Nanjing Panda Electronics Company Limited — Proxy Solicitation & Information Statement 2004

Jun 3, 2004

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

If you have sold or transferred all your shares in Nanjing Panda Electronics Company Limited, you should at once hand this circular to the purchaser or the transferee or to the bank, stockbroker or other agent through whom the sale or transfer was effected for transmission to the purchaser or the transferee.

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

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������������ Nanjing Panda Electronics Company Limited

(a joint stock limited company incorporated in the People's Republic of China)

(Stock Code: 553)

DISCLOSEABLE TRANSACTION

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.

1 June 2004

CONTENTS

	Pages
Definitions .......................................................................................................................................................	ii
Letter from the Board....................................................................................................................................	1
Appendix .........................................................................................................................................................	7

— i —

DEFINITIONS

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

“25% Agreement”

the agreement dated 12 May 2004 and entered into by the Company and Jiangning Development, pursuant to which the Company agreed to transfer its 25% equity interests in Jiangsu Software Park to Jiangning Development at a consideration of RMB57,385,350.00;

“10% Agreement” the agreement dated 12 May 2004 and entered into by the Company and Nanjing Xincheng, pursuant to which the Company agreed to transfer its 10% equity interests in Jiangsu Software Park to Nanjing Xincheng at a consideration of RMB22,954,140.00;

• “Agreements” “25% Agreement”and “10% Agreement” ;

• “Board”

the board of directors of the Company;

• “Company” Nanjing Panda Electronics Company Limited (������������), a joint stock limited company incorporated in the PRC whose A shares and H shares are listed on the Shanghai Stock Exchange and the Stock Exchange of Hong Kong Limited respectively;

• “Directors” the directors of the Company;

• “Disposal” the disposal of the Object of Transaction;

• “Government Proposal” Proposal on Construction of Jiangsu Software Park (Circular {2003} No. 49 of Jiangsu Provincial People’s Government Office) (���������� {2003}��049���������������);

• “Group” any company which will become a subsidiary of the Company by reason of an acquisition which has been agreed or proposed since the date to which the latest audited accounts of the Company have been made up;

• “Jiangning Development”

Nanjing Jiangning Economic and Technological Development Corporation (�������������), a state-owned enterprise incorporated in the PRC;

• “Jiangsu Software Park” Jiangsu Provincial Software Industry Company Limited (�������� ����), a company incorporated in the PRC;

• “Latest Practicable Date” 25 May 2004, being the latest practicable date prior to the printing of this circular for ascertaining certain information contained herein;

— ii —

DEFINITIONS

“Listing Rules” the Rules Governing the Listing of Securities on the Stock Exchange; “Nanjing Xincheng” Nanjing Xincheng Company Limited (����������), a company incorporated in PRC; “Object of Transaction” 35% equity interests in Jiangsu Provincial Software Industry Company Limited; “PRC” the People’s Republic of China; “RMB” Renminbi, the lawful currency of the PRC; “SFO” Securities and Futures Ordinance, Chapter 571 of the laws of Hong Kong; “Stock Exchange” The Stock Exchange of Hong Kong Limited; “%” per cent.

— iii —

LETTER FROM THE BOARD

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������������ Nanjing Panda Electronics Company Limited

(a joint stock limited company incorporated in the People's Republic of China)

Executive Directors Li Anjian (Chairman, General Manager) Zhang Zuzhong (Vice-chairman)

Non-executive Directors Zhou Zhenyu Liu Ailian Zhu Lifeng Tang Hongqing Independent Non-executive Directors Wan Hui Cai Lianglin Ma Chung Lai, Lawrence

Registered Address: Floor 1-2 Block 5, North Wing Nanjing High and New Technology Development Zone Nanjing The PRC Office Address: 301 Zhong Shan Road East Nanjing The PRC Postal Code: 210002 1 June 2004

Dear Sir or Madam,

INTRODUCTION

To accelerate the development of software industry in Jiangsu province, Jiangsu provincial government resolved to restructure Jiangsu Software Industry Company Limited and planned to grant a series of preferential policies after the said restructure. In the said restructure, ��������������� (Jiangsu Province Guoxin Asset Management Group Company Limited) which represented the investment of Jiangsu provincial government played a leading role and would hold 52.5% equity interests, i.e. the majority shareholding, of Jiangsu Software Park after the said restructure. This facilitates the implementation of the unified planning and the preferential policies by the Jiangsu provincial government. Jiangsu Software Park would move to Nanjing Jiangning Economic and Technical Development Zone for registration. Since Nanjing Jiangning Economic and Technical Development Zone would be responsible for the specific implementation of some preferential policies, the restructure will introduce Jiangning Development and Nanjing Xincheng, which both represent the Nanjing Jiangning Economic and Technical Development Zone, as new shareholders of Jiangsu Software Park. Therefore, in the Government Proposal, the Jiangsu provincial government proposed the Disposal by the Company to Jiangning Development and Nanjing Xincheng.

— 1 —

LETTER FROM THE BOARD

The Board announced on 14 May 2004 that on 12 May 2004, the Company entered into 25% Agreement with Jiangning Development and 10% Agreement with Nanjing Xincheng pursuant to the Government Proposal which proposes the Disposal by the Company.

The said transaction was subject to a poll at the 1st meeting of the fifth Board of the Company. Amongst the 9 directors with responsibility thereof, 9 directors (including 3 independent directors) participated in the poll. Accordingly, the resolution on transferral of 35% equity interests held by the Company in Jiangsu Software Park was unanimously passed.

The Disposal constitutes a discloseable transaction for the Company. The purpose of this circular is to provide you with further details regarding the Disposal.

THE DISPOSAL

A. BACKGROUND

Prior to the Disposal, Jiangsu Software Park was held as to 35% by the Company, 52.5% by ������ �����(Jiangsu Province International Trust Investment Company Limited), 8% by ������� ���(Nanjing Iron and Steel Company Limited), 2.5% by ����������������(Jiangsu Province Information Construction Investment Company Limited) and 2% by ����������� ��(Nanjing Zhujianglu Technology Development Company Limited).

B. PROFILE OF OBJECT OF TRANSACTION

Jiangsu Software Park was established on 25 December 2000 with its registered address at Nanjing. Its registered and fully paid up capital is RMB198,000,000 and its legal representative is Mr. Zhao Guozhen. The company is principally engaged in production, development, sale and technological services of computer network system integration, electronic products, computer and software products, domestic trade, property management, house leasing, etc.

As audited by Jiangsu Suya Jincheng CPA Accountants ��������������, the total assets of Jiangsu Software Park as of 31 December 2003 amounted to RMB214,637,528.19, net assets amounted to RMB191,392,931.42, total liabilities amounted to RMB23,244,596,77. Principal operating revenue for 2003 was RMB20,973,453.78 and net profit was RMB5,325.88. The book value of the 35% equity interests in Jiangsu Software Park held by the Company as at 31 December 2003 was RMB66,987,526. The profit before and after taxation attributable to the 35% equity interests in Jiangsu Software Park for the year ended 31 December 2003 were RMB2,048 (2002: RMB-2,305,378) and RMB1,864 (2002: RMB-2,314,338) respectively.

— 2 —

LETTER FROM THE BOARD

C. THE AGREEMENTS

I. 25% Agreement

Date of Agreement: 12 May 2004

Parties

• (1) Vendor: The Company

• (2) Purchaser: Jiangning Development

Particulars of the Purchaser: Jiangning Development was established on 4 December 1992 with its registered address at Jiangning Economic and Technological Development Zone of Nanjing. Its registered capital is RMB480,000,000 and its legal representative is Mr. Yang Youlin. The company is principally engaged in operations of real estate; development of economic projects; integrated technological and information development services; tourism development services and manpower exchange services.

Object to be disposed of

The Company has agreed to dispose of its 25% interest in the shareholding of Jiangsu Software Park.

Consideration

The consideration for the said transfer of equity interests was based on the initial investment, namely RMB49,500,000.00, and interests accrued on loans, namely RMB7,885,350.00, in the investment period in accordance with the spirit of the Government Proposal. The consideration, RMB57,385,350.00 for the said transfer of equity interests, was paid in cash within seven working days following signing of the 25% Agreement.

Completion

Changes in registration of shareholders and shareholdings shall be filed to the relevant Industry and Commerce Administration within 30 days following signing of the 25% Agreement. Completion is expected to take place on or before 11 June 2004.

Condition

There is no other condition precedent to the completion.

— 3 —

LETTER FROM THE BOARD

II. 10% Agreement

Date of Agreement: 12 May 2004

Parties

• (1) Vendor: The Company

• (2) Purchaser: Nanjing Xincheng

Particulars of the Purchaser: Nanjing Xincheng was established on 30 August 2002 with its registered address at Jiangning Economic and Technological Development Zone of Nanjing. Its registered capital is RMB100,000,000 and its legal representative is Mr. Yang Youlin. The company is principally engaged in infrastructure development and construction, design and execution of construction and installation projects, land development and operation, development and sale of commodity houses, property management, venture capital investment in high-tech enterprises, investment, development and technological service related to high-tech industries, etc.

Object to be disposed of

The Company has agreed to dispose of its 10% interest in the shareholding of Jiangsu Software Park.

Consideration

The consideration for the said transfer of equity interests was based on the initial investment, namely RMB19,800,000.00, and interests accrued on loans, RMB3,154,140.00, in the investment period in accordance with the spirit of the Government Proposal. The consideration, RMB22,954,140.00 for the said transfer of equity interests, was paid in cash within seven working days following signing of the 10% Agreement.

Completion

Changes in registration of shareholders and shareholdings shall be filed to the relevant Industry and Commerce Administration within 30 days following signing of the 10% Agreement. Completion is expected to take place on or before 11 June 2004.

Condition

There is no other condition precedent to the completion.

D. USE OF NET PROCEEDS

Pursuant to the disposal of 35% equity interests in aggregation in Jiangsu Software Park, the Company is expected to recover RMB80,339,490 from disposal of the investment and realise a gain on disposal of investment totalling RMB11,039,490. The cash flow generated from the transfer will be utilised in development of the Company’s principal operations.

— 4 —

LETTER FROM THE BOARD

E. REASONS FOR THE DISPOSAL

The Company entered into the Agreements because of the Government Proposal which proposes the Disposal by the Company. It is because Jiangsu provincial government resolved to restructure Jiangsu Software Industry Company Limited and planned to grant a series of preferential policies after the said restructure to accelerate the development of software industry in Jiangsu province. Jiangsu Software Park would move to Nanjing Jiangning Economic and Technical Development Zone for registration. Since Nanjing Jiangning Economic and Technical Development Zone would be responsible for the specific implementation of some preferential policies, the restructure will introduce Jiangning Development and Nanjing Xincheng, which both represent the Nanjing Jiangning Economic and Technical Development Zone, as new shareholders of Jiangsu Software Park. Therefore, in the Government Proposal, the Jiangsu provincial government proposed the Disposal by the Company to Jiangning Development and Nanjing Xincheng.

F. BENEFITS TO THE COMPANY

The Company is mainly engaged in the development, production and sale of mobile telecommunications system, satellite communication system, electromechanical and IT products. The Disposal is in line with and does not affect the principal business of the Company.

The profit after taxation attributable to the Object of Transaction for the years ended 31 December 2003 and 31 December 2002 were RMB1,864 and RMB-2,314,338 respectively. As at 31 December 2003, the book value of the Object of Transaction was RMB66,987,526. Based on the book value of the Object of Transaction as at 31 December 2003, the Group will record a gain of RMB13,351,964 from the Disposal.

The Directors consider that the Disposal will not have any material impact on either the earnings or the assets and liabilities of the Group upon completion of the sale and purchase.

G. DECLARATION

The Company declares that the directors of the Company believe that the terms of the Disposal are fair and reasonable and in the interests of the shareholders as a whole.

H. CONFIRMATION

The Company confirms that, to the best of the directors’ knowledge, information and belief having made all reasonable enquiry, Nanjing Xincheng and Jiangning Development and their ultimate beneficial owners are third parties independent of the Company and connected persons of the Company.

— 5 —

LETTER FROM THE BOARD

I. BOARD OF DIRECTORS

As at the date of this circular, The Board of the Company comprises of 1. Executive Directors: Mr. Li Anjian, Mr. Zhang Zuzhong; 2. Non-executive Directors: Ms. Liu Ailian, Mr. Zhou Zhenyu, Mr. Zhu Lifeng, Mr. Tang Hongqing; 3. Independent Non-Executive Director: Ms. Wan Hui, Mr. Ma Chung Lai, Lawrence, Mr. Cai Liang Lin.

J. ADDITIONAL INFORMATION

Your attention is drawn to the Appendix of this circular setting out the general information of the Company.

Yours faithfully By order of the Board Li Anjian Chairman

— 6 —

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. As at the Latest Practicable Date, the interests and short positions of each Director and chief executive of the Company in the shares, underlying shares and debentures of the Company or any associated corporation (within the meaning of Part XV of the SFO) which are required (a) to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which he is taken or deemed to have under such provisions of SFO); or (b) pursuant to section 352 of the SFO, to be entered in the register referred to therein; or (c) pursuant to the Model Code for Securities Transactions by Directors of Listed Companies to be notified to the Company and the Stock Exchange are as follows:

		No. of Domestic	Percentage of
		Shares held	share capital	Nature of
Name	Duties	(Long position)	in issue (%)	such interest
Zhang Zuzhong	Vice-chairman	9,400	0.014	Personal interest
Zhou Zhenyu	Non-executive Director	2,900	0.004	Personal interest
Zhu Lifeng	Non-executive Director	2,743	0.004	Personal interest
Tang Hongqing	Non-executive Director	9,100	0.014	Personal interest
Zhang Zhenping	Chairman of the	3,429	0.005	Personal interest
	Supervisory Committee
Chen Ning	Supervisor	3,900	0.006	Personal interest
Wang Hongjin	Deputy General Manager	8,300	0.013	Personal interest
Shi Qiusheng	Deputy General Manager	3,343	3,343	Personal interest
	Company secretary

— 7 —

GENERAL INFORMATION

APPENDIX

• B. Save as disclosed above, as at the Latest Practicable Date, none of the Directors and chief executive of the Company had any interests or short positions in the shares, underlying shares and debentures of the Company or any associated corporation (within the meaning of Part XV of the SFO) which are required (a) to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which he is taken or deemed to have under such provisions of SFO); or (b) pursuant to section 352 of the SFO, to be entered in the register referred to therein; or (c) pursuant to the Model Code for Securities Transactions by Directors of Listed Companies to be notified to the Company and the Stock Exchange.

3. SUBSTANTIAL SHAREHOLDERS

• A. As at the Latest Practicable Date, so far as is known to any director or chief executive of the Company, the following parties, other than a director or chief executive of the Company, have an interest or short position in the shares and underlying shares of the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO:

			Approximate	Approximate
Name of	Class / No. of		Percentage in the	Percentage
Substantial	Shares interested/	Nature	relevant class of	in the total
Shareholder	(long position)	of Interest	shares in issue	shares in issue
Panda Electronic	355,015,000	Corporate interest	85.96%	54.20%
Group Ltd.	domestic shares	held in the capacity
(Note 1)		of beneficial owner
Lewis Joseph	20,260,000 H shares	Personal interest held	8.38%	3.10%
		in the capacity
		of beneficial owner
Tuesday Thirteen Inc.	16,920,000 H shares	Corporate interest held	7%	2.59%
		in the capacity
		of controlled corporation

Note1:

• (i) Mr. Li Anjian, the executive Director of the Company, is the director and general manager of Panda Electronic Group Ltd.

• (ii) Ms. Liu Ailian, the non-executive Director of the Company, is the director and vice-general manager of Panda Electronic Group Ltd.

• B. As at the Latest Practicable Date, so far as is known to any director or chief executive of the Company, the following parties, other than a director or chief executive of the Company, have, directly or indirectly, interested in ten per cent. or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any other member of the Group and the amount of each of such party’s interest in such securities, together with particulars of any options in respect of such capital:

— 8 —

GENERAL INFORMATION

APPENDIX

			Percentage to the
			issued share capital
Name of Shareholders	Name of Subsidiaries	Number of shares held	of the subsidiary
Ma Zhiping	Nanjing Panda Mobile	RMB58,800,000	49%
	Communication
	Equipment Co., Ltd.
�����	Nanjing Guanghua	RMB3,500,000	28.06%
��������	Electronic Plastic
(Nanjing Baixia District	Installing Plant
Shi Men Kan Zhen
Industrial Company)
Simsen Technology	Nanjing Panda Network	RMB5,000,000	50%
Limited	Technology Co., Ltd.
Panda Electronics	Nanjing Panda Information	USD952,000	28%
(Hong Kong)	Industry Co., Ltd.
Company Limited
Centra Developments	Nanjing Panda International	USD280,000	28%
Company Limited	Telecommunication
	System Co., Ltd.
Han Danmei	Nanjing Panda Network	RMB500,000	10%
	Technology Co., Ltd.
Labour Union of Panda	Nanjing Panda Mechanical	RMB1,500,000	30%
Mechanical	Manufacturing Co. Ltd.
Nanjing Manufacturing
Co. Ltd.
Liu Changhua	Nanjing Panda System	RMB380,000	12.67%
	Integration Co., Ltd.
Zhang Yongjie	Nanjing Panda Accurate	RMB525,000	10.5%
	Machinery Co., Ltd.

— 9 —

GENERAL INFORMATION

APPENDIX

• C. Save as disclosed above, as at the Latest Practicable Date, so far as is known to any director or chief executive of the Company, there is no person, other than a director or chief executive of the issuer, who has an interest or short position in the shares and underlying shares of the issuer which would fall to be disclosed to the issuer under the provisions of Divisions 2 and 3 of Part XV of the SFO, or, who is, directly or indirectly, interested in ten per cent. or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any other member of the Group and the amount of each of such person’s interest in such securities, together with particulars of any options in respect of such capital.

4. LITIGATION

As far as the Directors are aware, neither the Company nor any of its subsidiaries is involved in any litigation or arbitration of material importance and no litigation or claim of material importance is known to the Directors to be pending or threatened against the Company or any of its subsidiaries.

5. SERVICE CONTRACTS

Save as disclosed in the Company’s latest Annual Report, the Company has not signed any new service contract with any Director or supervisor and none of the Directors or supervisors has any existing or proposed service contract with the Company which is not determinable by the Company within one year without payment of compensation other than statutory compensation.

6. MISCELLANEOUS

• (a) The secretary of the Company is Mr. Shi Qiusheng who is an economist. Mr. Cai Lianglin, the independent non-executive director of the Company, is a chartered accountant and a senior auditor.

• (b) The share registrar and transfer office of the Company is Hong Kong Registrars Limited of Rooms 1901-5, 19th Floor, Hopewell Centre, 183 Queen’s Road East, Hong Kong.

• (c) As at the Latest Practicable Date, the issued share capital of the Company was RMB655,015,000, which comprised 355,015,000 non-circulating shares held by the state and 300,000,000 circulating shares. Among the circulating shares, 242,000,000 are overseas listed foreign shares (H shares) and 58,000,000 are Renminbi ordinary shares (A shares).

7. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection at the Office Address of the Company:

• (a) The Agreements

• (b) Audited Report for the year 2003 of Jiangsu Software Park dated 16 January 2004

— 10 —