and/or out of the proceeds from any issue of new shares made for the purpose of repurchasing these shares. Payment of the portion in excess of the par value of those shares shall be made as follows:
(1) if the shares being repurchased were issued at par value, payment shall be made out of the available balance of the distributable profits of the Company; and
(2) if the shares being repurchased were issued at a premium, payment shall be made out of the available balance of the distributable profits of the Company and/or out of the proceeds from any issuance of new shares made for the purpose of repurchasing those shares, provided that the amount paid out of the said proceeds do not exceed the aggregate amount of the premiums received by the Company on the issuance of the shares being repurchased nor exceed the current amount of the Company’s share premium account or capital reserve fund account (including the aggregate of premiums received on the new shares issued) at the time of repurchase;
(iii) any payment made by the Company for the following purposes shall be paid out of the Company’s distributable profits:
(1) acquire the right to repurchase its own shares;
(2) modify the agreement to repurchase its own shares; and
(3) secure the release of any of its obligations under the agreement to repurchase its own shares.
(iv) Following the deduction of the aggregate par value of cancelled shares from the registered capital of the Company in accordance with relevant provisions, the difference of amount between the par value and the distributable profits for the repurchase of shares shall be incorporated in the share premium account or the capital reserve account of the Company.
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PROPOSED NEW ARTICLES OF ASSOCIATION OF THE COMPANY

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Chapter 5 Financial Assistance for the Acquisition of to Repurchase the Company’s Shares

Article 40 ~~35~~ The Company or its subsidiaries shall not at any time and in any manner Article provide any financial assistance to a buyer or a potential buyer, including 20 of the Guidelines those directly or indirectly undertake any obligations in respect of acquisition of the Company’s shares. Article 29 of the Mandatory Provisions

The Company or its subsidiaries shall not at any time or in any manner provide any financial assistance for the purpose of reducing the aforesaid obligators’ obligations.

The provision of this Article shall not apply to the circumstances described in Article 42 ~~36 o~~ f this Chapter.

Article 41 ~~36~~ For these purposes, “financial assistance” referred to in this Chapter Article includes, (without limitation), the following meanings: 30 of the Mandatory Provisions

(i) a gift, advance;
(ii) security (including the assumption of liability by the guarantor or the provision of assets by the guarantor to secure the performance of obligations by the obligors), indemnity (other than indemnity against liability incurred due to the Company’s own fault) or release or waiver of any rights;
(iii) loans, or entering into contracts under which the Company has already performed its obligations to the other; and the modification of the said loan or parties to the contract concerned or the transfer of the rights under the said loan or contract; and
(iv) any other forms of financial assistance given by the Company when the Company is insolvent or has no net assets or when its net assets would thereby be reduced to a material extent.
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PROPOSED NEW ARTICLES OF ASSOCIATION OF THE COMPANY

APPENDIX VI

The obligations mentioned in this Chapter include the obligations assumed by the obligator by means of entering into a contract or by making arrangements (no matter whether the contract or the arrangements is enforceable or whether the responsibility is to be assumed individually or jointly with others) or where responsibilities have arisen due to changes in the financial circumstances of the Company caused by any other means.

Article 42 ~~37~~ The following activities shall not be deemed to be prohibited activities by Article ~~34 4~~ 0 of this Chapter:

Article 31 of the Mandatory Provisions

(i) financial assistance provided by the Company which is made in good faith in the interests of the Company, and where the main purpose of such financial assistance is not for the acquisition the shares of the Company but is an ancillary part of a larger project of the Company;
(ii) the lawful distribution of the Company’s assets by way of dividends;
(iii) the allotment of bonus shares as dividends;
(iv) the reduction of registered capital, repurchase of shares or a reorganization of the shareholding structure of the Company effected in accordance with theses Articles of Association;
(v) within its scope of business the provision of loans for its normal business activities (provided that this shall not lead to the reduction in the Company’s net assets or, in case reduction is resulted, such financial assistance is deducted from the Company’s distributable profits); and
(vi) the provision of funds contributed by the Company to the staff and workers’ share schemes (provided that the net assets of the Company are not thereby reduced or to the extent that the assets are thereby reduced, the financial assistance is provided out of distributable profits).
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PROPOSED NEW ARTICLES OF ASSOCIATION OF THE COMPANY

APPENDIX VI

Chapter 6 Shares Certificate and Register of Shareholders

Article 43 ~~38~~ The Company’s shares shall be issued in registered form. Article 32 of the Mandatory Provisions

The Company’s share certificate shall contain the following major particulars:

(i) the Company’s name;
(ii) the date of the incorporation of the Company;
(iii) the type, the nominal value of and the number of shares represented by the relevant share certificate;
(iv) the number of the share certificate;
(v) such other particulars as may be required by the Company Law, the Special Regulations and the stock exchanges on which the shares of the Company are listed.

~~Article 39~~	The Company may issue overseas listed foreign shares in form of foreign depository receipts or other derivative means of shares in accordance with the laws and the practice of registration and depository of securities in the listing place.~~The share certificates of the Company can be transferred,~~ ~~given as a gift, received by the heirs of the holders or mortgaged~~ ~~pursuant to relevant laws, administrative regulations and these Articles~~ ~~of Association.~~
		~~(A3-1(1) of~~ ~~the Listing~~ ~~Rules)~~

Article 44~~0~~

~~The transfer and the assignment of the share certificates shall be registered~~
~~at such registrar as appointed by the Company.~~
Share certificates shall be signed by the Chairman of the Board. In
the event that the signatures of other senior officers of the Company
are required, they should also be signed by such senior officers. Share
certificates shall become valid upon the affixing of the seal of the
Company (including the securities chop of the Company). Affixing of
the seal or the securities chop of the Company on share certificates shall
be subject to the authorization of the Directors. The signatures of the
Chairman of the Board or other senior officers on the share certificates
may take the printed signatures.
Article
33 of the
Mandatory
Provisions
Article 1 of
~~t~~
~~Z~~heng Jian
Hai Han~~he~~
~~Letter~~
Paragraph
2(1) of
Appendix 3
of the Listing
Rules

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PROPOSED NEW ARTICLES OF ASSOCIATION OF THE COMPANY

APPENDIX VI

Article 45 ~~1~~ The Company shall maintain a register of shareholders as a record of Article the following matters: 34 of the Mandatory Provisions
(i) the name (title), address (domicile), and occupation or nature of Article occupation of each shareholder; 30 of the Guidelines
(ii) the class(es) and number of shares of each class held by each shareholder;
(iii) the amount(s) paid up or payable for the shares held by each shareholder;
(iv) the serial numbers of the shares held by each shareholder;
(v) the date on which each shareholder is registered as a shareholder; and
(vi) the date on which a person ceases to be a shareholder.

The Company shall keep a shareholders’ register according to the vouchers provided by the securities registration authority. The shareholders’ register shall be adequate ~~ample~~ proof of the shareholders’ holding of the Company’s shares, unless there is evidence to the contrary.

Article 46 ~~2~~ The original of the shareholders’ register of the Company for foreign shares listed overseas may be kept at some overseas place in accordance with such understanding and agreement between the State Council’s regulatory authority for securities and the securities regulatory authority of the overseas listing place, and an agent at the overseas listing place shall be appointed for its management. The original of the Company’s shareholders’ register for foreign shares listed in Hong Kong shall be kept in Hong Kong.

The original of the shareholders’ register of the Company for foreign Article shares listed overseas may be kept at some overseas place in accordance 35 of the Mandatory with such understanding and agreement between the State Council’s Provisions regulatory authority for securities and the securities regulatory authority Article 2 of of the overseas listing place, and an agent at the overseas listing place Zheng Jian Hai Han ~~the~~ shall be appointed for its management. The original of the Company’s ~~Letter~~ shareholders’ register for foreign shares listed in Hong Kong shall be kept in Hong Kong. The Company is required to keep a copy of the shareholders’ register for Section 1(b) foreign shares listed overseas at the Company’s address; the appointed of Part D of Appendix 13 overseas agent shall at all times maintain the consistency between the of the Listing original and the copy of the shareholders’ register. Rules

Where the original and duplicate of the register of holders of overseas listed investment shares are inconsistent, the original shall prevail.

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PROPOSED NEW ARTICLES OF ASSOCIATION OF THE COMPANY

APPENDIX VI

Article 47 ~~3~~ The Company shall keep a complete register of shareholders. Article 36 of the Mandatory The register of shareholders shall comprise of the following parts: Provisions

(i) register(s) maintained at the Company’s domicile shall be the register of all the shareholders other than those registered in accordance with sub-paragraphs (ii) and (iii) below;
(ii) register(s) of holders of foreign shares listed overseas maintained at the place(s) where the stock exchange on such shares are listed is/are located; and
(iii) register(s) of shareholders maintained at such other place(s) as the Board may deem necessary for listing purpose.

Article 48 ~~4~~ There shall not be any overlapping in any parts of the shareholders’ Article register. The transfer of shares registered in one part of the register shall 37 of the Mandatory not be registered in any other part of the register during the continuation Provisions of the registration of such shares.

All fully paid up overseas listed foreign shares listed in Hong Kong shall be freely transferable in accordance with the Articles of Association, subject to the right of the Board to refuse recognition of any transfer document, without providing any reason for such refusal, unless and until the following conditions are satisfied:

Article 12 of Zheng Jian Hai Han ~~the letter~~

(i) payment of a fee of HK$2.50 for each transfer document, or such larger amount as may be from time to time approved by the Hong Kong Stock Exchange, to the Company for the registration of any transfer document(s) or other document(s) relating to or affecting the ownership of the shares in question;

Paragraph 1(1) of Appendix 3 of the Listing Rules

(ii) the instrument of transfer only involves overseas listed foreign H shares listed in Hong Kong;
(iii) the stamp duty chargeable on the instrument of transfer has been paid;
(iv) the relevant share certificate and, upon the reasonable request of the Board, any evidence in relation to the right of the transferor to transfer the shares shall be submitted;
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PROPOSED NEW ARTICLES OF ASSOCIATION OF THE COMPANY

APPENDIX VI

Article 49~~5~~
Article 50
Article 51

(v)
if it is intended to transfer the shares to joint holders, then the
maximum number of joint holders shall not exceed four; and
Paragraph
1(3) of
Appendix 3
of the Listing
Rules
(vi)
the Company does not have any lien on the relevant shares.
The H shares of the Company shall be transferred in writing by an
instrument of transfer in usual or common form or in such form as may
be accepted by the Board of Directors. The instrument of transfer can
only be signed by hand or affixed with a valid seal of the Company (if
the Company is the transferor or the transferee). If the transferor or the
transferee is a clearing house or its nominee, the instrument of transfer
can be signed by hand or printed by machine. All instruments of transfer
must be kept at the legal address of the Company or such other place as
may be designated by the Board of Directors.
The alteration and correction of each part of the shareholders’ register
shall be carried out in accordance with the laws of the place where that
part of the register is maintained.
No changes in the shareholders’ register due to the transfer of shares
may be made within thirty (30) days prior the date of a shareholders’
general meeting or within five (5) days prior the reference date set by
the Company for the purpose of distribution of dividends.If separate
provisions are stipulated by the laws, administrative regulations, rules of
regulatory authorities, other normative rules and the securities regulatory
authorities located at the places where the Company’s shares are listed,
such provisions shall apply.
Article
38 of the
Mandatory
Provisions
The Board shall specify a particular date (the record date) for ascertaining
the share title of shareholders when the Company decides to hold
shareholders’general meeting, distribute dividends, liquidate the
Company and do other acts which require the determination of the title
to shares. At the close of business of such date, the shareholder whose
name appears on the shareholders’register shall be a deemed shareholder
of the Company.
Article
39 of the
Mandatory
Provisions;
Article
31 of the
Guidelines
Any person who queries the accuracy of the shareholders’register
and requests to put his name on the register or delete his name from
the register may apply to the court of jurisdiction for correction of the
shareholders’register.
Article
40 of the
Mandatory
Provisions

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PROPOSED NEW ARTICLES OF ASSOCIATION OF THE COMPANY

APPENDIX VI

Article 52 ~~Article 46~~ ~~Article 47~~ ~~Article 48~~	Any shareholder registered in the shareholders’register or person who requests to be registered in the shareholders’register may apply to the Company for issuance of a replacement certificate in respect of the relevant shares (the“relevant shares”) if his share certificate is lost (the “original share certificates”). ~~The Board shall specify a particular date for ascertaining the share~~ ~~title of shareholders when the Company decides to hold shareholders’~~ ~~general meeting, distribute dividends, liquidate the Company and do~~ ~~other acts which require the determination of the title to shares. At the~~ ~~close of business of such date, the shareholder whose name appears on~~ ~~the shareholders’ register shall be a deemed shareholder of the Company.~~ ~~Any person who queries the accuracy of the shareholders’ register~~ ~~and requests to put his name on the register or delete his name from~~ ~~the register may apply to the court of jurisdiction for correction of the~~ ~~shareholders’ register.~~ ~~Any shareholder registered in the shareholders’ register or person who~~ ~~requests to be registered in the shareholders’ register may apply to the~~ ~~Company for issuance of a replacement certificate in respect of the~~ ~~relevant shares (the “relevant shares”) if his share certificate is lost (the~~ ~~“original share certificates”).~~ Applications for the replacement of share certificates from holders of domestic investment shares who have lost their certificates shall be dealt with in accordance withrelevant requirements~~Article 150~~ ~~o~~f the Company Law. Shareholders of overseas listed foreign shares who lose his share certificates shall apply for a replacement of share certificates in accordance with the law, regulations of stock exchange or other relevant rules in the place where the shareholders’ register of overseas listed foreign shares are maintained.	Article 41 of the Mandatory
		Provisions ~~Article~~ ~~39 of the~~ ~~d~~
		~~Manatory~~ ~~Provisions~~ ~~Article~~ ~~40 of the~~ ~~d~~
		~~Manatory~~ ~~Provisions~~ ~~Article~~ ~~41 of the~~ ~~d~~
		~~Manatory~~ ~~Provisions~~

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PROPOSED NEW ARTICLES OF ASSOCIATION OF THE COMPANY

APPENDIX VI

A holder of the H Shares who loses his or her share certificates may have his or her share certificates replaced if the following requirements are satisfied:

(i) the applicant shall apply for a replacement of share certificate in the prescribed form accompanied by a notarial certificate or a statutory declaration setting out the reason, the incident and evidence of the loss and a statement that no other person may apply for registration as a shareholder for relevant shares.
(ii) the Company has not received any statement of application from any person other than the applicant seeking to be registered as a shareholder.
(iii) the Company should publish a public announcement of its intention to issue a replacement share certificate in newspapers prescribed by the Board at least once every 30 days during the 90-day period.
Paragraph 7(1) of
Appendix 3
of the Listing Rules
(iv) prior to the publication of such a public announcement, a copy of the public announcement should be submitted to the Stock Exchange on which the Company’s shares are listed. The public announcement may be made upon receiving the confirmation from the stock exchange that the public announcement has been displayed in the securities exchange. The public announcement should be exhibited at such Stock Exchange for a period of 90 days.

The Company should send a copy of the public announcement to the registered shareholder if the application for the replacement of share certificate is not approved by such registered shareholder of the relevant shares.

(v) if, by the expiration of the 90-day period for the public announcement stipulated in clauses (iii) and (iv) of this article, the Company has not received any objection to the replacement from any person, the Company may issue a replacement share certificate.
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PROPOSED NEW ARTICLES OF ASSOCIATION OF THE COMPANY

APPENDIX VI

(vi) the original share certificate shall be cancelled upon the issuance of the replacement share certificate in accordance with this article and the replacement and issuance of the share certificate shall be recorded in the shareholders’ register.
(vii) the applicant shall be responsible for the expenses relating to the cancellation of the original share certificate and the issuance of the replacement share certificate. The Company may refuse to take any action until reasonable security is provided by the applicant.

Article 53 ~~49~~ After the issuance of the replacement share certificate in accordance with the Articles of Association, the name of the bona fide purchaser of the replacement share certificate or the bona fide purchaser of shares to which the replacement share certificate relates and who subsequently becomes registered as the shareholder may not be removed from the register of shareholders. Article 54 ~~0~~ The Company is not liable for any damages sustained by any person by reason of the cancellation of the original share certificate or the issuance of the replaced share certificate unless the claimant proves fraud on the part of the Company had acted deceitfully.

Article 42 of the Mandatory Provisions

Article 43 of the Mandatory Provisions

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PROPOSED NEW ARTICLES OF ASSOCIATION OF THE COMPANY

APPENDIX VI

Chapter 7 Rights and Obligations of Shareholders

Article 55 ~~1~~ A shareholder of the Company is a person who lawfully holds shares Article and who is registered in the shareholders’ register. 44 of the Mandatory Provisions Shareholders enjoy rights and assume obligations according to the class Paragraph 6 and amount of shares held by them. Shareholders holding shares of the of Appendix 3 of the same class enjoy the same rights and assume the same obligations. Listing Rules

In the event of joint holders, on the death of any one of such joint HK holders, the survivor(s) shall be the only person or persons recognized Clearing’s Opinions by the Company as having the title to any such shares, but the board of directors may require the existing joint holders to supply such evidence of death as it may deem fit for the purpose of making amendments to the particulars in the register of shareholders. Only the person whose name stands first in the register of shareholders as one of the joint holders of any share shall be entitled to the delivery of the certificate relating to such share, to receive notices from the Company, to attend and exercise all the voting powers attached to such shares at general meetings of the Company, and any notice given to such person shall be deemed notice to all the joint holders. Article 56 ~~2~~ Each holder of ordinary shares in the Company has the following rights: Article


Each	holder of ordinary shares in the Company has the following rights:	Article
		45 of the
(i)	to receive dividends and other forms of distributions in accordance	Mandatory Provisions
	with the amount of his shareholding;	Paragraph 9
		of Appendix
(ii)	torequest, convene, chair, attend, or appoint a proxy to attend a shareholders’ meeting, and to exercise his voting rights;	3 of the Listing Rules Article
		32 of the
(iii)	to supervise the management of, and to make proposals or	Guidelines
(iv)	inquiries, relating to the business activities of the Company; to transfer, give or pledge the shares held~~his shares~~ ~~i~~n accordance
	with laws, administrative regulations and the Articles of
	Association;

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PROPOSED NEW ARTICLES OF ASSOCIATION OF THE COMPANY

APPENDIX VI

(v) to review and obtain relevant information according to the provisions of the Articles of Association, including:
(1) to obtain a copy of the Articles of Association after payment of a charge to cover cost;
(2) after paying a reasonable fee, to peruse and photocopy:
- (aa) all parts of the shareholders’ register;
- (bb) the personal particulars of the Directors, Supervisors, President, and other senior officers, including:
  1. their present and former names and aliases;
  2. principal address (residence);
  3. nationality;
  4. full time and all other part time occupations and duties;
  5. their identification documents and numbers.
- (cc) the status of the share capital of the Company;
- (dd) a report on the aggregate par value, number, highest price and lowest price at which the Company repurchased each type of shares since the previous financial year and the amount of fees and expenses incurred by the Company for this purpose;
- (ee) the minutes of shareholders’ meetings and the resolutions of the meetings of the board of directors and the supervisory committee; ~~.~~
- (ff) receipts of the debenture and financial reports of the Company.
(vi) where the Company is being wound-up or liquidated, to participate in the distribution of the remaining assets of the Company according to the amount of his shareholding;
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PROPOSED NEW ARTICLES OF ASSOCIATION OF THE COMPANY

APPENDIX VI

		(vii) to request the Company to purchase shares held by him if such
		shareholder vote against resolution of the shareholders’general
		meeting concerning the merger or division of the Company;
		(viii) other rights conferred by the laws,administrative regulations,
		rules of regulatory authoritiesandtheseArticles of Association.
Article	57	If a shareholder proposes to inspect such relevant information and request	Article
		such materials as described in the preceding Article, he or she shall provide the Company with written documents certifying the class and	33 of the Guidelines
		number of the Shares held and the Company shall provide the relevant
		information and materials upon the request of the shareholder after
		verifying his or her identity.
Article	58	In the event that any resolution of the shareholders’general meeting or	Article
		the board of directors violates any laws and administrative regulations, the shareholders shall have the right to request the court to invalidate	34 of the Guidelines
		the resolution.
		In the event that convening procedures or voting methods of the
		shareholders’general meeting or the board of directors’meeting violate
		any laws, administrative regulations or these Articles of Association, or
		if the resolution violates these Articles of Association, the shareholders
		may request the court to revoke the resolution within 60 days from the
		date on which the resolution is passed.
Article	59	Subject to Chapter 22 of these Articles of Association, in the event of	Article
		any loss caused to the Company as a result of violation of any laws, administrative regulations or these Articles of Association by the directors	35 of the Guidelines
		or senior management when performing their duties, shareholders who
		holds more than 1% of the Shares, individually or jointly, for more than
		180 consecutive days shall have the right to request the supervisory
		committee in writing to initiate litigation before the court; in the event
		of any loss caused to the Company as a result of violation of any
		laws, administrative regulations or these Articles of Association by the
		supervisory committee when performing its duties, the shareholders may
		request the board of directors in writing to initiate litigation before the
		court.

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APPENDIX VI

In the event that the supervisory committee or the board of directors refuses to initiate litigation after receiving a written request of the shareholders as specified in the preceding paragraph, or fails to institute litigation within 30 days upon the receipt of the request, or if failure to institute litigation immediately may cause irreparable damage to the interest of the Company under urgent circumstances, the shareholders as mentioned in the preceding paragraph shall have the right to directly initiate litigation before the court in his name for the interest of the Company.

In the event that some other persons infringe the legitimate rights and interests of the Company, thus causing losses to the Company, the shareholders prescribed in the first paragraph of this Article may bring legal action before a court in accordance with the provisions of the preceding two paragraphs.

Article 60 Article61~~53~~	In the event that directors or senior management violate laws, administrative regulations or these Articles of Association to the detriment of the interests of the shareholders, the shareholders may initiate litigation before the court pursuant to these Articles of Association. Holders of ordinary shares of the Company shall have the following obligations: (i) to comply withlaws, administrative regulations and these Articles of Association;~~the Articles of Association;~~	Article 36 of the Guidelines
		Article 46 of the Mandatory Provisions Article 37 of the Guidelines

(ii) to pay subscription monies according to the amount of shares subscribed by them and the method of subscription;
(iii) not to demand the return of capital unless under situations otherwise specified under laws and regulations;
(iv) to refrain from causing damages to the interest of the Company or other shareholders by abusing the rights of shareholders and causing damages to the interest of the creditors of the Company by abusing its legal person status and the limited liability of the shareholders;

The shareholders of the Company who abuse their rights and cause damages to the interest of the Company or other shareholders shall be liable for compensation in accordance with laws.

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The shareholders of the Company who abuse the legal person status and the limited liability of shareholders to evade from debts and cause material damages to the interest of the creditors of the Company shall assume joint and several liability to the debts of the Company.

(v ~~iii)~~ to undertake other obligations imposed by laws, administrative regulations and the Articles of Association.

A shareholder is not liable to make further contribution to share capital other than as agreed by the subscriber of the relevant shares on subscription.

Article 62 Article 63	Where any shareholder holding more than 5% of the shares with voting rights pledge his shares, he shall immediately inform the Company in writing on the date of such pledge of shares. The controlling shareholders and de facto controllers of the Company shall not prejudice the Company’s interests by taking advantage of their connections. They shall be liable for compensation for losses caused to the Company as a result of their violation.	Article 38 of the Guidelines
		Article 47 of the Mandatory Provisions Article 39 of the Guidelines

The controlling shareholders and de facto controllers of the Company shall have an obligation of good faith towards the Company and public shareholders. The controlling shareholders shall exercise the rights of an investor in strict compliance with the law. They may not prejudice the legitimate rights and interests of the Company and public shareholders by means of the distribution of profits, restructuring of assets, foreign investment, appropriation of funds, offering security for loans and other means, and they may not prejudice the interests of the Company and public shareholders by taking advantage of their controlling position.

~~Article 54~~ In addition to the obligations imposed by laws, administrative regulations or required by the stock exchange on which shares in the Company are listed, a controlling shareholder shall not exercise his voting rights in respect of the following matters in a manner prejudicial to the interests of the shareholders generally or of some of the shareholders:

(i) to relieve a Director or Supervisor of his duty to act honestly in the best interests of the Company;
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(ii) to approve the expropriation by a Director or Supervisor (for his own benefit or for the benefit of another person), in any manner, of the Company’s assets, including (without limitation) opportunities beneficial to the Company;
(iii) to approve the expropriation by a Director or Supervisor (for his own benefit or for the benefit of another person) of the individual rights of other shareholders, including (without limitation) distribution rights and voting rights, but excluding the Company’s restructuring submitted to shareholders’ general meeting for approval in accordance with the Articles of Association.
Article 64 ~~55~~ The term “controlling shareholder” referred to in these Articles of Association ~~the preceding Article~~ means a person who satisfies any one of the following conditions:

Article 48 of the Mandatory Provisions

(i) he, acting alone or in concert with others has the power to elect more than half of the number of the directors;
(ii) he, acting alone or in concert with others has the power to exercise or to control the exercise of 30 per cent or more of the voting rights in the Company;
(iii) he, acting alone or in concert with others holds 30 per cent or more of the Shares of the Company;
(iv) he, acting alone or in concert with others in any other manner controls the Company in fact.

The definition of “acting in concert” in this Article refers to two or more persons acting in concert by way of agreement (no matter in verbal or written form) with an aim that either one acquires the voting power of the Company so as to reach the goal of or consolidate controlling of the Company.

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Chapter 8 Shareholders’ General Meetings

Article 65 ~~56~~ The shareholders’ general meetings shall be the Company’s organ of Article 49 ~~50~~ authority and may lawfully exercise the following ~~their~~ duties and powers: and Article 50 of the Mandatory Provisions Article 40 of the Guidelines ~~Article 57 The shareholders’ general meetings shall exercise the following powers: Article 50 of the Mandatory Provisions~~

(i) to decide on the business policies and investment plans of the Company;
(ii) to elect and replace Directors who are not staff representatives and to decide on matters relating to the remuneration of the Directors;
(iii) to elect and replace Supervisors who are not staff representatives ~~appointed from amongst representatives of the shareholders~~ and to decide on matters relating to the remuneration of Supervisors;
(iv) to consider and approve the report of the Board;
(v) to consider and approve the report of the supervisory committee;
(vi) to consider and approve the Company’s annual financial budget and final accounts;
(vii) to consider and approve the Company’s profit distribution proposals and proposals for making up losses;
(viii) to resolve on an increase or reduction of the registered capital of the Company;
(ix) to resolve on matters such as the merger, division, dissolution, ~~or~~ liquidation or form change of the Company;
(x) to resolve on the issuance of debentures of the Company;
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(xi) to resolve on the appointment, termination or non-renewal of the appointment of auditors of the Company;
(xii) to amend the Articles of Association;
(xiii) to consider proposals from shareholders who individually or collectively hold 3% or more of the Company’s shares with voting rights; ~~representing 5 per cent or more of the Company’s voting shares;~~
(xiv) to consider and approve matters relating to guarantee as provided in Article 66;
(xv) to consider the purchase or sale of material assets within one year which exceeds 30% of the audited total assets of the period most recently audited;

(xvi) to consider and approve the change of use of proceeds;

(xvii) to consider the share option scheme;

(x ~~i~~ viii) other matters which are to be decided by the shareholders’ general meetings according to the laws, administrative regulations, rules of regulatory authorities, the Articles of Association and the listing rules of the place where the Company is listed. ~~or the Articles of Association.~~

The abovementioned powers of the shareholders’ general meeting may not be exercised by the board of directors or other bodies and individuals on its behalf by delegation.

Article 66 The following external guarantees of the Company must be considered Article and approved by the shareholders’ general meeting: 41 of the Guidelines

(i) any guarantee given by the Company and its controlling subsidiaries, the total amount of which reaches or exceeds 50% of its latest audited net assets;
(ii) any guarantee given by the Company, the total amount of which reaches or exceeds 30% of its latest audited net assets;
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(iii) guarantees provided to any guaranteed party whose gearing ratio exceeds 70%;
(iv) guarantees of which a single guarantee amount exceeds 10% of its latest audited net assets;
(v) guarantees provided to the shareholders, actual controlling person and their related parties;
(vi) other guarantees that shall be considered at a shareholders’ general meeting as required by the regulators or the stock exchange of the place of listing of the Company’s shares.

Article ~~586~~ 7 The Company shall not, without the prior approval of shareholders in general meeting, enter into any contract with any person other than a Director, Supervisor, president or other senior officers whereby the management of the whole or any substantial part of the business of the Company is to be handed over to such person.

Article ~~596~~ 8 Shareholders’ general meetings are divided into annual general meetings (i.e. annual general meeting, similarly hereinafter) and extraordinary general meetings. Shareholders’ general meetings shall be convened by the Board. Shareholders’ general meetings are required to be held once every year within six months after the end of the previous accounting year.

Article 51 of the Mandatory Provisions Article 81 of the Guidelines

Article 52 of the Mandatory Provisions Article 4243 of the Guidelines

In any of the following circumstances, the Board shall convene an extraordinary general meeting within two months:

(i) when the number of Directors is less than the number of directors required by the Company Law or two-thirds of the number of directors specified in the Articles of Association;
(ii) when the unrecovered losses of the Company amount to one third of the total amount of its share capital;
(iii) the shareholders individually or jointly holding more than ten percent (inclusive) of total voting shares issued of the Company make a written request of convening an extraordinary general meeting in writing; ~~when shareholder(s) holding 10 per cent or more of the Company’s issued and outstanding shares carrying voting rights request(s) in writing for the convening of an extraordinary general meeting;~~
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		(iv) when deemed necessary by the Board or as requested by the
		supervisory committee;~~or~~
		(v) More than half of the independent directors, which shall not be	Article 6 of
		less than two,~~when more than two independent Directors~~ propose	Opinions
		the convening of such meeting.
		(vi) other cases as required by laws, administrative regulations, rules
		of regulatory authorities, listing rules where the Company is listed
		or these Articles of Association.
Article	69	A shareholders’general meeting of the Company shall be convened	Article
		at the domicile of the Company or other specific locations notified by the convener of the shareholders’general meeting. A venue shall be	44 of the Guidelines
		available for a shareholders’general meeting which shall be held as an
		on-site meeting. The Company shall also provide a network or otherwise
		to facilitate the attendance of shareholders at the shareholders’general
		meeting. Shareholders attending a shareholders’general meeting in the
		above methods shall be deemed to have been present that meeting.
Article	70	When the Company holds a shareholders’general meeting, a lawyer	Article
		shall be engaged to present a legal opinion on the following matters and make an announcement:	45 of the Guidelines
		(i) whether or not the procedures for convening and holding the
		meeting are in compliance with laws, administrative regulations
		and these Articles of Association;
		(ii) whether or not the qualifications of the attendees present at the
		meeting, and of the convenor are lawful and valid;
		(iii) whether or not the voting procedures at the meeting and the voting
		results are lawful and valid;
		(iv) other legal opinions to be presented on other relevant matters at
		the request of the Company.
Article	71	Independent directors shall have the right to propose to the Board of	Article
		Directors the convening of an extraordinary general meeting. With respect to this proposal, the Board of Directors shall, in accordance with	46 of the Guidelines
		laws, administrative regulations and these Articles of Association, bring
		forward a feedback opinion in writing, within ten days of receiving the
		proposal, on agreeing or disagreeing with convening the extraordinary
		general meeting.

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In the event that the Board of Directors agrees to convene the extraordinary general meeting, it shall issue a notice of convening a shareholders’ general meeting within five days of making a resolution. In the event that the Board of Directors does not agree to convene the extraordinary general meeting, it shall explain the reasons and make an announcement. Article 72 The Supervisory Committee shall have the right to propose to the Board Article of Directors the convening of an extraordinary general meeting and 47 of the Guidelines shall do so in writing. The Board of Directors shall, in accordance with laws, administrative regulations and these Articles of Association, bring forward a feedback opinion in writing, within ten days of receiving the proposal, on agreeing or disagreeing with convening the extraordinary general meeting. In the event that the Board of Directors agrees to convene the extraordinary general meeting, it shall issue a notice of convening a shareholders’ general meeting within five days of making a resolution. Any changes in the original proposal in the notice shall be approved by the Supervisory Committee. In the event that the Board of Directors does not agree to convene the extraordinary general meeting or does not make any feedback within ten days of receiving the proposal, the Board of Directors shall be deemed as being unable to or as being not to perform the duty of convening the shareholders’ general meeting. The Supervisory Committee may convene and preside over a meeting on their own. Article 73 Shareholders individually or jointly holding more than ten percent of Article voting shares of the Company shall have the right to request the Board 48 of the Guidelines of Director for convening an extraordinary general meeting, and shall do so in writing. The Board of Directors shall, in accordance with laws, administrative regulations and these Articles of Association, bring forward a feedback opinion in writing, within ten days of receiving the request, on agreeing or disagreeing with convening the extraordinary general meeting. In the event that the Board of Directors agrees to convene the extraordinary general meeting, it shall issue a notice of convening a shareholders’ general meeting within five days of making a resolution. Any changes in the original request in the notice shall be approved by the relevant shareholders.

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In the event that the Board of Directors does not agree to convene the extraordinary general meeting or does not make any feedback within ten days of receiving the request, shareholders individually or jointly holding more than ten percent of voting shares of the Company shall have the right to propose to the Supervisory Committee the convening of an extraordinary general meeting, and shall do so in writing.

In the event that the Supervisory Committee agrees to convene the extraordinary general meeting, it shall issue a notice of convening a shareholders’ general meeting within five days of receiving the request. Any changes in the original proposal in the notice shall be approved by the relevant shareholders.

In the event that the Supervisory Committee does not issue a notice of extraordinary general meeting within the prescribed time limit, it shall be deemed as being not to convene and preside over the meeting. Shareholders who individually or jointly have been holding more than ten percent of voting shares of the Company for consecutive ninety days may convene and preside over a meeting on their own.

Article 74

In the event that the Supervisory Committee or shareholders decide(s) to convene a shareholders’ general meeting on its/their own, it or they shall notify the Board of Directors in writing and report the same to the local representative office of the CSRC and the stock exchange of the place where the Company is located for the record.

Article 49 of the Guidelines

Before making an announcement on a resolution made at the shareholders’ general meeting, the percentage of voting shares held by the convening shareholders may not be less than ten percent.

The convening shareholders shall submit relevant evidence to the local representative office of the CSRC and the stock exchange of the place where the Company is located when giving a notice of shareholders’ general meeting and making an announcement on the resolutions made at such meeting.

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Article 75 Article 76 Article 77 Article 78	For a shareholders’general meeting convened by the Supervisory Committee or shareholders at its or their own discretion, the Board of Directors and the secretary of the Board of Directors shall cooperate accordingly. The Board of Directors shall provide the register of shareholders as at the record date, failing which the convenor may, with the relevant notice or announcement on convening such shareholders’ general meeting. The register obtained by the convenor may not be used for purposes other than convening the shareholders’general meeting, apply to the securities registration and clearing institution or agency for obtaining the register. The Company shall bear the expenses necessary for a shareholders’general meeting convened by the Supervisory Committee or the shareholders on its or their own. The proposals for general meeting shall be subject to the functions and power of the general meeting. They shall contain specific issues and matters for resolution, and comply with the applicable laws, administrative regulations and the Articles of Association. The proposals for general meeting shall be in written form. When the Company holds the general meeting, the Board of Directors, the Supervisory Committee and shareholders who individually or jointly hold more than 3% of the voting shares of the Company are qualified to make proposals to the Company. Shareholders individually or jointly holding more than three percent of voting shares of the Company may bring forward provisional proposals and submit the same in writing to the convenor ten days prior to the shareholders’general meeting. The convenor shall issue a supplementary notice of shareholders’general meeting within two days of receiving the proposals to publish particulars of the provisional proposals. Unless otherwise provided in the preceding paragraph, the convenor may not amend the proposals set out in the notice of shareholders’general meeting, or add new proposals after issuing an announcement on the notice of shareholders’general meeting.	Article 50 of the Guidelines Article 51 of the Guidelines Article 54 of the Mandatory
		Provisions Article 52 of the Guidelines Article 54 of the Mandatory
		Provisions Article 53 of the Guidelines

No voting may take place and no resolutions may be made at the shareholders’ general meeting on proposals which are not set out in the notice of shareholders’ general meeting or do not meet the requirements of Article 77 hereof.

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Article79~~60~~ ~~Article 61~~ Article~~62~~ ~~8~~0 Article81~~63~~	When the Company convenes a shareholders’ general meeting, written notice of the meeting shall be given forty-five (45) days(including the date of the meeting) before the date of the meeting to notify all of the shareholders in the shareholders’ register of the matters to be considered and the date and the place of the meeting. A shareholder who intends to attend the meeting shall deliver his written reply concerning the attendance of the meeting to the Company twenty (20) days before the date of the meeting. ~~Where the Company convenes an annual general meeting, shareholders~~ ~~holding of 5 per cent or more of the total number of the Company’s voting~~ ~~shares shall be entitled to submit new motions in writing to the Company.~~ ~~The Company shall put on the agenda of the meeting all items in the~~ ~~motions, that fall within the scope of the shareholders’ general meeting.~~ Based on the written replies received by the Company 20 days prior to the date of a shareholders’ general meeting, the Company shall calculate the number of voting shares represented by the shareholders who have indicated their intention to attend the meeting. Where the number of the shares represented by those shareholders is more than half of the total number of the Company’s voting shares, the Company may convene the shareholders’ general meeting. Otherwise, the Company shall within 5 days inform the shareholders again of the matters to be considered, the date and the venue of the meeting by way of a public announcement. After making the announcement, the shareholders’ general meeting may be convened. An extraordinary general meeting shall not decide on matters which are not specified in the notice. A notice for a shareholders’ meeting shall comply with the following requirements: (i) be in writing; (ii) specifying the place, the time and the duration of the meeting; (iii) stating the mattersand proposalsto be discussed at the meeting;	Article 53 of the Mandatory Provisions Article 54 of the Guidelines ~~Article~~ ~~54 of the~~ ~~d~~
		~~Manatory~~ ~~Provisions~~ Article 55 of the Mandatory Provisions Article 56 of the Mandatory Provisions Article 55 of the Guidelines

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(iv) providing such information and explanation as ~~are~~ necessary to enable the shareholders to make an informed judgment on the proposals to be discussed. Without limiting the generality of the foregoing, where a proposal is made to amalgamate the Company with another, to repurchase shares, to reorganize the share capital, or to restructure the Company in any other way, the terms of the proposed transaction should be provided in detail together with copies of the relevant contract, if any, and the cause and effect of such transaction should be properly explained;
(v) containing a disclosure of the nature and extent of the material interests, if any, of any d ~~Di~~ rector, s ~~Su~~ pervisor, president or other senior administrative officer in the matter to be discussed, and if the effect of the matter to be discussed on them in their capacity as shareholders is different from the effect on the interests of the shareholders of the same class, such difference should be specified;
(vi) containing the full text of any special resolution(s) proposed to be adopted at the meeting;
(vii) containing conspicuously a statement that all shareholders are entitled to attend the general meeting. The ~~a s~~ hareholder entitled to attend and vote is entitled to appoint one or more proxies to attend and vote on behalf of him and that a proxy need not be a shareholder; and
(viii) specifying the time and place for lodging proxy forms for the relevant meeting.
(ix) containing the record date on which shareholders have the right to attend the shareholders’ general meeting;
(x) containing the names and telephone numbers of permanent contact persons for the affairs of the meeting.

The notice and supplementary notice of the general meeting shall fully and completely cover all the details of the proposals to be disclosed at the meeting.

In the event that independent directors are required to express their opinions on the matters to be discussed, a notice of shareholders’ general meeting or a supplementary notice shall, when given, also disclose the opinions and reasons of the independent directors.

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Article82~~64~~
~~Article 65~~
Article 83

In the event that a shareholders’general meeting is held through a
network or otherwise, the notice of shareholders’general meeting shall
explicitly state the voting time and voting procedures on the network or
otherwise. Voting at the shareholders’general meeting on the network
or otherwise shall commence not earlier than 3:00 pm on the day prior
to an on-site shareholders’general meeting, and not later than 9:30 am
on the day of the on-site shareholders’general meeting, and shall finish
not earlier than 3:00 pm on the day of closing the on-site shareholders’
general meeting.
Notices of shareholders’ general meeting shall be served on the
shareholders (whether or not entitled to vote at the meeting) by hand or
prepaid mail to their addresses as shown in the shareholders’ register.
For the holders of domestic shares, notices of thegeneralmeetings may
be issued by way of public announcement.
Article
57 of the
Mandatory
Provisions
The public announcementfor the shareholders of domestic shares stated
in the previous paragraphshall be published in one or more newspapers
designated by the State Council authorities in change of securities within
the period between forty-five (45) days and fifty (50) days before the
date of the meeting. Upon the publication of such announcement, the
holders of domestic shares shall be deemed to have received the notice
of the relevant shareholders’ general meeting.
Paragraph
7(1) of
Appendix 3
of the Listing
Rules
For shareholders of H shares, the general meeting notice can be delivered
or provided in other means stated in Chapter 21 of the Articles of
Association, subject to the laws and regulations and listing rules of the
jurisdiction where the shares of the Company are listed.
The accidental omission to give notice of a meeting to, or the non-receipt
of notice of a meeting by, any person entitled to receive the notice shall
not invalidate the resolutions adopted at that meeting.
Article
58 of the
Mandatory
Provisions
In the event that the election of directors and supervisors is to be
discussed at a shareholders’general meetings, the notice of shareholders’
general meetings shall fully disclose details of candidates for the directors
and supervisors, and shall at least include the following particulars:
Article
56 of the
Guidelines~~)~~
~~(Article~~
~~58 of the~~
~~Mandatory~~
~~Provisions~~

(i) their educational background, work experience, part time jobs and other personal details;
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		(ii) whether or not they have any connections with the Company or
		the Company’s controlling shareholders and de facto controllers;
		(iii) the disclosed number of shares of the Company they hold;
		(iv) whether or not they have penalized by the CSRC and other relevant
		departments, and disciplined by the stock exchange.
		In addition to adopting the cumulative voting system to elect directors
		and supervisors, a single proposal on each of the candidates for directors
		and supervisors shall be submitted.
Article	84	After a notice of shareholders’general meeting is given, the shareholders’	Article
		general meeting shall not be postponed or cancelled, and the proposals set out in the notice of shareholders’general meeting shall not be cancelled,	57 of the Guidelines
		without due reason. Once the meeting is postponed or cancelled, the
		convenor shall make an announcement and explain the reasons at least
		two working days prior to the scheduled meeting date. In the event that
		the listing rules in the place of listing of the Company’s shares provide
		for the above matter otherwise, such provisions shall be followed.
Article	85	The Board of Directors of the Company and other convenors shall take	Article
		necessary measures to ensure the normal order of a shareholders’general meeting. They shall take measures to prevent and promptly report to	58 of the Guidelines
		the relevant departments for investigating any interference with the
		shareholders’general meeting, disturbance and violation of the legitimate
		rights and interests of shareholders.
Article	86	Shareholders who hold the voting shares and recorded in the register on	Article
		the record date or their proxies shall have the right to attend shareholders’ general meetings and exercise the rights to vote in accordance with	59 of the Guidelines
		relevant laws, regulations and these Articles of Association. Shareholders
		may attend a shareholders’general meeting in person, and also may
		appoint a proxy to attend and vote on their behalf.
Article	87	In the event that an individual shareholder attends a shareholders’general	Article
		meeting, he shall produce his own identity card or other valid documents or proof capable of identifying himself, and the stock account card; in	60 of the Guidelines
		the event that a proxy is appointed to attend the meeting for someone
		else, he shall produce his own valid identity documents and the power
		of attorney from the shareholder.

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For a corporate shareholder, his legal representative or the proxy appointed by such legal representative shall attend the meeting. In the event that the legal representative attends the meeting, he shall produce his own identity card or valid proof capable of proving that he has the status of a legal representative; in the event that the appointed proxy attends the meeting, he shall produce his own identity card and the written power of attorney issued by the legal representative of the corporate shareholder according to law.

Article 88 ~~66~~

Any shareholder entitled to attend and vote at a shareholders’ general meeting of the Company shall be entitled to appoint one or more other persons (whether a shareholder or not) as his or her proxies to attend and vote on behalf of him or her, and a proxy so appointed may exercise the following rights pursuant to authorization by that shareholder:

Article 59 of the Mandatory Provisions

(i) to have the same right as the shareholder to speak at the meeting;
(ii) to demand or join others to demand a poll; and
(iii) to vote by hand or on a poll, but a proxy of a shareholder who has appointed more than one proxy may only vote on a poll.

Article 89 ~~67~~

If the shareholder is a recognized clearing house as defined by the Securities and Futures Ordinance (Cap 571 of the Laws of Hong Kong), he may authorize one or more than one representative as he may deem fit to attend any shareholders’ general meeting or any meeting of the shareholders of any class on his behalf. However, if more than one representative is appointed, the power of attorney shall specify the number and the type of the shares in respect of which each representative is authorized. An authorized representative may act on behalf of the recognized clearing house (or any of its “nominees”) as if he were an individual shareholder of the Company.

A shareholder should appoint a proxy in writing under the hand of the appointer or his attorney duly authorize in writing, the appointer is a legal person, either under seal of the legal person or under the hand of a director or a senior officer or a duly authorized attorney. The power of attorney issued by a shareholder to appoint another party to attend a shareholders’ general meeting shall contain the following particular: ~~shall specify the number of shares in respect of which the proxy is appointed. If more than one proxy is appointed, power of attorney shall specify the number of shares represented by each proxy.~~

HK Clearing’s Opinions

Article 60 of the Mandatory Provisions HK Clearing’s Opinions Paragraph 11(2) of Appendix 3 of the Listing Rules Article 6162 of the Guidelines

(i) the name of the principal and the name of his proxy;

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(ii) whether the proxy has the right to vote;

(iii) the instructions to vote in favour of or against, or to abstain from voting on, each matter set out on the agenda of the shareholders’ general meeting;
(iv) the date and validity of the power of attorney;
(v) the signature (or seal) of the principal. In case the principal is a corporate shareholder, it shall be affixed with the seal of the legal entity;
(vi) the portion of shares of the principal represented by the proxy;
(vii) in the event that several people are appointed as proxies, the proxy form shall indicate the portions of shares represented by each proxy.

Article 90 ~~68~~ The instrument appointing a proxy ~~and, if such instrument is signed by a person authorized by the appointer, a notarized copy of that power of attorney and other authorizing documents s~~ hall be deposited at the address of the Company or at such other place as is specified for that purpose in the notice convening the meeting, no later than 24 hours before the time for holding the meeting or 24 hours prior to the specified time for voting.

Article 61 of the Mandatory Provisions Article 63 of the Guidelines

~~BI~~ f such instrument is signed by a person authorized by the appointer, the power of attorney and other authorizing documents shall be notarized. B ~~bo~~ th the notarized letter ~~copycopy o~~ f the power of attorney and other authorizing documents ~~and the instrument appointing a proxy~~ and the instrument appointing a proxy shall be kept at the address of the Company or at such other place as is specified in the notice convening the meeting.

Where the appointer is a legal person, its legal representative or Board or other person authorized by a decision-making body shall be entitled as a representative to attend the shareholders’ meeting of the Company.

Article ~~699~~ 1 Any form issued to a shareholder by the Board for use by him for appointing a proxy shall enable the shareholder, according to his intention, to instruct the proxy to vote in favour of or against proposals, and should be able to give instruction on each resolution subject to voting at the meeting. Such a form shall contain a statement that in default of instructions, the proxy may vote as he thinks fit.

Article 62 of the Mandatory Provisions Paragraph 11(1) of Appendix 3 of the Listing Rules; Article 62 of the Guidelines

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Article~~70~~ ~~9~~2 Article 93 Article 94 Article 95 Article 96	If the appointer dies prior to voting, loses his capacity to act, withdraw his appointment withdraws his authorization of his power-of-attorney, or the relevant shares have been transferred, the proxy vote for the shareholder shall remain valid provided that the company does not receive any written notice of these matters before the commencement of the relevant meeting. A meeting attendance register of attendants at a meeting shall be compiled by the Company. The meeting attendance register shall state the names (or names of work units), identity card numbers and home addresses of attendants, number of shares held or representing voting shares, the names of principals (or names of work units) and so on. The convenor and the lawyers engaged by the Company shall jointly verify the legitimacy of the qualifications of shareholders based on the register of shareholders provided by a securities registration and clearing institution, and record the names of shareholders and the type and number of voting shares held by them. Meeting registration shall be terminated before the chairman of the meeting announces the number of shareholders and proxies physically present at the meeting as well as the type and total number of voting shares held. During a shareholders’general meeting, all the directors and supervisors of the Company and secretary of the Board of Directors shall attend the meeting. The president and other senior officers shall sit in on the meeting. A shareholders’general meeting shall be convened and chaired by the chairman of the Board of Directors, in the event that the general meeting is convened by the Board of Directors. In case that the chairman is unable to or fails to perform his duties, the vice-chairman shall convene and chair the meeting. In the event that neither the chairman nor the vice-chairman is unable to or fails to perform his duties, a director of the Company jointly elected by more than half of the Directors shall convene and chair the meeting on his behalf. A shareholders’general meeting convened by the Supervisory Committee on its own shall be chaired by the chairman of the Supervisory Committee. In the event that the chairman is unable to or fails to perform his duties, a supervisor jointly elected by more than half of the supervisors shall chair the meeting. A shareholders’general meeting convened by shareholders on their own shall be chaired by a representative elected by the convenor.	Article 63 of the Mandatory Provisions Article 64 of the Guidelines Article 65 of the Guidelines Article 66 of the Guidelines Article 73 of the Mandatory
		Provisions Article 67 of the Guidelines

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During a shareholders’general meeting, in the event that the chairman of the meeting violates the rules of procedure so that the shareholders’ general meeting cannot proceed, a person may be elected as the chairman of the meeting thereat to proceed with the meeting with the consent of the shareholders with a majority of the voting rights present at the meeting. If for any reason the shareholders cannot elect a chairman of the meeting, the shareholder (including proxy) with the largest number of the voting shares present at the meeting shall chair the meeting. The Company shall establish rules of procedure for general meeting to govern in detail various particulars of the procedures for convening a shareholders’general meeting and voting thereat, such as notice, registration, review of proposals, voting, counting of votes, announcement of voting results, formation of resolutions, meeting minutes and the signing thereof and the announcement thereon, as well as the principles of authorizing the Board of Directors by a shareholders’general meeting. The rules of procedure for general meeting shall form an annex hereto and be prepared by the Board of Directors and approved at a shareholders’ general meeting. In an annual general meeting, the Board of Directors and the Supervisory Committee shall report to the meeting on their work over the past one year. Each of the independent directors shall also make their personal work reports. Directors, supervisors and senior officers shall explain and illustrate the questions and suggestions made by shareholders at a shareholders’ general meeting, except for national secrets or trade secrets of the Company that cannot be disclosed at a shareholders’general meeting. The chairman of a meeting shall announce, before voting takes place, the number of shareholders and proxies physically present at the meeting as well as the total number of all kinds of voting shares held. The total number of voting shares held by shareholders and proxies physically present at the meeting shall be based on the registration at the meeting. Minutes shall be prepared for a shareholders’general meeting by the Secretary of the Board of Directors. The minutes of a meeting shall record the following particulars: (i) the time, place, agenda and name of the convenor of the meeting; (ii) the names of the chairman of the meeting and the directors, supervisors, president and other senior officers attending or sitting in on the meeting;	Article 68 of the Guidelines	Article 68 of the
	Article 69 of the Guidelines	Article 69 of the
	Article 70 of the Guidelines	Article 70 of the
	Article 71 of the Guidelines	Article 71 of the
	Article 72 of the Guidelines	Article 72 of the

(i)
(ii)

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PROPOSED NEW ARTICLES OF ASSOCIATION OF THE COMPANY

APPENDIX VI

		(iii) the total number of voting shares held by holders of domestic
		listed shares (including proxies) and holders of overseas-listed
		foreign shares (including proxies) attending the shareholders’
		general meetings and their respective percentages of total number
		of shares of the Company;
		(iv) the process of considering each proposal, main points of remarks
		and voting results of each resolution by the holders of domestic
		listed shares and holders of overseas-listed foreign shares;
		(v) questions, comments or suggestions by shareholders, and the
		replies thereto or explanations thereof;
		(vi) the names of lawyers, counters and scrutineers of votes;
		(vii) other particulars that shall be recorded into the meeting minutes
		as prescribed hereunder.
Article	102	A convenor shall ensure that the particulars of meeting minutes are true,	Article
		accurate and complete. Directors, supervisors, secretary of the Board of Directors, convenor or his representative and the chairman of the meeting	73 of the Guidelines
		who attended the meeting shall sign the minutes of the meeting. The
		minutes of the meeting shall be kept together with the valid data on the
		signature book of shareholders physically present at the meeting, powers
		of attorney of proxies present, details of voting on the network and other
		voting methods shall be kept for a period of not less than ten years.
Article	103	A convenor shall ensure that a shareholders’general meeting shall be	Article
		held consecutively until a final resolution is formed. In the event that a shareholders’general meeting is suspended or no resolutions can be	74 of the Guidelines
		made thereat due to special reasons such as force majeure, the convenor
		shall take necessary measures to restore the meeting as soon as possible
		or directly terminate the meeting, and make an announcement promptly.
		Meanwhile, the convenor shall report to the local representative office of
Article	~~71~~ ~~1~~04	CSRC and the stock exchange of the place where the Company is located. Resolutions of shareholders’general meetings shall be divided into	Article
		ordinary resolutions and special resolutions.	64 of the Mandatory
			Provisions
		To adopt an ordinary resolution, votes representing more than one half	Article
		of the voting rights represented by the shareholders (including proxies) present at the meeting in favour of the resolution are required.	75 of the Guidelines

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To adopt a special resolution, votes representing more than two-thirds of the voting rights represented by the shareholders (including proxies) present at the meeting in favour of the resolution are required.

Article ~~721~~ 05 A shareholder (including proxy) when voting at a shareholders’ general meeting may exercise his voting rights in accordance with the number of voting shares and each share shall have one vote ~~, provided that it should be in compliance with any lien or restriction imposed on the then existing voting rights of any class of shares, and in compliance with the relevant applicable laws, regulations and the Articles of Association when making the relevant voting.~~

Article 65 of the Mandatory Provisions Article 78 of the Guidelines

Where material issues affecting the interests of small and medium investors are being considered in the shareholders’ general meeting, the votes by small and medium investors shall be counted separately. The separate counting results shall be publicly disclosed.

The shares of the Company held by the Company shall not have voting rights, and these shares shall not be included in the total number of voting shares at a shareholders’ general meeting.

The Board of Directors, independent directors and shareholders who meet relevant requirements may collect the voting rights from shareholders. Information including the specific voting preference shall be fully disclosed to the shareholders for whom voting rights are being collected. Consideration or de facto consideration for collecting shareholders’ voting rights is prohibited. The Company shall not impose any minimum shareholding limitation for collecting voting rights.

In accordance with related regulations of the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited, in the event that any shareholder (including proxies) is required to abstain from voting on or may only vote for or against any resolution, such voting made in violation of relevant requirements or by imposition of restrictions on shareholders (or their proxies) shall not be included into the total number of valid votes.

Paragraph 14 of Appendix 3 of the Listing Rules

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Article	106~~74~~ ~~74~~ 107~~75~~ 108~~77~~ ~~73~~	Voting at a shareholders’general meeting shall take place by open ballot or other methods required under the listing rules of the place of listing. ~~(Article 66 of the Mandatory Provisions)~~ A poll demanded on the election of the chairman of the meeting, or on a question of adjournment of the meeting, shall be taken forthwith. A poll demanded on any other question shall be taken at such time as the chairman of the meeting decides, and any matters other than that upon which a poll has been demanded may be proceeded with. The result of the poll shall be deemed to be a resolution adopted at the meeting. On a poll taken at a meeting, a shareholder (including proxy) entitled to two or more votes need not cast all his votes for or against. The following matters shall be resolved by an ordinary resolution at a shareholders’general meeting: (i) work reports of the Board and the supervisory committee; (ii) plans formulated by the Board for the distribution of profits and for making up losses; (iii) appointment and removal of the members of the Board and members of the supervisory committee, their remuneration and method of payment of their remuneration; (iv) annual budget and final accounts reports, balance sheets and profit and loss accounts and other financial statements of the Company; annual report of the Company; (v) matters other than those required by the laws,~~and~~ ~~a~~dministrative regulations, the listing rules where the Company is listed or by the Articles of Association to be adopted by special resolutions. ~~At any shareholders’ general meeting a resolution shall be decided on~~ ~~a show of hands unless a poll is (before or after any vote by show of~~ ~~hands) demanded:~~	Article 66 of the Mandatory
~~Ail~~
			Provisions;
			Article 86 of the Guidelines Article 67 of the Mandatory
~~rtce~~ Article Article ~~Ail~~
			Provisions Article 68 of the Mandatory
			Provisions Article 70 of the Mandatory
			Provisions Article 76 of the Guidelines ~~Article~~ ~~66 of the~~ ~~d~~
~~rtce~~
			~~Manatory~~ ~~Provisions~~

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		~~(i)~~ ~~by the chairman of the meeting;~~
		~~(ii)~~ ~~by at least two shareholders with voting rights or their proxies;~~
		~~(iii)~~ ~~by one or more shareholders present in person or by proxy holding~~
		~~totally or separately 10 per cent or more of the shares carrying~~
		~~the right to vote at the meeting.~~
		~~Unless a poll is demanded, the chairman of the meeting, according to~~
		~~the result of a vote on a show of hands, shall announce the adoption or~~
		~~failure of adoption of such resolution, record it in the minutes of the~~
		~~meeting and take it as conclusive of such. It is not necessary to prove~~
		~~the number of votes for or against the resolution adopted at the meeting.~~
		~~The request for voting by poll can be withdrawn by the person who~~
		~~proposes it.~~
~~Article~~	~~74~~	~~A poll demanded on the election of the chairman of the meeting, or on~~	~~Article~~
		~~a question of adjournment of the meeting, shall be taken forthwith. A~~ ~~poll demanded on any other question shall be taken at such time as the~~	~~67 of the~~ ~~Mandatory~~ ~~Provisions~~
		~~chairman of the meeting decides, and any matters other than that upon~~
		~~which a poll has been demanded may be proceeded with. The result~~
		~~of the poll shall be deemed to be a resolution adopted at the meeting.~~
~~Article~~	~~75~~	~~On a poll taken at a meeting, a shareholder (including proxy) entitled to~~	~~Article~~
		~~two or more votes need not cast all his votes for or against.~~	~~68 of the~~ ~~Mandatory~~
			~~Provisions~~
~~Article~~	~~76~~	~~In the case where the number of votes cast for and against a resolution~~	~~Article~~
		~~are equal, whether on a show of hands or on a poll, the chairman of the~~ ~~meeting shall have a casting vote.~~	~~69 of the~~ ~~Mandatory~~ ~~Provisions~~
~~Article~~	~~77~~	~~The following matters shall be resolved by an ordinary resolution at a~~	~~Article~~
		~~shareholders’ general meeting:~~	~~70 of the~~ ~~Mandatory~~
Article	~~7~~ ~~1~~09~~8~~	The following matters shall be resolved by a special resolution at a	~~Provisions~~ Article
		shareholders’ general meeting:	71 of the Mandatory
			Provisions
			Article
			77 of the
			Guidelines

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(i) the increase or decrease of share capital/registered capital and the issue of shares of any class, warrants and other similar securities;
(ii) the issuance of debentures of the Company;
(iii) the division, merger, dissolution and liquidation;
(iv) amendments to the Articles of Association; ~~and~~
(v) Company’s purchase or sale of major assets or guaranteed amounts within one year in excess of thirty percent of the latest audited total assets of the Company;
(vi) equity incentive plans;
(vii) ~~) o~~ ther matters which are required to be passed by special resolution under laws, administrative regulations, the listing rules where the Company is listed or these Articles of Association, which are supposed to have a significant impact on the Company if they are passed by ordinary resolution at a shareholders’ general meeting, and which are required to be passed by special resolution. ~~any other matters considered by the shareholders’ general meeting, by way of an ordinary resolution, to be of a nature which may have a material impact on the Company and should be adopted by a special resolution.~~
Article 110 ~~79~~ Interested shareholders shall not take part in voting when related party transactions are being considered at a shareholders’ general meeting. The number of shares with voting rights represented by them shall not be included in the total number of valid votes; the announcement on the resolutions made at a shareholders’ general meeting shall fully disclose details of voting by non-interested shareholders. ~~The resolutions adopted in the shareholders’ general meeting shall be in compliance with the laws and the administrative regulations of the PRC and pertinent provisions of these Articles of Association.~~

Article 79 of the Guidelines

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Article 111 Article 112 Article 113	Provided the Company ensures that shareholders’general meetings are legal and valid, the Company shall facilitate the attendance of shareholders at shareholders’general meetings by various ways and means, including the provision of modern information technology means such as a network-based voting platform. Article 80 of the Guidelines A list of candidates for directors and supervisors shall be submitted as a proposal to a shareholders’general meeting for voting. Article 82 of the Guidelines For voting on the election of directors and supervisors at a shareholders’general meeting, the cumulative voting system may be implemented in accordance with the provisions hereof or the resolution at the shareholders’general meeting. If the controlling stake of the controlling shareholders accounts for more than 30%, the cumulative voting system may be implemented in the general meeting for the voting of electing more than two directors. Article 31 of Code of Corporate Governance for Listed Companies For the purpose of the preceding paragraph, the term“cumulative voting system”shall mean that when directors or supervisors are elected at a shareholders’general meeting, each of the voting rights equivalent to the number of directors or supervisors to be elected may be used in a pool. The Board of Directors shall announce to shareholders the biographical notes and general information on the candidates for directors and supervisors. The methods and procedures for nominating a director and a supervisor shall be: (i) shareholders who hold or jointly hold more than three percent of the Company’s total outstanding voting shares may, by written proposals, propose to a shareholders’general meeting non-employees’representatives as candidates for directors and supervisors, but the number of nominations shall be in compliance with the Articles of Association, and shall not be more than the number of persons to be elected. The proposal shall be served to the Company fourteen days prior to the shareholders’general meeting. Article 82 of the Guidelines Article 4 of ~~“~~ ~~Z~~heng jian Hai Han~~”~~ Paragraph 4(4)-(5) of Appendix 3 of the Listing Rules	Provided the Company ensures that shareholders’general meetings are legal and valid, the Company shall facilitate the attendance of shareholders at shareholders’general meetings by various ways and means, including the provision of modern information technology means such as a network-based voting platform. Article 80 of the Guidelines A list of candidates for directors and supervisors shall be submitted as a proposal to a shareholders’general meeting for voting. Article 82 of the Guidelines For voting on the election of directors and supervisors at a shareholders’general meeting, the cumulative voting system may be implemented in accordance with the provisions hereof or the resolution at the shareholders’general meeting. If the controlling stake of the controlling shareholders accounts for more than 30%, the cumulative voting system may be implemented in the general meeting for the voting of electing more than two directors. Article 31 of Code of Corporate Governance for Listed Companies For the purpose of the preceding paragraph, the term“cumulative voting system”shall mean that when directors or supervisors are elected at a shareholders’general meeting, each of the voting rights equivalent to the number of directors or supervisors to be elected may be used in a pool. The Board of Directors shall announce to shareholders the biographical notes and general information on the candidates for directors and supervisors. The methods and procedures for nominating a director and a supervisor shall be: (i) shareholders who hold or jointly hold more than three percent of the Company’s total outstanding voting shares may, by written proposals, propose to a shareholders’general meeting non-employees’representatives as candidates for directors and supervisors, but the number of nominations shall be in compliance with the Articles of Association, and shall not be more than the number of persons to be elected. The proposal shall be served to the Company fourteen days prior to the shareholders’general meeting. Article 82 of the Guidelines Article 4 of ~~“~~ ~~Z~~heng jian Hai Han~~”~~ Paragraph 4(4)-(5) of Appendix 3 of the Listing Rules
	(i)

		Rules

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(ii) the Board of Directors and the Supervisory Committee may submit a proposed list of candidates for directors and supervisors within the number of persons prescribed hereunder according to the number of persons to be elected, and submit the list to the Board of Directors and the Supervisory Committee for review. The Board of Directors and the Supervisory Committee shall conduct a review and pass a resolution to determine the candidates for directors and supervisors, and shall submit a written proposal to the shareholders’ general meeting.
(iii) nomination of independent directors shall be in compliance with a separate special policy established by the Company for independent directors.
(iv) the intention to nominate candidates for directors and supervisors, the written notice indicating the nominees’ willingness to accept the nominations, and the relevant written materials about details of the nominees shall be sent to the Company not less than seven days prior to the date of a shareholders’ general meeting. The Board of Directors and the Supervisory Committee shall provide shareholders with the biographical notes and general information on the candidates for directors and supervisors.
(v) the period given by the Company to nominators and for nominees to submit the aforesaid notice and documents (such period shall commence from the date after the date of giving the notice of shareholders’ general meeting) shall not be less than seven days.
(vi) each of the candidates for directors and supervisors shall be voted one by one at the shareholder’s general meeting, except for cases where the cumulative voting system applies.
(vii) any provisional additional election of directors and supervisors shall be proposed by the Board of Directors and the Supervisory Committee and recommended to the shareholders’ general meeting for election or replacement.
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Article 114 Article 115 Article 116 Article 117 Article 118	Except the cumulative voting system, all proposals shall be voted one by one at a shareholders’general meeting. In the event that there are different proposals on the same matter, they shall be voted in the chronological order of proposing such proposals. Except for special reasons such as force majeure that result in suspending a shareholders’general meeting or failing to make any resolution, no proposals may be shelved or may not be voted at a shareholders’general meeting.~~Where any shareholder~~ ~~is, under the Listing Rules, required to abstain from voting on any~~ ~~particular resolution or restricted to voting only for or only against any~~ ~~particular resolution, any votes cast by or on behalf of such shareholder~~ ~~in contravention of such requirement of restriction shall not be counted.~~ When a proposal is being considered at a shareholders’general meeting, no modifications may be made to the proposal, otherwise the modifications shall be deemed as a new proposal and shall not be voted at the shareholders’general meeting. The same voting right may only be exercised at either an on-site meeting, on the network or in another voting method. In the event that the same voting right is repeated, the result of the first vote shall prevail. Before voting takes place on a proposal at a shareholders’general meeting, two shareholders’representatives shall be elected to participate in vote counting and scrutinizing. In the event that a shareholder has an interest in a matter to be considered, the relevant shareholder and his proxy shall not participate in the vote counting and scrutinizing. When voting takes place on a proposal at a shareholders’general meeting, lawyers and representatives of shareholders and supervisors shall be jointly responsible for vote counting and scrutinizing, and shall announce the voting results on the spot. The voting results of resolutions shall be recorded in the minutes. Shareholders of the Company or their proxies who cast their votes through the network or by another method shall have the right to inspect their own voting results through an appropriate voting system. An on-site shareholders’general meeting shall not end earlier than the one held on the network or in another method. The chairman of the meeting shall announce details and results of the voting on each proposal, and announce whether a proposal is passed according to the voting results.	Article 83 of the Guidelines	Article 83 of the
		Article 84 of the Guidelines	Article 84 of the
		Article 85 of the Guidelines	Article 85 of the
		Article 87 of the Guidelines	Article 87 of the
		Article 88 of the Guidelines	Article 88 of the

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Article 119 Article 120 Article 121 Article 122 Article 123	Before the formal announcement of voting results, the listed company, vote counters, vote scrutineers, substantial shareholders, network services providers and other related parties involved at the on-site shareholders’ general meeting, on the network and in another voting method shall be under a confidentiality obligation for the details of the voting. Shareholders present at a shareholders’general meeting shall express one of the following opinions on a proposal submitted for voting: being in favour of, being against or abstaining from voting, unless securities registration and settlement institutions, as the nominal holders of shares that can be traded through Shanghai-Hongkong stock connect, declare to report according to the intentions of actual holders. Uncompleted paper ballots, wrongly completed paper ballots, paper ballots with illegible characters and uncast paper ballots shall be deemed as voters abstaining from their voting rights. The voting results of the shares they hold shall be counted as“abstained”. Resolutions made at a shareholders’general meeting shall be announced promptly in accordance with the listing rules of the place of listing of the Company’s shares. The announcement shall set out details on the number of shareholders and proxies present at the meeting, the total number of voting shares held and the percentage of the total number of voting shares of the Company, voting method, voting results of each proposal and the details of the resolutions passed. The announcement shall contain respective statistical figures on the holders of domestic and foreign shares shareholders with voting rights present at the meeting as well as their voting, and an announcement thereon shall be made. In the event that a proposal is not passed, or a resolution passed at a previous shareholders’general meeting is modified at this shareholders’ general meeting, a special note shall be made in the announcement on the resolutions made at the shareholders’general meeting. In the event that a proposal on the election of directors and supervisors is passed at a shareholders’general meeting, the new directors and supervisors shall assume office at the time of passing the relevant election proposal at the shareholders’general meeting. In the event that a proposal on the distribution of cash dividends or bonus shares or on share capital increase with transfers from the capital reserves is passed at a shareholders’general meeting, the Company shall implement a specific scheme thereon within two months after the end of the shareholders’general meeting.	Article 74 of the Mandatory
		Provisions Article 89 of the Guidelines Article 91 of the Guidelines Article 92 of the Guidelines Article 93 of the Guidelines Article 94 of the Guidelines

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Article ~~801~~ 24 Shareholders may request to convene a ~~n extraordinary general meeting or c~~ lass meeting in accordance with the following procedures:

Article 72 of the Mandatory Provisions

(i) Two or more shareholders holding in aggregate at 10 per cent (inclusive) or more of the shares with voting rights at a meeting may request the Board of Directors to convene a ~~n extraordinary general meeting or c~~ lass meeting by signing and submitting to the Board of Directors one or more counterpart written request(s) to convene such a meeting. The written request must state the matters to be considered at that meeting. The Board of Directors shall convene the ~~extraordinary general meeting or c~~ lass meeting as soon as possible after receiving such written request(s). The shareholdings referred to above shall be calculated as at the date of delivery of the written request(s) submitted by the shareholders.
(ii) If the Board of Directors fails to issue a notice to convene a meeting within 30 days after receiving the written request from the shareholders, the shareholders requesting the meeting may convene the meeting themselves within 4 months from the date on which the Board of Directors received the written request. The procedure for convening such meeting shall, so far as is possible, be the same as the procedure of the Board of Directors to convene a general meeting.

The Company shall be responsible for the reasonable fees incurred by the shareholders in convening a meeting due to the failure of the Board of Directors to convene the meeting. The Company shall deduct such fees from the amount owed by the Company to the Directors who have neglected their duties.

~~Article 81 The Chairman of the Directors shall convene a shareholders’ general (Article meeting and preside as the chairman of the meeting. If the chairman 73 of the Mandatory cannot attend the meeting for any reason, a vice-chairman shall convene Provisions) the meeting and preside as the chairman of the meeting. If neither the Chairman nor the vice-chairmen can attend the meeting, the Board of Directors may designate a Director to convene the meeting on their behalf and preside at the meeting as the chairman. If no chairman has been designated, the shareholders attending the meeting may elect a person to act as the chairman; if failing such election for whatever reasons, the shareholder with the greatest number of voting shares present at the meeting, whether in person or by proxy, shall act as the chairman.~~

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Article	125	~~The chairman of the~~ ~~V~~otes casted on each matter proposed at thegeneral	~~Article~~
		meeting shall be~~responsible for deciding whether a resolution has been~~ ~~passed or not,~~ ~~c~~ounted on the spotand~~any such decision~~ the voting result	~~74 of the~~ ~~Mandatory~~
Article	126~~82~~	shall be~~conclusive and declared at the meeting and recorded in the~~ ~~minutes of~~ ~~a~~nnounced onthe~~meeting~~ ~~s~~pot as well. If the chairman of the meeting has any doubts about the result of a	~~Provisions~~ Article
		resolution put to the vote, a counting of votes may be conducted. If the	75 of the
		chairman fails to conduct a counting of votes, shareholders present at	Mandatory
		the meeting or proxies of shareholders who do not agree with the voting	Provisions
		result announced by the chairman may request a counting of votes	Article
		immediately after the declaration of voting results, and the chairman of	90 of the
		the meeting shall immediately count the votes.	Guidelines
Article	127	The results of counting of votes conducted in a general meeting shall	Article
		be recorded in the minutes of shareholders’ meeting.	76 of the
			Mandatory
			Provisions
~~Article~~	~~83~~	~~If the chairman of the meeting has any doubts about the result of a~~	~~Article~~
		~~resolution put to the vote, a counting of votes may be conducted. If the~~	~~75 of the~~
		~~chairman fails to conduct a counting of votes, shareholders present at~~	~~Mandatory~~
		~~the meeting or proxies of shareholders who do not agree with the voting~~	~~Provisions~~
		~~result announced by the chairman may request a counting of votes~~
		~~immediately after the declaration of voting results, and the chairman of~~
		~~the meeting shall immediately count the votes.~~
~~Article~~	~~84~~	~~The results of counting of votes conducted in a general meeting shall~~	~~Article~~
		~~be recorded in the minutes of shareholders’ meeting.~~	~~76 of the~~
			~~Mandatory~~
			~~Provisions~~
		~~The proceedings of the shareholders’ general meeting shall be recorded~~
		~~by the secretary of the meeting and shall be signed by the directors who~~
		~~attend the meeting.~~
		~~The resolutions passed in the shareholders’ general meeting shall be~~
		~~recorded in the summary of the meeting. Both the minutes and the~~
		~~summary shall be prepared in the Chinese language. The minutes of~~
		~~the meeting shall be kept together with the sign-in book of attending~~
		~~shareholders and the powers of attorney of attending proxies at the~~
Article	128~~85~~	~~address of the Company.~~ Shareholders may inspect photocopies of the minutes of shareholders’	Article
		meetings during office hours free of charge. If requested by shareholders	77 of the
		the Company shall upon the receipt of reasonable fees send the copies	Mandatory
		of the minutes of shareholders’ meeting to the shareholders within seven	Provisions
		days of receiving the payment of reasonable charges.

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Chapter 9 Special Procedures for Voting by at a C lass of S hareholders

Article129~~86~~
Article130~~87~~
Article131~~88~~

Shareholders who hold different classes of shares are called class
shareholders.
Article
78 of the
Mandatory
Provisions
Class shareholders shall enjoy rights and undertake obligations as
stipulated under laws, administrative regulations and the Articles of
Association of the Company.
Other than the shareholders of other classes of shares, holders of domestic
shares and overseas listed foreign shares shall be deemed as shareholders
of different classes.
Any proposal by the Company to change or cancel the rights of class
shareholders shall be approved by a special resolution at a general
meeting of shareholders and by affected class shareholders at a meeting
held in accordance with Articles~~88~~
~~1~~32 to~~92~~
~~1~~36.
Article
79 of the
Mandatory
Provisions
~~In the event that any changes in the domestic and foreign laws,~~
~~administrative regulations and the listing rules of the place of listing~~
~~as well as any decisions made by domestic and foreign regulators~~
~~according to law result in any alteration or abolition of the rights of~~
~~class shareholders, approval of a shareholders’ general meeting or class~~
~~meeting shall not be required.~~
The following circumstances shall be deemed to be a change or
cancellation of the rights of a class shareholder:
Article
80 of the
Mandatory
Provisions
(i)
the increase or decrease in the number of shares of a particular
class, or the increase or decrease in the number of other class
shares having the same or more voting rights, distribution rights,
and other privileges;
(ii)
the conversion of all or part of one class of shares into another
class of shares or the granting of the right to convert one class
of shares into another;

(iii) the cancellation or reduction in share profit or the rights to accrued or cumulative share profit attached to such class of shares;
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(iv) the reduction or cancellation of the priority in profit sharing of asset distribution upon liquidation attached to such class of shares;
(v) the increase in or the cancellation or reduction of conversion privileges, options, voting rights, transfer or preemptive rights, or rights to acquire securities of the Company attached to such class of shares;
(vi) the cancellation or reduction of rights to receive payment payable by the Company in particular currencies attached to such class of shares;
(vii) the establishment of a new class of shares having the same or more voting rights, distribution rights and other privileges as such class of shares;
(viii) the restriction or increase in the restriction on the transfer or ownership of such particular class of shares;
(ix) the issuance of options or conversion rights for that particular or another class of shares;
(x) the increase to the rights or privileges of another class of shares;
(xi) the disproportionate distribution of liabilities amongst the different classes of shareholders as a result of any reorganization plan of the Company; and
(xii) the modification or annulment of any provisions in this chapter.

Article ~~891~~ 32

The affected class shareholders, whether or not otherwise having the right to vote at shareholders’ general meetings, shall nevertheless have the right to vote at class meetings in respect of matter concerning Articles ~~87 1~~ 31 (ii) to (viii), (xi) and (xii) above, but interested shareholder(s) shall not be entitled to vote at class meetings.

Article 81 of the Mandatory Provisions

The aforesaid interested shareholders shall be defined as follows:

(i) Where there is a repurchase offer by the Company to its shareholders as a whole in the same proportion pursuant to Article 36 ~~0~~ herein, or there is repurchase of its shares through public trading at the appropriate securities exchange, the “interested shareholders” shall mean the controlling shareholders as defined in Article ~~54 6~~ 4 herein;
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(ii) Where there is repurchase by the Company of its shares pursuant to an agreement outside the appropriate securities exchange as stipulated in Article 36 ~~0 h~~ erein, the “interested shareholders” shall mean the shareholders related to that agreement;
(iii) In a reorganization plan of the Company, the “interested shareholders” shall mean the shareholders who undertake a lesser responsibility in proportion to that of other shareholders in the same class, or shareholders who have different interests from other shareholders in the same class.

Article	133~~90~~	Resolutions of a class shareholders’ meeting shall be adopted by	Article
Article	134~~91~~	shareholders with more than two-thirds of the voting rights of the shareholders attending such meeting pursuant to Article132~~88~~ ~~.~~ A written notice shall be sent out forty-five (45) days (including the	82 of the Mandatory Provisions Article
		day of such meeting) prior to the convening of a class shareholders’ meeting to notify all of the relevant class shareholders on the register of	83 of the Mandatory Provisions
		the matters to be considered, the date and the place of such meeting. A
		shareholder who intends to attend such meeting shall deliver his written
		reply concerning his attendance at such meeting to the Company twenty
		(20) days before the date of such meeting.
		If the number of shares carrying voting rights at the meeting represented	Paragraph
		by the class shareholders who intend to attend the meeting reaches more than one half of the total voting rights of that particular class of shares,	6(2) of Appendix 3 of the Listing
		the Company may hold the class meeting; if not, the Company shall	Rules
		within five (5) days notify the shareholders again by public announcement
		of the matters to be considered, the date and the place of the meeting.
		After such public announcement is made, the Company may convene
Article	135~~92~~	the class shareholders’ meeting. Notice of class shareholders’ meetings need only be served on shareholders	Article
		entitled to vote thereat.	84 of the
			Mandatory
			Provisions
		Class shareholders’ meetings shall be conducted in a manner as similar
		as possible to that of shareholders’ general meetings. The provisions of
		the Articles of Association relating to the procedures of shareholders’
		general meeting shall apply to class shareholders’ meetings.

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Article 136 93

Except shareholders of other classes, holders of domestic shares and overseas-listed foreign shares are deemed to be shareholders of different classes.

Article 85 of the Mandatory Provisions Article 3 of “Zheng Jian Hai Han ~~the Letter”~~ Section 1(f) of Part D of Appendix 13 of the Listing Rules

Special voting procedure of class shareholders shall not apply in the following circumstances:

(i) where the Company issues domestic shares and overseas-listed foreign shares, upon the approval by a special resolution of its shareholders in a general meeting, either separately or concurrently once every twelve months, and the number of the domestic shares, overseas-listed foreign shares proposed to be issued does not exceed 20 per cent of the number of the outstanding shares of such class; or
(ii) where the Company’s plan to issue domestic shares and overseaslisted foreign Shares at the time of its establishment is completed within fifteen (15) months from the date of approval of the ~~Securities Committee of the State Council~~ CSRC.
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Chapter 10 Board of Directors

Article137~~94~~ ~~Article 95~~	The directors shall be elected at a shareholders’ general meeting, to serve a term of 3 years, and may serve consecutive terms if re-elected. The term of office of a Director commences on the date of assuming office and ends at the expiry of the current term of office of the Board of Directors. Where a director has not been timely re-elected at the expiry of the term of office or where a director has resigned during the term of office resulting that the number of the members in the board falls below the quorum, the original director shall perform his/her duties as a director, prior to the assumption by the re-elected director, in accordance with the laws, administrative regulations and rules of regulatory authorities as well as the provisions of these Articles of Association.~~The Company shall~~ ~~have the Board of Directors comprising of 11 directors. The number of~~ ~~the external directors (i.e. the directors who hold no further position in the~~ ~~Company) shall represent over ½ of the total number of the members of~~ ~~the Board. The Board shall also include more than 2 independent directors~~ ~~(i.e. the directors who are independent of the Company’s shareholders~~ ~~and hold no further position in the Company).~~ The general meeting may not remove a director from office without cause before the expiration of his or her term of office. However, subject to relevant laws and administrative regulations, the general meeting may remove any director by an ordinary resolution (but without prejudice to any claim for damages that such director may have under any contract) before the end of his term of office.~~The Board shall have a chairman~~ ~~and a vice chairman.~~ ~~The Board may, pursuant to its needs, establish such professional~~ ~~committees as the investment budget committee, the audit committee,~~ ~~the remuneration committee, etc.~~ ~~The directors shall be elected at a shareholders’ general meeting, to~~ ~~serve a term of 3 years, and may serve consecutive terms if re-elected.~~	8 of	Article 7~~86~~ of the Mandatory Provisions Article 96 of the Guidelines Article 4 of Zheng Jian Hai Han Paragraph 4(3) of Appendix 3 the Listing
			Rules ~~Article~~ ~~87 of the~~ ~~Mandatory~~ ~~Provisions;~~

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~~Intentions on the nominating of candidates of Directors and the written Article 4 of notice of the acceptance of the nomination of the candidates should be the Letter; A3-4 (3)-(5) issued to the Company 7 days before the convening of the shareholders of the Listing general meeting. The period for lodgement of the above notices will Rules; commence no earlier than the day after the dispatch of the notice of the meeting appointed for such election and end no later than 7 days prior to the date of such meeting.~~

~~Subject to compliance with relevant laws and administrative regulations, Article 4 of the shareholders’ general meeting may remove any director who is still the Letter; A3-4 (3)-(5) serving his office by way of special resolution. (But without prejudice of the Listing to claim demands which may be liable under any contract.) Rules~~

The chairman and the vice chairman of the Board shall be elected or removed by a majority of the board directors. The chairman and the vice chairman shall serve a term of 3 years, and may serve consecutive terms if re-elected.

The external directors shall have sufficient time and the necessary Article 6 of knowledge and ability to perform their duties. When the external the Opinions directors perform their duties, the Company must provide the necessary information. The independent directors may directly report any matter to the shareholders’ general meetings, the securities regulatory authority of the State Council and other relevant authorities.

The president and other senior officers may concurrently serve as directors provided that the total number of directors concurrently serving as president and other senior officers shall not exceed one-half of the total number of directors of the Company.

The executive directors shall handle such matters as entrusted by the Board.

Directors shall not necessarily hold any shares of the Company.

Article 138	A director who cannot attend the meetings of the Board in person twice consecutively nor appoint any other directors to attend on his behalf is deemed as failure in performing the duties, and shall be subject to replacement as recommended by the Board at the general meeting.	Article 99 of the Guidelines	Article 99 of the

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Article 139 Article 140	Directors may request to resign before expiry of their terms of office. The directors to resign shall submit to the Board a written report in relation to their resignation. The Board shall disclose the relevant information within two (2) days. In the event that the resignation of any director results in the number of members of the Board falling below the quorum, the existing director shall continue to perform his duties in accordance with the laws, administrative regulations, rules of regulatory authorities and the provisions of the Articles of Association until the re-elected director assumes office. His resignation report shall take into effect only upon the new director taking up the vacancy. The remaining directors shall convene an extraordinary general meeting as soon as possible to elect a director to fill the vacancy left by the resignation of the director. Until the general meeting has passed a resolution on electing a director, the powers of the resigning director and the remaining directors shall be subject to reasonable restrictions. Other than the circumstances referred to in the preceding paragraph, the resignation of a director shall become effective upon submission of his resignation report to the Board. Upon a director’s resignation becoming effective or at the expiry of his office, the director shall complete all handover procedures to the Board, and his fiduciary obligations to the Company and the shareholders shall not necessarily cease after the termination of tenure and shall remain effective within a reasonable period stipulated under the Articles of Association. The director’s obligation to maintain the confidentiality of the Company’s trade secrets shall survive the end of his or her term, until such secrets enter the public domain. The term of survival of his or her other obligations shall be decided upon according to the principle of fairness, the time elapsed between the director’s departure from office and the occurrence of the event, and the circumstances and conditions of the termination of his or her relationship with the Company. No directors shall act, in their personal capacity, on behalf of the Company or the Board if not provided in the Articles of Association or appropriately authorised by the Board. A director shall, when acting in his personal capacity, state his standing and identity in advance whenever a third party may reasonably believe that the said director is acting on behalf of the Company or the Board.	Article 100 of the
		Guidelines
		Article 101 of the
		Guidelines
		Article 102 of the
		Guidelines

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Article 141 Article 142	A director who violates any laws, administrative regulations, rules of regulatory authorities or the Articles of Association during the course of performing his duties shall be liable for indemnification to any loss so caused to the Company. The Company shall have independent directors who shall act in accordance with laws, administrative regulations, and rules of regulatory authorities. Independent director of the Company refers to a director who holds no position other than as a director of the Company, has no connection with the Company and its substantial shareholders (defined as shareholders severally or jointly holding 5% or more interests in total number of shares in the Company with voting rights) which might hamper his independent and objective judgment, and complies with the requirements on independence as stipulated in the rules of the stock exchange(s) on which the Company’s shares are listed.	Article 103 of the
		Guidelines
		Article 104 of the
		Guidelines

Independent directors are subject to provisions regarding the qualifications and obligations of directors as set out in these articles of association and the relevant provisions of the regulations of the jurisdiction where the Company is listed.

The Company’s Board of Directors shall consist of at least one third of independent directors, and shall have at least three independent directors, including at least one accounting professional. Where independent directors are unqualified for being independent or other circumstances arise making them unqualified for performing duties, resulting in insufficient independent directors of the Company as required by the Articles of Association, the Company shall add additional independent directors in accordance with applicable regulations.

Independent directors shall have the following special powers in addition to those vested to directors of the Company by the Company Law and other laws, administrative regulations, rules of regulatory authorities and the Articles of Association:

(i) material related party transactions (as determined based on the criteria issued by the competent regulator from time to time) shall be submitted to the Board for deliberation after the approval of the independent directors; before rendering their judgment, independent directors may engage an intermediary organization to issue an independent financial consultant report for use as a basis for rendering their judgment.

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(ii) proposing the engagement or dismissal of an accounting firm to the Board;
(iii) proposing to the Board the calling of an extraordinary general meeting;
(iv) proposing the calling of meetings of the Board;
(v) independently engaging external auditors and consultants; (vi) openly soliciting shareholders’ voting rights before the holding of a general meeting.

Article 143 The Company establishes the Board of Directors, which is accountable to the general meeting. Board of directors consists of eleven (11) directors, of which external directors (referring to directors who do not hold a post in the Company, the same below) shall account for over half of the total directors and there shall be at least 3 independent directors which shall account for no less than one third of the total directors.

Article 86 of the Mandatory Provisions Article 6 of the Opinions Article 105, Article 106 and Article 111 of the Guidelines

The Board of Directors consists of one chairman and one vice chairman, all of which shall be elected by a simple majority of votes of all directors.

To meet needs, the Board of Directors shall set up specialized committees such as executive committee, audit committee, remuneration committee, nomination committee, and strategy committee, which are authorized by the Board of Directors to assist it with performing duties.

Duties of all specialized committees shall be finalized through resolutions of the Board of Directors in accordance with applicable laws, administrative regulations, and regulatory documents. The Board of Directors shall separately draw up rules of procedure for specialized committees of Board of Directors.

Article 144 ~~96~~ The Board is accountable to the shareholders’ general meeting and shall exercise the following powers:

Article 88 of the Mandatory Provision Article 107 of the Guidelines

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(i) to be responsible for the convening of the shareholders’ general meeting and to report on its work to the shareholders’ general meeting;
(ii) to implement the resolutions of the shareholders’ general meetings;
(iii) to decide on the Company’s business plans and investment plans;
(iv) to formulate the Company’s annual budget and final financial accounts;
(v) to formulate the Company’s profit distribution plan and plan for making up losses;
(vi) to formulate plans for the Company’s proposals for increases or reductions of its registered capital and the issue of and listing of corporate debentures or other securities;
(vii) to draft plans for material acquisition, share repurchase, merger, division, dissolution or change in corporate form ~~;to draw up plans for the Company’s merger, division or dissolution;~~
(viii) to determine matters relating to the Company’s external investment, asset acquisition and disposal, asset pledge, asset management mandate, related party transactions and external guarantee within the authorisation of the general meeting; ~~to decide on the establishment of the Company’s internal management structure;~~
(ix) to determine the establishment of the Company’s internal management structure;
( ~~i~~ x) to appoint or dismiss the Company’s president and the secretary of the Board; and pursuant to the president’s nominations to appoint or dismiss the vice presidents, the chief financial officer, and the chief information technology officer and other senior officers of the Company and decide on their remuneration rewards and penalties;
(xi) to establish the Company’s basic management system;
(xii) to formulate proposals for any amendment to the Company’s Articles of Association;

(xiii) to deal with information disclosure of the Company;

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(xiv) to propose to the general meeting for appointment or replacement of the accounting firms serving as the auditors of the Company;
(xv) to receive work report submitted by the president and to review his performance;
(xvi ~~i)~~ to exercise other duties and powers specified in the laws, administrative regulations, rules of regulatory authorities, listing rules of the stock exchange(s) on which the Company is listed or the Articles of Association and conferred by the shareholders at general meetings. ~~to perform other duties granted by the shareholders’ general meeting and the Articles of Association.~~

Matters beyond the scope authorized by the general meeting shall be submitted to the general meeting for consideration.

Except the Board’s resolutions in respect of the matters specified in the above items (vi), (vii) and (xii ~~xi)~~ , which shall be passed by twothirds or more of the Directors, the Board resolutions in respect of all other matters may be passed by more than half of the directors unless otherwise expressly specified in the listing rules of the jurisdiction where the Company is listed or the Articles of Association..

No resolution on any connected transaction of the Company shall be Article 6 of valid unless it is signed by the independent directors. the Opinions

Article 145 ~~97~~ Prior to making decisions on material issues of the Company, the Board shall first seek the opinions of the Party Committee.

Article 146 Article 147	The Board of Directors shall give explanations to the general meeting in respect of non-standard audit opinions issued by certified public accountants regarding financial reports of the Company. The Board shall formulate the rules of procedure forBoard of Directorsto ensure its implementation of the resolutions passed at the general meeting to enhance efficiency and to ensure scientific decision-making. Such rules of procedure, as one of the appendices to the Articles of Association defining the convening and voting procedure of board meetings, shall be formulated by the Board and subject to approval by the general meeting.	Article 108 of the
		Guidelines
		Article 109 of the
		Guidelines

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Article Article	148~~98~~ 149 150~~99~~	The Board shall not, without the prior approval of shareholders in a general meeting, dispose or agree to dispose of, any fixed assets of the Company where the aggregate of the expected value of the proposed disposition, and the value given for any such disposition of any fixed assets of the Company that has been completed in the period of four (4) months immediately preceding the proposed disposition, exceeds 33 percent of the value of the Company’s fixed assets as shown in the last balance sheet placed before the shareholders’ general meeting. The disposition of fixed assets referred to in this Article shall include the transfer of the interests in certain assets, excluding the provision of fixed assets as security. The validity of a disposition by the Company of its fixed assets shall not be affected by the breach of the first paragraph of this Article. In making decisions on issues such as external investment, asset acquisition and disposal, asset mortgage or pledge, external guarantee, asset management mandate and related party transactions, the Board shall establish strict examination and decision making procedures; and organise relevant experts and professionals to make assessments on major investment projects. The aforesaid matters, if subject to consideration at the general meeting under relevant laws and regulations or the regulations of the jurisdiction where the shares are listed, shall be approved by the Board before submitting to the general meeting for approval.~~When the~~ ~~Board makes a decision on market development, mergers and acquisitions,~~ ~~and investments in any new area, if the amount of investment or the~~ ~~value of the merger and acquisition represents more than 10 per cent~~ ~~of the total asset value of the Company, a public consultancy institute~~ ~~shall be appointed to provide professional opinions, which shall in turn~~ ~~form an important basis of the decision of the Board.~~ t The chairman of the Board shall exercise the following powers: (i) to preside over shareholders’ general meetings and to convene and preside over meetings of the Board of directors; (ii) tosupervise and review the implementation of the Board resolutions;	Article 89 of the Mandatory
			Provisions Article 4 of
Article			he Opinions
			Article 110 of the Guidelines Article 90 of the Mandatory Provisions Article 112
			and Article
			113 of the Guidelines

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(iii) to sign the securities issued by the Company; and
(iv) to exercise other powers as granted by the Board.

The Vice Chairman shall assist the Chairman in performing his duties. If the Chairman is unable or fails to perform his duties, such duties shall be performed by the Vice Chairman. If the Vice Chairman is unable or fails to perform his duties, a director shall be elected jointly by half or more of all directors to perform such duties. ~~Where the chairman is unable to discharge his duties he/she may appoint another director to act on his behalf.~~

Article 151 ~~100~~ Board meetings include regular meetings and extraordinary meetings. Meetings of the Board shall be held at least twice every year and convened by the chairman of the Board. Notice of the meeting shall be served on all of the Directors ten (10) days before the date of the meeting. In case of any urgent matters, upon requisition by the chairman or by more than one-third of the directors or by the president, an extraordinary meeting of the Board may be held, notwithstanding the time limit set forth in the aforesaid notice of the meeting ~~Article 99~~ .

Article 91 of the Mandatory Provisions Article 114 and Article 115 of the Guidelines

The Chairman of the Board shall convene an extraordinary board meeting within ten (10) days if:

(i) it is proposed by shareholders holding more than one-tenth of the Company’s voting shares;
(ii) it is proposed by more than one third of the Directors;
(iii) it is proposed by the Supervisory Committee;
(iv) the Chairman of the Board deems it necessary;
(v) it is proposed by the president;
(vi) other circumstance specified in laws, administrative regulations and these Articles of Association arises.

The Board Meetings shall be conducted in Chinese. If necessary, a translator may be present at the meeting to translate the Chinese language into the English language, or vice versa.

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Article 152 ~~01~~ The notice of the Board meeting shall be given in the following manner:

(i) if the date, the time and the venue of the regular meetings of the Board have been fixed by the Board in advance in accordance with Article 151 hereof, no notice is required;

Article 92 of the Mandatory Provisions Article 116 and Article 117 of the Guidelines

(ii) if the date, the time and the venue of a meeting have not been fixed in advance, the directors, supervisors, president and secretary of Board of Directors shall be informed of the same by telex, telegraph, fax, courier or registered post or through the persons specially assigned for this purpose at least 10 days in advance, unless otherwise provided in Article 151 ~~.;~~
(iii) where the circumstance is urgent and it is necessary to hold a temporary meeting of the Board of Directors, the notice on the meeting may be circulated at any time by phone or any other oral means, but the convener shall make explanations at the meeting and relevant matters shall be recorded in the minutes of the meeting.

Article 153 A written notice of board meeting shall include:

(i) time and venue of the meeting;
(ii) the form of the meeting;
(iii) duration of the meeting;
(iv) the reasons for holding the meeting and the topics to be discussed thereat;
(v) date on which the notice is sent, contact person and means of contact.

A notice given orally shall, at minimum, include the particulars set forth in items (1) and (2) above and an explanation to the effect that circumstances are urgent and an extraordinary board meeting needs to be held as soon as possible.

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Article 154~~02~~ Article1~~103~~ ~~5~~5	Notice of meetings shall be served in Chinese, with an English translation attached thereto when necessary, and in each case accompanied by a meeting agenda. Any director may waive his or her right to receive notice of a board meeting. In strict compliance with the required procedures, all executive and external directors shall be notified about the material matters that shall be decided by the Board of Directors as stipulated in Article 152, and sufficient materials shall be provided at the same time. Directors may request for supplementary information. If more than one-fourth of the directors or more than two external directors consider that the information provided is not sufficient or the supporting arguments are not clear, they may jointly propose to postpone the meeting or postpone the discussion of certain matters on the agenda of the meeting and the Board of Directors shall accept such proposal. The directors who advise postponing the vote shall put forward clear requirements of the conditions for resubmitting such proposal for review.~~All the executive directors and the external~~ ~~directors must be informed of all the material matters to be decided by the~~ ~~Board pursuant to Article 99 above. Sufficient information must also be~~ ~~provided. In holding the relevant Board meeting, the procedure specified~~ ~~in these Articles of Association must be strictly followed. Directors~~ ~~may request that supplementary materials be provided. When more than~~ ~~one-fourth of the directors or more than 2 external directors deem that~~ ~~the information is insufficient or that the grounds of the arguments are~~ ~~not specific, they may jointly request that the relevant Board meeting~~ ~~or the discussions of the relevant meeting be postponed and the Board~~ ~~shall accept their request.~~ Article 3 of the Opinions If a director attends a meeting but he does not object or before the meeting that he has not received any notice, he shall be deemed as having been given the notice of the meeting. Meetings of the Board of Directors shall be held only if half or more than half of the Directors (including the directors who are appointed in writing as the proxies of other directors pursuant to Article156~~102~~ herein~~below~~ ~~)~~ are present. Each Director shall have one vote. The Board may pass resolutions only upon a majority vote of all the shareholders attended in the meetingunless otherwise provided in the Articles of Association. Where the number of votes cast for and against a resolutionis~~are~~ ~~e~~qual, the chairman of the Board of Directors shall have a casting vote. Article 93 of the Mandatory Provisions Article 118 of the Guidelines	Notice of meetings shall be served in Chinese, with an English translation attached thereto when necessary, and in each case accompanied by a meeting agenda. Any director may waive his or her right to receive notice of a board meeting. In strict compliance with the required procedures, all executive and external directors shall be notified about the material matters that shall be decided by the Board of Directors as stipulated in Article 152, and sufficient materials shall be provided at the same time. Directors may request for supplementary information. If more than one-fourth of the directors or more than two external directors consider that the information provided is not sufficient or the supporting arguments are not clear, they may jointly propose to postpone the meeting or postpone the discussion of certain matters on the agenda of the meeting and the Board of Directors shall accept such proposal. The directors who advise postponing the vote shall put forward clear requirements of the conditions for resubmitting such proposal for review.~~All the executive directors and the external~~ ~~directors must be informed of all the material matters to be decided by the~~ ~~Board pursuant to Article 99 above. Sufficient information must also be~~ ~~provided. In holding the relevant Board meeting, the procedure specified~~ ~~in these Articles of Association must be strictly followed. Directors~~ ~~may request that supplementary materials be provided. When more than~~ ~~one-fourth of the directors or more than 2 external directors deem that~~ ~~the information is insufficient or that the grounds of the arguments are~~ ~~not specific, they may jointly request that the relevant Board meeting~~ ~~or the discussions of the relevant meeting be postponed and the Board~~ ~~shall accept their request.~~ Article 3 of the Opinions If a director attends a meeting but he does not object or before the meeting that he has not received any notice, he shall be deemed as having been given the notice of the meeting. Meetings of the Board of Directors shall be held only if half or more than half of the Directors (including the directors who are appointed in writing as the proxies of other directors pursuant to Article156~~102~~ herein~~below~~ ~~)~~ are present. Each Director shall have one vote. The Board may pass resolutions only upon a majority vote of all the shareholders attended in the meetingunless otherwise provided in the Articles of Association. Where the number of votes cast for and against a resolutionis~~are~~ ~~e~~qual, the chairman of the Board of Directors shall have a casting vote. Article 93 of the Mandatory Provisions Article 118 of the Guidelines
		Guidelines

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The supervisors may attend the meetings of the Board of Directors as non-voting participants, and the president and the secretary of the Board of Directors who do not hold the concurrent post of the director shall - attend the meetings of the Board of Directors as non voting participants. When the Chairman of the Board of Directors deems necessary, other relevant persons may be notified to attend the meetings of the Board of Directors as non-voting participants. ~~The regular or the extraordinary meetings of the Board may be conducted through conference call or any other similar communication facility provided that the directors can hear each other distinctly and that they can communicate. All the directors present at such kind of meeting shall be deemed as having attended the meeting in person.~~

~~Article 103 Meetings of the Board of Directors shall be held only if half or more than half of the Directors (including the directors who are appointed in writing as the proxies of other directors pursuant to Article 102 below) are present. Each Director shall have one vote. The Board may pass resolutions only upon a majority vote of all the shareholders attended in the meeting. Where the number of votes cast for and against a resolution are equal, the chairman of the Board of Directors shall have a casting vote.~~ Article 156 ~~104~~ Any Board meeting shall be attended in person by its chairman. Where he is unable to attend any Board meeting in person for any reasons, the chairman may in writing ask another director to attend the meeting on his behalf. The proxy form shall specify the scope of such authorization. The power of attorney shall indicate the names of the principal and the proxy, matters delegated, the scope of authority and valid term, the directions for the voting intentions of proposal by the principal, and the signature by the principal, the date, etc.

~~Article 93 of the Mandatory Provisions~~

Article 94 of the Mandatory Provisions Article 121 of the Guidelines

The director attending the meeting on behalf of the chairman shall exercise the rights of a director within the scope of the authorization. Any director failing to attend a board meeting and failing to appoint a proxy to attend in his stead shall be deemed as having abstained from voting in the meeting.

All the costs and expense incurred by the directors for attending the Board meetings shall be reimbursed by the Company. Those costs and expense shall include the expense for traveling to the venue of the meeting from the places where the directors are located and the expense on meals and accommodation during the period of the meeting. The rent of the venue of the meeting, the local traveling expense and other miscellaneous costs and expense shall be borne by the Company.

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Article 157 ~~Article 105~~	The chairperson of the meeting shall call directors participating in the meeting to make decisions promptly after the full discussion of each proposal. The decisions on the meetings shall be made by“one person, one vote”in the form of disclosed ballot or in writing. The voting intentions of the directors shall be classified as agreement, disagreement and abstention. The participating directors shall choose one of the above intentions; failing to make choice or choosing more than two intentions simultaneously, the relevant directors shall be required by the Chairman of the meeting to make a choice again; and the relevant director who refuses to make a choice shall be regarded as an abstainer. The director who leaves the meeting place halfway without making a choice shall be regarded as an abstainer. Meetings of Board of Directors (including video conferences) shall be voted through disclosed ballot. Where directors attend meeting through teleconference or telecommunication equipment, as long as all directors participating in the meeting can hear and communicate with each other clearly, all such directors shall be deemed to be present in person at the meeting. Provided that the directors have fully expressed their views, the meeting of Board of Directors may be convened by means of communication and resolution(s) may be made at such meeting, and the directors attending the meeting shall sign accordingly. The Board may accept that a written resolution can be circulated instead of convening a meeting. However, the draft of the resolution shall be delivered to each director by hand, by mail, by cable or by fax. If the Board has circulated the resolution to all directors and the number of directors who have signed the resolution to show their agreement has reached the quorum for making a decision, the resolution so passed shall, upon being delivered to the secretary of the Board, become a resolution of the Board and no meeting shall be convened. Where a director is related to a company involved in a resolution at the meeting of Board of Directors or shall avoid voting in accordance with the listing rules of the stock exchange where the Company is listed, the director may not exercise his or her voting right for the resolution or exercise voting right on behalf of other directors and the Board of Directors may not resolve matters by way of written resolution in lieu of the convening of a Board meeting. The meetings of the Board of Directors may be convened with the attendances of the majority of the unrelated directors, and the formed resolutions shall be passed by unrelated directors. If the unrelated directors attending the meeting are less than three (3), such matters shall be submitted to the general meeting for review.	Article 120 of the
		Guidelines
		Article 120 of the
		Guidelines
		Article 119 of the
		Guidelines

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Article 158

The Board of Directors shall keep minutes of all decisions on matters considered by the convened and the unconvened board meetings in the Chinese language. The opinions of the independent directors shall be specified in the resolutions of the Board meetings. The minutes of each Board meeting shall be delivered to all directors for their comments as soon as possible. Directors who wish to amend or supplement the minutes shall, within one week upon receipt of the minutes, deliver their proposed amendments to the Chairman. After the minutes have been finalized, directors who were present at the relevant meeting and the person who recorded the proceedings of the relevant meeting shall sign the minutes. The minutes of the Board meetings shall be kept at the address of the Company in the PRC. A full copy of the minutes of shall be delivered to each director as soon as possible.

Article 95 of the Mandatory Provisions Article 6 of the Opinions Article 122, and Article 123 of the Guidelines

Minutes of meetings of the Board of Directors shall contain the following particulars:

(i) the date and venue of the meeting and the name of the convener;
(ii) the names of the attending directors and the names of the directors (proxies) attending the meeting upon appointment by other directors;
(iii) the meeting agenda;
(iv) the gist of the statements;
(v) the voting method for, and outcome of, each matter that was the subject of a resolution (the results of the vote shall state the number of votes for, votes against and abstentions).
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Article 106

~~The Board of Directors shall keep minutes of all decisions on matters considered by the convened and the unconvened board meetings in the Chinese language. The opinions of the independent directors shall be specified in the resolutions of the Board meetings. The minutes of each Board meeting shall be delivered to all directors for their comments as soon as possible. Directors who wish to amend or supplement the minutes shall, within one week upon receipt of the minutes, deliver their proposed amendments to the Chairman. After the minutes have been finalized, directors who were present at the relevant meeting and the person who recorded the proceedings of the relevant meeting shall sign the minutes. The minutes of the Board meetings shall be kept at the address of the Company in the PRC. A full copy of the minutes of shall be delivered to each director as soon as possible.~~

~~Article 95 of the Mandatory Provisions; Article 6 of the Opinions~~

The Directors shall accept responsibility for the Board resolutions. Where the Board resolutions are in breach of laws, administrative rules or the Articles of Association resulting in heavy losses to the Company, the Directors involved in the resolutions shall keep the Company indemnified, unless they have been proved to have raised objection to such resolutions, and this has been noted in the minutes.

Minutes of board meetings shall be kept as the Company’s archives for at least ten (10) years.

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Chapter 11 The Secretary of the Board

Article ~~1071~~ 59 The Company shall have one secretary of the Board, who shall be a senior officer of the Company.

The Board may, pursuant to its needs, establish the secretariat of the Board.

Article ~~1081~~ 60 The secretary of the Company’s Board shall be a natural person who has the requisite professional knowledge and experience, and shall be appointed by the Board.

The major responsibilities of the secretary of the Board are as follows:

Article 96 of the Mandatory Provisions Article 133 of the Guidelines

Article 97 of the Mandatory Provisions Measures for the Management of Secretaries of the Board

~~(Chapter 1 of the Guide)~~

(i) to assist the directors in handling the routine work of the Board; to continuously provide the directors with, to remind them of, and to ensure that they understand the laws and regulations, the policies and the requirements of the domestic and the overseas regulatory authorities on the business operation of the Company; to assist the directors and the president in complying with the domestic and the overseas laws and regulations, these Articles of Association and other pertinent rules and regulations when they exercise their powers;
(ii) to arrange and prepare the documents of the Board meetings and the general meetings of the shareholders; to keep proper records of the proceedings of those meetings; to ensure that the decisions made on those meetings will be in compliance with the legal procedure; and to oversee the execution of the resolutions of the Board meetings;
(iii) to arrange and coordinate the disclosure of the information; to maintain the relationship with the investors; and to enhance the transparency of the Company;
(iv) to participate in raising finance in the capital market; and
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(v) to deal with and maintain a good relationship with the intermediaries, the regulatory authorities and the mass media.

The scope of the duties of the secretary of the Board is as follows:

~~(Chapter 2 of the Guide)~~

(i) to arrange and prepare the board meetings and the general meetings of the shareholders; to prepare the materials of the meetings; to handle the routine work of the meetings; to record the proceedings of the meetings; to ensure the accuracy of the records; to keep the documents and the records of the meetings; to take active steps to oversee the execution of the resolutions; and to report any important issue arising out of the execution to the Board and to put forward any recommendation. ~~;~~
(ii) to ensure that the relevant procedure will be strictly followed when any important matter is decided by the Board; at the request of the Board, to participate in the consultation and the analysis of the matters to be decided by the Board and to provide opinions and recommendations; and to handle other routine work of the Board and its committee. ~~;~~
(iii) to liaise the securities regulatory authorities on the Company’s behalf; to prepare and promptly deliver such documents as may be required by the regulatory authorities; and to receive and finish such tasks as may be communicated by the regulatory authorities. ~~;~~
(iv) to coordinate and arrange the disclosure of the information of the Company; to establish a sound disclosure system; to attend the meetings relating to the disclosure; and to be promptly aware of the material business operating decisions of the Company and other relevant information.
(v) to keep confidential the Company’s price-sensitive information and establish effective confidentiality systems and measures; to take necessary remedial measures such as explanation and clarification in a timely manner in case of any divulgence of the Company’s price-sensitive information due to any reason, and notify the regulatory authorities in overseas jurisdictions where the Company is listed and the CSRC.
(vi) to be responsible for investor relation management and to improve the Company’s mechanism for investor communication, reception and services.
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(vii) ~~to coordinate the marketing and promotion activities; to coordinate the reception of the interviewers and the visitors; to deal with the investors; to keep liaison with the investors, the intermediaries and the press; to assist and answer the queries of the public; to ensure that the investors will obtain the information disclosed by the Company; to arrange and prepare the domestic and overseas promotion activities of the Company; to prepare summaries for the marketing activities and the important interviews and visits; and to arrange to report the relevant matters to China Securities Regulatory Commission; to manage and keep the register of members, the register of directors and the record of the shareholding of the majority shareholder and the directors, and a list of the beneficiaries of the debentures of the Company;~~ to coordinate reception of visitors, maintain relationship with the media, coordinate replies to enquiries from the public, and arrange for the reporting of relevant matters to the CSRC.

(viii) ~~to t~~ o assist the Board in formulating the Company’s capital market development strategy, planning or implementing the Company’s refinancing in the capital market or mergers and acquisitions. ~~assist the directors and the president in complying with the domestic and the overseas laws and regulations, these Articles of Association and other relevant rules and regulations when they exercise their powers; have the obligation to remind the directors and the president timely when knowing the Company made or may make the violation of relevant provisions of the resolution, and also have the right to reflect the fact to the China Securities Regulatory Commission and other regulatory authorities;~~
(ix) ~~to~~ to ensure that the Company’s register of shareholders is duly kept and to ensure that persons with the right to receive relevant Company records and documents receive such records and documents in a timely manner; to be responsible for the Company’s equity management, including: maintenance of the shareholding information of the Company’s shareholders, matters related to restricted shares, provoking the directors, supervisors, senior management and other related personnel of the Company to comply with the relevant shares trading requirements of the Company as well as other equity management matters. ~~provide the necessary information for China Securities Regulatory Commission and other examination and approval authorities; to properly oversee the performance of the fiduciary duty of the financial controller, the directors and the president of the Company; and~~
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(x) ~~to perform such other duties and exercise such other powers as may be conferred by the Board and required by the place of listing outside the PRC.~~ to assist the directors and the president in their compliance with domestic and foreign laws, regulations, these Articles of Association and other relevant regulations when they are exercising their functions and powers; when becoming aware that the Company has adopted or could adopt a resolution that violates relevant regulations, the secretary is under obligation to make the same known and has the right to truthfully report the same to the CSRC and other regulators.
(xi) to coordinate the provision of necessary information and data to the Company’s Supervisory Committee and other review organizations when they are performing their monitoring functions and to assist in the investigations of the performance by the Company’s Financial Controller, the Company’s directors and the president of their fiduciary duties.
(xii) to perform other functions and powers granted by the Board and other functions and powers required in the place where the Company is listed overseas.

Article ~~1091~~ 61 A Director or any other senior management of the Company may concurrently act as secretary to the Board. The accountant whose firm is engaged by the Company shall not act as secretary to the Board.

Article 98 of the Mandatory Provisions

In the case of the secretary to the Board being a director, this person shall not act in both capacities when it requires to be done by a director and a secretary as separate r ~~so~~ les.

Article ~~1101~~ 62 The secretary of the Board shall comply with the relevant provisions of these Articles of Association and shall perform his duties diligently.

The secretary of the Board shall assist the Company in complying with the relevant laws of the PRC and the rules of the stock exchanges on which the shares of the Company are listed.

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Chapter 12 Party Committee

Article ~~1111~~ 63 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 Party members are allowed to serve as members of the Board, ~~board of supervisors t~~ he supervisors committee and management through legal procedures. The eligible Party Committee members in the Board, ~~board of supervisors~~ the supervisors committee 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.

Article ~~1121~~ 64 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 state in the Company, implement material strategic decisions of the Party Central Committee 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 collective research to raise opinions and suggestions.
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(iii) To study and discuss reform, development and stability, material operation and management issues and other material issues involving staff’s immediate interests of the Company, 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.
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Chapter 13 President

Article ~~1131~~ 65 The Company shall have one president, who shall be appointed or Article dismissed by the Board. 99 of the Mandatory Provisions The Company shall have certain vice presidents, a chief financial officer, Articles 124, a chief information technology officer and certain senior officers (based 26, 127 and 132 of the on the needs of work), who shall assist the president in his work. The Guidelines vice presidents, the chief financial officer, and the chief information technology officer and other senior officers shall be nominated by the president and appointed or dismissed by the Board. The term of office of the president is three (3) years, renewable upon re-election. Persons assuming offices other than director in the controlling shareholder and/or in the ultimate beneficial owner of the Company shall not serve as senior officers of the Company, except as approved by the exemption of the CSRC.

Article~~114~~ ~~1~~6~~7~~ ~~6~~ The president shall be accountable to the Board and exercise the following powers: (i) to be in charge of the Company’s operation and management and to organize the implementation of the resolutions of the Board, and to report to the Board;	Article 100 of the Mandatory Provisions Article 128 of the
	Guidelines

(ii) to organize the implementation of the Company’s annual business plan and investment plan;
(iii) to sign contracts and agreements on the Company’s behalf and to sign off the documents in connection with the routine administrative work;
(iv) to draft plans for the establishment of a internal management organization in the Company; and pursuant to the needs of the operation, to decide on the general adjustments to the internal structure of the Company;
(v) to draft the Company’s basic management system;
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(vi) to formulate basic rules and regulations for the Company;
(vii) to propose the appointment or dismissal of the Company’s vice president(s), the chief financial officer, and the chief information technology officer and other senior officers;
(viii) to appoint or dismiss management personnel other than those required to be appointed or dismissed by the Board; and
(ix) to exercise other powers conferred by the Articles of Association and the Board.

Article~~115~~ ~~1~~67 Article 168	The president may attend the Board meetings and shall have the right to receive the notices and the relevant documents of the meetings. If the president is not a director, he shall have no right to vote in the Board meetings. The president shall formulate the work rules, subject to the approval by the Board before implementation. The work rules for the president shall include the following: (i) conditions, procedures and participants of the president’s meetings; (ii) specific duties and the assignment of responsibility for the president and other senior officers; (iii) usage of capital and assets, authorities to enter into major contracts, and the systems for reporting to the Board and the supervisory committee;	Article 101 of the Mandatory Provisions Article 128 of the
		Guidelines
		Articles 129 and 130 of the
	(i)
		Guidelines

	(ii)
	(iii)

(iv) other matters deemed as necessary by the Board.
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Article 169 Article~~116~~ ~~1~~70	The president may request to resign before expiry of his term of office. The procedures and formalities of such resignation shall be governed by the employment contract between the president and the Company. The president, the vice president, the chief financial officer,the board secretary, the chief information technology officer and other senior officers, in performing their functions and powers, shall act honestly and diligently and in accordance with laws, administrative regulations and these Articles of Association.If the senior officers of the Company violates the laws or breaches the Articles of Association in the course of performing duties, which causes losses to the Company, the senior officers shall be liable for damages.	Article 131 of the
		Guidelines
		Article 102 of the Mandatory Provisions Article 134 of the
		Guidelines

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Chapter 14 Supervisory Committee

Article 171 Article 172 Article 173 Article~~117~~ ~~1~~74	Directors, president, vice president, chief financial officer, the board secretary, IT director and other senior officers of the Company shall not serve concurrently as supervisors. The term of office of supervisors is three years, renewable upon re- election at its expiry. In the event that the term of a supervisor falls upon maturity whereas new member of the supervisory committee is not re-elected in time or the resignation of any supervisor results in the number of members of the supervisory committee falling below the quorum, the existing supervisor shall continue to perform his duties in accordance with laws, administrative regulations and the Articles of Association until the re-elected supervisor assumes office. Supervisors shall ensure the truthfulness, accuracy and completeness of the information disclosed by the Company. Supervisors may attend board meetings as non-voting participants, and make enquiry or suggestion regarding matters to be resolved thereat. Supervisors shall not use their relationship to prejudice the Company’s interests, and shall be liable for indemnification to any loss so caused to the Company. A supervisor who violates any laws, administrative regulations, rules of regulatory authorities or the Articles of Association during the course of performing his duties shall be liable for indemnification to any loss so caused to the Company. The Company shall have a Supervisory Committee. The Supervisory Committee is a standing supervisory organization of the Company. It shall supervise the Board, its members, the president, the vice president, the chief financial officer, the chief information technology officer and ~~other senior management officers~~ ~~t~~he board secretary and prevent them from abusing their powers and infringing the legal rights and interests of the shareholders, the Company and the Company’s employees.	Article 106 of the Mandatory Provisions Article 135 of the Guidelines Articles 137 and 138 of the Guidelines Articles 139,	Article 106 of the Mandatory Provisions Article 135 of the Guidelines Articles 137 and 138 of the Guidelines Articles 139,
		140, 141 and
			142 of the Guidelines Article 103 of the Mandatory Provisions

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Article~~118~~ ~~1~~75 Article~~119~~ ~~1~~76	~~The Supervisory Committee shall consist of 3 supervisors. The number~~ ~~of the external supervisors (ie those who hold no further position in~~ ~~the Company) shall represent more than 1/2 of the total number of~~ ~~supervisors. The supervisory committee shall have a chairman. The~~ ~~supervisors shall serve for a term of 3 years and can be re-elected upon~~ ~~the expiry of the term.~~ The supervisory committee shall be composed of 5 members, of which 1 shall be the shareholder representative, 2 employee representatives of the Company and 2 independent supervisors. The employee representative supervisors shall account for at least one third of the total members of the supervisory committee, and the external supervisors (which shall refer to the supervisors who do not take any office in the Company, including independent supervisors) shall account for at least half of the members of the supervisory committee. The supervisory committee shall have one chairman, and the supervisor shall have the term of office of three years and may be re-elected if re-appointed. t The appointment or the dismissal of the chairman of the Supervisory Committee shall be passed by more than 2/3 of the members of the Supervisory Committee. ~~The chairman of the Supervisory Committee shall organize the~~ ~~performance of the duties of the Supervisory Committee.~~ ~~The Supervisory Committee shall include 2 representatives of~~ ~~the shareholders (including persons who are eligible to be external~~ ~~supervisors) and one staff representative. The representatives of the~~ ~~shareholders shall be elected and dismissed in the shareholders’ general~~ ~~meeting, whereas the staff representative shall be elected and dismissed~~ ~~by the Company’s staff democratically.~~ ~~A~~ppointment and removal of supervisors who are not appointed from employee representatives shall be subject to election at the general meeting, while appointment and removal of employee representatives in the supervisory committee shall be subject to democratic election of the staff through employee representatives’ meeting, staff meeting or otherwise by democratic election.	Article 104 of the Mandatory
		Provisions Article 7 of
		he Opinions
		Article 5 of
		Zheng Jian
		Hai Han Article 143 of the Guidelines Section 1(d) (i) of Part D of Appendix 13 of the Listing Rules Article 105 of the Mandatory Provisions Article 7 of Opinions Article 143 of the Guidelines

The Supervisory Committee may establish an office to handle its routine work as required.

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~~The directors, president, vice-presidents, the chief financial officer,~~ ~~the chief information technology officer and other senior management~~ ~~officers of the Company shall not serve as supervisors concurrently.~~ The chairman of the supervisory committee shall be responsible for the execution of duties of the Board. The chairman of the supervisory committee shall convene and preside over the supervisory committee meetings; where the chairman is unable to fulfill his duties by convening the meeting, one supervisor jointly appointed by more than half of supervisors shall convene and preside over the meeting. The supervisory committee meetings are categorized into regular meetings and interim meetings. The supervisory committee shall hold at least one regular meeting in the first and the second half of each year respectively, which shall be convened by the chairman of the supervisory committee. Upon the nomination of any supervisor, interim supervisory committee meeting may be held. No supervisory committee meeting may be held unless attended by half of supervisors. Where any supervisor refuses to or fails to attend the meeting, which results in the failure of existence of a statutory quorum in such meeting, other supervisors shall timely report the same to the general meeting or applicable state regulatory organs. The supervisory committee shall be accountable to the general meeting, and shall exercise the following powers according to law:~~The Supervisory~~ ~~Committee shall convene a meeting at least once a year. The meetings~~ ~~shall be convened by the chairman of the Supervisory Committee.~~ (i) to review and provide written opinions on the regular reports of the Company prepared by the Board;~~The Supervisory Committee~~ ~~shall be accountable to the shareholders’ general meeting and~~ ~~exercise the following powers in accordance with law:~~ (ii) to examine the Company’s financial situation;	~~The directors, president, vice-presidents, the chief financial officer,~~ ~~the chief information technology officer and other senior management~~ ~~officers of the Company shall not serve as supervisors concurrently.~~ The chairman of the supervisory committee shall be responsible for the execution of duties of the Board. The chairman of the supervisory committee shall convene and preside over the supervisory committee meetings; where the chairman is unable to fulfill his duties by convening the meeting, one supervisor jointly appointed by more than half of supervisors shall convene and preside over the meeting. The supervisory committee meetings are categorized into regular meetings and interim meetings. The supervisory committee shall hold at least one regular meeting in the first and the second half of each year respectively, which shall be convened by the chairman of the supervisory committee. Upon the nomination of any supervisor, interim supervisory committee meeting may be held. No supervisory committee meeting may be held unless attended by half of supervisors. Where any supervisor refuses to or fails to attend the meeting, which results in the failure of existence of a statutory quorum in such meeting, other supervisors shall timely report the same to the general meeting or applicable state regulatory organs. The supervisory committee shall be accountable to the general meeting, and shall exercise the following powers according to law:~~The Supervisory~~ ~~Committee shall convene a meeting at least once a year. The meetings~~ ~~shall be convened by the chairman of the Supervisory Committee.~~ (i) to review and provide written opinions on the regular reports of the Company prepared by the Board;~~The Supervisory Committee~~ ~~shall be accountable to the shareholders’ general meeting and~~ ~~exercise the following powers in accordance with law:~~ (ii) to examine the Company’s financial situation;	~~Article~~ ~~106 of the~~
		~~d~~
		~~Manatory~~ ~~ii~~
		~~Provsons~~ Article 107 of the
		Mandatory
		Provisions Article 145 of the
		Guidelines Article 108 of the
		Mandatory
		Provisions Article 144 of the
		Guidelines
		~~Article~~ ~~1 f h~~
		~~07 o te~~ ~~d~~
		~~Manatory~~ ~~Provisions~~
(ii)	the Company prepared by the Board

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(iii) ~~to examine whether the directors, president and other senior management act in contradiction with the laws, administrative regulations and these Articles of Association;~~ to supervise the work of directors and senior management and to propose removal of directors and senior management who have violated laws, administrative regulations, the Articles of Association or resolutions of general meetings;
( ~~iiii~~ v) to demand rectification from a director, president or any other senior officer when the acts of such persons are harmful to the Company’s interest;
( ~~iv~~ ) ~~to verify the financial information such as the financial reports, business reports and plans for distribution of profits to be submitted by the Board to the shareholders’ general meetings and, should any queries arise, to authorize, in the name of the Company, a re-examination by the certified public accountants and practicing auditors;t~~ o conduct investigation on any abnormality identified in the Company’s business operation or any doubt in financial information such as financial report, business report and profit distribution plan to be submitted by the Board to the general meetings; to engage experts including accounting firm and law office to provide professional assistance, when necessary, at costs of the Company;
(vi) to propose the convening of an extraordinary general meeting, and to convene and preside over the general meeting when the Board fails to perform such duties as specified by the Company Law; ~~to propose to convene a shareholders’ extraordinary general meeting;~~
(vii) to deal with and sue directors on the behalf of the Company; and sue directors, senior management pursuant to Article 151 of the Company Law; ~~to represent the Company in negotiation with or bringing an action against a director; and~~
(viii) to put forward proposals to general meetings; ~~to exercise other powers specified in the Articles of Association.~~
(ix) other duties and powers specified by the Articles of Association.
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Article 179 Article 180	The supervisory committee shall formulate the rules of procedure for supervisory committee, specifying the consideration method and voting procedures of meetings in order to ensure its work efficiency and proper decision making. Such rules of procedure, as one of the appendices to the Articles of Association defining the convening and voting procedure of meetings of the supervisory committee, shall be formulated by the supervisory committee, subject to approval by the general meeting. The supervisory committee shall keep minutes of the decisions on matters discussed at the meetings and supervisors who attended the meeting shall sign the minutes of the meeting. The meeting minutes shall include the following: (i) numbering and session, time and venue of the meeting; (ii) convener and chair of the meeting; (iii) attendance of the meeting; (iv) agenda of the meeting;	Article 144 of the
		Guidelines
		~~Opinions~~ Article 147 of the
		Guidelines

(v) the proposals considered at the meeting; the gist of speech, key opinions on relevant matters and voting intents for the proposals of supervisors;
(vi) voting method and result in respect of each proposal (provide the number of votes of “for”, “against” and “abstain” respectively);
(vii) other matters to be recorded in the opinion of the attending supervisors.

Meetings minutes shall be signed and confirmed by the attending supervisors. Supervisors shall have the right to request a certain statement in respect of his or her speech at the meeting recorded in the minutes. Where a supervisor holds different opinions on the minutes, written explanation may be made upon signing. If necessary, it shall be timely reported to regulatory authorities or announced through public statements.

Where a supervisor neither signs as required by the preceding paragraph nor provides the written explanation for his different opinions or reports to regulatory authorities or gives public statement, the said supervisor shall be deemed as agreeing with the minutes.

Meetings minutes of the supervisory committee shall be kept as the archives of the Company for no less than ten years.

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Article 181
Article 182~~123~~
Article~~124~~
~~1~~83
Article~~125~~
~~1~~84

The notice of a meeting of the supervisory committee shall contain the
following:
(i)
the date, venue and duration of the meeting;
(ii)
subjects and the matters proposed to be considered;
(iii)
the date of issuing the notice.
Article
148 of the
Guidelines
The onsite meetings of the supervisory committee (including video
meetings) may conduct voting by a show of hands or disclosed ballot.
If a Supervisor participates in the onsite meeting through telephone
or similar communication equipment, as long as he can make himself
heard by the other participants at the meeting and can communicate
with them, the Supervisor shall be deemed to be present at the meeting
in person. Subject to the protection of supervisors’rights to sufficiently
express their views, the voting on supervisory committee meetings shall
be conducted and resolutions made via communication devices, which
shall be signed by participating supervisors. The voting procedures via
communication devices shall provide for the valid period of voting, and
any supervisor failing to express his view within such specified period
shall be deemed to have waived his right.
Article
109 of the
Mandatory
Provisions
Article 6 of
Zheng Jian
Hai Han
Section 1(d)
(ii) of Part D
of Appendix
13 of the
Listing Rules
“~~“~~
~~O~~ne person one vote”principle shall be observed in the voting on the
supervisory committee meetings, which voting shall be conducted via
the means of vote of record or in writing or otherwise. The voting of a
supervisor shall be categorized into assent, dissent and abstention. Every
participating supervisor shall vote by choosing one of those options, and
in the absence of such choice or in the case of choosing two or more
options, the meeting chairman shall request such supervisor to make a
choice again. If such supervisor refuses to do so as required, he shall
be deemed to have waived his right in that regard; any participating
supervisor withdrawing from the meeting without returning and without
choosing any option shall be deemed to have waived his right.
Any supervisory committee meeting resolution shall be adopted by the
affirmative vote of more than two thirds of all supervisors.
Reasonable expenses incurred in exercising the functions and powers
by the Supervisory Committee in the appointment of lawyers,registered
accountant~~registered accountant~~
~~s~~or practicing auditors and other
professionals shall be borne by the Company.
Article
110 of the
Mandatory
Provisions
Supervisors shall faithfully carry out their duties as supervisors in
accordance with the laws, administrative regulations and provisions of
these Articles of Association and perform their duties faithfully.
Article
111 of the
Mandatory
Provisions

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Chapter 15 Qualification and Obligations of Directors, Supervisors, Presidents, and Other Senior Officers of the Company Eligibility and Obligations of Company Directors, Supervisors, President, and other senior officers

Article ~~1261~~ 85 None of the following persons may serve as a director, supervisor, Articles 125, Presidents, or senior officers of the Company: 135 and 136 of the Guidelines (i) a person without civil or with restricted capacity for civil conduct; Article 112 of the (ii) a person who has committed an offence of corruption, bribery, Mandatory infringement of property, misappropriation of property or Provisions sabotaging of the social economic order and has been punished Article because of committing such criminal offence; or who has been 95 of the Guidelines

(ii) a person who has committed an offence of corruption, bribery, infringement of property, misappropriation of property or sabotaging of the social economic order and has been punished because of committing such criminal offence; or who has been deprived of his political rights, in each case where less than five (5) years have elapsed since the date of the completion of implementation of such punishment or deprivation;
(iii) a person who is a former director, factory manager or manager of a company or enterprise which has entered into insolvent liquidation because of mismanagement and he is personally liable for the insolvency of such company or enterprise, where less than three (3) years have elapsed since the date of the completion of the insolvency and liquidation of the Company or enterprise;
(iv) a person who is a former legal representative of a company or enterprise which had its business licence revoked or is ordered to close down due to a violation of the law and who incurred personal liability, where less than three (3) years has elapsed since the date of the revocation of the business licence;
(v) a person who has a relatively large amount of personal debts due and outstanding;
(vi) a person who is under criminal investigation or prosecution by judicial organs for violation of the criminal law, which is not yet concluded;
(vii) a person who is not eligible for enterprise leadership according to laws and administrative regulations;
(viii) a non-natural person; or
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(ix) a person convicted of the contravention of provisions of relevant securities regulations by a relevant competent authority, and such conviction involves a finding that he has acted fraudulently or dishonestly, where less than five (5) years has elapsed since the date of the conviction ~~.;~~
(x) the person is currently being prohibited from participating in securities market by the CSRC and such barring period has not elapsed;
(xi) other circumstances specified by the laws, administrative regulations and rules of regulatory authorities or required by the applicable securities regulators and stock exchange(s).

For any election, appointment or employment of a director, supervisors, president or other senior officers in contravention of the provisions prescribed by this Article, such election, appointment or employment shall be void and null. Where a director, supervisors, president or other senior officers falls into any of the aforesaid circumstances in his term of office, he shall be removed from office.

Article 112 of the Mandatory Provisions

Article ~~1271~~ 86 The validity of an act done by a director, the president or any other Article senior officer on behalf of the Company is not, vis-a-vis a bona fide 113 of the Mandatory third party, affected by any irregularity in his office, election or any Provisions defect in his qualification. Article ~~1281~~ 87 In addition to obligations imposed by laws and administrative regulations Article and required by listing rules of the stock exchanges on which Shares 114 of the Mandatory are listed, each of the Company’s directors, supervisors, president and Provisions other senior officers shall be responsible to each shareholder in respect of the following duties, in the exercise of the functions and powers of the Company entrusted to him:

(i) not to cause the Company to exceed the scope of the business stipulated in its business licence;
(ii) to act honestly in the best interest of the Company;
(iii) not to expropriate in any guise the Company’s property, including (without limitation) usurpation of opportunities advantageous to the Company;
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Article~~129~~ ~~1~~88 Article 189	(iv) not to expropriate the individual rights of shareholders, including (without limitation) rights to distribution and voting rights, but not including a reorganization of the Company submitted to shareholders’ general meeting for approval in accordance with the Articles of Association. Each of the Company’s directors, supervisors, president and other senior officers owes a duty, in the exercise of his powers and discharge of his duties, to exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances. Directors, supervisors, presidents and other senior officers of the Company shall be in compliance with the laws and administrative regulations and shall owe the following duties of care to the Company: (i) to exercise the rights conferred by the Company with due discretion, care and diligence to ensure the business operations of the Company comply with the state’s laws, administrative regulations and economic policies, not going beyond the scope of business specified in the Company’s business license; (ii) to treat all shareholders impartially; (iii) to keep informed of the business operations and management of the Company; (iv) to ensure the information disclosed by the Company is true, accurate and complete within the scope of their duties; (v) to honestly provide the supervisory committee with relevant information, and not to interfere with the supervisory committee or supervisors in performing their duties and powers; (vi) to fulfill other fiduciary obligations stipulated by the laws, administrative regulations, rules of regulatory authorities and these Articles of Association.	Article 115 of the Mandatory Provisions Article 98 of the Guidelines
	shall o

	(i)
	(ii)
	(iii)
	(iv)
	(v)
	(vi)

Article ~~1301~~ 90 Each of the Company’s directors, supervisors, presidents and other senior officers shall exercise his powers or perform his duties in accordance with the principle of fiduciary and shall not put himself in a position where his duty and his interest may conflict. This principle includes (without limitation) their performance of the following obligations:

Article 116 of the Mandatory Provisions; Article 97 of the Guidelines

(i) to act honestly in the best interests of the Company;
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(ii) to exercise powers within the scope of his powers and not to exceed those powers;
(iii) to exercise the discretion vested in him personally and not to allow himself to act under the control of another and, unless and to the extent permitted by laws, administrative regulations or with the informed consent of shareholders given in general meeting, not to delegate the exercise of his discretion;
(iv) to treat shareholders of the same class equally and to treat shareholders of different classes fairly;
(v) except in accordance with the these Articles of Association or with the informed consent of shareholders given in general meeting, not to enter into any contract, transaction or arrangement with the Company;
(vi) without the informed consent of shareholders given in general meeting, not to use the Company’s property for his own benefit;
(vii) not to exploit his position to accept bribes or other illegal income or seize the Company’s property by any means, including (without limitation) opportunities advantageous to the Company;
(viii) without the informed consent of shareholders given in the general meeting, not to accept commissions in connection with the Company’s transactions;
(ix) to abide by these Articles of Association, faithfully execute his official duties and protect the Company’s interests, and not to exploit his position and power in the Company to advance his own private interests;
(x) not to exploit his position to advance his own or any other person’s private benefits from those business opportunities advantageous to the Company, not to self execute or execute for others the similar business activities, not to compete with the Company in any form unless with the informed consent of shareholders given in general meeting;
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(xi) not to misappropriate the Company’s funds and not to open accounts in his own name or other names for the deposit of the Company’s assets or funds; ~~or lend such funds to others, not to open accounts in his own name or other names for the deposit of the Company’s assets and not to provide a guarantee for debts of a shareholder of the Company or other individual(s) with the Company’s assets; and~~
(xii) not to lend the Company’s funds to others or provide a guarantee to a shareholder of the Company or other individuals with the Company’s assets in violation of the Articles of Association or without consent of the general meetings or the Board;

(xiii) not to use his relationship to prejudice the Company’s interests;

( ~~xiix~~ iv) unless otherwise permitted by informed shareholders in general meeting, not to disclose the Company’s secrets without authorization, to keep in confidence information acquired by him in the course of and during his tenure and not to use the information other than in furtherance of the interests of the Company, save that disclosure of such information to the court or other competent governmental authorities is permitted if:
(1) the disclosure is required by laws;
(2) the disclosure is required by the public interests;
(3) the interests of the relevant director, supervisor, president or senior officer are required to be disclosed.
(xv) to fulfill other fiduciary duty stipulated by the laws, administrative regulations, rules of regulatory authorities and the Articles of Association.

Gains obtained by the directors in violation of this Article shall be counted in the interest of the Company and any loss incurred to the Company shall be compensated.

Article ~~1311~~ 91 Each director, supervisor, president or other senior officer of the Company shall not cause the following persons or institutions (“associates”) to do what he is prohibited from doing:

Article 117 of the Mandatory Provisions

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(i) the spouse or minor child of that director, supervisor, president or other senior officer;
(ii) a person acting in the capacity of trustee of that director, supervisor, president or other senior officer or any person referred to in the preceding paragraph (i);
(iii) a person acting in the capacity of partner of that director, supervisor, president or other senior officer or any person referred to in paragraphs (i) and (ii) above;
(iv) a company in which that director, supervisor, president or other senior officer, alone or jointly with one or more persons referred to in paragraphs (i), (ii) and (iii) above and other directors, supervisors, president and other senior officers have a de facto controlling interest; and
(v) the directors, supervisors, presidents and other senior officers of the controlled company referred to in the preceding paragraph (iv).

Article ~~1321~~ 92 The fiduciary obligations of the directors, supervisors, president and other senior officers of the Company do not necessarily cease with the termination of their tenure. The obligation of confidence in relation to trade secrets of the Company survives the termination of their tenure. Other obligations may continue for such period as fairness may require depending on the time lapse between the termination and the act concerned and the circumstances under which the relationships between them and the Company are terminated.

Article 19 ~~33~~ Except for those circumstances stipulated in Article ~~53~~ 63, a director, supervisor, president or any other senior officer of the Company may be relieved of liability for specific breaches of his obligations by the informed consent of shareholders given at a general meeting.

Article 118 of the Mandatory Provisions

Article 119 of the Mandatory Provisions

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Article	19~~3~~ ~~4~~	Where a director, supervisor, president or any other senior officer of	Article
		the Company has, directly or indirectly, a material interest in a contract, transaction or arrangement entered into or proposed to be entered into	120 of the Mandatory Provisions
		by the Company (other than his contract of service), he shall declare the
		nature and extent of his interest to the Board at the earliest opportunity,
		whether or not the matters in question are otherwise subject to the
		approval of the Board.
		A director shall not vote on any board resolution approving any contract	Paragraph
		or arrangement or any other proposal in which he or any of hisclose associates~~have~~ hasa material interest nor shall he be counted in the quorum present at the meeting.~~Associate~~ A close associatehas the	4(1) of Appendix 3 of the Listing Rules
		meaning as ascribed to it under the Listing Rules.
		Unless the director, supervisor, president or any other senior officer with
		an interest makes a disclosure to the Board in the manner just described
		in the paragraph above and the matter is approved by the Board at a
		meeting at which he was not counted in the quorum and did not vote, the
		Company may rescind that contract, transaction or arrangement except
		as against a bona fide party acting in good faith and without knowing
		the breach of obligation by that director, supervisor, president or other
		senior officer.
		For the purposes of this provision, a director, supervisor, president or any
		other senior officer is deemed to have an interest in a contract, transaction
Article	~~135~~ ~~1~~95	or arrangement in which his associates have an interest. If, prior to the date on which the Company first considered the issue	Article
		of entering into the relevant contract, transaction or arrangement, the director, supervisor, president or any other senior officer gives the Board	121 of the Mandatory Provisions
		a notice in writing stating that by reason of the matters stated in the notice,
		he has an interest in the contract, transaction or arrangement proposed to
		be entered into by the Company, then that director, supervisor, president
		or other senior officer shall be deemed to have made a disclosure for
		the purpose of and in accordance with this section to the extent of the
Article	~~136~~ ~~1~~96	matters disclosed in that notice. The Company shall not pay any tax for its directors, supervisors, president	Article
		and other senior officers in any manner.	122 of the Mandatory
			Provisions

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Article ~~1371~~ 97 The Company shall not directly or indirectly make a loan to, or provide any guarantee in connection with the making of a loan for a director, supervisor, president or any other senior officer of the Company or of the Company’s parent company or any of their respective associates.

Article 123 of the Mandatory Provisions

However, the following transactions are not subject to such prohibition:

(i) the provision by the Company of a loan or a guarantee of a loan to a subsidiary of the Company;
(ii) the provision by the Company of a loan or a guarantee in connection with the making of a loan or any other funds to any of its directors, supervisors, president and other senior officers to meet expenditure incurred or to be incurred by him for the purposes of the Company or for the purpose of enabling him to perform his duties properly, in accordance with the terms of a service contract approved by the shareholders in general meeting; and
(iii) the Company may make a loan to, or provide a guarantee in connection with the making of a loan for, any of the relevant directors, supervisors, president and other senior officers or their respective associates in the ordinary course of its business on normal commercial terms, provided that the ordinary course of business of the Company includes the lending of money or the giving of guarantees.

Article ~~1381~~ 98 A loan made by the Company in breach of the above provisions shall be forthwith repayable by the recipient of the loan regardless of the terms of the loan.

Article ~~1391~~ 99 A guarantee provided by the Company in breach of the provisions of Article ~~1331~~ 97(i) shall be unenforceable against the Company, unless:

Article 124 of the Mandatory Provisions

Article 125 of the Mandatory Provisions

(i) the guarantee was provided in connection with a loan to an associate of any of the directors, supervisors, president and other senior officers of the Company or of the Company’s parent company and at the time the loan was advanced the lender did not know the relevant circumstances; or
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(ii) the collateral provided by the Company has been lawfully disposed of by the lender to a bona fide purchaser.

Article ~~1402~~ 00 For the purpose of the aforesaid provision, a guarantee includes an Article undertaking or provision of property by the guarantor to secure the 126 of the Mandatory performance of obligations by the obligor. Provisions Article ~~1412~~ 01 In addition to any rights and remedies provided by the laws and Article administrative regulations, where a director, supervisor, president, or 127 of the Mandatory any other senior officer of the Company is in breach of his obligations Provisions to the Company, the Company has rights to:

(i) claim damages from that director, supervisor, president or other senior officers in compensation for losses sustained by the Company as a result of such breach;
(ii) rescind any contract or transaction entered into by the Company with that director, supervisor, president or other senior officers or with a third party (where such third party knows or should know that there is such a breach of obligations by that director, supervisor, president or other senior officers);
(iii) demand that director, supervisor, president or other senior officers to account for any and all benefits obtained from breach of his obligations;
(iv) recover any monies received by that director, supervisor, president or other senior officers, which should otherwise have been paid to the Company, including (without limitation) commissions;
(v) demand payment by that director, supervisor, president or other senior officers of the interest accrued or to be accrued on the monies that should otherwise have been paid to the Company.

Article ~~1422~~ 02 The Company shall, with the prior approval of shareholders in general Article meeting, enter into a contract in writing with a director or supervisor 128 of the Mandatory wherein his emoluments are stipulated. The aforesaid emoluments Provisions include:

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(i) emoluments in respect of his service as a director, supervisor or senior officer of the Company;
(ii) emoluments in respect of his service a director, supervisor or senior officer of any subsidiary of the Company;
(iii) emoluments in respect of the provision of other services in connection with the management of the affairs of the Company and any of its subsidiaries; and
(iv) payment by way of compensation for loss of office, or as consideration for or in connection with his retirement from office.

Except under a contract entered into in accordance with the foregoing, no proceedings may be initiated by a director or supervisor against the Company for anything due to him in respect of the above matters.

Article ~~1432~~ 03 The contract concerning the emoluments between the Company and its directors or supervisors should provide that, in the event of a takeover of the Company, the Company’s directors and supervisors shall, subject to the prior approval of the shareholders in general meeting, have the right to receive compensation or other payment in respect of his loss of office or retirement. A “takeover of the Company” referred to in this paragraph means either:

Article 129 of the Mandatory Provisions

(i) an offer made by any person to all the shareholders; or
(ii) an offer made by any person with a view to the offeror becoming a ~~“~~ controlling shareholder ~~” as defined in Article 54 of these Articles of Association~~ .

If the relevant director or supervisor does not comply with the provisions of these articles, any sum so received by him shall belong to those persons who have sold their s ~~Sh~~ ares as a result of the said offer made. The expenses incurred in distributing such sum pro rata amongst those persons shall be borne by the relevant director or supervisor and not paid out of that sum.

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Chapter 16 Financial and Accounting System and Profit Distribution

Article~~144~~ ~~2~~04 Article~~145~~ ~~2~~05 Article~~146~~ ~~2~~06 Article~~147~~ ~~2~~07	The Company shall establish its financial and accounting system in accordance with the laws, administrative regulations and PRC accounting standards formulated by the finance regulatory department of the State Council. The Company adopts the calendar year as its financial year, being from the 1st January to 31st December of each calendar year. The Company shall adopt Renminbi as the reporting currency. The accounts shall be prepared in the Chinese language. The Company shall prepare its financial report at the end of each fiscal year and audit the accounts in accordance with the laws. The Board of the Company shall place before the shareholders at every annual general meeting such financial reports as are required by any laws and administrative regulations and directives promulgated by regional and central government and competent authorities.~~These reports shall~~ ~~be prepared by the Company and be verified.~~ The Company’s financial reports shall be made available for shareholders’ inspection at the Company twenty (20) days before the date of every shareholders’ annual general meeting. Each shareholder shall be entitled to obtain a copy of the financial reports mentioned in this Chapter. ~~The Company shall dispatch the copies of the financial reports by pre-~~ ~~paid post to each of shareholders of overseas listed foreign shares at least~~ ~~21 days before the convening of the shareholders’ general meeting. The~~ ~~address of the addressee shall be that as shown in the register of members.~~ The Company shall deliver the aforementioned reports to shareholders by any means as approved by the stock exchange of the place of listing (including but not limited to mail, email, facsimile, announcement, dissemination through the website of the stock exchange of the listing locations of the Company and/or shares of the Company) twenty-one days before the annual general meeting is convened. If the report is sent to each of holders of overseas listed foreign shares by prepaid mail, it shall be sent to the recipient’s address shown in the register of members.	Article 130 of the Mandatory Provisions Article 149 of the Guidelines Article 131 of the Mandatory Provisions Article 132 of the Mandatory Provisions; Paragraph 5 of Appendix 3 of the Listing Rules Article 133 of the Mandatory Provisions Article 7 of “Zheng Jian
		Hai Han”~~the~~ ~~Letter;~~ Paragraph 5 of Appendix 3 of the Listing Rules

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Article 208
Article 209
Article~~148~~
~~2~~10

Financial statements of the Company shall be prepared in accordance
with international accounting principles or accounting principles of
the place its shares are listed overseas as well as the PRC accounting
principles and regulations. In the case of any material inconsistency
between financial statements prepared in accordance with the two kinds
of accounting principles, the same shall be indicated in such financial
statements. In distributing the after-tax profits by the Company for any
accounting year, the after-tax profits in such financial statements which
are less shall prevail.
Article
134 of the
Mandatory
Provisions
The Company shall publish financial reports or other financial information
in accordance with the regulatory rules in the jurisdiction where its shares
are listed. The interim results or financial information published or
disclosed by the Company shall be prepared pursuant to PRC accounting
principles and regulations as well as international accounting principles
or accounting principles of the jurisdiction where its shares are listed.
Article
135 of the
Mandatory
Provisions
The Company shall deliver or publish its annual financial accounting
reports to or on the CSRC and the stock exchange or publish its annual
financial accounting reports within four months from the conclusion
of each accounting year. It shall deliver or publish its interim financial
accounting reports to the branch organizations of the CSRC and the stock
exchange or publish its interim financial accounting reports within two
months from conclusion of the first six months of each accounting year.
And its shall deliver or publish its quarterly financial accounting reports
to the branch organizations of the CSRC and stock exchange or publish
its quarterly financial accounting reports within one month from the end
of the first three months and first nine months of each accounting year
respectively. The Company shall follow other regulations as required
by the listing rules in the jurisdiction where its shares are listed. The
above financial accounting reports shall be prepared in accordance
with applicable laws.~~The financial statements of the Company shall, in~~
~~addition to being prepared in accordance with PRC accounting standards~~
~~and regulations, be prepared also in accordance with either international~~
~~accounting standards, or that of the overseas place where the Company’s~~
~~shares are listed. If there is any material difference between the financial~~
~~statements prepared respectively in accordance with the two accounting~~
~~standards, such difference shall be stated in the explanatory notes to such~~
~~financial statements. When the Company is to distribute its after-tax~~
~~profits, the lower of the after-tax profits as shown in the two financial~~
~~statements shall be adopted.~~
Article
136 of the
Mandatory
Provisions;
Article
150~~134~~
of the
Guidelines

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Article~~149~~
~~2~~11
Article 212
~~Article 150~~
~~Article 151~~
~~Article 152~~

Save for the statutory books of account, the Company will not maintain
other books of account. Assets of the Company shall not be maintained
by any account opened in the name of an individual.~~Any interim results~~
~~or financial information published or disclosed by the Company shall be~~
~~prepared and presented in accordance with PRC accounting standards and~~
~~regulations, and also in accordance with either international accounting~~
~~standards or that of the overseas place where the Company’s shares are~~
~~listed.~~
Article
137 of the
Mandatory
Provisions;
Article
151~~135~~
of the
Guidelines
The Company shall allocate 10% of its profits to the statutory reserve of
the Company when distributing its after-tax profits for the year, provided
that no further appropriation is required if the accumulated statutory
reserve exceeds 50% of the registered capital of the Company.
Article
152 of the
Guidelines
~~The Company shall publish its financial reports twice every fiscal year,~~
~~that is, the interim financial report shall be published within sixty (60)~~
~~days after the expiration of the first six (6) months of each fiscal year~~
~~and the annual financial report shall be published within one hundred~~
~~and twenty (120) days after the expiration of each fiscal year.~~
~~(Article~~
~~136 of the~~
~~Mandatory~~
~~Provisions)~~
~~The Company shall not maintain books of accounts other than the~~
~~statutory books of accounts.~~
~~(Article~~
~~137 of the~~
~~Mandatory~~
~~Provisions)~~
~~In distributing the after-tax profits for the relevant year, the Company~~
~~shall allocate 10 per cent of the profits to the Company’s statutory~~
~~common reserve fund and 5 per cent to 10 per cent of the profits to the~~
~~Company’s statutory public welfare fund. When the accumulated amount~~
~~of the Company’s statutory common reserve fund reaches over 50 per~~
~~cent of the registered capital of the Company, no further allocation shall~~
~~be made to the Company’s statutory common reserve fund.~~
If the Company’s statutory common reserve fund is not sufficient to make
up the Company’s loss for the preceding year,before making allocations
to the statutory common reserve fund pursuant to the foregoing paragraph
~~before making allocations to the statutory common reserve fund and~~
~~the statutory public welfare fund pursuant to the foregoing paragraph~~
~~,~~
the profits for the relevant year shall be used to make up the loss first.

Upon making an allocation to the statutory common reserve fund from the after-tax profits and upon being resolved by the shareholders in the general meeting, the Company may allocate part of the after-tax profits to the discretionary reserve ~~an allocation may be made to the discretionary common reserve fund~~ .

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Upon making up for the losses incurred and allocating to the statutory reserve, the balance of the profits ~~Upon making up the loss and making allocations to the common reserve funds and the statutory public welfare fund, the balance of the profits~~ shall be distributed to the shareholders in proportion to their respective shareholding, save for distribution which is not made in proportion to shareholding as specified in these Articles of Association.

~~Article 153~~ If the aforementioned regulations are violated at the general meeting where the Company distributes profits to the shareholders prior to making up for losses and allocating to the statutory reserve, the shareholders shall return to the Company the profits distributed as a result of violation of the regulations. ~~Before making up the loss and making allocations to the statutory common reserve fund and the statutory public welfare fund, no dividend shall be declared and no further distribution shall be made in the form of bonus. The Company’s dividend shall be paid without interest, unless the Company does not pay the dividend to the shareholders on the due date.~~

The shares of the Company owned by the Company shall not form part of the profits distribution. Article 213 No dividend shall be distributed and no other distribution in the form of bonus shall be made prior to making up for the losses and allocating to the statutory reserve by the Company. No interest will accrue on dividends distributed by the Company, unless the Company fails to distribute the dividends to the shareholders on the due date of dividend payment.

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Article ~~1542~~ 14 The capital reserve fund of the Company includes the following monies: Article ~~If a shareholder has paid any subscription money before he is called do~~ 138 of the Mandatory ~~so, he shall be entitled to the dividend. However, if a shareholder prepays~~ Provisions ~~the subscription money before the due date, he shall not be entitled to any dividend declared before the due date.~~ (i) the premium from the issue of the Company’s shares at a price exceeding the face value of the shares; (ii) other such income as classified by the financial competent authority of the State Council as capital reserve. Article ~~1552~~ 15 The common reserve funds ~~(ie the statutory common reserve fund,~~ Article ~~the discretionary common reserve fund and the capital reserve fund)~~ 153 of the Guidelines can only be used to make up the loss of the Company, to expand the scale of operation of the Company or to enlarge the Company’s capital. However, capital reserve shall not be applied to make up for the losses of the Company. When the Company transfers the reserve funds to its capital after the shareholders have passed a resolution in the general meeting, it may issue new shares to the shareholders in proportion to their respective original shareholding or increase the nominal value of each share. However, when the statutory common reserve fund is transferred to the Company’s capital, the amount of the statutory common reserve fund to be retained shall not be less than 25 ~~per cent%~~ of the Company’s registered capital.

~~Article 156 The statutory public welfare funds of the Company shall be applied to the collective welfare of the employees of the Company.~~

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Article ~~1572~~ 16

The Company may distribute dividends in the following manner:

Article 139 of the Mandatory Provisions

(i) in cash;
(ii) by issuing shares.

~~Article 158~~ The Company’s policies on profit distribution are set out below:

Article 155 of the Guidelines

(i) Principle of profit distribution: 1. The Company will place an emphasis on the return to investors, and will pay shareholders dividends based on a percentage of distributable profits realized in the current year of the parent company; 2. The sustainability and stability of the Company’s profit distribution policies will be -
maintained, with an eye towards the long term interests, overall shareholders interests and sustainability of the Company; 3. The Company will place a priority on the profit distribution in the form of bonus payment.
(ii) The details of policies for profit distribution:
Forms of profit distribution: the Company may make profit distribution in the forms of cash payment of dividend, distribution of dividend in the form of shares or a combination of the two forms; where permitted, the Company may make interim profit distribution;
Details of conditions and proportions of the Company’s cash dividends: Except in the case of special circumstances, the Company may distribute dividend in cash, provided that the Company is profitable in that year and the aggregate undistributed profit is positive. The profits distributed in cash for each year shall not be less than 10% of the distributable realized profit in that year.
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The “special circumstances” referred to above shall mean:

(1) The net cash flow generated from the operation in that year is negative, and dividend payment in cash will have an adverse effect on the subsequent existence of the Company as a going concern;
(2) The auditors have not issued an audit report with standard and unreserved opinion regarding the financial reports for that year;
(3) The Company has major investment plans or other major cash expenditures or otherwise (other than any fund raising projects).

The “major investment plans” or “major cash expenditures” mentioned above shall mean where the aggregate expenditures for any proposed investments or asset acquisition by the Company in next twelve months are equal to or exceed 30% of the audited total assets in the most recent audit of the Company.

The details of conditions of dividend payment in shares: the Company’s operation is satisfactory, after the Company has make full payment for the statutory reserve fund and any common fund, the board of directors believes that the share price of the Company is disproportionate to the share capital size of the Company, and dividend payment in shares is in the best interests of all shareholders of the Company. Subject to satisfaction of the above dividend payment conditions, and the aggregate cash profits of the Company in any three consecutive years not being less than 30% of the average annual distributable profit in those three years, the Company may put forward a proposal for dividend payment in shares.

(iii) The policy for differentiated cash dividend distribution

In connection with the dividend payment, the Company’s Board of Directors shall take into account the features of the industry where the Company operates, development stage, operation model, profitability and the existence of major capital expenditures and other factors, and put forward a policy of differentiated cash dividend distribution according to the following different circumstances, pursuant to the procedures set forth in these Articles of Association:

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If the Company’s development is in the phase of maturity and no material capital expenditure has been arranged, the minimum ratio of cash dividend in that profit distribution shall be 80%;
If the Company’s development is in the phase of maturity and material capital expenditure has been arranged, the minimum ratio of cash dividend in that profit distribution shall be 40%;
If the Company’s development is in the phase of growth and material capital expenditure has been arranged, the minimum ratio of cash dividend in that profit distribution shall be 20%.

When the Company conducts profit distribution, it should be determined by the Board according to specific circumstances.

(iv) Decision-making Procedures and Mechanism for Profit Distribution

The profit distribution plan shall, after formulated by the management of the Company, be submitted for consideration and approval to the Board of Directors and supervisory committee. The Board shall conduct sufficient discussions on the reasonableness of the profit distribution plan and form a specific proposal, which shall be submitted to the general meeting for its consideration and approval. Where the Company is profitable in the previous accounting year, however the Board determines not to conduct dividend payment in cash or the profit distribution is made less than the cash dividend payment percentage set forth in the Articles of Association, the independent directors shall express their independent opinions. The Company shall arrange the online voting mechanism to facilitate the participation by social shareholders in the voting at the general meeting.
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During the formulation of the Company’s details of cash bonus scheme, the Board of Directors shall earnestly study and emonstrate the timing, condition, lowest proportion, -

adjustment condition and its decision making program requirement for the cash bonus of the Company. The independent directors shall express their independent opinions. The independent directors may solicit the opinions of the minority shareholders to make the bonus proposal for direct submission to the Board of Directors for consideration.

Prior to the consideration of a details of cash dividend proposal at the general meeting, active communication and exchange with shareholders, especially medium-sized and minority shareholders, through various channels (including but not limited to via telephone, fax, email and acceptance onsite) are encouraged in order to fully collect views and demands of medium-sized and minority shareholders. The concerns of medium-sized and minority shareholders shall also be addressed and replied to promptly;
Where the Company determines not to conduct the cash dividend payment due to any special circumstances, the Board of Directors shall provide special explanation on the details of causes for no cash dividend payment, the accurate use of the retained profits, estimated investment return, etc., which shall, after commented by the independent directors, be submitted to the general meeting, and be disclosed in such media designated by the Company.

(v) The policy adjustment for profit distribution

In the case of any material effect on the production and operation of the Company as a result of any war, natural disaster and other force majeure event or any change to the environment in which the Company operates (such as any change to the state policies, or regulations), or in the case of any substantial change to the operation conditions of the Company, the Company may make an adjustment to the profit distribution policies of the Company.

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The Board of Directors shall give a special explanation on the adjustment of the Company’s profit distribution policy. The Board of Directors shall explain the reasons for the adjustment in details, prepare a written explanation report, and after the deliberation of independent directors, submit the report to the shareholders’ meeting for approval by special resolution. In the deliberation of the profit distribution policy, the Company shall provide online voting for the shareholders.

Article 217 Cash dividends or other payments declared by the Company to be payable to holders of domestic shares shall be declared in RMB. Cash dividends and other amounts payable to holders of foreign shares shall be calculated and declared in RMB, and paid in Hong Kong Dollars. For payments in foreign currencies to holders of foreign shares, the amount of foreign currency needed shall be obtained in accordance with the State’s provisions in relation to foreign exchange.
Article ~~1592~~ 18 Unless the pertinent laws and administrative rules otherwise provide, the dividend and other sums to be distributed in Hong Kong Dollars shall adopt the average of the selling rates quoted from the People’s Bank of China during the calendar week before the date of the declaration of the dividend and the distribution of other monies.
Article ~~1602~~ 19 Subject to the satisfaction of the above conditions for cash dividend payment, the Company shall distribute dividends in cash once each year in principle, and the Board of the Company may submit a proposal for interim cash dividend payment to the Company based on the profitability and capital needs of the Company. ~~Subject to Articles 56 (2) and 95(1) (xii) of these Articles of Association, the Board may decide whether to declare any interim or special dividend.~~
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Article~~161~~
~~2~~20
Article~~162~~
~~2~~21

When the Company distributes dividend to the shareholders, it shall,
pursuant to the taxation laws of the PRC, deduct and withhold the taxes
payable by the shareholders from the dividend.
The Company shall appoint receiving agents on behalf of the overseas
listed foreign Shares to receive on behalf of such shareholders dividends
declared and all other monies owing by the Company in respect of their
shares, and hold such payment on behalf of the Shareholders pending
payment to them.
Article
140 of the
Mandatory
Provisions;
Section 1(c)
of Part D of
Appendix 13
of the Listing
Rules

Article 222 Article 223	The receiving agent appointed by the Company shall comply with the laws of the place of listing or the relevant requirements of the relevant stock exchange. The receiving agents appointed on behalf of holders of the overseas listed foreign Shares listed in Hong Kong shall be a company registered as a trust company under the Trustee Ordinance of Hong Kong. Any amount paid up in advance of calls on any of the Company’s shares may carry interest, but shall not entitle the holder of such share(s) to participate in respect thereof in a dividend subsequently declared. In accordance with the relevant laws and regulations of the PRC, the Company may exercise its power to forfeit any unclaimed dividends, provided that such power may only be exercised after the expiry of the effective period set for the relevant dividends declared. The Company may exercise the power to cease sending dividend warrants by post if such warrants have been left uncashed on two consecutive occasions, provided that the Company may do so on the first occasion on which such undelivered warrants are returned. The Company shall not exercise the power to sell the shares of a holder who is untraceable unless each item set forth below has been satisfied: (i) dividends have been declared in relation to the relevant shares for at least three times within a period of twelve years, and the dividends were unclaimed within that period;	Article 8 of Zheng Jian Hai Han~~the~~ ~~Letter~~ Paragraph 3 of Appendix 3 of the Listing Rules Paragraph 13	Article 8 of Zheng Jian Hai Han~~the~~ ~~Letter~~ Paragraph 3 of Appendix
		of Appendix 3 of the Listing Rules
	(i)

(ii) upon the expiry of the twelve year period, the Company has published an announcement on one or more newspapers of the listing locations expressing its intention to sell the shares and notified the stock exchange on which such shares are listed.
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Article 224 Article 225	Upon a resolution on the profit distribution proposal is passed at the general meeting, the Directors of the Company shall complete the distribution of dividends (or shares) within two months after the general meeting. The Company maintains an internal audit system, with professional audit personnel performing internal audit on the financial income and expenses and economic activities of the Company. The internal audit system and the responsibilities of the audit personnel shall be implemented upon the approval of the Board. The head of audit shall be accountable and report to the Board.~~The receiving agents~~ ~~appointed on behalf of holders of the overseas listed foreign Shares listed~~ ~~in Hong Kong shall be a company registered as a trust company under~~ ~~the Trustee Ordinance of Hong Kong.~~	Article 154 of the
		Guidelines
		Articles 156 and 157 of the
		Guidelines

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Chapter 17 Appointment of Accountants’ Accounting Firm

Article~~163~~ ~~2~~26 Article~~164~~ ~~2~~27 Article~~165~~ ~~2~~28	The Company shall appoint an independentaccountingfirm~~of certified~~ ~~public accountants~~ which is qualified under the relevant regulations of the State to audit the Company’s annual financial report and verify the Company’s other financial reports. The appointment of accountants’by the Company shall be determined at a shareholders’general meeting, and the Board shall not engage an accounting firm before any resolution adopted at a shareholders’general meeting. The accounting firm shall be effective from the conclusion of the current annual general meeting until the conclusion of the next annual general meeting. At the expiry of the term of office of the accounting firm, the appointment may be renewed.~~The certified public accountants’ firm~~ ~~appointed by the Company shall hold office from the conclusion of the~~ ~~annual general meeting of shareholders at which the appointment is made~~ ~~until the conclusion of the next annual general meeting of shareholders.~~ Theaccounting firm~~certified public accountants’ firm~~ ~~a~~ppointed by the Company shall have the right to:	Article 141 of the Mandatory Provisions; Article 158 of the
		Guidelines Article 142 of the Mandatory Provisions; Article 159 of the
		Guidelines Article 143 of the Mandatory Provisions

(i) inspect ~~at any time t~~ he books, records or vouchers of the Company, and to require the Directors, the president or other senior officers to provide any relevant information and explanations;
(ii) require the Company to take all reasonable steps to obtain from its subsidiaries such information and explanations as are necessary for the accounting firm ~~certified public accountants’ firm~~ to perform his duties; and
(iii) attend shareholders’ general meetings, obtain all notices of, and other information relating to, such meetings which shareholders are entitled to receive, and to present its views at any shareholders’ general meetings on matters that are of his concern as ~~a t~~ he accounting firm ~~certified public accountants’ firm o~~ f the Company.
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Article 229
Article~~166~~
~~2~~30
Article~~167~~
~~2~~31
Article~~168~~
~~2~~32
Article~~169~~
~~2~~33

The Company shall ensure the provision of true and complete ccounting
evidence, books of account, financial and accounting reports and other
accounting data to the accounting firm engaged by it, and no refusal,
withholding and false information are allowed.
Article
160 of the
Guidelines
If there is a vacancy or the position of theaccounting firm~~certified public~~
~~accountants’ firm~~
of the Company, the board may entrust a certified
public accountants’ firm to fill such position prior to the holding of the
shareholders’ general meeting. During this period of vacancy, if there is
another certified public accountants’ firm providing accounting services
to the Company, then that certified public accountants’ firm may still
handle such matters.
Article
144 of the
Mandatory
Provisions
The shareholders in general meeting may, by ordinary resolution,
remove~~a~~
~~t~~he accounting firm~~certified public accountants’ firm~~
~~b~~efore
the expiration of its term of office, notwithstanding the stipulations in
the contract between the Company and the firm, but without prejudice to
the firm’s right to claim, if any, for damages in respect of such removal.
Article
145 of the
Mandatory
Provisions
The remuneration of~~a~~
~~t~~he accounting firm~~certified public accountants’~~
~~firm~~
~~o~~r the manner in which such firm is to be remunerated shall be
determined by the shareholders in general meeting. The remuneration
ofthe accounting firm~~a certified public accountants’ firm~~
~~a~~ppointed by
the Board shall be determined by the Board.
Article
146 of the
Mandatory
Provisions;
Article
161 of the
Guidelines
The Company’s appointment of, removal of and non-reappointment of
an accounting firm~~a certified public accountants’ firm~~
~~s~~hall be resolved
by shareholders in general meeting. The resolution of the shareholders’
general meeting shall be filed with the State Council authorities in charge
of securities for the record.
Article
147 of the
Mandatory
Provisions
Where it is proposed that any resolution be passed at a shareholders’
general meeting concerning the appointment ofan accounting fir~~ma~~
~~certified public accountants’ firm~~
which is not an incumbent firm to
fill a casual vacancy in the office of theaccounting firm~~certified public~~
~~accountants’ firm~~
~~o~~r re-appointment of a retiringaccounting fir~~mcertified~~
~~public accountants’ firm~~
which was appointed by the Board to fill a casual
vacancy, or removal of theaccounting firm~~certified public accountants’~~
~~firm~~
before the expiration of its term of office, the following provisions
shall apply:
Article 9 of
Zheng Jian
Hai Han~~the~~
~~Letter~~
~~;~~
Section 1(e)
of Part D of
Appendix 13
of the Listing
Rules

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(i) A copy of the proposal shall be sent before notice of meeting is given to the shareholders to the firm proposed to be appointed or proposing to leave its post or the firm which has left its post (leaving includes leaving by removal, resignation and retirement) during the relevant fiscal year.
(ii) If the firm leaving its post makes representations in writing and requests the Company to notify such representations to the shareholders, the Company shall (unless the representations are received too late):
(1) in any notice of the resolution given to shareholders, state the fact of the representations having been made; and
(2) attach a copy of the representations to the notice and deliver it to the shareholders in the manner stipulated in the Articles of Association.
(iii) If the firm’s representations are not sent in accordance with the preceding paragraph (ii), the relevant accounting firm ~~accountants’ firm~~ may require that the representations be read out at the meeting and may lodge further complaints.
(iv) An accounting firm ~~certified public accountants’ firm w~~ hich is leaving its post shall be entitled to attend:
(1) the shareholders’ general meeting at which its term of office would otherwise have expired;
(2) any shareholders’ general meeting at which it is proposed to fill the vacancy caused by his removal; and
(3) any shareholders’ general meeting convened on its resignation;

and to receive all notices of, and other communications relating to, any such meetings, and to speak at any such meeting in relation to matters concerning its role as the former accounting firm ~~certified public accountants’ firm~~ of the Company.

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Article ~~1702~~ 34 Where the accounting firm ~~accountants’ firm~~ is removed or not reappointed, prior notice should be given to the accounting fir ~~maccountants’ firm a~~ nd the accounting firm ~~accountants’ firm~~ is entitled to state its opinion at the shareholders’ general meeting. Where the accounting firm ~~accountants’ firm r~~ esigns, it shall make clear to the shareholders’ meeting whether there has been any impropriety on the part of the Company.

Article 148 of the Mandatory Provisions; Article 162 of the Guidelines; Article 10 of Zheng Jian Hai Han ~~the Letter;~~ Section 1(e) of Part D of Appendix 13 of the Listing Rules

Any accounting firm ~~certified public accountant’s firm m~~ ay resign its office by depositing a resignation notice at the Company’s legal residence. Such notice shall become effective on the date of such deposit or on such later date as may be stipulated in such notice. Such notice shall include the following:

(i) a statement to the effect that there are no circumstances connected with its resignation which it considers should be brought to the notice of the shareholders or creditors of the Company; or
(ii) a statement of any such circumstances.

Such notifications shall come into effect on the date when they are placed at the legal address of the Company or such a later date as stated in the said notifications.

Upon receipt of the deposited notice as referred to in the preceding paragraph (1), the Company shall within fourteen (14) days send a copy of the notice to the relevant competent authority. If the notice contains a statement under the preceding paragraph (1) (ii), a copy of such statement shall be placed at the Company’s residence for shareholders’ inspection. The Company shall also send a copy of such statement by prepaid mail to ~~every holder~~ each shareholder who is entitled to receive the report regarding financial conditions of ~~overseas listed foreign shares~~ the Company at the address registered in the register of shareholders.

Where the accounting firm ~~certified public accountants’ firm~~ ’s notice of resignation contains a statement as referred to in the preceding paragraph (1) (ii) which should be brought to the notice of the shareholders or creditors of the Company, it may require the Board to convene a shareholders’ extraordinary general meeting for the purpose of receiving an explanation of the circumstances connected with its resignation.

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Chapter 18 Merger and Division of the Company

Article~~171~~ ~~2~~35 Article~~172~~ ~~2~~36	Proposal for the merger or division of the Company shall be put forward by the Board of the Company to be adopted in accordance with the procedures provided by these Articles of Association, and the relevant examination and approval procedures shall be carried out in accordance with law. Shareholders objecting to the merger or division proposal are entitled to demand that their shares be purchased by the Company or shareholders agreeing to the merger or division at a reasonably fair price. Details of the merger or division resolution shall be converted into special papers for the inspection by the shareholders.The aforesaid document shall also be delivered by any means permitted by the stock exchange(s) on which shares of the Company are listed (including, but not limited to, by post, email, facsimile, announcement or by publication on the Company’s website and/or the website(s) of the stock exchange(s) on which the shares of the Company are listed) to shareholders. If delivered by post, the addresses of recipients shall be the registered addresses recorded in the register of members.~~Such papers shall be dispatched to~~ ~~shareholders of overseas listed foreign shares by post.~~ The Company may conduct merger or division by means of absorption merger or the establishment of a new entity.Absorption means a company absorbs another company and the absorbed company will be dissolved. Otherwise, two or more companies will combine together for the establishment of a new company, and the original companies will be dissolved. In a merger, parties to the merger shall sign a merger agreement and prepare a balance sheet and an inventory of assets.The Company shall notify its creditors within ten days, and make an announcement on the merger on the newspapers prescribed by the stock exchange(s) on which shares of the Company are listed within thirty days, from the date of passage of the resolution on the merger. Creditors may, within thirty days upon receipt of the notification, (or for creditors who have not received such notification, within forty-five days after the date of announcement), request the Company to make repayments or provide corresponding guarantees in respect of its indebtedness.~~The Company~~ ~~shall inform the creditors within 10 days from the date of the merger~~ ~~resolution, and shall make an announcement at least three times in the~~ ~~newspaper within 30 days.~~	Article 149 of the Mandatory Provisions Article 150 of the Mandatory Provisions; Articles 171	Article 149 of the Mandatory Provisions Article 150 of the Mandatory Provisions; Articles 171
			, 172 and 173 of the Guidelines

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The claims and the liabilities of all the parties after the merger shall be assumed by the surviving company after the merger or the newly established company.

Article~~173~~
~~2~~37
Article~~174~~
~~2~~38

In a division, the assets of the Company shall be divided accordingly.
Article
151 of the
Mandatory
Provisions;
Articles
174 and
175 of the
Guidelines
Upon division, the balance sheet and a list of property shall be prepared.
The Company shall notify its creditors within ten days, and make an
announcement on the division on the newspapers prescribed by the stock
exchange(s) on which shares of the Company are listed within thirty days,
from the date of passage of the resolution on the division.~~In a division,~~
~~a division agreement shall be signed by all parties to the division and a~~
~~balance sheet and an inventory of assets shall be prepared. The Company~~
~~shall inform the creditors within 10 days from the date of the division~~
~~resolution, and shall make an announcement at least three times in the~~
~~newspaper within 30 days.~~
Paragraph
7(1) of
Appendix 3
of the Listing
Rules
The indebtedness of the Company prior to the division shall be borne by
the demerged companies under the agreement reached unless otherwise
agreed between the Company and its creditors under a written agreement
in relation to the settlement of debts prior to the division.~~The liabilities~~
~~of the Company before the division shall be borne by the companies~~
~~after the division pursuant to the agreement entered into.~~
Whether for a merger or a division, any changes in the registration
shall be submitted to the registration authority for such changes to be
registered; upon the dissolution of the Company, cancellation of the
Company’s registration shall be carried out in accordance with the law;
for any new companies to be established, new registration shall be carried
out in accordance with the law.
Article
152 of the
Mandatory
Provisions;
Article
177 of the
Guidelines

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Chapter 19 Dissolution and Liquidation of the Company

Article ~~1752~~ 39 The Company shall be dissolved and liquidated upon the occurrence of Article any of the following events: 153 of the Mandatory Provisions; Article 178 of the Guidelines

(i) the term of operation of the Company expires or other dissolution reasons stipulated herein emerges;
(ii) a resolution on dissolution has been passed at a shareholders’ general meeting;
(iii) the Company has to be dissolved as a result of its merger or division;
~~(iii) the Company is legally declared bankrupt due to its failure to repay debts due; or~~
(iv) the business license has been cancelled or the Company has been ordered to close down its operations, or it has been wound up; ~~the Company is ordered to close down because of its violation of laws and administrative regulations.~~
(v) a shareholder who holds more than 10% of the voting rights of all shareholders may petition the people’s court to dissolve the Company on the basis that there are serious difficulties in the operation and management of the Company whose subsistence will significantly jeopardize the shareholders’ interests and that such difficulties cannot be resolved by any other means.

Article ~~1762~~ 40 If the Company shall subsist by modifying the Articles of Association under the circumstance specified in paragraph (1) of Article 239 hereof. The amendment to the Articles of Association according to the requirements of the preceding Article shall be passed by over two thirds of voting rights held by shareholders who attended the Shareholders’ general meeting.

Article 154 of the Mandatory Provisions; Articles 178, 179 and 180 of the Guidelines

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If the Company is dissolved pursuant to paragraphs (1), (2), (4) and (5) of Article 239 hereof, a liquidation team shall be formed to start the liquidation within fifteen days from the date on which the causes for dissolution arise. The liquidation team shall be composed of the personnel designated by directors or at a shareholders’ general meeting. If no liquidation team is formed for the purpose of liquidation within the time limit, a creditor may lodge an application to the people’s court for designating the relevant persons to form the liquidation team in respect of the liquidation. ~~If the Company is dissolved in accordance with paragraph (iii) of the preceding Article, the People’s Court shall organize the shareholders, the relevant authorities and the relevant professionals to establish a liquidation committee for liquidation of the Company in accordance with the provisions of the relevant laws.~~

~~If the Company is dissolved in accordance with paragraph (iv) of the preceding Article, the relevant authority-in-charge shall organize the shareholders, the relevant authorities and the relevant professionals to establish a liquidation committee for liquidation of the Company and carry out liquidation.~~

Article ~~1772~~ 41 In the event the Board decides to carry out a liquidation (other than as a result of the Company’s declaration of bankruptcy), a statement shall be made in the notice to convene a shareholders’ general meeting for such purpose that the Board has conducted a comprehensive investigation as to the affairs of the Company and that it is of the view that the Company will be able to repay all the liabilities of the Company within 12 months from the start of the liquidation.

Article 155 of the Mandatory Provisions

Upon the passing of the resolution for the liquidation of the Company, the functions and powers of the Board of the Company shall cease forthwith.

The liquidation committee shall adhere to the instructions of the shareholders’ general meeting and report to the shareholders’ general meeting at least once a year as to the income and expenditure of the committee and the business and the progress of the liquidation. It will also have to make a final report to the shareholders’ general meeting at the conclusion of the liquidation.

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Article~~178~~ ~~2~~42 Article~~179~~ ~~2~~43 Article~~180~~ ~~2~~44	The liquidation committee shall notify the creditors within 10 days from its establishment, and shall make an announcement in the newspaper~~at~~ ~~least three times~~ within 60 days.Creditors shall report its claims to the liquidation team within thirty days after the date of receipt of the notice, or within forty-five days after the date of the announcement if no notice is received. In reporting a claim, a creditor shall explain the relevant particulars of its claim and provide supporting materials. The liquidation committee shall proceed with the registration of creditors’ rights. During the period of reporting claims, the liquidation committee shall make no settlement with creditors. The liquidation committee shall exercise the following functions and powers during the liquidation: (i) to deal with the Company’s assets and prepare a balance sheet and an inventory of assets; (ii) to notify the creditors or inform them by making a public announcement; (iii) to handle and liquidate the outstanding business of the Company; (iv) to pay all overdue taxesand taxes incurred during the course of liquidation; (v) to handle creditors’ rights and liabilities; (vi) to dispose of the remaining assets after all repayments of the Company’s debts have been made; (vii) to represent the Company in civil proceedings. Having dealt with the assets of the Company’s assets, prepared a balance sheet and an inventory of assets, the liquidation committee shall prepare a liquidation plan and report to the shareholders’ general meeting or the the People’sCourt~~relevant authority-in-charge~~ ~~f~~or~~their~~ ~~c~~onfirmation.	Article 156 of the Mandatory Provisions; Article 182 of the
		Guidelines Article 157 of the Mandatory Provisions; Article 181 of the
		Guidelines Article 158 of the Mandatory Provisions; Article 183 of the
		Guidelines

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The residual property after the respective settlement of the liquidation expenses, staff wages, social insurance expenses and statutory compensation and the payment of taxes in arrears shall be distributed according to shareholdings held by the shareholders. ~~Upon settling the liquidation costs, which shall have priority over other claims and liabilities, the assets of the Company shall be repaid in the following order: (i) the wages and the labour insurance expenses of the employees of the Company; (ii) the overdue taxes; (iii) the bank loans, the debentures of the Company and other liabilities of the Company.~~

During the period of liquidation, the Company shall subsist, but cannot carry on any operating activities that are not related to the liquidation. The property of the Company shall not be distributed among the shareholders before the completion of the settlements as provided for in the preceding article. ~~Any surplus assets remaining upon the settlement the above payments shall, in the following order, be distributed to the shareholders according to the class(es) and in proportion to their respective shareholding:~~

~~(i) Should there be any preference shares, distribution shall be made to shareholders according to the face value of the preference shares; in the event that the fund available is not sufficient for the repayment of share monies of preference shares, distribution shall be made according to the proportion of preference shares they hold;~~
~~(ii) Distribution shall be made according to the proportion of ordinary shares held by shareholders. During liquidation, the Company shall not be permitted to launch any new business activity.~~

Article ~~1812~~ 45

~~Where a liquidation is carried out as a result of a dissolution of the Company, i~~ If it is found by the liquidation committee that the Company’s assets are insufficient to cover the debts to be repaid after dealing with the Company’s assets and preparation of a balance sheet and an inventory of assets, it should forthwith apply to the People’s Court for the declaration of the Company’s bankruptcy. Where the Company is declared bankrupt according to law, it shall carry out bankruptcy liquidation in accordance with relevant enterprise bankruptcy laws.

Article 159 of the Mandatory Provisions; Articles 184 and 187 of the Guidelines

After the People’s Court has ruled to declare the Company bankrupt, the liquidation committee should transfer the liquidation matters to the People’s Court.

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Article~~182~~ ~~2~~46 Article 247	After the liquidation of the Company, the liquidation committee should prepare a liquidation report and statements of income and expenditure as well as books of financial accounts during the liquidation period, which, upon the certification by a PRC Certified Public Accountant, they shall be presented to the shareholders’ general meeting or the~~relevant~~ ~~authority-in-charge~~ People’s Courtfor confirmation. The liquidation committee should, within 30 days after the confirmation by the shareholders’ general meeting or thePeople’s Court~~relevant~~ ~~authority-in-charge~~ ~~,~~deliver the aforesaid documents for registration with the company registration authority for the cancellation of the registration of the Company, and make a public announcement concerning the termination of the Company. The members of the liquidation team shall act diligently and perform their obligations of liquidation according to law. No member of the liquidation team shall accept any bribes or any other illegal income by making use of his functions and powers; neither could he seize any property of the Company. A member of the liquidation team shall be responsible for compensation should he, deliberately or due to major negligence, bring losses to the Company or to a creditor.	Article 160 of the Mandatory Provisions; Article 185 of the
		Guidelines Article 186 of the
		Guidelines

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Chapter 20 Procedures for Amending the Articles of Association of the Company

Article ~~1832~~ 48 The Company may amend these Articles of Association in accordance with the provisions of laws, administrative regulations and these Articles of Association. The Company shall amend the Articles of Association under any of the following circumstances:
(i) Following amendments to the Company Law or the relevant laws or administrative regulations, any provisions of the Articles of Association contravene the amended laws or administrative regulations;

Article 161 of the Mandatory Provisions Article 188 of the Guidelines

(ii) Any changes in the Company are inconsistent with the provisions of the Articles of Association;
(iii) Amendments to the Articles of Association are resolved at a shareholders’ general meeting.
Article ~~1842~~ 49 Unless otherwise stipulated herein, the Articles of Association shall be amended according to the following procedures: ~~In amending these Articles of Association, the following procedure shall be followed:~~
(i) the Board shall pass a resolution pursuant to these Articles of Association and shall draft an amendment proposal;
(ii) the amendment proposal shall be circulated to the shareholders and a shareholders’ general meeting shall be convened to vote on the amendment proposal; and
(iii) the amendment proposal tabled on the meeting shall be passed by a special resolution.
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Article~~185~~ ~~2~~50 Article~~186~~ ~~2~~51	Any amendments to the Articles of Association passed by a resolution at a shareholders’general meeting shall be filed with the competent authorities for approval if it is so required, and if an amendment involves any registration items of the Company, modifications of the registration shall be completed according to law. Amendments to the Articles of Association shall be made by the Board of Directors in accordance with a resolution tabled at a shareholders’general meeting on amendments to the Articles of Association and opinions of the relevant competent authorities on review and approval.~~Amendments to the Company’s Articles of~~ ~~Association involving the contents of the Mandatory Provisions shall~~ ~~become effective upon approvals by the corporate examination and~~ ~~approval authority authorised by the State Council.~~ Information on the amendments to the Articles of Association shall be disclosed as required by the laws and regulations and shall be announced in accordance with the rules.~~If there is any change in the registered~~ ~~particulars of the Company, the relevant formalities shall be attended~~ ~~pursuant to law to change the registered particulars.~~	Article 162 of the Mandatory Provisions Articles 189 and 190 of the
		Guidelines
		Article 191 of the
		Guidelines

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Chapter 21 Notice

Article ~~1872~~ 52 Notices of the Company may be issued by the following methods:

(i) by hand;
(ii) by post;
(iii) by facsimile or email;

Paragraph 7(3) of Appendix 3 of the Listing Rules; Articles 163, 164 and 170 of the Guidelines

(iv) subject to the laws, administrative regulations and the listing rules of the place of listing, by publishing on the websites designated by the Company and the regulatory authorities of the place of listing;
(v) by announcement;
(vi) by other means agreed by the Company and the recipients in advance or approved by the recipients upon receipt of the notices;
(vii) by any other means approved by the relevant regulatory authorities of the place of listing or required by these Articles of Association.

Unless the context otherwise requires, “announcement(s)” referred to herein shall mean, as far as announcements to holders of domestic shares or announcements to be published in the PRC under the relevant provisions and the Articles of Association are concerned, such announcements published on the PRC newspapers designated under the PRC laws and regulations or by the securities regulatory authorities of the State Council; or, as far as announcements to shareholders of foreign shares or announcements to be published in Hong Kong as required by the relevant provisions and the Articles of Association are concerned, such announcements which must be published on the designated websites or Hong Kong newspapers in accordance with the relevant requirements of the listing rules.

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Regarding the requirements for the manners of provision and/or distribution of the Corporate Communication to holders of overseas listed foreign shares under the Hong Kong Listing Rules, the Company may, subject to the laws, regulations and relevant listing rules of the place of listing of the Company’s shares, also issue and/or distribute the Corporate Communication to the holders of overseas listed foreign shares by electronic means or publication on the website of the Company in lieu of distributing the relevant information to the holders of overseas listed foreign shares by hand or by postage prepaid mail.

If the Corporate Communication is made or provided on the Company’s website to holders of overseas listed foreign shares, such Corporate Communications shall be deemed to be made and served at the later of:

(1) the date on which a notice that the Corporate Communication has already been published on the Company’s website is given to holders of overseas listed foreign shares pursuant to the Hong Kong Listing Rules;
(2) the date on which the Corporate Communication is first published on the Company’s website (in the event that Corporate Communication is published on the website subsequent to the issuance of the said notice).
(3) Any notices of the Company which are made in the form of a public announcement shall be deemed to have been received by all relevant persons once it is published. ~~Corporate communications including notices, information or written statements given by the Company to holders of the overseas-listed foreign shares as referred to in these Articles of Association shall be sent out in one or more ways below:~~
~~(i) By courier;~~
~~(ii) By postage-prepaid mail;~~
~~(iii) By making announcement on the Company’s website and/or other websites designated by Hong Kong Stock Exchange in compliance with laws, administrative regulations and listing rules of the place of listing;~~
~~(iv) Through other means recognized by regulatory authorities or stipulated under the Articles of Association.~~
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Article 253 Article~~188~~ ~~2~~54 Article 255	Unless otherwise stipulated herein, the manners by which notices are given as stipulated in the preceding article shall be applicable to notices of the Company regarding the convening of shareholders’general meetings and meetings of the Board of Directors and the Supervisory Committee. For notices of the Company delivered by hand, an acknowledgement of receipt shall be signed (or stamped) by the recipient and the date of delivery shall be the date on which the acknowledgement is signed; for notices delivered by post, the date of delivery shall be the forty-eighth hour from the mail is delivered to the post office; for notices delivered by fax or email or published on the Company’s website, the date of delivery shall be the date on which they are published; and for notices delivered by way of announcements, the date of delivery shall be the date of first publication. The relevant announcements shall be published on newspapers which comply with the relevant requirements.~~When a notice~~ ~~is delivered by mail, it shall be deemed as having been delivered to the~~ ~~extent that the envelope is properly addressed, the postage is prepaid,~~ ~~the notice is contained in the envelope and the envelope which contains~~ ~~the notice is put into the postbox. The notice shall be deemed as having~~ ~~been received 48 hours upon the delivery.~~ “ o The accidental omission due to a person entitled for the notices of meetings or those who have not received any notice of meetings. Meetings and resolution of meetings do not void under such circumstance.~~Except~~ ~~as otherwise required by the regulatory authorities or stipulated in these~~ ~~Articles of Association, in connection with corporate communications~~ ~~including notice, information or written statement dispatched by the~~ ~~Company to the shareholders of overseas-listed foreign shares, if the~~ ~~Company has not received a response from foreign shareholders indicating~~ ~~the shareholder’s intention to receive corporate communications by~~ ~~courier or postage-prepaid mail within 28 days from the date the Company~~ ~~dispatches communication selection request form, the Company can~~ ~~deem such shareholders as having agreed that the Company may send~~ ~~or supply corporate communications including notice, information or~~ ~~written statements to him by electronic means.~~	Articles 165,
		166 and 167 of the Guidelines Rules 2.07 and 2.07(B) of Chapter 2 Introduction”
		f the Listing
		Rules; Article 168 of the Guidelines Article 58 of the Mandatory Provisions; Article 169 of the Guidelines

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In the case the securities regulatory rules of the place where the Company’s stocks are listed require the Company to send out, mail, deliver, distribute, announce or by other means provide relevant documents of the Company in both the Chinese and English language, if after the Company has made proper arrangement to determine whether its shareholders wish to receive either the English version or the Chinese version only, the Company may, within the scope permitted by applicable laws and regulations and according to such applicable laws and regulations, send to the relevant shareholders the English version or the Chinese version only (in accordance with the wishes as stated by the shareholders).

The Company shall establish and improve an information disclosure system of the Company pursuant to the laws, the relevant requirements of the securities regulatory authorities of the place of listing of the Company’s shares and the relevant provisions of these Articles of Association, and disclose the information in a genuine, accurate, complete and timely manner.

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Chapter 22 Resolving of Disputes

Article ~~1892~~ 56 The Company will comply with the following dispute resolutions set out below:

(i) Whenever any disputes or claims involving the affairs of the Company arising between shareholders of the overseas listed foreign shares and the Company, shareholders of the overseas listed foreign shares and the Company’s directors, supervisors, president or other senior officers, or shareholders of the overseas listed foreign shares and shareholders of domestic shares, based on the Articles of Association or any rights or obligations conferred or imposed by the Company Law or any other relevant laws and administrative regulations, such disputes or claims shall be referred by the relevant parties to arbitration.

Article 163 of the Mandatory Provisions; Article 11 of “Zheng Jian Hai Han” ~~the Letter~~

Where a dispute or claim of rights is referred to arbitration, the entire claim or dispute must be referred to arbitration, and all persons who have a cause of action based on the same facts giving rise to the dispute or claim or whose participation is necessary for the resolution of such dispute or claim, shall abide by the arbitration provided that such person is the Company or a shareholder, director, supervisor, the president or any other senior officer of the Company. Disputes in relation to the identification of shareholders and disputes in relation to the share register need not be referred to arbitration.

(ii) A claimant may elect arbitration at either the China International Economic and Trade Arbitration Commission in accordance with its arbitration rules or the Hong Kong International Arbitration Centre in accordance with its Securities Arbitration Rules. Once a claimant refers a dispute or claim to arbitration, the other party must submit to the arbitral body elected by the claimant. If a claimant elects arbitration at Hong Kong International Arbitration Centre, any party to the dispute or claim may apply for carrying out the arbitration in Shenzhen in accordance with the Securities Arbitration Rules of the Hong Kong International Arbitration Centre.

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(iii) If any disputes or claims of rights arising from (i) above are to be resolved by arbitration, the laws of the People’s Republic of China shall apply, save as otherwise provided by laws and administrative regulations.
(iv) The award of an arbitration body shall be final and conclusive and binding on all parties.
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Chapter 23 Supplementary Provisions

Article 257 Article~~190~~ ~~2~~58 Article~~191~~ ~~2~~59 Article~~192~~ ~~2~~60	Any matters not covered in the Articles of Association shall be treated in accordance with the laws, administrative regulations and the listing rules of the place of listing by having regard to the actual situation of the Company. Should there be any contraventions between the Articles of Association and any newly-promulgated laws, administrative regulations or the listing rules prevailing at the place of listing, such newly-promulgated laws, administrative regulations or the listing rules of the place of listing shall prevail. These Articles of Association shall be prepared in the Chinese and the English languages. Both versions shall be equally binding. In the event of any discrepancy between either versions or any other inconsistency, the Chinese language version shall prevail. Article 194 of the Guidelines The right to interpret these Articles of Association shall reside in the Board. The right to amend these Articles of Association shall reside in the shareholders’ general meetings. Supplementary provisions herein include the rules of procedure for general meeting, the rules of procedure for Board of Directors and the rules of procedure for the supervisory committee. The Board of Directors may formulate the Articles of Association according to the requirements of the Association. The Articles of Association shall not contravene the requirement s of the Association. Articles 193, 196 and 197 of the Guidelines “Connected relationship”referred to herein shall mean the relationship between a controlling shareholder, de facto controller, director, supervisor or senior officer of the Company and its directly or indirectly controlled enterprise and other relationships which may result in the transfer of the Company’s interests. However, state- owned enterprises may have connected relationships not merely because they are under common control of the State. For the purpose of these Articles, an “accounting firm” shall have the same meaning as the “auditors”. “The above”,“within”,“the following”shall be inclusive of the stated figure; while“other than”,“lower than”,“more than”are not inclusive of the stated figure. Article 165 of the Mandatory Provisions; Articles 192 and 195 of the Guidelines	Any matters not covered in the Articles of Association shall be treated in accordance with the laws, administrative regulations and the listing rules of the place of listing by having regard to the actual situation of the Company. Should there be any contraventions between the Articles of Association and any newly-promulgated laws, administrative regulations or the listing rules prevailing at the place of listing, such newly-promulgated laws, administrative regulations or the listing rules of the place of listing shall prevail. These Articles of Association shall be prepared in the Chinese and the English languages. Both versions shall be equally binding. In the event of any discrepancy between either versions or any other inconsistency, the Chinese language version shall prevail. Article 194 of the Guidelines The right to interpret these Articles of Association shall reside in the Board. The right to amend these Articles of Association shall reside in the shareholders’ general meetings. Supplementary provisions herein include the rules of procedure for general meeting, the rules of procedure for Board of Directors and the rules of procedure for the supervisory committee. The Board of Directors may formulate the Articles of Association according to the requirements of the Association. The Articles of Association shall not contravene the requirement s of the Association. Articles 193, 196 and 197 of the Guidelines “Connected relationship”referred to herein shall mean the relationship between a controlling shareholder, de facto controller, director, supervisor or senior officer of the Company and its directly or indirectly controlled enterprise and other relationships which may result in the transfer of the Company’s interests. However, state- owned enterprises may have connected relationships not merely because they are under common control of the State. For the purpose of these Articles, an “accounting firm” shall have the same meaning as the “auditors”. “The above”,“within”,“the following”shall be inclusive of the stated figure; while“other than”,“lower than”,“more than”are not inclusive of the stated figure. Article 165 of the Mandatory Provisions; Articles 192 and 195 of the Guidelines
		196 and 197 of the Guidelines Article 165 of the Mandatory Provisions; Articles 192 and 195 of the Guidelines

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PROCEDURAL RULES FOR GENERAL MEETINGS OF SINOTRANS LIMITED

Chapter 1 General Provisions

Article 1 To protect the legitimate rights and interests of Sinotrans Limited (the “Company”), make clear of the duties and authorities of the general meeting, ensure that the general meeting operates in a standard, efficient and stable manner and exercise its authorities pursuant to the laws and that shareholders effectively exercise their authorities, and safeguard the legitimate rights and interests of the shareholders, these Rules are formulated in accordance with the Company Law of the People’s Republic of China (the “Company Law”), the Securities Law of the People’s Republic of China, the Code of Corporate Governance for Listed Companies, the Rules for the General Meetings of Listed Companies, the Rules Governing the Listing of Stocks on Shanghai Stock Exchange (the “SSE Listing Rules”), the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “SEHK Listing Rules”) (collectively the “Listing Rules”), the Articles of Association of Sinotrans Limited (the “Articles of Association”) and other laws and regulations as well as relevant regulations of the stock exchange where the Company’s shares are listed.

Article 2 The Company shall convene the general meeting strictly pursuant to the laws, administrative regulations, the Articles of Association and these Rules to ensure that the shareholders can legally exercise their rights according to law.

The Company’s Board of Directors shall effectively perform its duties and earnestly organize the meeting as scheduled. All Directors shall carry out their duties diligently and faithfully to ensure that the general meeting will be convened as usual and exercise its authority according to law. The secretary of the Board of Directors of the Company is responsible for the preparation and organization matters for convening the general meeting.

These Rules are applicable to the general meeting of the Company, and binding upon the Company, all shareholders, authorized proxies of shareholders, directors, supervisors, senior management and other relevant personnel who attend the general meeting.

Article 3 The general meeting shall be the authority of the Company and shall exercise its functions and powers within the scope defined by the Company Law and the Articles of Association.

Any shareholder legally holding the Company’s voting shares shall be entitled to attend in person or authorize a proxy to attend the general meeting and enjoy various rights such as the right to know, the right to speak, the right to inquire and the right to vote pursuant to the laws and these Rules.

Shareholders and their authorized proxies attending the general meetings shall observe the provisions of relevant laws and regulations, the Articles of Association and these Rules, and consciously maintain the order of the meeting, and shall not infringe upon the legitimate rights and interests of other shareholders.

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Article 4 The general meeting include the annual meeting of the shareholders (i.e. annual general meeting, similarly hereinafter) and the extraordinary general meeting. Annual general meeting shall be called once a year and shall be held within six months after the end of the preceding accounting year. The Company shall convene extraordinary meetings from time to time and shall call an extraordinary general meeting within two months from the occurrence of any of the following circumstances:

(i) the number of directors is less than the number stipulated in the Company Law or less than two-thirds of the number prescribed in the Articles of Association;
(ii) the losses of the Company that have not been made up reach one-third of its total paid-in share capital;
(iii) a shareholder alone or shareholders together holding at least 10 percent (inclusive) of the Company’s outstanding voting shares make a request in writing of convening an extraordinary general meeting;
(iv) the Board of Directors considers it necessary or the Supervisory Committee proposes;
(v) more than half of the independent Directors, which shall not be less than two, propose to hold such a meeting;
(vi) other circumstances as specified in laws, administrative regulations. departmental rules, the Listing Rules of the place where the Company is listed or the Articles of Association.

If the Company is unable to hold a general meeting in the aforesaid period, it shall report to the branch office of China Securities Regulatory Commission (the “CSRC”) at the place where the Company is located and Shanghai Stock Exchange (the “SSE”) explaining the reason and issue an announcement.

Article 5 When the Company calls a general meeting, it shall retain an attorney to issue a legal opinion on the following matters and announce the same:

(i) whether the procedures for convening and holding the meeting are consistent with laws, administrative regulations, the Articles of Association, and these Rules;
(ii) whether the qualifications of the persons attending meeting and of the convener are lawful and valid;
(iii) whether the voting procedure and the voting results of the meeting are lawful and valid; and
(iv) on other issues as requested by the Company.

Chapter 2 Convening of the General Meeting

Article 6 The Board of Directors shall convene the general meeting within the time limit specified in Article 4 of these Rules.

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Article 7 More than half of the independent directors, which shall not be less than two, shall have the right to propose to the Board of Directors the convening of an extraordinary general meeting. As regards to the proposal of independent directors in relation to calling an extraordinary general meeting, the Board of Directors shall, in accordance with laws, administrative regulations and the Articles of Association, give a written response on whether or not it agrees to call such an extraordinary general meeting within 10 days after receipt of the proposal.

If the Board of Directors agrees to call an extraordinary general meeting, it will issue a notice for holding such a meeting within 5 days after it has so resolved; if the Board of Directors does not agree to call such a meeting, it shall give the reasons in writing and announce the same.

Article 8 The Supervisory Committee shall have the right to propose to the Board of Directors in writing the convening of an extraordinary general meeting. The Board of Directors shall, in accordance with laws, administrative regulations and the Articles of Association, give a written response on whether or not it agrees to call such a meeting within 10 days after receipt of the proposal.

If the Board of Directors agrees to call an extraordinary general meeting, it will issue a notice for holding such a meeting within 5 days after it has so resolved. The consent of the Supervisory Committee shall be obtained if any change is to be made to the original proposal in the notice.

If the Board of Directors does not agree to call such meeting, or fails to give a written response within 10 days after receipt of the proposal, it shall be deemed to be unable to or have failed to perform its duty of convening the general meeting, and the Supervisory Committee may itself convene and preside over such meeting.

Article 9 A shareholder alone or shareholders together holding at least 10 percent of the Company’s voting shares shall have the right to make a request to the Board of Directors in writing that it should call an extraordinary general meeting. The Board of Directors shall, in accordance with laws, administrative regulations and the Articles of Association, give a written response on whether or not it agrees to call such a meeting within 10 days after receipt of the request.

If the Board of Directors agrees to call an extraordinary general meeting, it shall issue a notice for holding such meeting within 5 days after it has so resolved. The consent of the relevant shareholder(s) shall be obtained if any change is to be made to the original request in the notice.

If the Board of Directors does not agree to call such meeting, or fails to give a written response within 10 days after receipt of the request, a shareholder alone or shareholders together holding at least 10 percent of the Company’s voting shares shall have the right to propose and make a request to the Supervisory Committee in writing that it should call an extraordinary general meeting.

If the Supervisory Committee agrees to call an extraordinary general meeting, it shall issue a notice for holding such meeting within 5 days after receipt of the request. The consent of the relevant shareholder(s) shall be obtained if any change is to be made to the original request in the notice.

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If the Supervisory Committee fails to issue a notice for holding the general meeting by the prescribed deadline, it shall be deemed to have failed to convene and preside over such meeting, and a shareholder alone or shareholders who together have held at least 10 percent of the Company’s voting shares for at least 90 consecutive days may himself/themselves convene and preside over such meeting.

Article 10 If the Supervisory Committee or shareholders decide(s) itself/themselves to convene a general meeting, it/they must notify the Board of Directors thereof in writing and report the same to the branch office of the CSRC and SSE for record.

Until the resolution(s) of the general meeting is/are announced, the percentages of the voting shares held by the convening shareholders may be not less than 10 percent.

When the Supervisory Committee and the convening shareholders issue the notice of the general meeting and announce the resolution(s) of the general meeting, it or they shall submit the relevant supporting documentation to the branch office of the CSRC at the place where the Company is located and SSE.

Article 11 When the Supervisory Committee or shareholders itself/themselves convene(s) a general meeting, the Board of Directors and the Secretary of the Board shall give their cooperation. The Board of Directors shall provide the register of shareholders as of the date of record. If the Board of Directors fails to provide the register of shareholders, the convener may apply to the securities depository to obtain the same with the relevant announcement of the notice of convening the general meeting. The register of shareholders obtained by the convener may not be used for any purpose other than to hold the general meeting.

Article 12 When the Supervisory Committee or shareholders itself/themselves convene(s) a general meeting, the costs necessary for the meeting shall be borne by the Company.

Chapter 3 Proposals and Notices of the General Meeting

Article 13 The contents of proposals before the general meeting shall fall within the scope of the functions and powers of the general meeting, contain a clear topic and a specific resolution and comply with relevant provisions of the laws, administrative regulations and the Articles of Association. Proposals before the general meeting shall be in writing.

Article 14 A shareholder alone or shareholders together holding at least 3 percent of the Company’s voting shares may submit a special proposal in writing to the convener 10 days prior to the date of such meeting. The convener shall issue a supplementary notice of the general meeting and make a public announcement of the contents of such proposal within 2 days after receipt of the proposal.

Except as provided in the preceding paragraph, the convener may not make any changes to the proposals set forth in the notice of the general meeting or add any new proposals once the notice of the general meeting have been issued.

The general meeting may not vote and pass resolution on the proposals that are not set forth in the notice of the general meeting or that are not consistent with Article 13 of these Rules.

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Article 15 Before calling a general meeting, the Company shall issue a written notice 45 days before the general meeting is held (inclusive of the date of the meeting), informing all the registered shareholders of the matters to be considered and the date and place of the meeting. Shareholders who intend to attend the general meeting shall, within 20 days prior to the day on which the meeting is to be held, serve a written reply on the Company stating that they will attend the meeting.

Based on the written replies received 20 days before the date of the general meeting, the Company shall calculate the number of voting shares represented by the shareholders intending to attend the meeting. If the number of voting shares represented by the shareholders intending to attend the meeting is more than half of the total number of the Company’s voting shares, the Company may hold the general meeting. If not, the Company shall, within 5 days, inform the shareholders again of the matters to be considered and the date and place of the meeting by way of a public announcement. After making such announcement, the Company may hold the general meeting.

An extraordinary general meeting shall not decide on the matters not stated in the notice.

Article 16 The notice of general meeting and the supplementary notice shall fully disclose the details of all proposals, as well as all information or explanations required for shareholders to make reasonable judgments on matters to be discussed. Where opinions by independent directors are required for the matters to be discussed, such opinions as well as the reasons thereof shall be disclosed in the notice and the supplementary notice of the general meeting. The notice of a general meeting shall:

(i) be made in writing;
(ii) specify the place, the date and the time of the meeting;
(iii) explain the matters and proposals submitted to the meeting for consideration;
(iv) provide the shareholders with the information and explanations necessary to make informed decisions on the matters to be discussed; without limiting the generality of the foregoing, when the Company proposes a merger, buyback of shares, restructuring of share capital or other reorganization, it shall provide the specific conditions and contract (if any) of the transaction contemplated and explain the cause and effect of the transaction;
(v) disclose the nature and extent of the material interests, if any, of any director, supervisor, president or other senior officer in any matter to be discussed; and an explanation of the difference, if any, between the way in which the matter to be discussed would affect such director, supervisor, the president or other senior officer in his capacity as shareholder and the way in which such matter would affect other shareholders of the same class;
(vi) contain the full text of any special resolution proposed to be resolved at the meeting;
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(vii) contain conspicuously a statement that all shareholders are entitled to attend and vote, and shareholders who have the right to attend and vote at the general meeting may appoint one or more proxies to attend and vote at such meeting on their behalf and that proxies need not be shareholders of the Company;
(viii) state the time and place for serving the proxy forms for the meeting;
(ix) the date of record for the shareholders who are entitled to attend the meeting; and
(x) the name and telephone number of the contact person for the meeting.

The notice of general meeting and the supplementary notice shall fully disclose the details of all proposals.

The notice of general meeting shall set out the date of record. The interval between the date of record and the meeting date shall be not more than 7 working days. Once the date of record is determined, it shall not be changed.

If the independent directors are required to express their opinions on a matter to be discussed, such opinion and the reasons shall be disclosed when the notice or supplementary notice of the general meeting is issued.

Article 17 If the election of directors or supervisors is to be discussed at a general meeting, detailed information on the candidates for such positions will be fully disclosed in the notice of the general meeting, which shall at least include the following:

(i) personal information, such as their educational backgrounds, working experience, part-time positions, etc.;
(ii) whether they have a connected relationship with the Company or the Company’s controlling shareholder or de facto controller;
(iii) the number of the Company’s shares held by them; and
(iv) whether they have been punished by the CSRC or other relevant authority or have been reprimanded by the stock exchange.

In addition to directors and supervisors being subject to election by cumulative voting, a proposal on each director and supervisor candidate shall be submitted separately.

Article 18 Once a general meeting notice has been issued, such meeting may not be postponed or cancelled, and the proposals set out in such notice shall not be cancelled without a legitimate reason. In the event of a postponement or cancellation, the convener shall make a public announcement and give the reason at least 2 working days prior to the originally scheduled date for the meeting, except as otherwise specified in the Listing Rules of the place where the Company’s shares are listed.

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Chapter 4 Holding of the General Meeting

Article 19 The Company shall hold the general meeting at the residence of the Company or the place specified in the Articles of Association.

A meeting venue shall be set up for the general meeting which shall be held in the form of an on-site meeting. The Company shall provide shareholders with a safe, economic and convenient network or other means to facilitate the attendance of shareholders at the general meeting. Shareholders participating in the general meeting by aforesaid means will be deemed to have been present at the meeting.

The shareholders may attend the general meeting in person, and also may authorize others to attend and exercise the voting right within the scope of authorization.

Article 20 If the general meeting is to be held online or by other means, the time of voting and the method of voting online or by other means shall be expressly stated in the notice of the general meeting.

Voting at the general meeting online or by other means shall commence not earlier than 3:00 pm on the day immediately preceding the date on which the general meeting is to be held and not later than 9:30 am on the day the general meeting is held and shall finish not earlier than 3:00 pm on the day when the general meeting held on site is concluded.

Article 21 The Board of Directors of the Company and other conveners will take necessary measures to keep a general meeting in order. It/they will take measures to halt the acts that disrupt the general meeting, seek to cause trouble or infringe upon the lawful rights and interests of shareholders and promptly report the same to the relevant authorities to investigate and deal with the matter.

Article 22 All shareholders registered on the date of record or their proxies shall have the right to attend a general meeting and the Company and the convener of the meeting shall not decline their attendance for any reason.

Article 23 An individual shareholder attending the on-site meeting in person shall show his or her own identity card or other valid proof of his or her identity and his or her share account card. If he or she appoints a proxy to attend the meeting on his or her behalf, such proxy shall produce his or her own valid proof of identity and the letter of attorney from the shareholder.

Shareholders who are legal persons shall attend the meeting by their legal representative or a proxy appointed by their legal representative. If the legal representative attends the meeting, he or she shall show his or her own identity card and valid proof of his or her legal representative status. If a proxy has been appointed to attend the meeting, such proxy shall show his or her own identity card and the lawful written letter of attorney from the legal representative of the legal person.

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Article 24 Shareholders shall appoint their proxies by written instruments, which shall be signed by the principals or their agents appointed in writing. If the principal is a legal person, the instrument shall be under the seal of the legal person or signed by its director(s) or duly authorized agent(s). The instrument of appointment by which a shareholder appoints another person to attend a general meeting shall specify the following particulars:

(i) the names of the principal and the proxy;
(ii) whether the proxy has the right to vote over every matter on the agenda of general meeting;
(iii) separate instructions as to whether to vote for, vote against, or abstain from voting on each item included on the agenda of the general meeting;
(iv) the date of issuance and term of validity of the instrument of appointment;
(v) the signature (or seal) of the principal; if the principal is a legal person shareholder, the power of attorney shall bear the seal of the legal person;
(vi) the number of shares of the principal that the proxy represents; and
(vii) if there are more than one proxies, the number of shares represented by each of the proxies appointed by a shareholder.

Article 25 The instrument appointing a voting proxy shall be deposited at the domicile of the Company or at such other place as specified in the notice of the meeting within 24 hours prior to the meeting at which the proxy is authorized to vote or 24 hours prior to the specified time of voting.

If the instrument is signed by another person authorized by the principal, the power of attorney or other authorized documents shall be notarized. The notarized power of attorney or other authorizing document shall be deposited together with the instrument appointing the voting proxy at the domicile of the Company or at such other place as specified in the notice of the meeting.

If the principal is a legal person, its legal representative or the person authorized by a resolution of its board of directors or other decision-making body shall attend the general meeting of the Company as the representative of such legal person.

Article 26 Any form issued by the Board of Directors of the Company to the shareholders for the appointment of proxies shall give the shareholders free choice to instruct their proxies to cast an affirmative or negative vote and enable the shareholders to give separate instructions on each matter to be voted on in connection with each item to be discussed in the meeting. The instrument of appointment shall specify that in the absence of instructions from the shareholder, the proxy may vote as he or she thinks fit.

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Article 27 A vote made in accordance with the terms of an instrument of appointment shall be valid notwithstanding the death or loss of capacity of the principal, revocation of the proxy or of the authority under which the proxy was executed or the transfer of the relevant shares before the voting, as long as the Company does not receive written notice of such event before the relevant meeting commences.

Article 28 The Company shall be responsible for preparing the attendance register of persons attending the meeting. The attendance register shall specify particulars such as an attendee’s name (or the name of his entity), identity card number, home address, number of voting shares held or represented, name of the proxy’s principal (or the name of the principal’s entity), etc.

Article 29 The convener and the attorney retained by the Company will jointly verify the lawfulness of shareholders’ qualifications against the register of shareholders provided by the securities depository and clearing institution and register the shareholders’ names and the number of voting shares that they hold. Registration shall be completed by the time when the chairman of the meeting announces the number of shareholders and proxies present at the meeting and the total number of voting shares that they hold.

Article 30 When a general meeting is held, all of the Company’s directors, supervisors and the Secretary to the Board shall attend the general meeting, and the president and other senior officer shall attend the general meeting in a non-voting capacity.

Article 31 If a general meeting is convened by the Board of Directors, the Chairman of the Board shall preside over the meeting. If the Chairman of the Board fails or is unable to perform his or her duties, the meeting shall be presided over by the Vice Chairman of the Board jointly elected by at least one half of the directors (if the Company has a vice chairman). If the Vice Chairman of the Board fails or is unable to perform his or her duties, the meeting shall be presided over by the director jointly elected by at least one half of the directors.

At a general meeting convened by the Supervisory Committee, the chairman of the Supervisory Committee shall preside over the meeting. If the chairman of the Supervisory Committee fails or is unable to perform his or her duties, the meeting shall be presided over by the supervisor jointly elected by at least one half of the supervisors.

If a general meeting is convened by a shareholder himself or shareholders themselves, the meeting shall be presided over by the representative selected by the convener(s).

When a general meeting is held, if the chairman of the meeting violates the rules of procedure, due to which the general meeting may not proceed, with the consent of shareholders holding more than one half of the voting rights present at the meeting, the general meeting may elect a person to serve as chairman of the meeting and the meeting shall continue.

Article 32 The Board of Directors and the Supervisory Committee shall report on their work during the past year to the general meeting at annual general meetings. Each independent director shall also give a report on the performance of his or her duties.

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Article 33 The directors, supervisors and senior officer shall provide explanations in response to the queries made by shareholders at a general meeting.

Article 34 The chairman of the meeting shall announce the number of shareholders and proxies physically present at the meeting and the total number of voting shares that they hold before the voting takes place. The number of shareholders and proxies physically present at the meeting and the total number of voting shares held by them shall be based on the registration at the meeting.

Article 35 Minutes shall be kept for the general meetings and the Secretary to the Board shall be responsible for recording the minutes. The minutes shall include the following particulars:

(i) the date and venue of, and the agenda for, the meeting, and the name of the convener;
(ii) the names of the chairman of the meeting, the directors, supervisors, the president and other senior officer in attendance or present in a non-voting capacity;
(iii) the total number of voting shares held by holders of domestic shares (and their proxies) and by holders of overseas listed foreign shares (and their proxies) present at the meeting, and their respective percentages of total number of shares of the Company;
(iv) the process of considering each proposal, key points of remarks in respect thereof and the voting results of of each resolution by the holders of domestic shares and by the holders of overseas listed foreign shares;
(v) the queries and suggestions of the shareholders and the relevant replies or explanations;
(vi) the names of the attorney, vote counter and scrutineer; and
(vii) other particulars required to be recorded in the minutes pursuant to the Articles of Association.

Article 36 The convener shall ensure that the meeting minutes are true, accurate and complete. The directors, supervisors and Secretary to the Board who attended the meeting, the convener or his representative and the chairman of the meeting shall sign the minutes. The meeting minutes shall be kept together with the register of the shareholders present at the meeting, the instruments of appointment of proxies and valid information on votes cast online or by other means for a period of not less than 10 years.

Article 37 Resolutions of the general meeting are divided into ordinary resolutions and special resolutions.

Ordinary resolutions of the general meeting shall be adopted by shareholders in attendance (including proxies) holding at least half of the voting rights.

Special resolutions of the general meeting shall be adopted by shareholders in attendance (including proxies) holding at least two-thirds of the voting rights.

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Article 38 A shareholder (or a proxy) exercises his or her voting rights based on the number of voting shares which he or she represents. Each share shall entitle him or her to one vote.

When the material issues affecting the interests of small and medium investors are considered at a general meeting, the votes of small and medium investors shall be counted separately. The votes results that are counted separately shall be disclosed publicly in a timely manner. Small and medium investors are determined under the listing rules of the place where the Company’s shares are listed.

The Board of Directors, independent directors and shareholders of the Company who meet the relevant requirements may solicit votes from shareholders. While soliciting votes of shareholders, sufficient disclosure of information such as the specific voting preference of the collector shall be made to the shareholders from whom voting rights are solicited. Consideration or other form of de facto consideration shall be prohibited in the solicitation of voting rights from shareholders. The Company shall not impose any limitation related to the minimum shareholding ratio on the solicitation of voting rights.

In case any shareholder is interested in any matter to be reviewed at the general meeting, he shall abstain from the voting, and the voting shares he holds shall not be included in the total number of voting shares held by shareholders present at the meeting.

The Company’s shares held by itself shall not carry voting rights, and those shares shall not be included in calculating the total number of shares carrying voting rights at a general meeting.

Article 39 In respect of voting on the election of Directors or Supervisors at the general meeting, the cumulative voting system shall be adopted pursuant to the Articles of Association or a resolution of the general meeting.

In respect of voting on the election of two or more directors, the cumulative voting system shall be adopted if the Company’s controlling shareholder holds 30 percent or more of Company’s shares.

For the purposes of the preceding paragraph, the term “cumulative voting system” means that, when Directors or Supervisors are to be elected in a general meeting, each share carries the number of voting rights equivalent to the number of Directors or Supervisors to be elected, and a shareholder may cumulate his or her voting rights.

Article 40 Except the cumulative voting system, each proposal shall be voted one by one. If there are different proposals concerning the same matter, the votes thereon shall be cast in the chronological order of proposing such proposals. The general meeting will not set aside or not vote on any proposal, unless the general meeting is suspended or no resolution can be reached due to force majeure or other special reasons.

Article 41 When considering a proposal, the general meeting may not revise it. Otherwise, such amendment shall be deemed as a new proposal and may not be voted on at that general meeting.

Article 42 The following matters shall be resolved by an ordinary resolution at a general meeting:

(i) work reports of the Board of Directors and the Supervisory Committee;
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(ii) the profit distribution plans and plans for making up losses formulated by the Board of Directors;
(iii) the appointment, dismissal and remuneration of the members of the Board of Directors and the Supervisory Committee and the method of payment of the remuneration;
(iv) the Company’s annual budgets, final accounts, balance sheets, income statements and other financial statements; the Company’s annual reports; and
(v) matters other than those required by laws, administrative regulations, the Listing Rules of the place where the Company is listed or the Articles of Association to be resolved by special resolution.

Article 43 The following matters shall be resolved by special resolution at a general meeting:

(i) the increase or reduction of the share capital and issuance of any class of shares, warrants or other similar securities by the Company;
(ii) the issuance of corporate bonds;
(iii) the division, merger, dissolution and liquidation of the Company;
(iv) the amendment to the Articles of Association;
(v) the purchase or sale by the Company within one year of (a) material asset(s) or the amount of security which exceeds, alone or in aggregate, 30 percent of the latest audited total assets of the Company;
(vi) equity incentive plans; and
(vii) other matters required by laws, administrative regulations, the Listing Rules of the place where the Company is listed or the Articles of Association to be resolved by special resolutions, or which the general meeting considers to have a material impact on the Company if they are resolved by ordinary resolution and therefore are required to be resolved by special resolution.

Article 44 When the general meeting considers matters relating to a related-party transaction, the affiliated shareholders shall not vote on such matters and the number of voting shares represented by them shall not be counted toward the total number of valid voting shares. The announcement of the resolutions of the general meeting shall fully disclose the voting of the unaffiliated shareholders.

Article 45 While ensuring the lawfulness and validity of general meetings, the Company shall facilitate the participation of shareholders in general meetings by various means including modern information technology means such as an online voting platform, etc.

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Article 46 The methods and procedures of nominating directors and supervisors are set forth below:

(i) a shareholder alone or shareholders together holding at least 3 percent of the total outstanding voting shares of the Company may propose in writing to the general meeting candidates for the position of director or supervisor who is not a representative of the employees, provided that the number of persons nominated complies with the Articles of Association and does not exceed the number of persons to be elected; the aforementioned proposals submitted to the Company by (a) shareholder(s) shall be served on the Company at least 14 days before the date the general meeting;
(ii) the Board of Directors or the Supervisory Committee may, to the extent of the number of persons specified in the Articles of Association, propose a list of recommended director candidates or supervisor candidates according to the number of persons to be elected, and submit the same to the Board of Directors or the Supervisory Committee, as the case may be, for review; once the Board of Directors or the Supervisory Committee has conducted its review and adopted a resolution determining the director or supervisor candidates, it shall submit a written proposal to the general meeting;
(iii) the nomination of independent directors shall be carried out in accordance with a special policy established by the Company for the independent directors;
(iv) the written notices of the intention to nominate director or supervisor candidates and of the nominees indicating their willingness to accept the nomination as well as relevant written documents on the nominees shall be dispatched to the Company at least 7 days before the date of the general meeting; the Board of Directors or the Supervisory Committee shall provide the shareholders with the resume and basic particulars of the director or supervisor candidates;
(v) the period given by the Company to the nominators and candidates to submit the aforementioned notices and documents shall not be less than 7 days, which shall commence from the day immediately following the date of issuance of the notice of the general meeting;
(vi) Except voting by the cumulative voting system, each of the director or supervisor candidates shall be voted one by one at the general meeting;
(vii) Addition or replacement of directors or supervisors at a short notice shall be proposed by the Board of Directors or the Supervisory Committee to the general meeting for election or replacement.

Article 47 When a vote is cast, it may only be cast either in person, online or by other voting methods. If one vote is cast by more than one method, the first vote shall prevail.

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Article 48 The shareholders present at a general meeting shall express one of the following opinions on a proposal to be voted on: being in favor of, being against or abstaining from voting except that securities registration and settlement institutions, being the nominal holders of shares that can be traded through the Mainland and Hong Kong stock connecting mechanism, may express opinions according to the intentions of actual holders.

If a ballot is blank, marked erroneously, illegible or has not been cast, the voter shall be deemed to have waived his or her right to vote and the voting results for the number of shares that he or she holds shall be recorded as “abstained”.

Article 49 Before a proposal is voted at the general meeting, two shareholder representatives shall be elected to participate in the vote counting and vote scrutiny. When a shareholder has interests in a matter being considered, he or she and his or her proxies may not participate in the vote counting or vote scrutiny.

When a proposal is being voted at the general meeting the attorney, shareholders’ representatives and supervisors’ representatives shall be jointly responsible for counting the votes and scrutinizing the vote count.

Shareholders or their proxies who cast their votes online or by other means shall have the right to check the results of their votes through the respective voting system.

Article 50 The general meeting held on site shall not end earlier than that held online or by other means. The chairman of the general meeting shall announce the results of the vote on each proposal and announce whether each proposal has been passed based on the results of the votes.

Before a formal announcement of the voting results is made, relevant parties such as the Company, the vote counters, scrutineers, major shareholders, etc., involved in voting at the general meeting on site, online or by other means shall be bound by the obligation of confidentiality in respect of the voting.

Article 51 The resolutions of the general meeting shall be promptly announced. The announcement shall set out the number of shareholders and proxies present at the meeting, the total number of voting shares held by those shareholders and the percentage of the Company’s total number of voting shares accounted for by those shares, the voting method and the result of the vote on each proposal, and particulars of each resolution passed.

If the Company issues domestic listed foreign shares, the attendance by the holders of domestic shares and holders of foreign shares and how they voted shall be accounted for separately and published in the announcement.

Article 52 If a proposal is not passed or if the general meeting modifies a resolution from the previous general meeting, the same shall be specifically mentioned in the announcement of the resolutions of the general meeting.

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Article 53 The Secretary to the Board shall be responsible for the recording the minutes for the general meeting. The meeting minutes shall record the following particulars:

(i) the date, venue and agenda of the meeting and the name of the convener;
(ii) the names of the chairman of the meeting, the Directors, Supervisors, the president and other senior officers in attendance or present in a non-voting capacity;
(iii) number of shareholders and proxies present at the meeting, number of shares carrying voting rights held by them and the percentage of such shares in the total shares of the Company;
(iv) the process of considering each proposal, key points of remakes and voting results for each proposal;
(v) the queries and suggestions of the shareholders and the relevant replies or explanations;
(vi) the names of the attorney, vote counter and scrutineer; and
(vii) other particulars which are required by the Articles of Association to be recorded in the minutes.

The Directors and Secretary to the Board who attended the meeting, the convener or his/her representative and the chairman of the meeting shall sign the minutes and shall ensure that the meeting minutes are true, accurate and complete. The meeting minutes shall be kept together with the signature book of the shareholders present at the general meeting in person, the instruments of appointment of proxies and valid information on votes cast online or by other means for a period of not less than 10 years.

Article 54 The convener shall ensure that the general meeting continues until the final resolution has been adopted. If a general meeting is suspended or if it is unable to reach a resolution due to force majeure or other special reasons, necessary measures shall be taken to resume the general meeting as soon as possible or the general meeting shall be adjourned, and the same shall be announced in a timely manner. Additionally, the convener shall report the same to the branch office of the CSRC and SSE.

Article 55 Votes on each matter proposed to be considered at the general meeting shall be counted on the spot and the voting result shall be announced on the spot as well.

If the chairman of the meeting has any doubts concerning the result of the vote on any resolution, he or she may organize a re-counting of the number of votes cast. If the chairman of the meeting does not conduct a recount of the votes and a shareholder or proxy present at the meeting challenges the result of a vote announced by the chairman of the meeting, he or she has the right to demand a vote re-counting immediately following the announcement of the result, in which case the chairman of the meeting shall promptly conduct a re-counting of the votes.

Article 56 If a vote re-counting is conducted at a general meeting, the result thereof shall be recorded in the meeting minutes.

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The meeting minutes together with the signature book of shareholders present at the meeting and the instruments of appointment of proxies shall be kept at the Company’s domicile.

Article 57 If a proposal on the election of a director or supervisor is passed at a general meeting, the new director or supervisor shall be appointed based on the Articles of Association.

Article 58 If a proposal on the distribution of a cash dividend or bonus shares or the conversion of the capital reserve into share capital is passed at a general meeting, the Company shall implement the specific plan within 2 months after the conclusion of the general meeting.

Article 59 If any resolution of the general meeting violates the laws or administrative regulations, such resolution shall be invalid.

If the convening procedures and voting means of the general meeting violate the laws, administrative regulations or the Articles of Association, or the resolutions violate the Articles of Association, the shareholders may petition to the people’s court to rescind the resolutions within 60 days after the resolutions are made.

The controlling shareholder(s) and de facto controller(s) of the Company should not cause any restriction or obstruction on the exercise of the voting rights of small and medium investors in accordance with laws and should not infringe the legal rights of the Company and small and medium investors.

Article 60 Shareholders may examine photocopies of the meeting minutes during the Company’s office hours without charge. If any shareholder demands the Company for a photocopy of relevant meeting minutes, the Company shall send such photocopies within 7 days after receiving payment of reasonable charges.

Chapter 5 Special Voting Procedures for Class Shareholders

Article 61 Shareholders who hold different classes of shares shall be class shareholders.

Class shareholders shall enjoy rights and bear obligations in accordance with laws, administrative regulations and the Articles of Association.

In addition to the holders of other classes of shares, holders of domestic shares and holders of overseas listed foreign shares shall be deemed to be different classes of shareholders.

Article 62 If the Company intends to alter or abrogate rights of class shareholders, it may do so only after such alteration or abrogation has been approved by way of a special resolution of the general meeting and by a separate class shareholders’ meeting convened by the affected class shareholders in accordance with Articles 134 to 136 of the Articles of Association.

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Article 63 Rights of shareholders of a certain class shall be deemed to be altered or abrogated under the following circumstances:

(i) increase or decrease of the number of shares of such class, or increase or decrease of the number of shares of a class having the same or more voting rights, distribution rights or other privileges as such class of shares;
(ii) conversion of all or part of the shares of such class into shares of another class, or the conversion of all or part of the shares of another class into shares of such class or the grant of the right to such conversion;
(iii) removal or reduction of rights to accrued dividends or cumulative dividends attached to shares of such class;
(iv) reduction or removal of a dividend preference, or a property distribution preference during liquidation of the Company attached to shares of such class;
(v) addition, removal or reduction of share conversion rights, options, voting rights, transfer rights, preemptive rights or rights to acquire securities of the Company attached to shares of such class;
(vi) removal or reduction of rights to receive amounts payable by the Company in particular currencies attached to shares of such class;
(vii) creation of a new class of shares having the same or more voting rights, distribution rights or other privileges as such class of shares;
(viii) imposition of restrictions or addition of restrictions on the transfer or ownership of shares of such class;
(ix) issuance of rights to subscribe for, or convert into, shares of such class or another class;
(x) increase of the rights and privileges of shares of another class;
(xi) restructuring of the Company which would cause shareholders of different classes to bear disproportionate liabilities under the restructuring;
(xii) amendment or deletion of the provisions of this Chapter.

Article 64 Shareholders of the affected class, whether or not otherwise having the right to vote at general meetings, shall have right to vote at class shareholders’ meetings in respect of any of the matters referred to in items (ii) to (viii) and items (xi) to (xii) of Article 63, except that interested shareholders shall not have the right to vote at class shareholders’ meeting.

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For the purposes of the preceding paragraph, the term “interested shareholders” shall have the following meanings:

(i) if the Company is to issue a buyback offer to all of the shareholders in the same proportion or is to buy back its own shares through open transactions on a stock exchange in accordance with Article 36 of the Articles of Association, the controlling shareholder as defined in Article 64 of the Articles of Association shall be an “interested shareholder”;
(ii) if the Company is to buy back its own shares by agreements outside a stock exchange in accordance with Article 36 of the Articles of Association, holders of shares to which such agreements relate shall be “interested shareholders”;
(iii) shareholders who, under a proposed restructuring of the Company, would bear liabilities in a proportion smaller than that of the liabilities borne by other shareholders of the same class, or shareholders that have an interest in a proposed restructuring of the Company that is different from the interest in such proposed restructuring of other shareholders of the same class, shall be “interested shareholders”.

Article 65 Resolutions of a class shareholders’ meeting may be passed only by two-thirds or more of the equity interests carrying voting rights that are represented at the meeting.

Article 66 When the Company is to hold a class shareholders’ meeting, it shall issue a written notice 45 days (inclusive of the date of the meeting) prior to the meeting informing all the registered shareholders of that class of the matters to be considered and the date and place of the meeting. Shareholders who intend to attend the meeting shall, within 20 days prior to the meeting, serve a written reply on the Company stating that they will attend the meeting.

If the number of shares carrying the right to vote at the meeting represented by the shareholders intending to attend the meeting is more than half of the total number of shares of that class carrying the right to vote at the meeting, the Company may hold the class shareholders’ meeting. If not, the Company shall, within 5 days, inform the shareholders again of the matters to be considered and the date and place of the meeting in the form of a public announcement. After such announcement is made, the Company may hold the class shareholders’ meeting.

Article 67 If a class shareholders’ meeting is to be called by issuance of a meeting notice, notice of such meeting need to be delivered only to the shareholders entitled to vote thereat.

The procedures according to which class shareholders’ meetings are held shall, to the extent possible, be identical to the procedures according to which general meetings are held. Provisions of the Articles of Association relevant to procedures for the holding of general meetings shall be applicable to class shareholders’ meetings.

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Article 68 Shareholders shall request the convening of a class shareholders’ meeting by the procedures set forth below:

(i) two or more shareholders holding in aggregate at least 10 percent of the shares carrying the right to vote at the meeting sought to be held may sign one or more written requests in the same form requesting that the Board of Directors convene a class shareholders’ meeting and stating the subject to be discussed at the meeting; the Board of Directors shall convene the class shareholders’ meeting as soon as possible after receiving the aforementioned written request; the shareholding referred to above shall be calculated as of the day on which the written request is made;
(ii) if the Board of Directors fails to issue a notice to convene such meeting within 30 days after receiving the aforementioned written request, the shareholders who makes such request may themselves convene the meeting within four months after the Board of Directors receives the request. The procedures according to which they convene such meeting shall, to the extent possible, be identical to the procedures according to which shareholders’ meetings are convened by the Board of Directors.

If shareholders convene and hold a meeting themselves because the Board of Directors fails to hold such meeting pursuant to a request as mentioned above, the reasonable expenses incurred by such shareholders shall be borne by the Company and shall be deducted from the sums owed by the Company to the negligent Directors.

Article 69 In addition to the holders of other classes of shares, holders of domestic shares and holders of overseas listed foreign shares shall be deemed as different classes of shareholders.

The special voting procedures for class shareholders shall not apply in the following circumstances:

(i) where, as approved by way of a special resolution of the general meeting, the Company issues, either separately or concurrently, domestic shares and overseas listed foreign shares every 12 months, and the number of domestic shares and overseas listed foreign shares intended to be issued does not exceed 20 percent of the outstanding shares of the respective classes; or
(ii) where the plan for the issuance of domestic shares and overseas listed foreign shares upon the establishment of the Company is completed within 15 months from the date of approval by the CSRC.

Chapter 6 Supplementary Provisions

Article 70 The “announcement” or “notice” mentioned in these Rules refer to relevant information disclosed or published on the newspaper or other media designated in accordance with the provisions of the listing rules of the place where the Company’s shares are listed.

Article 71 The terms “at least” and “within” in these Rules shall include the number itself, while “exceeding”, “below” and “more than” shall not.

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Article 72 If provisions of these Rules conflict with the national laws, regulations and normative documents as amended, the said laws, regulations and normative documents shall prevail; and these Rules shall be amended in time and submitted by the Board of Directors for the consideration and approval of the general meeting.

Article 73 The right to interpret these Rules shall be vested in the Board of Directors.

Article 74 These Rules shall be adopted by the resolution passed at the general meeting and come into force as of the date when the Company’s A-shares are listed on SSE as an appendix to the Articles of Association.

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PROCEDURAL RULES FOR MEETINGS OF THE BOARD OF DIRECTORS OF SINOTRANS LIMITED

Chapter 1 General Provisions

Article 1 To guarantee the legal, independent, standard and effective exercise of the function and power of the Board of Directors of Sinotrans Limited (the “Company”), regulate the discussion methods and decision-making procedures of the Board of Directors, and ensure the work efficiency and scientific decision-making of the Board of Directors, the Rules of Procedures of the Board of Directors are formulated in accordance with the Company Law of the People’s Republic of China, Securities Law of the People’s Republic of China, Corporate Governance Standards for Listed Companies, Articles of Association of Sinotrans Limited (the “Articles of Association”) and other applicable laws, regulations, normative documents and rules of the stock exchange where the securities of the Company are listed, as well as the actual situation of the Company.

Article 2 The Board of Directors is the operation decision-making body of the Company and decides the important matters of the Company with the authority granted by the general meeting and the Articles of Association. It is responsible to the general meeting and shall report its performance to the general meeting.

Chapter 2 Composition of Board of Directors

Article 3 The Company has a Board of Directors composed of 11 directors, where the external directors (i.e., the directors not taking office in the Company) shall account for more than half of the total membership of the Board, and there shall be at least 3 independent directors which shall account for no less than one third of the total directors. The Board of Directors shall have one chairman and may have one vice chairman.

Article 4 The directors are elected and replaced by general meeting, with a term of office of 3 years. The directors may be reelected upon the expiry of his term of office. The chairman and vice chairman shall be elected and removed by more than half of all the directors. The chairman and vice chairman have a term of office of 3 years and can be reelected.

Article 5 If necessary, the Board of Directors may establish special committees such as Execution Committee, Audit Committee, Remuneration Committee, Nomination Committee and Strategy Committee, which shall be responsible to the Board. These special committees shall develop working rules, which shall take effect after being approved by the Board. The special committees consist of the directors nominated by the chairman of the Board and elected by the Board.

Chapter 3 Functions and Powers of Board of Directors

Article 6 The Board of Directors shall be responsible to the general meeting and exercise the following functions and powers:

(i) To convene the general meeting and report to the general meeting;
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(ii) To execute the resolutions of the general meeting;
(iii) To decide the operation plan and investment scheme of the Company;
(iv) To develop the annual financial budget plan and accounting plan of the Company;
(v) To develop the profit distribution scheme and loss recovery scheme of the Company;
(vi) To develop the registered capital increase or decrease plan and the schemes for the issuance of corporate bonds and other securities and listing of the Company;
(vii) To develop the plan for substantial acquisition, purchase of the Company’s shares or merger, division, dissolution or change of the form of the Company;
(viii) To decide such matters as external investment, acquisition and disposal of assets, asset mortgage, entrusted asset management and connected transactions within the authority granted by the general meeting;
(ix) To decide the setup of the internal management organization of the Company;
(x) To appoint or remove the president and secretary of the Board, appoint or remove the vice president, chief financial officer, and chief IT officer based on the nomination of the president, and decide their remuneration, reward and punishment issues;
(xi) To develop the basic management systems of the Company;
(xii) To develop the amendment scheme of the Articles of Association;
(xiii) To manage the information disclosure of the Company;
(xiv) To ask the general meeting to appoint or replace the accounting firm that provides auditing services for the Company;
(xv) To listen to the work report of the president and inspect the works of the president;
(xvi) Other functions and powers granted by the laws, administrative regulations, department rules, listing rules of the jurisdiction where the Company is listed, Articles of Association or the general meeting.

Article 7 The Board of Directors shall provide explanation on the financial reports of the Company to the general meeting for the non-standard audit opinions issued by the CPA.

Article 8 The Board of Directors shall follow strict review and decision-making procedures when deciding such important matters as external investment, acquisition and disposal of assets, asset mortgage and pledge, external guarantee, entrusted asset management and connected transactions. For important

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investment projects, the Board shall organize the relevant experts and professionals for review. For the matters that shall be considered at the general meeting according to the applicable laws and regulations or the governing rules at the jurisdiction where the Company is listed, the relevant matters shall be submitted to the general meeting for approval after being reviewed and approved by the Board of Directors.

Article 9 The chairman shall exercise the following functions and powers:

(i) To host the general meeting and convene and host the meeting of Board of Directors;
(ii) To supervise and inspect the implementation of the resolutions of the Board of Directors;
(iii) To sign the securities to be issued by the Company;
(iv) Other functions and powers granted by the Board of Directors.

Article 10 The vice chairman shall assist the chairman in his works. When the chairman cannot perform his duties or fails to perform his duties, the vice chairman shall perform the relevant duties. When the vice chairman cannot perform his duties or fails to perform his duties, the director jointly elected by more than half of the directors shall perform the relevant duties.

Chapter 4 Parliamentary Procedures of the Board of Directors

Article 11 The chairman shall be responsible for convening the meeting of Board of Directors and determining the meeting agenda, in order to ensure that all the applicable important issues are discussed at the meeting. The chairman can also authorize a designated director or secretary of the Board to determine the agenda for the meeting of the Board of Directors. Before determining the proposals, the chairman shall request for the opinions of the directors, president and other senior management when needed.

Article 12 The meeting of Board of Directors includes regular meeting and extraordinary meeting. The Board of Directors shall at least convene 2 meetings each year. The meeting of Board of Directors shall be convened by the chairman, and the notice shall be provided to all the directors and supervisors 10 days prior to the meeting date. In case of any urgent matters, upon the proposal by the chairman or by more than one-third of the directors or by the president, an extraordinary meeting of the Board may be held, notwithstanding the time limit set forth in the aforesaid notice of the meeting.

The Company shall deliver meeting materials to the directors as soon as possible before the meeting of the Board of Directors (in principle, 3 days before the meeting of the Board of Directors) so that the directors have sufficient time to review.

Article 13 If there exists one of the following circumstances, the chairman shall convene and host the extraordinary meeting of Board of Directors in 10 days after receiving the proposals:

(i) When proposed by the shareholders holding more than 10% of the voting shares;
(ii) When proposed by more than 1/3 of the directors;
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(iii) When proposed by the Supervisory Committee;
(iv) When considered necessary by the chairman;
(v) When proposed by the president;
(vi) Other circumstances set out in the applicable laws, administrative regulations and Articles of Association.

Article 14 When it is proposed to convene the extraordinary meeting of Board of Directors as stated in the previous paragraph, the written proposals signed by the proposers shall be submitted directly or through the secretary of the board to the chairman. The following matters shall be specified in the written proposal:

(i) The names of the proposers;
(ii) The grounds or objective facts on which the proposals are based;
(iii) The proposed time or time limit, place and method for the meeting;
(iv) The definite and specific proposals;
(v) The contact information of the proposers and the date of proposal.

The proposals shall involve the matters within the scope of authority of the Board of Directors specified in these Articles of Association, and be submitted together with the relevant documents. When the secretary of the board receives the aforesaid written proposals and relevant documents, he shall immediately forward them to the chairman. If the chairman considers that the proposal content is not clear or specific or the relevant documents are insufficient, he may ask the proposers to make modification or supplement.

Article 15 The meeting of Board of Directors shall be convened and hosted by the chairman. When the chairman cannot perform his duties or fails to perform his duties, the meeting shall be convened and hosted by the vice chairman. When the vice chairman cannot perform his duties or fails to perform his duties, the meeting shall be convened and hosted by the director jointly elected by more than half of the directors.

Article 16 The notice of the Board meeting shall be given in the following manner:

(i) if the date, the time and the venue of the regular meetings of the Board have been fixed by the Board in advance in accordance with the Articles of Association, no notice is required;
(ii) Where the Board of Directors does not make prior notice about the date and venue of the meeting, the chairman should notify the directors, supervisors, president and the secretary of the Board of the date and venue of the board meeting via telex, telegraph, fax, express mail service or registered mail or by person, unless otherwise specified in Article 12 herein.
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(iii) Where the circumstance is urgent and it is necessary to hold an extraordinary meeting of the Board of Directors, the notice of the meeting may be circulated at any time by phone or any other oral means, but the convener shall make explanations at the meeting and relevant matters shall be recorded in the minutes of the meeting.
Article 17 The notice of meeting of Board of Directors shall at least include the following contents:
(i) The meeting date and place;
(ii) The manner of convening the meeting;
(iii) The meeting period;
(iv) The purpose and issues of the meeting;
(v) The date of notice of the meeting, contact person and contact information.

The oral meeting notice shall at least contain the contents of the above items (1) and (2), and the explanation that the extraordinary meeting shall be convened as soon as possible because of emergency situation.

For all material issues that shall be decided by the Board of Directors, the notice shall be given to all the executive directors and external directors within the specified time, sufficient information shall be provided, and the specified procedures shall be strictly followed. The directors may require for supplementary materials. When more than 1/4 of the directors or more than 2 external directors consider that the information is insufficient or the argument is unclear, they can jointly propose to suspend the meeting of Board of Directors or to suspend part of the issues to be discussed at the meeting, and the Board of Directors shall accept their proposal. The directors proposing to suspend the voting shall provide clear requirements on the conditions that the relevant proposal shall meet when re-submitted.

Article 18 If it is necessary to change the meeting time and place or add, change or cancel the meeting proposals after the written meeting notice for the regular meeting of Board of Directors is sent, a written notice of the change shall be provided 3 days prior to the original meeting date to specify the relevant situation and the contents and materials of the new proposals. If the remaining time is less than 3 days, the meeting shall be postponed, or held as scheduled after obtaining the approval by all the attending directors. If it is necessary to change the meeting time and place, or add, change or cancel the meeting proposals, after the written meeting notice for the extraordinary meeting of Board of Directors is sent, the prior approval by all the attending directors shall be obtained, and the corresponding record shall be made.

Article 19 The meeting of Board of Directors shall only be held until more than half of the directors (including the directors who entrust other directors through written proxy to attend on their behalf) are present. If a quorum is not constituted to hold the meeting because the relevant directors refuse or fail to attend the meeting, the chairman and the secretary of the board shall report to the supervisory department in time.

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The supervisors may be present at the meeting of Board of Directors. The president or secretary of the board who does not serve as a director shall be present at the board meeting. When the meeting chairman considers necessary, he may notify other relevant personnel to be present at the board meeting.

Article 20 The directors shall attend the meeting of Board of Directors in person. If the director cannot attend the meeting for any reason, he shall review the meeting documents and form clear opinions, and entrust other directors through written proxy to attend on his behalf. The proxy shall contain:

(i) The names of the principal and trustee;
(ii) The brief opinion of the principal on each proposal;
(iii) The authority granted by the principal, the validity period of the authorization, and the instruction for the voting on the proposals;
(iv) The signature of the principal and the date.

The entrusted director shall exercise the rights of the director on whose behalf he attends the meeting within the scope of authority. The entrusted director shall submit the written proxy to the meeting chairman, describe the entrusted attendance on the meeting attendance book, and exercise the rights of the director on whose behalf he attends the meeting within the scope of authority. If a director fails to attend a meeting of Board of Directors nor entrusts any agent to attend, he is deemed to give up the voting right at the meeting.

Article 21 The following principles shall be adhered to for the attendance of board meeting by proxy:

(i) When related party transactions are considered, the affiliated director shall not entrust the unaffiliated director to attend the meeting or attend the meeting on behalf of the unaffiliated director; and the unaffiliated director shall not accept the delegation of the affiliated director;
(ii) The independent director shall not entrust any director other than the independent director to attend the meeting on his behalf, and any director other than the independent director shall not accept the delegation of the independent director;
(iii) The director shall not entrust other directors to attend the meeting on his behalf through carte blanche without specifying his opinion and voting intention on the proposals, and the relevant director shall not accept the delegation without clear scope of authority or through carte blanche;
(iv) A director shall not accept the delegation of more than 2 directors, and any director shall not entrust the director who has accepted the delegation of two directors to attend the meeting on his behalf.

Article 22 In principle, the meeting of Board of Directors shall be held on site. However, when necessary, under the premise that the opportunity for the director to fully express his opinion is guaranteed, the meeting can also be held by means of videoconference, teleconference and communication voting (the

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voting statement signed by the director and the votes shall be delivered within specified time through fax, mail and email) when approved by the convener (host) and proposer. The meeting of Board of Directors may also be held in the combination of onsite meeting and other means. For the meetings held through videoconference or teleconference, the number of directors attending the meeting shall be counted based on the number of directors present as displayed in the video or the number of directors expressing opinions in case of teleconference. For the meeting held by means of communication voting, the number of directors attending the meeting shall be counted based on the number of valid votes actually received.

Article 23 The chairman of the meeting shall ask the directors attending the meeting of Board of Directors to express clear opinions on each proposal. For the proposals that shall be approved by independent directors in advance according to the applicable regulations, the chairman of the meeting shall designate an independent director to read out the written approval opinions of the independent directors before the relevant proposals are discussed. If a director makes repetitive speech for the same proposal, or the speech exceeds the scope of proposal, to the effect that the speech of other directors or the normal proceeding of the meeting is adversely affected, the chairman of the meeting shall promptly stop it.

Unless having obtained unanimous consent of all the attending directors, the meeting of Board of Directors shall not vote on the proposals not included in the meeting notice. The director attending the meeting on behalf of other directors shall not vote on the proposal not included in the meeting notice on behalf of the other director.

Article 24 The directors shall carefully read the relevant meeting documents and express opinions independently and prudently on the basis of being fully informed. The directors may request any information necessary for decision-making from the relevant persons and institutions, such as the secretary of the board, meeting convener, president, other senior management, each of the special committees, accounting firm and law firm, before the meeting, or suggest the chairman of the meeting at the meeting to ask the representatives of the aforesaid persons and institutions present at the meeting to explain the relevant circumstances.

The functional departments of the Company are obliged to provide information and materials for the decision-making of the Board of Directors. The functional departments providing the information and materials and the relevant persons shall be liable for the authenticity, accuracy and completeness of the internal information from the Company and can be objectively described. The reliability of the information and materials from outside the Company shall be evaluated before they were provided to the Board of Directors for decision-making reference, and relevant explanation shall be provided to the Board.

Article 25 Each Director shall have one vote. The Board may pass resolutions only with more than half of the votes of all the shareholders attended in the meeting unless otherwise provided in the Articles of Association. Where the number of votes cast for and against a resolution is equal, the chairman of the Board of Directors shall have a casting vote.

Article 26 When each proposal has been subject to full discussion, the chairman of the meeting shall remind the attending directors to vote in due course. Each director has a vote for each matter decided by the Board of Directors, which can be made by means of disclosed ballot or written ballot. The voting intentions of the directors include agreement, disagreement and abstention. The attending directors shall select one of

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these intentions. If he fails to make selection or select 2 or more intentions, the meeting chairman shall ask the relevant director to reselect; if he refuses, he is deemed to abstain. Any director who does not make selection because he walked out of meeting and did not return is deemed to abstain.

Article 27 If any director needs to withdraw from voting because he is affiliated with the enterprise involved in the proposal discussed at the meeting of Board of Directors or for compliance with the listing rules of the stock exchange where the securities of the Company are listed, the director shall not exercise the voting right on the relevant proposal or exercise the voting right on behalf of other directors and the Board of Directors may not resolve matters by way of written resolution in lieu of the convening of a Board meeting.

The meetings of the Board of Directors may be convened with the attendances of more than half of the unaffiliated directors, and the formed resolutions shall be passed by unaffiliated directors. If the unaffiliated directors attending the meeting are less than three (3), such matters shall be submitted to the general meeting for consideration.

“Unaffiliated directors” refers to directors other than affiliated directors, and “affiliated directors” are determined according to the listing rules of the relevant listed stock exchange. If there is any conflict, the stricter provisions shall prevail.

Article 28 The Board of Directors shall act strictly according to the authorization by the general meeting and Articles of Association, and shall not make a resolution beyond its authority.

Article 29 When the Board of Directors needs to make a resolution on the profit distribution scheme of the Company, it may first notify the CPA of the distribution plan submitted to the Board, and ask the CPA to issue the draft audit report based on the distribution plan (provided that all the financial information except for those involved in distribution are determined). After the Board makes a resolution on the profit distribution scheme, it shall submit to the general meeting for consideration and ask the CPA to issue the official audit report, and then the Board shall make a resolution on other relevant matters in the periodic reports according to the official audit report issued by the CPA.

Article 30 When the attending directors finish their voting, the secretary of the board shall collect the votes of the directors in time and count the votes under the supervision of a supervisor or an independent director.

The chairman of the meeting shall declare on the spot the counting result for the onsite meeting. Otherwise, the chairman of the meeting shall notify the voting result to the directors on the next business day upon expiry of the specified voting time limit for. The votes made by the directors after the chairman of the meeting declares the voting result or after the expiry of the specified voting time limit shall not be counted.

Article 31 If there exists conflict between different resolutions in terms of contents and implications, the resolution formed in later time shall prevail.

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Article 32 If the proposal is not approved, proposals with the same contents shall not be considered at the meeting of Board of Directors within 1 month provided that there is no material change to the relevant conditions and factors.

Article 33 The meeting of Board of Directors held on site and electronically may be subject to audiorecording in the whole process when necessary.

Article 34 The Board of Directors shall record in Chinese the decisions on the matters discussed at the board meeting or the board meeting held without the convening process and prepare the meeting minutes. The opinions expressed by the independent directors shall be listed in the resolution of the Board of Directors. The meeting minutes of each board meeting shall be provided to all the directors for review as soon as possible. The director who intends to revise and supplement to the minutes shall provide the written report on revision to the chairman within 1 week after receiving the meeting minutes. When the meeting minutes is finalized, the attending directors and recorder shall sign on the meeting minutes. The meeting minutes shall be maintained at the domicile of the Company in PRC, and the complete copy shall be sent to each director as soon as possible.

(i) The meeting session, holding time, place and model;
(ii) The delivery status of the meeting notice;
(iii) The meeting convener and moderator;
(iv) The names of the attending directors and the names of the directors (agents) attending the meeting on behalf of other directors;
(v) The meeting agenda;
(vi) The proposals to be considered at the meeting, speech key points and opinions of the directors;
(vii) The voting method and result of each proposed resolution (the number of affirmative votes, negative votes or abstentions shall be specified in the voting result);
(viii) Other matters that should be recorded, as specified by the attending directors.

Article 35 In addition to the meeting minutes, the secretary of the board may also arrange a personnel to make brief and concise summary of the meeting convened when necessary, and make the separate resolution record for the resolutions made at the meeting according to the voting result.

Article 36 The attending directors or the directors attending the meeting on behalf of others shall sign on the meeting minutes and the resolution record for confirmation. In case any director has different opinions on the meeting minutes and the resolution record, he may make the written statement at the time of execution, or report to the regulatory authority or make a public statement when necessary. If the director

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neither signs on the meeting minutes and the resolution record, nor provides the written statement or report to the regulatory authority or make a public statement on his different opinions as required above, he is deemed to completely agree to the contents of the meeting minutes and the resolution record.

Article 37 The directors shall be liable for the resolutions of the meeting of the Board of Directors. In case the resolutions of the meeting of the Board of Directors breach the laws, administrative regulations or Articles of Association and cause severe loss to the Company, the directors participating in the resolution shall be liable for indemnifying the Company, provided that the director who has raised objection upon voting, as indicated by the meeting minutes, shall be released from the relevant liability.

Article 38 The publication of the resolutions of the Board of Directors shall be processed by the secretary of the board according to the relevant rules of the stock exchange where the shares of the Company are listed. The attending directors, meeting attendees, person taking minutes and service providers shall have the obligation to keep confidential of the resolutions before they are publicized and disclosed.

Article 39 The chairman shall supervise and urge the relevant persons to implement the resolutions of the Board of Directors, inspect the resolution implementation, and report the resolution implementation status at the subsequent board meeting.

Article 40 The board meeting archives, including the meeting notices and meeting materials, meeting attendance book, proxy forms for attendance, audio-records of the meeting, votes, meeting minutes, meeting summaries, resolution records and resolution announcements signed by the attending directors shall be maintained by the secretary of the board. The meeting minutes of the Board of Directors shall be maintained as the Company archive for a period no less than 10 years.

Chapter 5 Supplementary Provisions

Article 41 Unless otherwise specified, the terms used in the Rules shall have the same meaning assigned to such terms in the Articles of Association.

Article 42 The Rules have been approved by the general meeting resolution and shall take effect as the attachment to the Articles of Association on the date when the A-shares of the Company are listed on Shanghai Stock Exchange.

Article 43 The Rules shall be interpreted by the Board of Directors.

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PROCEDURAL RULES FOR MEETINGS OF THE BOARD OF SUPERVISORS OF SINOTRANS LIMITED

Chapter 1 General Provisions

Article 1 To further regulate the discussion methods and voting procedures of the Supervisory Committee of Sinotrans Limited (the “Company”), enable the supervisors and the Supervisory committee to effectively perform the supervisory duties and improve the corporate governance structure of the Company, the Rules of Procedures for the Supervisory Committee are formulated in accordance with the Company Law of the People’s Republic of China (the “Company Law”), Guidelines on Articles of Association of Listed Companies, Corporate Governance Standards for Listed Companies, Articles of Association of Sinotrans Limited (“the Articles of Association”) and rules of the stock exchange where the securities of the Company are listed.

Article 2 The Supervisory Committee shall be responsible to the general meeting. It is a permanent supervisory body of the Company, responsible for supervising the Board of Directors and its members, the president, deputy president, chief financial officer, secretary of the Board, chief IT officer and other senior management, in order to prevent them from abusing their power and infringing the legal rights and interests of the shareholders, the Company and the employees, and to maintain the legal rights and interests of the Company and shareholders.

Article 3 The Company shall take measures to protect the supervisors’ right to know, and provide necessary information and documents to the supervisors in time, in order to facilitate the effective supervision, inspection and evaluation on the financial position and operation management of the Company by the Supervisory Committee.

The senior management of the Company shall report the information to Supervisory Committee as required by the Supervisory Committee, such as the signing and execution of material contracts, use of capital and profit and loss status. The senior management shall ensure the authenticity and completeness of the relevant information.

Chapter 2 Composition and Function and Power of Supervisory Committee

Article 4 The Supervisory Committee consists of 5 supervisors, including 1 shareholder representative, 2 employee representatives and 2 independent supervisors. The employee representatives shall account for more than 1/3 of the total number of supervisors, and the external supervisors (referred to the supervisors who do not take office in the Company, including independent supervisors) shall account for more than 1/2 of the total number of supervisors.

Article 5 The supervisors other than the employee representatives shall be elected and removed by the general meeting. The employee representatives in the Supervisory Committee shall be elected and removed by the congress of workers and staff, staff meeting and other forms of democratic election.

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The supervisors have a term of office of 3 years and can be reelected upon the expiry of the term. In case new supervisors are not elected in time upon the expiry of the term of the supervisors, or any supervisor resigns during his term, and as a result, the number of the members of the Supervisory Committee is less than the quorum, before the new supervisors take office, the former supervisors shall continue to perform the duties of supervisors according to the applicable laws, administrative regulations and the Articles of Association.

Article 6 The Supervisory Committee is responsible to the general meeting and exercises the following functions and powers according to law:

(i) To review the periodical report of the Company prepared by the Board of Directors and provide written review opinions;
(ii) To check the financial affairs of the Company;
(iii) To supervise the performance of duties by the directors and senior executives, and make proposal to remove the director or senior executive who has breached the laws, administrative regulations, the Articles of Association and the resolutions of the general meeting;
(iv) To ask the director, president and other senior executives of the Company to make correction if their behaviors damage the interests of the Company;
(v) To make investigations when detecting any abnormality in the operation of the Company or having doubt on the financial information submitted by the Board of Directors to the general meeting (such as the financial report, business report and profit distribution plan), and engage when necessary professional institutions (such as accounting firm and law firm) to assist in its works at the expense of the Company;
(vi) To propose to convene the extraordinary general meeting, and convene and hold the general meeting when the Board of Directors fails to perform the duty of convening and hosting the general meeting set out in the Company Law;
(vii) To negotiate with or sue the directors on behalf of the Company; and to bring litigation against the directors and senior executives according to Article 151 of the Company Law;
(viii) To make proposal to the general meeting;
(ix) Other functions and powers set out in the Articles of Association.

Article 7 The Supervisory Committee shall report its work performance concerning the Company in the past year at the annual general meeting, including:

(i) The inspection on the finance of the Company;
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(ii) The implementation of the relevant laws, regulations, Articles of Association and resolutions of the general meeting by the directors and senior management of the Company;
(iii) The appraisal of the Supervisory Committee on the integrity and diligence of the directors and senior management in performing their duties;
(iv) Other important events that the Supervisory Committee considers necessary to report to the general meeting.

The Supervisory Committee may express opinions on the proposals considered by the general meeting and submit an independent report when necessary.

Article 8 The Supervisory Committee has 1 chairman. The appointment and removal of the chairman of the Supervisory Committee shall be voting through by more than 2/3 of the members of the Supervisory Committee.

Article 9 The chairman of the Supervisory Committee exercises the following functions and powers:

(i) To convene and host the meeting of the Supervisory Committee;
(ii) To arrange duties in relation to the running of the Supervisory Committee;
(iii) To review and sign the report of the Supervisory Committee and other important documents;
(iv) To report works to the general meeting on behalf of the Supervisory Committee;
(v) Other duties that should be performed according to the laws, regulations and Articles of Association.

When the chairman of the Supervisory Committee cannot or fails to perform his duty for any reason, more than half of the supervisors shall jointly elect a supervisor to perform the relevant duty.

Article 10 When performing its duty of supervision, the Supervisory Committee may report to the Board of Directors and general meeting, or directly to the securities regulatory body under the State Council and other relevant authorities, any violations of laws and regulations in the finance of the Company and the misconduct of the directors and senior management which breaches the laws, regulations and Articles of Association.

Article 11 The Supervisory Committee may establish the executive office to handle the daily affairs of the Supervisory Committee according to business needs.

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Chapter 3 Meeting System of Supervisory Committee

Article 12 The meeting of Supervisory Committee includes ordinary meeting and extraordinary meeting. The Supervisory Committee shall convene an ordinary meeting at least once for the first half and second half of the year, which shall be convened by the chairman of the Supervisory Committee. The supervisors may also propose to convene the extraordinary meeting of the Supervisory Committee.

Article 13 The onsite meeting of the Supervisory Committee (including the videoconference) may adopt such voting models as vote by a show of hands or disclosed ballot. If any supervisor attends the onsite meeting through teleconference or other similar communication devices, as long as the onsite attending supervisors can hear and communicate with him, all the attending supervisors shall be deemed to attend the meeting in person.

Under the premise that each supervisor has the opportunity to fully express his opinion, the meeting of the Supervisory Committee may adopt communication voting and make a resolution, which shall be signed by the attending supervisors. The communication voting shall have the time limit for voting, and the supervisor who fails to express opinions within the time limit shall be deemed to abstain.

Article 14 The meeting of the Supervisory Committee shall not be held until more than half of the supervisors are present. If a quorum is not constituted to hold the meeting because the relevant supervisors refuse or fail to attend the meeting, other supervisors shall report to the supervisory department in time.

Article 15 The supervisors shall attend the meeting of the Supervisory Committee in person. If the supervisor cannot attend the meeting for any reason, he shall entrust other supervisors through the written proxy form to attend on his behalf. The proxy shall contain:

(i) The names of the principal and trustee;
(ii) The brief opinion of the principal on each proposal;
(iii) The authority granted by the principal, and the instruction for the voting on the proposals;
(iv) The validity period of the authorization;
(v) Whether the trustee has the voting right for the proposal not included in the meeting agenda of the Supervisory Committee, and if yes, the specific instructions for the exercise of the voting right;
(vi) The signature or stamp of the principal and the date.

The supervisor attending the meeting on behalf of other supervisors shall exercise the rights of supervisor within the scope of authority. If a supervisor fails to attend a meeting of the Supervisory Committee nor entrusts any agent to attend, he is deemed to give up the voting right at the meeting.

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Article 16 The supervisor shall not entrust other supervisors to attend the meeting on his behalf through carte blanche without specifying his opinion and voting intention on the proposals, and the relevant supervisor shall not accept the delegation without clear scope of authority or through carte blanche;

Article 17 Each supervisor shall only accept the delegation by one supervisor. Supervisors shall not entrust those supervisors who have accepted the delegation by other supervisors to attend the meeting on their behalf.

Chapter 4 Parliamentary Procedures of the Supervisory Committee

Article 18 The Supervisory Committee puts forward meeting proposals mainly based on the matters considered by the Board of Directors and the matters proposed by the supervisors. The chairman of the Supervisory Committee is responsible for gathering the matters considered by the Board of Directors and the matters proposed by the supervisors and deciding whether to submit to the Supervisory Committee for consideration.

Article 19 Supervisors who propose to convene the extraordinary meeting of the Supervisory Committee, shall submit a signed written proposal directly to the chairman of the Supervisory Committee. The following matters shall be specified in the written proposal:

(i) The names of the proposing supervisors;
(ii) The grounds or objective facts on which the proposals are based;
(iii) The proposed time or time limit, place and method for the meeting;
(iv) Clear and specific proposals;
(v) The contact information of the proposing supervisors and the date of proposal.

The executive office of the Supervisory Committee or the chairman of the Supervisory Committee shall issue the notice for convening the extraordinary meeting of the Supervisory Committee within 3 days after receiving the written proposals of the supervisors.

Article 20 To convene the ordinary meeting and extraordinary meeting of the Supervisory Committee, the Executive Office of the Supervisory Committee shall give a written meeting notice to all the supervisors through direct delivery, fax, email or other means 10 days and 5 days prior to the meeting date respectively. If it is not directly delivered, it shall also be confirmed through telephone and be recorded accordingly.

If the extraordinary meeting of the Supervisory Committee needs to be convened as soon as possible in case of emergency, a meeting notice can be provided via telephone or other oral means, provided that the convener shall make explanations at the meeting.

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Article 21 The meeting notice of the Supervisory Committee shall at least include the following contents:

(i) The meeting date, place and period;
(ii) The purpose and issues of the meeting;
(iii) The date of notice.

Article 22 In the period after the meeting notice is given and before the meeting is held, the chairman of the Supervisory Committee may organize the communication and contact with all the supervisors to obtain the opinions and suggestions of the supervisors on the relevant proposals, so as to improve the relevant proposals. The Supervisory Committee may ask the directors, senior management and other employees of the Company and the specialist of the relevant intermediary body to be present and consult the above parties when necessary.

Article 23 If it is necessary to change the meeting time and place or add, change or cancel the meeting proposals after the written meeting notice for the ordinary meeting of the Supervisory Committee is sent, a written notice of the change shall be provided 3 days prior to the original meeting date to specify the relevant situation and the contents and materials of the new proposals. If the remaining time is less than 3 days, the meeting shall be postponed, or held as scheduled after obtaining the approval of all the attending supervisors.

If it is necessary to change the meeting time and place or add, change or cancel the meeting proposals after the written meeting notice for the extraordinary meeting of the Supervisory Committee is sent, the prior approval of all the attending supervisors shall be obtained, and the corresponding record shall be made.

Article 24 The meeting of the Supervisory Committee shall be convened and hosted by the chairman of the Supervisory Committee. In case the chairman of the Supervisory Committee cannot or fails to perform his duty, the meeting shall be convened and hosted by the supervisor elected by more than half of the supervisors jointly.

Article 25 The chairman of the meeting shall declare the start of the meeting at the scheduled time. When the meeting has officially started, the attending supervisors shall firstly reach consensus on the agenda.

If more than half of the attending supervisors believe that any proposal is unclear and not specific or it is unable to make judgment on the relevant matters because the meeting materials are insufficient or due to other causes, they can jointly propose to suspend such proposal, and the chairman of the meeting shall accept their request. The supervisors who propose to suspend the meeting shall provide clear requirements on the conditions that the relevant proposal shall meet in the reconsideration.

Once the attending supervisors reach consensus on the agenda, each proposal shall be reviewed one by one under the guidance of the chairman of the meeting.

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Article 26 The chairman of the meeting shall ask the attending supervisors to provide clear opinions on each proposal. Unless obtaining unanimous consent of all the attending supervisors, the meeting of the Supervisory Committee shall not vote on the proposals not included in the meeting notice. The supervisor attending the meeting on behalf of other supervisors shall not vote on the proposal not included in the meeting notice on behalf of the other supervisors, unless it is otherwise specified in the power of attorney.

Article 27 When reviewing the relevant proposals and reports, the Supervisory Committee may ask the directors, senior executives and other employees of the Company or the specialist of the relevant intermediary body to attend the meeting, make necessary explanations on the relevant matters and answer the questions raised by the Supervisory Committee.

Article 28 The meeting of the Supervisory Committee adopts the voting system of one vote for one person, and the voting can be made by disclosed ballot or written ballot.

The voting intentions of the supervisors are dividend into for, against and abstain. The attending supervisors shall select one of these intentions. If he fails to make selection or select 2 or more intentions, the chairman of the meeting shall ask the relevant supervisor to reselect; if he refuses, he is deemed to abstain. Any supervisor who does not make selection because he walked out of meeting and did not return is deemed to abstain.

The resolution of the Supervisory Committee shall be voted through by more than 2/3 of the members of the Supervisory Committee.

Article 29 The Supervisory Committee shall act strictly according to the authorization by the general meeting and Articles of Association, and shall not make a resolution beyond its authority.

Article 30 When the attending supervisors finish their voting, the chairman of Supervisory Committee shall collect the votes of the supervisors in time and count the votes under the supervision of a supervisor.

The chairman of the meeting shall declare on the spot the counting result for the onsite meeting, otherwise, the chairman of the meeting shall notify the voting result to the supervisors on the next business day upon expiry of the specified voting time limit.

The votes made by the supervisors after the chairman has announced the voting result or after the expiry of the specified voting time limit shall not be counted.

Article 31 The whole process of the meeting of the Supervisory Committee may be recorded in audio when necessary.

Article 32 The person designated by the chairman of the Supervisory Committee shall prepare the meeting minutes for the onsite meeting. The meeting minutes shall include the following contents:

(i) The meeting session, holding time and place;
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(ii) The meeting convener and chairman;
(iii) The meeting attendance status;
(iv) The meeting agenda;
(v) The proposals to be considered at the meeting, speech key points and opinions of the supervisors;
(vi) The voting method and result of each proposed resolution (the number of affirmative votes, negative votes or abstentions shall be specified in the voting result);
(vii) Other matters that should be recorded, as specified by the attending supervisors.

For the meeting of the supervisory committee held by means of communication voting, the Executive Office of the Supervisory Committee or the chairman of the Supervisory Committee should sort out the meeting minutes as set forth above.

Article 33 The attending supervisors shall sign on the meeting minutes for confirmation. In case any supervisor has different opinions on the meeting minutes, he may make a written statement at the time of execution, or report to the regulatory authority or make a public statement when necessary.

If the supervisor neither signs on the meeting minutes, nor provides a written statement or report to the regulatory authority or make a public statement on his different opinions within the prescribed time, he is deemed to completely agree to the contents of the meeting minutes.

Article 34 The meeting minutes of the Supervisory Committee and the meeting notices, meeting materials, meeting attendance book, power of attorney for attendance, audio-records of the meeting, and votes shall be maintained at the executive office of the Supervisory Committee or by the chairman of the Supervisory Committee as the Company archive for a period no less than 10 years.

Chapter 5 Information Disclosure of Meeting of Supervisory Committee

Article 35 The Supervisory Committee shall strictly implement the regulations on information disclosure of the regulatory authority and the stock exchange in the jurisdiction where the shares of the Company are listed, and promptly and properly disclose the matters discussed at the meeting of the Supervisory Committee or the resolutions to be disclosed.

Article 36 The attendees shall keep confidential of the contents that should be kept confidential and shall be liable for any breach of this obligation.

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Chapter 6 Execution and Feedback of Resolutions of Supervisory Committee

Article 37 The supervisors shall supervise and urge the relevant personnel to implement the resolutions of the Supervisory Committee. The chairman of the Supervisory Committee shall report the implementation status of the resolutions at the subsequent meetings of the Supervisory Committee.

Article 38 The executive office of the Supervisory Committee, under the leadership of the Supervisory Committee and its chairman, shall actively collect the information on the execution of the relevant resolutions and report the important issues in the implementation to the Supervisory Committee and its chairman and provide suggestions in time.

Article 39 If the resolution of Supervisory Committee involves making proposal to convene the extraordinary meeting of Board of Directors or extraordinary general meeting, or submitting the proposal outside the agenda to the general meeting, it shall submit meeting topics and complete proposal in writing within the specified time to the Board of Directors, and ensure that the proposal content complies with the applicable laws, regulations and Articles of Association.

Chapter 7 Supplementary Provisions

Article 40 Unless otherwise specified, the terms used in the Rules shall have the same meaning assigned to such terms in the Articles of Association.

Article 41 The Rules have been approved by the general meeting resolution and shall take effect as the attachment to the Articles of Association on the date when the A-shares of the Company are listed on Shanghai Stock Exchange.

Article 42 The Rules shall be interpreted by the Supervisory Committee.

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APPENDIX VII

A WORKING MANUAL FOR THE INDEPENDENT DIRECTORS OF SINOTRANS LIMITED

Chapter 1 General Principles

Article 1 This Manual is hereby stipulated by Sinotrans Limited (hereinafter the “Company”) under the relevant provisions of the “Company Law of the People’s Republic of China” (hereinafter “Company Law”), “Establishment of Independent Director Systems by Listed Companies Guiding Opinion” (hereinafter “Guiding Opinion”), the “Code of Corporate Governance for Listed Companies in China”, the “Stock Listing Rules of the Shanghai Stock Exchange” (hereinafter “Shanghai Stock Exchange Rules”), “The Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited” (hereinafter “Listing Rules”) and the “articles of association of Sinotrans Limited” (hereinafter “articles of association”), with the purpose of further improving the governance structure of the Company, promoting the standardized operation of the Company and ensuring that independent directors perform their duties.

Article 2 Independent Directors means Directors who hold no position in the Company other than directorship and have no relationships with the Company or its major shareholders (meaning shareholders who individually or jointly hold more than 5% of the total number of shares with voting rights in the Company) that may affect his or her independent and objective judgment, and is in full compliance with the listing rules of the stock exchange local to the Company’s listing.

Article 3 Provisions of the articles of association concerning directors shall apply to Independent Directors unless otherwise stipulated in the articles of association or in this Manual.

Article 4 At least one-third of the members of the Company’s board of directors shall be Independent Directors and the number of Independent Directors shall be no less than three; otherwise the Company shall promptly make up the number of Independent Directors as required.

Article 5 At least one of the Independent Directors of the Company shall be an accounting professional, and whoever so nominated shall have extensive accounting knowledge and experience and meet at least one of the following requirements:

(1) With qualifications as a certified public accountant;
(2) With a senior title, associate professor title or doctorate in accounting, auditing or financial management;
(3) With a senior title in economic management and a minimum of five years’ full-time working experience in a professional position in accounting, auditing or financial management.

Article 6 Independent Directors of the Company, and persons with the intent to serve as independent directors, shall take training courses in accordance with the requirements of the China Securities Regulatory Commission that are organized by it and its authorized agencies.

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Chapter 2 Qualifications of Independent Directors

Article 7 Candidates for Independent Directors shall have fundamental knowledge of the operation of listed companies, be familiar with relevant laws, administrative regulations, department rules and other regulatory documents, have more than five years’ experience in legal, economics, finance, management areas or other working experience required to perform the duties of an independent director, and have obtained the Qualification Certificate of Independent Directors in accordance with the relevant provisions under the Guidelines on the Training of the Senior Management Personnel of Listed Companies issued by the China Securities Regulatory Commission.

If the Qualification Certificate of Independent Directors has not been obtained by the Independent Directors at the time of their nomination, such Independent Directors shall undertake in writing to take the next independent director qualification training course and obtain the aforesaid qualification certificate.

Article 8 Independent Directors appointed shall meet the following basic requirements:

(1) With the qualifications to be a director of a listed company in accordance with provisions of laws, administrative regulations and other relevant regulations;
(2) Being independent as required by the “Guiding Opinion”;
(3) With the basic knowledge of the operations of listed companies and familiarity with relevant laws, administrative regulations, rules and regulations;
(4) With a minimum of five years’ working experience in legal, economics areas, or other working experience required for performing the duties of independent director;
(5) With sufficient time and energy to effectively perform the duties of independent director;
(6) Other requirements provided in the articles of association.

Appointment qualifications of independent director candidates shall comply with the following laws, administrative regulations and departmental rules:

(1) Requirements in the Company Law for the qualifications of serving as a director;
(2) Requirements in the Civil Servant Law of the People’s Republic of China for civil servants holding concurrent posts;
(3) Requirements in the Notice on Regulating State Official’s Service as Independent Directors and Independent Supervisors of Listed Companies and Fund Management Companies after Resignation or Retirement issued by CPC Central Commission for Discipline Inspection and Organization Department of the CPC Central Committee;
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(4) Requirements in members of leader team of colleges and universities holding concurrent positions stipulated in the Opinions on Strengthening the Combat against Corruption and Promotion of Clean Conduct in Colleges and Universities issued by CPC Central Commission for Discipline Inspection, the Ministry of Education and the Ministry of Supervision;
(5) Requirements in other laws, administrative regulations and department rules.
Article 9 The following persons shall not serve as Independent Directors:
(1) the employees (other than independent directors) of the Company or its subsidiaries and their lineal relatives, major social connections (lineal relatives shall mean spouses, parents, children; major social connections refer to siblings, parents-in-law, daughtersin-law, sons-in-law, spouses of siblings, or siblings of spouses);
(2) Natural person Shareholders or their lineal relatives who directly or indirectly hold more than 1% of the Company’s issued shares, or are among the Company’s top ten shareholders;
(3) Persons or their lineal relatives who are employed by the corporate Shareholders that directly or indirectly hold more than 5% of the Company’s issued shares or the Company’s top five Corporate Shareholders;
(4) Persons who are employed by the Company’s actual controller or its subsidiaries;
(5) Persons who provide financial, legal, consulting, or other services to the Company and its controlling shareholders or their respective subsidiaries or their directors, supervisors, chief executives, substantial shareholders or any close associates of such persons. This includes all staff of the project teams of intermediaries that provide services, reviewers at all levels, personnel who sign reports, partners, principal persons in charge and directors;
(6) Persons who are employed as directors, supervisors or senior managers by entities that have substantial business relationships with the Company and the Company’s controlling shareholders or their respective subsidiaries, or by the controlling shareholders of such entities;
(7) Persons in any of the above six circumstances in the previous year;
(8) Other persons specified by the articles of association;
(9) Other persons identified by the China Securities Regulatory Commission and the stock exchanges on which the Company is listed.
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Independent director candidates shall not have the bad records as follows:

(1) Subjected to administrative penalties of the China Securities Regulatory Commission in the past three years;
(2) Within a period of time during which the stock exchange publicly recognized as being unfit to serve as a director of listed companies;
(3) Publicly condemned by the stock exchange or criticized twice or more in the past three years;
(4) Failure to attend board meetings twice consecutively while serving as an independent director, or failure to personally attend more than one-thirds of the total board meetings in one year;
(5) Expressed independent opinion that is apparently inconsistent with the facts while serving as an independent director.

Article 10 Independent Directors may only hold independent directorship with a maximum of five listed companies concurrently, and shall ensure the sufficient time and energy to perform his or her duties in an effective manner.

Chapter 3 Nomination, Election, Term and Replacement of Independent Directors

Article 11 The Company’s Board of Directors, Board of Supervisors or Shareholders individually or jointly hold more than 1% of the issued shares of the Company are entitled to nominate Independent Directors to be elected at the general meetings.

Nominator(s) of Independent Directors shall obtain the consent of the nominee prior to any nomination. The nominator shall fully understand the conditions of his or her nominee’s occupation, education, job position, detailed working experience, and all part-time jobs, and give an opinion on his or her nominee’s qualifications and independence for the position of Independent Directors. The nominee shall make a public declaration that no relationship affecting his or her independence and objective judgment exists between himself or herself and the Company.

Prior to convening the general meetings for the election of Independent Directors, the Company’s Board of Directors shall make an announcement regarding the above matters pursuant to the regulations.

Article 12 If the Company’s Board of Directors, Board of Supervisors, or a Corporate Shareholder entitled to nominate Independent Directors intend to nominate any Independent Director, the Company shall submit all relevant information of the Independent Director nominee to the stock exchange within two trading days from the date of the nomination pursuant to the relevant regulations of the stock exchange. In the event that the Board of Directors of the Company has any objection to

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the relevant information of the nominee, the written opinion of the Board of Directors shall be submitted together. Nominees objected by the stock exchange can be elected as Directors but may not be candidates for Independent Directors.

At the general meeting for the election of Independent Directors, the Board of Directors of the Company shall declare whether the Independent Director candidates have been objected by the stock exchange.

Article 13 The term of office of Independent Directors shall be the same as that of other Directors. Upon expiry of the term, the Independent Directors may be reelected for consecutive terms, provided that such terms in aggregate shall not exceed six years.

Article 14 If an Independent Director fails to attend the Board meeting in person for three consecutive times, the Board of Directors shall propose to replace such Independent Directors at the general meeting. Except for the above circumstances and the circumstances that a person cannot serve as a director under the Company Law, Independent Directors shall not be dismissed without cause before the expiration of his or her term(s) of office. In the event that an Independent Director is dismissed from office before such expiry, the Company shall disclose the same as a special matter for disclosure. If such dismissed Independent Director considers that the Company’s reasons for dismissal are improper, he or she may make a public declaration in respect thereof.

Article 15 Independent Directors may resign before the expiry of his or her term of office. Independent Director shall submit a written resignation report to the Board of Directors with an explanation on any circumstances relating to his or her resignation or what such Independent Directors considers to be necessary to draw to the attention of the Shareholders and the Company’s creditors.

In the event of failure to satisfy the qualification requirements for Independent Directors after assuming office, such Independent Directors shall resign within thirty days from the date of occurrence of such circumstances. If such resignation is not tendered as required, the Board of Directors shall start the decision-making process within two days to remove such Independent Directors from their duties as an independent director.

If the number of Independent Directors falls below three or the proportion of Independent Directors in members composition of the Board of Directors falls below one-thirds due to the resignation of the Independent Directors, the resigned Independent Director shall continue to perform his or her duties until new independent director is appointed. The nominee of such Independent Director or the Board of Directors shall nominate a new Independent Director within 90 days from the date of resignation of the aforesaid Independent Director.

Article 16 In the occurrence of failure to meet the independence requirement or otherwise unfit to perform the duties of Independent Directors, resulting in the Company’s independent directors fail to meet quorum of the Guidance Opinion and the Listing Rules, the Company shall

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make full the Independent Directors as required and notify the Shanghai Stock Exchange and the Hong Kong Stock Exchange at the same time, as well as making an announcement and engaging independent directors.

Chapter 4 Duties and Special Powers of Independent Directors and Important Matters for Expressing Independent Opinions

Article 17 Independent Directors shall attend Board meetings on time, understand the Company’s production operations and operating situations, and take the initiative to investigate and obtain information necessary for making decisions. Independent Directors shall report their performance of duties at the Company’s annual general meeting. In addition to the duties and powers granted by the Company Law and other relevant laws, regulations, and the articles of association, Independent Directors shall also have the following special powers:

(1) Material connected transactions shall, after being approved by the Independent Directors, be submitted to the Board of Directors for deliberation. Prior to Independent Directors form their judgment, intermediaries may be appointed to issue independent financial adviser reports as the basis for such judgment;
(2) Propose the appointment or dismissal of accounting firm to the Board of Directors;
(3) Request to the Board of Directors to convene extraordinary general meetings;
(4) Propose to convene Board meetings;
(5) Engage external auditor firms and consulting firms in an independent manner;
(6) Publicly solicit voting rights from Shareholders prior to a general meeting.

To exercise the above powers, Independent Directors shall obtain the consent of more than half of all Independent Directors. The Company shall bear the expenses incurred by an independent director in engaging intermediary parties and other expenses required to exercise his or her duties and responsibilities.

In the event that the above proposals are not adopted or the above powers cannot be exercised normally, the Company shall disclose the relevant circumstances.

Article 18 When the Board of Directors of the Company establishes Remuneration Committee, Audit Committee and Nomination Committee, etc., the Independent Directors shall represent more than half of the members of the aforesaid committee.

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Article 19 In addition to performing the above duties, the Independent Directors shall give independent opinions to the Board of Directors of the Company or general meetings in respect of the following matters:

(1) The nomination, appointment and dismissal of Directors;
(2) The appointment or dismissal of senior management personnel;
(3) The remuneration of Directors and senior management personnel of the Company;
(4) The borrowings or other fund transfers, existing or newly occurred, made between the Company and the Shareholders, actual controllers of the Company and their connected persons involving an aggregated amount of more than RMB3 million or more than 5% of the latest audited net asset value of the Company, and whether the Company has taken effective measures to recover the debts;
(5) Matters deemed by the Independent Directors as may damage the rights and interests of the medium and small Shareholders;
(6) Other matters provided in the articles of association and the listing rules of the stock exchange the Company is listed on.

The Board of Directors shall carefully conduct research and discussion about the timing, conditions, minimum ratio, adjustment conditions, and requirements for its decision-making procedures when formulating a specific cash dividend plan of the Company, and the Independent Directors shall express clear and express opinion on such plans. Independent Directors may solicit the opinions of medium and small Shareholders, propose dividend proposals, and submit such proposals directly to the Board of Directors for deliberation.

In case of actual needs to adjust or change the profit distribution policy and shareholder dividend return plan in response to production and operation conditions, investment planning and long-term development needs, the protection of Shareholders’ rights shall be the starting point for consideration and the opinions of Independent Directors shall be fully heard. The Independent Directors shall explicitly express their opinions on whether the profit distribution policy, especially the cash dividend policy adjustment or change of the bill, will damage the legitimate rights and interests of medium and small shareholders.

The Independent Director shall express their opinions on the above matters in one of the following manners: agree; reserved opinions and its reasons; object and its reasons; unable to give an opinion and its obstacles. In the event that the related matters are discloseable, the Company shall announce the opinions of the Independent Directors. In case of diversified opinions among the Independent Directors and no consensus can be reached, the Board of Directors shall separately disclose the opinions of each Independent Directors.

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Chapter 5 Work Conditions to be provided by the Company to Independent Directors

Article 20 The Company shall ensure that Independent Directors are entitled to the same right of access to information as other Directors, be provided relevant materials and information in a timely manner, and be regularly informed of the operating circumstances of the Company. On-site inspections by the Independent Directors can be arranged when necessary.

Article 21 The Company shall provide Independent Directors with the necessary working conditions to ensure the effective exercise of their powers.

(1) Where a major issue is to be decided by the Board of Directors, the Company shall inform the Independent Director in advance according to the statutory time and provide sufficient information at the same time. Supplemental materials can be requested in case the Independent Directors considers the information provided is insufficient. In the event that more than two Independent Directors consider that the information is insufficient or the argument is unclear, written joint proposal can be submitted by such Independent Directors, and shall be adopted by the Board of Directors, to the Board of Directors to postpone the Board meeting or postpone the deliberation of such matters.
(2) The company shall provide the working conditions necessary for the Independent Directors to perform their duties. The secretary to the Board of Directors of the Company shall actively assist the Independent Directors to perform their duties, including but not limited to introduction of circumstances and provision of materials, etc. The secretary to the Board of Directors shall deal with the relevant matters in respect of the announcement at the stock exchange where the independent opinion, proposals and written explanations of the Independent Directors are required to be announced.
(3) When the Independent Directors exercise their powers, the relevant staff of the Company shall cooperate positively and shall not refuse, obstruct or conceal or interfere with the Independent Directors to exercise their powers independently.
(4) Documents and materials provided to the Independent Directors by the Company and its relevant employees shall be kept by the Company and the relevant Independent Directors for at least five years.
(5) Where professional opinions shall be issued by intermediary parties for the Independent Directors to resolve the substantial connected transactions and deliberate specific issues, the Company may provide a list of intermediaries for Independent Directors to choose from. The Company shall bear the fees incurred by the Independent Directors to engage intermediary parties and exercise their other powers.

Article 22 The Company shall pay appropriate allowance to the Independent Directors. The standard of such allowances shall be proposed by the Board of Directors, approved at the general meeting, and shall be disclosed in the annual report of the Company.

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Other than the above allowance, Independent Directors shall not obtain additional undisclosed benefits from the Company and its major shareholders, or other interested parties.

Article 23 Transportation expenses paid by the Independent Directors to attend Board meetings (from the location of the Independent Directors to the meeting place) and the board and lodging expenses incurred for the duration of the meeting shall be paid by the Company. Other expenses shall be paid personally by the Independent Directors.

The Company may establish independent director liability insurance system when necessary to reduce the risk that may be incurred during the normal course of performing duties by the Independent Directors.

Chapter 6 Duties and Obligations of Independent Directors

Article 24 Independent Directors shall bear the fiduciary duties and obligation of due diligence to the Company and all of its Shareholders, and shall comply strictly with the Company Law, Securities Law, Guiding Opinion and other laws, administrative regulations, normative documents, and regulations concerning directors in the articles of association. Independent Directors shall also follow this Manual, maintain independence, earnestly perform their duties, faithfully fulfill their obligations, and safeguard the interests of the Company and all of its Shareholders.

Article 25 When conflict of interest arises between the Independent Directors and the Company or its Shareholders, the best interests of the Company and all Shareholders, as a principle, shall be upheld, and particular attention shall be drawn to the legitimate rights and interests of medium and small Shareholders.

Article 26 Independent Directors shall perform their duties and exercise their powers independently without influence from major Shareholders, actual controller, other member of the Board of Directors, senior management or other interested parties of the Company.

Article 27 Independent Directors shall bear the duty of loyalty to the Company and its Shareholders, and shall faithfully perform their duties pursuant to the provisions of laws, administrative regulations and the articles of association.

Article 28 Where Independent Directors fail to perform their duties earnestly, resulting in damage to the rights and interests of the Shareholders, the interests of the Company and the legitimate rights and interests of the employees, such Independent Directors shall be held liable according to the degree of their fault; and may be dismissed at the general meeting in accordance with prescribed procedures.

Article 29 In the event of violation of laws, administrative regulations, the provisions of the articles of association or the appointment contract when performing their duties by the Independent Directors, the Company may request such Independent Directors to assume the legal and financial responsibility corresponding to the severity of the circumstances and the degree of harm to the Company.

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Article 30 Independent Directors who have not yet completed their terms shall be liable to pay compensation for losses caused to the Company’s due to their own unauthorized resignation.

Article 31 When the Independent Directors propose to resign or upon expiry of the term of office, obligations born by such Independent Directors to the Company and its Shareholders shall not be ceased automatically when the resignation has not yet come into effect, or during a reasonable time after it has taken effect or expiry of the term of office. The duty of confidentiality in relation to trade secrets of the Company shall survive after such Independent Directors’ tenure until the secret becomes public information. The duration of other obligations shall be determined in accordance with the principle of fairness, depending on the length of interval between occurrence of the event and the termination and the circumstances and conditions under which the relationships between such Independent Directors and the company is terminated.

Chapter 7 Supplementary Provisions

Article 32 Unless otherwise specified, the terms used in this Manual shall have the same meaning as those in the articles of association.

Article 33 In case of conflict between matters not covered by this Manual or the content of this Manual and laws, regulations, regulatory documents, listing rules of the stock exchanges on which the Company is listed, or the Articles of Association which are promulgated or revised after the Manual takes force, the laws, regulations, regulatory documents, listing rules of the stock exchanges on which the Company is listed and the Articles of Association shall prevail.

Article 34 This Manual shall, after being considered and approved at the general meeting, come into effect commencing from the date of the issue and listing of A shares of the Company on the Shanghai Stock Exchange.

Article 35 The Board of Directors is authorized by the general meeting to be responsible for the interpretation of this Manual.

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B POLICY FOR THE MANAGEMENT OF CONNECTED TRANSACTIONS OF SINOTRANS LIMITED

Chapter 1 General Provisions

Article 1 This Policy is enacted pursuant to applicable laws, regulations and normative documents such as the PRC Company Law, the PRC Securities Law, Code of Corporate Governance for Listed Companies, Notice on Certain Issues relating to the Regulation of Financial Transactions between Listed Companies and Their Connected Persons and the Provision of External Securities by Listed Companies, Rules Governing the Listing of Securities on the Shanghai Stock Exchange, Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited and Guidance issued by Shanghai Stock Exchange on Implementation of Connected Transactions by Listed Companies and the Articles of Association of the Sinotrans Limited (the “Articles of Association”), for the purpose of regulating the connected transactions of the Sinotrans Limited (the “Company”), strengthening the management of connected transactions of the Company, protecting the legitimate interests of investors, especially those of small and medium-sized investors, and improving the corporate governance of the Company.

Article 2 The price under any connected transactions of the Company shall be determined based on the fair value in an arms’ length transaction, and the decision-making procedures and information disclosure thereunder shall be compliant with applicable laws and regulations. The audit committee of the Board of Directors shall be responsible for the control over connected transactions and daily administration.

Article 3 This Policy applies to the Company and subsidiaries included in the consolidated financial statements of the Company.

Article 4 The disclosure and decision-making procedures for the connected transactions of the Company shall also comply with the regulations and rules of Hong Kong Stock Exchange and Shanghai Stock Exchange. Where there are inconsistencies between the laws of Hong Kong or the PRC or listing rules of the Hong Kong Stock Exchange and the Shanghai Stock Exchange, the strictest laws or rules shall prevail. If there is any inconsistency or conflict between this Policy and any applicable laws, regulations or listing rules, the then applicable laws, regulations and listing rules shall prevail.

Chapter 2 Identification of Connected Person and Connected Transaction

Article 5 The connected persons of the Company shall include connected legal persons and connected natural persons.

Article 6 Connected legal persons of the Company shall include any legal persons or other entities which:–

(i) directly or indirectly control the Company;
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(ii) are directly or indirectly controlled by the entities referred to in Section (i) above (other than the Company and its subsidiaries);
(iii) are controlled, directly or indirectly, by the connected natural persons of the Company as listed in Article 8, or any connected natural person serves as a director or senior officer in (other than the Company and its subsidiaries);
(iv) hold over 5% of the shares in the Company; or
(v) are regarded by Shanghai Stock Exchange, in accordance with the principle of “substance over form”, as having special connection with the Company and are likely to be treated favorably by the Company, including any legal persons or entities that hold over 10% of shares in any subsidiaries of the Company which have a material impact on the Company.

Article 7 Any entity set forth under Article 6(ii) that is under common control with the Company by the same state-owned asset administration agency shall not be deemed to be a connected person of the Company due to the existence of such common control only, except to the extent that the legal representative, president or half of directors of such entity concurrently serve as the director, supervisor or senior officer of the Company.

Article 8 Connected natural persons of the Company shall include any natural persons who:
(i) hold, directly or indirectly, 5% shares of the Company;
(ii) are the directors, supervisors or senior officer of the Company;
(iii) are the directors, supervisors or senior officer of any connected legal persons as set forth in Article 6(i);
(iv) are family members having a close relationship with any person set forth in Section (i) or Section (ii) of this Article; or
(v) are regarded by Shanghai Stock, in accordance with the principle of “substance over form”, as having a special connection with the Company and are likely to be treated favorably by the Company, including any natural persons that hold over 10% of shares in any subsidiaries who have a material impact on the Company.

Article 9 Any legal person, other entity or natural person shall be deemed as a connected person of the Company if it or he:

(i) becomes a connected legal person or connected natural person of the Company set forth in Article 6 or Article 8 pursuant to any agreement or arrangement entered into with the Company or its connected person after such agreement or arrangement takes effect or in twelve months; or
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(ii) was a connected legal person or connected natural person of the Company set forth in Article 6 or Article 8 during the past twelve months.

Article 10 A connected transaction of the Company shall refer to any arrangement between the Company or any of its subsidiaries or branches and a connected person of the Company that is likely to result in any transfer of resources or obligations, including:

(i) purchase or sale of assets;
(ii) investments on a third party (including entrusted wealth management, entrusted lending, etc.);
(iii) provision of financial funding;
(iv) provision of securities;
(v) hiring or leasing assets;
(vi) entrusting or being entrusted with the management of assets and business;
(vii) donating or receiving donation of assets;
(viii) reorganization of claims or obligations;
(ix) entering into license agreements;
(x) transferring or being transferred with research and development programs;
(xi) purchase of raw materials, fuels and energies;
(xii) sale of products and commodities;
(xiii) providing or receiving labor service;
(xiv) entrusting or being entrusted with sales on consignment;
(xv) deposit of money in financial companies of a connected person;
(xvi) co-investing with a connected person; and
(xvii) arrangements that China Securities Regulatory Commission, the stock exchange on which the shares of the Company are listed or the Company determines, in accordance with the principle of “substance over form”, to be likely to result in a transfer of resources or obligations through agreement, including the provision of financial funding and security to a company in which the Company and the connected person jointly
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invest that is greater than its shareholding or investment percentage, or waiver of the right to increase capital in a company in which the Company and the connected person jointly invest at the same percentage as that of the connected person or right of first refusal to purchase.

Article 11 The Company shall take effective measures to prevent any shareholder and other connected persons from embezzlement or transfer in any form of any fund, asset or other resource of the Company and from infringement upon the interests of the Company and shareholders.

Chapter 3 Filings on Connected Relationship

Article 12 Directors, supervisors, senior officer of the Company, shareholders holding over 5% of the shares of the Company, de facto controllers and any parties acting in concert with them shall notify the Company of any connected relationship with the Company in a timely manner.

Article 13 The audit committee of the Company shall review the list of connected persons of the Company, and shall report the same to the Board of Directors and Supervisory Committee in a timely manner.

Article 14 The Company shall, in accordance with the requirements of regulatory authorities, report and update the list of connected persons and connected relationship in a timely manner.

Chapter 4 Disclosure and Decision-making Procedures on Connected Transactions

Article 15 Any proposed connected transaction between the Company or any of its subsidiaries or branches and a connected person of the Company shall be conducted after implementation of decision-making procedures in accordance with the rules of this Policy. The proposal on the connected transaction submitted to the meeting for consideration and approval shall detail the specific contents, pricing policies, necessity and feasibility of the transaction and the impact on the interest of the Company and the shareholders, and the specific terms shall be prepared by the functions of the Company that are in charge of such connected transaction.

Article 16 Any of the following connected transactions shall be deemed as a small-amount connected transaction and shall be subject to the approval of the president office meeting:

(i) any transaction between the Company and a related legal person which involves an amount of less than RMB3 million or 0.5% of the absolute value of most recently audited net assets of the Company;
(ii) any transaction between the Company and a related natural person which involves an amount of less than RMB 300,000; or
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(iii) any other transaction between the Company and a connected person which involves an amount that is less than the minimum amount requiring filing and publication under the requirements of the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited or Rules Governing the Listing of Securities on the Shanghai Stock Exchange.

Article 17 Any of the following connected transactions shall be deemed as a normal connected transaction and shall be subject to the approval of the Board of Directors of the Company:

(i) any transaction between the Company and any of its related legal persons that involves an amount of over RMB3 million accounting for over 0.5% and below 5% of the absolute value of most recently audited net assets of the Company;
(ii) any transaction between the Company and any of its related natural persons that involves an amount of over RMB300,000 and below RMB30 million; or
(iii) any other transaction between the Company and a connected person that involves an amount requiring filing, publication and Board approval in accordance with the requirements of Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited, Rules Governing the Listing of Securities on the Shanghai Stock Exchange and other regulations.

Article 18 Any of the following connected transactions shall be deemed as a major connected transaction and shall be subject to the approval of the general meeting of the Company:

(i) any transaction between the Company and a connected person that involves an amount of over RMB30 million accounting for over 5% of the absolute value of the most recently audited net assets of the Company;
(ii) any transaction in which the Company provides a security for a connected person, which shall, irrespective of the amount concerned, be disclosed in a timely manner upon the approval of the Board and submitted to the general meeting for consideration; or
(iii) any other transaction between the Company and a connected person that involves an amount requiring filing, publication and general meeting approval under the requirements of the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited or the Rules Governing the Listing of Securities on the Shanghai Stock Exchange or other regulations.

Article 19 Where the Company and a connected person establish a company through coinvestment, the capital contribution to such company shall be deemed as the transaction value, and Articles 16, 17 and Article 18(i) shall apply.

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Article 20 Where the Company proposes to waive the right to increase capital in a company in which the Company and the connected person jointly invest at the same percentage as that of the connected person or right of first refusal to purchase, the amount related to the waived right to increase capital or waived right of first refusal to purchase shall be deemed as the transaction value, and Articles 16, 17 and Article 18(i) shall apply.

In case of any change to the scope of the consolidated financial statements of the Company as a result of such waiver by the Company of right to increase capital or the right of first refusal to purchase, the value of the net assets at the end of the most recent period of the Company in respect of which the Company proposes to waive the right to increase capital or the right of first refusal to purchase shall be deemed as the transaction value, and Articles 16, 17 and Article 18(i) shall apply.

Article 21 Where the Company conducts a connected transaction in the form of “provision of financial funding” or “entrusted wealth management”, the actual amount concerned shall be deemed as the transaction price, and Articles 16, 17 and Article 18(i) shall apply.

Article 22 Where the Company conducts any of the following connected transactions, the connected transaction price shall be computed on an aggregate basis for consecutive 12 months, and Article 16, Article 17 and Article 18(i) shall apply respectively:

(i) connected transaction with the same connected person; or
(ii) any transaction with the same type of subject matter with different connected persons;

The “same connected person” referred to above shall include parties who are under the common control, directly or indirectly, of the same legal person or other entity or natural person, or who has a cross shareholding relationship with each other; and a legal person or other entity in which the same related natural person serves as the director or senior officer.

Where any party has been counted on an accumulative basis and the general meeting decisionmaking procedures are complied with, such party will not be included in the computation on the accumulative basis.

Article 23 Where the Company proposes to enter into a major connected transaction with a connected person, independent directors shall issue their approval in advance and submit the transaction to the Board of Directors for its consideration. The independent directors may, prior to their decision, engage independent financial consultants to issue a report which shall serve as the basis for the decision.

The audit committee of the Company shall also conduct a review of such connected transaction and form a written decision, and submit the transaction to the Board for its consideration as well as report the same to the Supervisory Committee. The audit committee may engage independent financial consultants to issue a report which shall serve as the basis for the decision.

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Article 24 The affiliated directors shall refrain from the voting on the connected transaction when such transaction is reviewed and considered by the Board of Directors, and they shall not exercise the voting rights on behalf of other directors.

Such board meetings may be held if more than half of the unaffiliated directors are present. Resolutions by the Board of Directors shall be passed by the affirmative vote of more than half of unaffiliated directors, unless otherwise provided in the Articles of Association. Where the number of unaffiliated directors present at the board meeting is less than three, the Company shall submit the transaction to the general meeting for its consideration.

Article 25 Affiliated shareholders shall refrain from voting on the connected transaction that is considered at the general meeting, and they shall not exercise the voting right on behalf of other shareholders.

Article 26 The Supervisory Committee of the Company shall supervise the consideration, voting, disclosure and implementation of the connected transactions and shall issue its opinion in the annual report.

Chapter 5 Pricing of Connected transactions

Article 27 A written agreement shall be entered into for any connected transaction by the Company or any of its subsidiaries or branches, setting forth the pricing policies for the connected transactions. The agreement shall be entered into upon the principles of equality, free will, equal value and compensation.

In case of any material change to any major clause of such transaction such as transaction price during the implementation of the connected transaction, the Company or its subsidiary or branches shall go through the approval procedures for a second time based on the changed transaction price.

Article 28 The pricing of the connected transaction shall be fair and equitable, and shall be conducted with reference to the following principles:

(i) Where the government pricing applies to the transaction, such price determined under the government pricing may be applied;
(ii) Where the government-guided price applies to the transaction, the transaction price may be determined reasonably within the range of the government-guided prices;
(iii) Except where the government pricing or government-guided price applies, if a comparable independent third party market price or charging rate exists, the transaction price may be determined by reference to such price or rate;
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(iv) Where no comparable independent third party market price exists for the connected transaction, the transaction price may be determined by reference to the price in an arm’s length transaction between the connected person and a third party independent of such connected person;
(v) If no independent third party market price or price in an arm’s length transaction exists, the pricing may be based on the reasonable price composition which shall be reasonable costs or expenses plus reasonable profits.

Article 29 In determining the connected transaction price in accordance with Sections (iii), (iv) or (v) of the preceding Article, the following pricing methods may be adopted for different types of connected transactions:

(i) Cost-plus method. Under this method, the value shall be the reasonable cost of the connected transaction plus the gross profit that may be generated from a comparable arm’s length transaction. This method applies to purchase, sale, transfer and use of tangible assets, provision of labor services, financing and other types of connected transactions;
(ii) Resale price method. Under this method, the fair value for the product purchased by the connected person shall be computed as the reselling price of the product purchased by such connected person to an unaffiliated party minus the gross profit generated from a comparable arm’s length transaction. This method applies to simple processing by the reseller without any alterations of appearances, performance, structure or change of trademark or other substantial value-added processing on the product or pure purchase or sale transactions by the reseller.
(iii) Comparable Uncontrolled Price Method. Under such method, the value shall be determined based on the price received under a business transaction with the nonconnected person that is identical or similar to the connected transaction. This method applies to all types of connected transactions;
(iv) Transaction Net Profit Method. Under such method, the net profit shall be determined based on the profit indicators for a comparable non-connected transaction. This method applies to the purchase, sale, transfer and use of tangible assets, the provision of labor service and other connected transactions;
(v) Profit Split Method. Under the method, the profit distributable to each of the Company and its connected person shall be computed based on their contribution to the combined profit from the connected transaction. This method applies where the connected transaction is highly integrated and the transaction outcome of each party is difficult to ascertain.
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Article 30 Where a connected transaction price cannot be determined by applying the above principles and methods, the principle and method of determining the transaction price thereof shall be disclosed, and the statement for the fairness of such pricing shall be given.

Chapter 6 Items Required to be Disclosed for a Connected transaction

Article 31 Any connected transaction conducted by the Company or any of its subsidiaries or branches with a connected person which is required hereunder to be disclosed shall be disclosed in the form of an interim report.

Article 32 In connection with any disclosure of a connected transaction by the Company, the following documents shall be filed with Shanghai Stock Exchange:

(i) Text of the publication;
(ii) Agreement or letter of intent related to the transaction; board resolution, text of the announcement for the resolution; approval from a competent authority for the transaction (if applicable); professional report issued by a securities service agency (if applicable);
(iii) Written consent to such transaction issued by independent directors;
(iv) Opinion of independent directors;
(v) Opinion of audit committee of the Board of Directors (if applicable);
(vi) Other documents required by the stock exchange.

Article 33 The announcement regarding the connected transaction disclosed by the Company shall contain the following items:

(i) Summary of the connected transaction;
(ii) Information on the connected person;
(iii) Basic information on the subject matter of the connected transaction;
(iv) Major terms and pricing policy for the connected transaction;
(v) Purpose and impact of the connected transaction on the Company;
(vi) Prior consent and independent opinion issued by the independent directors;
(vii) Opinion of independent financial consultants, if applicable;
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(viii) Opinion of audit committee of the Board of Directors, if applicable;

(ix) Previous connected transactions;
(x) Undertaking by controlling shareholders, if any;
(xi) Other items required by the stock exchange to be disclosed.

Article 34 The Company shall disclose in the annual reports and interim reports all material connected transactions that occurred during the reporting period in accordance with the requirements under Articles 35 to 38 hereunder for different types of connected transactions.

Article 35 Disclosure by the Company of any connected transactions related to daily operation shall contain the following items:

(i) connected persons;
(ii) terms of transaction;
(iii) pricing policy;
(iv) transaction price: if a market price for a comparable transaction is available, the reference market price shall be disclosed; where the actual transaction price is substantially different from the reference market price, the reason thereof shall be stated;
(v) transaction value and the percentage of it in the transaction value of a transaction of the same type, and the settlement manner;
(vi) details for a large amount of sales return, if any;
(vii) necessity and continuity of the connected transaction, the reason for the selection of the connected person (instead of other counterparties in the market), the impact of the transaction on the independence of the Company, the degree of reliance of the Company on the connected person and the corresponding solutions, if any; and
(viii) where the value of daily connected transactions to be conducted in the current year are estimated on an accumulative basis by transaction types, the actual implementation status of daily connected transactions during the reporting period, if any.

Article 36 Disclosure by the Company of material connected transactions related to the purchase and sale of assets shall contain the following items:

(i) connected persons;
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(ii) details of transaction;
(iii) pricing policy;
(iv) book value and appraised value, fair market value and transaction price of assets; where the transaction price is substantially different from the book value, appraised value or fair market value, the reason thereof shall be stated; and
(v) impact of the settlement method and the transaction on the operation results and financial position of the Company.

Article 37 Disclosure by the Company of any connected transaction as a result of coinvestment by the Company and a connected person shall contain the following items:

(i) the co-investor;
(ii) name, main business, registered capital, total assets, net assets and net profit of the investee; and
(iii) progress of major projects under construction (if any).

Article 38 Where the Company or any of its subsidiaries or branches has any obligation owed or security provided or otherwise to or from a connected person, the reason for the occurrence of such obligation or security and the impact of the same on the Company shall be disclosed.

Chapter 7 Special Provisions on Disclosure and Decision-making Procedures of Daily Connected transactions

Article 39 Where the Company or any of its subsidiaries or branches enters into a connected transaction with a connected person as set forth in Article 10(11) to 10(15), the decision-making procedures and the obligation to disclose shall be observed under the following circumstances:

(i) if no major changes are made to any major terms of a daily connected transaction agreement that has been approved by the general meeting or board of directors of the Company and is being carried out, the Company shall disclose in the annual reports and interim reports the actual implementation status of each agreement, and shall state whether the agreement is complied with; in case of any major change to any major clause to a daily connected transaction agreement during its implementation or the agreement is required to be renewed after its expiry date, the Company shall submit such amended or renewed daily connected transaction agreement based on the total transaction value thereunder to the board of directors or the general meeting for its review and consideration and shall disclose the same in a timely manner; where the agreement does not provide for the total transaction value, such agreement shall be submitted to the general meeting for its consideration and disclose the same in a timely manner;
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(ii) For a daily connected transaction which occurred for the first time, the Company shall enter into a written agreement with the connected person and shall disclose the same in a timely manner, and submit such transaction to the Board of Directors or general meeting for its review and consideration based on the total transaction value thereunder; where the agreement does not provide for the total transaction value, such agreement shall be submitted to the general meeting for its consideration; after such agreement is reviewed, approved and disclosed, the preceding clause shall apply according to the type of such daily connected transaction;
(iii) Where there are numerous types of daily connected transactions, the Company may, prior to the disclosure of the annual report for the previous year, conduct a reasonable estimate of the total amount of daily connected transactions of the Company to be conducted in the current year, and submit such transactions to the Board of Directors or general meeting for its consideration based on the estimated total transaction amount thereunder and disclose the same; the Company shall disclose in the annual reports and interim reports the summary of daily connected transactions within the estimate amounts by the type thereof. The Company shall re-submit such transactions based on any amount in excess of the estimated total amount during the implementation thereof to the Board of Directors or general meeting for its consideration.

Article 40 the Company and a connected person shall enter into a daily connected transaction agreement for any daily connected transaction between them. Such agreement shall provide:

(i) pricing policy and basis;
(ii) transaction price;
(iii) the range of total transaction amount or the method for determining the total transaction amount;
(iv) payment time and manner;
(v) comparison with the actual amount of daily connected transactions of the same type during the past three years; and
(vi) Other major terms required to be disclosed.

Article 41 Generally, the term of daily connected transaction agreement entered into between the Company and the connected person shall be less than three years; in case that the term is longer than three years, the Company shall go through again the decision-making procedures and disclose such transaction pursuant to applicable rules every three years.

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Chapter 8 Special Provisions on the Purchase of Assets of a Connected person at a Premium

Article 42 For any material connected transaction, if the price at which the Company or any of its subsidiaries or branches proposes to purchase the assets of a connected person exceeds 100% of its book value, and such transaction is deemed as a major connected transaction pursuant to Article 18(i), in addition to disclose the reason of such premium, the Company shall provide access to online voting or other method of voting convenient to shareholders participating in the general meeting, and shall comply with the requirements under Articles 43 to 46.

Article 43 The Company or its subsidiaries or branches shall provide the profitability forecast for the assets proposed to be purchased which shall be subject to the audit of an accounting firm with the qualification for its business in relation to securities and futures.

Where the Company or any of its subsidiaries or branches is unable to provide the profitability forecast, the reasons thereof shall be stated, and risk alerts shall be included in the connected transaction announcement, and detailed analysis shall be made on the impact of such connected transaction on the sustainability and future development of the Company.

Article 44 Where the Company or any of its subsidiaries or branches appraises the assets proposed to be purchased based on prospective return by adopting the Discounted Cash Flow method, Hypothetical Development method, etc, and bases the pricing on such appraised value, it shall disclose the difference between the actual return and the anticipated profit for the assets in the annual reports for three consecutive years after the conclusion of the connected transaction, and the accounting firm shall issue a special audit report for the same.

The Company or any of its subsidiaries or branches shall enter into an explicit and feasible indemnification agreement in case that the actual return of the assets is less than the anticipated profit thereof.

Article 45 Where the Company or any of its subsidiaries or branches appraises the assets proposed to be purchased by adopting the Discounted Cash Flow method, Hypothetical Development method and other methods and bases the pricing on the appraised value, it shall disclose the data generated from the appraisal conducted by adopting the appraisal methods including the two abovementioned methods, and independent directors shall express their views on the independence of the appraisal agency, reasonableness of the presumptions for such appraisal and fairness of the pricing under the appraisal.

Article 46 The audit committee of the Board of Directors of the Company shall issue its opinion on the above connected transactions, including:

(i) Basis and considerations of the opinion;
(ii) whether the transaction pricing is fair and reasonable, and whether it is in the best interests of the Company and its shareholders as a whole; and
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(iii) proposal to the unaffiliated directors and unaffiliated shareholders on approval or disapproval of such connected transaction.

Before the audit committee of the Board of Directors of the Company makes any decision, it may engage independent financial consultants to issue a report which will serve as a basis for the decision.

Chapter 9 Fund Transfer with Controlling Shareholders and other Connected persons

Article 47 The operation funds transfer between the Company and any controlling shareholder and other connected person shall be strictly limited to the capital of listed companies. The controlling shareholders and other connected persons are not allowed to request the Company to advance salaries, welfare, insurance premiums, advertisement expenses and other expenses for them, nor to bear costs and other expenditures on behalf of each other.

Article 48 The Company shall not provide funds, directly or indirectly, to any controlling shareholder or other connected persons in any of the following manners:

(i) offering any capital of the Company to any controlling shareholder or other connected person with or without compensation;
(ii) providing entrusted loans to any connected person through a bank or non-banking institute;
(iii) entrusting any controlling shareholder or other connected person with investment activities;
(iv) issuing to any controlling shareholder or other connected person any commercial acceptance invoices without true transactions;
(v) repaying the obligations of any controlling shareholder or other connected person; or
(vi) any other manner as provided by the China Securities Regulatory Commission.

Article 49 When conducting the audit of annual financial statements of the Company, the certified public accountants shall issue special statements for any capital of the Company used by any controlling shareholder or other connected person, and the Company shall make public announcement on such special statement.

Chapter 10 Liabilities

Article 50 None of the controlling shareholders, de facto controllers or other connected persons of the Company may take advantage of any connected person relationship to the detriment of interests of the Company. In case of any loss to the Company as a result of any violation of this Policy, the above parties shall also be liable for such losses.

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Where any controlling shareholder or other connected person of the Company embezzles any assets of the Company or acts in a manner prejudicial to the interests of the Company or its shareholders, the Company is entitled to take effective measures to request the controlling shareholders and other connected persons to cease such infringing act, and may also petition to the people’s court for the freezing of corporate assets embezzled and shares in the Company held by such controlling shareholders or other connected persons.

Article 51 Where any director, supervisor, senior officer of the Company, in violation of applicable laws, regulations and this Policy, aids, abets or condones any embezzlement by any controlling shareholder or other connected person of any assets of the Company or infringement by them upon interests of the Company, the Board of Directors of the Company will, according to the severity of such violation, impose disciplinary measures on the party directly responsible for the violation and dismiss the director that committed a material breach, and may hold them liable for reasonable losses according to the severity of losses caused to the Company; in case any violation amounts to a crime, the liable party will be transferred to the judicial authorities.

In case of any adverse effect or losses caused to the Company as a result of any negligence or dereliction by the management bodies and the personnel responsible for any connected transaction of the Company when handling such connected transaction, the Company may impose the penalties such as public criticism, warning and dismissal according to the severity of the violation.

Article 52 In case that any shareholder of the Company brings civil lawsuit for damages as a result of any economic loss arising from any act of a controlling shareholder or other connected person prejudicial to the interests of the Company or other shareholders, the Company is obligated to offer assistance such as providing relevant information subject to the applicable laws, regulations and the Articles of Association.

Chapter 11 Supplementary Provisions

Article 53 Subject to applicable regulations of Hong Kong Stock Exchange, as an H-share listed company, the Company shall be governed by the provisions of this Policy, applied mutatis mutandis, in connection with the daily management, disclosure and decision making procedures regarding connected persons and connected transactions for the purpose of the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited.

Article 54 Close family members as referred to in this Policy shall include spouse, children over age of 18 and their spouses, parents and spouses’ parents, siblings and their spouses, spouses’ siblings, and parents of children’s spouses.

Article 55 The “affiliated director” referred to herein shall mean a director who:

(i) is a counterparty to a transaction;
(ii) is a direct or indirect controller of the counterparty;
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(iii) takes office at the counterparty, or at a legal person or other entity directly or indirectly controlling or controlled by the counterparty;
(iv) is a close family member of the counterparty or any of its direct or indirect controllers;
(v) is a close family member of a director, supervisor or senior officer of the counterparty or its direct or indirect controllers; or
(vi) is deemed by the China Securities Regulatory Commission, Shanghai Stock Exchange or the Company to have a conflict of interests with the Company that may affect his independent commercial judgment.

Article 56 The “affiliated shareholder” referred to herein shall mean a shareholder who:

(i) is a counterparty to a transaction;
(ii) is the direct or indirect controller of the counterparty to a transaction;
(iii) is directly or indirectly controlled by the counterparty;
(iv) is under the common control, directly or indirectly, with the counterparty by the same legal person, other entity or a natural person;
(v) has a share transfer agreement or other agreement with the counterparty to the transaction or its connected person that is not fully fulfilled and may impose restrictions or influence on his voting rights; or
(vi) is regarded by the China Securities Regulatory Commission or Shanghai Stock Exchange as likely to be treated favorably by the Company.

Article 57 Any issues which this Policy may not apply to shall be subject to applicable state laws, regulations, normative documents, rules of the jurisdiction where the Company is listed and the Articles of Association.

Article 58 For any connected transaction eligible for exemption from disclosure and decisionmaking procedures for connected transactions, the Board of Directors of the Company may apply to Shanghai Stock Exchange for exemption pursuant to the Rules Governing the Listing of Securities on the Shanghai Stock Exchange and the Guidance issued by Shanghai Stock Exchange on Implementation of Connected transactions by Listed Companies.

Article 59 Upon consideration and approval by the general meeting, this Policy shall come into effect as of the date when A shares of the Company are listed in Shanghai Stock Exchange.

Article 60 This Policy shall be interpreted by the Board of Directors of the Company.

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APPENDIX VII

C POLICY FOR THE MANAGEMENT OF EXTERNAL GUARANTEES TO BE PROVIDED BY SINOTRANS LIMITED

Chapter 1 General Provisions

Article 1 This Policy is formulated pursuant to the Guaranty Law of The People’s Republic of China, Real Right Law of the People’s Republic of China, Notice on Certain Issues relating to the Regulation of Financial Transactions between Listed Companies and Their Related Parties and the Provision of External Guarantees by Listed Companies, Rules Governing the Listing of Stocks on Shanghai Stock Exchange (hereinafter referred herein as “SSE Listing Rules”), Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (“HKSE Listing Rules”) (SSE Listing Rules and HKSE Listing Rules are hereinafter referred to collectively as the “Listing Rules of the Places of Listing”, each, as may be amended from time to time) and the Articles of Association of the Sinotrans Limited (the “Articles of Association”), for the purposes of protecting investors’ legitimate interests, regulating the provision of external guarantees by Sinotrans Limited (the “Company”), strengthening the internal control over the guarantee business of the Company.

Article 2 The external guarantees referred to herein shall mean the provision of surety, mortgage, pledge, deposit and lien by the Company as a third party for others including the provision of a guarantee by the Company for its controlled subsidiary. Such external guarantee shall include financial credit guarantee, operation guarantee and qualification guarantee.

Financial credit guarantee refers to the guarantee generated by the financial credit activities carried out to meet the business development needs. Credit guarantees include loan guarantee for financial institutions, loan guarantee for non-financial institutions, guarantee for credit limit, financial guarantees and letter of credit, etc

Operation guarantee refers to the guarantee by carrying out business operation activities to meet the business operational needs. Operation guarantees include performance guarantee, documentation guarantee, and transfer of goods related guarantee.

Qualification guarantee refers to the guarantee provided to the governmental authorities and enterprises to meet the business operation qualification needs. Qualification guarantees include customs broker qualification guarantee, air freight qualification guarantee and financial logistic qualification guarantee, etc.

Article 3 The “controlled subsidiary” referred to herein shall mean a company that is legally established according to the Company’s development strategies, plans and core business and that has an independent legal personality for the purpose of improving the core competitiveness of the Company. Its form of establishment of the controlled subsidiaries includes:

(1) wholly-owned subsidiary that is solely invested by the Company;
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(2) a company that is invested by the Company jointly with other companies or natural persons, of which the Company holds more than 50% of its shares, or holds less than 50% of its shares but with respect of which it has the power to determine the composition of more than half of the members of its board of directors, or which is controlled by the Company through agreement or other arrangements.

Article 4 The external guarantees provided by the Company and its controlled subsidiaries shall be subject to the review, approval and administration of the Company. The finance department, risk management department, respective business sub-segment supervisory department of the Company and capital operation department of the Company shall be jointly responsible. In terms of external guarantee, the responsibilities of the relevant departments are as follows:

The finance department of the Company shall serve as the department responsible for reviewing and maintaining management of daily operations of financial credit guarantees. The risk management department of the Company shall serve as the department responsible for reviewing and maintaining management of daily operations of operation guarantees. The respective business subsegment supervisory department of the Company shall serve as the department responsible for reviewing and maintaining management of daily operations of qualification guarantees. The aforesaid guarantee review and daily management departments responsible for reviewing and maintaining management of daily operations for guarantees (hereinafter referred to collectively as “Guarantee review and management departments”) shall receive, review all the relevant guarantee applications submitted by the guaranteed party and be responsible for the daily management and the continuous risk control of external guarantees. Their key responsibilities are as follows:

(i) To review and investigate the guarantee business and to make suggestions and proposals based on the reviews;
(ii) To handle the relevant guarantee procedures;
(iii) To track, inspect, supervise, and keep records of the ledger of the guaranteed party after the external guarantee takes effect;
(iv) To file and keep records of the documents of the guaranteed enterprises properly;
(v) To timely and promptly provide all the relevant information on the external guarantees provided by the Company to the auditor of the Company;
(vi) To handle other matters related to guarantee.

The risk management department of the Company shall review the contracts or agreement terms in relation to the external guarantees and provide comments to effectively control and manage the potential risks in the relevant contracts and agreements, and shall engage external agency to provide professional opinions on the guarantee when necessary.

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The capital operation department of the Company shall arrange for reporting to the Board of Directors on the relevant guarantees and shall be responsible for the information disclosure in relation to the relevant guarantees.

Article 5 The Shareholder’s meeting and the Board of Directors are the decision-making organs of the Company, and all external guarantee provided by the Company shall be subject to the approval from Shareholders at the general meeting or the Board of Directors pursuant to the procedures formulated under this Policy. Without the approval of the Shareholders at the general meeting or the Board of Directors, the Company is not allowed to provide any external guarantee.

Article 6 This Policy applies to the Company and its controlled subsidiaries. The external guarantees provided by the controlled subsidiaries of the Company shall be governed by this Policy. The “total amount of external guarantees provided by the Company and its controlled subsidiaries” shall means the sum of the total amount of external guarantees provided by the Company and total amount of external guarantees provided by the controlled subsidiaries of the Company.

Article 7 Whenever the Company provides any external guarantee, it must request the other party to provide counter guarantee, and the counter guarantee provider shall have actual ability to undertake the counter guarantee. The counter-guarantor shall be the cooperate that possesses good credit standard, robust financial status, has the ability to perform the obligations under the counter guarantee contract. Provide counter guarantee in which the book value of net assets audited by their relevant auditors at the beginning of the year is more than twice of the counter guarantee amount. If the counter guarantee is in the form of surety, the counter-guarantor shall not be any government agency, public welfare institution, branch of corporate corporation, department or office or natural person. If the counter guarantee is in the form of mortgage or pledge, the collateral shall be fully owned by the counter-guarantor and free of any third party rights and its market value shall be more than twice of the counter guarantee amount during the guarantee period. The counter-guarantor shall complete the mortgage or pledge registration or transfer procedures for the collateral, and purchase sufficient insurance from insurance company, with the guarantor being the beneficiary. If the market value of the collateral is lower than twice of the guarantee amount in any time during the mortgage or pledge period, the guarantor shall immediately ask the counter guarantor to provide additional collateral to cover the difference.

For the guarantee business provided by the non-wholly-owned subsidiary, the Company will provide guarantee based on the investment proportion in principle. If it is necessary for the Company to provide guarantee beyond its investment proportion, the Company shall request the other corporate shareholders of the non-wholly-owned subsidiary to provide counter guarantee to the Company in advance.

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Chapter 2 Guaranteed Party of External Guarantee

Article 8 The Company may provide guarantee for any legal entity that has an independent legal personality whom meets any of the following conditions:

(i) A legal person requiring inter-company guarantee due to business needs of the Company;
(ii) An legal person that has actual or potential material business relationship with the Company;
(iii) Any controlled subsidiary of the Company or a company of which the Company is a holding company;
(iv) A guaranteed party that, although not meeting any of the above conditions, if the Company believes it is necessary for the Company to have a business relationship and cooperation relationship with, and has reliable repayment ability and good credit conditions, a guarantee may be provided to such party subject to the approval of the Board or the shareholder’s at the general meeting.

Article 9 The Company is not allowed to provide any guarantee for any enterprise under any of the below circumstances that:

(i) Does not comply with Article 8;
(ii) Has unclear or controversial ownership;
(iii) Conducts operations and productions that are inconsistent with the industrial policies in the PRC;
(iv) Provides any credit information or other information that is falsified, or acts fraudulently at the time of applying for a guarantee, or maliciously colludes with the counter-guarantee provider or the creditor;
(v) Delays in repayment of any bank loans, payment of interests, evades taxes and has other bad credit records;
(vi) Has otherwise committed any violations of law or policies in connection with the obligations of which it applies with the Company for the guarantee;
(vii) The operations, financial conditions of the guaranteed party is or is to deteriorate, which renders it unable to repay the debts due;
(viii) The guaranteed party suffered a material loss in the previous year, or it is anticipated to suffer a material loss;
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(ix) The counter-guarantee provided by the counter- guarantee provider is insufficient or there exists a defect in the ownership of assets used for the provision of the counterguarantee, or the assets used for the provision of the counter-guarantee are assets of which is prohibited or restricted or which are non-transferrable according to applicable laws and regulations;
(x) The assets used for the counter-guarantee are not available or other counter-guarantee measures are not implemented effectively, except where the Company provides a guarantee for any of its subsidiaries;
(xi) There exists any pending or potential major litigation, arbitration proceeding or government penalty on the guarantee party, which may affect its ability to repay debts due.

Article 10 Prior to the determination by the Board of Directors or shareholders at the general meeting to provide a guarantee for others, it shall be informed of the credit conditions of the debtor, and conduct a sufficient analysis of the interests and risks of such guarantee, and disclose the same in detail in the public statement issued by the Board of Directors at the board meetings or the shareholders at the general meeting. The secretary of the Board shall record in detail the discussions and voting at the Directors’ board meetings or shareholders’ general meeting.

Chapter 3 Prior Review of External Guarantees

Article 11 The Company shall be informed of the credit conditions of the guarantee party prior to its provision of a guarantee. The guarantee review and management department of the Company shall be responsible for the investigation and evaluation of the credit conditions of the applicant for the guarantee, and conduct sufficient analysis and discussion of the risks and benefits of such guarantee. The guarantee review and management department of the Company shall request the applicant for the guarantee to provide the following documents:

(i) The basic information of the guaranteed party, including the business license, Articles of Association, and the relevant information reflecting its affiliation and other relationship with the Company;
(ii) The audited financial reports of the guaranteed party for the past three years, analysis for its repayment ability and risk evaluation report;
(iii) Name of the guaranteed party;
(iv) Guarantee application form, including but not limited to the reason for the guarantee, method, period, amount, and content, etc;
(v) Major terms of the master debt contract or draft contract;
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(vi) The description of the repayment plan by the guarantee party for the guaranteed obligation and description of the funding source;
(vii) Guarantee contract (including guarantee commitment, same as below) and counter guarantee contract (including counter guarantee commitment, same as below);
(viii) The proof that the counter-guarantor has the ability to undertake the counter guarantee;
(ix) Other important information.

Article 12 The guarantee review and management department shall conduct investigation and analysis on the information provided by the applicant for the guarantee, verify the same for its authenticity, assess the guarantee application according to the national industry policies, laws and regulations in force, the financial status of the guaranteed party and the risk level, solicit opinions from legal advisor or other experts, and provide clear audit comments on the investigation.

Chapter 4 Approval on the External Guarantee

Article 13 All external guarantees to be provided by the Company shall be subject to the approval of the Board of Directors. Approval by the Board of Directors shall be adopted by the signature and consent of over two thirds of all members of the Board of Directors.

In connection with the determination by the Board of Directors on any external guarantee and other related issues, strict review and decision-making procedures shall be established; and relevant experts and professionals in such fields shall conduct review of any material guarantee. In the event that the guarantees must be submitted to the shareholders’ meeting for review and approval in accordance with the relevant laws and regulations and the listing rules of the places of listing, approval shall be obtained at the directors’ meeting before seeking approval from the shareholders at the general meeting.

Article 14 In the case of a related-party guarantee, the affiliated directors are not allowed to exercise the voting right on such resolution in relation to such guarantee, nor shall it exercise the voting right on behalf of other directors.

The board resolutions shall deem to be passed with the signature and consent of more than two thirds of all the directors; where the number of unaffiliated directors attending the board meeting is less than two thirds of all the directors, such matter shall be tabled at the general meeting for shareholders’ consideration.

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Article 15 The following external guarantees shall be tabled at the general meeting for shareholders’ approval after being approved and passed at the board meeting by the board of directors:

(i) Any security to be provided after the aggregate amount of external securities provided by the Company and its controlled subsidiaries meets or exceeds 50% of the most recent audited net assets;
(ii) Any security to be provided after the aggregate amount of the Company meets or exceeds 30% of the most recent audited total assets;
(iii) Any security to be provided to a guaranteed party that has liability/asset ratio is over 70%;
(iv) Any one-off security, and the value of which exceeds 10% of the most recent audited net assets;
(v) Any guarantee provided to the shareholders, de facto controllers and their related party;
(vi) Other guarantees required to be approved by the shareholders at the general meeting in accordance with the relevant laws and regulations or under the relevant regulatory authority or the stock exchange in the listing place of the Company.

Unless otherwise specified in this Policy, the aforesaid external guarantees shall be approved by more than 1/2 of the voting rights held by the shareholders present at the General Meeting (including by proxy).

Article 16 When the shareholders are considering the proposed guarantee to be provided to any shareholder, de facto controller and its related party at the general meeting, such shareholder or any shareholder controlled by such de facto controller or its related party (person(s) as defined by the listing rules of the places of listing) shall refrain from the voting on such resolution, and such resolution shall deem to be passed by more than half of the voting rights held by the unaffiliated shareholders attending the general meeting.

Article 17 The guarantee that exceeds 30% of the audited total assets of the Company for the latest period when determined based on the principle of accumulation of guarantee amounts for consecutive 12 months shall be subject to the approval by the shareholders at the General Meeting, which the resolution shall deemed to be passed by more than 2/3 of the voting rights held by the shareholders present at the meeting.

Article 18 The guarantee review and management departments shall provide the certified public accountants responsible for the finance and audit of the Company with the information on all external guarantees of the Company in accordance with the applicable requirements.

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Article 19 Any proposal for a guarantee and/or financial assistance that is required under the Rules Governing the Listing of Securities on Hong Kong Stock Exchange to be approved by the shareholders at the general meeting shall be subject to the disclosure and approval requirements under the Listing Rules in the places of listing., which shall be submitted to the general meeting for shareholders’ approval after obtaining approval from the Board of Directors.

Article 20 When the guarantee review and management departments accept the external guarantee application of the Company, it shall investigate and verify the information provided. When the application passes the preliminary review, it shall be submitted to the president for review. When the application passes the review of the president, it shall be submitted to the Board of Directors or to the Shareholders at the General Meeting for consideration according to the approval authority set out in this Policy.

Article 21 Where the controlled subsidiary of the Company is required to provide guarantee to others due to business needs, the controlled subsidiary shall first conduct an investigation and analysis of the basic information of the guaranteed party and submit an application report, setting forth its opinion of approval or disapproval. After obtaining the consent and signed by the legal representative of such controlled subsidiary, the application report shall be submitted to the guarantee review and management departments of the Company, which will, after receipt of such application report, review and approve or disapprove such proposed external guarantee pursuant to Article 20 of this Policy, and thereafter submit to the Board of Directors or to the Shareholders at the General Meeting for consideration in accordance with the approval authority set out in this Policy.

Article 22 When the guarantee review and management departments of the Company submit the guarantee applications to the Board of Directors, it shall also submit the relevant documents and information of the guarantees as attachments pursuant to Article 11 of this Policy.

When the Board of Directors at the Board Meetings or the Shareholders at the General Meeting considers it necessary, external financial, legal or other professionals may be engaged to provide professional opinions on the external guarantees, which may be used as the basis for the decision-making of the Board of Directors at the Board Meetings or the Shareholders at General Meeting.

Chapter 5 Conclusion of Contract of Guarantee

Article 23 Subject to the approval by the Board of Directors at the board meeting and/or by the shareholders at the general meeting of the Company, the chairman of the Board or any person authorized by the chairman will enter into a contract of guarantee. The contract of guarantee and the counter-guarantee contract shall be made in writing and in the form in consistent with the requirements in the Guaranty Law of The People’s Republic of China, other applicable laws and regulations, and the major terms thereof shall be express and unambiguous.

Article 24 All the terms of the contract of guarantee shall be first reviewed by the risk management department, and where necessary, shall be reviewed by the law firm engaged by the Company for the verification of their legality and effectiveness.

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Article 25 If the contract of guarantee is in a standard form, the guarantee review and management departments and risk management department shall conduct a strict review over all obligation clauses. Where any mandatory obligation clauses in any such standard form contract may result in any unanticipated risk being imposed to the Company, the finance department shall disapprove the guarantee to be provided for the guaranteed party, and report and specify the same to the Board of Directors.

Article 26 The contract of guarantee shall provide for the following clauses, unless otherwise required by laws, regulations or the relevant governmental authorities:

(i) Creditor, debtor;
(ii) The type and amount of the principal guarantee;
(iii) Method of guarantee;
(iv) Scope of guarantee;
(v) Term of guarantee;
(vi) Rights, obligations of each party and liabilities for breach of contract;
(vii) A validity term providing that the contract of guarantee shall only take effect after the counter-guarantee contract is executed;
(viii) Other issues the parties consider appropriate.

Article 27 Where the Company accepts any counter-guarantee in the form of mortgage or pledge, the guarantee review and management departments shall, together with the risk management department of the Company (or a law firm engaged by the Company), prepare the complete set of documents, and timely handle the pledge or mortgage registration, if it is required by the relevant laws.

Article 28 The counter-guarantee or other effective risk prevention measures provided by the guaranteed party shall have an amount consistent with the guaranteed amount, and shall be verified by the guarantee review and management departments of the Company. Where the assets proposed by the guaranteed party for the purpose of counter-guarantee are prohibited to be transferred or nontransferrable by applicable laws or regulations, the finance department shall refuse to provide such guarantee.

Article 29 Contracts of guarantee shall be kept properly by the Company pursuant to the internal regulations of the Company, and shall notify the secretary of board of directors and the guarantee review and management departments.

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Chapter 6 Risk Management, Supervision and Inspection on External Guarantee

Article 30 The Company shall establish and maintain proper guarantee business files to comprehensively record, sort out and archive the guaranteed party, amount, and period of the guarantee, the property used for mortgage and pledge, the rights and other relevant matters. The guarantee review and management departments of the Company shall duly maintain the contracts of guarantee and the relevant original documents and ensure the completeness, accuracy and validity of such documents by checking and inspecting and conducting regular verification with banks and other relevant entities, and paying attention to the limitation period of the guarantee. During the contract management, if any abnormal contract that has not been approved by the Board of Directors at Board Meetings or the Shareholders at the General Meetings in accordance with the approval procedures, it shall be promptly reported to the Board of Directors.

Article 31 Upon execution of a contract of guarantee, the guarantee review and management departments shall designate an officer to be in charge of the execution of the guarantee business, and shall timely notify the secretary of the Board of Directors. The officer shall pay attention to the guarantee period (in the case of a security in the form of guarantee) of the guarantee obligations and the commencement date and expiry date of statutory limitations, and shall proactively procure the guaranteed party to fulfill the repayment obligations within the agreed time.

Article 32 The officer in charge shall proactively and periodically collect the information on the production, operation, change to assets and liabilities, external guarantee and other obligations, division, combination, any change to legal representative and any change to the goodwill of the guaranteed party and the counter-guarantee provider, especially information on the repayment of obligations due, etc. If the guaranteed party is found to have abnormal operation status, severe degradation of financial position or dissolution or separation of company or other serious problems, the officer in charge shall promptly report to the guarantee review and management department and the secretary of the Board of Directors according to the actual situation. The guarantee review and management departments and the secretary of the Board of Directors shall immediately report to the Board of Directors, and the Board of Directors is obliged to take effective measures to minimize the loss.

The monitoring on the financial risk of the guaranteed party and the implementation of the guarantee may be carried out in the following ways according to the actual situation: participating in the relevant meetings and conferences of the guaranteed party and the guaranteed project; reviewing the progress and finance of the guaranteed project; and sending representative to work for the guaranteed party when necessary, and in this case the guaranteed party shall provide cooperation and support.

Article 33 The Company shall strengthen the management of the counter guarantee property, safekeeping the property and the title document of the guaranteed party for counter guarantee, verify the value of the property in existence from time to time, and make sure the property of the counter guarantee is safe and complete.

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Article 34 Where any guaranteed obligation is required to be renewed after expiry thereof and continues to require the guarantee provided by the Company, such guarantees shall be deemed a new external guarantee, and the guarantee application, review and approval procedures shall be undertaken pursuant to this Policy.

Article 35 The Company shall fully sort out the property and the title documents used for the guarantee upon the expiry of the contract of guarantee, and terminate the guarantee relationship promptly pursuant to the contract terms. The Company shall promptly terminate the contract of guarantee by providing notice to the guaranteed party and secured party in the case of:

(i) Expiry of guarantee term;
(ii) Modification of the contract of guarantee;
(iii) Request of guaranteed party and secured party for terminating the contract of guarantee;
(iv) Other agreed matters.

Article 36 In case any guaranteed party fails to fulfill the repayment obligations within 10 working days after the obligation of the guaranteed party is due, or the guaranteed party is bankrupt, liquidated, or the creditor requests the party providing the guarantee to undertake the repayment obligations, the officer in charge shall timely inform itself of the repayment status of the obligations of the guaranteed party, prepare to commence the recovery procedures to claim from the counter guarantee after being informed, and timely report to the Board of Directors.

Article 37 Where any guaranteed party fails to fulfill its obligations, and the creditor of the obligation secured asserts the claims against the Company, the officer in charge shall timely notify the Board of Directors, and the Company shall immediately commence the recovery procedures to claim from the counter guarantee.

Article 38 Where after the People’s Court accepts a bankruptcy case of the debtor, and the creditor fails to apply for registration of its claims, the officer in charge shall remind the Company for registration of the claim, to exercise the recovery right in advance.

Article 39 The guarantee review and management departments shall be responsible for conducting supervision and inspection on the external guarantee business of the Company at least once each year, including regular and irregular inspections. For any problem being discovered during the supervision and inspection, it shall urge the relevant entity or department to investigate and find out the cause and implement relevant correction and improvement measures. After each supervision

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and inspection, it shall prepare written report and timely submit to the entity being inspected or to the relevant responsible person of the department. The contents for guarantee business supervision and inspection mainly include:

(i) The organisation of the personnel of the guarantee business, focusing on checking whether there is any guarantee business employee whose position is incompatible with the job postings. The guarantee business positions incompatibility shall at least include:
The positions for evaluation and approval of the guarantee business;
The positions for approval and execution of the guarantee business;
The positions for execution and verification of the guarantee business;
The positions for custody of guarantee business related property and the records of the guarantee business;

The entire process of guarantee business shall not be carried out or completed by the same department or by the same person. The persons handling the guarantee business shall have good professional ethics, understand the guarantee law and other relevant laws and regulations, are familiar with the guarantee business process and can master the guarantee expertise.

(ii) The execution of the guarantee business authorization and approval system, focusing on checking whether guaranteed party of guarantee complies with the relevant regulations, whether the guarantee business evaluations are scientific and rational, whether the guarantee business approval procedures comply with the relevant regulations, and whether there exists any approval beyond authority.
(iii) The guarantee business approval status, focusing on checking whether the guarantee business approval process complies with the relevant regulations, and the implementation of the relevant comments on the contract of guarantee.
(iv) The implementation of the guarantee business monitoring and report system, focusing on checking whether the monitoring report on the financial risks of the guaranteed party and the implementation status of the guaranteed matters has been submitted regularly, and whether the safety and the completeness of the counter guarantee property are guaranteed.
(v) Whether termination procedures has been completed upon the expiration of the guarantee contract.
(vi) The status of the filing and management of the guarantee documents.
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Chapter 7 Information Disclosure on Guarantees

Article 40 When providing external guarantees, the Company shall perform information disclosure obligations according to the provisions of the relevant laws and regulations, the regulatory documents issued by the China Securities Regulatory Commission (“CSRC”) and the listing rules of the places of listing. The secretary of Board of Directors shall be responsible for the information disclosure issues. Any department and responsible person participating in the external guarantee of the Company are obliged to report the information on the external guarantee to the secretary of Board of Directors, and provide the documents required for information disclosure.

Article 41 For any external guarantee approved by the Board of Directors at the directors’ meeting or by shareholders at general meeting of the Company, the applicable information disclosure shall be made timely on news papers or the designated websites, including the board resolutions or shareholder resolutions, the total value of external guarantees provided by the Company and its controlled subsidiaries and guarantee provided by the Company for the controlled subsidiaries as of the date of the information disclosure, and the proportion of the aforesaid amounts in the audited net assets of the Listed Company in the latest period.

If the guaranteed party fails to perform its obligation of repayment in 15 businesses after the due date of the debt, or the guaranteed party is bankrupted, liquidated or its repayment ability is otherwise severely impaired, the Company shall timely disclose the same.

Article 42 The relevant departments of the Company shall take necessary measures to minimize the number of informants before the guarantee information is legally and publicly disclosed. Any employee in knowledge of the guarantee information of the Company is obliged to keep it confidential until the information is legally and publicly disclosed; otherwise, he shall be subject to the legal liabilities thus incurred.

Chapter 8 Liabilities and Penalties

Article 43 Any director, president or other management staff of the Company entering into a contract of guarantee without authorization and in violation of this Policy shall be liable for losses incurred to the Company as a result thereof.

Article 44 Any officer in charge causing any damage to the Company as a result of his negligence in the conduct of duties shall be liable for losses.

Article 45 The Company shall establish and improve the supervision and inspection systems for the control of external guarantees, enhance the risk control of key processes, and implement corresponding control measures.

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Chapter 9 Supplementary Provisions

Article 46 For any uncovered issues herein or in the case of any inconsistency between this Policy and any applicable laws, regulations, Listing Rules of the Place of Listing or the Articles of Association adopted or amended after this Policy takes effect, such laws, regulations, Listing Rules of the Place of Listing, Articles of Association shall apply.

Article 47 Unless otherwise provided, the terms used herein shall have the same meanings as used in the Articles of Association.

Article 48 After this Policy has been approved by the shareholders at the general meeting, this Policy shall take effect on the date of A shares of the Company are listed on Shanghai Stock Exchange.

Article 49 The right of interpretation of this Regulation shall be vested in the Board of Directors of the Company. This Policy is prepared in Chinese and English. Both versions shall have legal effect. In case there is any conflict or inconsistency between the two versions, the Chinese version shall prevail.

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D PLAN OF SINOTRANS LIMITED ON SHAREHOLDER RETURN FOR THE NEXT THREE YEARS (2018-2020)

Sinotrans Limited (hereinafter referred to as “Sinotrans” or the “Company”) proposes to merge with Sinotrans Air Transportation Development Co., Ltd. (hereinafter referred to as “SATD”) by absorption through share swap (hereinafter referred to as this “Merger”). To further improve the Company’s decisionmaking process and mechanism concerning profit distribution, enhance the transparency and feasibility of profit distribution, and maintain the legal rights and interests of the medium and small investors after the completion of this Merger, the Board of Directors of the Company formulated the plan of Sinotrans Limited on shareholder return for the next three years (2018-2020) (hereinafter referred to as the “Plan”) in accordance with the Circular on Furthering Implementation of Several Issues on Cash Dividend Payment by Listed Companies, Regulatory Guidance on Listed Companies No. 3 – Cash Dividend Payment by Listed Companies issued by the China Securities Regulatory Commission (“CSRC”), Shanghai Stock Exchange Guidance on Cash Dividend Payment by Listed Companies and other regulations, and pursuant to the Articles of Association of Sinotrans Limited (hereinafter referred to as the “Articles of Association”) and other documents, after evaluation of the corporate strategic development targets, operation plans, profitability, cash flow and external financing environment and other factors. The terms and conditions of the Plan are set out as follows:

I. Preconditions and Principles of Formulation of this Plan

The implementation of this Plan shall be subject to the approval by the CSRC of this Merger and completion of this Merger.

The formulation of this Plan shall be in compliance with applicable laws and regulations and the Articles of Association. It will focus on the reasonable investment return to investors as well as the sustainable development of the Company and aim to maintain the sustainability and stability of the profit distribution policies.

II. Factors Considered in Formulation of This Plan

This Plan is formulated on the basis of a comprehensive analysis of the profitability, operation and development plans, shareholder return, funding cost and external financing environment of the Company and other factors. It takes into account the Company’s current and future profitability, cash flow, development stage, capital demand of project investment, bank loans and financing environment, etc. and strives to maintain a balance between the reasonable investment return and development of the Company.

III. Details of Shareholder Return Plan for the Next Three Years (2018-2020)

(I) Profit distribution methods: the Company may make profit distribution in the forms of cash dividends, share dividends or a combination of the two forms; where permitted, the Company may make interim profit distribution;
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(II) Cash dividend payment conditions: except in cases of special circumstances, the Company may distribute dividends in cash after setting aside a sufficient amount of profits for the statutory reserve and the discretionary reserve, if the Company is profitable in that year and the aggregate undistributed profit value is positive.
“Special circumstances” referred to above shall mean:
1 the net cash flow generated from the operation in that year is negative, and cash dividend payment will have an adverse effect on subsequent existence of the Company as a going concern;
2 the auditors have not issued a standard unqualified audit report regarding the financial report of the Company for that year; or
3 the Company has major investment plans or other major cash expenditures (other than any fund raising projects).

The “major investment plan” or “major cash expenditure” referred to above shall mean any proposed external investment or asset acquisition in the next twelve months that will incur an accumulative expenditure reaching or exceeding 30% of the most recent audited total assets of the Company.

(III) Ratio of cash dividend payment: the Company shall maintain the sustainability and stability of profit distribution policies, and subject to the satisfaction of cash dividend payment conditions, the profits distributed in cash by the Company in any three consecutive years in aggregate shall not be less than 30% of the average distributable profits in such three years, and the profits distributed in cash by the Company for each year shall not be less than 10% of distributable realized profit in that year; the Board of Directors shall take into account the features of the industry where the Company operates, development stage, operation mode, profitability and arrangement of major capital expenditures and other factors, and put forward a policy of differentiated cash dividend distribution according to the following circumstances, pursuant to the procedures set forth in the Articles of Association:
(1) If the Company’s development is in the phase of maturity and no material capital expenditure has been arranged, the minimum ratio of cash dividend in that profit distribution shall be 80%;
(2) If the Company’s development is in the phase of maturity and material capital expenditure has been arranged, the minimum ratio of cash dividend in that profit distribution shall be 40%;
(3) If the Company’s development is in the phase of growth and material capital expenditure has been arranged, the minimum ratio of cash dividend in that profit distribution shall be 20%.
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When the Company conducts profit distribution, the Board shall determine the specific stage of the Company according to specific circumstances. If it is difficult to identify the Company’s phase of development but material capital expenditure has been arranged, it can proceed according to the previous provision.

(IV) Conditions of the distribution of share dividends

When the operation of the Company is satisfactory and the Board of Directors believes that Company’s share price is disproportionate to the share capital size of the Company and the distribution of share dividends is in the interests of all shareholders of the Company as a whole, the share dividend distribution plan can be proposed at general meeting for consideration and approval subject to the satisfaction of the above conditions of cash dividend payment.

IV. Decision-making Mechanism for Shareholder Return Plan

The Company’s profit distribution plan will be formulated by the management of the Company and submitted to the Board of Directors and Supervisory Committee for consideration. The Board of Directors will conduct sufficient discussions on the reasonableness of the profit distribution plan, and prepare a specific proposal which shall be submitted to the general meeting for its consideration. Where the Company is profitable in the previous accounting year but the Board of Directors determines not to make cash dividend payment or make cash dividend payment less than the cash dividend payment percentage set forth in the Articles of Association, the independent directors shall express their independent opinions. The Company shall provide public shareholders with access to online voting for the purpose of participating in the voting at the general meeting;
The Board shall, during the formulation of the specific cash dividend payment plan, carefully study and analyze the timing, conditions, minimum ratio, adjustment condition and decision-making procedures regarding the cash dividend payment, and independent directors shall express their opinions explicitly; independent directors may solicit opinions from small and medium shareholders, and put forward a dividend payment proposal which shall be submitted directly to the Board of Directors for its consideration;
Prior to the consideration of a specific cash dividend payment proposal at the general meeting, the Company shall communicate and exchange views with shareholders, especially small and medium shareholders, through various channels (including but not limited to online voting and inviting small and medium shareholders to meetings), in order to understand views and demands of small and medium shareholders. The concerns of small and medium shareholders shall also be addressed and replied to promptly;
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INTERNAL POLICIES TO BE ADOPTED BY THE COMPANY

Where the cash dividend payment conditions are met in the current year but the Board of Directors does not propose to distribute profit in cash or proposes to distribute profits in cash at a percentage lower than that is set forth in the Articles of Association, it shall also state the reason thereof, the purpose of the retained profits and estimated investment returns and disclose the same in the annual reports, and the independent directors shall express their independent opinions regarding the same. In addition, when the general meeting is held, the Company shall provide access to online voting for the purpose of facilitating small and medium shareholders in voting at the general meeting;
The Supervisory Committee shall conduct supervision of the implementation and decision-making procedures of the profit distribution policies and shareholder return plan undertaken by the Board of Directors and the management, and it shall issue its opinions regarding applicable policies and plan implementation where the Company earns profits but does not put forward a profit distribution proposal;
The general meeting shall vote on the profit distribution proposal submitted by the Board of Directors in accordance with applicable laws and regulations and the Articles of Association.
V. Period of Formulating the Shareholder Return Plan and Mechanism of Adjusting the Shareholder Return Plan
In case of any major effect on the business operation of the Company as a result of any war, natural disaster or other force majeure event or any change to the external operation environment of the Company (such as any change to the state policies or regulations), or in case of any substantial change to operation conditions of the Company, the Company may make an adjustment to the profit distribution policies of the Company.
Where an adjustment to the profit distribution policies of the Company is required due to its business operation, investment plan or long-term development needs, the Board of Directors of the Company shall propose adjustments to the profit distribution plan according to the actual situation, and submit such proposal to the general meeting for review, which shall be adopted by the affirmative votes of more than 2/3 of all shareholders present at the general meeting; the adjusted profit distribution policies shall aim at investor protection, and it shall not contravene the applicable regulations of the CSRC and stock exchanges; the proposed adjustment to profit distribution plan shall, upon approval of the Supervisory Committee and more than half of independent directors, be submitted to the Board of Directors and general meeting for their approval, and such proposal submitted to the general meeting shall set forth in detail the reason for adjustment to the profit distribution policies. In connection with any adjustment to the profit distribution policies, the Company shall provide access to online voting for public shareholders to vote at the general meeting.
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VI. Supplementary Provisions

Any issues which this plan may not apply to shall be subject to applicable laws, regulations and the Articles of Association. This Plan shall be interpreted by the Board of Directors and, upon the approval of the general meeting, shall take effect on the date when the A shares of the Company are listed on Shanghai Stock Exchange.

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E MEASURES TO REMEDY THE DILUTION EFFECT TO THE IMMEDIATE RETURN OF SHAREHOLDERS THAT MAY BE CAUSED BY THE PROPOSED MERGER OF SINOTRANS AIR TRANSPORTATION DEVELOPMENT CO., LTD. BY ABSORPTION THROUGH SHARE SWAP

Sinotrans Limited (“Sinotrans”) is planning a merger with Sinotrans Air Transportation Development Co., Ltd. (“Sinoair”) by absorption through share swap and the connected transactions (hereinafter referred as the “Transaction”).

According to the laws, regulations and normative documents including Opinions of the State Council on Further Promotion of Healthy Development of Capital Markets (Guo Fa [2014] No. 17), Opinions of the General Office of the State Council on Further Strengthening the Protection of Legitimate Rights and Interests of Minority Investors in the Capital Markets (Guo Ban Fa [2013] No. 110), and Guiding Opinions on Matters relating to the Diluted Returns for the Current Period due to Initial Public Offering, Refinancing and Major Asset Restructuring (CSRC Announcement [2015] No. 31), Sinotrans conducted a careful, cautious and objective analysis regarding the transaction’s impact on diluted return for the current period. In response to the requirements in the abovementioned laws, regulations and normative documents, the Company hereby makes the following announcement:

I. Background of the transaction

Sinotrans shall merge with Sinoair by absorption through share swap transaction, which means Sinotrans shall issue its A shares to all shareholders of Sinoair (except Sinotrans) in exchange for the shares they hold in Sinoair. Sinoair shares held by Sinotrans shall not participate in the share swap nor will Sinotrans elect for the cash alternative and such Sinoair shares shall be de-registered upon completion of the merger by absorption through share swap. Upon completion of the said merger, Sinotrans, as the surviving entity, shall inherit/take over all assets, liabilities, businesses, contracts, qualifications, employees and all other rights and obligations through the recipient party, and Sinoair shall cease to be listed and cease to be a legal person. In connection with the merger, the Company will then submit an application for listing of the A shares which Sinotrans is to issue on the Shanghai Stock Exchange (“SSE”). The domestic shares originally held by China Merchants Group and Sinotrans & CSC Holdings Co. Ltd. shall be converted to A shares and application for listing of such shares on the SSE will be made. The period of selling restriction on these A shares shall conform to laws and regulations including the Company Law and related rules of the SSE.

Sinotrans determines the issue price based on the interests of the merger parties’ shareholders, taking into account the merger parties’ overall businesses, profitability, growth prospects, risk tolerance and valuation of comparable companies in the industry. The issue price of Sinotrans is RMB5.32 per share.

In the merger, the share swap price of the Sinoair shares, i.e. RMB20.63 per share, is determined on the basis of the average share price of the Sinoair shares in the 20 trading days prior to the pricing base date (the date of announcement of the resolution passed at the 20th meeting of the 6th Board of Directors), i.e. RMB16.91 per share, plus a premium of 22%.

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In case of ex-rights or ex-dividends such as cash dividend, share dividend, conversion of capital reserve into share capital and allotment by Sinotrans and Sinoair during the period between the pricing base date and the date of actual share swap (both dates inclusive), corresponding adjustments shall be made to the abovementioned issue price and share swap price. Under no other circumstances shall adjustments be made to issue price and share swap price of Sinotrans and Sinoair.

In the merger, Sinotrans shall exchange Sinoair shares by the ratio of 1:3.8778, which means each Sinoair shareholder who participates in the share swap may receive 3.8778 Sinotrans A shares issued for the transaction in exchange of each Sinoair share he or she holds. In case of ex-rights or ex-dividends such as cash dividend, share dividend, conversion of capital reserve into share capital and allotment by Sinotrans and Sinoair during the period between the pricing base date and the date of actual share swap (both dates inclusive), corresponding adjustments shall be made to the abovementioned share swap ratio. Under no other circumstances shall adjustments be made to the share swap ratio.

II. Analysis of diluted return for the current period as a result of the transaction

Upon completion of the merger by absorption through share swap, earnings per share (“EPS”) of Sinoair and Sinotrans before and after lessing non-recurrent loss and profits based on the 2017 financial statement of Sinoair prepared under the PRC Accounting Principles, 2017 financial statement of Sinotrans and pro forma consolidated financial statement of Sinotrans prepared under the PRC Accounting Principles are set out as follows:

			_Unit: _	RMB/Share
			2017
				Post-merger
Company	name	Item	Pre-merger	(pro forma)
Sinotrans		Basic EPS attributable to parent company	0.3809	0.3817
Sinoair		Basic EPS attributable to parent company	1.4942	1.4802
			2017
				Post-merger
Company	name	Item	Pre-merger	(pro forma)
Sinotrans		Basic EPS attributable to parent company after	0.2591	0.2622
		lessing non-recurrent loss and profits
Sinoair		Basic EPS attributable to parent company after	1.0582	0.8355
		lessing non-recurrent loss and profits

Note: The said net asset income rate and earning per share are calculated according to the Information Disclosure Rule No. 9 for Companies which Publicly Offer Its Shares – Calculation and Disclosure of Net Asset Income Rate and Earning Per Share (2010 amended) promulgated by China Securities Regulatory Commission. Sinoair’s basic EPS attributable to parent company upon the merger is calculated based on the share swap ratio of 1:3.8778 and based on the Sinotrans’s basic EPS attributable to parent company.

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Provided that the subsequent synergic effect from the merger is not taken into consideration, Sinoair’s EPS is subject to the risk of dilution.

III. Necessity and rationale of the Board’s decision on asset restructuring

(1) Create comprehensive integrated logistics service

In recent years, the trend of progressive integration is witnessed in sub-segments of the logistics industry as the retail industry in mainland China develops rapidly and demand for integrated logistics service grows remarkably. Therefore, the traditional logistics sector based on modes of transportation can no longer meet market demand effectively. Upon completion of the merger by absorption through share swap, Sinotrans and Sinoair will fully integrate the resources of sea, land and air logistics, which will strengthen the Sinotrans’s capacity in providing logistics service and enhance its core competitiveness and influence on the industry.

(2) Avoid potential horizontal competition and eliminate connected transactions

Intensive resource integration is the trend of development in the logistics industry. Continuous expansion of logistics network and launch of new logistics products are expected from logistics companies when they provide diversified and integrated logistics services and solutions. Sinotrans and Sinoair might not be competitors in their principal businesses before the transaction, but the possibility of overlapping businesses in the future cannot be ruled out. By merging Sinoair by absorption through share swap, Sinotrans can eradicate potential horizontal competition with Sinoair, break through the bottleneck under their individual operations and eliminate connected transactions of both parties.

(3) Integrate internal resources, effectively reduce financial risks and optimize capital structure

Sinotrans has higher debt ratio than Sinoair. Relatively high debt ratio will to a certain extent constrain Sinotrans’s profitability and expanding business. Upon completion of the merger, Sinotrans, as the surviving entity, shall be in a position to fully integrate internal resources of the logistics sector, increase its value through synergic effect, reduce financial risks, prevent operation risks, optimize capital structure and continue to develop more steadily.

(4) Diversify source of financing and strengthen competitive advantage

Upon completion of the merger, Sinotrans, as the surviving entity, shall proceed with the construction of A+H capital operation platform for capital operation activities in the H- share and A-share markets. Trading and financing activities are active in the A-share market where innovative financial instruments are launched from time to time. Therefore, Sinotrans will benefit from the construction of the A+H capital operation platform diversifying financing resources, increasing brand influence and strengthening competitiveness in order to provide strong capital support for Sinotrans’s future business development, merger and acquisition.

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(5) Improve corporate governance structure and protect investors’ interests

Before the merger, Sinotrans is the controlling shareholder of Sinoair holding 60.95% of its shares. Sinotrans, an H-share listed company, and Sinoair, an A-share listed company, have different shareholder structures and interests, independent management and different incentive mechanisms and profit targets. Multiple management levels will to some extent affect management efficiency. The merger by absorption through share swap can thoroughly resolve the problems in management structure and decision-making mechanism.

In addition, Sinotrans will benefit from returning to the A-share market in further improving corporate governance structure according to requirements of the domestic regulator, further optimizing corporate governance standard and increasing profitability so as to return more profits to investors.

IV. Specific measures for remedying return and strengthening Sinotrans’s capacity of bringing sustainable return

Sinotrans will follow and adopt the following principles and measures to further strengthen its capacity of operation management and respond to the risk of diluted return for the current period:

(1) Accelerate the development of principal business and increase profitability of surviving company

Upon completion of the merger, Sinotrans will become an A+H listed company with full integration of land, sea and air logistics businesses. On such basis, Sinotrans will enhance specialization of labour and consolidation of operation within three major business segments, fully increase capacity in the design of end-to-end full supply chain and provision of one-stop service and ensure rational and effective distribution of resources. It will complete the establishment of the five channels to fully build up full-network operation capacity. It will strengthen to develop overseas markets, foster capacity of overseas business operation and improve international operation standards. Also, Sinotrans will strive to strengthen its capital operation, build up market value management in order to fulfill positive interaction between business operation and capital operations and comprehensively enhance its operation efficiency and profitability.

(2) Build up internal management and cost control of surviving company

Sinotrans will further build up internal management, enhance management efficiency and increase cost control. Full control will be exercised in operation, management and financial costs of all business operation segments in advance, in the course of incurring costs and afterwards.

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INTERNAL POLICIES TO BE ADOPTED BY THE COMPANY

APPENDIX VII

(3) Improve the corporate governance of surviving company and safeguard its development with appropriate systems

Sinotrans has formulated a sound legal person corporate governance structure to govern its operation and an independent mechanism for the operation of shareholder meetings, Board of Directors, Board of Supervisors and management. It has also established an independent, effective and streamlined organizational structure which adapts to the surviving company’s production and operation. Clear-cut duties between different functional departments are specified for check and balance. The surviving company has a suitable organizational framework which operates effectively, and clear-cut duties are determined for shareholder meetings, Board of Directors, Board of Supervisors and management to ensure check and balance and effective operation. The abovementioned mechanisms form a rational, complete and effective framework for governing and managing business operation of the surviving company.

Sinotrans will comply with applicable laws, regulations and normative documents including the Company Law and Securities Law and continuously improve governance structure to protect interests of investors, especially the small and medium investors, and safeguard the surviving company’s development with appropriate systems.

(4) Further improve profits distribution system and strengthen investor return mechanism

Sinotrans will continue to bring reasonable return on investments to shareholders, ensure a sustainable development of the surviving company and formulate a sustainable, stable and scientific bonus policy.

Sinotrans will amend and update the draft Articles of Association and formulate shareholder return plans based on the Notice Regarding Further Implementation of Cash Dividends Distribution of Listed Companies and Guidance on Regulation of Listed Companies No. 3 – Cash Bonus of Listed Companies promulgated by the China Securities Regulatory Commission. The surviving company’s profits distribution policy focuses on bringing reasonable return on investments to investors especially the small and medium investors. Sinotrans will seek comments from investors and independent directors and make effort to ensure the shareholders of the surviving company can exercise their legal right to the return on investment as a way to manifest the surviving company’s long-term development vision of actively bringing return to shareholders.

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INTERNAL POLICIES TO BE ADOPTED BY THE COMPANY

APPENDIX VII

V. Remedial measures committed by the directors and senior officers of Sinotrans regarding diluted return for the current period as a result of the merger by absorption through share swap

The directors and senior officers of Sinotrans made the following commitments to ensure that the surviving company will adopt remedial measures to make up return for the current period:

“1 to perform their duties faithfully and diligently to protect lawful interests of the Company and all shareholders;
2 not to transfer benefits to other entities or individuals without compensation or on unfair terms, and not to harm the Company’s interests by other means;
3 to constrain the consumption if it is business-related;
4 not to invest with or spend the company’s assets outside the performance of their duties;
5 the Board of Directors or the Remuneration and Appraisal Committee shall formulate salary system which is in line with the implementation of the return remedial measures.
6 if a shareholding incentive policy shall be implemented in the future, the conditions for exercising the option under the policy to be announced shall be in line with the implementation of the return remedial measures.
7 if the China Securities Regulatory Commission (“CSRC”) promulgates other rules for regulating return remedial measures and their commitments between the date of issuing the abovementioned commitments and the date of completion of the merger by absorption through share swap, and if the abovementioned commitments fail to meet such rules of the CSRC, supplementary commitments shall be made according to the latest rules.”

VI. Related commitments of de facto controller and controlling shareholder of Sinotrans

In order to ensure that the return remedial measures are implemented, China Merchants Group Company Limited as the de facto controller and Sinotrans & CSC Holdings Co. Ltd. as the controlling shareholder also made the following commitments:

“Not to overstep their authority to interfere with the Company’s operation and management or infringe the Company’s interests.”

The aforesaid diluted return for the current period and intended remedial measures, after being approved by the Shareholders’ Meeting, shall take effect on the date the Company’s A shares are listed on the Shanghai Stock Exchange.

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AI assistant

ELL Environmental Holdings Limited — Proxy Solicitation & Information Statement 2018

49895_rns_2018-04-18_1061b329-c193-467f-9e0c-f02a9a97be55.pdf

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

Transaction Adviser and Chief Coordinator

Financial Advisers

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

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

EXPECTED TIMETABLE

LETTER FROM THE BOARD

I. PROPOSED LISTING OF A SHARES AND THE PROPOSED MERGER

Introduction

LETTER FROM THE BOARD

LETTER FROM THE BOARD

Proposed Listing of A Shares

LETTER FROM THE BOARD

The Merger Proposal

Date

Parties

The Proposed Merger

As of the Latest Practicable Date

LETTER FROM THE BOARD

The consideration for Target Shares

LETTER FROM THE BOARD

LETTER FROM THE BOARD

Basis of determination of the initial Issue Price, the initial Exchange Price and the initial Cash Alternative

LETTER FROM THE BOARD

LETTER FROM THE BOARD

LETTER FROM THE BOARD

LETTER FROM THE BOARD

Conditions Precedent

LETTER FROM THE BOARD

Completion

Termination

Consideration Shares

LETTER FROM THE BOARD

Exit rights of Qualifying Dissenting Shareholders of the Company

Other terms under the Merger Agreement

Certain Undertakings Given by the Company

LETTER FROM THE BOARD

Effect of the Proposed Issue of Consideration Shares on Shareholding, Net Asset Value per Share and Earnings per Share of the Company

LETTER FROM THE BOARD

LETTER FROM THE BOARD

LETTER FROM THE BOARD

Information on the Sinoair Group

Financial information of Sinoair Group

LETTER FROM THE BOARD

Financial Effect of the Proposed Merger

Assets and liabilities

Earnings

Reasons for and Benefits of the Proposed Merger Under the Merger Agreement

LETTER FROM THE BOARD

LETTER FROM THE BOARD

Listing Rules Implications

LETTER FROM THE BOARD

II. PROPOSED AMENDMENTS OF THE ARTICLES OF ASSOCIATION AND ADOPTION OF CERTAIN INTERNAL POLICIES BY THE COMPANY

LETTER FROM THE BOARD

LETTER FROM THE BOARD

III. EGM

LETTER FROM THE BOARD

IV. CLASS MEETINGS

H Shares Class Meeting

Domestic Shares Class Meeting

V. DIRECTORS’ RECOMMENDATION

VI. GENERAL INFORMATION

MAJOR TRANSACTION AND POSSIBLE CONNECTED TRANSACTION – PROPOSED LISTING OF A SHARES AND THE MERGER OF SINOAIR

Yours faithfully,

MAJOR TRANSACTION AND POSSIBLE CONNECTED TRANSACTION IN RELATION TO THE PROPOSED LISTING OF A SHARES AND THE PROPOSED MERGER OF SINOAIR

1. INTRODUCTION

2. LISTING RULES IMPLICATION

2.1 Major transaction – acquisition

2.2 Connected transaction

2.3 Other matters

3. THE INDEPENDENT BOARD COMMITTEE

4. INDEPENDENT FINANCIAL ADVISER

ELL Environmental Holdings Limited Proxy Solicitation & Information Statement 2018