LU THAI TEXTILE CO., LTD — Annual Report 2004

Feb 3, 2005

LU THAI TEXTILE CO., LTD. SUMMARY OF ANNUAL REPORT 2004

(Adjustment based on International Accounting Standards)

§1. Important Notes

1.1 The Board of Directors of Lu Thai Textile Co., Ltd. (hereinafter referred to as the Company) and its directors hereby confirm that there are no any important omissions, fictitious statements or serious misleading information carried in this report, and shall take all responsibilities, individual and/or joint, for the reality, accuracy and completion of the whole contents. The summary of annual report 2004 is abstracted from the full text of annual report; the investors are suggested to read the full text of annual report to understand more details.

1.2 No director stated that they couldn’t ensure the correctness, accuracy and completeness of the contents of the Annual Report or have objection for this report. 1.3 Name list of Director having not attended the meeting

Name of Directors having not attended the Board meeting	Reason	Assignee’ name
Xu Zhinan	Business trip	Liu Shizhen
Independent Director Hong Xiaobin	Business trip	Independent Director You Shisong

1.4 Shandong Zhengyuan Hexin Certified Public Accountants and PricewaterhouseCoopers Zhongtian Certified Public Accountants Ltd. respectively issued the domestic and international unqualified Auditors’ Report for the Company. 1.5 Chairman of the Board of the Company Mr. Liu Shizhen, Chief Accountant Mr. Su Huasheng and Person in Charge of Financing Ms. Qu Qingfeng hereby confirm that the Financial Report enclosed in the Annual Report is true and complete. 1.6 This annual report is written in both Chinese and English. Should there be any difference in interpretation of the two versions, the Chinese version shall prevail.

§2. Company Profile

2.1 Basic information

§2. Company Profile 2.1 Basic information
Short form of the stock	LUTHAI A, LUTHAI B
Stock code	000726, 200726
Listed stock exchange	Shenzhen Stock Exchange
Registered address and office address	Registered address: No. 11, Mingbo Road, High-tech Industrial Development Zone, Zibo, Shandong Office address: No. 81, Songling East Road, Zichuan District, Zibo
Post code	Post code of registered address: 255086 Post code of office address: 255100
Internet web site	www.lttc.com.cn
E-mail	lttc@public.zbptt.sd.cn

2.2 Contact person and method

	Secretary of the Board of Directors	Securities Affairs Representative
Name	Qin Guiling	Zheng Weiyin
Contact address	No. 81, Songling East Road, Zichuan District, Zibo	No. 81, Songling East Road, Zichuan District, Zibo
Telephone	(86)533-5285166;5418361	(86)533-5285166;5418361
Fax	(86)533-5418833;5282188	(86)533-5418833;5282188
E-mail	qinguiling@lttc.com.cn	wyzheng@lttc.com.cn

§3. Summary of Accounting Data and Financial Indexes

3.1 Major accounting data

Unit: RMB’000

3.1 Major accounting data			Unit:	RMB’000
	2004	2003	Increase/decrease from the previous year（％）	2002
Income from main operations	1,890,862	1,270,512	48.83%	950,880
Totalprofit	323,272	231,325	39.75%	152,986
Netprofit	277,772	195,156	42.33%	128,542
Net profit after deducting non-recurring gains and losses	275,427	192,635	42.98%	129,482
Net cash flows arising from operatingactivities	279,092	82,277	239.21%	269,188
	At the end of 2004	At the end of 2003	Increase/decrease from the end of previousyear（％）	At the end of 2002
Total assets	3,977,156	2,584,956	53.86%	1,785,690
Shareholder’s equity (excluding minority interests)	1,565,675	1,446,327	8.25%	1,356,751

3.2 Major financial indexes Unit: RMB

	2004	2003	Increase/decrease from the previous year（％）	2002
Earnings per share	0.66	0.46	43.48%	0.37
Earningsper share(Note)	0.66	-	-	-
Return on equity (%)	17.74%	13.49%	up4.25%	9.47%
Return on equity as calculated based on net profit after deducting non-recurring gains and losses(%)	17.59%	13.32%	up 4.27%	9.54%
Net cash flow per share arising from operatingactivities	0.66	0.19	247.37%	0.76
	At the end of 2004	At the end of 2003	Increase or decrease from the end of	At the end of 2002

			previousyear（％）
Net assetsper share	3.71	3.42	8.48%	3.85
Net assets per share after adjustment	3.69	3.42	7.89%	3.84

Items of non-recurring gains and losses √ Applicable □ Inapplicable

Unit: RMB’000

Items of non-recurring gains and losses √Applicable□Inapplicable	Unit: RMB’000
**Items of non-recurring gains and losses **	Amount
Gain/loss from disposal of fixed assets and other long-term assets	-1,612
Gain/loss due to short-term investment	484
Switchingback reserve of impairment over thepastyears	6,154
Various non-operating income/expenses after deducting reserve of impairment	-2,593
Impact on income tax due to the aforesaid items	-150
Impact on minorityinterests due to the aforesaid items	62
Total	2,345

• 3.3 Difference of net profit as audited by Chinese Accounting Standard (CAS) and International Accounting Standard (IAS)

• √ Applicable □ Inapplicable

Unit: In RMB’000

√Applicable	□Inapplicable	Unit: In RMB’000
	CAS	IAS
Netprofit	279,941	277,772
Explanation on the difference	Increase of fixed assets translations was not been accepted due to USD’s statement of the year 1996 was converted into RMB’s statement 2,572 Accounts receivable over two years was reckoned into capital reserve under CAS, while was reckoned into profit and loss under IAS 252 Switching back amortization of goodwill under CAS 397 Long-term investment of Lu Ming confirmed according to equity method 22 Parent company’s homemade equipment was confirmed as deferred income and was amortized year after year under IAS-5,411

• §4. Changes in Share Capital and Particulars about Shareholders

• 4.1 Statement of changes in shares of the Company

Unit: shares

			Unit: shares
	Before the change	Increase / decrease in this time (+, -)	After the change
		Subtotal
I. Unlisted shares

1. Sponsors’ shares	118,232,400	0	118,232,400
Including: State-owned share	0	0	0
Domestic legal person’s shares	59,116,200	0	59,116,200
Foreign legal person’s shares	59,116,200	0	59,116,200
Others	0	0	0
2. Raised legal person’s shares	0	0	0
3. Inner employees’ shares	0	0	0
4. Preference shares or others	0	0	0
Total unlisted shares	118,232,400	0	118,232,400
II. Listed shares
1. RMB ordinary shares	141,960,000	0	141,960,000
2. Domestically listed foreign shares	162,240,000	0	162,240,000
3. Overseas listed foreign shares	0	0	0
4. Others	0	0	0
Total listed shares	304,200,000	0	304,200,000
III. Total shares	422,432,400	0	422,432,400

The amount of shares offered by funds, inner employees’ shares traded in the counter, shares offered by strategic investor and shares offered ordinary juridical person should be disclosed respectively □ Applicable √ Inapplicable

4.2 Particulars about change in shares held by the top ten shareholders and the top ten shareholders of circulation share

shareholders of circulation share	shareholders of circulation share	shareholders of circulation share
Total number of shareholders at the end of reportperiod				24,055
Particulars about shares held bythe topt				en shareholders
Name of Shareholder	Increase / decrease in the report year (share)	Shares held at the year-end (share)	Proportion (%)	Type of shares (Circulating/No n-circulating)	Number of share pledged or frozen	Nature of shareholders (State-owned shareholder/foreig n shareholder)
ZIBO LUCHENG TEXTILE CO., LTD.	0	59,116,200	14.00%	Non-circulating	0	Sponsor shareholder
TAILUN TEXTILE CO., LTD.	0	59,116,200	14.00%	Non-circulating	0	Foreign shareholder
XINGHUA SECURITIES INVESTMENT FUND	8,293,500	8,593,500	2.03%	Circulating	0	A-share
HTHK–VALUE PARTNERS INTELLIGENT FD-CHINA B SHS FD	7,353,522	7,353,522	1.74%	Circulating	0	B-share
HAIFUTONG INCOME GROWTH SECURITIES INVESTMENT FUND	4,812,280	6,961,545	1.65%	Circulating	0	A-share
DBS VICKERS (HONG KONG) LTD A/C CLIENTS	3,755,216	5,682,689	1.35%	Circulating	0	B-share

ZHU SHENG DI	-337,482	4,600,000	4,600,000	1.09%	Circulating	Circulating	0	B-share
SHANGHAI (HONGKONG) WANGUO SECURITIES	3,794,650	4,267,172		1.01%	Circulating		0	B-share
TOYO SECURITIES ASIA LIMIYED-A/C CLIENT	532,282	4,262,010		1.01%	Circulating		0	B-share
NATIONAL SOCIAL INSURANCE FUND 103 PORTFOLIO	3,922,714	3,922,714		0.93%	Circulating		0	A-share
Particulars about shares held bythe topten shareholders of circulation share
Shareholders’ name (full name)			Number of circulation share held at theyear-end(share)			Type (A-share, B-share, H-share and other)
XINGHUA SECURITIES INVESTMENT FUND			8,593,500			A-share
HTHK–VALUE PARTNERS INTELLIGENT FD-CHINA B SHS FD			7,353,522			B-share
HAIFUTONG INCOME GROWTH SECURITIES INVESTMENT FUND			6,961,545			A-share
DBS VICKERS (HONG KONG) LTD A/C CLIENTS			5,682,689			B-share
ZHU SHENG DI			4,600,000			B-share
SHANGHAI (HONGKONG) WANGUO SECURITIES			4,267,172			B-share
TOYO SECURITIES ASIA LIMIYED-A/C CLIENT			4,262,010			B-share
NATIONAL SOCIAL INSURANCE FUND 103 PORTFOLIO			3,922,714			A-share
BOSHI WELL- CHOSEN STOCK SECURITIES INVESTMENT FUND			3,697,207			A-share
GINTAI SECURITIES INVESTMENT FUND			3,636,673			A-share
Explanation on associated relationship among the top ten shareholders of circulation share			The Company was unknown whether there exists associated relationship or consistent action among the top ten shareholders of circulation share.

4.3 Particulars about controlling shareholders and actual controller of the Company 4.3.1 Particulars about change in controlling shareholders and actual controller of the Company

√ Applicable □ Inapplicable

Name of new controlling shareholder	Zibo Lucheng Textile Investment Co., Ltd.
Name of new actual controller	Liu Shizhen
Changing date	Changing date of new controlling shareholder: Oct. 18, 2004 Changingdate of new actual controller: Oct. 18,2004
Publishing date and newspaper of the controllingshareholder	Oct. 20, 2004 Securities Times,Shanghai Securities News and Ta KungPao
Publishing date and newspaper of the actual controller	Oct. 20, 2004 Securities Times, Shanghai Securities News and Ta Kung Pao

4.3.2 Introduction to the information of the controlling shareholder and other actual

controller

Zibo Lucheng Textile Investment Co., Ltd. (hereinafter referred to as “Lucheng Investment”) Legal representative: Liu Zibin Registered capital: RMB 37.34 million

Business scope: Lucheng Investment was engaged in investment textile, electric power and pharmacy; knitwear and the relevant import and export business; retail of lubricating oil, gas oil and diesel oil; Chinese meal and wholesale and retail of general merchandise and etc.. Lucheng Investment is the first largest shareholder of the Company as well as the actual controlling shareholder of the Company. The original name of Lucheng Investment is Zibo Lucheng Textile Co., Ltd., which was founded on Sep. 25, 1998 based on Zibo the 7[th] Cotton Textile Plant, sponsor of the Company. It is a Limited Company that its shares held by natural persons. On Oct. 18, 2004, Zibo Lucheng Textile Co., Ltd. changed its registration of industry and commerce as Zibo Lucheng Textile Investment Co., Ltd. presently with registered capital of RMB 37.34 million, the said public notice on changing has published on Securities Times and Shanghai Securities Times and Ta Kung Pao dated Oct. 20, 2004. Of them, Mr. Liu Shizhen held 21% equity of Lucheng Investment, and became the first largest shareholder of Lucheng Investment as well as the actual controller of Lucheng Investment. Basic information of Liu Shizhen: Chinese nationality, he has not enjoy the residence power in the other country or area; he took the post of Chairman of the Board and General Manager of the Company since 1999. As at the end of the report period, Lucheng Investment held 59.1162 million shares of the Company, taking 14% of total share capital of the Company (sponsors’ shares), and the said shares have not been listed for circulation. At the end of the report period, the said shares have not been frozen and pledged.

4.3.3 Property right and controlling relationship between the actual controller of the Company and the Company is as follows:

LIU SHI ZHEN 21% equity ZIBO LUCHENG TEXTILE INVESTMENT CO., LTD. 14% equity LUTHAI TEXTILE CO., LTD.

§5. Particulars about Directors, Supervisors and Senior Executive

5.1 Particulars about changes in shares held by directors, supervisors and senior executives

Unit: share

	Name	Name	Title	Sex	Sex	Age	Office term	Office term	Shares held at the year-begin	Shares held at the year-end	Shares held at the year-end	Reason of change
	Liu Shizhen		Chairman of the Board	Male		65	May 8, 2004- May 7, 2007		171,974	171,974
	Xu Zhinan		Director	Male		75	May 8, 2004- May 7, 2007		0	0
	Liu Zibin		Director	Male		40	May 8, 2004- May 7, 2007		0	0
	Tengyuan Yingli		Director	Male		65	May 8, 2004- May 7, 2007		0	0
	Chen Ruimou		Director	Male		61	May 8, 2004- May 7, 2007		0	0
	Su Huasheng		Director	Male		61	May 8, 2004- May 7, 2007		39,749	39,749
	Wang Fangshui		Director	Male		44	May 8, 2004- May 7, 2007		20,280	20,280
	Sun Zhigang		Director	Male		43	May 8, 2004- May 7, 2007		23,930	23,930
	Qin Guiling		Director	Female		39	May 8, 2004- May7, 2007		24,336	24,336
	Wang Yonggui		Independent director	Male		35	May 8, 2004- May 7, 2007		0	0
	Hong Xiaobin		Independent director	Male		32	May 8, 2004- May7, 2007		0	0
	You Shisong		Independent director	Male		68	May 8, 2004- May 7, 2007		0	0
	Wu Yuhua		Independent director	Male		61	May 8, 2004- May7, 2007		0	0
	Zhou Zhiji		Independent director	Male		42	May 8, 2004- May 7, 2007		0	0
	Li Tongmin		Supervisor	Male		49	May 8, 2004- May7, 2007		26,769	26,769
	Zhao Kegui		Supervisor	Male		58	May 8, 2004- May 7, 2007		40,560	40,560
	Zhu Lingwen		Supervisor	Male		51	May 8, 2004- May7, 2007		56,784	56,784
	5.2 Particulars about directors, supervisors √Applicable□Inapplicable
	Name	Name of shareholding Company			Title in shareholding Company			Office term			Drawing the payment from the Company (Yes / No)

Liu Zibin	Zibo Lucheng Textile Investment Co.,Ltd.	Legal representative	Apr. 3, 2000 to now	Yes
Xu Zhinan	Tailun Textile Co., Ltd.	Legal representative	Jan. 29, 1985 to now	Yes

5.3 Particulars about the annual payment of directors, supervisors and senior executives

executives
Total annual payment	RMB 5,037,300
Total annual payment of the top three directors drawing the highest payment	RMB 2,928,700
Total annual payment of the top three senior executives drawing the highest payment	RMB 1,287,000
Allowance of independent director	RMB 30,000 per person/ year
Other treatment of Independent Directors	The Company reimbursed the relevant expenses of business trip.
Name of directors and supervisors received no payment or allowance from the Company	All Directors and Supervisors drew their payment from the Company
Limits of payment	Number of persons
Over RMB 600,000	2
RMB 300,000～RMB 350,000	5
RMB 180,000～RMB 300,000	3
RMB 50,000～RMB 100,000	2

§ 6. Report of the Board of Directors

6.1 Discussion and analysis to the whole operation in the report period

In the report period, the Company’s whole operation was as follows: realizing income from main operations amounting to RMB 1,890.862 million, foreign currency from export amounting to USD 165.532 million, profit from main operations amounting to RMB 535.487 million and net profit amounting to RMB 277.772 million, an increase of 48.83%, 30.73%, 28.09% and 42.33% over the last year.

In the report period, the project of construction expansion of 40,000-ingot COM spinning implemented and invested by the Company with self-owned capital amounting to RMB 210 million, of which the 1[st] phased 20-000 ingots have been put into production and operation in July 2004 while the 2[nd] phased 20-000 ingots were under construction at present; it invested RMB 180 million to conduct technical reconstruction project of high-graded yarn-dyed fabric, which was put into production in Jul. 2004, thus resulting in the increase of 13 million meters of yarn-dyed fabric; Lu Feng Textile Co., Ltd. with registered capital amounting to RMB 100 million, was jointly set up by the Company and Hong Kong United Garments Manufacture Co., Ltd., where the Company invested RMB 75 million, accounting for 75% of its registered capital. This company was mainly engaged in production and sales of high-graded dyeing shirt fabric. At present, the project was in progress smoothly and has entered into the debugging phase of equipments. It was expected that the 1[st] phased 20 million meters would be put into production in the 1[st] quarter of 2005; the production-line project with annual output of 2 million pieces of high-classed shirts invested with RMB 30 million has been put into production in July 2004; the Company’s shirt processing capability has reached scale of 7 million pieces. Through

construction of the said projects, the Company’s product varieties were more colorful so as to meet demands of various kinds of customers in the market. The construction of Zibo Limin Purified Water Company where the Company held 99.62% shares, has put into production and operation in the 4[th] quarter of 2004. This company’s sewerage disposal capability reached 30,000 steres per day, which would reach the national level of water used for city viewing. The establishment of this company would set up a good foundation for the Company’s further development.

In the report period, the Company further expanded the input of technical renovation and strengthened the development of new products. In 2004, under the matching of all offices, the Company’s science committee conducted development and research of nine new products and gained outstanding achievements. Cotton and silk compound fabric, cotton and bamboo compound fabric, flax fabric, leno fabric, Lisai fiber fabric and XLA latitude spring united fabric and other various kinds of shirt fabric researched and developed by the Company were in advance levels at home and abroad. At present, the Company’s products have formed over 30 series and nearly 100,000 varieties, which could meet requirements of all customers. The Company would also further push continuous upgrading of shirt yarn-dyed fabric and better meet the continuously increasing life demand of the people through itself technical development and upgrading of products.

6.2 Statement of main operations classified according to industries or products Unit: RMB’000

6.2 Statement of main operations classified according to industries or products Unit: RMB’000	6.2 Statement of main operations classified according to industries or products Unit: RMB’000	6.2 Statement of main operations classified according to industries or products Unit: RMB’000	6.2 Statement of main operations classified according to industries or products Unit: RMB’000	6.2 Statement of main operations classified according to industries or products Unit: RMB’000	6.2 Statement of main operations classified according to industries or products Unit: RMB’000	6.2 Statement of main operations classified according to industries or products Unit: RMB’000
Main operations classified accordingto industries
Classified according to industries or products	Income from main operations	Cost of main operations	Gross profit ratio (%)	Increase/decrease in income from main operations over the last year (%)	Increase/decre ase in cost of main operations over the last year(%)	Increase/decrease in gross profit ratio over the last year (%)
Cotton textile industry	1,709,127	1,217,543	28.76%	35.60%	43.54%	-12.04%
Production and supply of electricity, gas and hot-water	23,308	22,765	2.33%	0.00%	0.00%	0.00%
Chinese patent medicine and its process business	18,532	14,203	23.36%	0.00%	0.00%	0.00%
Agriculture	139,895	103,436	26.06%	1,289.36%	1,326.90%	2.68%
Including: related transactions
Main operations classified accordingtoproducts
Cotton yarn	31,166	37,060	-18.91 %
Yarn-dyed outside material of shirts	1,403,913	1,018,199	27.47%	37.88%	45.57%	-15.50%

Shirts	272,671	178,853	34.41%	24.12%	27.54%	-4.84%
Lint	139,895	103,436	26.06%	1,289.36%	1,326.90%	2.68%
Chinese patent medicine	18,532	14,203	23.36%	0.00%	0.00%	0.00%
Electricityandgas	23,308	22,765	2.33%	0.00%	0.00%	0.00%
Others	1,377	1,280	7.04%	-39.02%	-16.78%
Including: related transactions
Pricing rules for related transactions
Necessity and durative of related transactions

• 6.3 Particulars about main operations classified according to areas

Unit: RMB’000

		Unit: RMB’000
Areas	Income from main operations	Increase/decrease in income from main operations over the lastyear(%)
Japan and Korea	306,242	12.79%
HongKong	266,273	-3.34%
Southeast Asia	551,033	85.87%
Europe and America	191,260	7.78%
Others	28,727	456.40%
Mainland of China	547,327	123.90%

6.4 Particulars about the customers of purchase and sales

Unit: RMB’0000

			Unit: RMB’0000
Total amount of purchase of the topfive suppliers	43,523.54	Proportion in the total amount ofpurchase	44.69%
Total amount of sales of the top five sales customers	66,543.97	Proportion in the total amount of sales	35.19%

• 6.5 Operation of share-holding companies √ Applicable □ Inapplicable

Name of share-holdingcompany	Name of share-holdingcompany	Zibo Shidanlu Cosmetic Co.,Ltd.	Zibo Shidanlu Cosmetic Co.,Ltd.	Zibo Shidanlu Cosmetic Co.,Ltd.
Investment earnings contributed in the period		0.43	Proportion in net profi of listed company	t 0.0015%
Share-holding company	Business scope	Cosmetic
	Net profit	4.06

• 6.6 Explanation on reasons of material changes in main operations and its structure □ Applicable √ Inapplicable

• 6.7 Explanation on reasons of material changes in profitability capability of main

operations (gross profit ratio) than that in the last year □ Applicable √ Inapplicable 6.8 Analysis to reasons of material changes in operating results and profit structure compared with the previous year □ Applicable √ Inapplicable Analysis to reasons of material changes in the whole financial position than that in the last year □ Applicable √ Inapplicable 6.9 Explanation on the past, current and future important effects of the material changes in production and operation environment, macro-policies and regulations on the Company’s financial position and operating results □ Applicable √ Inapplicable 6.10 Completion of the profit estimation □ Applicable √ Inapplicable 6.11 Completion of the business plan □ Applicable √ Inapplicable 6.12 Application of the raised proceeds □ Applicable √ Inapplicable Particulars about the changed projects □ Applicable √ Inapplicable

6.13 Application of the proceeds not raised through shares offering √Applicable□Inapplicable Unit: RMB’0000	6.13 Application of the proceeds not raised through shares offering √Applicable□Inapplicable Unit: RMB’0000	6.13 Application of the proceeds not raised through shares offering √Applicable□Inapplicable Unit: RMB’0000	6.13 Application of the proceeds not raised through shares offering √Applicable□Inapplicable Unit: RMB’0000
Names of projects	Amount ofprojects	Progress of projects	Earnings of projects
Expansion project of COM spinning of 40,000 ingots	21,000.00	The 1stphased has been put into production and operation in July2004	Increase of COM spinning of 1157 tons
Technical renovation project of top gradeyarn-dyed fabric	18,000.00	It has been put into production in Jul. 2004	Increased of 13 million meters yarn-dyed fabric
Jointly establish Lufeng Textile and Dyeing Co., Ltd.	10,000.00	It will be put into operation in the 1st quarter of 2005	A losses of RMB 1,990,900
Production line project of high-graded shirts	3,000.00	It has been put into production in Jul. 2004	Increase of 2 million shirts
Establish “Zibo Limin	1,910.00	It will be put into	Naught

Purified Water Co., Ltd.” operation in the 1st quarter of 2005 Total 53,910.00 -

6.14 Explanation of the Board of Directors on the “Qualified Opinion” made by the Certified Public Accountants

• Applicable √ Inapplicable

6.15 Business plan as of the next year of the Board of Directors

• Applicable √ Inapplicable

Profit estimation of the next year □ Applicable √ Inapplicable

6.16 The preplan on the profit distribution and capitalization of capital public reserve of the Board of Directors

√ Applicable □ Inapplicable

The 9[th] meeting of the 4[th] Board of Directors of the Company suggested the profit distribution preplan for year 2004 as follows: based on the total share capital amounting to 422,432,400 shares at the end of year 2004, distributing cash dividends amounting to RMB 3.75 (tax included) for every 10 shares, of which, for B shares, the dividends were paid according to HKD converted from middle price of norm exchange released by People’s Bank of China in the next day when Annual Shareholders’ General Meeting 2004 is held (Tax exempted according to the provisions in GS (1993) No. 45 document).

§ 7. Significant Events

7.1 Purchase of assets √ Applicable □ Inapplicable

						Unit: RMB’0000	Unit: RMB’0000	Unit: RMB’0000
Transaction parties	The assets purchased	Date of purchase	Sale price	Contribution to net profit of the Company of the assets sold from the year-beginning to the date of sale	Related transaction or no	Explain principle of pricing	Assets ownership involved in the assets transferred or not	Debts and Liabilities involved in the assets transferred or not
Zibo Lucheng Textile Investment Co., Ltd.	Assets of knitting and twisting thread	Sep. 23, 2004	14,587.41	214.72	Yes	the purchasing price of the above assets was based on value RMB 151,401,000 of the assets purchased evaluated by Shandong Bokuai, the value of fixed

						assets would be confirmed after the balance adjustment that evaluation value about fixed assets in Assets Evaluation Report reduced depreciation of the assets according to accounting system from the standard date to prompt date (the date that all assets are delivered); the value of inventories and construction in progress would be confirmed after planned evaluation value of inventories and construction in progress added or reduced the change from the standard date to prompt date.	Yes	Yes
Zichuan Changming Power Co., Ltd.	Share equity	Aug. 16, 2004	2,000.00	-278.66	Yes	Net assets	Yes	Yes

7.2 Sales of assets

• Applicable √ Inapplicable

7.1, 7.2 Influence on consistence of business and stability of managers caused by the issues interfered in purchase and sale

The above purchase would not cause influence on the management stability and consistent business of the Company; Purchase of assets for knitting and twisting thread would provide long-term material supply for the Company; Purchase of share equity of Changming Power would provide steady supply for the Company in the long term.

7.3 Important guarantee

√ Applicable □ Inapplicable

7.3 Important guarantee √Applicable□Inapplicable	7.3 Important guarantee √Applicable□Inapplicable	7.3 Important guarantee √Applicable□Inapplicable	7.3 Important guarantee √Applicable□Inapplicable	7.3 Important guarantee √Applicable□Inapplicable	7.3 Important guarantee √Applicable□Inapplicable	7.3 Important guarantee √Applicable□Inapplicable
Part	iculars about the external	guarantee of the Company (Barring the		guarantee for the controlling subsidiaries)
Name of the Company guaranteed	Date of happening (date of signing agreement)	Amount of guarantee	Guarantee type	Guarantee term	Complete Implementation or not	Guarantee for related party (yes or not)

Total amount of guarantee in the report period	31,238.23
Total balance of guarantee at the end of the report period	21,324.00
Guarantee of the Company for the controlling subsidiaries
Total amount of guarantee for controlling subsidiaries in the report period	31,238.23
Total balance of guarantee for controlling subsidiaries at the end of the report period	21,324.00
Particulars about the external guarantee of the Company (Including t	he guarantee for the controlling subsidiaries)
Total amount of guarantee	31,238.23
The proportion of the total amount of guarantee in the net assets of the Company	19.74%
Particulars about the guarantees o	ut of line
Total amount of guarantee for other related parties, which the Company or controlling shareholders held less than 50%	0.00
The debts guarantee amount provided for the guarantee of which the assets-liability ratio exceeded 70%	0.00
Proportion of total amount of guarantee in net assets of the Company exceeded 50% (Yes of No)	No
Total amount of guarantee breaking regulations	0.00

7.4 Significant Related Transactions

7.4.1 Related purchase and sale √ Applicable □ Inapplicable

Unit: RMB’0000

√Applicable	□Inapplicable	□Inapplicable	Unit: RMB’0000	Unit: RMB’0000
Related parties	Selling products and supplying labor service to related parties		Purchasing products and accepting labor service to related parties
	Transaction amount	Proportion in the transaction amount of the same kind	Transaction amount	Proportion in the transaction amount of the same kind
Lucheng Textile Investment Co., Ltd.	1,800.88	12.87%	30.36	100.00%
Taimei Tie Co., Ltd.	0.37	0.02%	52.18	100.00%
Stanluian Cosmetics Co., Ltd.	0.46	0.02%	12.58	100.00%
Lucheng Textile Investment Co., Ltd.	23.79	10.59%	2,365.12	5.43%
Lucheng Textile Investment Co., Ltd.	0.00	0.00%	14,587.40	100.00%
Lucheng Textile Investment Co., Ltd.	0.00	0.00%	233.25	100.00%
Total	1,825.50	0.00%	17,280.89	0.00%

7.4.2 Related credits and liabilities current □ Applicable √ Inapplicable

7.5 Entrusted assets □ Applicable √ Inapplicable

7.6 Implementation of commitment items

√ Applicable □ Inapplicable

This year, 2003 profit distribution proposal promised by the Company was implemented completely in May 2004. Committed investment project has been conducted as schedule. Parial invested projects have been finished on schedule. There are no commitments of Zibo Lucheng Textile Investment Co., Ltd. and Tailun Textile Co., Ltd., holding over 5% shares of the Company.

7.7 Significant lawsuit and arbitration □ Applicable √ Inapplicable

7.8 Particulars about the performance of obligations of Independent Directors Particulars about the independent directors attending the Board

Name of Independent Directors	This year times of attending the Board meeting	Presence in person	Entrusted presence (times)	Absence (Times)	Notes
Wu Yuhua	11	3	1	2	5 times vote by communication
You Shisong	11	4	0	1	6 times vote by communication
Zhou Zhiji	11	6	0	1	4 times vote by communication
Hong Xiaobin	11	6	0	1	4 times vote by communication
Wang Yonggui	11	3	1	2	5 times vote by communication

Particulars about the independent directors proposed different opinions about the relevant matters of the Company □ Applicable √ Inapplicable §8.Report of the Supervisory Committee

I. The work of the Supervisory Committee in the report period In the report period, the Company held 5 meetings of the supervisory committee, which attended 11 Board meetings of the Company. Particulars of every supervisory committee were as follows: 1. On Mar. 30, 2004, the Company held 11 meeting of 3[rd] Supervisory Committee. 3 Supervisors should attend the meeting and actually 3 attended, which accorded with the relevant regulations of the Company Law and the Articles of the Supervisory Committee. The resolutions of the meeting were lawful and effective. The meeting formed the following resolutions: “ examine and approve Work Report 2003 of the

Supervisory Committee”, “ examine and approve 2003 Annual Report of the Company and its Summary” “examine and approve Proposal on Nominating the candidates for the 4[th] Supervisory Committee of the Company, which nominated Mr. Zhao Ke Gui and Zhu Lingwen as consecutive candidates for the Supervisory Committee”, “examine and approve Proposal on Establishing Zibo Limin Wasted Water Disposing Co., Ltd. with Zibo Taimei Tie Co., Ltd.. The Supervisory Committee believed, the related transaction abided by principles of open, fair and objective; there existed no situations which do harm to the Company and arose competition in the same field”, “Examine and approve Proposal on internal control system about withdrawing every item of impairment losses”, “Examine and approve Proposal on partial inventory depreciation reserve and fixed assets impairment losses of 2003”.

1. On May. 12, 2004, the Company held 1[st] meeting of the 4[th] Supervisory Committee in the meeting room. 3 Supervisors should attend the meeting and actually 3 attended, which complied with the relevant regulations of the Company law and the Articles of the Association. The meeting elected Mr. Li Tongmin as Chairman of the 4[th] Supervisory Committee of the Company.

2. On Jul. 15, 2004, the Company held 2[nd] meeting of the 4[th] Supervisory Committee in the meeting room. 3 Supervisors should attend the meeting and actually 3 attended, which complied with the relevant regulations of the Company law and the Articles of the Association. The resolutions of the meeting were lawful and effective. The meeting examined and approved Proposal on Purchasing Relevant Assets of Knitting and Twisting Thread of Lucheng Company and Proposal on Establishing Company invested together with Lucheng Company.

3. On Jul. 29, 2004, the Company held 3[rd] meeting of the 4[th] Supervisory Committee in the meeting room. 3 Supervisors should attend the meeting and actually 3 attended, which complied with the relevant regulations of the Company law and the Articles of the Association. The resolutions of the meeting were lawful and effective. The meeting examined and approved Semi-annual Report 2004 of the Company and its summary.

4. On Sep. 24, 2004, the Company held 4[th] meeting of the 4[th] Supervisory Committee in the meeting room. 3 Supervisors should attend the meeting and actually 3 attended, which complied with the relevant regulations of the Company law and the Articles of the Association. The resolutions of the meeting were lawful and effective. The meeting examined and approved Proposal on the Company in line with the conditions of issuing convertible bonds, Proposal on Issuance Plan of Convertible Bonds, Proposal on the Feasibility of Invested Projects with Raised Proceeds, Proposal on Explanation about Last Raised Proceeds of the Board of the Company, and Proposal on Supplement Agreement to the [Investment Agreement] of Luqun Textile Company together set up by the Company and Lucheng Company.

II. Independent Opinions presented by the Supervisory Committee

1. Particulars about operation according to law In the report period, the Supervisory Committee of the Company examined wholly and patiently the procedure of decision-making of the Company, implementation of internal control system and duties of directors and managersand believed that the

internal control system of the Company was perfect and the procedure of decision-making was normative and found no actions of breaking laws, regulations and Articles of Association or harmful of the interest of the Company. 2. Inspection of the Company’s financing

The Supervisory Committee has checked the financial reports made by Shandong Zhengyuan Hexin Certified Public Accountants and PricewaterhouseCoopers Zhongtian Certified Public Accountants and thought conformably the reports have truthfully and accurately reflected the Company’s financial status and business results. 3. The Supervisory Committee of the Company seriously checked the explanation report of the Board of the Company about the usage of lastly raised proceeds. They believed the usage of lastly raised proceeds basically accorded with the projected committed. The adjusted usage for special project fulfilled the relevant procedures of Board and Shareholders’ General Meeting, which was standard and lawful. The Supervisory Committee believed the usage of capital was good.

1. The transact ion price of the Company purchasing and selling assets is reasonable or not

In the report period, 2[nd] meeting of the 4[th] Board of the Company and 1[st] Provisional Shareholders’ General Meeting of 2004 examined and approved the matter that the Company purchased relevant assets of spinning and twisting yarn of first principal control shareholder, Zibo Lucheng Company, and invested the assets to establish Zobo Luqun Textile Co., Ltd.. with first principal control shareholder, Zibo Lucheng Company. On Jun. 28, 2004, Shandong Bokuai CPAs presented BKPBZ(2004) No. 24Assets Evaluation Report of Zobo Lucheng Textile Co., Ltd.. The standard date for the Report was May 31, 2004. The book value of assets planned to purchase of this time was: RMB 142,760,700 and the evaluation value was RMB 151,401,000. The transfer price was RMB 145,874,100.

The Supervisory Committee of the Company checked and witnessed all process. They believed there was no insider transaction in purchasing assets; the purchasing price was fair and reasonable; there existed no actions, which do harm to interests of partial shareholders and caused no loss of assets of the Company. In the report period, there was no selling of assets.

III. Related transaction is fair or not, whether do harm to the interests of listed company or not

In the report period, the Company purchased relevant assets of spinning and twisting yarn of first principal control shareholder, Zibo Lucheng Textile Investment Company, and invested the assets to establish Zobo Luqun Textile Co., Ltd.. with first principal control shareholder, Zibo Lucheng Company. The transaction belonged to related transaction. Shandong Bokuai CPAs presented BKPBZ(2004) No. 24 Assets Evaluation Report of Zobo Lucheng Textile Co., Ltd.. Independent directors of the Company presented Independent Opinion on the purchase and establishing new company. The Board of the Company published notice on the two related transactions. The Supervisory Committee of the Company held 3[rd] meeting of the 4[th] Board and specially examined the matter seriously. They believed the related transaction accorded with relevant regulations, and principles of “ Just, Fair and Open, which did not harm to the interests of the listed companies.

IX. Significant contracts of the Company and Implementation

1. In the report period, the matters of the Company entrusting, contracting and leasing assets of other companies

In the report period, the Company rented land of 92.09 Mu, houses of 6484.71 square meters and a gas station form Zibo Lucheng Textile Investment Co., Ltd.. This year the Company paid rent RMB 2,332,572.24. 2. handong Zhengyuan Hexin Certified Public Accountants and

PricewaterhouseCoopers Zhongtian Certified Public Accountants Co., Ltd. presented unqualified CAS and IAS auditor’s report for the Company respectively.

§ 9. Financial Report (IAS)

9.1 Auditor’s Opinion

Report of the Auditors

To the Shareholders of Luthai Textile Company Limited:

We have audited the accompanying consolidated balance sheet of Luthai Textile Company Limited (the “Company”) and its subsidiaries (together, the “Group”) as of 31 December 2004 and the related consolidated statements of income, cash flows and changes in shareholders’ equity for the year then ended. These consolidated financial statements set out on pages 2 to 30 are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with International Standards on Auditing. Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the accompanying consolidated financial statements give a true and fair view of the financial position of the Group as of 31 December 2004, and of the results of its operations and cash flows for the year then ended in accordance with International Financial Reporting Standards.

PricewaterhouseCoopers Zhong Tian CPAs Limited Company

2 February 2005

9.2 Financial statement

LUTHAI TEXTILE COMPANY LIMITED CONSOLIDATED INCOME STATEMENT

FOR THE YEAR ENDED 31 DECEMBER 2004

(all amounts in RMB thousands) Notes Sales 2	Year ended 31 December
	2004 2003 1,890,862 1,270,512

Cost of sales (1,355,375) (852,455) Gross profit 535,487 418,057 Other operating income 28,004 29,057 Distribution costs (63,453) (50,203) Administrative expenses (142,189) (154,951) Operating profit 3 357,849 241,960 Finance cost – net 4 (34,617) (10,625) Share of results before tax of unconsolidated subsidiaries 12 40 (10) Profit from ordinary activities before tax 6 323,272 231,325 Income tax expense 6 (37,547) (33,721) Group profit after tax 285,725 197,604 Minority interest 21 (7,953) (2,448) Net profit 7 277,772 195,156 Earnings per share (basic and diluted) 7 RMB 0.66 RMB 0.46 LUTHAI TEXTILE COMPANY LIMITED CONSOLIDATED BALANCE SHEET AS OF 31 DECEMBER 2004 31 December 31 December (all amounts in RMB thousands) Notes 2004 2004 2003 2003 ASSETS Non-current assets Property, plant and equipment 9 2,421,823 1,403,031 Land use rights 10 140,546 96,786 Intangible assets 11 36,006 9,626 Investment in unconsolidated subsidiaries 12 5,280 431 Available-for-sale investment 13 215 215 2,603,870 1,510,089 Current assets Inventories 14 597,991 458,271 Receivables and prepayments 15 423,937 413,839 Cash and cash equivalents 16 351,358 202,757 1,373,286 1,074,867	Cost of sales (1,355,375) (852,455) Gross profit 535,487 418,057 Other operating income 28,004 29,057 Distribution costs (63,453) (50,203) Administrative expenses (142,189) (154,951) Operating profit 3 357,849 241,960 Finance cost – net 4 (34,617) (10,625) Share of results before tax of unconsolidated subsidiaries 12 40 (10) Profit from ordinary activities before tax 6 323,272 231,325 Income tax expense 6 (37,547) (33,721) Group profit after tax 285,725 197,604 Minority interest 21 (7,953) (2,448) Net profit 7 277,772 195,156 Earnings per share (basic and diluted) 7 RMB 0.66 RMB 0.46 LUTHAI TEXTILE COMPANY LIMITED CONSOLIDATED BALANCE SHEET AS OF 31 DECEMBER 2004 31 December 31 December (all amounts in RMB thousands) Notes 2004 2004 2003 2003 ASSETS Non-current assets Property, plant and equipment 9 2,421,823 1,403,031 Land use rights 10 140,546 96,786 Intangible assets 11 36,006 9,626 Investment in unconsolidated subsidiaries 12 5,280 431 Available-for-sale investment 13 215 215 2,603,870 1,510,089 Current assets Inventories 14 597,991 458,271 Receivables and prepayments 15 423,937 413,839 Cash and cash equivalents 16 351,358 202,757 1,373,286 1,074,867	Cost of sales (1,355,375) (852,455) Gross profit 535,487 418,057 Other operating income 28,004 29,057 Distribution costs (63,453) (50,203) Administrative expenses (142,189) (154,951) Operating profit 3 357,849 241,960 Finance cost – net 4 (34,617) (10,625) Share of results before tax of unconsolidated subsidiaries 12 40 (10) Profit from ordinary activities before tax 6 323,272 231,325 Income tax expense 6 (37,547) (33,721) Group profit after tax 285,725 197,604 Minority interest 21 (7,953) (2,448) Net profit 7 277,772 195,156 Earnings per share (basic and diluted) 7 RMB 0.66 RMB 0.46 LUTHAI TEXTILE COMPANY LIMITED CONSOLIDATED BALANCE SHEET AS OF 31 DECEMBER 2004 31 December 31 December (all amounts in RMB thousands) Notes 2004 2004 2003 2003 ASSETS Non-current assets Property, plant and equipment 9 2,421,823 1,403,031 Land use rights 10 140,546 96,786 Intangible assets 11 36,006 9,626 Investment in unconsolidated subsidiaries 12 5,280 431 Available-for-sale investment 13 215 215 2,603,870 1,510,089 Current assets Inventories 14 597,991 458,271 Receivables and prepayments 15 423,937 413,839 Cash and cash equivalents 16 351,358 202,757 1,373,286 1,074,867
	2004 2004 2,421,823 140,546 36,006 5,280 215 2,603,870 597,991 423,937 351,358 1,373,286	2003 2003 1,403,031 96,786 9,626 431 215 1,510,089 458,271 413,839 202,757 1,074,867

3,977,156

2,584,956

Total assets

LUTHAI TEXTILE COMPANY LIMITED CONSOLIDATED BALANCE SHEET (CONTINUED) AS OF 31 DECEMBER 2004 31 December (all amounts in RMB thousands) Notes 2004 2004 SHAREHOLDERS’ EQUITY Capital and reserves Ordinary shares 20 422,432 Share premium 20 695,390 Reserves 22 160,073 Retained earnings 287,780 1,565,675 Minority interest 21 163,205 LIABILITIES Non-current liabilities Borrowings 18 586,177 Deferred Income 19 5,411 Other liabilities 14,659 606,247 Current liabilities Trade and other payables 17 513,608 Current tax liabilities 874 Borrowings 18 1,127,547 1,642,029 Total liabilities 2,248,276 Total shareholders’ equity and liabilities 3,977,156	31 December	31 December
	2003 422,432 695,390 116,600 211,905	2003 1,446,327 96,180 2,673 1,039,776
	- - 2,673
	310,144 2,982 726,650
		1,042,449
		2,584,956

LUTHAI TEXTILE COMPANY LIMITED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY FOR THE YEAR ENDED 31 DECEMBER 2004

(all amounts in RMB thousands) Notes Balance at 1 January 2003 Dividend relating to 2002 Net profit 7 Transfer to reserves 22 Capitalisation of share premium 20 Currency translation difference Balance at 31 December 2003 Balance at 1 January 2004 Dividend relating to 2003 Net profit 7 Transfer to reserves 22 Currency translation difference Balance at 31 December 2004	Share capital Share premium Reserves Retained earnings Total 352,027 765,795 86,878 152,051 1,356,751 - - - (105,608) (105,608) - - - 195,156 195,156 - - 29,694 (29,694) - 70,405 (70,405) - - - - - 28 - 28
	422,432 695,390 116,600 211,905 1,446,327
	422,432 695,390 116,600 211,905 1,446,327 - - - (158,412) (158,412) - - - 277,772 277,772 - - 43,485 (43,485) - - - (12) - (12)
	422,432 695,390 160,073 287,780 1,565,675

LUTHAI TEXTILE COMPANY LIMITED CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2004 (all amounts in RMB thousands) Notes Cash flow from operating activities Net profit Adjustments for: Minority interest 21 Tax 6 Depreciation 9 Amortisation of land use rights 10 Amortisation of intangible assets 11 Impairment charge of property, plant and equipment 9 Loss on disposal of property, plant and equipment 3 (Reversal of)/provision for inventory provision 3 (Reversal of)/provision for investment impairment 3 Share of results before tax in unconsolidated subsidiaries 12 (Reversal of)/provision for doubtful debts provision

Year ended 31 December

2004 2003 277,772 195,156 7,953 2,448 37,547 33,721 131,757 109,162 6,363 4,545 5,382 3,777 1,734 10,809 2,950 2,803 (2,861) 10,463 (1,340) 2,300 (40) 10 (153) 10,522

Interest expenses 4 Interest income 4 Dividend income Changes in working capital Inventories Receivables and prepayments Restricted deposits 16 Trade and other payables Cash generated from operations Interest paid Tax paid Net cash generated from operating activities LUTHAI TEXTILE COMPANY LIMITED CONSOLIDATED CASH FLOW STATEMENT (CONTINUED) FOR THE YEAR ENDED 31 DECEMBER 2004 (all amounts in RMB thousands) Notes Cash flow from investing activities Acquisition of subsidiary, net of cash acquired 23 Proceeds from consolidation of Luthai (Hong Kong) Textile Co., Ltd. (“Luthai HK”) 12 Purchase of property, plant and equipment Purchase of land use rights Purchase of intangible assets Proceeds from sale of property, plant and equipment Proceeds from sale of investment Dividend received Interest received Net cash used in investing activities Cash flow from financing activities Proceeds from borrowings Repayments of borrowings Dividend paid to Group shareholders Dividend paid to minority shareholders Proceeds from minority shareholders Net cash generated from financing activities Increase in cash and cash equivalents Movement in cash and cash equivalents	47,914 16,158 (3,265) (2,844) - (8)
	511,713 399,022 (129,793) (177,389) 4,317 (94,645) (58,209) - 33,222 2,192
	361,250 129,180 (47,914) (16,158) (34,244) (30,745)
	279,092 82,277
	Year ended 31 December 2004 2003 (9,678) 25,444 - 6,367 (973,613) (464,876) (10,221) (22,972) (10,350) (2,329) 718 10,373 2,186 - - 8 3,265 2,844 (997,693) (445,141) 1,974,249 864,618 (1,030,212) (381,327) (158,412) (106,211) (2,272) (2,365) 25,640 20,000 808,993 394,715 90,392 31,851

At beginning of the year Increase in cash and cash equivalents At end of the year 16	202,757 170,906 90,392 31,851
	293,149 202,757

9.3 Accounting policy, accounting assessment and settlement method has no change compared with the latest annual report. □ Applicable √ Inapplicable

9.4 Contents, correct amount, reason and its influence of significant accounting errors □ Applicable √ Inapplicable

9.5 Explanation on change of consolidated scope compared with the latest annual report √ Applicable □ Inapplicable

The consolidation cope of the term increased 4 controlling subsidiaries: 1. Zibo Lufeng Co., Ltd., of which the Company held 75% share equity; 2. Zibo Liming Water Purification Co., Ltd., of which the Company held 99.62% share equity; 3. Zibo Luqun Textile Co., Ltd., of which the Company held 90%; 4. Zichuan Changming Thermoelectricity Co., Ltd., of which the Company held 56.91%.

Board of Directors of Lu Thai Textile Co., Ltd.

Feb. 4 2004