First Tractor Company Limited - Proxy Solicitation & Information Statement 2004

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

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

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

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

(Stock Code: 0038)

EXCEEDING OF EXISTING CAPS ON ONGOING CONNECTED TRANSACTIONS AND ONGOING CONNECTED TRANSACTIONS

Independent financial adviser to the Independent Board Committee and the Independent Shareholders of First Tractor Company Limited

South China Capital Limited

A letter from the Board of First Tractor Company Limited is set out on pages 1 to 13 of this circular.

A letter from the Independent Board Committee of First Tractor Company Limited is set out on page 14 of this circular.

A letter from South China Capital Limited containing its recommendations to the Independent Board Committee and the Independent Shareholders of First Tractor Company Limited is set out on pages 15 to 33 of this circular.

A notice convening an extraordinary general meeting (“EGM”) of First Tractor Company Limited to be held at 9:00 a.m. on Monday, 16 August 2004 at No. 154 Jianshe Road, Luoyang, Henan Province, the People’s Republic of China is set out on pages 38 to 39 of this circular.

A form of proxy for use at the EGM is enclosed. Whether or not you are able to attend the meeting in person, you are requested to complete and return the accompanying form of proxy in accordance with the instructions contained therein and deposit the same with the Company’s registrar, Hong Kong Registrars Limited, situated at Shops 1712-1716, 17/F, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong as soon as possible and in any event not less than 24 hours before the time scheduled for holding such meeting (or any adjourned meeting thereof). Completion and delivery of the form of proxy will not preclude you from attending and voting in person at the EGM or any adjournment if you so desire.

28 June 2004

	Pages
Definitions..................................................................................................................................................	ii
Letter from the Board
Background......................................................................................................................................	1
Exceeding of existing caps on Ongoing Connected Transactions...............................................	3
Remedial measures to be taken......................................................................................................	5
New Agreement dated 2 June 2004 ...............................................................................................	6
Ongoing Connected Transactions ..................................................................................................	12
EGM .................................................................................................................................................	12
Opinion of the Independent Board Committee .............................................................................	12
Procedures for demanding a poll ...................................................................................................	13
Additional Information ...................................................................................................................	13
Letter from the Independent Board Committee.................................................................................	14
Letter from South China Capital ..........................................................................................................	15
Appendix I — General Information......................................................................................................	34
Notice of EGM..........................................................................................................................................	38

— i —

DEFINITIONS

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

“2003 Circular”

the circular dated 19 June 2003 issued by the Company in respect of the Ongoing Connected Transactions

“associate(s)” has the meaning ascribed to it under the Listing Rules
“Board” the board of Directors
“Brilliance China” Brilliance China Machinery Holdings Limited （華晨中國機械控股有限公司）, a Bermuda incorporated company with limited liability and is owned as to 90.1% by the Company and as to 9.9% by Brilliance China Holdings Ltd., which is not a connected person (as defined under the Listing Rules) of the Company
“China Yituo” China Yituo Group Corporation Limited （中國一拖集團有限公司）, a PRC company with limited liability, the controlling shareholder and holding company of the Company, holding approximately 57.32% of the equity interests of the Company
“China Yituo Group” China Yituo and its subsidiaries/controlled companies or entities
“Company” First Tractor Company Limited （第一拖拉機股份有限公司）, a joint stock limited company incorporated under the Company Law
“Company Law” the Company Law of the PRC （中華人民共和國公司法）, as enacted by the Standing Committee of the Eighth National People’s Congress （全國人民代表大會） on 29 December 1993 and came into force on 1 July 1994, as amended, supplemented or otherwise modified from time to time
“Corporate Substantial Shareholder Notice”
notice to be used by a corporation disclosing a notifiable interest in a Hong Kong listed corporation under s342 of Part XV of the SFO
“Director(s)” the director(s) of the Company, including the independent non-executive director(s)
“EGM”
an extraordinary general meeting of the Company to be convened for the purpose of considering by the Independent Shareholders on the Ongoing Connected Transactions, the notice of which is set out in this circular

— ii —

DEFINITIONS

“Existing Waiver”	the waiver granted to the Company by the Stock Exchange on 13 August
	2003 from strict compliance with the relevant requirements of the Listing
	Rules in respect of the Ongoing Connected Transactions for the three
	financial years ending 31 December 2005
“Financial Services”	the financial services set out in the 2003 Circular and provided by First
	Tractor Finance to China Yituo Group pursuant to the Old or New
	Agreement (as the context may require)
“First Tractor Finance”	China First Tractor Group Finance Co., Ltd.（中國一拖集團財務有限
	責任公司）, a subsidiary of the Company since it was acquired on 14
	June 2002, which is owned as to approximately 79.67% by the Company,
	10% by Yituo Building, 1.33% by Yituo Dongfang, 1% by YTO
	International, 7% by Yituo Diesel and 1% by China Yituo
“Group”	the Company and its subsidiaries
“HK$”	Hong Kong Dollars, the lawful currency of Hong Kong
“Hong Kong”	the Hong Kong Special Administrative Region of the PRC
“Independent	an independent committee of the Board comprising the independent non-
Board Committee”	executive Directors, namely Mr. Lu Zhong Min, Mr. Tao Xiang, Mr. Chan
	Sau Shan, Gary and Mr. Chen Zhi, appointed to advise the Independent
	Shareholders in respect of the New Agreement and the New Caps in
	relation to the Ongoing Connected Transactions
“Independent Shareholders”	shareholders of the Company other than China Yituo and its associates
“Latest Practicable Date”	24 June, 2004, being the latest practicable date prior to the printing of this
	circular for ascertaining information contained herein
“Listing Rules”	The Rules Governing the Listing of Securities on the Stock Exchange (as
	amended from time to time)
“New Agreement”	the agreement dated 2 June 2004 entered into between First Tractor
	Finance and China Yituo pursuant to which First Tractor Finance agreed
	to provide the Financial Services to China Yituo Group
“New Caps”	the maximum aggregate annual values of the Ongoing Connected
	Transactions as set out in this circular

— iii —

DEFINITIONS

“Old Agreement” the agreement dated 29 May 2003 entered into between First Tractor Finance and China Yituo pursuant to which First Tractor Finance provided the Financial Services to China Yituo Group

“Ongoing Connected the transactions contemplated under the Old or New Agreement (as the Transactions” context may require)

“PBOC” the People’s Bank of China

“PRC” the People’s Republic of China

“RMB” Renminbi, the lawful currency of the PRC “SFO” the Securities and Futures Ordinance (Chapter 571 of the laws of Hong Kong) (as amended from time to time)

“Shareholder(s)” the holder(s) of the shares of the Company “South China Capital” South China Capital Limited, the independent financial adviser to the Independent Board Committee and the Independent Shareholders and a deemed licenced corporation under the SFO
“Stock Exchange” The Stock Exchange of Hong Kong Limited
“Yituo Building” Yituo (Luoyang) Building Machinery Co., Ltd. （一拖（洛陽）建築機械有限公司）, a company established in the PRC and is owned as to 49% by the Company and as to 51% by Brilliance China
“Yituo Diesel” Yituo (Luoyang) Diesel Co., Ltd. （一拖（洛陽）柴油機有限公司）, a company established in the PRC and is owned as to 75% by China Yituo Group and 25% by Brilliance China
“Yituo Dongfang” Luoyang Yituo Dongfang Industry Company Limited （洛陽一拖東方實業公司）, a company established in the PRC and is owned as to 94.9% and 5.1% by 中國第一拖拉機工程機械有限公司東方實業公司工會委員會 (Yituo Dongfang Industry Company Limited - Staff Union Committee) and 20 individuals, respectively, all of which are not connected persons (as defined in the Listing Rules) of the Company
“YTO International” YTO International Limited （一拖國際經濟貿易有限公司）, a company established in the PRC with limited liability and is a wholly-owned subsidiary of China Yituo

“%” per cent

— iv —

LETTER FROM THE BOARD

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(Stock Code: 0038)

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

Board of Directors: LIU Da Gong (Chairman) DONG Yong An LIU Wen Ying SHAO Hai Chen ZHAO Yan Shui LI Teng Jiao ZHANG Jing HUANG Yan Zhao LIU Shuang Cheng YAN Lin Jiao LU Zhong Min TAO Xiang CHAN Sau Shan, Gary CHEN Zhi

Registered and principal office: No. 154 Jianshe Road Luoyang Henan Province The PRC

* Independent non-executive Director

28 June 2004

To the Shareholders

EXCEEDING OF EXISTING CAPS ON ONGOING CONNECTED TRANSACTIONS AND ONGOING CONNECTED TRANSACTIONS

BACKGROUND

Reference is made to the announcement of the Company dated 29 May 2003 and the 2003 Circular in connection with the Ongoing Connected Transactions and the Existing Waiver.

— 1 —

LETTER FROM THE BOARD

The Existing Waiver was granted to the Company by the Stock Exchange on 13 August 2003 in respect of the Ongoing Connected Transactions entered into between First Tractor Finance and China Yituo in relation to the provision of the Financial Services, including deposit, loan, bills discounting, finance lease, bills acceptance, guarantee and designated loan to China Yituo Group.

On 7 June 2004, the Directors announced that the existing caps granted under the Existing Waiver for the provision of deposit (with interest) and loan (with interest) services under the Financial Services as set out in the 2003 Circular have been exceeded.

One of the conditions of the Existing Waiver for the Ongoing Connected Transactions was that the outstanding balances of the Ongoing Connected Transactions should not exceed the existing caps at any time during the relevant periods as set out in the Existing Waiver. Under Rule 14A.36(1) of the Listing Rules, the Company should re-comply with Rule 14A.35 of the Listing Rules if the relevant cap amounts have been exceeded.

The Directors also announced that in view of the rapid business expansion of China Yituo Group, they considered that the relevant cap amounts of the Financial Services as set out in the 2003 Circular are insufficient. Therefore, the New Agreement was entered into between First Tractor Finance and China Yituo on 2 June 2004 in order to terminate and to replace the Old Agreement (having a term of 3 years commencing from 29 May 2003 to 28 May 2006) and to increase the relevant cap amounts catering for the business expansion and the smoothness of the operations of the Group.

The purpose of this circular is to provide you with information relating to the New Agreement and the New Caps in relation to the Ongoing Connected Transactions, to set out the letter of advice from South China Capital to the Independent Board Committee and the Independent Shareholders and the recommendations of the Independent Board Committee in respect of the Ongoing Connectred Transactions, and to give notice of the EGM to be convened (at which China Yituo together with its associates (as defined in the Listing Rules) with interest in the Ongoing Connected Transactions who control or are entitled to exercise control over the voting right in respect of their shares in the Company will abstain from voting) for the Independent Shareholders to approve the New Agreement and the New Caps in relation to the Ongoing Connected Transactions. As at the Latest Practicable Date, China Yituo together with its associates (as defined in the Listing Rules) do not have any voting trust or other agreement or arrangement or understanding (other than an outright sale) entered into by or binding upon any of them and they do not have any obligation or entitlement as at the Latest Practicable Date, whereby China Yituo together with its associates (as defined in the Listing Rules) may have temporarily or permanently passed control over the exercise of the voting right in respect of their shares in the Company to a third party. The voting will be taken by poll.

— 2 —

LETTER FROM THE BOARD

EXCEEDING OF EXISTING CAPS ON ONGOING CONNECTED TRANSACTIONS

The Directors announced that regarding the Ongoing Connected Transactions entered into between First Tractor Finance and China Yituo, the existing caps for the provision of deposit (with interest) and loan (with interest) services under the Financial Services as set out in the 2003 Circular, which are RMB60 million and the lower of 20% total asset value of First Tractor Finance or RMB165 million respectively, have been exceeded. Details are as follows:

RMB million

	As at	As at	Existing Caps
	30 April	31 December	For the year ending 31 December
	2004	2003	2003 2004	2005
Deposit (with interest)	85.23	99.661	60 80	100
Loan (with interest)	191.36	163.682	The lower of 20%
			of total asset value
			of First Tractor Finance or
			165 205	245
Bills discounted receivables		116.41	The lower of 15%
			of total asset value of
			First Tractor Finance or
			120 160	200
Finance Lease		0	The lower of 10%
provided to China			of total asset value of
Yituo Group			First Tractor Finance or
			35 65	100
Bills acceptance		0	The lower of 10% of total asset	value
			of First Tractor Finance or
			60 100	140
Guarantee		3.21	The lower of 15% of total asset	value
			of First Tractor Finance or
			100 150	200
Designated loan		3	5 7	9

— 3 —

LETTER FROM THE BOARD

Note 1: As at 30 April 2004, the amount of deposit (with interest) was approximately RMB85.23 million.

Note 2: For the year ended 31 December 2003, the existing cap relating to loan (with interest) had been exceeded. Details are as follows:

(1) as at 24 October 2003, the amount of loan (with interest) was approximately RMB167.68 million and had exceeded the existing cap for the year ended 31 December 2003 by approximately RMB2.68 million;
(2) as at 7 November 2003, the amount of loan (with interest) was approximately RMB167.68 million and had exceeded the existing cap for the year ended 31 December 2003 by approximately RMB2.68 million;
(3) as at 26 November 2003, the amount of loan (with interest) was approximately RMB177.68 million and had exceeded the existing cap for the year ended 31 December 2003 by approximately RMB12.68 million.

However, as at 26 December 2003, the amount of loan (with interest) was approximately RMB163.68 million which fell within the existing cap for the year ended 31 December 2003. As at 30 April 2004, the amount of loan (with interest) was approximately RMB191.36 million.

In late March 2004, the Directors noticed the above exceeding of the relevant cap amounts during both the review of the operations result of the Group and the preparation for the audited results of the Company for the year ended 31 December 2003.

First Tractor Finance has accepted additional deposits from China Yituo Group subsequent to late March 2004. The outstanding amounts of deposits and loans were approximately RMB58 million and RMB198.86 million respectively as at the Latest Practicable Date. The Company’s omission to fulfill the disclosure and Independent Shareholders’ approval requirements in relation to any Ongoing Connected Transactions subsequent to the existing caps have been exceeded has resulted in non-compliance with the Listing Rules.

The decision of the Directors (including the independent non-executive Directors) to continue the Ongoing Connected Transactions subsequent to late March 2004 was made after the due consideration of the following reasons:

— 4 —

LETTER FROM THE BOARD

(1) due to the ongoing nature of the provision of the deposit and loan services, it may be impracticable for such services to be terminated unilaterally due to the following:
(a) as the deposits are used to finance the provision of the loan services, should First Tractor Finance cease accepting the deposits immediately, it would have an adverse effect on the liquidity of First Tractor Finance; and
(b) as the maturity periods of the loans provided by First Tractor Finance to China Yituo Group as shown in the announcement of the Company dated 29 May 2003 vary from a minimum of 6 months to a maximum of 36 months, the immediate termination of the loan services may constitute a breach of the contractual terms of the Old Agreement which are legally binding on the contractual parties i.e. First Tractor Finance and China Yituo and the latter may take legal action and to claim damages for any loss arisen from First Tractor Finance for its failure to fulfill its contractual obligations under the Old Agreement; and
(2) as the outstanding amounts of both deposit and loan services in March 2004 were much larger than those in 2003, it may have material adverse impact on First Tractor Finance for such services to be ceased.

Having taken the above factors into account, the Directors (including the independent non-executive Directors) consider that the continuation of the Ongoing Connected Transactions before entering into the New Agreement and the entering into the New Agreement are in the interest of the Company and its Shareholders as a whole.

The Stock Exchange has indicated that it reserves its rights to take appropriate action against the Company and/or its Directors as a result of such non-compliance of the Listing Rules.

REMEDIAL MEASURES TO BE TAKEN

In order to avoid the recurrence of the incident herein mentioned above and to strengthen its control over the management of First Tractor Finance, the Group proposes to take the following remedial measures:

when considering whether or not to approve any new loan, apart from the regular credit check, the loan approving committee of First Tractor Finance will also conduct a compliance procedure i.e. performing compliance check specifically on the Ongoing Connected Transactions so as to ensure that they fall within the proposed New Caps and the conditions required under the Listing Rules in relation to the Ongoing Connected Transactions have been fulfilled;

— 5 —

LETTER FROM THE BOARD

imposing the internal audit department of First Tractor Finance with new duty i.e. verifying the execution of the Ongoing Connected Transactions monthly and provide a monthly written report relating to the above to the Directors for their review;
selecting suitable senior personnel i.e. Mr. Xie Jian Hua （謝建華先生） who is the Manager of First Tractor Finance and the Chief Accountant of the Company and is familiar with the Listing Rules to supervise the operations and vet the transactions of First Tractor Finance; and
establishing a channel of communication between the Company and First Tractor Finance by way of holding regular meetings between them to monitor the operations of First Tractor Finance.

NEW AGREEMENT DATED 2 JUNE 2004

The Directors also announced that the New Agreement was entered into between First Tractor Finance and China Yituo on 2 June 2004 in order to terminate and to replace the Old Agreement (having a term of 3 years commencing from 29 May 2003 to 28 May 2006) and to increase the relevant cap amounts catering for the business expansion and the smoothness of the operations of the Group. The New Agreement and the New Caps are conditional upon, inter alia, approval of the Independent Shareholders taken by poll at the EGM. The provision of the Financial Services constitute non-exempt ongoing connected transactions of the Company under Rule 14A.35 of the Listing Rules. Major terms of the New Agreement are as follows:

Parties involved

First Tractor Finance and China Yituo

Condition

Subject to the Independent Shareholders’ approval at the EGM.

Term

From 2 June 2004 to 31 December 2006

Termination of the Old Agreement

(a) First Tractor Finance and China Yituo agree to unconditionally terminate the Old Agreement which will be replaced by the New Agreement.

— 6 —

LETTER FROM THE BOARD

(b) Both First Tractor Finance and China Yituo will waive their respective rights to claim against each other for any loss arising out or in connection with the cancellation of the Old Agreement and will properly deal with the transactions which have been terminated under the Old Agreement.
(c) First Tractor Finance agrees to provide the Financial Services to China Yituo in accordance to the terms of the New Agreement and to ensure that all the transactions will comply with the relevant provisions of the Listing Rules and the cap amounts for such transactions will not exceed the ones stated in the schedule attached to the New Agreement.

Financial Services to be provided to China Yituo Group

Pursuant to the New Agreement, First Tractor Finance will principally provide the following Financial Services to China Yituo Group during the term stated above:

(a) Deposit

First Tractor Finance will provide deposit services (including the provision of time deposit, deposit with saving interest rate and also the transfer of fund within China Yituo Group) for China Yituo Group with saving interest rate determined with reference to the relevant interest rates set by PBOC from time to time, the capital interest rate for the settlement account will be determined with reference to the current interest rate i.e. the relevant interest rates set by PBOC from time to time;

(b) Loan

First Tractor Finance will provide loans to China Yituo Group with interest rate determined with reference to the relevant interest rates set by PBOC from time to time;

(c) Bills discounting

First Tractor Finance will provide bills discounting services to China Yituo Group, whereby First Tractor Finance will pay the face value of bills presented by China Yituo Group net of interests in advance of the payment due date of the bills with interest rate determined with reference to the relevant interest rates set by PBOC from time to time;

— 7 —

LETTER FROM THE BOARD

(d) Finance lease

First Tractor Finance will provide lease financing to China Yituo Group pursuant to which First Tractor Finance will purchase properties from the other parties (not connected with the Group as defined in the Listing Rules) chosen by China Yituo Group and lease the properties to China Yituo Group for a lease charge determined with reference to the cost of purchase and interest rate for the purchase amount as if it were loan amount (with the interest rate determined with reference to the relevant interest rates set by PBOC from time to time). First Tractor Finance shall also charge an insurance fee based on fee charged by the licensed insurance company in the PRC and a one-off handling charge of 1% to 3% of the lease amount;

(e) Bills acceptance

First Tractor Finance will provide bills acceptance services to China Yituo Group, whereby First Tractor Finance guarantees the payment of bills issued by China Yituo Group. In return, First Tractor Finance shall charge a one-off service fee of 0.05% of the value of such bills;

(f) Guarantee

First Tractor Finance will provide corporate or credit guarantee for bank loans and other liabilities of China Yituo Group with a one-off service charge of approximately 0.5% to 1% of the guarantee amount with reference to the relevant service fee charged by other licensed financial institutions in the PRC; and

(g) Designated loan

First Tractor Finance will accept designated deposits placed by China Yituo Group and funded loans made by First Tractor Finance to parties (“ Parties ”) (which are not connected with the Group within the meanings of the Listing Rules) designated by China Yituo Group (who place the designated deposits); and accept designated deposits placed by the Parties (which are not connected with the Group within the meanings of the Listing Rules) and funded loans made by First Tractor Finance to the other parties designated by the Parties (who place the designated deposits). First Tractor Finance will charge a one-off service fee of about 0.1% of the amount of designated deposits. Under this arrangement, First Tractor Finance does not bear any credit risks.

— 8 —

LETTER FROM THE BOARD

Financial Services to be provided to the Parties

Apart from the Financial Services mentioned above, under the New Agreement, First Tractor Finance will also provide the following Financial Services to the Parties:

(h) First Tractor Finance will provide lease financing to the Parties pursuant to which First Tractor Finance will purchase the properties from China Yituo Group chosen by the Parties and lease the properties to the Parties for a lease charge determined with reference to the cost of purchase and interest rate for the purchase amount as if it were loan amount (with the interest rate determined with reference to the relevant interest rates set by PBOC from time to time). First Tractor Finance shall also charge an insurance fee based on the fee charged by the licensed insurance company in the PRC and a one-off handling charge of about 1% to 3% of the lease amount; and
(i) First Tractor Finance will provide loans to the Parties for certain percentage of the total consideration for purchasing China Yituo Group’s products with interest rate determined with reference to the relevant interest rates set by PBOC from time to time. Such financing will be reviewed and considered on a case-by-case basis having regard to the credit quality of such customers.

The Financial Services to be provided to the Parties do not constitute connected transactions under the Listing Rules.

— 9 —

LETTER FROM THE BOARD

Proposed New Caps

In view of the rapid business expansion of China Yituo Group, the value amount of the Financial Services has increased substantially. The Directors consider that the relevant cap amounts of the Financial Services as set out in the 2003 Circular are insufficient to fulfill the demand for the Financial Services by China Yituo Group amid the rapid expansion of the agriculture tractors and building machinery sector in the PRC and the Directors propose to increase the relevant cap amounts in order to cater for the business expansion and the smoothness of the operations of the Group. New Caps for the Financial Services are proposed as detailed below:

RMB million

		New Caps
	For the year ending
		31 December
	2004	2005	2006
Deposit (with interest)	300	500	630
Loan (with interest)	230	380	470
Bills discounted receivables	260	420	530
Finance Lease
provided to China Yituo Group	65	100	125
Bills acceptance	100	140	175
Guarantee	150	260	320
Designated loan	7	11	15

— 10 —

LETTER FROM THE BOARD

Basis of the New Caps

The New Caps, as agreed between First Tractor Finance and China Yituo, are the limits of the Financial Services which First Tractor Finance will provide to China Yituo Group as set out in the New Agreement. They are determined primarily after the following considerations:

(a) the resources of First Tractor Finance;
(b) credit control policy of First Tractor Finance;
(c) the future growth and development of China Yituo Group; and
(d) the past financial transactions which China Yituo Group has undertaken.

In particular, the New Caps of each of the Financial Services are calculated as set out below:

(a) Deposits

The calculation of the cap amount for deposits for the year ending 31 December 2004 is based on the connected transactions conducted by First Tractor Finance in relation to its provision of deposit services for the year ended 31 December 2003 and the credit facility provided by China Yituo. The highest amount of deposit of First Tractor Finance was RMB99.66 million (the amount as at 31 December 2003) for the year ended 31 December 2003. China Yituo has agreed First Tractor Finance to accept trust deposit at approximately RMB200 million in 2004. Hence, the total of two kinds of deposits will be RMB300 million.

The calculation of the cap amounts for deposits for the two years ending 31 December 2005 and 2006 is based on the cap amounts for deposits in its preceding year and in accordance with the rate of increase in the turnover of China Yituo i.e. 67% and 25% respectively.

(b) Designated Loans

The calculation of the cap amount for designated loans comprises two parts:

(i) the amount of outstanding designated loans as at the year end of the previous year; and
(ii) the additional designated loans for this financial year.

Therefore, the calculation of the cap amount for designated loans for the financial year will use the aggregate amount of designated loans in the preceding year as basis and will also take into account the rate of increase in the turnover of China Yituo.

— 11 —

LETTER FROM THE BOARD

(c) Financial Services other than those stated in (a) and (b) above

The calculation of the cap amounts for the Financial Services other than those stated in (a) and (b) above will be based on the percentage of increase in the total asset value of First Tractor Finance for each year. The Directors estimate that the total asset value of First Tractor Finance will be approximately RMB1,060.24 million, RMB1,770.60 million and RMB2,213.25 million, respectively, for each of the three years ending 31 December 2006.

The percentages for each of the Financial Services as the percentage of the total asset value of First Tractor Finance for each of the three years ending 31 December 2006 are as follows: loans (25%), bills discounting (25%), finance lease (10%), bills acceptance (10%) and guarantee (15%).

ONGOING CONNECTED TRANSACTIONS

The Directors consider that it is necessary to propose to increase the relevant cap amounts of the Financial Services provided by First Tractor Finance after taking into account the rapid business expansion of China Yituo Group. The Directors consider that the New Agreement was entered into after arm’s length negotiations between the parties, based on normal commercial terms and in the ordinary and usual course of business of the Company, and such terms are fair and reasonable and in the interests of the Shareholders and the Company as a whole. The independent non-executive Directors, having considered the recommendations of South China Capital, also opine that the terms and conditions of the New Agreement are fair and reasonable so far as the Independent Shareholders are concerned.

EGM

Set out on pages 38 to 39 of this circular is a notice of the EGM to be held on Monday, 16 August 2004 at 9:00 a.m. at No. 154 Jianshe Road, Luoyang, Henan Province, the PRC for the purpose of considering and, if thought fit, passing the ordinary resolutions to approve the New Agreement and the New Caps in relation to the Ongoing Connected Transactions. China Yituo together with its associates (as defined in the Listing Rules) who control or are entitled to exercise control over the voting right in respect of their shares in the Company will abstain from voting in this regard. The voting will be taken by poll.

A form of proxy for use at the EGM is enclosed. Whether or not you are able to attend the meeting in person, you are requested to complete and return the accompanying form of proxy in accordance with the instructions contained therein and deliver the same with the Company’s share registrar in Hong Kong, Hong Kong Registrars Limited, at Shops 1712-1716, 17/F, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong as soon as possible and in any event not less than 24 hours before the time scheduled for holding such meeting (or any adjourned meeting thereof). Completion and delivery of the form of proxy will not preclude you from attending and voting in person at the EGM or any adjournment if you so desire.

— 12 —

LETTER FROM THE BOARD

OPINION OF THE INDEPENDENT BOARD COMMITTEE

Your attention is drawn to (i) the letter from the Independent Board Committee set out in this circular which contains the opinion of the Independent Board Committee given to the Independent Shareholders concerning the New Agreement and the New Caps in relation to the Ongoing Connected Transactions; and (ii) the letter from South China Capital set out in this circular which contains the opinion of South China Capital given to the Independent Board Committee and the Independent Shareholders in relation to the New Agreement and the New Caps in relation to the Ongoing Connected Transactions and the principal factors and reasons considered by South China Capital in arriving at its opinion.

The Independent Board Committee recommends the Independent Shareholders to vote in favour of the ordinary resolutions which will be proposed at the EGM to approve the New Agreement and the New Caps in relation to the Ongoing Connected Transactions.

PROCEDURES TO DEMAND A POLL AT GENERAL MEETING

Pursuant to article 77 of the articles of association of the Company, at any general meeting, a resolution put to the vote of the meeting shall be decided on a show of hands unless a poll is (before or after any vote by show of hands) demanded :

(i) by the chairman of the meeting;
(ii) by at least two shareholders present in person or by proxy for the time being entitled to vote at the meeting; or
(iii) by any shareholder or shareholders (including proxy) holding individually or holding in aggregate of 10% or more of the shares carrying the right to vote at the meeting.

ADDITIONAL INFORMATION

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

Yours faithfully, For and on behalf of

First Tractor Company Limited

Liu Da Gong

Chairman

— 13 —

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

==> picture [241 x 33] intentionally omitted <==

(Stock Code: 0038)

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

28 June 2004

To the Independent Shareholders

EXCEEDING OF EXISTING CAPS ON ONGOING CONNECTED TRANSACTIONS AND ONGOING CONNECTED TRANSACTIONS

Dear Sir or Madam,

We refer to the circular (the “Circular”) dated 28 June 2004 of First Tractor Company Limited, of which this letter forms a part. The terms used in the Circular shall have the same meanings in this letter unless the context otherwise requires.

As independent non-executive Directors who are independent of the parties to the Ongoing Connected Transactions, we have been appointed by the Board to advise you as to whether, in our opinion, the terms of the New Agreement and the New Caps in relation to the Ongoing Connected Transactions are fair and reasonable so far as the Independent Shareholders are concerned and are in the best interests of the Company and its Shareholders as a whole.

We wish to draw your attention to the letter from the Board, as set out in pages 1 to 13 of the Circular, and the letter from South China Capital, as set out on pages 15 to 33 of the Circular, both of which provide details of the New Agreement and the New Caps in relation to the Ongoing Connected Transactions. Having considered the opinion given by South China Capital and the principal factors and reasons taken into consideration by them in arriving at their opinion, we are of the opinion that the New Agreement and the New Caps in relation to the Ongoing Connected Transactions are in the best interests of the Company and the Independent Shareholders as a whole and the terms and conditions of the New Agreement are fair and reasonable as far as the Shareholders are concerned. Accordingly, we recommend the Independent Shareholders to vote in favour of the ordinary resolutions which will be proposed at the EGM to approve the New Agreement and the New Caps in relation to the Ongoing Connected Transactions.

Yours faithfully,

Independent Board Committee

Mr. Lu Zhong Min Mr. Tao Xiang Independent non-executive Independent non-executive Director Director Mr. Chan Sau Shan, Gary Mr. Chen Zhi Independent non-executive Independent non-executive Director Director

— 14 —

LETTER FROM SOUTH CHINA CAPITAL

The following is the text of the letter of advice from South China Capital for the purpose of inclusion in this circular.

South China Capital Limited 28th Floor, Bank of China Tower No. 1 Garden Road Central Hong Kong

28 June 2004

To the Independent Board Committee and Independent Shareholders First Tractor Company Limited

Dear Sirs,

PROPOSED NEW CAPS ON ONGOING CONNECTED TRANSACTIONS

INTRODUCTION

We refer to our appointment to advise the Independent Board Committee and Independent Shareholders in respect of the New Agreement and the New Caps, details of which are set out in the circular (the “Circular”) of the Company dated 28 June 2004 to the Shareholders, of which this letter forms part. Terms used in this letter have the same meanings as defined in the Circular unless the context otherwise requires.

Under the Listing Rules, the Directors submit that the New Agreement and the New Caps will require the Independent Shareholders’ approval at the EGM. We have been appointed by the Company to advise the Independent Board Committee and the Independent Shareholders as to whether or not the New Agreement and the New Caps are fair and reasonable so far as the Independent Shareholders are concerned.

— 15 —

LETTER FROM SOUTH CHINA CAPITAL

In formulating our recommendation, we have relied on the accuracy of the information and facts supplied to us by the Company and its Directors and management. We have also assumed that all statements of belief and intention made by the Directors in the Circular were reasonably made after due enquiry. We have assumed that all information, representations and opinion made or referred to in the Circular were true at the time they were made and continued to be true at the date of EGM. We have no reason to doubt the truth, accuracy and completeness of the information and representations provided to us by the Company and its Directors and management and have been advised by the Directors that no material facts have been omitted from the information provided and referred to in the Circular.

We consider that we have reviewed sufficient information to reach an informed view and to justify reliance on the accuracy of the information contained in the Circular and to provide a reasonable basis for our recommendation. We have not, however, conducted any form of in-depth investigation into the business affairs, financial position or future prospects of the Group nor have we carried out any independent verification of the information supplied.

PRINCIPAL FACTORS AND REASONS CONSIDERED

In formulating our opinion in respect of the Ongoing Connected Transactions, we have taken into consideration the following principal factors and reasons:

I Background of the Company

The Company is principally engaged in the manufacture and sale of tractors and related parts and components, road machinery, construction machinery, agricultural harvesting machinery and biochemical products. China Yituo currently holds approximately 57.32% of the issued share capital of the Company and is the controlling shareholder of the Company and a connected person of the Company under the Listing Rules.

First Tractor Finance is a subsidiary of the Company whose registered share capital is owned as to approximately 79.67% by the Company, 10% by Yituo Building, 1.33% by Yituo Dongfang, 1% by YTO International, 7% by Yituo Diesel and 1% by China Yituo. First Tractor Finance is a licensed financial institution in the PRC subject to rules and regulation set by PBOC. As stated in its financial institution license issued by PBOC, First Tractor Finance’s scope of business comprises, among others, the provision of banking and financial services to the Group and China Yituo Group.

— 16 —

LETTER FROM SOUTH CHINA CAPITAL

II Principal terms and reasons of the New Agreement

As mentioned in the circular of the Company dated 19 June 2003, on 29 May 2003, the Old Agreement was entered into between First Tractor Finance, a subsidiary of the Company, and China Yituo, the controlling shareholder and holding company of the Company, under which First Tractor Finance agreed to provide the Financial Services to China Yituo Group for the period from 29 May 2003 to 28 May 2006. The Financial Services comprise ongoing connected transactions for the Company under Chapter 14 of the old Listing Rules. The Existing Waiver was granted to the Company by the Stock Exchange on 13 August 2003 in respect of the Ongoing Connected Transactions for a term of three financial years ended 31 December 2005.

In order to terminate and to replace the Old Agreement and to increase the relevant cap amounts catering for the increase in the demand for Financial Services by China Yituo Group, the New Agreement was entered into between First Tractor Finance and China Yituo on 2 June 2004. The provision of the Financial Services constitute non-exempt ongoing connected transactions of the Company under Rule 14A.35 of the Listing Rules. Accordingly, the New Agreement is conditional upon, inter alia, approval of the Independent Shareholders at the EGM by way of poll.

Financial Services to be provided to China Yituo Group

Pursuant to the New Agreement, First Tractor Finance will provide the following Financial Services to China Yituo Group from 2 June 2004 to 31 December 2006:

Deposit (with interests)

First Tractor Finance will provide deposit services (including the provision of time deposit, deposit with saving interest rate and also the transfer of fund within China Yituo Group) for China Yituo Group with saving interest rate determined with reference to the relevant interest rates set by PBOC from time to time and the capital interest rate for the settlement account will be determined with reference to the current interest rate, i.e. the relevant interest rates set by PBOC from time to time.

Loan (with interests)

First Tractor Finance will provide loans to China Yituo Group with interest rate determined with reference to the relevant interest rates set by PBOC from time to time.

— 17 —

LETTER FROM SOUTH CHINA CAPITAL

Bills discounting

Finance lease
Bills acceptance
Guarantee

First Tractor Finance will provide lease financing to China Yituo Group pursuant to which First Tractor Finance will purchase properties from the other parties (not connected with the Group as defined in the Listing Rules) chosen by China Yituo Group and lease the properties to China Yituo Group for a lease charge determined with reference to the cost of purchase and interest rate for the purchase amount as if it were loan amount (with interest rate determined with reference to the relevant interest rates set by PBOC from time to time). First Tractor Finance shall also charge an insurance fee based on fee charged by the licensed insurance company in the PRC and a one-off handling charge of approximately 1% to 3% of the lease amount.

— 18 —

LETTER FROM SOUTH CHINA CAPITAL

Designated loan

First Tractor Finance will accept designated deposits placed by China Yituo Group and funded loans made by First Tractor Finance to parties (which are not connected with the Group within the meanings of the Listing Rules) (“Parties”) designated by China Yituo Group (who place the designated deposits); and accept designated deposits placed by Parties and funded loans made by First Tractor Finance to other parties designated by the Parties (who place the designated deposits). First Tractor Finance will charge a one-off service fee of approximately 0.1% of the amount of designated deposits. Under this arrangement, First Tractor Finance does not bear any credit risks.

The Directors are of the view that each of the above Ongoing Connected Transactions has been entered into under normal commercial terms or on terms no less favorable to the Group than terms available to independent third parties and on terms that are fair and reasonable and in the interest of the Shareholders as a whole as the interest rate of each of the respective Ongoing Connected Transactions are determined with reference to the relevant interest rates set by PBOC from time to time and the services fees charged by the First Tractor Finance for each of the respective Ongoing Connected Transactions are determined with reference to the fees charged by other licensed financial institutions in the PRC on transactions of similar nature. The Directors have confirmed that (i) the interest rates charged by First Tractor Finance for deposits, loans, bills discounting and finance lease and the one-off services fee for bills acceptance are at approximately the same range as that set by PBOC; (ii) the one-off service fee charged by First Tractor Finance for guarantee is set with reference to the standard promulgated by the provincial government; and (iii) the one-off service fees charged by First Tractor Finance for finance lease and designated loans are at approximately the same range as those charged by other licensed financial institutions in the PRC of similar transaction nature. In this regard, we have been provided by the Directors for our reference (i) relevant notices despatched by PBOC regarding interest rates and service fees standard for respective financial services; (ii) relevant notice issued by the provincial government in respect of charging standard for guarantee service; and (iii) the fees charged by other licensed financial institutions of similar nature for finance lease and designated loan services. Based on revision of the above, we consider that each of the Ongoing Connected Transactions has been entered into under normal commercial terms or on terms no less favorable to the Group than terms available to independent third parties and on terms that are fair and reasonable and in the interest of the Shareholders and the Company as a whole.

— 19 —

LETTER FROM SOUTH CHINA CAPITAL

Proposed New Caps

In view of the rapid business expansion of the China Yituo Group, the value amount of the Financial Services has increased substantially. The Directors consider that the existing caps are insufficient to fulfill the demand for Financial Services by the China Yituo Group amid the rapid expansion of the agriculture tractors and building machinery sector in the PRC. Therefore, the New Caps have to be sought.

The Directors propose to increase the relevant cap amounts in order to cater for the increase in the demand for Financial Services by China Yituo Group as set out below:

RMB million

RMB million
	As at	Existing Caps			New Caps
31	December	For the year			For the year
	2003	ending 31 December			ending 31 December
		2003 2004	2005	2004	2005	2006
Deposit (with interest)	99.66	60 80	100	300	500	630
	(Note 1)
Loan (with interest)	163.68	The lower of 20% of total asset value
	(Note 2)	of First Tractor Finance	or
		165 205	245	230	380	470
Bills discounted receivables	116.41	The lower of 15% of total asset value
		of First Tractor Finance	or
		120 160	200	260	420	530
Finance lease provided	0	The lower of 10% of total asset value
to China Yituo Group		of First Tractor Finance	or
		35 65	100	65	100	125
Bills acceptance	0	The lower of 10% of total asset value
		of First Tractor Finance	or
		60 100	140	100	140	175
Guarantee	3.21	The lower of 15% of total asset value
		of First Tractor Finance	or
		100 150	200	150	260	320
Designated loan	3	5 7	9	7	11	15

— 20 —

LETTER FROM SOUTH CHINA CAPITAL

Notes:

As at 30 April 2004, the amount of deposit (with interest) was approximately RMB85.23 million and had exceeded the existing cap for the year ending 31 December 2004 by approximately RMB5.23 million.
For the year ended 31 December 2003, the existing cap relating to loan (with interest) had been exceeded. Details are as follows:
(1) as at 24 October 2003, the amount of loan (with interest) was approximately RMB167.68 million and had exceeded the existing cap by approximately RMB2.68 million;
(2) as at 7 November 2003, the amount of loan (with interest) was approximately RMB167.68 million and had exceeded the existing cap by approximately RMB2.68 million; and
(3) as at 26 November 2003, the amount of loan (with interest) was approximately RMB177.68 million and had exceeded the existing cap by approximately RMB12.68 million.

III Basis of the determination of New Caps

We note that the New Caps are principally determined by reference to the following factors:

(a) the resources of First Tractor Finance;
(b) credit control policy of First Tractor Finance;
(c) the future growth and development of China Yituo Group; and
(d) the past financial transactions which China Yituo Group has undertaken.

— 21 —

LETTER FROM SOUTH CHINA CAPITAL

We consider that the above-mentioned principal factors considered by the Company to set the respective New Caps are fair, reasonable and justifiable for the following reasons:

(a) the resources of First Tractor Finance

According to its business license, First Tractor Finance’s scope of business mainly comprises, among other things, the provision of banking and financial services to the Group and the China Yituo Group. Pursuant to the relevant regulations set by PBOC, financial institutions in the PRC have to comply with certain requirements, which include, among other things, the capital adequacy ratio of not less than 10%. Based on the registered capital of RMB300 million of First Tractor Finance and that First Tractor Finance shall provide the Financial Services not exceeding the annual caps, First Tractor Finance sets its capital adequacy ratio at not less than 35%, 21% and 17% in 2004, 2005 and 2006 respectively which is higher than the 10% threshold set by PBOC. In considering whether the projected capital adequacy ratio of First Tractor Finance is justifiable and in the interest of the Company and the Shareholders, we have taken into account the standard set by PBOC as well as utilization of resources of the Company. In this regard, we consider that (i) the respective projected capital adequacy ratios for the three years ending 2006 are above the 10% threshold set by PBOC, which risk level is acceptable to the Company and the Shareholders; and (ii) based on the available resources of First Tractor Finance, the decrease in capital adequacy level means that more financing and financial services have been provided, and hence better utilization of resources under acceptable risk level as refer to (i) above. Therefore, the respective capital adequacy ratio is justifiable and in the interest of the Company and the Shareholders. In light of the foregoing, the level of First Tractor Finance’s resources (including both financial resources and administrative capacities) should be regarded as one of the principal factors in determining the annual caps for each of the Ongoing Connection Transactions.

(b) the credit control policy of First Tractor Finance

Based on the Directors’ presentation, First Tractor Finance has sufficient resources to provide the Financial Services at the amount over the New Caps as set out below. However, in order to further safeguard its financial condition and to better manage its credit risks, in addition to comply with the relevant regulations set by PBOC, First Tractor Finance has implemented certain stricter internal control policies including, among other things, (i) a capital adequacy ratio higher than the 10% threshold set by PBOC; and (ii) restrictions in respect of assets and liabilities composition, liquidity, assets and loans quality in accordance with guidelines issued by PBOC. We consider these internal control policies are fair, reasonable and justifiable and serve the purpose of protecting the interest of the Company and the Shareholders as a whole.

— 22 —

LETTER FROM SOUTH CHINA CAPITAL

(c) the future growth and development of China Yituo Group

According to the Directors’ presentation, China Yituo Group’s business is expected to continue to grow for the three years up to 2006. In this regard, the Directors have provided us and we have reviewed a business development plan of China Yituo Group and the assumptions underlying the projected growth of the turnover of China Yituo Group. We consider that these assumptions have been made with due care and objectivity. Based on the Directors’ estimation, China Yituo Group’s turnover will increase to approximately RMB6 billion in 2004, RMB10 billion in 2005 and RMB12.5 billion in 2006 representing an annual growth rate of approximately 28% in 2004 and 67% in 2005 and 25% in 2006 as compared to that of the preceding year.

As a licensed financial institution to provide financial services to China Yituo Group, the business development of First Tractor Finance relates to the operation of China Yituo Group. The Directors have expected that the future market condition and operating environment of the industry in which China Yituo Group are principally engaged will continue to improve given the rapid growing PRC economy and gradual development of the logistic industry in the PRC. The improving market condition will enhance the turnover of China Yituo Group, resulting in the increase in deposits provided by China Yituo Group to First Tractor Finance. In addition, the Directors have advised that during the period from 2004 to 2006, China Yituo Group plans to implement several large projects including, among other things (i) the expansion of production lines of First Tractor Diesel project (機械柴油機改造項目), (ii) the recycle resource power generation project (再生資源發電項目) and (iii) the heavy-duty automobiles development project (發展重型汽車項目). These new projects will increase the capital commitment of China Yituo Group, which will result in the increase in the demand of Financial Services provided by First Tractor Finance. On the above basis, we consider that the expected growth in China Yituo Group’s business development is reasonable and will provide First Tractor Finance with more opportunities for the provision of Financial Services to China Yituo Group.

— 23 —

LETTER FROM SOUTH CHINA CAPITAL

(d) The past financial transactions which China Yituo Group has undertaken

The New Caps are determined having regard to the amount of the Ongoing Connected Transactions as at 31 December 2003 and 30 April 2004. In addition, the New Caps have been set in order to allow sufficient room for First Tractor Finance to meet the demand from the expansion of the business of China Yituo Group in the future.

In particular, annual caps for each of the Financial Service were determined taking into account the following factors:

RMB million

			New Caps
	As at 31	For the year ending
December 2003			31 December
		2004	2005	2006
Deposit
(with interest)	99.66	300	500	630	As at 31 December 2003 and 30 April 2004,
					First Tractor Finance accepted deposit from
					China Yituo Group of approximately
					RMB99.66 million and RMB85.23 million
					respectively.
					The calculation of the cap amount for
					deposits for the year ending 31 December
					2004 is based on the connected transactions
					conducted by First Tractor Finance in relation
					to its provision of deposit services for the
					year ended 31 December 2003 and the agreed
					trust deposit of approximately RMB200
					million to be placed by China Yituo with First
					Tractor Finance in 2004.

— 24 —

LETTER FROM SOUTH CHINA CAPITAL

RMB million

New Caps As at 31 For the year ending December 2003 31 December 2004 2005 2006

We note that there is an increase in the New Caps from RMB300 million in 2004 to RMB630 million in 2006. In this regard, we have enquired of the Directors and were advised that the increase in New Caps for the year 2005 and 2006 were determined based on the management’s best estimate of the expected growth in turnover of China Yituo Group as compared to the preceding year. The management of China Yituo Group and the Directors expect that the turnover of China Yituo Group for the year 2005 and 2006 will grow by approximately 67% and 25% respectively as compared to that of the preceding year. As a result, China Yituo Group will have more funds available to deposit with First Tractor Finance. The annual growth rates of the New Caps for the year 2005 and the year 2006 are at approximately 67% and 25% respectively, which are in line with those of China Yituo Group’s expected turnover for the same period.

On the above basis, we consider the annual caps set for the deposit for the three years up to 2006 are fair and reasonable.

— 25 —

LETTER FROM SOUTH CHINA CAPITAL

RMB million

			New Caps
	As at 31	For the year ending
December 2003			31 December
		2004	2005	2006
Loan
(with interest)	163.68	230	380	470	As at 31 December 2003 and 30 April 2004, First
					Tractor Finance provided loans of approximately
					RMB163.68 million and RMB191.36 million
					respectively to China Yituo Group, representing
					approximately 20% and 20% of its total asset value
					of approximately RMB841 million and
					RMB966million for the same period.

PBOC does not set any annual caps in respect of First Tractor Finance’s lending exposure as a percentage to its total asset value. However, according to First Tractor Finance’s internal credit control policy, loans advanced to China Yituo Group should not exceed 25% of its total asset value.

For each of the three years up to 2006, annual caps of the loans are RMB230 million, RMB380 million and RMB470 million, representing approximately 21.69%, 21.46% and 21.24% of the expected total asset value of First Tractor Finance of approximately RMB1,060.24 million, RMB1,770.60 million and RMB2,213.25 million as at each of the three years ending 31 December 2006 respectively. The annual caps of the loans at each of the three years ending 31 December 2006 as a percentage to First Tractor Finance’s total asset value is within its credit control policy of 25%.

On the above basis, we consider the annual caps set for the loans for the three years up to 2006 are fair and reasonable.

— 26 —

LETTER FROM SOUTH CHINA CAPITAL

RMB million

			New Caps
	As at 31	For the year ending
December 2003			31 December
		2004	2005	2006
Bills discounted
receivables	116.41	260	420	530

As at 31 December 2003 and 30 April 2004, the bills discounted receivables from China Yituo Group amounted to approximately RMB116.41 million and RMB129.25 million respectively to China Yituo Group, representing approximately 14% and 13% of the total asset value of First Tractor Finance for the same period.

PBOC does not set any annual caps in respect of the bills discounting provided to China Yituo Group as a percentage to First Tractor Finance’s total asset value. However, according to First Tractor Finance’s internal credit control policy, bills discounted receivables from China Yituo Group should not exceed 25% of its total asset value.

For each of the three years up to 2006, annual caps of the bills discounted receivables are RMB260 million, RMB420 million and RMB530 million, representing approximately 24.52%, 23.72% and 23.95% of the expected total asset value of First Tractor Finance of approximately RMB1,060.24 million, RMB1,770.60 million and RMB2,213.25 million as at each of the three years ending 31 December 2006 respectively. The annual caps of the bills discounted receivables at each of the three years ending 31 December 2006 as a percentage to First Tractor Finance’s total asset value is within its credit control policy of 25%.

On the above basis, we consider the annual caps set for the bill discounted receivables for the three years up to 2006 are fair and reasonable.

— 27 —

LETTER FROM SOUTH CHINA CAPITAL

RMB million

			New Caps
	As at 31	For the year ending
December 2003			31 December
		2004	2005	2006
Finance lease
provided to
China
Yituo Group	0	65	100	125	As at 31 December 2003 and 30 April 2004,
					First Tractor Finance has provided nil and
					RMB0.45 million finance lease to China
					Yituo Group.

PBOC does not set any annual caps in respect of the finance leases provided to China Yituo Group as a percentage to First Tractor Finance’s total asset value. However, according to First Tractor Finance’s internal credit control policy, finance leases provided to China Yituo Group should not exceed 10% of its total asset value.

For each of the three years up to 2006, annual caps of the finance leases are RMB65 million, RMB100 million and RMB125 million, representing approximately 6.13%, 5.65% and 5.65% of the expected total asset value of First Tractor Finance of approximately RMB1,060.24 million, RMB1,770.60 million and RMB2,213.25 million as at each of the three years ending 31 December 2006 respectively. The annual caps of the finance lease at each of the three years ending 31 December 2006 as a percentage to First Tractor Finance’s total asset value is within its credit control policy of 10%.

On the above basis, we consider the annual caps set for the finance lease for the three years up to 2006 are fair and reasonable.

— 28 —

LETTER FROM SOUTH CHINA CAPITAL

RMB million

			New Caps
	As at 31	For the year ending
December 2003			31 December
		2004	2005	2006
Bills acceptance	0	100	140	175	As at 31 December 2003 and 30 April 2004,
					First Tractor Finance has not provided any
					bills acceptance to China Yituo Group.

PBOC does not set any annual caps in respect of the bills acceptance provided to China Yituo Group as a percentage to First Tractor Finance’s total asset value. However, according to First Tractor Finance’s internal credit control policy, bills acceptance provided to China Yituo Group should not exceed 10% of its total asset value.

For each of the three years up to 2006, annual caps of the bills acceptance are RMB100 million, RMB140 million and RMB175 million, representing approximately 9.43%, 7.91% and 7.91% of the expected total asset value of First Tractor Finance of approximately RMB1,060.24 million, RMB1,770.60 million and RMB2,213.25 million as at each of the three years ending 31 December 2006 respectively. The annual caps of the bills acceptance at each of the three years ending 31 December 2006 as a percentage to First Tractor Finance’s total asset value is within its credit control policy of 10%.

On the above basis, we consider the annual caps set for the bills acceptance for the three years up to 2005 are fair and reasonable.

— 29 —

LETTER FROM SOUTH CHINA CAPITAL

RMB million

			New Caps
	As at 31	For the year ending
	December 2003		31 December
		2004	2005	2006
Guarantee	3.21	150	260	320	As at 31 December 2003 and 30 April 2004,
					First Tractor Finance has provided RMB3.21
					million and nil guarantee to China Yituo
					Group.

PBOC does not set any annual caps in respect of the guarantee provided to China Yituo Group as a percentage to First Tractor Finance’s total asset value. However, according to First Tractor Finance’s internal credit control policy, guarantee provided to China Yituo Group should not exceed 15% of its total asset value.

For each of the three years up to 2006, annual caps of the guarantee are RMB150 million, RMB260 million and RMB320 million, representing approximately 14.15%, 14.68% and 14.46% of the expected total asset value of First Tractor Finance of approximately RMB1,060.24 million, RMB1,770.60 million and RMB2,213.25 million as at each of the three years ending 31 December 2006 respectively. The annual caps of the guarantee at each of the three years ending 31 December 2006 as a percentage to First Tractor Finance’s total asset value is within its credit control policy of 15%.

On the above basis, we consider the basis of the expected guarantee from China Yituo Group and the annual caps set thereof for each of the three years up to 2006 are fair and reasonable.

— 30 —

LETTER FROM SOUTH CHINA CAPITAL

RMB million

			New Caps
	As at 31	For the year ending
December 2003			31 December
		2004	2005	2006
Designated loan	3	7	11	15

As at 31 December 2003 and 30 April 2004, First Tractor Finance has provided RMB3 million and RMB1 million designated loans to China Yituo Group

The New Caps are set in light of two factors: (i) the amount of outstanding designated loans as at the year end of the previous year as the maturity period of the designated loans is normally one year according to PBOC; and (ii) additional designated loans for this financial year with reference to the expected growth in the turnover of China Yituo Group.

Excluding the amount of outstanding designated loans as at the year end of the previous year, the annual growth rate of the cap amount for the year 2004, 2005 and 2006 is at approximately 33.3%, 57.14% and 36.36%, which is in line with that of China Yituo Group’s expected growth in turnover of approximately 28%, 67% and 25% for the respective year.

We consider that the basis of the expected designated loans from China Yituo Group is fair and reasonable. Further, given the nature of the designated loan transaction, there is no credit risk to First Tractor Finance in providing such services. Therefore, we consider such annual caps are fair and reasonable.

— 31 —

LETTER FROM SOUTH CHINA CAPITAL

As at 31 December 2003 and 30 April 2004, the total asset value of First Tractor Finance amounted to approximately RMB841 million and RMB966 million respectively. According to the projection of the Directors, the expected total asset value of First Tractor Finance of approximately RMB1,060.24 million, RMB1,770.60 million and RMB2,213.25 million as at each of the three years ending 31 December 2006 respectively, which are projected with growth rates of approximately 26%, 67% and 25% respectively. The projected growth rates for the three years ending 31 December 2006 are in line with the projected growth rates of the turnover of China Yituo Group of the respective years as detailed in subparagraph (c) above. We have reviewed the assumptions underlying the projected growth rates and are of the view that these assumptions have been made with due care and objectivity. As such, we consider the projection of the total asset value of First Tractor Finance for the three years ending 31 December 2006 respectively are reasonable.

We noted that the assumptions underlying the New Caps are made by the management taking into account the resources and credit control policies of First Tractor Finance and the future growth and development of China Yituo Group as discussed under the subparagraphs (a) to (c) above and the particular historical amount of the Ongoing Connected Transactions for each of the Financial Services as referred to under subparagraph (d) above. As such we consider that the assumptions are made with due care and objectivity by the management. Given the above, we consider the basis of determination of New Caps are fair and reasonable so far as the Company and the Independent Shareholders are concerned.

IV Benefits of the Ongoing Connected Transactions

Based on the First Tractor Finance’s registered capital of RMB300 million and that First Tractor Finance shall provide the Financial Services not exceeding the New Caps, the capital adequacy ratio of First Tractor Finance will not be less than 35%, 21% and 17% in 2004, 2005 and 2006 respectively, which is substantially higher than the minimum capital adequacy ratio of 10% imposed by PBOC. The high level of First Tractor Finance’s capital adequacy ratio indicates a low level of credit risk associated with its lending exposure which is in the interest of the Company. On the other hand, we are of the view that entering into the New Agreement and the provision of the Financial Services with reasonably increased caps can enhance the utilization of the resources of First Tractor Finance and provide additional revenue for the Group.

— 32 —

LETTER FROM SOUTH CHINA CAPITAL

RECOMMENDATION

Having considered the abovementioned principal factors and reasons, we consider that, the New Agreement and the Ongoing Connected Transactions contemplated thereunder are fair and reasonable as far as the Independent Shareholders are concerned and are in the interest of the Company. We therefore advise the Independent Board Committee to recommend to the Independent Shareholders to vote in favour of the respective ordinary resolutions to approve the New Agreement and the New Caps at the EGM. We also recommend the Independent Shareholders to vote in favour of the respective resolutions to approve the New Agreement and the New Caps at the EGM.

Yours faithfully,

For and on behalf of

South China Capital Limited Richard Howard Gorges Managing Director

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GENERAL INFORMATION

APPENDIX I

RESPONSIBILITY STATEMENT

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

DISCLOSURE OF INTERESTS

Directors’ Interests

As at the Latest Practicable Date, none of the Directors, supervisors, chief executive of the Company and their associates had any interests in the shares, underlying shares and debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) which were required to be notified to the Company and Stock Exchange pursuant to Divisions 7 and 8 Part XV of the SFO (including interests and short positions which they were taken or deemed to have under such provisions of the SFO), or which were required, pursuant to section 352 of the SFO, to be entered in the register referred to therein or which were required pursuant to the Model Code for Securities Transactions by Directors of Listed Companies contained in the Listing Rules, to be notified to the Company and the Stock Exchange.

As at the Latest Practicable Date, none of the Directors, supervisors or chief executive of the Company or their spouses or children under 18 years of age were granted or had exercised any right to subscribe for any equity or debt securities of the Company or any of its associated corporations (within the meaning of Part XV of the SFO).

None of the Directors has any interest, direct or indirect, in any assets which have been acquired or disposed of by or leased to any member of the Group or are proposed to be acquired or disposed of by or leased to any member of the Group since 31 December 2003, the date to which the latest published audited financial statement of the Group was made up.

None of the Directors or South China Capital is materially interested in any contract or arrangement entered into by the Company or any of its subsidiaries which contract or arrangement is subsisting at the Latest Practicable Date and which is significant in relation to the business of the Group taken as a whole.

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GENERAL INFORMATION

APPENDIX I

Substantial Shareholders’ Interests

As at the Latest Practicable Date, so far as is known to, or can be ascertained after reasonable enquiry by, the Directors, supervisors or chief executive of the Company, the following persons had an interest or short position in the shares or underlying shares (including options) of the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO, or, were, directly or indirectly, interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at the general meetings of any member of the Group:

Domestic Shares

Domestic Shares
				Approximate
				percentage of
				interest of the
				total issued
Name of	Company /	Nature of	Number of class	share capital of
Shareholder	Subsidiary	Interest	of securities	the Company
			(Note 1)
China Yituo	The Company	Beneficial	450,000,000	57.32%
		owner	domestic shares
H Shares
				Approximate
				percentage of
				interest of the
Name of	Company /	Nature of	Number of class	total H shares of
Shareholder	Subsidiary	Interest	of securities	the Company
			(Note 1)
The Hong Kong and Shanghai	The Company	Beneficial	111,606,000	33.32%
Banking Corporation Ltd.		owner	H shares (L)
Standard Chartered Bank	The Company	Beneficial	64,494,000	19.25%
		owner	H shares (L)
GE Asset Management	The Company	Investment	44,300,000	13.22%
Incorporated		Manager	H shares (L)
Citibank N. A.	The Company	Beneficial	29,934,932	8.94%
		owner	H shares (L)
BNP Paribas	The Company	Investment	23,350,000	6.97%
Asset Management		Manager	H shares (L)
Martin Currie China Limited	The Company	Investment	17,832,000	5.17%
Hedge Fund		Manager	H shares (L)

Note 1 : The letter “L” represents the entities’ long position in the shares of the Company.

Note 2 : According to the Corporate Substantial Shareholder Notice submitted by State Street Corporation to the Company dated 11 May 2004, State Street Corporation is the holding company of an approved lending agent and 21,372,000 H shares of the Company are held in a lending pool.

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APPENDIX I

GENERAL INFORMATION

Save as disclosed above, there is no other person so far as is known to the Directors, supervisors or chief executive of the Company who, as at the Latest Practicable Date, had an interest or short position in the shares or underlying shares (including options) of the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO, or, had, directly or indirectly, interested in 10% or more of nominal value of any class of share capital carrying rights to vote in all circumstances at general meeting of any member of the Group.

SHARE CAPITAL

The authorised and issued share capital of the Company as at the Latest Practicable Date are as follows :

Authorised:	Number of Shares	RMB
ordinary shares of RMB1 each	750,000,000 and not	750,000,000 not
	more than 795,000,000	more than 795,000,000
Issued and fully paid:
Domestic Shares of RMB1 each	450,000,000	450,000,000
H Shares of RMB1 each	335,000,000	335,000,000

DIRECTORS’ SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors had entered or was proposing to enter into a service contract with the Company or any of its subsidiaries (excluding contracts expiring or determinable within one year without payment of compensation other than statutory compensation).

EXPERT

(a) The following is the qualification of the expert who has given its opinion or advice which is contained in this circular:

Name Qualification

South China Capital a deemed licensed corporation under the SFO

(b) As at the Latest Practicable Date, South China Capital does not have any shareholding in any member of the Group, nor does it have any right or option (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group.
(c) South China Capital has given and has not withdrawn its written consent to the issue of this circular with the inclusion of its letter and references to its name and letter in the form and context in which they appear.

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GENERAL INFORMATION

APPENDIX I

(d) The letter and recommendation given by South China Capital are given as of the date of this circular for incorporation herein.
(e) South China Capital has, or has had, no direct or indirect interest in any assets which have been acquired or disposed of by, or leased to, any member of the Group or are proposed to be acquired or disposed of by, or leased to, any member of the Group since 31 December 2003, the date to which the latest published audited financial statement of the Group was made up.

LITIGATION

As at the Latest Practicable Date, neither the Company nor any of its subsidiaries is engaged in any litigation or arbitration of material importance and no litigation or arbitration or claim of material importance is known to the Directors to be pending or threatened by or against any member of the Group.

MATERIAL CHANGES

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

GENERAL

(a) The secretary of the Company is Mr. Zhang Guo Long who is not a qualified accountant.
(b) The registered and principal office of the Company is at No.154 Jianshe Road, Luoyang, Henan Province, the People’s Republic of China.
(c) The H Share transfer office of the Company in Hong Kong is Hong Kong Registrars Limited at Shops 1712-1716, 17/F, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong.
(d) In the event of inconsistency, the English text of this circular shall prevail over the Chinese text.

DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection during normal business hours up to and including 12 July 2004 at the offices of Li & Partners, at 22nd Floor, World Wide House, Central, Hong Kong and at the EGM:

(a) the New Agreement;
(b) the letter of opinion from the Independent Board Committee dated 28 June 2004, the text of which is set out on page 14 of this circular;
(c) the letter of opinion from South China Capital dated 28 June 2004, the text of which is set out on pages 15 to 33 of this circular; and
(d) the written consent referred to in the section headed “Expert” above.

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NOTICE OF EGM

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

(Stock Code: 0038)

NOTICE IS HEREBY GIVEN that an extraordinary general meeting (the “EGM”) of the shareholders of First Tractor Company Limited (the “Company”) will be held at No. 154 Jianshe Road, Luoyang, Henan Province, the People’s Republic of China on Monday, 16 August 2004 at 9:00 a.m. for the purpose of considering and, if thought fit, passing the following resolutions as ordinary resolutions:

ORDINARY RESOLUTIONS

“ THAT :

(A) the terms and conditions of the New Agreement (as defined in the circular of the Company dated 28 June 2004 (the “Circular”), a copy of which has been produced to the EGM marked “A” and signed by the chairman of the meeting for the purpose of identification) and the New Caps (as defined in the Circular) in relation to the Ongoing Connected Transactions (as defined in the Circular), be and are hereby approved, ratified and confirmed; and
(B) the Directors authorised for and on behalf of the Company, among other matters, to sign, execute, perfect, deliver or to authorise signing, executing, perfecting and delivering all such documents and deeds be hereby approved, ratified and confirmed, and the Directors be and are hereby authorised to do or authorise doing all such acts, matters and things as they may in their discretion consider necessary, expedient or desirable to give effect to and implement the Ongoing Connected Transactions pursuant to the New Agreement and to waive compliance from or make and agree such variations of a non-material nature to any of the terms of any of the New Agreement as they may in their discretion consider to be desirable and in the interest of the Company.”

By Order of the Board

Liu Da Gong Chairman

Luoyang, the PRC, 28 June 2004

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NOTICE OF EGM

Notes:

The register of members of the Company will be temporarily closed from 16 July 2004 to 16 August 2004 (both days inclusive) during which no transfer of shares will be registered in order to determine the list of Shareholders for attending the EGM. Shareholders whose names appear on the register of members of the Company on Monday, 16 August 2004 will be entitled to attend and vote at the EGM. In order to be entitled to attend and vote at the EGM, all transfer of H Shares accompanied by the relevant share certificates must be lodged with the share registrar of the Company in Hong Kong, Hong Kong Registrars Limited, at Shops 17121716, 17/F Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong, not later than 4:00 p.m. on 15 July 2004.
Each Shareholder having the rights to attend and vote at the EGM is entitled to appoint one or more proxies (whether a Shareholder or not) to attend and vote on his behalf. Should more than one proxy be appointed by one Shareholder, such proxy shall only exercise his voting rights on a poll. A proxy need not be a member of the Company.
Shareholders can appoint a proxy by an instrument in writing (i.e. by using the Proxy Form enclosed). The Proxy Form shall be signed by the person appointing the proxy or an attorney authorised by such person in writing. If the Proxy Form is signed by an attorney, the power of attorney or other documents of authorisation shall be notarially certified. To be valid, the Proxy Form and the notarially certified power of attorney or other documents of authorisation must be delivered to the Company’s share registrar in Hong Kong, Hong Kong Registrars Limited, at Shops 1712-1716, 17/F, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong in not less than 24 hours before the time scheduled for the holding of the EGM or any adjournment.
Shareholders or proxies who intend to attend the EGM are requested to deliver the reply slip for attendance duly completed and signed to the Company in person, by post or by facsimile on or before Monday, 26 July 2004.
Shareholders or their proxies shall present proofs of their identities upon attending the EGM. Should a proxy be appointed, the proxy shall also present the Proxy Form.
The EGM is expected to last for less than one day. The Shareholders and proxies attending the EGM shall be responsible for their own travelling and accommodation expenses.
The Company’s registered address is as follows:-

No. 154 Jianshe Road Luoyang, Henan Province the People’s Republic of China Postal Code: 471004 Telephone: 86-379-4967038 Facsimile: 86-379-4967438

Completion and return of the form of proxy will not preclude members of the Company from attending and voting in person at the EGM or any adjournment should he so desire.

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

(Stock Code: 0038)

Proxy Form for Attendance at the Extraordinary General Meeting

I / We(1) of being the registered holder(s) of (2) shares of RMB1.00 each in the share capital of First Tractor Company Limited (the “Company”), hereby appoint the Chairman of the Meeting or (3) of

as my / our proxy to attend and vote for me / us and on my / our behalf at the Extraordinary General Meeting of the Company (“EGM”) to be held at 9:00 a.m. on Monday, 16 August 2004, at No. 154 Jianshe Road, Luoyang, Henan Province, the People’s Republic of China or any adjournment thereof in respect of the ordinary resolutions set out in the notice convening the EGM as indicated below, and if no such indication is given, as my/our proxy thinks fit.

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

ORDINARY RESOLUTIONS FOR [(4)] AGAINST [(4)]
1. (A) the terms and conditions of the New Agreement (as defined in the
circular of the Company dated 28 June 2004 (the “Circular”), a copy of
which has been produced to the EGM marked “A” and signed by the
chairman of the meeting for the purpose of identification) and the New
Caps (as defined in the Circular) in relation to the Ongoing Connected
Transactions (as defined in the Circular), be and are hereby approved,
ratified and confirmed; and
(B) the Directors authorised for and on behalf of the Company, among other
matters, to sign, execute, perfect, deliver or to authorise signing,
executing, perfecting and delivering all such documents and deeds be
hereby approved, ratified and confirmed, and the Directors be and are
hereby authorised to do or authorise doing all such acts, matters and
things as they may in their discretion consider necessary, expedient or
desirable to give effect to and implement the Ongoing Connected
Transactions pursuant to the New Agreement and to waive compliance
from or make and agree such variations of a non-material nature to any
of the terms of any of the New Agreement as they may in their
discretion consider to be desirable and in the interest of the Company.”
Date: 2004 Signature (note 6):
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Note:

Please insert your full name and address in block capitals in the space provided.
Please insert the number of shares to which this proxy form relates in the space provided. If a number is inserted, this proxy form will be deemed to relate only to those shares. If not, this proxy form will be deemed to relate to all the shares registered in your name (whether alone or jointly with others).
If any proxy other than the Chairman of the Meeting is preferred, strike out “the Chairman of the Meeting or” and insert the name and address of proxy desired in block capitals in the space provided. The proxy need not be a shareholder of the Company. If a proxy is attending the EGM on your behalf, such proxy shall produce his own identity paper.
If you wish to vote for a resolution, place a tick “√” in the column marked “FOR”. If you wish to vote against a resolution, place a cross “X” in the column marked “AGAINST”. If no indication is given, the proxy will vote or abstain at his discretion.
Corporations must execute this proxy form under common seal or by an attorney or by a duly authorised officer. If a legal representative is appointed to attend the EGM, such legal representative shall produce his own identity paper and a certified true copy of the resolution of the board of directors or other governing body of the corporation appointing the legal representative.
If this proxy form is signed by a person under a power of attorney or any other authority on your behalf, a notarially certified copy of that power of attorney or other authority must be deposited with the Company’s share registrar as mentioned in paragraph 7 below.
In order to be valid, this proxy form together with any power of attorney or other authority under which it is signed must be lodged with the Company's share registrar in Hong Kong, Hong Kong Registrars Limited, Shops 1712-1716, 17/F, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong not later than 24 hours before the time scheduled for the holding of the EGM or any adjournment.
Completion and deposit of this proxy form will not preclude you from attending and voting at the EGM should you so wish.

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

(Stock Code: 0038)

Reply Slip

To: First Tractor Company Limited (the “Company”)

I/We(Note 1)(Name(s) in Chinese): (Name(s) in English):

address(es) as shown in the register of members of the Company is/are is/are the registered holder(s) of (Note 2) shares of RMB1.00 each in the Company’s share capital, intend to attend in person/by a proxy/by proxies at the Extraordinary General Meeting of the Company to be held at No.154, Jianshe Road, Luoyang, Henan Province, the People’s Republic of China (the “PRC”) on Monday, 16 August 2004 at 9:00 a.m.

Date: ~~,~~ 2004

Signature:

Notes:

(1) Please insert full name(s) (both in Chinese and English) and registered address(es) as shown in the register of members of the Company in BLOCK CAPITALS.

(2) Please insert the number of shares registered in your name(s).

(3) The completed and signed reply slip should be delivered to the Company at its registered address at No.154 Jianshe Road, Luoyang, Henan Province, the PRC on or before Monday, 26 July 2004. This reply slip may be delivered to the Company by hand, by post (Postal Code:471004), by cable or by fax (Fax No. (86-379)-4967438).

AI assistant

First Tractor Company Limited — Proxy Solicitation & Information Statement 2004

48894_rns_2004-06-28_0dfea57f-8b24-4a38-9294-c822e4451722.pdf

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

EXCEEDING OF EXISTING CAPS ON ONGOING CONNECTED TRANSACTIONS AND ONGOING CONNECTED TRANSACTIONS

South China Capital Limited

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

LETTER FROM THE BOARD

EXCEEDING OF EXISTING CAPS ON ONGOING CONNECTED TRANSACTIONS AND ONGOING CONNECTED TRANSACTIONS

BACKGROUND

LETTER FROM THE BOARD

LETTER FROM THE BOARD

EXCEEDING OF EXISTING CAPS ON ONGOING CONNECTED TRANSACTIONS

RMB million

LETTER FROM THE BOARD

LETTER FROM THE BOARD

REMEDIAL MEASURES TO BE TAKEN

LETTER FROM THE BOARD

NEW AGREEMENT DATED 2 JUNE 2004

Parties involved

Condition

Term

Termination of the Old Agreement

LETTER FROM THE BOARD

(a) Deposit

(b) Loan

(c) Bills discounting

LETTER FROM THE BOARD

(d) Finance lease

(e) Bills acceptance

(f) Guarantee

(g) Designated loan

LETTER FROM THE BOARD

LETTER FROM THE BOARD

Proposed New Caps

RMB million

LETTER FROM THE BOARD

(a) Deposits

(b) Designated Loans

LETTER FROM THE BOARD

(c) Financial Services other than those stated in (a) and (b) above

ONGOING CONNECTED TRANSACTIONS

EGM

LETTER FROM THE BOARD

OPINION OF THE INDEPENDENT BOARD COMMITTEE

PROCEDURES TO DEMAND A POLL AT GENERAL MEETING

ADDITIONAL INFORMATION

EXCEEDING OF EXISTING CAPS ON ONGOING CONNECTED TRANSACTIONS AND ONGOING CONNECTED TRANSACTIONS

Yours faithfully,

LETTER FROM SOUTH CHINA CAPITAL

PROPOSED NEW CAPS ON ONGOING CONNECTED TRANSACTIONS

INTRODUCTION

LETTER FROM SOUTH CHINA CAPITAL

PRINCIPAL FACTORS AND REASONS CONSIDERED

I Background of the Company

LETTER FROM SOUTH CHINA CAPITAL

II Principal terms and reasons of the New Agreement

Financial Services to be provided to China Yituo Group

LETTER FROM SOUTH CHINA CAPITAL

LETTER FROM SOUTH CHINA CAPITAL

LETTER FROM SOUTH CHINA CAPITAL

Proposed New Caps

RMB million

LETTER FROM SOUTH CHINA CAPITAL

III Basis of the determination of New Caps

LETTER FROM SOUTH CHINA CAPITAL

(a) the resources of First Tractor Finance

(b) the credit control policy of First Tractor Finance

LETTER FROM SOUTH CHINA CAPITAL

(c) the future growth and development of China Yituo Group

LETTER FROM SOUTH CHINA CAPITAL

(d) The past financial transactions which China Yituo Group has undertaken

RMB million

LETTER FROM SOUTH CHINA CAPITAL

RMB million

LETTER FROM SOUTH CHINA CAPITAL

RMB million

First Tractor Company Limited Proxy Solicitation & Information Statement 2004