First Tractor Company Limited - Proxy Solicitation & Information Statement 2006

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)

CONTINUING CONNECTED TRANSACTIONS AND RESIGNATION AND APPOINTMENT OF SUPERVISOR

Independent financial adviser to the Independent Board Committee and the Independent Shareholders of First Tractor Company Limited in respect of the Continuing Connected Transactions

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

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

A letter from China Merchants containing its recommendations to the Independent Board Committee and the Independent Shareholders is set out on pages 15 to 28 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 Friday, 22 December 2006 at No. 154 Jianshe Road, Luoyang, Henan Province, the People’s Republic of China is set out on pages 34 to 35 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 H Share registrar, Hong Kong Registrars Limited, at 46/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 of the EGM (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.

* For identification purpose only

6 November 2006

	Pages
Definitions ..................................................................................................................................................	ii
Letter from the Board ...............................................................................................................................	1
Introduction .....................................................................................................................................	1
Background and reasons for the Continuing Connected Transactions .....................................	3
Particulars of Yituo Supply Agreements .....................................................................................	4
Particulars of First Tractor Supply Agreements .........................................................................	5
Particulars of Financial Services Agreements .............................................................................	6
Basis of relevant Cap amounts .....................................................................................................	9
Resignation and Appointment of Supervisor ..............................................................................	12
EGM.................................................................................................................................................	12
Recommendations ...........................................................................................................................	13
Additional information ...................................................................................................................	13
Letter from the Independent Board Committee .....................................................................................	14
Letter from China Merchants ...................................................................................................................	15
Appendix I – Details of the proposed supervisor ..................................................................................	29
Appendix II – General information .........................................................................................................	30
Notice of EGM ..........................................................................................................................................	34

— i —

DEFINITIONS

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

“associates” has the same meaning as ascribed to the Listing Rules “Board” the board of Directors “Cap(s)” the maximum aggregated annual values of the Continuing Connected Transactions “China Merchants” China Merchants Securities (HK) Co., Ltd., the independent financial adviser to the Independent Board Committee and the Independent Shareholders and a licensed corporation to conduct type 1 (dealing in securities), type 2 (dealing in futures contracts), type 4 (advising on securities), type 6 (advising on corporate finance) and type 9 (asset management) of the regulated activities under the SFO “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 interest of the Company

“China Yituo Group” China Yituo and its subsidiaries / controlled companies / entities (for the purpose of this circular excluding the Group but including non-wholly owned subsidiaries of the Company in which China Yituo has equity interest of 10% or more)

“Company” First Tractor Company Limited (第一拖拉機股份有限公司), a joint stock company incorporated in the PRC
“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
“Composite Services the agreement dated 13 October 2006 entered into between China Yituo, Agreement” on behalf of China Yituo Group, as supplier or supplying agent and the Company, on behalf of the Group, as purchaser pursuant to which China Yituo Group agreed to provide certain welfare and other services to the Group

“connected person” has the same meaning as ascribed to the Listing Rules

— ii —

DEFINITIONS

“Continuing Connected Transactions”

the transactions contemplated under each of the New Agreements (as the context may require)

“Director(s)”

Director(s) of the Company

“EGM”

an extraordinary general meeting of the Company to be convened on 22 December 2006 for the purpose of considering and approving each of the Yituo Supply Agreements, First Tractor Supply Agreement and Financial Services Agreement and the transactions contemplated thereunder and the respective proposed Cap amounts, and the resignation and appointment of the Supervisor

“Energy Supply Services Agreement”

the agreement dated 13 October 2006 entered into between China Yituo, on behalf of China Yituo Group, as supplier or supplying agent and the Company, on behalf of the Group, as purchaser pursuant to which China Yituo Group agreed to supply energy to the Group

“Financial Services”
the financial services provided by First Tractor Finance to China Yituo Group pursuant to the Financial Services Agreement
“Financial Services Agreement”
the agreement dated 13 October 2006 entered into between First Tractor Finance and China Yituo, on behalf of China Yituo Group, pursuant to which First Tractor Finance agreed to provide the Financial Services to the China Yituo Group
“First Tractor Finance”
“First Tractor Supply Agreement”
China First Tractor Group Finance Co., Ltd (中國一拖集團財務有限責任公司), a company established in the PRC and a subsidiary of the Company material supply agreement dated 13 October 2006 entered into between the Company, on behalf of the Group, as supplier or supplying agent and China Yituo, on behalf of the China Yituo Group, as purchaser and purchasing agent
“Group”

the Company and its subsidiaries

“Hong Kong”

the Hong Kong Special Administrative Region of the PRC

“Independent Board Committee”
an independent committee of the Board comprising the independent non-executive Directors, (namely Mr. Lu Zhongmin, Mr. Chen Zhi, Mr. Chan Sau Shan, Gary and Mr. Luo Xiwen)
“Independent Shareholders” Shareholders other than China Yituo and its associates
“Last Practicable Date”
3 November 2006, being the latest practicable date prior to the printing of this circular for ascertaining information contained herein

— iii —

DEFINITIONS

“Listing Rules”

the Rules Governing the Listing of Securities on the Stock Exchange (as amended from time to time)

“Material Supply Agreement”

the agreement dated 13 October 2006 entered into between China Yituo, on behalf of China Yituo Group, as supplier or supplying agent and the Company, on behalf of the Group, as purchaser, pursuant to which China Yituo Group agreed to supply material to the Group

“New Agreements” the Yituo Supply Agreements, First Tractor Supply Agreement and Financial Services Agreement (as the context may require)

“Old Agreements”

the (i) composite services agreement, material supply agreement and energy supply services agreement all dated 19 August 2004 entered into between China Yituo, on behalf of China Yituo Group, as supplier or supplying agent and the Company, on behalf of the Group, as purchaser; (ii) material supply agreement dated 19 August 2004 entered into between the Company, on behalf of the Group, as supplier or supplying agent and China Yituo, on behalf of the China Yituo Group, as purchaser; (iii) financial services agreement dated 2 June 2004 entered into between First Tractor Finance and China Yituo.

“PBOC” People’s Bank of China

“PRC” the People’s Republic of China

“Reorganization” Reorganization of the Group since 2004 refers to the following reorganizations which comply with the applicable rules of Listing Rules Chapter 14 and 14A and were announced as listed below:

(i) disposal of assets to Yituo (Luoyang) Engine Machinery Company Limited (announced on 29 March 2004);
(ii) establishment of Yituo (Luoyang) Shentong Construction Machinery Company Limited (announced on 13 April 2004);
(iii) increase of capital contribution in First Tractor Finance (announced on 16 September 2004);
(iv) disposal of equity interests of Yituo (Luoyang) Standard Component Company Limited to China Yituo (announced on 25 October 2005); and
(v) acquisition of the Yituo (Luoyan) Diesel Company Limited and Yituo (Luoyan) Fuel Jet Company Limited (announced on 11 May 2006).

— iv —

DEFINITIONS

“RMB”

Renminbi, the lawful currency of the PRC

Securities and Futures Ordinance (Chapter 571, Laws of Hong Kong)

“SFO” Securities and Futures Ordinance (Chapter 571, Laws of Hong Kong) “Shares” state-owned legal person shares and H Shares “Shareholder(s)” holder of the Share(s) of the Company “State Price” mandatory price in respect of welfare and supporting services, raw materials and components and utilities set by the central government of the PRC

“Stock Exchange” The Stock Exchange of Hong Kong Limited

“Supervisor(s)” the supervisor(s), being the representative(s) of Shareholders, of the supervisory committee of the Company

“Yituo Supply Agreements” Composite Services Agreement, Material Supply Agreement and Energy Supply Services Agreement

“%”

per cent.

— v —

LETTER FROM THE BOARD

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

(Stock Code: 0038)

Board of Directors: LIU Dagong (Chairman) ZHAO Yanshui LIU Wenying YAN Linjiao LI Tengjiao SHAO Haichen ZHANG Jing LI Youji LIU Shuangcheng ZHAO Fei LU Zhongmin CHAN Sau Shan, Gary CHEN Zhi LUO Xiwen

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

For identification purpose only

** Independent non-executive Director

6 November 2006

To the Shareholders

Dear Sir or Madam,

CONTINUING CONNECTED TRANSACTIONS AND

RESIGNATION AND APPOINTMENT OF SUPERVISOR

INTRODUCTION

On 13 October 2006, the Group entered into, inter alias, the New Agreements with China Yituo. The New Agreements (for a period of three years commencing from 1 January 2007 to 31 December 2009) were entered into between China Yituo and the Group with a view to renewing the Old Agreements (which will expire on or about 31 December 2006) so as to ensure the continued provision of services such as material supply, energy supply, financial services, and etc., and other continuing connected transactions contemplated thereunder in light of the corporate and / or business developments and changes of the Group since 2004.

— 1 —

LETTER FROM THE BOARD

China Yituo beneficially owns approximately 57.32% of the issued share capital of the Company, and is the controlling shareholder of the Company. Thus China Yituo and its subsidiaries are regarded as connected persons of the Company under the Listing Rules. Accordingly the transactions contemplated under the New Agreements and the respective proposed Cap amounts constitute continuing connected transactions or financial assistance under Chapter 14A of the Listing Rules.

Transactions contemplated under each of the Yituo Supply Agreements, First Tractor Supply Agreement and Financial Services Agreement and the respective proposed Cap amounts constitute non-exempted continuing connected transactions and are subject to the reporting and announcements requirements under the Listing Rules and the approval of the Independent Shareholders at the EGM. China Yituo and its associates will abstain from voting in respect of each of the Yituo Supply Agreements, First Tractor Supply Agreement and Financial Services Agreement and the respective proposed Cap amounts at the EGM. At the EGM, votes of the Independent Shareholders will be taken by poll.

In addition, the Company is required to comply with the reporting, announcement and annual review requirements under Rules 14A.35 to 14A.41 of the Listing Rules in respect of the Continuing Connected Transactions contemplated under the Yituo Supply Agreements, First Tractor Supply Agreement and Financial Services Agreement.

The Independent Board Committee comprising all the independent non-executive Directors (namely Mr. Lu Zhongmin, Mr. Chen Zhi, Mr. Chan Sau Shan, Gary and Mr. Luo Xiwen) has been formed to consider the transactions contemplated under each of the Yituo Supply Agreements, First Tractor Supply Agreement and Financial Services Agreement and the respective proposed Cap amounts and to advise the Independent Shareholders as to whether each of the Yituo Supply Agreements, First Tractor Supply Agreement and Financial Services Agreement and the respective proposed Cap amounts are on normal commercial terms, fair and reasonable and in the interests of the Company and the Shareholders as a whole. China Merchants has been appointed by the Company as independent financial adviser to advise the Independent Board Committee and the Independent Shareholders in this regard.

The purpose of this circular is (i) to provide you with information relating to details of the Yituo Supply Agreements, First Tractor Supply Agreement and Financial Services Agreement and the respective proposed Cap amounts and the transactions contemplated thereunder; (ii) to set out recommendation of the Independent Board Committee and the letter of advice from China Merchants regarding the Yituo Supply Agreements, First Tractor Supply Agreement and Financial Services Agreement and the respective proposed Cap amounts; (iii) to provide you with information relating to the resignation and appointment of Supervisor; and (iv) to give you notice of the EGM to be convened for the Independent Shareholders to approve the Yituo Supply Agreements, First Tractor Supply Agreement and Financial Services Agreement and the respective proposed Cap amounts and for the Shareholders to approve the resignation and appointment of Supervisor.

— 2 —

LETTER FROM THE BOARD

BACKGROUND AND REASONS FOR THE CONTINUING CONNECTED TRANSACTIONS

The Group is principally engaged in the production and sale of agricultural machineries, construction machineries and non-banking financial operations. The raw materials, parts and components required by the Group include metallurgical products such as steel, pig iron, waste steel, coke and mechanical and other components such as tyres. Certain raw materials and components used by the Group, and all of the energy used for the Group’s production are supplied by China Yituo Group. China Yituo Group also provides the Group with composite services (such as welfare and security services and etc.). Certain factory buildings and facilities used by the Group are also leased from China Yituo Group.

China Yituo Group is principally engaged in the production of transportation machineries, casting parts, vehicles products, spare parts and components, and etc. Certain parts and components required by China Yituo Group such as diesel engines, fuel injection pump and fuel jet are supplied by the Group. In addition, certain buildings for housing the casting facilities are leased from the Group.

As a result of the above transactions undertaken between the Group and China Yituo Group, the Group previously entered into the Old Agreements with China Yituo Group, all of which will expire on or about 31 December 2006.

As the above transactions would directly affect the normal business operation of the Group, the New Agreements were entered into between China Yituo and the Group with a view to renewing the Old Agreements and to ensure the continued provision of such services and other continuing connected transactions contemplated thereunder in light of the corporate and/or business developments and changes of the Group since 2004. The terms and conditions of each of the New Agreements are similar to those in the respective Old Agreements in all material aspects.

In view of the above, the Directors are of the view that the New Agreements have been entered into on normal commercial terms and in the ordinary and usual course of business of the Group, the terms of the New Agreements are fair and reasonable and in the interests of the Shareholders and the Company as a whole.

— 3 —

LETTER FROM THE BOARD

PARTICULARS OF YITUO SUPPLY AGREEMENTS

Date

13 October 2006

Period

From 1 January 2007 to 31 December 2009

Parties

(1) China Yituo, on behalf of China Yituo Group, as supplier and supplying agent; and
(2) The Company, on behalf of the Group, as purchaser.

Goods and services to be provided / rendered:

Composite Services Agreement

certain welfare and other services, including but not limited to landscaping, cleaning services, fire prevention services, security services, storage services, transport services, administrative services for retired employees such as social insurance services, management services such as legal consultancy, internal auditing, sales and marketing planning, human resources management, public relations services such as the provisions of exhibition venue, advertising and promotion services for enterprise information, culture and image, re-employment and ability testing services and etc.

Material Supply Agreement

raw materials including but not limited to steel, pig iron, waste steel, coke, facilities, spare parts, components and other necessary essentials for the production of agricultural machineries, construction machineries and other manufacturing output.

Energy Supply Services Agreement

Energy, including but not limited to electricity, gas, oxygen, water, heat, compressed air, acetylene, steam and etc.

— 4 —

LETTER FROM THE BOARD

Price

With respect to the Composite Services Agreement, Material Supply Agreement and Energy Supply Services Agreement, the pricing in respect of the subject matter (as the context shall require) contemplated under the relevant agreements is determined with reference to:

(a) the applicable State Price; or
(b) if there is no applicable State Price for any such goods or services, (i) the market price or (ii) cost plus a percentage mark-up, whichever is lower.

In any event, the applicable price available to the Group shall not be less favourable than a price available to an independent third parties customer of China Yituo Group.

Conditions

The Yituo Supply Agreements shall be effective on 1 January 2007 subject to the approval by the Independent Shareholders at the EGM as required under the Listing Rules.

PARTICULARS OF FIRST TRACTOR SUPPLY AGREEMENT

Date

13 October 2006

Period

From 1 January 2007 to 31 December 2009

Parties

(1) The Company, on behalf of the Group, as supplier and supplying agent; and
(2) China Yituo, on behalf of the China Yituo Group, as purchaser and purchasing agent.

Goods and services to be provided

Raw materials, facilities, spare parts and components and other necessary essentials for the production of transportation machineries, casting parts, vehicles products, spare parts and components and other manufacturing output.

— 5 —

LETTER FROM THE BOARD

Price

The applicable price is determined with reference to:

(a) the applicable State Price; or
(b) if there is no applicable State Price for any such goods or services, the market price; or
(c) if there is no applicable market price for any such goods or services, cost plus a percentage markup.

In any event, the applicable purchase price offered by China Yituo Group to the Group shall not be less favourable than the purchase price offered by an independent third parties customer of the Group.

Conditions

The First Tractor Supply Agreement shall be effective on 1 January 2007 subject to the approval by the Independent Shareholders at the EGM as required under the Listing Rules.

PARTICULARS OF FINANCIAL SERVICES AGREEMENT

Date

13 October 2006

Parties

First Tractor Finance and China Yituo, on behalf of China Yituo Group

Period

From 1 January 2007 to 31 December 2009

Financial Services to be provided to China Yituo Group

(a) 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;

(b) 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 payment due date of the bills with interest rate determined with reference to the relevant interest rates set by PBOC from time to time;

— 6 —

LETTER FROM THE BOARD

(c) Finance lease

First Tractor Finance will provide lease financing to China Yituo Group pursuant to which First Tractor Finance will purchase properties from parties other than the Group 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 purchase amount as if it were loan amount (with the interest rate determined with reference to 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;

(d) 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 services fee of 0.05% of value of such bills;

(e) Guarantee

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

(f) Designated loan

First Tractor Finance will accept designated deposits placed by China Yituo Group or parties, which are not connected persons within the meanings of the Listing Rules, to fund loans made by First Tractor Finance to parties, which may or may not be connected persons within the meanings of the Listing Rules, as designated by such relevant ultimate financiers. First Tractor Finance will charge a one-off services fee of about 0.1% to 0.3% of the amount of designated deposits. Under this arrangement, First Tractor Finance will not repay the designated deposit to the ultimate financiers in the event the designated loan could not be recovered. Therefore, the credit risk is borne by the ultimate financiers rather than First Tractor Finance. First Tractor Finance does not bear any credit risks.

Conditions

The Financial Services Agreement shall be effective on 1 January 2007 subject to the approval by the Independent Shareholders at the EGM as required under the Listing Rules.

— 7 —

LETTER FROM THE BOARD

Other Financial Services to be provided

Apart from the Financial Services mentioned above, First Tractor Finance will also provide the following Financial Services:

(g) First Tractor Finance will provide lease financing to the Parties, which are not connected persons within the meanings of the Listing Rules, (“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 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 of about 1% to 3% of lease amount;
(h) First Tractor Finance will also provide loans to the Parties for certain percentage of 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; and
(i) First Tractor Finance will accept deposit (including the 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 reference 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 rates i.e. the relevant interest rates set by PBOC from time to time.

The Financial Services to be provided to the Parties under (g) and (h) do not constitute a connected transaction under Listing Rules and therefore are not subject to reporting, announcement and independent shareholder approval’s requirements under Chapter 14A of the Listing Rules. Financial Services to be provided under (i) represents financial assistance provided by China Yituo Group, for the benefit of First Tractor Finance on normal commercial terms where no security over the assets of the Group is granted in respect of the financial assistance, such financial assistance is exempted from reporting, announcement and independent shareholder approval’s requirements under Rule 14A.65(4) of the Listing Rules.

— 8 —

LETTER FROM THE BOARD

BASIS OF RELEVANT CAP AMOUNTS

The following table summarises the historical cap amounts for each of the three years ending 31 December 2006 and the proposed cap amounts of the relevant agreements for each of the three years ending 31 December 2009:

Yituo Supply Agreements — Composite Services Agreement — Material Supply Agreement — Energy Supply Services Agreement First Tractor Supply Agreement Financial Services Agreement — Loan — Bills discounting — Finance lease — Bills acceptance — Guarantee — Designated loan	Historical Cap Amounts 2004 2005 2006 RMB’000 RMB’000 RMB’000 68,000 80,000 96,000 989,000 1,150,000 1,380,000 301,000 350,000 420,000 503,000 585,000 702,000 230,000 380,000 470,000 260,000 420,000 530,000 65,000 100,000 125,000 100,000 140,000 175,000 150,000 260,000 320,000 7,000 11,000 15,000	Proposed Cap Amounts
		2007 2008 2009 RMB’000 RMB’000 RMB’000 121,000 154,000 206,000 963,000 1,227,000 1,646,000 321,000 409,000 549,000 803,000 1,022,000 1,372,000 611,000 752,000 846,000 455,000 560,000 630,000 109,200 134,300 151,100 30,000 38,000 42,000 416,000 510,000 570,000 55,000 68,000 76,000

Yituo Supply Agreements

Composite Services Agreement

The Cap amount for the Composite Services Agreement is determined on the basis that such amount will not exceed 1% of the estimated consolidated turnover of the Group for each of the three years ending 31 December 2009. The estimated consolidated turnover of the Group is estimated with reference to the future growth and development of the Group according to the industry development, market share, capacity and business strategy of the Group. The Cap amount, being set at 1% of the estimated consolidated turnover, is based on (a) the historical transactions in the last two years (2004: RMB30.88 million, 2005: RMB54.53 million), which on average amounted to 1% of the consolidated turnover of the Group; (b) the change in the provision of composite services, such as the cancellation of the education services to staff’s children and the continual increase in demand for composite services to be provided for the Group in the future due to the growth in production and sales in the future; and (c) the Reorganization which will lead to an increase in the scale of operation of the Group, thus increasing the demand of composite services from China Yituo Group.

— 9 —

LETTER FROM THE BOARD

Material Supply Agreement

The Cap amount for the Material Supply Agreement is determined on the basis that such amount will not exceed 12% of the estimated consolidated turnover of the Group for each of the three years ending 31 December 2009. The estimated consolidated turnover of the Group is estimated with reference to the future growth and development of the Group according to the industry development, market share, capacity and business strategy of the Group. The Cap amount, being set at 12% of the estimated consolidated turnover, is based on (a) the historical transactions in the last two years (2004: RMB505.45 million, 2005: RMB472.65 million), which on average amounted to 11% of the consolidated turnover of the Group; (b) the increment of 1% was attributed from the net effect of (i) the continuation of purchasing strategy of the Group which aims at centralising the purchase of materials through China Yituo Group in order to minimise the cost by bulk purchasing and to conduct materials purchase through China Yituo Group rather than third parties if such materials are available from China Yituo Group; (ii) modification of the product structure which includes the introduction of modified models and new series of products which therefore derive the amount of materials needed; and (iii) the Reorganization which will decrease the materials purchase through China Yituo Group.

Energy Supply Services Agreement

The Cap amount for the Energy Supply Services Agreement is determined on the basis that such amount will not exceed 4% of the estimated consolidated turnover of the Group for each of the three years ending 31 December 2009. The estimated consolidated turnover of the Group is estimated with reference to the future growth and development of the Group according to the industry development, market share, capacity and business strategy of the Group. The Cap amount, being set at 4% of the estimated consolidated turnover of the Group, is based on (a) the historical transactions in the last two years (2004: RMB127.06 million, 2005: RMB107.72 million), which on average amounted to 2.63% of the consolidated turnover of the Group; (b) the increment of 1.37% was attributable from the net effect of: (i) the anticipated increase in energy price in the next three years due to energy shortage in the PRC, in particular, an increase in price of electricity is anticipated according to research conducted by the Company; (ii) the anticipated change in the structure of production, in particular, some process such as purchasing parts from other parties in the past will become self production by the Group in the future in order to improve the quality of products and lower cost; (iii) the Reorganisation which will decrease the demand of energy supply from China Yituo Group.

First Tractor Supply Agreement

The Cap amount for the First Tractor Supply Agreement is determined on the basis that such amount will not exceed 10% of the estimated consolidated turnover of the Group for each of the three years ending 31 December 2009. The estimated consolidated turnover of the Group is estimated with reference to the future growth and development of the Group according to the industry development, market share, capacity and business strategy of the Group. The Cap amount, being set at 10% of the estimated consolidated turnover, is based on (a) the historical transactions in the last two years (2004: RMB332.92 million, 2005: RMB375.65 million), which on average amounted to 8% of the consolidated turnover of the Group; (b) the increment of 2% was attributed from the net effect of: (i) the anticipated growth in turnover of China Yituo Group; and (ii) the Reorganisation which will decrease the materials purchase through the Group.

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LETTER FROM THE BOARD

Financial Services Agreement

The proposed Cap amounts for the financial services are determined after considering the following factors:

(a) the financial resources of First Tractor Finance;
(b) credit 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 relevant Cap amount for each of the Financial Services are calculated as below:

Designated loan

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

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

Therefore, the calculation of the Cap amount for designated loans for the respective financial years will be based on the aggregate amount of designated loans in the preceding year and will also take into account the future business prospects of First Tractor Finance.

Financial Services other than the designated loan

Financial Services other than designated loan will be based on the percentage of increase in the total asset value of First Tractor Finance for each relevant year. The estimated total asset of First Tractor Finance is approximately RMB1,820.00 million, RMB2,238.60 million, and RMB2,518.43 million respectively for each of the three years ending 31 December 2009, taking into account the historical growth trend of its business as well as its future business prospects. The percentages for each of the Financial Services over the total asset value of First Tractor Finance for each of the three years ending 31 December 2009 are as follows: loan (33.57%, 33.59%, 33.59%), bills discounting (25.00%, 25.02%, 25.02%), finance lease (6.00%, 6.00%, 6.00%), bills acceptance (1.65%, 1.70%, 1.67%) and guarantee (22.86%, 22.78%, 22.63%).

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LETTER FROM THE BOARD

RESIGNATION AND APPOINTMENT OF SUPERVISOR

The Supervisor, Liu Ar Nan (劉阿南) (“Mr. Liu”), tendered his resignation from his office of Supervisor due to personal reasons, and his resignation shall take effect on 22 December 2006. The resignation is subject to the approval of the Shareholders at the EGM. Mr. Liu confirmed that he had no disagreement with the supervisory committee of the Company and the Company, and he was not aware of any matters which needed to be brought to the attention of the Shareholders and the Stock Exchange.

The controlling shareholder of the Company, China Yituo, nominated Mr. Zheng Lu Yu (鄭魯豫) (“Mr. Zheng”) as candidates for the position of the Supervisor, and the appointment of Mr. Zheng as the Supervisor shall take effect on 22 December 2006. The appointment is subject to the approval of the Shareholders at the EGM.

Ordinary resolutions will be proposed at the EGM to approve the resignation of Mr. Liu and the appointment of Mr. Zheng.

Brief biographical details of the proposed new Supervisor, Mr. Zheng are set out in Appendix I to this circular.

EGM

The EGM will be held on at 9:00 a.m. on Friday, 22 December 2006 at No. 154 Jianshe Road Luoyang, Henan Province, the PRC for the purpose of considering, and if thought fit, approving the Yituo Supply Agreements, First Tractor Supply Agreement and Financial Services Agreement and the respective proposed Cap amounts, as well as the resignation and appointment of the Supervisor. As each of the Yituo Supply Agreements, First Tractor Supply Agreement and Financial Services Agreement and the respective proposed Cap amounts constituted a connected transaction, only the Independent Shareholders will be entitled to vote on the relevant resolutions at the EGM. China Yituo and its associates (as defined in the Listing Rules), holding an aggregate of approximately 57.32% of the issued share capital of the Company, will abstain from voting in respect of each of the Yituo Supply Agreements, First Tractor Supply Agreement and Financial Services Agreement and the respective proposed Cap amounts at the EGM. At the EGM, votes of the Independent Shareholders will be taken by way of poll pursuant to the requirements of the Listing Rules. A notice of the EGM is set out on pages 34 to 35 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 deliver the same with the Company’s H Share registrar in Hong Kong, Hong Kong Registrars Limited, at 46/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 of the EGM (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.

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LETTER FROM THE BOARD

RECOMMENDATIONS

China Merchants has been appointed to advise the Independent Board Committee and the Independent Shareholders with regard to the Yituo Supply Agreements, First Tractor Supply Agreement and Financial Services Agreement and the respective proposed Cap amounts. The text of the letter of from China Merchants to the Independent Board Committee and the Independent Shareholders is set out on pages 15 to 28 of this circular.

The letter from the Independent Board Committee, which contains its recommendation to the Independent Shareholders in respect of the Yituo Supply Agreements, First Tractor Supply Agreement and Financial Services Agreement and the respective proposed Cap amounts, is also set out on page 14 of this circular.

The Board considers that the Yituo Supply Agreements, First Tractor Supply Agreement and Financial Services Agreement and the respective proposed Cap amounts are in the interests of the Company and the Shareholders and the terms and conditions of which are fair and reasonable so far as the Company and the Shareholders as a whole are concerned. Accordingly, the Board recommends the Independent Shareholders to vote in favour of the relevant ordinary resolutions to be proposed at the EGM for approving the Yituo Supply Agreements, First Tractor Supply Agreement and Financial Services Agreement and the respective proposed Cap amounts as set out in the notice of the EGM.

ADDITIONAL INFORMATION

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

Yours faithfully, For and on behalf of First Tractor Company Limited Liu Dagong Chairman

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

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

(Stock Code: 0038)

6 November 2006

To the Independent Shareholders

Dear Sir or Madam,

CONTINUING CONNECTED TRANSACTIONS

We have been appointed as members of the Independent Board Committee to give our advice on the Yituo Supply Agreements, First Tractor Supply Agreement and Financial Services Agreement and the respective proposed Cap amounts, details of which are set out in the letter from the Board included in the circular to the Shareholders dated 6 November 2006 (the “Circular”), of which this letter forms a part. Terms defined in the Circular shall have the same meanings when used herein unless the context otherwise requires.

China Merchants has been appointed as the independent financial adviser to advise us regarding the Yituo Supply Agreements, First Tractor Supply Agreement and Financial Services Agreement and the respective proposed Cap amounts. The letter from China Merchants is set out on pages 15 to 28 of the Circular.

Having considered the terms and conditions of the Yituo Supply Agreements, First Tractor Supply Agreement and Financial Services Agreement and the respective proposed Cap amounts, the advice given by China Merchants and the principal factors and reasons taken into consideration by them in arriving at their advice, we are of the opinion that the Yituo Supply Agreements, First Tractor Supply Agreement and Financial Services Agreement and the respective proposed Cap amounts are in the best interests of the Company and the Independent Shareholders as a whole, and the terms and conditions of the Yituo Supply Agreements, First Tractor Supply Agreement and Financial Services Agreement are fair and reasonable so far as the Independent Shareholders as a whole are concerned. Accordingly, we recommend the Independent Shareholders to vote in favour of the ordinary resolutions to be proposed at the EGM for approving the Yituo Supply Agreements, First Tractor Supply Agreement and Financial Services Agreement and the respective proposed Cap amounts.

Yours faithfully,

Independent Board Committee

Mr. Lu Zhongmin Mr. Chen Zhi Independent non-executive Independent non-executive Director Director Mr. Chan Sau Shan, Gary Mr. Luo Xiwen Independent non-executive Independent non-executive Director Director

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LETTER FROM CHINA MERCHANTS

The following is the text of the letter of advice from China Merchants to the Independent Board Committee and the Independent Shareholders, which has been prepared for the purpose of inclusion in this circular.

48th Floor, One Exchange Square Hong Kong

6 November 2006

First Tractor Company Limited No.154 Jianshe Road Luoyang Henan Province The PRC

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

Dear Sirs,

CONTINUING CONNECTED TRANSACTIONS

INTRODUCTION

We refer to our appointment to advise the Independent Board Committee and the Independent Shareholders in respect of the Continuing Connected Transactions and the Caps. Details of the Continuing Connected Transactions and the Caps are set out in the letter from the Board (the “Letter from the Board”) contained in the circular dated 6 November 2006 (the “Circular”) issued by the Company to the Shareholders, of which this letter forms part. This letter contains our advice to the Independent Board Committee and the Independent Shareholders as to whether or not (i) the Continuing Connected Transactions are on normal commercial terms, in the ordinary and usual course of business, fair and reasonable and are in the interests of the Company and the Shareholders as a whole; (ii) the Caps have been determined on a fair and reasonable basis; and (iii) it would be fair and reasonable for the Independent Shareholders to approve the New Agreements and the Caps. Terms used in this letter have the same meanings as defined in the Circular unless the context otherwise requires.

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

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LETTER FROM CHINA MERCHANTS

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 or China Yituo Group nor carried out any independent verification of the information supplied, representations made or opinions expressed by the Company, its Directors and its management.

PRINCIPAL FACTORS AND REASONS CONSIDERED

In formulating our opinion in respect of the Continuing Connected Transactions and the Caps, we have considered the following principal factors and reasons:

I. Background of the Company and the Continuing Connected Transactions

The Group is principally engaged in the production and sale of agricultural machineries and construction machineries and non-banking financial operations. The raw materials, parts and components required by the Group include metallurgical products such as steel, pig iron, waste steel, coke and mechanical and other components such as tyres. Certain goods and services used by the Group and all of the energy used for the Group’s production have been provided or supplied by China Yituo Group.

First Tractor Finance is a non-wholly owned subsidiary of the Company and a licensed financial institution in the PRC subject to rules and regulation set by China Banking Regulatory Commission. As stated in its financial institution license issued by China Banking Regulatory Commission, First Tractor Finance’s scope of business comprises, among others, the provision of banking and financial services to the Group and China Yituo Group.

China Yituo Group is principally engaged in the production of transportation machineries, casting parts, vehicles products, spare parts and components, and etc. Certain goods required by China Yituo Group have been supplied by the Group.

As the Old Agreements will be expired on or about 31 December 2006, the Group entered into the New Agreements with China Yituo on 13 October 2006 with a view to renewing the Old Agreements and to ensure the continual normal operations of the Group and China Yituo Group.

China Yituo beneficially owns approximately 57.32% of the issued share capital of the Company, and is the controlling Shareholder. Thus China Yituo and its subsidiaries are regarded as connected persons of the Company under the Listing Rules. Accordingly, the Continuing Connected Transactions and the Caps constitute continuing connected transactions or financial assistance under Chapter 14A of the Listing Rules and are subject to the reporting and announcements requirements under the Listing Rules and the approval of the Independent Shareholders at the EGM. In this connection, we have been appointed by the Company to advise the Independent Board Committee and the Independent Shareholders as to whether or not (i) the Continuing Connected Transactions are on normal commercial terms, in the ordinary and usual course of business, fair and reasonable and are in the interests of the Company and the Shareholders as a whole; (ii) the Caps have been determined on a fair and reasonable basis; and (iii) it would be fair and reasonable for the Independent Shareholders to approve the New Agreements and the Caps.

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LETTER FROM CHINA MERCHANTS

II. Subject matter of the New Agreements

As stated in the Letter from the Board, subject matter of the New Agreements are set out below:

(i) The Yituo Supply Agreements

The Yituo Supply Agreements are entered into between China Yituo (on behalf of China Yituo Group) as supplier and supplying agent and the Company (on behalf of the Group) as purchaser. The Yituo Supply Agreements comprise three agreements, namely the Composite Services Agreement, the Material Supply Agreement and the Energy Supply Services Agreement, pursuant to which the following goods and services will be provided/rendered by China Yituo Group to the Group from 1 January 2007 to 31 December 2009:

Composite Services certain welfare and other services, including but not limited Agreement to landscaping, cleaning services, fire prevention services, security services, storage services, transport services, administrative services for retired employees such as social insurance services, management services such as legal consultancy, internal auditing, sales and marketing planning, human resources management, public relations services such as the provisions of exhibition venue, advertising and promotion services for enterprise information, culture and image, re-employment and ability testing services and etc.

Material Supply Agreement

raw materials including but not limited to steel, pig iron, waste steel, coke, facilities, spare parts, components and other necessary essentials for the production of agricultural machineries, construction machineries and other manufacturing output.
Energy Supply Services energy, including but not limited to electricity, gas, oxygen, Agreement water, heat, compressed air, acetylene, steam and etc.

(ii) The First Tractor Supply Agreement

The First Tractor Supply Agreement is entered into between the Company (on behalf of the Group) as supplier and supplying agent and China Yituo (on behalf of China Yituo Group) as purchaser and purchasing agent. Pursuant to the First Tractor Supply Agreement, raw materials, facilities, spare parts, components and other necessary essentials for the production of transportation machineries, casting parts, vehicles products, spare parts and components and other manufacturing output will be provided by the Group to China Yituo Group from 1 January 2007 to 31 December 2009.

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LETTER FROM CHINA MERCHANTS

(iii) The Financial Services Agreement

The Financial Services Agreement is entered into between First Tractor Finance and China Yituo (on behalf of China Yituo Group), pursuant to which First Tractor Finance will provide the following Financial Services to China Yituo Group from 1 January 2007 to 31 December 2009:

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.

Bills discounting

Finance lease

Bills acceptance

Guarantee

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LETTER FROM CHINA MERCHANTS

Designated loan

III. Reasons for and benefits of the Continuing Connected Transactions

As mentioned in the Letter from the Board, as the Continuing Connected Transactions would directly affect the normal business operation of the Group, the New Agreements were entered into between China Yituo and the Group on 13 October 2006 with a view to renewing the Old Agreements and to ensure the continued provision of such goods and services.

(i) The Yituo Supply Agreements

As advised by the Directors, the Company relies on China Yituo Group for the provision of goods and services under the Yituo Supply Agreements owing to (a) regarding the Composite Services Agreement and the Materials Supply Agreement, certain goods and services are believed by the Directors not to be readily obtained from any other suppliers given the special features of those goods and services or are not to be readily obtained from other suppliers at similar or even lower cost; and (b) regarding the Energy Supply Services Agreement, the Company has its energy supply network connected to China Yituo Group only and the rebuilding of the energy supply network will be costly and lead to suspension of the operation of the Group. The Directors advised that the Yituo Supply Agreements facilitate smooth and economic operation of the Group and ensure a more stable source for goods and services.

(ii) The First Tractor Supply Agreement

As advised by the Directors, certain raw materials, facilities and components used by the Group in its production and certain spare parts produced by the Group can also be used in the production of China Yituo Group. By entering into the First Tractor Supply Agreement, the Group and China Yituo Group can enjoy cost effective and the Group can enhance the utilization of production capacity of the Group and generate revenue.

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LETTER FROM CHINA MERCHANTS

(iii) The Financial Services Agreement

Based on the First Tractor Finance’s registered capital of RMB500 million and that First Tractor Finance shall provide the Financial Services not exceeding the caps, the capital adequacy ratio of First Tractor Finance will not be less than 30%, 25% and 20% in 2007, 2008 and 2009 respectively, which is substantially higher than the minimum capital adequacy ratio of 10% imposed by China Banking Regulatory Commission. 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 Group. Thus the Financial Services Agreement enhances the utilization of the resources of First Tractor Finance and generates revenue for the Group.

Based on the foregoing, we consider that (a) the goods and services to be provided to the Group under the Yituo Supply Agreements are either not replaceable or not cost effective to be replaceable; (b) the goods to be provided by the Group under the First Tractor Supply Agreement can enhance cost effective of the Group and generate revenue to the Group; and (c) the Financial Services to be provided by the Group can enhance the utilization of the resources of First Tractor Finance and generate revenue to the Group. As such, we are of the view that it is reasonable for the Group to enter into the Continuing Connected Transactions and the New Agreements have been entered into in the ordinary and usual course of business of the Group and are in the interests of the Company and the Shareholders as a whole.

IV. Basis of price determination of the Continung Connected Transactions

The basis of price determination of the Continuing Connected Transactions are set out below:

(i) The Yituo Supply Agreements

As stated in the Letter from the Board, the prices of the goods and services under the Yituo Supply Agreements are determined by reference to (a) the applicable State Price; or (b) if there is no applicable State Price for any such goods or services, the market price or the cost plus a percentage mark-up, whichever is lower. Furthermore, it is stated in the Yituo Supply Agreements that, in any event, the applicable price available to the Group shall not be less favourable than a price available to an independent third parties customer of China Yituo Group. As such, we consider that the Yituo Supply Agreements are on normal commercial terms, fair and reasonable and in the interest of the Company and its Shareholders as a whole.

(ii) The First Tractor Supply Agreement

As stated in the Letter from the Board, the prices of the goods under the First Tractor Supply Agreement are determined by reference to (a) the applicable State Price; or (b) if there is no applicable State Price for any such goods, the market price; or (c) if there is no applicable market price for any such goods, cost plus a percentage mark-up. Furthermore, it is stated in the First Tractor Supply Agreement that, in any event, the applicable purchase price offered by China Yituo Group to the Group shall not be less favorable than the purchase price offered by an independent third parties customer of the Group. As such, we consider that the First Tractor Supply Agreement is on normal commercial terms, fair and reasonable and in the interest of the Company and its Shareholders as a whole.

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LETTER FROM CHINA MERCHANTS

(iii) The Financial Services Agreement

The Directors advised that the interest rate of each of the Financial Services is determined with reference to the relevant interest rate set by PBOC from time to time and the services fee of each of the Financial Services is determined with reference to the fee charged by other licensed financial institutions in the PRC on transactions of similar nature. In this regard, we have reviewed (a) relevant notices dispatched by China Banking Regulatory Commission regarding interest rates for loan, bills discounting and finance lease; and (b) the fees charged by other licensed financial institutions of similar nature for finance lease, bills acceptance, guarantee and designated loan services. Based on reviewing the above documents, we note that the interest rates under the Financial Services Agreement are determined with reference to the relevant interest rates set by PBOC from time to time and the services fees under the Financial Services Agreement are determined with reference to the fees charged by other licensed financial institutions in the PRC on transactions of similar nature. As such we consider that the Financial Services Agreement is on normal commercial terms, fair and reasonable and in the interest of the Company and its Shareholders as a whole.

V. Basis of the Caps

The following table summarises the historical caps for each of the three years ending 31 December 2006 and the proposed Caps for each of the three years ending 31 December 2009:

Yituo Supply Agreements — Composite Services Agreement — Material Supply Agreement — Energy Supply Services Agreement First Tractor Supply Agreement Financial Services Agreement — Loan — bills discounting — finance lease — bills acceptance — guarantee — designated loan	Historical caps 2004 2005 2006 RMB’000 RMB’000 RMB’000 68,000 80,000 96,000 989,000 1,150,000 1,380,000 301,000 350,000 420,000 503,000 585,000 702,000 230,000 380,000 470,000 260,000 420,000 530,000 65,000 100,000 125,000 100,000 140,000 175,000 150,000 260,000 320,000 7,000 11,000 15,000	Proposed Caps
		2007 2008 2009 RMB’000 RMB’000 RMB’000 121,000 154,000 206,000 963,000 1,227,000 1,646,000 321,000 409,000 549,000 803,000 1,022,000 1,372,000 611,000 752,000 846,000 455,000 560,000 630,000 109,200 134,300 151,100 30,000 38,000 42,000 416,000 510,000 570,000 55,000 68,000 76,000

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LETTER FROM CHINA MERCHANTS

(i) The Yituo Supply Agreements and the First Tractor Supply Agreement

As stated in the Letter from the Board, the caps for the Yituo Supply Agreements and the First Tractor Supply Agreement are calculated as below:

(a) The Yituo Supply Agreements

Composite Services Agreement

The cap for the Composite Services Agreement is determined on the basis that such amount will not exceed 1% of the estimated consolidated turnover of the Group for each of the three years ending 31 December 2009. The cap amount, being set at 1% of the estimated consolidated turnover, is based on (i) the historical transactions in the last two years (2004: RMB30.88 million, 2005: RMB54.53 million), which on average amounted to 1% of the consolidated turnover of the Group; (ii) the change in the provision of composite services, such as the cancellation of the education services to staff’s children and the continual increase in demand for composite services to be provided for the Group in the future due to the growth in production and sales in the future; and (iii) the Reorganization which will lead to an increase in the scale of operation of the Group, thus increasing the demand of composite services from China Yituo Group.

Material Supply Agreement

The cap for the Material Supply Agreement is determined on the basis that such amount will not exceed 12% of the estimated consolidated turnover of the Group for each of the three years ending 31 December 2009. The cap amount, being set at 12% of the estimated consolidated turnover, is based on (i) the historical transactions in the last two years (2004: RMB505.45 million, 2005: RMB472.65 million), which on average amounted to 11% of the consolidated turnover of the Group; (ii) the increment of 1% was attributed from the net effect of (aa) the continuation of purchasing strategy of the Group which aims at centralising the purchase of materials through China Yituo Group in order to minimise the cost by bulk purchasing and to conduct materials purchase through China Yituo Group rather than third parties if such materials are available from China Yituo Group; (bb) modification of the product structure which includes the introduction of modified models and new series of products which therefore derive the amount of materials needed; and (cc) the Reorganization which will decrease the materials purchase through China Yituo Group.

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LETTER FROM CHINA MERCHANTS

Energy Supply Services Agreement

The cap for the Energy Supply Services Agreement is determined on the basis that such amount will not exceed 4% of the estimated consolidated turnover of the Group for each of the three years ending 31 December 2009. The cap amount, being set at 4% of the estimated consolidated turnover of the Group, is based on (i) the historical transactions in the last two years (2004: RMB127.06 million, 2005: RMB107.72 million), which on average amounted to 2.63% of the consolidated turnover of the Group; (ii) the increment of 1.37% was attributable from the net effect of (aa) the anticipated increase in energy price in the next three years due to energy shortage in the PRC, in particular, an increase in price of electricity is anticipated according to research conducted by the Company; (bb) the anticipated change in the structure of production, in particular, some process such as purchasing parts from other parties in the past will become self production by the Group in the future in order to improve the quality of products and lower cost; and (cc) the Reorganization which will decrease the demand of energy supply from China Yituo Group.

(b) The First Tractor Supply Agreement

The cap for the First Tractor Supply Agreement is determined on the basis that such amount will not exceed 10% of the estimated consolidated turnover of the Group for each of the three years ending 31 December 2009. The cap amount, being set at 10% of the estimated consolidated turnover, is based on (i) the historical transactions in the last two years (2004: RMB332.92 million, 2005: RMB375.65 million), which on average amounted to 8% of the consolidated turnover of the Group; and (ii) the increment of 2% was attributed from the net effect of: (aa) the anticipated growth in turnover of China Yituo Group; and (bb) the Reorganization which will decrease the materials purchase through the Group.

As mentioned above, the basis of the caps for the Yituo Supply Agreements and the First Tractor Supply Agreement for each of the three years ending 31 December 2009 is fixed at a percentage of the estimated turnover of the Group for the respective years.

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LETTER FROM CHINA MERCHANTS

Estimated turnover

The estimated turnover of the Group is derived based on the future growth and development of the Group according to the industry development, market share, capacity and the business strategy of the Group. We have discussed the assumptions underlining the Directors’ estimation for the growth of turnover of the Group for the respective years. We noted that the estimation has, in particular, taken into account (a) the historical growth rate in turnover of the Group in the past three financial years; (b) the unaudited turnover of the Group for the six months ended 30 June 2006; (c) the business plan of the Group for the three financial years ending 31 December 2009 in which new products launched by the Company in mid 2006 have become mature and widely accepted in the market which are estimated by the Directors to serve as growth drivers for the turnover of the Group for the coming years; and (d) the favorable policies towards the agricultural sector including “中共中央國務院關於推進社會主義新農村建設的若干意見 ” (Policy regarding constructing a new socialist countryside) announced by the State Council of the Chinese Government in December 2005. It is stated in the aforesaid policy that it is the policy of the Chinese Government to raise the subsidy for the purchase of agricultural machinery. We consider that these assumptions have been made with due care and objectivity.

Level of percentage

We have enquired with and were advised by the Directors that there are two principal factors which, among others, in determining the level of percentage against the turnover of the Group for the caps for the three years ending 31 December 2009, namely the historical transactions in the last two years and the Reorganization.

As advised by the Directors, the Reorganization refers to the significant restructuring within and between the Group and China Yituo Group due to business alignment. The Directors advised that in the Reorganization, several companies formerly under the control of China Yituo Group have been restructured to become members of the Group and vice versa. Thus certain transactions which were formerly not regarded as connected transactions have fallen / will fall within the category of connected transactions between the Group and China Yituo Group as defined under the Listing Rules while certain transactions which were formerly regarded as connected transactions have fallen / will fall outside the category of connected transactions between the Group and China Yituo Group as defined under the Listing Rules.

Based on the above, we consider that the caps for the Yituo Supply Agreements and the First Tractor Supply Agreement for each of three years ending 31 December 2009 are made by the Directors after due care and consideration and objectively. As such, we consider that the factors stated above can justify the caps for the Yituo Supply Agreements and the First Tractor Supply Agreement for the years of 2007 to 2009 and the significant increase in such caps as compared to the historical caps for the Yituo Supply Agreements and the First Tractor Supply Agreement for the years of 2004 to 2006 and the caps for the Yituo Supply Agreements and the First Tractor Supply Agreement have been determined on a fair and reasonable basis.

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LETTER FROM CHINA MERCHANTS

(ii) The Financial Services Agreement

As advised by the Directors, the caps for the Financial Services Agreement are determined after considering the following factors:

(a) the financial 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 China Yituo Group. Pursuant to the relevant regulations set by China Banking Regulatory Commission, 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 RMB500 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 30%, 25% and 20% in 2007, 2008 and 2009 respectively which is higher than the 10% threshold set by China Banking Regulatory Commission. 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 China Banking Regulatory Commission as well as utilization of resources of the Company. In this regard, we consider that (aa) the respective projected capital adequacy ratios for the three years ending 2009 are above the 10% threshold set by China Banking Regulatory Commission, which risk level is acceptable to the Company and the Shareholders; and (bb) 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. 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 should be regarded as one of the principal factors in determining the caps for the Financial Services Agreement.

(b) the credit policy of First Tractor Finance

The Directors advised that First Tractor Finance has sufficient resources to provide the Financial Services at the amount over the caps for the Financial Services Agreement as set out above. 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 China Banking Regulatory Commission, 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 China Banking Regulatory Commission; and (ii) restrictions in respect of assets and liabilities composition, liquidity, assets and loans quality in accordance with guidelines issued by China Banking Regulatory Commission. 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.

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LETTER FROM CHINA MERCHANTS

(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 ending 31 December 2009. The Directors have provided us the projected turnover of China Yituo Group and we have discussed 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.

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 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.

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

The caps for each of the Financial Services are determined having regard to the amount of each of the Financial Services of the previous year.

In particular, the caps for each of the transactions contemplated under the Financial Services are calculated as below:

(a) Designated loan

The calculation of the caps for the designated loan comprises two parts:

(i) the anticipated amount of outstanding designated loan as at year end of previous year; and
(ii) the additional designated loan for this financial year with reference to the expected growth in the turnover of China Yituo Group.

As at 31 December 2005 and 31 July 2006, First Tractor Finance has provided RMB5.8 million and RMB14.78 million designated loan to China Yituo Group respectively.

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LETTER FROM CHINA MERCHANTS

As advised by the Directors, the large increase in cap of the designated loan for the year ending 31 December 2007 is mainly due to the strong demand of designated loan from China Yituo Group. Although there is a strong demand of designated loan from China Yituo Group, the amount of the designated loan to China Yituo Group during the year of 2006 is restricted by the cap of the designed loan for the year ending 31 December 2006. As advised by the Directors, First Tractor Finance will accept designated deposits from the ultimate financiers to fund and grant loans designated by such ultimate financiers. As stated in the Letter from the Board, First Tractor Finance will not repay the designated deposit to the ultimate financiers in the event the designated loan could not be recovered. Therefore, the credit risk is borne by the ultimate financiers rather than First Tractor Finance. As there is no credit risk to First Tractor Finance in providing the designated loan given the nature of the designated loan, the Directors intend to increase the cap of the designated loan for the year ending 31 December 2007. We also note that, excluding the amount of outstanding designated loan as at the year end of the previous year, the annual growth rate of the cap for the designated loan for the year 2008 and 2009 is within the expected growth in turnover of China Yituo Group 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.

(b) Financial Services other than the designated loan

Financial Services other than designated loan will be based on the percentage of the total asset value of First Tractor Finance for each relevant year. The estimated total asset of First Tractor Finance will be approximately RMB1,820.00 million, RMB2,238.60 million and RMB2,518.43 million respectively for each of the three years ending 31 December 2009, taking into account the historical growth trend of its business as well as its future business prospects. The percentages for each of the Financial Services other than the designated loan over the total asset value of First Tractor Finance for each of the three years ending 31 December 2009 of First Tractor Finance and the credit policy of First Tractor Finance for China Yituo Group are as follows:

				Credit policy of
				First Tractor Finance for
	2007	2008	2009	China Yituo Group
Loan	33.57%	33.59%	33.59%	35%
Bills discounting	25.00%	25.02%	25.02%	30%
Finance lease	6.00%	6.00%	6.00%	10%
Bills acceptance	1.65%	1.70%	1.67%	5%
Guarantee	22.86%	22.78%	22.63%	25%

— 27 —

LETTER FROM CHINA MERCHANTS

As noted form the above table, all the percentages for the above financial services over the total asset value of First Tractor Finance for each of the three years ending 31 December 2009 are within the credit control policy of First Tractor Finance for China Yituo Group.

As a licensed financial institution to provide financial services to the Group and China Yituo Group, the business development of First Tractor Finance relates to the operation of the Group and China Yituo Group. The projected growth rates of the total asset value of First Tractor Finance for the three years ending 31 December 2009 are in line with the projected growth rates of the turnover of the Group and China Yituo Group of the respective years. We have reviewed the assumptions underlying the total asset value of First Tractor Finance 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 2009 respectively are reasonable.

We noted that the assumptions underlying the caps for the Financial Services Agreement are made by the management taking into account the financial resources of First Tractor Finance, the credit policy of First Tractor Finance, the future growth and development of China Yituo Group and the historical amount of the Financial Services. As such, we consider that the caps for the Financial Services Agreement for each of three years ending 31 December 2009 are made by the Directors after due care and consideration and objectively and the factors stated above can justify the caps for the Financial Services Agreement for the years of 2007 to 2009 and the significant increase in such caps as compared to the historical caps for the Financial Services Agreement for the years of 2004 to 2006. As such, the caps for the Financial Services Agreement have been determined on a fair and reasonable basis.

RECOMMENDATION

Having considered the abovementioned principal factors and reasons, we consider that, (i) the Continuing Connected Transactions are on normal commercial terms, in the ordinary and usual course of business, fair and reasonable and are in the interests of the Company and the Shareholders as a whole; (ii) the Caps have been determined on a fair and reasonable basis; and (iii) it would be fair and reasonable for the Independent Shareholders to approve the New Agreements and the Caps. We therefore recommend that the Independent Board Committee advises the Independent Shareholders to vote in favour of the respective resolutions relating to the New Agreements and their respective Caps at the EGM. We also recommend the Independent Shareholders to vote in favour of the respective resolutions relating to the New Agreements and their respective Caps at the EGM.

For and on behalf of

China Merchants Securities (HK) Co., Ltd. Tony Wu Executive Director

— 28 —

APPENDIX I

DETAILS OF THE PROPOSED SUPERVISOR

Personal details of the candidate of Supervisor nominated and recommended by China Yituo to be appointed at the EGM are set out below:

Mr. Zheng Lu Yu ( 鄭魯豫 ) (“Mr. Zheng”), aged 53, Supervisor

Experience

Mr. Zheng joined China Yituo in October 1989. He previously held the post of officer, assistant to the Head and Deputy Head of Department of Public Security, Head of Armed Equipment Division, Officer to the Party’s general office and Officer to the General Office of China Yituo and assistant to General Manager of China Yituo. He is currently the Deputy-secretary of the Party Committee, Secretary to the Disciplinary Committee of China Yitou and Chairman of the Supervisory Committee of China Yituo. Mr. Zheng has an extensive experience in administration and supervision. He also holds a title of senior engineer for political work.

Save as disclosed above, Mr. Zheng does not hold any other positions in the Company or any other member of the Group, nor held any directorship in any other listed company in the last three years.

Length of service and emolument

Mr. Zheng will enter into a service agreement with the Company after the date of appointment for a term of office up to 30 June 2009. Mr. Zheng will receive a fee to be determined by the Board subject to the authorization by the Shareholders with reference to his duties and responsibilities with the Company and the market rate for the position. Mr. Zheng will also be entitled to an annual discretionary bonus with reference of the performance of the Company. The annual remuneration of Mr. Zheng (including bonus and other emoluments, if any) will be decided by the Board after his appointment as a Supervisor becomes effective.

Relationships

Mr. Zheng has no relationship with any Directors, supervisor or the senior management of the Company or with any management shareholder, substantial shareholder or controlling shareholder of the Company.

Interests in Shares

So far as the Directors are aware as at the date of this circular, Mr. Zheng does not have any interest in the shares of the Company (within the meaning of Part XV of the SFO).

Matters that need to be brought to the attention of the Shareholders

In relation to the appointment of Mr. Zheng as the Supervisor, there is no information which is discloseable nor is/was he involved in any of the matters required to be disclosed pursuant to any of the requirements of the provisions under paragraph 13.51(2)(h) to 13.51(2)(v) of the Listing Rules, and there is no matter which needs to be brought to the attention of the Shareholder of the Company.

— 29 —

APPENDIX II

GENERAL INFORMATION

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.

Expert

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

Name

Qualification

China Merchants

a licensed corporation to conduct type 1 (dealing in securities), type 2 (dealing in futures contracts), type 4 (advising on securities), type 6 (advising on corporate finance) and type 9 (asset management) of the regulated activities under the SFO

(b) As at the Latest Practicable Date, China Merchants 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) China Merchants 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 it appears.
(d) The letter and recommendation given by China Merchants are given as of the date of this circular for incorporation herein.
(e) As at the Latest Practicable Date, China Merchants 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 2005, the date to which the latest published audited financial statement of the Group was made up.

— 30 —

APPENDIX II

GENERAL INFORMATION

DISCLOSURE OF INTERESTS

Directors’ Interests

As at the Latest Practicable Date, save as disclosed below, none of the Directors, supervisors, chief executives of the Company and their associates had any interests or short positions in the shares, underlying shares and debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) which were required to be notified to the Company and Stock Exchange pursuant to Divisions 7 and 8 of 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:-

				Approximate
				percentage
				in the entire
	Name of			registered capital
	associated		Registered capital	of the associated
Name	corporation	Capacity	*held(Note 2)***	corporation
Yan Linjiao (Director)	Yituo (Luoyang)	Beneficial owner	RMB290,000 (L)	0.5%
	Lutong Construction
	Machinery Co., Ltd.
	(“Lutong Company”)
	(Note 1)

Notes:

Lutong Company is a limited company established in the PRC. Its total registered capital is RMB58,000,000. Mr. Yan Linjiao contributed RMB290,000 to the total registered capital of Lutong Company and therefore holds 0.5% of the total registered capital of Lutong Company.
The letter “L” represents the person’s long position in the registered capital of the associated corporation.

As at the Latest Practicable Date, none of the Directors, supervisors or chief executives 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).

— 31 —

APPENDIX II

GENERAL INFORMATION

As at the Latest Practicable Date, so far as known to the Directors, supervisors or chief executives of the Company, Mr. Liu Dagong, Mr. Zhao Yanshui, Mr. Liu Wenying, Mr. Yan Linjiao, Mr. Shao Haichen and Mr. Li Tengjiao, executive Directors, are also the directors of China Yituo, Mr. Zhao Yanshui, executive Director is also the general manager of China Yituo, whereas Mr. Yan Linjiao, Mr. Zhang Jing and Mr. Li Youji, executive Directors are also the deputy general manager of China Yituo. China Yituo is the controlling shareholder and holding company of the Company which had an interest of 57.32% in the Shares which would fall to be disclosed to the Company under Divisions 2 and 3 of Part XV of the SFO. Save as disclosed above, none of the Directors or proposed Directors is a director or employee of a company which had any interests or short positions in any shares and underlying shares (including options) of the Company which would fall to be disclosed to the Company under Divisions 2 and 3 of Part XV of the SFO.

None of the Directors has any direct or indirect interest in any assets which have been acquired or disposed of by or leased to any member of the Group or are proposed to be acquired or disposed of by or leased to any member of the Group since 31 December 2005, the date to which the latest published audited financial statement of the Group was made up.

None of the Directors 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.

As at the Latest Practicable Date, none of the Directors or supervisors of the Company and their respective associates have interests in a business, apart from the business of the Group, which competes or is likely to compete, either directly or indirectly, with the business of the Group.

SERVICE CONTRACTS OF THE DIRECTORS AND THE SUPERVISORS

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

— 32 —

GENERAL INFORMATION

APPENDIX II

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.

As each of the Yituo Supply Agreements, First Tractor Supply Agreement and Financial Services Agreement and the respective proposed Cap amounts constituted a connected transaction, votes on the relevant resolutions at the EGM will be taken by way of poll pursuant to the requirements of the Listing Rules.

MATERIAL CHANGES

The Directors confirm that there has been no material adverse change in the financial or trading position of the Group since 31 December 2005, the date to which the latest published audited financial statements of the Group were made up.

GENERAL

(a) The registered and head office of the Company is at No.154 Jianshe Road, Luoyang, Henan Province, the PRC.
(b) The H Share transfer office of the Company in Hong Kong is Hong Kong Registrars Limited at 46th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong.
(c) In the event of inconsistency, the English text of this circular shall prevail over the Chinese text.

DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the Yituo Supply Agreements, First Tractor Supply Agreement and Financial Services Agreement are available for inspection during normal business hours up to and including 21 November 2006 at the offices of Li & Partners, at 22nd Floor, World Wide House, Central, Hong Kong and at the EGM.

— 33 —

NOTICE OF EGM

==> picture [257 x 35] intentionally omitted <==

(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 (the “PRC”) on Friday, 22 December 2006 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 Yituo Supply Agreements, First Tractor Supply Agreement and Financial Services Agreement (as defined in the circular of the Company dated 6 November 2006 (the “Circular”), a copy of which has been produced to the EGM marked “A” and signed by the chairman of the EGM for the purpose of identification) and the terms and conditions thereof and the respective proposed Cap amounts and the transactions contemplated thereunder and the implementation thereof be and are hereby approved, ratified and confirmed;
(B) any one of the directors of the Company be 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 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 Yituo Supply Agreements, First Tractor Supply Agreement and Financial Services Agreement and the respective proposed Cap amounts, 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 Yituo Supply Agreements, First Tractor Supply Agreement and Financial Services Agreement as they may in their discretion consider to be desirable and in the interest of the Company;
(C) to approve the resignation of Mr. Liu Ar Nan (劉阿南) as the supervisor of the supervisory committee of the Company; and
(D) to approve the appointment of Mr. Zheng Lu Yu (鄭魯豫) as the supervisor of the supervisory committee of the Company.”

By Order of the Board Liu Dagong Chairman

Luoyang, the PRC, 6 November 2006

— 34 —

NOTICE OF EGM

Notes:

The register of members of the Company will be temporarily closed from 22 November 2006 to 22 December 2006 (both days inclusive) during which no transfer of shares of the Company (the “Shares”) will be registered in order to determine the list of shareholders of the Company (the “Shareholders”) for attending the EGM. Shareholders whose names appear on the register of members of the Company on 22 November 2006 will be entitled to attend and vote at the EGM. The last lodgment for Share transfer should be made on 21 November 2006 at Hong Kong Registrars Limited by or before 4:00 p.m.. The Shareholders or their proxies being registered before the close of business on 21 November 2006 are entitled to attend the EGM by presenting their identity documents. The address of H Share registrar of the Company, Hong Kong Registrars Limited is 46/F, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong.
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 authorization shall be notarially certified. To be valid, the Proxy Form and the notarially certified power of attorney or other documents of authorization must be delivered to the Company’s H Share registrar. Hong Kong Registrars Limited, at 46/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 the holding of the EGM or any adjournment thereof.
Shareholders or proxies who intend to attend the EGM are requested to deliver the duly completed and signed reply slip for attendance to the Company’s registered address in person, by post or by facsimile on or before 4:00 p.m. on 1 December 2006.
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 traveling and accommodation expenses.
The Company’s registered address:

No. 154, Jianshe Road, Luoyang, Henan Province, the PRC Postal code : 471004 Telephone : 86-379-64967038 Facsimile : 86-379-64967438 Email : [email protected]

For identification purpose only

— 35 —

AI assistant

First Tractor Company Limited — Proxy Solicitation & Information Statement 2006

48894_rns_2006-11-06_47c45529-408e-46c0-a83e-1414a660d784.pdf

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

CONTINUING CONNECTED TRANSACTIONS AND RESIGNATION AND APPOINTMENT OF SUPERVISOR

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

LETTER FROM THE BOARD

CONTINUING CONNECTED TRANSACTIONS AND

RESIGNATION AND APPOINTMENT OF SUPERVISOR

INTRODUCTION

LETTER FROM THE BOARD

LETTER FROM THE BOARD

BACKGROUND AND REASONS FOR THE CONTINUING CONNECTED TRANSACTIONS

LETTER FROM THE BOARD

PARTICULARS OF YITUO SUPPLY AGREEMENTS

Date

Period

Parties

LETTER FROM THE BOARD

Price

Conditions

PARTICULARS OF FIRST TRACTOR SUPPLY AGREEMENT

Date

Period

Parties

Goods and services to be provided

LETTER FROM THE BOARD

Price

Conditions

PARTICULARS OF FINANCIAL SERVICES AGREEMENT

Date

Parties

Period

Financial Services to be provided to China Yituo Group

(a) Loan

(b) Bills discounting

LETTER FROM THE BOARD

(c) Finance lease

(d) Bills acceptance

(e) Guarantee

(f) Designated loan

Conditions

LETTER FROM THE BOARD

Other Financial Services to be provided

LETTER FROM THE BOARD

BASIS OF RELEVANT CAP AMOUNTS

Yituo Supply Agreements

Composite Services Agreement

LETTER FROM THE BOARD

Material Supply Agreement

Energy Supply Services Agreement

First Tractor Supply Agreement

LETTER FROM THE BOARD

Financial Services Agreement

Designated loan

Financial Services other than the designated loan

LETTER FROM THE BOARD

RESIGNATION AND APPOINTMENT OF SUPERVISOR

EGM

LETTER FROM THE BOARD

RECOMMENDATIONS

ADDITIONAL INFORMATION

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

CONTINUING CONNECTED TRANSACTIONS

LETTER FROM CHINA MERCHANTS

CONTINUING CONNECTED TRANSACTIONS

INTRODUCTION

LETTER FROM CHINA MERCHANTS

PRINCIPAL FACTORS AND REASONS CONSIDERED

I. Background of the Company and the Continuing Connected Transactions

LETTER FROM CHINA MERCHANTS

II. Subject matter of the New Agreements

(i) The Yituo Supply Agreements

(ii) The First Tractor Supply Agreement

LETTER FROM CHINA MERCHANTS

(iii) The Financial Services Agreement

First Tractor Company Limited Proxy Solicitation & Information Statement 2006