THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

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

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

==> picture [52 x 52] intentionally omitted <==

CHINA GRAND PHARMACEUTICAL AND HEALTHCARE HOLDINGS LIMITED 遠大醫藥健康控股有限公司 *

(Incorporated in Bermuda with limited liability)

(Stock Code: 00512)

CONNECTED TRANSACTION ISSUE OF NEW SHARES TO CONNECTED PERSON AND SPECIAL MANDATE TO ISSUE NEW SHARES

Independent Financial Adviser to

the Independent Board Committee and the Independent Shareholders

==> picture [92 x 35] intentionally omitted <==

A letter from the board of directors of China Grand Pharmaceutical and Healthcare Holdings Limited is set out on pages 5 to 13 of this circular.

A notice convening the special general meeting of China Grand Pharmaceutical and Healthcare Holdings Limited to be held at 10:00 a.m. on 12 February 2010 at 16th Floor, United Centre, 95 Queensway, Hong Kong, is set out on pages 37 to 38 of this circular. If you are unable to attend the special general meeting in person, you are requested to complete and return the accompanying form of proxy in accordance with the instructions printed thereon. In order to be valid, the proxy form must be deposited by hand or post to the Company’s Hong Kong branch share registrar, Computershare Hong Kong Investor Services Limited at 46th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong, not less than 48 hours before the time appointed for holding the special general meeting or adjourned meeting or not less than 24 hours before the time appointed for taking the poll subsequent to the date of the special general meeting or adjourned meeting thereof (as the case may be). If the proxy form is signed by a person under a power of attorney or other authority, a notarially certified copy of that power of attorney or authority shall be deposited at the same time as mentioned in the proxy form. Completion and return of the proxy form will not preclude you from subsequently attending and voting at the special general meeting or any adjournment thereof should you so wish.

For identification purpose only

28 January 2010

	Pages
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
Letter from the Independent Board Committee. . . . . . . . . . . . . . . . . . . . . . . . . . .	14
Letter from the Independent Financial Adviser. . . . . . . . . . . . . . . . . . . . . . . . . . .	15
Appendix — General Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	33
Notice of Special General Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	37

— i —

DEFINITIONS

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

“Announcement”	the announcement issued by the Company dated 15
	January 2010
“associate(s)”	has the meaning ascribed to it in the Listing Rules
“Board”	the board of Directors
“Business Day”	any day (excluding Saturdays, Sundays and public
	holidays in Hong Kong) on which licensed banks
	generally are open for business in Hong Kong
“Company”	China Grand Pharmaceutical and Healthcare Holdings
	Limited, a company incorporated in Bermuda with
	limited liability, the issued shares of which are listed
	on the main board of the Stock Exchange
“Director”	a director of the Company and “Directors” include all
	directors of the Company
“Group”	the Company and its subsidiaries
“HK$”	Hong Kong dollars, the lawful currency of Hong Kong
“Hong Kong”	the Hong Kong Special Administrative Region of the
	PRC
“Independent Board Committee”	an independent board committee, comprising Ms
	So Tosi Wan, Winnie, Mr Lo Kai Lawrence and
	Mr Xin Dongsheng, all being the independent non-
	executive Directors, formed to advise the Independent
	Shareholders as to the fairness and reasonableness of
	the Subscription and the transactions contemplated
	thereunder

— 1 —

DEFINITIONS

“Independent Financial Adviser”
“Independent Shareholders”
“Independent Third Party”
“Last Trading Day”
“Latest Practicable Date”
“Listing Rules”
“Outwit”

Ample Capital Limited, a corporation licensed under the SFO to carry on types 4, 6 and 9 regulated activities (advising on securities, advising on corporate finance and asset management respectively), which is not a connected person (as defined in the Listing Rules) and is appointed by the Company as the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders

shareholders of the Company other than Outwit and its associates (as defined in the Listing Rules)

third party independent of the Group and connected persons (as defined in the Listing Rules) of the Group

15 January 2010, being the last full trading day of the Shares before the Announcement
25 January 2010, being the latest practicable date prior to the printing of this circular for ascertaining certain information contained in this circular
the Rules Governing the Listing of Securities on the Stock Exchange

Outwit Investments Limited, a company incorporated in the British Virgin Islands with limited liability whose registered office is situated at Offshore Incorporations Limited, P.O. Box 957, Offshore Incorporations Centre, Road Town, the British Virgin Islands

— 2 —

DEFINITIONS

“Placing Agents”	(1) BOCI Asia Limited, a company incorporated in
	Hong Kong with limited liability and licensed under
	the Securities and Futures Ordinance of Hong Kong
	to carry on regulated activities of type 1 (dealing in
	securities) and type 6 (advising on corporate finance)
	and (2) Yu Ming Investment Management Limited,
	a company incorporated in Hong Kong with limited
	liability and licensed under the Securities and Futures
	Ordinance of Hong Kong to carry on regulated
	activities of type 1 (dealing in securities), type 4
	(advising on securities), type 6 (advising on corporate
	finance) and type 9 (asset management)
“Placing Agreement”	the placing agreement dated 15 January 2010 entered
	into between Outwit and the Placing Agents in
	relation to the Placing
“Placing Closing Date”	18 January 2010
“Placing Price”	HK$0.45 per Share
“Placing Shares”	200,000,000 existing Shares, the subject of the
	Placing, beneficially owned by Outwit and placed
	pursuant to the Placing Agreement
“Placing”	the placing of the Placing Shares pursuant to the
	terms of the Placing Agreement
“PRC”	People’s Republic of China
“SFO”	Securities and Futures Ordinance (Chapter 571 of the
	laws of Hong Kong)
“SGM”	a special general meeting of the Company to be
	convened for approving, inter alia, the Subscription,
	the Subscription Agreement and the transactions
	contemplated thereunder, and a special mandate to
	issue the Subscription Shares to Outwit pursuant to
	the terms provided thereunder

— 3 —

DEFINITIONS

“Shareholder(s)” holder(s) of the Share(s) “Shares” ordinary share(s) of HK$0.01 each in the share capital of the Company “Stock Exchange” The Stock Exchange of Hong Kong Limited “Subscription Agreement” the subscription agreement between Outwit and the Company dated 15 January 2010 in relation to the Subscription “Subscription Price” the total subscription price payable by Outwit for the subscription of the Subscription Shares which is the Placing Price multiplied by the actual number of Shares successfully placed pursuant to the terms of the Placing Agreement less any commission, costs, expenses and charges paid by Outwit pursuant to and in connection with the Placing

“Subscription Shares” the actual number of Placing Shares successfully placed under the Placing, subject to a total of 200,000,000 Shares, representing 15.70% of the enlarged share capital of the Company

“Subscription” the subscription of the Subscription Shares pursuant to the terms of Subscription Agreement “%” percentage

— 4 —

LETTER FROM THE BOARD

==> picture [52 x 51] intentionally omitted <==

CHINA GRAND PHARMACEUTICAL AND HEALTHCARE HOLDINGS LIMITED 遠大醫藥健康控股有限公司 *

(Incorporated in Bermuda with limited liability)

(Stock Code: 00512)

Executive Directors: Mr. Liu Chengwei Mr. Hu Bo Mr. Shao Yan

Registered office: Clarendon House 2 Church Street Hamilton HM11 Bermuda

Non-executive Director:

Mr. Zhang Ji

Independent Non-executive Directors: Ms. So Tosi Wan, Winnie Mr. Lo Kai Lawrence Mr. Xin Dongsheng

Principal place of business in Hong Kong: Room 2501A, Hopewell Centre 183 Queen’s Road East Hong Kong

28 January 2010

To the Shareholders

Dear Sir or Madam,

CONNECTED TRANSACTION ISSUE OF NEW SHARES TO CONNECTED PERSON AND SPECIAL MANDATE TO ISSUE NEW SHARES

INTRODUCTION

In the Announcement, the Board announced that:

(1) On 15 January 2010, Outwit and the Placing Agents entered into the Placing Agreement pursuant to which the Placing Agents agreed to procure purchasers to purchase the Placing Shares at the Placing Price. After entering into of the Placing Agreement, all the Placing Shares have been successfully placed by the Placing Agents to placees who are Independent Third Parties.

* For identification purpose only

— 5 —

LETTER FROM THE BOARD

(2) Pursuant to the Subscription Agreement, Outwit conditionally agreed to subscribe for the Subscription Shares at the Subscription Price. The Subscription is conditional upon (i) completion of the Placing; (ii) approval by the Stock Exchange of the issuance by the Company of a circular to its shareholders in respect of the Subscription as a connected transaction; (iii) passing by the Independent Shareholders in accordance with the Listing Rules and all applicable laws at the SGM of resolutions approving the Subscription and a special mandate to issue the Subscription Shares to Outwit pursuant to the terms provided in the Subscription Agreement; (iv) the granting of approval for the listing of and permission to deal in all of the Subscription Shares by the Listing Committee of the Stock Exchange.
(3) Outwit then held approximately 69.56% of the issued share capital of the Company. By virtue of this shareholding interest, Outwit is a substantial shareholder of the Company and is accordingly a connected person of the Company. The Subscription therefore constitutes a connected transaction for the Company under the Listing Rules. The Subscription is conditional upon approval by the Independent Shareholders at the SGM.

The purpose of this circular is to provide you with further details of the Subscription Agreement and the transactions contemplated thereunder and other information in compliance with the requirements of the Listing Rules.

PLACING OF EXISTING SHARES

In order to provide assistance to the Company for a fund raising exercise and at the request of the Company, on 15 January 2010, Outwit entered into the Placing Agreement with the Placing Agents pursuant to which the Placing Agents agreed to use best endeavours to procure purchasers to purchase the Placing Shares at the Placing Price. Conditional upon the successful completion of the Placing, Outwit conditionally agreed to subscribe for the Subscription Shares at the Subscription Price. The Company will use the net proceeds from the Subscription of approximately HK$86,360,000 for general working capital and possible future investments. To the best knowledge and belief of the Directors, having made all reasonable enquiries, each of the Placing Agents and its ultimate beneficial owners is an Independent Third Party.

The Placing Shares consist of 200,000,000 existing Shares beneficially owned by Outwit representing (i) approximately 18.62% of the existing issued share capital of the Company; and (ii) approximately 15.70% of the issued share capital of the Company as enlarged by the Subscription. The Placing Price is HK$0.45 per Placing Share.

— 6 —

LETTER FROM THE BOARD

The completion of Placing is not subject to any conditions precedent. Completion of the Placing will take place on the Placing Closing Date or such other time or date as Outwit and the Placing Agents shall agree. If at any time on or prior to 5:00 p.m. (Hong Kong time) on the Placing Closing Date:

(a) there develops, occurs or comes into force:
(i) any new law or regulation or any change in existing laws or regulations which in the reasonable opinion of the Placing Agents have or is likely to have a material adverse effect on the business or financial condition or prospects of the Group; or
(ii) any significant development or change (whether or not permanent) in local, national or international economic, financial, political or military conditions which in the reasonable opinion of the Placing Agents is or may be materially adverse in the context of the Placing; or
(iii) any significant development or change (whether or not permanent) in local, national or international market conditions which in the reasonable opinion of the Placing Agents is or may be materially adverse in the context of the Placing or makes it inadvisable or inexpedient to proceed therewith; or
(b) there has been a breach (which is material in the reasonable opinion of the Placing Agents) of any other provision of the Placing Agreement; or
(c) there is any adverse change in the business or in the financial or trading position of the Company, or the Group which in the reasonable opinion of the Placing Agents is material in the context of the Placing; or
(d) there is any breach of, or any event rendering untrue or inaccurate, any representations, warranties and undertakings provided by Outwit hereunder; or
(e) trading of any securities of the Company being suspended on the Stock Exchange (other than in connection with the Placing unless such suspension is materially adverse to the Placing),

then and in any such case, the Placing Agents may, after consultation with Outwit, terminate the Placing Agreement without liability to Outwit by giving notice in writing to Outwit, which notice may be given at any time prior to 5:00 p.m. (Hong Kong time) on the Placing Closing Date.

— 7 —

LETTER FROM THE BOARD

After entering into the Placing Agreement, all the Placing Shares have been successfully placed by the Placing Agents to no less than six placees who are independent professional, institutional and/or individual investors and Independent Third Parties.

Outwit undertakes to each Placing Agent under the Placing Agreement that (except pursuant to the Placing Agreement or the Subscription Agreement) for a period of 60 days, it will not, and will procure that none of its nominees and companies controlled by it and trusts associated with it (whether individually or together and whether directly or indirectly) will sell or in any way deal with any Shares as provided for under the Placing Agreement unless with the prior written consent of the Placing Agents.

THE SUBSCRIPTION AGREEMENT

Date

15 January 2010

Parties to the Subscription Agreement

(i) Outwit Investments Limited, a company incorporated in the British Virgin Islands, as the subscriber; and
(ii) the Company.

Subscription Shares

The number of Subscription Shares is 200,000,000, which is the actual number of Placing Shares successfully placed under the Placing which represents approximately 18.62% of the existing issued share capital of the Company and approximately 15.70% of the entire issued share capital of the Company immediately after issue of the Subscription Shares. The aggregate nominal value of the Subscription Shares is HK$2,000,000.

The Subscription Shares, when issued and fully paid, will rank pari passu among themselves and with Shares in issue at the time of issue and allotment of the Subscription Shares.

— 8 —

LETTER FROM THE BOARD

Subscription Price of Subscription Shares

Based on a total of 200,000,000 Shares successfully placed under the Placing, the Subscription Price payable by Outwit is equivalent to the net amount of HK$90,000,000 (equivalent to HK$0.45 multiplied by the number of Placing Shares successfully placed, i.e. 200,000,000 Shares) after deduction of any commission, costs, expenses and charges paid by Outwit pursuant to and in connection with the Placing and the Subscription Price per Share is approximately HK$0.43.

HK$0.43 per Share represents (i) a discount of approximately 33.8% to the closing price of HK$0.65 per Share as quoted on the Stock Exchange on the Last Trading Date; (ii) a discount of approximately 34.65% to the average closing price of HK$0.658 per Share quoted on the Stock Exchange for the last five trading days up to and including the Last Trading Date; (iii) a premium of approximately 1,620% to the net asset value as at 30 June 2009 of HK$0.025 per share in accordance with the interim report 2009 of the Company.

The Subscription Price was based on the Placing Price less any commission, costs, expenses and charges paid by Outwit pursuant to and in connection with the Placing. The Placing Price was arrived at after arm’s length negotiations between the Company and the Placing Agents. The Board (excluding the independent non-executive Directors) considers that, as the recent market is volatile and the market price may not be a good reflection of the value of the Shares, and that there is a large premium to the net asset value of the Company, the Subscription Price and the terms of the Subscription Agreement and the Placing Price are fair and reasonable and are in the best interests of the Company and the Shareholders as a whole.

Conditions of the Subscription

Completion of the Subscription is conditional upon:

(a) completion of the Placing;
(b) approval by the Stock Exchange of the issuance by the Company of a circular to its shareholders in respect of the Subscription as a connected transaction;
(c) the passing by the Independent Shareholders in accordance with the Listing Rules and all applicable laws at the SGM of resolutions approving:
(i) the Subscription, the Subscription Agreement and the transactions contemplated thereunder;

— 9 —

LETTER FROM THE BOARD

(ii) a special mandate to issue the Subscription Shares to Outwit pursuant to the terms provided in the Subscription Agreement;
(d) the Listing Committee of the Stock Exchange having granted the approval for the listing of and permission to deal in the Subscription Shares to be issued to Outwit.

In the event that all the conditions above shall not have been fulfilled by 31 March 2010 or such other day as the Parties may agree, then the Subscription Agreement shall cease and determine and none of the Parties shall have any obligations and liabilities save for any antecedent breaches.

Completion of the Subscription shall take place within two Business Days upon which the last of the conditions stated above shall have been satisfied. The Company will apply to the Listing Committee of the Stock Exchange for granting listing of and permission to deal in the Subscription Shares.

REASONS FOR AND BENEFITS OF THE TRANSACTION

The aggregate price of the Subscription payable to the Company is approximately HK$86,360,000 based on a total of 200,000,000 Shares successfully placed under the Placing. The total commissions for the Placing payable to the Placing Agents is approximately HK$3,284,000. The Board (excluding the independent non-executive Directors) considers such commission as fair and reasonable and in the interests of the Shareholders because this is a normal rate of commission of similar type of transaction. Certain legal fees, professional fees and out-of-pocket expenses of approximately HK$356,000 will be incurred in connection with the Placing and the Subscription.

The Subscription is an arrangement between Outwit and the Company to raise capital for the Company. Under the prevailing market conditions, the Directors (excluding the independent non-executive Directors) are of the view that the Subscription will strengthen the Group’s financial position and enhance the Group’s flexibility to make further investments as and when opportunities arise. The Company plans to use the net proceeds of approximately HK$86,360,000 from the Subscription for general working capital and possible future investments. As at the date of this circular, the Company has not decided on any specific investment.

The Placing Price and the Subscription Price which depends on the Placing Price represent more than 20% discount to the benchmarked price of the Shares as defined under rule 13.36(5) of the Listing Rules. They have been determined in consideration of the volatility of current market conditions and in order to facilitate successful early completion of

— 10 —

LETTER FROM THE BOARD

the Placing upon which the completion of Subscription is conditional. Furthermore, the Subscription Price represents a large premium to the net asset value of the Company as at 30 June 2009. Accordingly, the Board (excluding the independent non-executive Directors) considers that the Placing Price and commissions, Subscription Price, the Subscription and the transactions contemplated thereunder are on normal commercial terms negotiated on an arm’s length basis, fair and reasonable and in the interests of the Company and its Shareholders as a whole.

GENERAL

The Group is principally engaged in business of manufacture and sales of pharmaceutical and health products.

Outwit is principally engaged in investment holding.

There is no fund raising activity for the Company in the 12 months immediately preceding the date of the Announcement.

As disclosed in the circular dated 23 June 2008, a convertible bond was issued to a wholly owned subsidiary of Outwit, which outstanding amount was approximately HK$50.5 million as at 30 June 2009. The Company understands that the holder of such convertible bond currently intends to convert such convertible bond on or before its maturity.

EFFECTS ON SHAREHOLDING

Name of Shareholders Outwit_(Note) _Subtotal Pubic Placees Shareholders other than Placees Subtotal TOTAL	Existing Number of Shares Held 546,979,654 546,979,654 200,000,000 326,954,346 526,954,346 1,073,934,000	% Immediately upon completion of Subscription 50.93 746,979,654 50.93 746,979,654 18.62 200,000,000 30.44 326,954,346 49.07 526,954,346 100.00 1,273,934,000	% 58.64 58.64 15.70 25.66 41.36
			100.00

Note: Outwit is wholly owned by Mr. Hu Kaijun

— 11 —

LETTER FROM THE BOARD

As the Subscription is subject to the satisfaction of a number of conditions and may or may not proceed to completion, Shareholders and prospective investors are advised to exercise caution when dealing in the Shares.

LISTING RULES IMPLICATIONS

Outwit currently holds approximately 50.93% of the issued share capital of the Company. By virtue of this shareholding interest, Outwit is a substantial shareholder of the Company and is accordingly a connected person of the Company. The Subscription therefore constitutes a connected transaction for the Company under the Listing Rules.

Due to the fact that the Subscription Price represents more than 20% discount to the benchmarked price, the Company may not issue the Subscription Shares pursuant to a general mandate under rules 13.36(2)(b) and 13.36(5) of the Listing Rules. The Company has to seek a special mandate to issue the Subscription Shares from the Independent Shareholders. The completion of the Subscription will therefore likely take place more than 14 days after the Placing Agreement, and the Subscription will as a result not fall within the exemption under Rule 14A.31(3)(d) of the Listing Rules and will be subject to the relevant requirements of the Listing Rules regarding connected transactions.

Completion of the Subscription is conditional upon, among other conditions, completion of Placing and approval by the Independent Shareholders at the SGM. Outwit and its associates will abstain from voting at the SGM. To the best of the knowledge, information and belief of the Directors, and having made all reasonable enquiries, no Shareholder is required to abstain from voting at the SGM save for Outwit and its associates. The special mandate, if approved, will be valid until the completion of the Subscription or termination of the Subscription Agreement.

The Independent Board Committee has been formed to advise the Independent Shareholders in respect of the Subscription and the transactions contemplated thereunder. The Company has appointed the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in respect of the Subscription and the transactions contemplated thereunder.

THE SPECIAL GENERAL MEETING

A notice of the SGM to be convened and held at 16th Floor, United Centre, 95 Queensway, Hong Kong on 12 February 2010 at 10:00 a.m. for the purpose of considering the Subscription Agreement and the transactions contemplated thereunder is set out on pages 37 to 38 of this circular.

— 12 —

LETTER FROM THE BOARD

Pursuant to the Listing Rules, the Company will procure that the chairman of the SGM will demand the vote for the resolution relating to the Subscription Agreement to be taken by poll. If you are unable to attend the SGM in person, you are requested to complete the accompanying form of proxy in accordance with the instructions printed thereon. In order to be valid, the proxy form must be deposited by hand or post to the Company’s Hong Kong branch share registrar, Computershare Hong Kong Investor Services Limited at 46th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong, not less than 48 hours before the time for holding the SGM or adjourned meeting or not less than 24 hours before the time appointed for taking the poll subsequent to the date of the SGM or adjourned meeting thereof (as the case may be). If the proxy form is signed by a person under a power of attorney or other authority, a notarially certified copy of that power of attorney or authority shall be deposited at the same time as mentioned in the proxy form. Completion and return of the proxy form will not preclude you from subsequently attending and voting at the SGM.

RECOMMENDATION

Having taken into account of the information set out above, the Board (excluding the independent non-executive Directors) considers that the terms of the Subscription Agreement and the transactions contemplated thereunder are fair and reasonable, on normal commercial terms and in the interests of the Company and the Shareholders as a whole and recommends the Shareholders to vote in favour of the resolutions relating to the aforesaid matters at the SGM.

ADDITIONAL INFORMATION

Your attention is drawn to the information set out in the appendix to and the notice of the SGM set out in this circular.

Yours faithfully,

For and on behalf of the Board

China Grand Pharmaceutical and Healthcare Holdings Limited

Liu Chengwei

Chairman

— 13 —

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

==> picture [52 x 51] intentionally omitted <==

CHINA GRAND PHARMACEUTICAL AND HEALTHCARE HOLDINGS LIMITED 遠大醫藥健康控股有限公司 *

(Incorporated in Bermuda with limited liability)

(Stock Code: 00512)

28 January 2010

To the Independent Shareholders

Dear Sir or Madam,

CONNECTED TRANSACTION ISSUE OF NEW SHARES TO CONNECTED PERSON AND SPECIAL MANDATE TO ISSUE NEW SHARES

We refer to the circular of the Company dated 28 January 2010 (the “Circular”) of which this letter forms part. Unless the context requires otherwise, capitalized terms used herein shall have the same meanings as defined in the Circular.

We have been appointed by the Board to advise the Independent Shareholders as to whether the terms of the Subscription Agreement and the transactions contemplated therein are fair and reasonable so far as the Independent Shareholders are concerned. Ample Capital Limited has been appointed as the Independent Financial Adviser to advise us in this respect.

Having considered the principal reasons and factors considered by, and the advice of, the Independent Financial Adviser, as set out in its letter of advice to us on pages 15 to 32 of the Circular, we are of the opinion that the terms of the Subscription Agreement and the transactions contemplated therein are in the interests of the Company and the Shareholders as a whole and the terms of which are fair and reasonable so far as the Company and the Independent Shareholders are concerned. Accordingly, we recommend the Independent Shareholders to vote in favour of the ordinary resolution to be proposed at the SGM to approve the Subscription Agreement and the transactions contemplated therein.

Yours faithfully, Independent Board Committee Ms. So Tosi Wan, Winnie Mr. Lo Kai Lawrence Mr. Xin Dongsheng

* For identification purpose only

— 14 —

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

==> picture [152 x 58] intentionally omitted <==

Ample Capital Limited Unit A, 14th Floor Two Chinachem Plaza 135 Des Voeux Road Central Hong Kong

28 January 2010

To the Independent Board Committee and

the Independent Shareholders of

China Grand Pharmaceutical and Healthcare Holdings Limited

Dear Sirs,

CONNECTED TRANSACTION ISSUE OF NEW SHARES TO CONNECTED PERSON

INTRODUCTION

We refer to our engagement by the Company to advise the Independent Board Committee and the Independent Shareholders in respect of the Subscription, the particulars of which have been set out in a circular to the Shareholders dated 28 January 2010 (the “ Circular ”) and in which this letter is reproduced. Unless the context requires otherwise, terms used in this letter shall have the same meanings as given to them under the definitions section of the Circular.

Ample Capital Limited has been appointed as the independent financial adviser to the Independent Board Committee and the Independent Shareholders to give our recommendation as to whether the terms of the Subscription are fair and reasonable so far as the Independent Shareholders are concerned. Details of the reasons for the Subscription are set out in the section headed “Letter from the Board” in the Circular (the “ Board Letter ”).

On 15 January 2010, the Company and Outwit entered into the Subscription Agreement in respect of the Subscription of the 200,000,000 Subscription Shares, representing approximately 18.62% of the existing issued share capital of the Company and approximately 15.70% of the entire issued share capital of the Company immediately after issue of the Subscription Shares.

— 15 —

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The Company was incorporated in Bermuda with limited liability whose Shares are listed on the Main Board of the Stock Exchange. The Group is principally engaged in the business of manufacture and sales of pharmaceutical and health products.

Due to the fact that the Subscription Price represents more than 20% discount to the benchmarked price, the Company may not issue the Subscription Shares pursuant to a general mandate under Rules 13.36(2)(b) and 13.36(5) of the Listing Rules. The Company has to seek a special mandate to issue the Subscription Shares from the Independent Shareholders. The completion of the Subscription will therefore likely take place more than 14 days after the Placing Agreement, and the Subscription will as a result not fall within the exemption under Rule 14A.31(3)(d) of the Listing Rules and will be subject to the relevant requirements of the Listing Rules regarding connected transactions.

BASIS OF ADVICE

In formulating our opinions and recommendations, we have relied on the information supplied to us by the Company, the opinions expressed by, and the representations of, the Directors and the management of the Company, including those set out in the Circular. We have no reason to doubt the truth, accuracy and completeness of the information and presentation provided to us by the Directors.

We consider that we have been provided with sufficient information on which to form a reasonable basis for our opinion. We have no reason to suspect that any relevant information has been withheld, nor are we aware of any fact or circumstance which would render the information provided and representations made to us untrue, inaccurate or misleading. We consider that we have performed all the necessary steps to enable us to reach an informed view and to justify our reliance on the information provided so as to provide a reasonable basis for our opinion. The Directors have confirmed that, to the best of their knowledge, they believe that no material fact or information has been omitted from the information supplied and that the representations made or opinions expressed have been arrived at after due and careful consideration and there are no other facts or representations the omission of which would make any statement in the Circular, including this letter, misleading.

— 16 —

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

While we have taken reasonable steps to satisfy the requirements under the Listing Rules, we have not carried out any independent verification of the information, opinions or representations given or made by or on behalf of the Company, nor have we conducted an independent investigation into the business affairs or assets and liabilities of the Group or any of the other parties involved in the Subscription.

In the event of inconsistency, the English text of this letter shall prevail over the Chinese translation of this letter.

PRINCIPAL FACTORS CONSIDERED

In arriving at our opinion in relation to the Subscription, we have taken into consideration the following factors:

1. Background information of the Group

As mentioned earlier, the Group is principally engaged in the business of manufacture and sales of pharmaceutical and health products. Summary key financial information of the Group as extracted from the Company’s interim report for the six months ended 30 June 2009 (the “ Interim Report ”) is set out below:

Turnover Profit/(loss) attributable to Shareholders	Six months ended 30 June 2009 2008 HK$’000 HK$’000 (unaudited) (unaudited) 277,814 33,297 22,190 (16,060)
	277,814 22,190

— 17 —

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Total assets Total liabilities Net assets attributable to Shareholders	As at 30 June 2009 31 December 2008 HK$’000 HK$’000 (unaudited) (audited) 609,799 569,891 492,781 480,933 26,801 4,608
	609,799 492,781 26,801

As mentioned in the Interim Report, the results for the six months ended 30 June 2009 mainly represented the results of Wuhan Grand Pharmaceutical Group Company Limited (“ Wuhan Grand ”) and its subsidiaries while the results for the first half of 2008 mainly represented the results of Bright Strong Profits Limited (“ Bright Strong ”) and its subsidiaries. The Group completed the acquisition of Wuhan Grand and the disposal of Bright Strong in July 2008. The Interim Report further states the turnaround in performance was mainly attributable to the profit contributions from Wuhan Grand and a fair value gain on issuance of promissory note in February 2009. Upon an inspection of the Company’s previous annual reports, we note that the Company has been consistently making losses for a consecutive nine years up to the year ended 31 December 2008.

2. The Placing and the Subscription

2.1 Reasons for the Placing and the Subscription

The Board Letter states that in order to provide assistance to the Company for a fund raising exercise and at the request of the Company, on 15 January 2010, Outwit entered into the Placing Agreement with the Placing Agents pursuant to which the Placing Agents agreed to procure purchasers to purchase the Placing Shares at the Placing Price. Conditional upon the successful completion of the Placing, Outwit conditionally agreed to subscribe for the Subscription Shares at the Subscription Price.

The Board Letter carries on to state that the Subscription is an arrangement between Outwit and the Company to raise capital for the Company. Under the prevailing market conditions, the Directors are of the view that the Subscription will strengthen the Group’s financial position and enhance the

— 18 —

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Group’s flexibility to make further investments as and when opportunities arise. The Company plans to use the net proceeds of approximately HK$86,360,000 from the Subscription for general working capital and possible future investments. As at the Latest Practicable Date, the Company has not decided on any specific investment.

In our discussions with the Group’s management, we learnt that the Group is in the process of identifying certain possible investment and/or acquisition opportunities in companies engaged in the pharmaceutical business. As of the Latest Practicable Date, the Group has not entered into any definitive agreement in respect of these possible investment and/or acquisition. As mentioned in section 1 of this letter, the Company turned around 9 years of continued loss making during the years ended 31 December 2000 to 2008 to making an unaudited profit during the six months ended 30 June 2009 after completing the Wuhan Grand acquisition in 2008. Accordingly, the Group’s management is of the view that expansion by way of acquisition of companies with strong financials is an important tool in executing the Group’s strategy of continued growth and value-adding to the Shareholders.

Furthermore, we also note from the Interim Report that as at 30 June 2009, the Group had unaudited debts of approximately HK$280,134,000 comprising: (i) bank loans of approximately HK$109,091,000 (approximately HK$90,909,000 in current portion and approximately HK$18,182,000 in noncurrent portion); (ii) promissory note of approximately HK$120,531,000; and (iii) convertible bond of approximately HK$50,512,000. We have learnt in our discussion with the Group’s management that the aforementioned promissory note and convertible bond were issued in connection with the Wuhan Grand acquisition. As stated in the Interim Report, the aforementioned promissory note and convertible bond would mature in February 2011 and July 2010 respectively. Upon maturity of these debt instruments the Group is required to repay the outstanding principal (unless the convertible bond is converted into Shares in accordance with its terms). We understand from the Group’s management that the holder of the convertible bond currently intends to convert the convertible bond into Shares on or before maturity. Having considered the Group’s indebtedness situation, we are of the view that it is beneficial for the Group to strengthen its cash and bank balances.

— 19 —

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

2.2 Alternative modes of fund raising

In formulating our opinion in this letter, we have considered the advantages and disadvantages of other methods of fund raising which is set out below.

2.2.1 Debt financing alternative

From the perspective of cost control, it is generally better for a company to attempt to minimize the use of debts to finance its operations since any debts will inevitably incur interest expenses. When such interest expenses are aggregated over the entire term of the debt, it is expected to be significantly higher than the placing commission payable to the Placing Agents. As stated in the Board Letter, total commissions payable to the Placing Agents is approximately HK$3,284,000 for the gross amount of HK$90,000,000. Accordingly, the placing commission is approximately 3.65%. According to Hongkong and Shanghai Banking Corporation Limited’s published information, the best lending rate which became effective on 10 November 2008 is 5.00% per annum. Based on the above, it is expected that the interest expense (in the first year alone) for a bank loan of a comparable amount would be significantly higher than the placing commission payable to the Placing Agents which is a one-off fee. In addition, the Company will be required to repay any such loan obtained from its financier(s) upon the maturity of the debt. With the Placing and Subscription, the Company is able to raise interest free capital (subject to a placing commission of about 3.65% and other incidental expenses) which does not require any repayment in the future. After considering the gearing position of the Group as discussed in section 2.1 of this letter, we are of the view that further increasing the Group’s gearing may not be ideal.

2.2.2 Other forms of equity fund raising

The Group’s management indicated to us that a rights issue or open offer may not be desirable. A typical rights issue or open offer is underwritten by one or a syndicate of securities brokerages. Since the Shareholders’ response to a rights issue or open offer is uncertain, securing underwriting arrangement for a rights issue or open offer is comparatively more difficult than the Placing and Subscription. Furthermore, a rights issue or open offer would involve many steps including notice period for book closure, issue of prospectus and offer

— 20 —

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

period which would normally take no less than one and a half month’s time to complete under the prevailing Listing Rules. In addition, to maintain their pro-rata shareholding in a rights issue or open offer, the existing Shareholders will have to participate in the rights issue or open offer or face dilution. This may create undue financial burden on certain existing Shareholders. Lastly, the Directors consider that the Placing and Subscription would broaden and strengthen the Company’s Shareholder base which is beneficial to the Group’s long term growth.

2.2.3 Conclusion regarding other financing alternatives

Having discussed with the Directors, we concur with their view that the Placing and the Subscription, out of all of the financing alternatives mentioned above, offer the optimal balance in terms of (i) amount of net proceeds raised; (ii) timing; (iii) expenses borne by the Company; (iv) future repayment of outstanding principal; (v) certainty as to the outcome; and (vi) potential financial burden on the existing Shareholders.

2.3 Terms of the Placing and the Subscription

On 15 January 2010, Outwit entered into the Placing Agreement with the Placing Agents pursuant to which the Placing Agents agreed to use best endenvours to procure purchasers to purchase the Placing Shares at the Placing Price. The Placing Shares consist of 200,000,000 existing Shares beneficially owned by Outwit representing (i) approximately 18.62% of the existing issued share capital of the Company; and (ii) approximately 15.70% of the issued share capital of the Company as enlarged by the Subscription. The Placing Price is HK$0.45 per Placing Share. After entering into the Placing Agreement, all the Placing Shares have been successfully placed by the Placing Agents to no less than six placees who are independent professional, institutional and/or individual investors and Independent Third Parties.

Furthermore, Outwit had entered into the Subscription Agreement with the Company on 15 January 2010 in respect of the Subscription of the 200,000,000 Subscription Shares, which is the actual number of Placing Shares successfully placed under the Placing which represents approximately 18.62% of the existing issued share capital of the Company and approximately 15.70% of the entire issued share capital of the Company immediately after issue of the Subscription Shares.

— 21 —

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

2.3.1 The Subscription Price

HK$0.43 per Share represents:

(i) a discount of approximately 33.8% to the closing price of HK$0.65 per Share as quoted on the Stock Exchange on the Last Trading Day;
(ii) a discount of approximately 34.65% to the average closing price of approximately HK$0.658 per Share quoted on the Stock Exchange for the last five consecutive trading days up to and including the Last Trading Day;
(iii) a discount of approximately 18.87% to the closing price of HK$0.53 per Share as quoted on the Stock Exchange on the Latest Practicable Date; and
(iv) a premium of approximately 1,620% to the unaudited net asset value as at 30 June 2009 of approximately HK$0.025 per Share in accordance with the Interim Report.

The Subscription Price was based on the Placing Price less any commission, costs, expenses and charges paid by Outwit pursuant to and in connection with the Placing. The Placing Price was arrived at after arm’s length negotiations between the Company and the Placing Agents which took into account the recent current market conditions. The Board considers that, as the recent market is volatile and the market price may not be a good ref lection of the value of the Shares, and that there is a large premium to the net asset value of the Company, the Subscription Price and the terms of the Subscription Agreement are fair and reasonable and are in the best interests of the Company and the Shareholders as a whole.

— 22 —

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

2.3.2 Historical trends of the Shares on the Stock Exchange

We set out below the historical closing price per Share and the daily turnover of the Shares on the Stock Exchange during the 12-month period up to and including the Last Trading Day (the “ Review Period ”), i.e. 15 January 2010.

==> picture [335 x 423] intentionally omitted <==

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

Closing price of the Shares on the Stock Exchange
0.800
0.700
0.600 Average closing price
of HK$0.443 per Share
0.500
0.400
Subscription Price of
0.300 HK$0.43 per Share
0.200
0.100
0.000
Date
Daily trading volume of the Shares on the Stock Exchange
14,000,000
12,000,000
10,000,000
8,000,000
6,000,000
4,000,000
Average trading volume
of 316,667 Shares
2,000,000
0
Date
16 Jan 2009 16 Feb 2009 16 Mar 2009 16 Apr 2009 16 May 2009 16 Jun 2009 16 Jul 2009 16 Aug 2009 16 Sep 2009 16 Oct 2009 16 Nov 2009 16 Dec 2009
16 Jan 2009 16 Feb 2009 16 Mar 2009 16 Apr 2009 16 May 2009 16 Jun 2009 16 Jul 2009 16 Aug 2009 16 Sep 2009 16 Oct 2009 16 Nov 2009 16 Dec 2009
Closing price per Share (HK$)
Turnover (Shares)
----- End of picture text -----

Source: http://www.hkex.com.hk/

— 23 —

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As demonstrated in the charts above, the Shares closed on the Stock Exchange within a range from a low of HK$0.19 per Share on 20 January 2009 to a high of HK$0.71 per Share on 16 and 17 November 2009. The average closing price per Share during the Review Period was approximately HK$0.443 per Share which is slightly above the Subscription Price of HK$0.43 per Share. The closing price of the Shares has demonstrated a generally rising trend during the Review Period. It is noted that the Shares generally closed below the Subscription Price of HK$0.43 per Share during the first part of the Review Period while the Shares generally closed above the Subscription Price of HK$0.43 per Share during the later part of the Review Period. Furthermore, we note that the trading of the Shares on the Stock Exchange during the Review Period has been extremely inactive, with the average daily turnover of the Shares on the Stock Exchange being approximately 316,667 Shares during the Review Period. The average daily turnover represents approximately 0.03% of the Company’s issued share capital as at the Latest Practicable Date. The extremely low liquidity of the Shares during the Review Period may justify a discount to the prevailing market price in the determination of the Placing Price and the Subscription Price.

We note that closing price per Share of HK$0.65 on the Last Trading Day represents a premium of approximately 2,500% over the unaudited net asset value as at 30 June 2009 of approximately HK$0.025 per Share. Without a stable profit record for the calculation of the priceto-earnings ratio (“ P/E ”), it appears that the valuation of the Company as per the recent market prices of the Shares has deviated from the underlying fundamentals of the Company.

2.3.3 Comparative analysis

For the purpose of comparison, we set out below an analysis on 17 Hong Kong listed companies (the “ Subscription Price Comparable(s) ”) that are principally engaged in the pharmaceutical business. The Subscription Price Comparables were identified based on information obtained from the finance website finet.hk and the Stock Exchange’s website. Save for the exclusion of certain companies which are also engaged in other non-related businesses and are therefore not suitable for a comparison with the Company, the Subscription Price Comparables include, to our best information, knowledge and belief, all of the Hong Kong listed pharmaceutical companies. As (i) the Company

— 24 —

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

made losses during the years ended 31 December 2000 to 2008; and (ii) the Company’s unaudited profit attributable to Shareholders of approximately HK$22,190,000 during the six months ended 30 June 2009 includes an unaudited one-off fair value gain of approximately HK$17,244,000 therefore making annualization of this unaudited profit inappropriate, we are unable to conduct an analysis using P/E. Priceto-book ratio (“ P/B ”) is a parameter that is frequently adopted in the comparison of valuation of different companies and we have accordingly adopted the same in our analysis set out below:

	Market
	capitalization/
Name of company (stock code)	valuation 1	P/B 2
	HK$ millions	times
Winteam Pharmaceutical Group Limited (570)	1,481.85	4.12
Guangzhou Pharmaceutical Company Limited	5,514.12	1.50
(874)
China Pharmaceutical Group Limited (1093)	6,523.58	1.45
Broad Intelligence International Pharmaceutical	621.34	0.95
Holdings Limited (1149)
Vital Pharmaceutical Holdings Limited (1164)	305.56	0.51
Sino Biopharmaceutical Limited (1177)	10,414.26	4.67
Wuyi International Pharmaceutical Company	1,350.72	0.80
Limited (1889)
Jiwa Bio-Pharm Holdings Limited (2327)	652.05	1.94
Dawnrays Pharmaceutical (Holdings) Limited	1,148.17	1.61
(2348)
China Shineway Pharmaceutical Group Limited	11,660.70	4.80
(2877)
United Laboratories International Holdings	5,136.00	1.82
Limited (3933)
Jilin Province Huinan Changlong Bio-pharmacy	210.09	0.79
Company Limited (8049)

— 25 —

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

	Market
	capitalization/
Name of company (stock code)	valuation 1	P/B 2
	HK$ millions	times
Shandong Luoxin Pharmacy Stock Company	4,200.14	7.51
Limited (8058)
Tong Ren Tang Technologies Company Limited	2,771.44	1.79
(8069)
Northeast Tiger Pharmaceutical Company	145.60	1.51
Limited (8197)
Lee’s Pharmaceutical Holdings Limited (8221)	976.74	11.45
Lijun International Pharmaceutical (Holdings)	2,755.88	2.01
Company Limited (2005)
	Minimum:	0.51
	Maximum:	11.45
	Mean:	2.90
The Company (512)	461.79	17.23

Notes:

The market capitalization of the Subscription Price Comparables was calculated based on their respective closing price per share on the date of the Subscription Agreement. The valuation of the Company was calculated based on the Subscription Price of HK$0.43 per Share.
The P/B of the Subscription Price Comparables was calculated based on the audited equity attributable to shareholders as per their respective latest annual reports. The P/B of the Company was calculated based on the unaudited equity attributable to Shareholders of approximately HK$26,801,000 as at 30 June 2009 as stated in the Interim Report. For illustrative purpose only, translation of amounts in RMB into HK$ was made at an exchange rate of RMB1 = HK$1.1363.

From the above analysis, we note that the P/B of the Subscription Price Comparables ranged from a low of about 0.51 times to a high of about 11.45 times. The average P/B of the Subscription Price Comparables is approximately 2.90 times. The Company’s P/B of approximately 17.23 times falls outside of the range of the Subscription Price Comparables and is well above the maximum figure of approximately 11.45 times.

— 26 —

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

2.4 The placing commission

As mentioned in the Board Letter, total commissions payable to the Placing Agents is approximately HK$3,284,000 for the gross amount of HK$90,000,000. Accordingly, the placing commission is approximately 3.65%. We set out below an analysis on the placing commission of 18 placing announced by Hong Kong listed issuers during the 1 month ended 15 January 2010 (the “ Commission Comparable(s) ”). The Commission Comparables were identified through a search on the Stock Exchange’s website and include all relevant transactions which have disclosed the placing commission in their respective announcements.

	Date of	Placing
Name of company (stock code)	announcement	commission
		%
Zmay Holdings Limited (8359)	15 January 2010	2.50
Solartech International Holdings Limited (1166)	15 January 2010	2.50
Kam Hing International Holdings Limited (2307)	15 January 2010	2.50
Hua Yi Copper Holdings Limited (559)	14 January 2010	2.50
Computech Holdings Limited (8081)	14 January 2010	2.00
Jackin International Holdings Limited (630)	14 January 2010	3.00
Emperor Watch & Jewellery Limited (887)	13 January 2010	1.00
Sau San Tong Holdings Limited (8200)	11 January 2010	2.50
New Smart Energy Group Limited (91)	7 January 2010	3.50
China Nonferrous Metals Company Limited (8306)	6 January 2010	0.50
Unity Investments Holdings Limited (913)	5 January 2010	2.50
21 Holdings Limited (1003)	4 January 2010	2.00
Vitar International Holdings Limited (195)	30 December 2009	2.00
PetroAsian Energy Holdings Limited (344)	30 December 2009	2.50
Global Resources Development (Holdings) Limited (8116)	21 December 2009	3.50
Green Global Resources Limited (61)	18 December 2009	3.00
Nam Hing Holdings Limited (986)	17 December 2009	2.50
Minmetals Land Limited (230)	17 December 2009	2.50
	Minimum:	0.50
	Maximum:	3.50
	Mean:	2.39
The Company (512)	15 January 2010	3.65

— 27 —

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As illustrated in the above table, the lowest placing commission of the Commission Comparable was 0.50% with the highest placing commission being 3.50%. The average placing commission of the Commission Comparables is approximately 2.39%. The Company’s placing commission of approximately 3.65% is therefore slightly higher than the highest placing commission of the Commission Comparable.

We note that the placing commission is an arrangement between the Placing Agents and Outwit pursuant to the Placing. Furthermore, the Board Letter has stated that the Placing Agents are Independent Third Parties. The Group’s management has confirmed that (i) the Placing Agents are independent of and not connected to Outwit and (ii) the placing commission was determined through normal commercial negotiations between Outwit and the placing agents on an arm’s length basis. Based on the above, we do not see any incentive for Outwit to negotiate terms that are unfavorable to itself or the Group for the Placing Agents’ benefit.

As mentioned in section 1 of this letter, the Company has been continuously making losses during the years ended 31 December 2000 to 2008. The Company recorded its only profitable period in recent years during the six months ended 30 June 2009. In the absence of a stable profitable record, it may be relatively more difficult for the Placing Agents to procure investors to subscribe for the Placing Shares. Furthermore, the extremely low liquidity of the Shares on the Stock Exchange during the Review Period as mentioned in section 2.3.2 of this letter may also add to the Placing Agent’s difficulty in procuring investors. Having considered the above and that (i) the Company’s P/B is well above the maximum figure of the Subscription Price Comparables; and (ii) the Placing Agents have placed the Placing Shares at the Placing Price which is at significant premium over the underlying net asset value per Share, we are of the view that the placing commission of 3.65% is marginally acceptable.

— 28 —

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

2.5 Dilution on shareholding of the existing Independent Shareholders

We set out below a table depicting the Company’s shareholding structure (i) immediately prior to the Placing Agreement; and (ii) immediately upon completion of the Subscription:

Name of Shareholder Number of Shares held immediately prior to the Placing Agreement Shares % Outwit_(Note)_ 746,979,654 69.56 Subtotal 746,979,654 69.56 Public Placees — — Public Shareholders other than the Placees 326,954,346 30.44 Subtotal 326,954,346 30.44 Total 1,073,934,000 100.00	Immediately upon completion of the Subscription Shares % 746,979,654 58.64 746,979,654 58.64 200,000,000 15.70 326,954,346 25.66 526,954,346 41.36 1,273,934,000 100.00	Immediately upon completion of the Subscription Shares % 746,979,654 58.64 746,979,654 58.64 200,000,000 15.70 326,954,346 25.66 526,954,346 41.36 1,273,934,000 100.00
		58.64 15.70 25.66
		41.36
		100.00

Note: Outwit is wholly owned by Mr. Hu Kaijun

Prior to the Placing Agreement, the public Shareholders other than the Placees held an aggregate of 326,954,346 Shares, representing approximately 30.44% of the Company’s then issued share capital. As demonstrated above, the shareholding of the public Shareholders other than the Placees would decrease to approximately 25.66% upon the completion of the Subscription, representing a dilution of roughly 15.70%. Having considered the factors discussed in section 2.1 of this letter, we are of the view that the dilution to shareholding is acceptable.

— 29 —

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

2.6 Conclusion regarding the Subscription Agreement

We note from the terms of the Placing and the Subscription that:

(i) the ultimate goal of the Placing and Subscription is to allow the Company to raise capital through what is essentially a top-up placing of Shares;
(ii) Outwit has placed the 200,000,000 Placing Shares via the Placing Agents at the Placing Price, raising gross proceeds of HK$90,000,000;
(iii) Outwit has to bear expenses of approximately HK$3,640,000 comprising placing commission of approximately HK$3,284,000 and other incidental fees and expenses of approximately HK$356,000; and
(iv) the aggregate price for the 200,000,000 Subscription Shares payable by Outwit to the Company is approximately HK$86,360,000, an amount which is the same as the gross proceeds of HK$90,000,000 raised under the Placing less expenses of approximately HK$3,640,000 incurred by Outwit.

Based on the above, we note that (i) the net proceeds from the Placing will be substantially applied by Outwit to meet the amount payable to the Company pursuant to the Subscription; (ii) Outwit bears the risk of a reduction in its shareholding in the Company by 200,000,000 Shares in the event that the Subscription is not approved by the Independent Shareholders at the SGM; and (iii) upon completion of the Subscription, Outwit faces the same dilution in its shareholding in the Company as the other existing Shareholders.

In drawing our opinion regarding the Subscription Agreement, we have considered the factors discussed above and in particular: (i) the Company has been continuously making losses during the years ended 31 December 2000 to 2008; (ii) the Company’s P/B, the only meaningful benchmark in the absence of a meaningful reference to P/E, is well above the maximum P/B of the Subscription Price Comparables; (iii) the Subscription Price of HK$0.43 represents a discount of approximately 33.8% to the closing price of HK$0.65 per Share as quoted on the Stock Exchange on the Last Trading Day; (iv) the Subscription Price of HK$0.43 represents a premium of approximately 1,620% to the unaudited net asset value as at 30 June 2009 of approximately HK$0.025 per Share; (v) the Subscription Price is slightly below the average

— 30 —

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

closing price per Share of approximately HK$0.443 during the Review Period; and (vi) trading of the Shares on the Stock Exchange has been extremely inactive during the Review Period. We consider the terms of the Subscription Agreement (including the Subscription Price) are fair and reasonable and in the interest of the Company and the Shareholders as a whole.

3. Financial effects of the Subscription

3.1 Earnings

As stated in the Interim Report, the Company reported an unaudited profit attributable to Shareholders of approximately HK$22,190,000 during the six months ended 30 June 2009. Barring any unforeseen circumstances, the Placing and the Subscription is not expected to have any immediate material impact on the Group’s earnings.

3.2 Net asset value

As stated in the Interim Report, the Company had unaudited net assets attributable to Shareholders of approximately HK$26,801,000 as at 30 June 2009. As the Company is expected to raise net proceeds of around HK$86,360,000 from the Subscription, its net asset value is expected to see a significant upward adjustment.

3.3 Gearing

As per the Interim Report, the Group had unaudited debts of approximately HK$280,134,000 comprising: (i) bank loans of approximately HK$109,091,000 (approximately HK$90,909,000 in current portion and approximately HK$18,182,000 in non-current portion); (ii) promissory note of approximately HK$120,531,000; and (iii) convertible bond of approximately HK$50,512,000 as at 30 June 2009. In addition, the Group had unaudited total assets of approximately HK$609,799,000 as at 30 June 2009. Accordingly, the Company’s gearing ratio (total debts / total assets x 100%) was approximately 45.94% as at 30 June 2009. The proceeds from the Subscription are expected to increase the Group’s total assets and therefore decrease the Group’s gearing.

— 31 —

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

3.4 Liquidity

As per the Interim Report, the Company had unaudited current assets and unaudited current liabilities of approximately HK$212,611,000 and HK$237,746,000 respectively as at 30 June 2009, translating into a current ratio (current assets / current liabilities) of approximately 0.89%. We consider that a current ratio of less than 1 generally indicates that the financial position of the company in question is not desirable as the company’s current assets is insufficient to cover the obligations arising out of the current liabilities as they become due. Upon completion of the Subscription, the Group’s cash and bank balances (a current asset) is expected to increase by the proceeds of the Subscription in the amount of approximately HK$86,360,000. Accordingly, the Subscription is expected to increase the Group’s current ratio to above 1 and significantly improve the Group’s liquidity.

CONCLUSION

Having considered the above principal factors, we are of the opinion that the terms of the Subscription are fair and reasonable and in the interests of the Company and the Shareholders as a whole. In addition, we consider that the Subscription is on normal commercial terms which is not in the ordinary and usual course of business of the Group. Accordingly, we would recommend (i) the Independent Board Committee to advise the Independent Shareholders and (ii) the Independent Shareholders, to vote in favor of the ordinary resolution(s) to approve the Subscription at the SGM.

Yours faithfully,

For and on behalf of Ample Capital Limited H. W. Tang President

— 32 —

GENERAL INFORMATION

APPENDIX

1. RESPONSIBILITY STATEMENT

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

2. DISCLOSURE OF INTERESTS

(a) Directors’ Interests

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

None of the Directors has any direct or indirect interests in any assets which have been acquired or disposed of by or leased to, or which are proposed to be acquired or disposed of by or leased to, the Group since 31 December 2008, the date to which the latest published audited consolidated financial statements of the Group were made up.

There is no contract or arrangement entered into by any member of the Group subsisting at the Latest Practicable Date in which any Director is materially interested and which is significant in relation to the business of the Group.

(b) Substantial Shareholders

As at the Latest Practicable Date, so far is known to the Directors, the following persons (not being a Director or a chief executive of the Company) had an interest or short position in the Shares or underlying Shares of the Company which are required to be disclosed to the Company and the Stock Exchange under the provisions of Divisions 2 and 3 of Part XV of the SFO or,

— 33 —

GENERAL INFORMATION

APPENDIX

required to be entered in the register maintained by the Company pursuant to Section 336 of the SFO, or were, directly or indirectly, interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any member of the Group:

(i) Interests in the shares of the Company

		Number of issued	Percentage of
		Shares held	the issued share
Name of		(long position (L)/	capital of the
Shareholder	Capacity	short position (S))	Company
Outwit Investments	Beneficial Owner	546,979,654 (L)	50.93%
Limited		(Note 2)	(Note 2)
(Note 1)

(ii) Substantial shareholder of other members of the Group

		Approximate
		percentage or
		attributable
		percentage of
Name of subsidiary	Name of shareholder	shareholder(%)
武漢遠大製藥集團有限公司	武漢國有資產經營管理	20.26%
(Wuhan Grand Pharmaceutical	有限公司
Group Company Limited)	(Wuhan State-owned Assets
	Management Company
	Limited)
武漢遠大弘元股份有限公司	武漢大學資產經營投資管理	24.60%
(Wuhan Grand Hongyuan	有限公司
Company Limited)	(Wuhan University Assets
	Investment and Management
	Company Limited)

Notes:

The entire issued share capital of Outwit Investments Limited is owned by Mr. Hu Kaijun.
In addition, Outwit is also deemed to be interested in (i) 166,666,667 Shares (equivalent to approximately 15.52% of total issued share capital of the Company) assuming issuance of all the Shares issuable upon conversion of the convertible bond held by Outwit, detailed of which are described in the circular of the Company dated 23 June 2008 and (ii) 200,000,000 Shares (equivalent to approximately 18.62% of the total issued share capital of the Company) to be issued under the Subscription Agreement.

— 34 —

GENERAL INFORMATION

APPENDIX

Save as disclosed above, as at the Latest Practicable Date, so far is known to the Directors, there was no person who had an interest and/or a short position in the Shares or underlying Shares which is required to be disclosed to the Company and the Stock Exchange under the provisions of Divisions 2 and 3 Part XV of the SFO or, who was, directly or indirectly, interested in 10% or more of the nominal value of the issued share capital carrying rights to vote in all circumstances at general meetings of any member of the Group.

3. DIRECTORS’ SERVICE CONTRACTS

None of the Directors had any existing or proposed service contract with any member of the Group (excluding contracts expiring or determinable by the employer within one year without payments of compensation (other than statutory compensation)).

4. COMPETING INTEREST

As at the Latest Practicable Date, save the Mr. Liu Chengwei, the chairman and an executive Director, who is the director of some pharmaceutical companies in the PRC and thus had interest in businesses which competes or is likely to compete, either directly or indirectly, with the business of the Group, so far as the Directors are aware of, no Directors or their respective associates had any interest in a business which competes or is likely to compete, either directly or indirectly, with the business of the Group.

5. EXPERT

The following is the qualification of the expert who has given opinions or advices which are contained in this circular:

Name

Qualification

Ample Capital Limited

A corporation licensed under the SFO to carry on types 4, 6 and 9 regulated activities (advising on securities, advising on corporate finance and asset management respectively)

The above expert has given and has not withdrawn its written consent to the issue of this circular with the inclusion of its report and reference to its name in the form and context in which it appears.

— 35 —

GENERAL INFORMATION

APPENDIX

As at the Latest Practicable Date, the above expert was not beneficially interested in the share capital of any member of the Group nor did it have any right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group or any interest, either direct or indirect, in any assets which have been, since 31 December 2008, the date to which the latest published audited consolidated financial statements of the Group were made up, acquired or disposed of by or leased to or are proposed to be acquired or disposed of by or leased to any member of the Group.

6. MATERIAL ADVERSE CHANGE

As at the Latest Practicable Date, the Directors confirm that there was no material adverse change in the financial or trading position of the Group since 31 December 2008, being the date to which the latest audited financial statements of the Company were made up.

7. GENERAL

(a) As at the date of this circular, the Board comprises of three executive Directors, namely, Mr. Liu Chengwei, Mr. Hu Bo and Mr. Shao Yan, one nonexecutive Director, namely Mr. Zhang Ji and three independent non-executive Directors, namely, Ms. So Tosi Wan, Winnie, Mr. Lo Kai Lawrence and Mr. Xin Dongsheng.
(b) The English text of this circular shall prevail over the Chinese text.

8. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection during normal business hours at the Company’s principal office in Hong Kong from the date of this circular up to and including the date of the SGM:

(a) the Bye-laws of the Company;
(b) the Subscription Agreement;
(c) the Placing Agreement;
(d) the letter of recommendation from the Independent Board Committee, the text of which is set out on page 14 of this circular;
(e) the letter of advice from Ample Capital Limited, the text of which is set out on pages 15 to 32 of this circular; and

(f) this circular.

— 36 —

NOTICE OF SPECIAL GENERAL MEETING

==> picture [52 x 51] intentionally omitted <==